Kenyan manufacturers urged to reduce their import bill due to shortage of US dollars
NAIROBI, Kenya, June 6 – Kenyan manufacturers have been urged to reduce their import bills and incorporate locally produced products into their business model following the shortage of US dollars that has been caused by increased demand.
Kenyan economist Ken Gichinga of Mentoria Economics said Capital FM Business ththe pent-up demand for dollars that led to the depreciation of the Kenyan shilling could likely lead to job losses as more manufacturing firms struggle to meet their obligations.
“Companies should consider reducing their import bill and integrating locally produced products into their business model,” he urged.
Barely a week after the Kenya Manufacturers Association (KAM) warned that most of its members are facing difficulty accessing dollars, Pwani Oil, the maker behind Salit Oil cooking oil products, Mpishi Poa and Fresh Fry, announced a temporary halt to its operations citing the shortage of dollars which has prevented it from sourcing essential raw materials.
“If the situation remains unresolved, the business community involved in importing (e.g. manufacturers, car dealerships) will be widely affected and could lead to further closures and job losses,” a- he declared.
Gichinga’s remarks echo those of the CBK Governor who, during the MPC’s post-monetary briefing, noted that “the [forex] market generates and distributes something like $2 billion each month. If you have someone or an industry importing $90 million or $100 million, I think that’s a far cry from the $2 billion that we’re putting there.
KAM Chairman Mucai Kunyiha said on May 30 that manufacturers had been forced to schedule foreign currency payments by purchasing foreign currency in advance, which led to an increase in working capital.
In addition, KAM lamented that delays in acquiring the USD needed for imports are impacting supplier relationships, which have been built over time, with some now requiring more expensive letters of credit to complete transactions. .
While the official exchange rate published by CBK is the rate of 116 Ksh, the manufacturers claim that they part with up to 120 Ksh per dollar, a figure which affects their cash flow and even forces them to buy most of the dollars in advance, thus affecting their day-to-day operations. .
But in response, the CBK boss said: “They (the manufacturers) should understand that they are small in that sense and kind of go to market like everyone else. There are no favorites on the market. Follow the rules of the market and you will be fine.
According to Gichinga, the regulator’s insistence is simply to “project confidence to international investors by ensuring that they execute their mandate on price stability.”
Kenya is already struggling with rising inflation which has increased the cost of living with rising fuel and food prices.
According to Stanbic Bank’s Purchasing Managers’ Index (PMI), Kenyan business confidence hit a record low for the third consecutive month in May, with the PMI index falling to 48.2 from 49.5 in May. .
The cost of producing goods and services remained at their highest level in 8 years, due to rising fuel prices, higher taxes and shortages of inputs which forced many companies to reduce their levels production and employment.
Higher producer prices have, in turn, led to reduced domestic demand as customers cut spending due to the rising cost of living.