Tanzanian business people are protesting against a plan by the government to charge for services in US dollars, saying it undermines the shilling and makes prices unpredictable.

Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA) executive director Daniel Machemba said because Tanzanians are paid in shillings, charging for services in dollars by government departments will exert inflationary pressure and raise the cost of living.

The dollar is increasingly being accepted for basic transactions, putting Tanzania at risk of facing a situation similar to those in West African countries like Ghana and Sierra Leone, where pricing in foreign currencies led to the depreciation of local currencies, which their central banks are now struggling to correct. Last week, the Tanzanian shilling was trading at 0.00059 to the dollar.

Last year, the government charged tender price packages for offshore oil and gas prospecting blocks in US dollars.  

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The state-owned National Housing Corporation (NHC), the Parastatal Pensions Fund, Tanzania Ports Authority, National Insurance Corporation, Tanzania National Parks, Ministry of Finance and the Ministry of Energy and Minerals all quote for their services in dollars. Property listings in leading magazines are also in dollars.

“Mobile phone companies used to charge people in dollars in the past. The charges were unpredictable. We complained and the government took action. Since the charges were changed to Tanzania shillings, they have become stable,” Mr Machemba said. “The clampdown should not stop with mobile phone companies or DStv. The government should also stop charging in dollars for services they provide.”

Hussein Kamote, the director of policy and advocacy at the Confederation of Tanzania Industries (CTI), said dollarization could cause inflation.

By the time of going to press, Governor of the Bank of Tanzania Benno Ndulu had not responded to the questions sent to him. 
In 2010, Mr Ndulu said the BoT had formed a team to study the dollarization problem, and to recommend a solution. However, the findings have not yet been made public.

Asking for payment in dollars is not against the law, the governor said, what is against the law is forcing a customer to pay in foreign currency.

“Vendors may quote their prices in dollars, but they should receive the equivalent as payment in Tanzania shillings,” Mr Ndulu said at a breakfast meeting organised by the Tanzania Private Sector Foundation at Moevein Peak Hotel in Dar es Salaam. 

“The dollar, being accepted by all those people charging for goods and services in the market, becomes scarce. That scarcity forces the shilling to depreciate,” Mr Kamote said. “And depreciation is not a good thing if your economy is heavily dependent on imports,” he added.

Mr Kamote said a weak local currency would help a nation which has a lot of exports. China works from that position. The yuan is a weak currency in order to encourage exports.

“The difference between China and Tanzania is that China has products to export. This is not the case for Tanzania because it is an importing nation. Weakening the shilling facilitates the flight of capital,” Mr Kamote said, adding that dollarization should be stopped like in Kenya and South Africa.

“The government has allowed a ‘free floating’ dollar,” Kamote said, “and speculators are taking advantage of the situation by buying  dollars. The bureau de change network does not have the mechanisms to monitor how many dollars are bought each day because they issue ‘unmanageable’ receipts.  You can’t tell how many dollars the bureau de change  purchases or where that money goes,” he added. “The  BoT should introduce EFDs in the bureau to  monitor transactions there.”

“A few exchange bureau operators issue EFD (easy forex dxb) receipts, but others do not,” Mr Kamote said. “They are not an agent of the Bank of Tanzania. They send the dollars out of the country, and this has to stop.”

Kamote said the government should price all local transactions in Tanzania shillings. “You don’t take dollars to buy things in South Africa. You change your dollars into rand, and you have to do that in advance,” he said. “Tanzania needs to copy that.”

NHC spokesperson Suzan Omar said it was true that some rental space  is charged in dollars in Dar es Salaam. She, however, explained that this was only done in special cases where the parastatal was in a joint-venture agreement with a co-developer who wanted transactions done in dollars. 

In other situations, users of NHC rental space like foreign organisations ask for quotes in US dollars, she said. She, however, concurred that the BoT should take steps to curb dollarization.