How shilling’s woes affect you

The tumbling shilling will affect businesses and raise prices of various imported commodities as well as services 

In Summary

• The shilling, now trading at between Sh1,830 and Sh1,900 per dollar, has put more spending pressure on importers, who pass the burden     on to consumers.
• The freefall of the shilling has hit  importers and consumers, who claim they now incur extra costs of up to 12 per cent

Dar es Salaam.  Before July last year, a barrel of oil that is trading at $50 would have cost a local oil importer Sh82, 500 at an exchange rate of 1,650 against the US dollar.  Barely six months later, the same barrel costs a Tanzanian importer Sh93, 000—an extra Sh11, 500—thanks to the tumbling local currency against the US dollar.

At the beginning of last year, 37-year-old banker Jane paid $12,000 annual rent for her two-bedroomed apartment in Mbezi, which is equivalent to Sh19.8 million. This year, she has paid Sh22.2 million—an extra Sh2.4 million.

A Digital Satellite Television (DStv) subscriber who paid for premium content at $75, which was the equivalent of Sh123,000 when the exchange rate was Sh1650, is now paying an extra Sh15,000—thanks to the free fall of the shilling against the US dollar.

The oil importer, the tenant and the DStv importer have one thing in common—the dollar factor. The list of those who fall in the dollar category could be bigger as does the effects—especially at this moment when the US currency is out of reach and threatening to ruin the economies of import-dependent countries like Tanzania.

Consider the airlines, which peg their fares on the US dollar. They do not have to raise their fare to get you to pay more. The stronger dollar means you will have to dig deep into your pocket to fly to Nairobi, Johannesburg, Dubai or Beijing.

If you are a regular traveller within the country, you may soon be paying more at your favourite hotel in Arusha, Dar es Salaam, Mwanza and Zanzibar because of the freefall of the local shilling against the US dollar.

Most hotels in the major cities and towns charge their room rates on the basis of the US dollar. With currency dealers warning that the dollar could hit the Sh2,000 mark before the October elections, the freefall of the shilling has hit  importers and consumers, who claim they now incur extra costs of up to 12 per cent.  The shilling, now trading at between Sh1,830 and Sh1,900 per dollar, has put more spending pressure on importers, who pass the burden on to consumers by simply adjusting their  prices to reflect the changes.

The Bank of Tanzania says it cannot intervene to rescue the shilling, which is predicted to reach Sh2,000 per dollar by the end of the year since the foreign exchange policy allows the market to drive the trend.

Bearing the brunt

Local industries have not specified the extent to which they are affected but they are facing increased costs of production as most of them depend on imported raw materials, according to the Confederation of Tanzania Industries (CTI).

“The weak shilling is making it difficult for industries to go on with their expansion plans because the capital—machines and equipment—is always acquired from foreign countries,” says Mr Hussein Kamote, CTI’s director of policy and advocacy. “So we anticipate weak investment as well as decline in production.”

Mwananchi Communications Ltd (MCL), which imports newsprint, is one of the victims of the weakening currency. The trend has put more pressure on the company’s expenditure. In the past three months, the company’s importation cost has risen by about 12 per cent.

“We pay more both for suppliers abroad and the duties which are also pegged in dollars,” says Mr George Ambatta, MCL’s finance manager. “The weak exchange rate is eating into our account due to the fact that we can’t consider raising the price of our products now. We need to monitor the situation for a long period of time.”

Local consumers of goods and services sold in dollars are also complaining about the burden arising from the weak exchange rate.  Mr Omari Issa, a resident of Arusha, is a hotel service consumer. Despite the fact that the cost of hotel rooms—pegged to the dollar—is still the same, he has to spend more to get the greenback.  “The weakening shilling is making me spend more for the same service,” says Mr Issa. “Those who sell their services in dollars are the ones who remain safe.”

For hoteliers, though, the weakening shilling is good news as they consider themselves exporters. But they will still be affected to some extent. Says Ms Lathifa Sykes, Chief Executive Officer of the Hotels Association of Tanzania:  “This should be a good thing for us. However, the falling currency is impacting negatively on those that have dollar loans and local sales.”

She adds that the cost of inflation over the past three years—largely due to the government introducing new fees and levies every year for all sorts of ineffective bodies—has seen their cost base rise by about 20 per cent year on year.