Manufacturing firms have piled pressure on the Central Bank of Kenya to sell more dollars into the market to ease the persistent shortage, which has prompted importers to place advance orders.
The Kenya Association of Manufacturers (KAM), whose members are arguably the biggest importers of goods, say the CBK should “release” the excess dollars above the statutory levels of four months equivalent of import cover into the market.
“We call upon the central bank to release dollars for importers to access to pay specific bills,” KAM told the Business Daily.
“The Central Bank has over five months of import cover as a reserve, and this can help stabilise the market through the current uncertainties. This would create confidence in the market and ease supplies.”
The foreign exchange last week dropped for the third week in a row to stand at $8.37 billion, or an equivalent of 4.98 months of import cover, last Thursday. This is the lowest level since $8.28 billion, or 4.92 months of import cover, on April 14, according to the CBK data.
The data further shows that the reserves hit a recent high of $8.5 billion, or 5.05 months of import cover, on April 21 before they started falling.
The dollar shortage is the product of increased demand being driven by an increased cost of shipments of raw materials and equipment amid persistent global supply chain disruptions and local companies disbursing dividends to foreign investors.
Banks have imposed caps on dollar purchases, making it difficult for some to obtain adequate forex to meet their obligations.
This has forced industrialists to start seeking dollars in advance as the shortage puts a strain on supplier relations and the ability to negotiate favourable prices in spot markets.
“The dollar value of our imports has risen significantly, while that of our exports has remained more or less flat, creating a mismatch in market supply,” said the KAM.
“This is driven by higher demand owing to large dividend payments and higher commodity prices. International financial investors have also been exiting emerging markets in the expectation of rising interest rates in the US.”
Analysts say controls on dollar trade are now “entrenched” in Africa and not limited to Kenya.
This has prompted several central banks on the continent to use their grip on foreign exchange markets to “curb USD outflows and as support to their local currencies”.
“The global tightening stance [raising of policy interest rates] by the Fed [the Federal Reserve or central bank in the US] has led to US dollar gaining strength and subsequently, outflows from emerging and frontier markets such as ours,” said a market analyst for a firm with presence in several countries in Africa.
“The ongoing Ukraine-Russia war has also triggered a pickup in commodity prices, negatively impacting the commodity importer countries as they require more hard currencies.”
Some industrialists have already been hit by shortages which are threatening to strain their relations with suppliers and injure the ability to negotiate favourable prices in spot markets.
Others have, however, managed the shortages with their bankers, but fear they could be hit in coming months if the mismatch persists.
“So far we have not faced the kind of crisis where we were not able to pay our suppliers. But the situation is very bad,” Bamburi Cement chief executive Seddiq Hassani said in an interview on April 28.
“We hope that it will not last for a longer period because then it will be very difficult for us to sustain operations if we are not able to pay our suppliers.”
The manufacturers’ lobby said last month the crunch has been compounded by increased competition for raw materials due to rising demand amid worsening global supply disruptions of key commodities such as steel, fertilizer, crude oil and wheat.
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