Ugandans browse for Christmas across the border as the Kenyan shilling falls.

By Maggie On Dec 21, 2023

In less than a year, the Kenya shilling has depreciated against regional currencies by approximately 20 percent, eroding its prevailing dominance. Ugandans browse for Christmas across the border as the Kenyan shilling falls. This development is particularly distressing for traders who import products from Uganda and Tanzania.

Since mid-July of last year, the value of the Kenyan currency has decreased by approximately 19.7 percent relative to the Uganda shilling. Additionally, during the same period, the Kenyan currency lost value against the Tanzania shilling and the Rwandese franc by 12.1 percent and 4.4 percent, respectively.

At the commencement of trading on Friday, one Kenyan shilling was valued at an average of USh25.80, Tsh17.30, and Rwf8.30, according to data from the Central Bank of Kenya (CBK).

Since March 2020, when the COVID-19 pandemic began, the Ugandan shilling has appreciated by approximately 29.5 percent compared to the Kenyan shilling.

In this period, the Tanzanian shilling and Rwandese franc have appreciated by 24.1 and 10.7 percent, respectively, against the Kenyan currency.

As a result of the Kenyan shilling’s continuous depreciation against the currencies of Uganda, Tanzania, and Rwanda, exports from Kenya to these countries are now fetching considerably less than they did previously.

As an illustration, merchandise that Ugandan merchants previously expended Sh1 million to import around March 2020 is now available for Sh292,000 less due to the depreciation of the Kenyan shilling.

Kenyan consumers are disadvantaged when purchasing goods from Uganda, as they must now spend approximately Sh1.3 million for the same quantity of items they could acquire from the landlocked East African nation for Sh1 million in March 2020.

Samuel Karanja, chief executive officer of the Importers and Small Scale Traders Association, told the Business Daily that footwear, apparel, cosmetics, and human hair are among the affected imports, particularly from Uganda.

“Business imports of goods into the region are becoming increasingly difficult.” “Many of us have been forced to increase our expenditures or reduce the quantity of goods we import to obtain the same quantity that we obtained a year ago,” Mr. Karanja explained in a telephone interview.

Our profit margins have also been declining in Kenya due to the need for significant fluctuations in the retail prices of these products. We are concerned that reversing this tremendous decline in the rupee will be challenging.”

Despite being landlocked, Uganda imports merchandise via the Mombasa Port in Kenya. Uganda subsequently resells the products to Kenya, where taxes are levied on the movement of commodities such as Malaba and Busia to Kenya.

According to official trade data, the worth of Kenyan exports to Uganda experienced a 40.4 percent growth during the initial half of the year, rising from Sh36.8 billion to Sh51.68 billion.

The increase in the worth of Kenya’s exports to Uganda suggests that Ugandans may be purchasing more Kenyan commodities due to the Kenyan shilling depreciating against the Ugandan shilling.

During the same period, Ugandan imports to Kenya increased by 10.8 percent to Sh15.95 billion. Kenyan consumers are currently incurring higher costs to acquire Ugandan products due to the depreciation of the domestic currency.

Reportedly, some retailers at the Kenya-Uganda frontier that imported eggs from Uganda have ceased operations or reduced their operations in response to the weak local currency, which eroded their profits.

An analogous pattern was noted in Tanzania, wherein imports decreased by 31.5 percent to Sh14.78 billion while exports to the country increased by 11.8 percent to Sh23.6 billion.

For the first time in decades, Kenya’s imports from Tanzania surpassed exports in the six months leading up to June 2021, and the trend has persisted, according to the most recent data.

The depreciation of the Kenyan shilling compared to the currencies of its neighboring countries reflects the shilling’s performance against the world’s leading currencies, such as the US dollar and the sterling pound.

Since mid-July last year, the Kenya shilling has depreciated by 19.5% against the dollar and 32.1% against the sterling pound.

The depreciation of the Kenyan shilling about the dollar has positioned the nation for escalated expenses related to servicing loans denominated in dollars and has rendered imports more expensive.

Given Kenya’s substantial reliance on imports for consumer and capital products, particularly fuel and industrial raw materials, a depreciated currency’s adverse effects are more conspicuous than the benefits of exports.

As the cost of servicing debts skyrocketed, Kenya’s overall balance of payments deteriorated to a deficit of Sh127.8 billion in the first quarter of 2023, according to official data.

“During the quarter under review, gross official reserves were depleted in support of public external debt service,” according to the Kenya National Bureau of Statistics.