A dollar shortage in Kenya and East Africa continues to take a heavy toll on the market.
Businesses are finding it hard to get money in dollar denomination from local banks so that they can buy raw materials or pay foreign obligations, an issue which is affecting their relationships with suppliers.
According to John Gachora, Managing Director, NCBA, a leading Kenyan bank, this is a big challenge and customers are having difficulty getting the right amounts of dollars they need from local banks. Gachora says that despite global business costs (like logistics ) increases, and local businesses seeking to meet the increase, the amount of dollars Kenya is fetching remains within Kenya’s purchasing power.
As it turns out, the dollar has been gaining on most currencies with investors looking to pull funds from economies that are getting ever more distressed, with the Ukraine-Russia crisis highlighted as the main reason for this distress.
Currently, it takes on average:
July 2022 – Takes KES 118.15 to buy $1
July 2021 – Took KES 108.04 to buy $1
Based on this, the dollar has grown stronger by 9.3% compared to the Kenyan Shilling.
The situation can be seen across other African countries where currencies continue to lose their value to the dollar:
For the Ghana Cedi, it takes 7.98 Cedi to fetch one dollar, which has risen from 5.86, a 34.91 % gain for the dollar in one year
For the South Africa Rand, it costed 14.40 ZAR to purchase the dollar one year ago, which has climbed to 17.095 today, representing a 18.61% gain for the dollar
We can see that in both of these countries, the cost of procuring goods has risen to record highs in the last two months. Ghana’s May figure of 23.6%, was the highest since 2004, while South Africa’s June inflation hit 6.5%, the highest in 5 years.
As for Nigeria, currency woes are not abating, with Bloomberg reporting in June 2022 that individuals and businesses are finding it difficult to buy dollars at the banks and are resorting to the black market.
The report went on to add that Africa’s biggest crude producer has been rationing dollars because of lower oil income that accounts for about 90% of foreign exchange earnings.
Due to the ongoing dollar crunch, Morgan Stanley Capital International (MSCI), a key investment research firm for international investors, is considering to downgrade Nigeria down from a frontier market to a stand-alone investment market noting the difficulty by investors to repatriate their funds.
Besides the African currencies, the Pound has lost 13.97% of its value to the dollar, while the Euro had depreciated by $14.78.