E. Africans face bleak Christmas as weak currency, high oil prices stretch budgets

Monday November 15 2021
Shoppers at a supermarket in Kenya's capital Nairobi.

Shoppers at a supermarket in Kenya's capital Nairobi. PHOTO | FILE | NMG


Kenyans are bracing for hard times as the country enters the festive season as a weakening shilling, rising crude prices and the implementation of the contentious inflation-linked adjustment on excise duty threaten to push up cost of transport and prices of basic commodities.

The Kenya Revenue Authority (KRA) has quietly introduced a 4.97 percent increase in duty for excisable goods effective November 2, setting the stage for an increase in prices of at least 31 products including juices, bottled water, beer chocolate, spirits, cigarettes and motorcycles.

The new levy comes into effect despite public protests that prevented its scheduled introduction on October 1. It is expected to adversely impact households and businesses, which are already hurting from the effects of high fuel prices.

Moreover, KRA implemented the levy without prior notice to the public.

While the new tax took effect on November 2, the taxman issued a public notice on its website on November 5 stating that rates of excise duty have been adjusted using the average 2020/2021 inflation rate of 4.97 percent.

The Consumer Federation of Kenya (Cofek) has raised concerns over the new tax and its implementation arguing that the taxman is killing consumers.


“We intend to join with like-minded entities to challenge KRA’s move to enforce the new tax measure. We hope manufacturers can ignore the illegal KRA directive on the matter and avoid ploughing back the new costs to the consumer,” said Cofek Secretary General Stephen Mutoro.

The lobby group says the new tax is being executed discriminately after the Kenyan High Court suspended implementation of a similar excise adjustment on petroleum products on September 27.

“The increase now affects all excisable goods except fuel. It is discriminatory and has not even been gazetted or tabled in Parliament for discussion and public participation,” Mr Mutoro said.

The worrying state of affairs has been compounded by the weakening Kenyan shilling against the US dollar and the rising oil prices. Importers will have to dig deeper into their pockets while passing the increased costs to consumers.

The Kenya shilling weakened against the US dollar to a low of Ksh111.7 on November 9 from Ksh109.83 in January while the Brent Crude prices surpassed the $83 per barrel on Thursday last week.

Pain at the pump

In Tanzania, fuel prices have maintained an upward trend, mainly associated with an increase in oil prices in the world market, according to the Bank of Tanzania (BoT)’s monthly economic review report for October 2021.

Tanzania’s domestic pump prices for petrol recorded an increase of 30.7 percent in September compared to the same period last year while diesel rose by 25.6 percent. Kerosene prices were up 26.3 percent.

In Rwanda, the local currency (Rwf) depreciated by 2.58 percent against the US dollar during the nine month to September 30, according to the National Bank of Rwanda (NBR).

According to the bank’s monetary Policy Committee, Rwanda’s inflation is projected at 0.7 percent in 2021 and 5.4 percent next year on increased import costs and international commodity prices in the fourth quarter of this year.

According to the USAID-funded Famine Early Warning Systems Network severe food insecurity is expected in Eastern Africa through early 2022 due to conflict, poor weather, economic shocks and Covid-19. In northern Uganda persistent poor rainfall through the end of March to May led to delayed and below average first season harvests and associated income.

The report titled East Africa’s Food Security Outlook (June 2021 to January 2022), blames local currency depreciation, inflation, high import and fuel costs for sustained high staple food prices and limited economic activity.

According to Reuters Brent crude price rose more than 60 percent this year hitting a three-year high of $86.70 on October 25 supported by recovering demand and supply restraint by the Organisation of the Petroleum Exporting Countries and its allies.

The Tanzania shilling lost 0.03 percent of its value against the US Dollar to trade at an average of Tsh2,309.62 from Tsh2,309.04 during the period.

“Struggling Kenyans thought they had dodged this bullet when the High Court stopped KRA’s plan to hike taxes on 31 goods. But it has been pushed through on the quiet with little comment from members of Parliament (MPs) who are busy seeking our votes on the election trail,” said Mr Mutoro.

In Kenya, for instance, the cumulatively below-average March to May short rains across eastern and northern Kenya resulted in below-average crop production activities and associated income from agricultural casual labour activities.

In the pastoral areas, below average regeneration of forage has affected livestock productivity, reflected in declining livestock prices.

As a result, most Ugandan poor rural households have below-normal income from crop sales and seasonally limited income from other sources.

In Uganda, many households have already lost food and income due to the impacts of irregular rainfall on crop and livestock production in early-to-mid 2021.