Businesses That Thrive When Shilling Depreciate Against Dollar
Businesses That Thrive When Shilling Depreciate Against Dollar
Businesses That Thrive When Shilling Depreciate Against Dollar
Over the last year, the value of the Kenyan Shilling has decreased relative to the US dollar; on January 16, for example, one US dollar was worth 160 units of the local currency at some times.Some Kenyan enterprises, however, appear to be benefiting from the current economic climate, despite mounting concerns about the Shilling’s continued depreciation and its effect on living expenses.
Some of these businesses in question cut across real estate, export business and the services industry as explained below;
Real Estate
With the dollar becoming more dominant against the Shilling, select landlords in Nairobi and major towns are among the biggest beneficiaries. This is a result of their rent charges being made in dollars rather than shillings.When the value of the Shilling started to decline in 2022, charging rent in dollars became a common practice. The majority of property owners who took payments in dollars are those who hold rental and commercial space in upscale communities.
Posh estates within Nairobi mostly host multinational companies hence the move by landlords to charge rent in dollars. According to Knight Frank’s Africa Offices Market Dashboard report covering the July to December 2023 period, landlords were renting office space at USD13 per square metre.
For instance, with the USD13 rate, tenants are currently paying Ksh2,102 (when the dollar is trading at Ksh160) in comparison with January last year when they paid Ksh1,599 (when the dollar averagely traded at Ksh123).”The continued depreciation of the Kenyan shilling, driven partly by the increased demand for the US dollar, has increased landlords’ preference for rent payments in US dollars,” read the Africa Office Market Dashboard 2022 report in part.
Due to the devaluation of the Shilling, owners of short-term rental units in real estate who rent out their units in dollars are also benefiting financially.
Export
However, Kenyans who export goods to the United States and Europe are also earning handsomely. This is so because dollars are used in international trade. Due to the depreciation, some of the nation’s exporters have already reported higher profits. Exporters of avocados and tea have benefited greatly, among other things. For example, even though it produced less tea for exports, Kenya made Ksh 29.7 billion during February and March 2023 compared to Ksh 26.9 billion during the same time in 2022.
This is because the dollar traded at Ksh127 between February to March 2023 as compared to Ksh113 ( February to March 2022).Some of Kenya’s main exports include coffee, flowers, and avocado.Private businesses in the fashion and textile industry have also benefitted in some ways from the Shilling’s depreciation.
Workforce
Kenyans working for international organisations who are paid in dollars have also ridden on the wave, by virtue of being able to convert and get more Kenyan Shillings for the same salaries that they got before the local currency started shedding.
For instance, if an employee is paid USD 1,000 per month, they are currently taking home Ksh161,750 per month in comparison with Ksh123,000 in January 2023 (when the dollar averagely traded at Ksh123).
Biggest Losers
Importers have suffered some of the greatest losses. The increase in the value of the dollar has resulted in increased costs for importers when shipping goods into the nation. As a result of the high cost of importation, importers have been compelled to raise the price of goods by passing the additional expenses on to Kenyan consumers. Autos and fuel are among the things that have been impacted.
