US Dollar Shortage in Kenya Means Job Losses for Thousands of Kenyans

By Lynnet Okumu / Published June 7, 2022 | 10:50 am

KEY POINTS

Concerns have been raised that the situation that is already affecting the relationship between manufacturers and suppliers could trigger job losses as most manufacturing firms close down or halt operations as they try to navigate the cash flow problem.

KEY TAKEAWAYS

The dismal performance of the shilling was driven by the increased dollar demand from oil and merchandise importers on the back of increased global oil prices against a slower recovery in exports and the tourism sector.

The ongoing dollar shortage in the country poses a threat to the most critical sectors, such as manufacturing, which rely on dollars to import key raw materials and inputs used in processing and capital goods investments.

Concerns are now being raised that the situation that is already affecting the relationship between manufacturers and suppliers could trigger job losses as most manufacturing firms close down or halt operations as they try to navigate the cash flow problem.

“If the situation remains unresolved, the business community involved with importation (e.g., manufacturers, car dealers) will be largely affected and might lead to further closure and job losses,” Kenyan economist Ken Gichinga said.

The sector has already been hit after Pwani Oil, the manufacturer of Salit Oil, Fresh Fri Oil, and Mpishi poa Oil, announced it was taking a temporary break because a dollar shortage has made it challenging to source key raw materials.

The shortage has been attributed to pent-up demand for the dollar, which has led to the depreciation of the Kenyan shillings.

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According to the Central Bank of Kenya, May reports, the Kenya Shilling depreciated by 0.8 percent against the US Dollar to close the month at 116.7 shillings, from 115.8 shillings recorded at the end of April 2022.

The dismal performance of the shilling was driven by the increased dollar demand from oil and merchandise importers on the back of increased global oil prices against a slower recovery in exports and the tourism sector.

Kenya Association of Manufacturers, however, says that the shilling is doing worse than what is being quoted. Says the shilling is currently exchanging 120 shillings to the dollar, and thus the difference is also contributing to the shortage.

Besides, KAM decried that the delays in acquiring the requisite USD for imports are impacting relations with suppliers, which have been built over time, with some now requiring more expensive Letters of Credit to transact.

Moreover, exporters and other entities holding USD are reluctant to sell the dollar at lower prices as it is clear and visible to them what the currency’s market value is.

This situation is forcing most manufacturers to buy the dollar in advance, an activity that is now affecting their daily operations.

Loss of jobs means more pain for the ordinary Kenyans already grappling with the high cost of living due to increased prices of essential commodities.