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Kenyan importers and manufacturers are feeling the heat of an increasing dollar scarcity as banks move to ration the dollar, US currency, whose demand has outstripped its supply.
To maximize forex gains, the commercial banks want to hold onto more dollars so that they can sell at higher rates under the speculation that the Kenya shilling continues losing.
Manufacturers and importers have been heavily affected, with a weak shilling to the dollar pushing up the cost of imports–both raw material and finished goods, which has seen commodity prices in the local market continue to rise.
The shilling has lost 3.1% of its value to the dollar so far this year.
Read: Pwani Oil Shuts Down Due To Dollar Shortage
Key imports affected include petroleum products, machinery, medicine and pharmaceutical products, vegetable oil, wheat, clothing and shoes, electrical supplies, and electronics. Construction materials for value addition, agricultural raw material imports, textile value addition items, and steel have also been affected.
The Central Bank of Kenya can close the gap in reserves by incentivizing Foreign Direct Investments. This would include supporting local businesses and lowering the cost of doing business.
The CBK could also consider increasing interest rates but that would hurt the economy and lead us into a tough recession. Instead, supporting expansion in manufacturing and value addition would create a boom in surplus production for export which would increase dollar reserves.
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