Kenya: Strong Shilling Hits Kenya’s Regional Export Earnings

The shilling has performed better against the dollar this year compared to key regional trading partners, potentially hurting export earnings from these markets.

Data compiled by financial services firm African Alliance shows that the currencies of Uganda, Tanzania, Rwanda and Egypt have depreciated at a faster rate to the dollar than the Kenya shilling, which is 0.8 per cent up on the dollar year-to-date at 101.45 units, having exchanged within a tight band all year.

On the other hand, the Uganda shilling has depreciated by 0.2 per cent to the dollar this year, the Tanzanian shilling by 1.8 per cent, the Egyptian pound by 11.9 per cent and the Rwanda franc by 5.9 per cent.

“A number of factors have kept the shilling stable this year, including healthier inflows, the awareness in the market that the CBK has the muscle to intervene in case of volatility and lower oil prices.

“If our trading partners’ currencies weaken to the dollar at the same time, then our exports there will become more expensive,” said a commercial bank treasury official.

Kenya’s key export destinations in the region include Uganda, Tanzania, Rwanda, Egypt, DR Congo, Somalia and South Sudan.

Data from the Kenya National Bureau of Statistics shows that in the first five months of this year, Uganda imported goods worth Ksh21.5 billion from Kenya, Tanzania Ks2.9 billion and Egypt Ksh9 billion.

With their currencies weaker, importers in these countries will be forced to pay more to purchase dollars to pay for Kenyan goods. The spending power of their customers will also be dented through higher inflation, potentially reducing their buying power.

Source: The East African