KAMPALA, UGANDA - If you were anywhere in Kampala, Nairobi and Dar es Salaam last week and you needed US Dollars, you know by now that you received far less Dollars for your large amounts of shillings.
The Shilling in three of the five member states of the East African Community (EAC) depreciated against the US Dollar - reaching record levels in all the three countries.
The Uganda Shilling hit an all time record low of Ush2,745 having quickly accelerated from between Ush2610 per dollar in a space of less than 24 hours.
The rapid rise in the rate was blamed on the increasing global demand for the United States dollar.
The story was the same in Tanzania as the shilling lost ground against the greenback considerably.
The Tanzanian currency has slid by 13% against the Dollar during the past one year. It was exchanging at an average of Ush1,379 for $1 in July last year but has since dropped to an average Ush1,570.
A weekly spot survey in Dar es Salaam shows the Shilling traded between Tsh1,590-1620 against the US Dollar at the end of last week compared to Tsh1,570 and 1,585 during the previous week.
In Kenya, the Shilling was not spared either as it traded at Ksh91.45 against the Dollar on Tuesday last week up from on Monday’s Ksh91.25. The Central Bank of Kenya intervened in the market on an almost daily basis to try and stabilize the currency.
The Bank of Tanzania (BoT) attributed the situation that has sent the prices of imported products skyrocketing, to external factors.
The reasoning was the same in Kampala where the Bank of Uganda (BoU) singled out the Greece issue as well as large corporate demand.
This impact of a weakening shilling is hitting businesses hard, as the rising exchange rate is contributing to higher fuel prices, which are pushing up costs of doing business.
Kampala, which has become a trade hub for neighbouring South Sudan, eastern DR Congo, Rwanda and Burundi importers are facing the brunt of a week shilling.
"For example you go to Dubai to import your goods at a certain market value. When you come back, the Uganda Revenue Authority (URA) gives different quotations. This squeezes your profits and it's a burden," said Mr. Lubega Byayi, the spokesperson of the Uganda Importers, Exporters and Traders Association (UGIETA).
He adds that even the walk to work campaigns, that hit the country in April and May contributed to the weakening of the Shilling as most tourists feared to visit, as well as international Forex Bureaus closing their shops in fear of the consequences.
The Shilling was mid last week trading at between Ush2,745 against the United States dollar. It however slowed down to between Ush2450 and Ush2610 after the Bank of Uganda intervened by selling more dollars into the market.
According to an official with Jet Set Forex Bureau, there was a drop of between Ush200 and Ush300 in the value of the dollar against the Uganda Shilling as of Thursday last week. There was a strong intervention by the central bank.
"If the Bank of Uganda sustains its intervention, there might be a downward trend and if it doesn't, the trend will continue up," noted the official on Thursday last week.
However, the clearing agents under their umbrella body, the Uganda Clearing and Forwarding Industry Association (UCIFA) say that the government should support local exporters by subsidizing and supporting exporters to attract more dollars into the country.
"With little or no more donor funding, the government should strengthen capacity of exporters, subsidize on fuel and subsidization of the transport sector. This will bring in more dollars and the issue of a weakening Shilling will not arise,' noted Mr. Kassim Omar, the UCIFA president.
He added that the government should also subsidize the manufacturing sector, to encourage local production of goods.
Most Forex Bureaus in Kampala like the Shalom Forex Bureau by Thursday; figures showed that the Shilling was gaining momentum against the United States dollar.
Importers of different goods into the country have had their commodities shooting up.
The latest was Iron Sheet manufacturers Roofings Limited, who had all their commodities, rise up by 8%.
The Uganda Wildlife Authority, the managers of Uganda's wildlife also increased their park entry fees. They attributed it to the weakening Shilling, appreciating United States dollar and the increasing cost of living.
In Tanzania, the Director of Research and Economic with BoT, Dr. Joseph Masawe, the US Dollar has been increasing because many people in Europe now prefer to buy dollars to the Euro and Pound for the safety of their money. They don't know what the situation will be with the Greece economy at the end.
However, Masawe said that shillings in other East African countries are depreciating because Kenya and Uganda have allowed the so called 'Capital Account Liberalization', whereby their people are allowed to go and buy houses or invest in stock markets in foreign lands.
H e said that as a result, this has led to a big demand of dollars in those countries.
Dr. Honest Ngowi, the Mzumbe University Business School Lecturer said the Tanzania shilling's free fall disturbs fiscal management because Government procurements are done and budgeted for in local currency while purchases are made in US dollars.
"A big chunk of the budget will be eaten up by the depreciation. It will also increase dollarization and holders losing faith on the local currency which is not good for the economy," Dr Ngowi said.
The economist suggested that the Central Bank should intervene in the foreign exchange market to rescue the situation before it is too late.
Recently, the Tanzania Finance and Economic Affairs Minister Mustafa Mkulo told the International Monetary Fund (IMF) in a letter of intent that the exchange rate will remain market determined.
This squeezes your profits and it's a burden," said Mr. Lubega Byayi, the spokesperson of the Uganda Importers, Exporters and Traders Association (UGIETA).
He adds that even the walk to work campaigns, that hit the country in April and May contributed to the weakening of the Shilling as most tourists feared to visit, as well as international Forex Bureaus closing their shops in fear of the consequences.
The Shilling was mid last week trading at between Ush2,745 against the United States dollar. It however slowed down to between Ush2450 and Ush2610 after the Bank of Uganda intervened by selling more dollars into the market.
According to an official with Jet Set Forex Bureau, there was a drop of between Ush200 and Ush300 in the value of the dollar against the Uganda Shilling as of Thursday last week. There was a strong intervention by the central bank.
"If the Bank of Uganda sustains its intervention, there might be a downward trend and if it doesn't, the trend will continue up," noted the official on Thursday last week.
However, the clearing agents under their umbrella body, the Uganda Clearing and Forwarding Industry Association (UCIFA) say that the government should support local exporters by subsidizing and supporting exporters to attract more dollars into the country.
"With little or no more donor funding, the government should strengthen capacity of exporters, subsidize on fuel and subsidization of the transport sector. This will bring in more dollars and the issue of a weakening Shilling will not arise,' noted Mr. Kassim Omar, the UCIFA president.
He added that the government should also subsidize the manufacturing sector, to encourage local production of goods.
Most Forex Bureaus in Kampala like the Shalom Forex Bureau by Thursday; figures showed that the Shilling was gaining momentum against the United States dollar.
Importers of different goods into the country have had their commodities shooting up. The latest was Iron Sheet manufacturers Roofings Limited, who had all their commodities, rise up by 8%.
The Uganda Wildlife Authority, the managers of Uganda's wildlife also increased their park entry fees. They attributed it to the weakening Shilling, appreciating United States dollar and the increasing cost of living.
In Tanzania, the Director of Research and Economic with BoT, Dr. Joseph Masawe, the US Dollar has been increasing because many people in Europe now prefer to buy dollars to the Euro and Pound for the safety of their money. They don't know what the situation will be with the Greece economy at the end.
However, Masawe said that shillings in other East African countries are depreciating because Kenya and Uganda have allowed the so called 'Capital Account Liberalization', whereby their people are allowed to go and buy houses or invest in stock markets in foreign lands. H e said that as a result, this has led to a big demand of dollars in those countries.
Dr. Honest Ngowi, the Mzumbe University Business School Lecturer said the Tanzania shilling's free fall disturbs fiscal management because Government procurements are done and budgeted for in local currency while purchases are made in US dollars.
"A big chunk of the budget will be eaten up by the depreciation. It will also increase dollarization and holders losing faith on the local currency which is not good for the economy," Dr Ngowi said.
The economist suggested that the Central Bank should intervene in the foreign exchange market to rescue the situation before it is too late.
Recently, the Tanzania Finance and Economic Affairs Minister Mustafa Mkulo told the International Monetary Fund (IMF) in a letter of intent that the exchange rate will remain market determined.
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