Kenya - Dollar Shortage Hits Motorists and Traders

(file photo).

Kenya's economy is grappling with a shortage of foreign exchange reserves. As consumers feel the pain, bigger structural problems remain, and experts say relief might not come any time soon.

Kenya, the most dynamic economy in East Africa, has a shortage of dollars. Most fuel and oil importers claim they cannot import the commodities because of the dip in the supply of foreign exchange.

This has led to fuel shortages in major places around the country especially the capital, Nairobi, where motorist Ibrahim Ngaumbua waits in a long line to fill up.

"This is the third petrol station that I have come to," he complains. "I am looking for fuel."

But this Shell filling station has run out of regular petrol, but the more expensive V-Power fuel is still available.

"I just decided to fuel V-Power but I don't know where I can get the regular petroleum anymore," he told DW.

Domino effect

The dip in Kenya's forex reserves is being blamed for the current crunch hitting Kenyan consumers. The first to feel the pain are traders and motorists trying to fill up, with some filling stations running out of petrol and diesel, especially in Nairobi.

Because Kenya's oil and fuel importers use US dollars to buy fuel, the forex shortage has had a direct impact on the country's fuel supplies, and by extension, the country's supply chain.

But it has has also impacted essential imports such as medicine and food. With insufficient hard currency, both major and small-scale traders claim they cannot import goods.

Businesses hit

"Most of our things are now expensive, and we need something to be done," says businesswoman Esther Mbone.

With fewer dollars in reserve, the exchange rate to buy dollars with Kenyan shillings has increase, in some cases by over 10%.

Kenya's declining forex reserves -- which have hit 8-year lows -- has also put the Kenyan shilling under intense pressure against other major currencies.

But the government says there is no cause for alarm, saying there are still enough reserves of hard currency. But the Central Bank of Kenya has directed commercial banks to ration dollars to protect reserves.

For businessmen like vehicle importer Edward Gachani, not being able to access the necessary amounts of hard currency is crippling his work, and makes it difficult for him to settle financial obligations with foreign business partners.

"The prices have really shot up not because the prices in Japan or the other side have gone very high but because of the dollar, the exchange rate," he told DW.

With the plummeting shilling, business operations, investments, and economic growth are also poised to decline, according to Martin Chomba, a Kenya-based economist.

"Some Oil Marketing Companies are unable to raise as much dollars as they want. We believe this is the issue that the government is trying to address, in terms of government-to-government procurement so that we can ease the pressure that the shilling is getting from the dollar," he told DW.

The thirst for dollars

The cause of the dollar shortages has been attributed to various factors -- including declining exports, high import bills and reduced remittances -- leading to some firms seeking foreign currency in neighboring Tanzania.

Forex analysts, like Wohoro Ndoho, warn the situation could worsen without decisive action. One of the problems, according to Ndoho, is that African countries with "aggressive infrastructure expansion" have become "indebted in an environment where the balance of trade in terms of trade actually have deteriorated significantly," he told DW.

"In African countries with a very low production capacity of their own, it makes them not just net importers, but fairly significant importers of just about everything, from manufactured goods, to even consumables So much of our lifestyle depends on imports," he told DW.

And because the US dollar is a favored hard currency of international trade, the demand in Kenya for dollars to buy imported goods has remained high.

Additionally, the Kenyan shilling's depreciation is increasing import costs and living expenses, affecting business profitability and economic growth. It may also hinder the government's ability to meet its external debt obligations.

For Ndoho, there is a long-term, albeit difficult, solution.

"As a middle-income country, our appetite for imports has only grown. Until we see structurally change the economy from a consumer economy into a producing and export economy," Ndoho said.

In the meantime, the Kenyan Central Bank easing interest rates could provide short term relief.

Edited by: Keith Walker

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