Orals East Africa>Company quotations are saying something about dollar rates At the hut of the story

Written by Oral East Africa

Forget the exchange rate, there’s nothing more volatile today than company quotations which are swinging wilder than the Kenyan shilling, one of Africa’s worst performing currency.

While the Kenyan shilling depreciated 26 percent against the dollar last year to December, the official rates tend to differ from actual currency trades and nothing demonstrates this more than company quotations.

Most industries are heavily reliant on imports of raw materials, intermediate goods and finished product in technology, manufacturing, and retail, and today are forced to price in the exchange rates into their contracts.

From car sales, electric equipment, iron roof, website hosting, energy, medicines to hotel stays, price quotations are changing by the day.

CFAO Motors, previously Toyota Kenya, introduced dollar pricing for local units to stabilize prices and hedge against shilling depreciation extending the dollarization of Kenya’s economy

Daniel Maundu, CFAO General Manager said the car importer will sell some units in dollars targeting 10 percent of customers including United Nations and foreign corporates.

Mr Maundu, said shilling volatility has made it difficult to predict pricing, making it hard to issue quotations in local currency as price changes daily.

CFAO management said the easier option is to quote to the customer in major currencies which is likely to make dollarization spread across major import sectors fueling further demand for the greenback and crunching of the shilling.

In Kenya only government officials, those traveling abroad and bankers had any inclination about the value of the dollar. Today however, almost anyone making a purchase has a view about America’s currency’s impact on cost of living.

Clients who initially agreed to prices quoted in Kenyan Shillings a couple of months ago, are now grappling with the unexpected burden of having to pay more for goods and services that were once upon a time within their budgets.

When we were buying a camera for Seamless Studios just recently we went through an online catalogue selecting a decent affordable unit before we visited the store in Nairobi. Lo! and behold the price had almost doubled from their quotation.

The dealers at Starmac said the quotation that was barely two months was no longer valid, the dollar had become expensive.

Is ‘Trust Deficit’ crippling CBK’s attempt to stop the shilling collapse

As it becomes difficult and more expensive to get dollar’s companies are stocking up on foreign currency creating shortages in the FX markets that are further worsening decline of the shilling.

Central Bank of Kenya (CBK) data shows that the sum of foreign currency deposits held by firms hit Sh973 billion at the end of the third quarter of 2023, representing 70 percent of all forex deposits which stood at Sh1.39 trillion at the end of the same period.

As both foreigners and locals prefer dollars to Kenya shillings and the entire economy begins to price value in dollars, the authorities are facing the greatest challenge, rebuilding confidence in Kenya’s money.

Lack of trust in the market has undermined CBK’s ability to end the shilling depreciation, which is now undervalued.

By the end of last year, the shilling had depreciated more than was necessary according to Central Bank Governor Dr Kamau Thugge. Despite hiking rates to an 11 year high of 12.5 percent last even Dr Thugge has failed to stop the shilling’s continued slide as the shilling fell even faster in January this year.

Not even multibillion dollars loans the International Monetary Fund were enough to bring back confidence in stability of dollar demand and supply.

It took regulatory intervention to stop the continued fall, which means balance of payment imbalances persist.

Uncertainty in the forex market is fuelling dollarization as companies seek to hedge against currency fluctuations and stack up reserves due to dollar shortages.

Worse still, a draft law threatening to seize dollar holdings has created atmosphere for offshoring keeping dollars from the market even when local interest rates are soaring.