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Kenya turns to Tanzania for dollars as the country experiences a dollar shortage

US dollars
  • Several Kenyan firms are turning to Tanzania for their dollar supply. 
  • This is because Kenya's commercial banks are running low on US dollars.
  • The shortfall results from increased exports of raw materials and equipment following the economy's recovery.

Due to the fact that Kenya's commercial banks are running low on US dollars, some Kenyan businesses have begun obtaining dollars from Tanzania and other nearby nations.

Owing to the lack of US dollars, it has been challenging for manufacturers and importers of general items to fulfill their responsibilities. Following the eventual shortage of dollars and a rush to protect reserves, the Central Bank of Kenya (CBK) ordered commercial banks to restrict the number of dollars they give out.

Many currency merchants and importers claim that banks have placed a daily limit on dollar purchases of as little as $5,000 because businesses are finding it difficult to get enough foreign currency to meet their supply needs. Due to the shortage, industrialists are now compelled to look for dollars daily and from many lenders to meet their monthly hard currency demands. This makes it more difficult for them to maintain good supplier relationships and bargain for favorable rates in spot markets.

Banks, especially the largest institutions, running out of dollars shows that the currency problems that began in the middle of last year with lenders rationing limited dollars have gotten worse.

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“We are now scavenging for dollars. Only half of every six banks we call daily for dollars will have something for us. Three of the banks will ask us to check later,” said a top executive of a manufacturing firm who sought anonymity for fear of reprisals from the Central Bank of Kenya (CBK).

“What is available at banks is between $5,000 and $10,000. One will be fortunate to get $20,000 and extremely lucky to get $50,000 from a single bank. This is crazy for a business that requires $1 million monthly for supplies and we are getting each dollar at Sh137,” he added.

Importers claim they are compelled to purchase dollars at a rate of Sh137 or more since they are unable to access them at the official buy rate of Sh127.39.

Leading companies have begun trading dollars among themselves, and those in need of hard money are showing an interest in hotels and aviation companies. This is breaking the law and fostering a parallel dark market that could lead to several economic issues, such as deterring foreign direct investment (FDI), promoting rent-seeking, and shrinking the interbank FX market.

Some lenders acknowledged the dollar purchase caps but chose not to publicly declare it for fear of reprisals from the CBK. Industry leaders claim that their limited access to sufficient hard currency significantly impacted their capacity to make timely payments to foreign suppliers.

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The industrialists' organization claimed that the dollar crisis has harmed relationships with suppliers at a time when global competition for raw materials has increased as a result of rising demand and persistent supply chain restrictions.

The shortfall results from increased exports of raw materials and equipment following the economy's recovery, which is driving up dollar demand.

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