Unilever strikes a delicate balance with weak shilling

Manufacturing, a key sector that accounts for 10 per cent of the country’s economic value, has started feeling the pinch of the weakening shilling.

Leading consumer-goods manufacturer Unilever says the weak shilling, which has depreciated to as low as Sh107 against the US Dollar this year would hurt its revenues.

“This sharp and volatile movement of the exchange rate has raised concern for investors and the business community at large,” said Yaw Nsarkoh, the company’s Managing Director in-charge of the East and Southern African region. He further reckons that the weak shilling has exacerbated inflation given that a wide range of intermediate and capital goods are imported.

He said industries in all sectors have been hit, especially by prevailing high costs of imported raw materials.

Mr Nsarkoh was speaking after the company donated 30,000 euros (Sh4.3 million) to Kenya Red Cross for humanitarian relief, adding to earlier donations of 500,000 euros (Sh71.5 million) and Sh1.4 million.

Unilever employees across Africa who volunteered to work for half-day on two Saturdays in September contributed the money.

Mr Nsarkoh said the devaluation of the unit had put major pressure on consumers’ purchasing power, creating a tough consumer environment across the income groups. He said the firm was reconfiguring its portfolio to address the changing consumer needs and demands resulting from the harsh economic times. 

“There have been some price reviews on our brands dictated by the increasing cost of raw materials, devaluation of the shilling and the consequent rising inflation,” he said.

 “But we have tried hard to find savings in our entire operation, which means that, though the cost of production has ballooned for local manufacturers, we have not passed on the total extent of inflation in our sector to the consumer.”

He said with the current volatile situation, it was hard to predict the shilling’s behavior, which had complicated planning.

“The shilling, at the moment, does not show signs of strengthening. We obviously want to see some strengthening to a reasonable equilibrium that makes planning possible,” he said.

Policymakers have been slow off the mark in tackling surging consumer prices, a battered currency that is among the world’s worst performers this year, and a crisis of confidence in the market, analysts say.

A record four percentage point rise in the Central Bank’s key lending rate to 11 percent last week was seen as a big step in soothing the market’s frayed nerves, but on Tuesday the shilling hit a record low of Sh107 to the dollar.

“We are intensifying the mop up. We are going to use repos to mop up so we actually deal with liquidity,” CBK Governor Njuguna Ndung’u said on Thursday.