Outcry as shilling fall hits hard second-hand clothes, car dealers

No one understands what the fall of the Kenyan Shillings means more than dealers of second hand clothes. The effect is now hitting home to millions of households around the country.

A vender sells pineapples next to a second hand stall at the Gikomba market in Nairobi

Esther Njoroge is one such trader based at the country’s largest open air market in Gikomba where business is now sluggish thanks to a sharp rise in costs of the imported merchandise. “Business is very bad,” she says, before explaining that the rising prices have depressed demand and kept buyers away.

Trucks would deliver container-loads of the clothes, popularly known as mitumba, every day until December last year. “Our orders are down by more than half and the containers are delivered only three days a week,” she adds. Costs for a container load that she is referring to is up at least 20 per cent to Sh6 million. But that difference is only in Kenyan Shillings as the dollar costs have not changed a bit. It is expensive since they have to spend more Kenyan Shillings to get dollars to service their orders.

A widening current account deficit has depleted dollar reserves in Kenya, sending the local currency to near historical levels in the past week when a US dollar was bought at Sh106.80.

The latest weekly report by the CBK shows that Kenya’s usable foreign exchange reserves has now dropped to 3.98 months of import cover, down from the 4.2 at the beginning of July. The actual usable foreign exchange has also contracted by Sh40 billion in the same period — from the Sh695 billion ($6.6 billion) to Sh656 billion ($6.2billion). The drop goes against the CBK’s own policy on import cover.

Section 26 of the CBK Act obligates the bank to ‘at all times use its best endeavours to maintain a reserve of external assets at an aggregate amount of not less than the value of four months imports as recorded and averaged for the last three preceding years.’

A recent analysis done by the World Bank tells of the huge gap between exports and imports. In only one year, the gap had risen by a third to Sh600 billion, on rising imports of materials used in the construction sector, specifically the Standard Gauge Railway. Imports are paid for in the US currency whose key sources such as tourism have been hit hard.

Ms Njoroge told Weekend Business that selling prices for her mitumba clothes may have to double to maintain her previous margins. She added that they have been forced to sell the bales at Sh1,500 more to cushion them and maintain the profit margins.

“Importers are even more afraid to bring in clothes as they cannot risk losses in case the dollar prices fall. In fact they demand to be paid in dollars now that the price is high against the shilling.”

We struggle

She further relates her ‘mitumba’ business to the country’s tourism sector. “When tourists were flooding the country in December 2014 and early this year, the shilling was good due to the more dollars. That was the time I bought as many bales as I could. Now the tourism sector is wanting and so is our struggling business. I am lucky I bought most of my bales when the prices were fair.”

Automobile importers have not been spared either. Their unit sales have dwindled due to the higher dollar prices against the falling shilling. As Car Max Motors South C Branch Manager Ann Wakonyu explains, the market has not favoured them completely. “From December to June business was good. In a month we could sell close to 20 vehicles. However, since late June, we struggle to even manage 15 sales in a month,” she says.

Wakonyu says that many buyers have been caught unawares upon visiting their premises: “Japan’s Toyota brands, the ones we sell most, used to go for Sh650, 000. However, we have been forced to add between Sh60,000 to Sh80,000  on top of the normal prices due to the shilling crisis and the tax.”

She adds that though their price quotations are not in dollars, the effect is still felt when the buyer converts it to shillings. “Sometimes buyers have had to go back to their financial institutions for more funding. This is even more expensive considering these institutions have also been affected by the poor shilling prices, hence higher interest rates.”

These prices are expected to rise even higher if the recent Bill passed in Parliament to increase excise duty on beer, cigarettes, juices and second hand vehicles is signed into law. This amendment seeks to replace the existing 20 per cent excise tax based on a vehicle’s value, which is charged alongside customs and VAT. In the 2015/16 Budget reading, National Treasury Cabinet Secretary Henry Rotich proposed tax on importation of vehicles to be based on the age rather than the value. This came with a Sh200,000 excise taxes on all vehicles more than three years old from the date of first registration and Sh150,000 for newer vehicles.

Wakonyu says as importers, they will be forced to transfer these charges to the buyers considering that most Kenyans import vehicles aged six to eight years. The government hopes to raise Sh25 billion through this excise duty tax to fund the Sh2.1 trillion 2015/16 budget.

Fallen to Sh107

Central Bank of Kenya (CBK) explained the genesis of the depreciating shilling as being caused by importation of machinery and other capital goods for transport projects which are expected to bring economic value to the country once complete; the largest project being the Sh45.5 billion ($455 million) Eastern Africa Regional Transport, Trade and Facilitation Project being carried out by the Ministry of Transport and Infrastructure to build an international road network connecting Kenya and South Sudan.

On Friday, at the 1330 GMT official close, commercial banks quoted the shilling at 105.15/25 to the dollar, compared with Thursday’s close of 105.55/106.65. Despite Friday’s slim gains, the shilling has lost about 14 per cent of its value against the dollar so far this year, almost touching a record low of 106.80 set in October 2011 last week.

Last week, it was reported that the CBK was forced to pump $30 million into the market in move to ease the ailing shilling that had fallen to Sh107 against the dollar.