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The Untold Version about the tumbling Tanzania Shilling

Discussion in 'Biashara, Uchumi na Ujasiriamali' started by Mpendanchi-2, Oct 10, 2011.

  1. Mpendanchi-2

    Mpendanchi-2 JF-Expert Member

    #1
    Oct 10, 2011
    Joined: Apr 4, 2009
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    Nimependa sana uchambuzi huu kuhusu BOT na Shilling yetu kushuka. Beno governor amekuwa anatudanganya sana kuhusu sababu za kushuka thamani ya shilling. Sijui ni kwamba hajui anachosema au anajua ila anafikiri watanzania hawajui!! Issue ya kutumia dola kwenye transaction ameshindwa kuitolea maelezo na huku akijua ni sababu kuu. Hebu tulia usome uchambuzi huu hapa utapata zaidi.


    [h=2]Untold version about the tumbling shilling[/h]


    By Richard Mgamba



    9th October 2011








    Tanzania is ranked third in gold production with export reaching $1.5 billion last year, but ironically its shilling is rapidly losing value
    So where are the gold billions?
    How the weak shilling weakens your living



    BoT governor Benno Ndulu


    With Central Bank’s Governor stating clearly that the Bank of Tanzania won’t intervene to save the ‘ailing’ Shilling, only God’s miracles cane save the local currency from a further plunge amid the escalating fear of a double-deep global economic recession resulting from the worsening Eurozone crisis.
    When the Shilling depreciated alarmingly in July last year, local analysts as well as officials at the Bank of Tanzania (BoT) quickly attributed the trend to the Greece debt crisis. Locally, they linked it to the election fever ahead of the 2010 general elections.
    During that period, the value of the Shilling against the US dollar jumped from Sh1,380 to a record high of Sh1,570, causing panic as the country’s economy depends heavily more on imports than on exports.
    By mid this week, nearly 14 months since the Shilling first tumbled, it was trading at Sh1,680 against the US dollar, according to statistics gathered from various Bureau De Changes in the city.
    Analysts predict that if intervention isn’t done to save the ‘ailing shilling’ by the end of the year, it will be trading at Sh1,750 against the US dollar.
    Though Athens is thousands of kilometres away from Dar es Salaam, local economists claimed that whatever was happening in Greece would also affect the performance of the Tanzanian economy and therefore cause the depreciation of the Shilling against major international currencies.
    The election fever, it was claimed , was another key factor that caused the rapid depreciation of the Shilling against major foreign currencies, mainly the US dollar because many investors, especially local Asians were at that period buying more dollars and keeping them owing to fear of the outcome of the elections.
    Those wanting the public to buy the Greece debt crisis factor claimed that since EU was focusing its forces in rescuing one of its partners, it would be paying less attention, in terms of aid to Tanzania. Tanzania receives close to US Dollar one billion in aid from various European donors annually.
    This week, however, based on data at the Ministry of Finance, it emerged that the amount of promised aid that didn’t reach the exchequer’s coffer in 2010/2011 was very minimal. This situation wouldn’t trigger the rapid fall of the Shilling against foreign currencies as witnessed during the past 11 months.
    However, for the 2011/12 budget, The Guardian on Sunday has reliably established that most of the development partners have not yet released their budget support, which is estimated at about $1 billion, a move that might have also contributed to the ‘free fall’ of the shilling in the past few months, since the budget was passed in June, this year.
    The country’s elections ended, the Greece debt crisis was averted by European countries but the Shilling continued with its abysmal performance against the major foreign currencies; and nearly one year later it’s trading is at historical Sh1,680 against the US dollar.
    If the Shilling didn’t suffer heavily from the global financial meltdown experienced between 2008 and 2009, why would it depreciate so much just because of the Greece debt crisis?
    The answers to this question remains a mystery.
    But, again if it was the election fever that contributed to its abysmal performance, why nearly a year after the votes, the Shilling is still nose-diving at an alarming pace.
    The answer to this question, too, remains unconvincing to many, except to the Central Bank officials and some local economists.
    This week again, the local economic gurus said the latest depreciation of the Shilling was due mainly to the ongoing crisis at the Eurozone, which many international economists warn that could become another deadly credit crunch in a few months.
    But what’s really causing the tumbling of the Shilling against major international currencies?
    While the decline of the Shilling is good for the exporters to make a killing to the importers it’s the worst situation, and its burden will always be shifted to the ordinary consumers by increasing prices of all imported goods to cushion the loss resulting from its depreciation.
    Inflation and exchange rate depreciation are closely related over the long term, but can vary widely over the short term. For example, if a country expands the money supply, let’s say it prints money faster than the economy itself is growing, the currency would be worthless both inside and outside the nation, causing both inflation and a devaluation.
    Exchange rates take into account not only current inflation, but anticipated increases. Devaluation can also lead to inflation by forcing up the price locals would pay for imported goods.
    In mathematical terms if in January last year a barrel of oil was costing $75, it means a local oil dealer needed Sh103,500 to buy that barrel, but today, he or she will require Sh126,000 or extra Sh22,500 to purchase the same amount of crude oil.
    Who pays the extra cost? It is all of us, who buy fuel for our vehicles to cruise on the roads, as well as those who pay for public transport and millions of kerosene users in Tanzania who depend on it for energy.
    If the Shilling factor was added to other global factors behind the surging fuel prices, including the unrest in Libya, and the Middle East, the Eurozone crisis and slight decline in demand caused by weaker demand in the United States, and the impact of financial strain, particularly among developed countries, which slowed down demand in China and India, projections downside risks have materialised.
    Oil demand this year is set at 87.99 million barrels per day (bpd) down from the previous estimate of 88.14 million bpd, the Organisation of Petroleum Exporting Countries (OPEC) said in its latest monthly report. For 2012, demand is forecast to average 89.26 million bpd, down from an estimated 89.44 million bpd in August.
    At the domestic market, it’s pinch to all Tanzanians who at the end of the day bear the brunt of surging oil prices caused by among other things, the weakening Shilling.
    The recent oil crisis at the local market caused by the strike by local oil dealers was just a drop in the ocean, meaning there are many more worse things to come than the country has already witnessed.
    The same trend is reflected in all other imported goods and raw materials, which are purchased using foreign currencies, mainly the US dollar.
    But as BoT remains a watcher, letting the market forces and the so-called economic fundamentals take charge, the prices of imported second hand cars, medicine, petrol and spare parts have shot up as the full impact of a depreciating Shilling begins to hit consumers’ pockets.
    Prices of imported second hand cars have surged by 42 percent between January and September, this year, with the main factor behind the surge being the weakening Shilling against the US dollar.
    At the local hospitals, no one would be spared as the cost of imported medicines has also shot up by an average of 18 percent, thanks to the weaker Shilling.
    As the Shilling continues to depreciate, so does the purchasing power of millions of consumers, whose power to buy is dented by the skyrocketing retails prices at the local market.
    However, to the Nile Perch processor and exporter based in Mwanza city and cotton exporter on the southern shores of Lake Victoria, it’s a blessing in disguise because the weaker Shilling means more profits to the exporter.
    For instance, if a kilogramme of cotton was trading at $.90 cents in January, last year. When the local exporter receives his payments from a buyer in Europe, he pocketed a total of Sh1,242, but today, at same price, he or she would earn Sh1,512 - a 21 percent increase in earnings.
    However, it might not be the right time for the Nile Perch exporter to celebrate because the European Union, which consumes about 80 percent of the Perch fillets from the lake, is battling the so-called ‘Eurozone crisis’.
    What also puzzles many is that fact that at the time when gold price per ounce is surging dramatically reaching $1,300 per ounce, with total export for gold and other minerals estimated this year to reach about $2 billion.
    According to the data released by the Central Bank of Tanzania, the total value of exports of goods and services in the year ending October 2010 increased by 15.7 percent, hitting $5.5 billion, with gold alone earning about $1.5 billion. However a big chunk of this money especially in mining industry doesn’t return to the country.
    According to the details gathered by the Guardian on Sunday, if export dollars were fully wired back to the country, the Tanzanian shilling would have been one of the strongest in the region in terms of exchange rate value against major foreign currency.
    No intervention
    Perhaps the most appalling thing is that everyone responsible seems to be comfortable with the current pathetic performance of the Shilling against major currencies.
    While last week Kenya’s President Mwai Kibaki held a crucial meeting to discuss measures to save the dying shilling, in Tanzania, no one seems to be in a hurry to rescue the economy, thanks to the fragile economy.
    This week, the Central Bank Governor Professor Benno Ndulu stated clearly the BoT would not intervene by releasing more dollars to ease the current shortage; instead it would only deal with economic fundamentals.
    More dollars in homes than banks
    When I did an exclusive interview with the governor in September 2009 he told me that “the amount of US dollar held in our homes was two times what was in the banking circulation.”
    “Tanzanian residents hold not less than $1.5 billion in their homes, while commercial banks hold another $600 to $700 million,” he told me.
    Tanzania’s foreign reserves stand at $3.6 billion by mid this year, up from $2.4 billion about four years ago.
    Since then nothing has changed much but the value of the Shilling has suffered much during that period. In 2009, September, the dollar was trading at Sh1320, but 24 months later, the Shilling has tumbled by 27 percent.
    More Shillings, less dollars in the domestic market
    But, this week, we have been told that as the Shilling hit the 17-year record low against the major international currencies, there’s a big shortage of the US dollar caused mainly by the importers’ demand.
    To put things into perspective, the demand for US dollars and other major foreign currencies is higher than the supply at the local market - meaning that the price of buying these currencies known as exchange rates will go up as importers struggle to get enough dollars to import goods.
    Just within fifteen months, the Shilling has tumbled by 14.3 percent against the US dollar, according to the latest statistics gathered by The Guardian on Sunday, this week.
    The country’s foreign exchange was liberalised, especially in the 1990s, but as strong regulatory measures are still lacking anyone can buy any amount of US dollars and other major foreign currencies without a stumbling block.
    Foreign exchange, the business of trading the world’s currencies, comprises a huge, busy market that is never officially closed, not even for major holidays. The average daily turnover in April 2007 was $3.2 trillion, according to the Bank of International Settlements (BIS), the central bank of central banks.
    Dollarised economy?
    Today in Tanzania you can travel with millions of dollars in your suitcase without any barrier, something that couldn’t happen in countries like South Africa, which controls 33 percent of Africa’s economy. While in South Africa one is never allowed to purchase things in US dollars in Tanzania prices of many goods and services are pegged to the US dollar. Yet the BoT is quiet about this situation. Our economy has already been dollarised.




     
  2. ubun2

    ubun2 Senior Member

    #2
    Oct 10, 2011
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    The problem also is all those bureau de changes, some of them probably do not even have a proper license to operate. Too much unaccounted for trading, transferring of money going on. There seems to be a secondary cash economy in TZ. There are also some backs probably operating without proper banking licenses.
     
  3. newmzalendo

    newmzalendo JF-Expert Member

    #3
    Oct 11, 2011
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    the article hits the nail in the head.but who will police the BOT policies when the Gatekeepers are the ones Leaching our economy,Its a public secret most leaders in Tanzania hold foreign currency Accounts.
     
  4. K

    Kabengwe JF-Expert Member

    #4
    Oct 11, 2011
    Joined: Oct 20, 2009
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    We have pointed out the actual cause of our depreciating shilling, but whose is going to implement what need to be done to serve our shilling?!

    Sio serikali ya sasa.
    Wao ndio wanamiliki hizo bureaus, mahotel, tra na kilachombo unachokifahamu kinachotoza gharama zake kwa USD...

    We still have a long way to go. Benno Ndullu sitegemei kama atafanya chochote kurekebisha haya mapungufu.
    Anafanya kazi kama vile anaogopa baadhi ya vitu
     
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