Dollar strength stings Uganda, other African economies

IMG_3959

Forex Bureau sign in Kampala showing a costly dollar

The consequences of a soaring US dollar are trickling down to empty shelves in shopping centres and other businesses in Kampala, where clerks turn away shoppers seeking commodities the stores can’t afford to import.

As Uganda’s shilling has hit a record low against the dollar, a survey by the Afrika Reporter, indicates that several shopping centres and Supermarkets have struggled to find enough US dollars to buy the packaged and manufactured goods they import from abroad.

“We are waiting for new arrivals, but they are taking long,” said Emily Orishaba, a 25 year old shop attendant at Quality Supermarkets pointing at empty shelves.

Orishaba expressed worry her customers “may run away.”

Central banks’ efforts to boost growth in Europe and Asia are driving up the dollar’s value against currencies ranging from the Euro to the Indonesian rupiah.

This is coupled with higher interest rates in the US,-and expected increases as the Federal Reserve prepares to raise rates to attract investors seeking potentially bigger returns.

African currencies are caught in the riptide, hurting companies that rely on dollars to buy foreign goods.
That is threatening to exacerbate trade deficits that were already climbing, as consumer demand outpaces manufacturing.

Hundreds of millions of people in what the African Development Bank describes as a nascent consumer class have helped diversify Africa’s economy away from mining and oil drilling.

But consumers’ hunger for foreign electronics, clothes and food is also underpinning demand for dollars to buy these goods, pushing up trade deficits. As African currencies slump, those deficits could continue to widen.
Moody’s Investors Service (an international reputable credit rating agency) expects Uganda’s current account deficit-the value of goods and services it imports compared to its exports-to nearly double to 9% of gross domestic product this year from 5.3% last year.

Along with Uganda’s shilling, Angola’s kwanza and Zambia’s kwacha hit record lows against the dollar in March. Gaviira Musoke, a Kampala based Economist, told Afrika Reporter that African countries didn’t do enough to clean up their finances when global hunt for yields made African currencies more attractive. Now, their finances are deteriorating sharply as dollars flow back toward the US.

Uganda and other African countries where currencies have severely slumped are among the continent’s fastest growing economies, and their travails could undermine broader growth in the region.

Currency tumult and low commodity prices could cut sub-Saharan Africa’s growth this year to 3.7%, London –based research firm Capital Economics forecast this month, from about 5% in recent years.

In Uganda for instance, the Uganda Electricity Distribution Company Limited, the national electricity distributor can’t find enough dollars to make long –overdue upgrades to powerlines and transformers.

Meanwhile, Richard Ssenyonjo, a Hardware Dealer in Nakasero, Kampala says that the high dollar rate has had a devastating effect on their business as they buy the commodities at very high prices but sell at the same price. “We buy the dollar expensively but when you bring the merchandise you sell it at the same amount because customers don’t want to hear about the high or low dollar rate. If you have been making three trips to Dubai a week, you can now go there only once.” Ssenyonjo added
Samkayiwa2012@gmail.com