Driving around Eastleigh market, a 15-minute drive from Nairobi’s central business district, you will see a chain of cloth wholesale stores on either side of the road. This zone hosts the biggest importers of clothes from China and Turkey.
The market is ever crowded, as men and women scramble to bargain for fair prices. Some come from as far as the DRC, Uganda and Tanzania to restock their boutiques, while the rest come from all over Kenya to purchase the latest cloth designs.
But since May this year, many cloth importers Afcacia spoke to said they have been recording low sales volumes after a dollar shortage raised the cost of imports, a situation that worsened after the Kenyan shilling hit a record low of 120 against the dollar in August.
“Accessing US dollars to import stock has been even more difficult and costly after the new government removed the fuel subsidy. The price of clothes has gone up and it has become a challenge passing on the cost to our buyers. They do not comprehend the dollar issue, the want to buy at prices they have been used to,” Irfan Hakim who imports clothes in bulk from Turkey tells Afcacia.
Business has also been difficult for Nancy Otieno, who buys clothes in bulk at Eastleigh to sell at her boutique in Kisumu – 370km from Nairobi. She tells Afcacia: “My customers are used to buying a shirt at $15. How do I convince them that the price for the same shirt is now $22?”
At the port of Mombasa, Kenya’s entry point for all imported goods, business activity at the clearing and forwarding section has been contracted. “I used to clear at least three containers a month but since June I have not cleared a single container. Many business people have opted to halt their operations because of dollar scarcity. Those in business have scaled down,” Boniface Kitsao, a clearing and forwarding agent at the port tells Afcacia.
For Abdul Kaffar who runs Ultimate Platinum Cars, a car importing family business in Westlands, Nairobi, it is now four months since he sold his last car. “The price of second hand cars in Japan has soared, so we need more dollars for purchases. But those dollars are scarce.”
A senior banker at Cooperative Bank of Kenya who sought anonymity tells Quartz that the banks has been rationing dollars since May. “Our branch is allocated $10,000 per week and this same amount is supposed to be distributed among all customers. Clients who used to withdraw upto $20,000 per day have been at a huge disadvantage. This means the bank is also missing out on profits,” he reveals.
On Oct. 3, Kenya’s deputy president Rigathi Gachagua said on national television that “we lack sufficient foreign exchange reserves, even yesterday we had insufficient forex at the Central Bank of Kenya to import oil.”
But the central bank refuted the claims, saying it “does not supply foreign exchange for transactions other than for the government” or its own operations. “Oil importers, therefore, obtain their requisite foreign exchange from the commercial banks and not CBK,” it said in a statement to the press.
However, the Kenya Association of Manufacturers (KAM) has reiterated that many manufacturers and processors have been struggling to do business due to scarcity of dollars in commercial banks which they use to source for raw materials in foreign markets.
Mombasa-based Pwani Oil Manufacturers, for instance, has faced difficulties buying palm oil to manufacture cooking oil, with a ton of palm oil currently going for $6,500 in Indonesia compared to around $4,000 a year ago.
“”Although the formally quoted exchange rate for the US dollar in the market is Sh116, none of our members can access currency at that price in the market. It is above 120,” says KAM chairperson Mucai Kunyiha. “I bought dollars at Sh125 today,” Sam Singar, a Naiobi-based importer told Afcacia on Oct. 4.
The concerns raised by the KAM confirm earlier warnings by US lender JP Morgan, which in March issued a red flag stating that it was straining to finalize client transactions in Kenya due to dollar liquidity constraints.
There is now more pain in accessing dollars from local banks, making it impossible for business owners to finance goods importation. Kenyans also say their troubles also come from an increased cost of doing business which they blame for panic purchase of forex.
The shortage of dollars in the country has caused the emergence of parallel exchange rates, resulting in lenders buying and selling well above the printed official CBK rate. “Neither are banks able to trade dollars between themselves, further exacerbating the supply constraints. The risk here is that we are creating a parallel shadow market with unwanted consequences,” KAM said in May. In the meantime, Kenya’s treasury has blamed manufacturers for hoarding dollars.
A June meeting between CBK and Kenya’s private sector yielded little remedy to the dollar situation, with manufacturers, importers, the Kenya Private Sector Alliance (KEPSA), and the Kenya Association of Travel Agents (KATA) still reporting acute dollar scarcity to meet business operations.
Although Kenya’s foreign currency reserves have remained well above the East African Community’s statutory requirements, it’s usable foreign exchange reserves have been reducing, from $12.7 billion in May to $7.42 billion by Sept. 29, compared to $7.45 billion a week earlier, and can only cover imports for 4.19 compared to 4.24 months previously.