Jun 26, 2022

Mawazo Writing Africa

Writing about the main

Storm cooking over edible oil, dollar shortage in East Africa

East Africa is facing a shortage of raw materials for the production of cooking oil, soaps and cosmetics, and there are no clear signs of the availability of such goods in the next 10 days, even if prices skyrocket, threatening the pain of the consumers.

But it’s the high prices and shortages of cooking oil that are causing a storm across the region. Data available to The EastAfrican shows that no imports of edible oil are expected in Kenya this month. According to the Mombasa Port Ship Timetable, more than a dozen ships are expected to dock loaded with various products, except for palm and vegetable oil, which are key ingredients in the manufacture of such products By June 20, 2022, 14 ships are expected to dock with containerized cargo: automobiles (6), clinker bricks (2), bagged rice (1), bulk wheat (1), fertilizers (2), and steel products (2).

Low on the priority list

Kenya Port Authority records show that the last palm oil and vegetable oil tankers – MV Maritime Venessa and MV Navigating 8 Guard respectively – docked in the port on May 19, 2022.

Consumers have endured soaring cooking oil prices attributed to Covid-19, the ongoing conflict in Ukraine and a shortage of dollars that has prompted at least two Kenyan oil producers to scale back their due operations to the U.N ability to pay suppliers and source raw materials.

This week, Pwani Oil and Kapa Oil Refineries announced p production cuts in the coming weeks due to the dollar crisis.

“Given the prevailing Due to challenges, Pwani Oil has temporarily suspended operations at its Kilifi refinery while we work to resolve the issue. However, we would like to reassure our customers, employees, suppliers, partners and other stakeholders that this is a temporary measure and that the business will remain operational and our products will be available for retail purchases,” reads a public statement from Pwani Oil’s Commercial Director, Rajul Malde .

The EastAfrican noted that operations at the Kilifi plant resumed this week, but local sources said raw materials could run out by mid-June.

Kapa Oil Refineries also cited a dollar shortage amid raw material rationing by overseas suppliers.

“Our operations have been hampered by dollar shortages and an inability to access raw materials,” said Kapa Oil Marketing Manager Sid Shah.

John Muriuki, a Mombasa palm oil trader, confirmed the shortage of palm oil, a key ingredient in the production of cooking oil.

“Indonesia’s announcement, de n Stopping palm oil exports impacted the cost of key products, from cooking oils to soap and cosmetics. We had problems importing the products,” Mr. Muriuki said.

Indonesia has now lifted the export ban, but the government wants manufacturers to supply the local market before resorting to export.

As Kenyan companies struggle for dollars, consumers brace for more shortages and price hikes.

Pwani Oil’s Malde told our sister publication, Business Daily, in an interview published on Friday that the banks allowed the company to pay only half of its dollar requirements while it struggled with other buyers of the Malaysian products.

“Moreover, we don’t pay on time and therefore don’t get priorities at.” of supply,” he said.

Read:BOSS TALK: How the “dollar shortage” justified Pwani Oil

Prices are already down over 50 percent increased over the past six months as factors such as the workforce The lack of fresh air in Malaysia or the drought in Argentina and Canada – the largest exporters of soybean oil and canola oil respectively – affected exports.

Price jump

Manufacturers are now buying palm oil between 1,760 and 1,980 US dollars per ton. Before the Ukraine war, the commodity retailed at $1,490 per ton, having more than doubled from $700 per ton before the outbreak of the Covid-19 pandemic in March 2020.

The one caused by the pandemic Price jump was blamed on export restrictions imposed by Indonesia.

Kenya Edible Oils Subsector Chairman Abdulghani Alwojih said in a previous interview that Covid-related factors caused the price of a 20 liter can to jump from $22 to $45 caused. in less than two years, and Indonesia’s export ban will exacerbate the problem.”

The cooking oil subsector needs more than $100 million each month to import commodities and consumers, industrialists and economists tell the Central Bank of Kenya (CBK) to intervene on the dollar issue, although the CBK insists there is no shortage.

Others are looking to local solutions to reduce import dependency.

< h3>Market Determination

Former Mandera Senator Billow Kerrow, who is an investor in the subsector, called on the CBK to allow commercial banks to sell the dollar at market price.

” There is a serious dollar shortage, but the government has decided to bury its head in the sand. Commercial banks are not selling because the CBK decided to put price control on the dollars,” Kerrow said. “The CBK governor knows what is going on. Businesses, not just manufacturers, face challenges.”

Kerrow said that if there were normal demand and supply, the dollar would sell at Ksh123.

“The government doesn’t want that because it would have to spend Ksh 40 billion ($341 million) more to service its debt.”

Kenya’s debt is forecast to surpass Ksh 9 trillion ($76 billion) this year, since the country depends on domestic and foreign funding to finance spending will continue. Last week, Parliament allowed the government to raise the debt ceiling to Ksh 10 trillion (US$85 billion).

Treasury Department estimates show that public debt is expected to end up at Ksh 8.6 trillion ( $73 billion) by June 2022 before rising to Ksh 9.5 trillion ($81 billion) next June.

“There are serious concerns and we are closed this week a meeting between manufacturers and the government,” Kerow said. “The immediate solution is for the CBK to lift controls.”

The risk that international investors place on Kenya’s government bonds has risen over the past nine months, meaning the country has to pay higher interest rates , if it issues a new Eurobond under current market conditions.

In light of this, the National Treasury called a $1 billion Treasury bond and opted for syndicated loans from commercial banks after bidding on a price of 12 percent.

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Ken Gichinga, economist at Mentoria Economics, said CBK “needs to look for price stability as they don’t want the shilling to be so exorbitant depreciates.”

The CBK has dollar reserves – there are five months’ worth of reserves, which is well above the recommended limit – so they still have some room to release a few dollars into the market.

Strategic planning

To order a To avoid permanent dollar shortages, Mr. Gichinga advises players in the edible oil subsector to incorporate local raw materials into their business model.

“You should have both long-term and short-term plans,” says the economist. “The short-term plan is to have some negotiations with the CBK over the dollar shortage. The long-term plan is to make the supply chain more resilient and include both local and international players so they can switch easily.”

In Uganda, the retail price of cooking oil surpassed the $4 per liter mark last month from $2.20. Supermarkets charge around US$3 per liter but supplies remain a challenge.

High-level intervention

President Yoweri Museveni addressed the crisis during his State of the Union address this week acknowledged but suggested local remedies.

“When it comes to the recent high commodity prices, caused firstly by the restart of the global economy after the two years of lockdown and additionally by the war in Ukraine, ours is Decision, after careful analysis, to avoid the pitfalls of tax cuts and subsidies,” he said.

“Instead, we do two things. One is to involve the global players that created these artificial bottlenecks. I’ve contacted some of the actors… The other is to get our own substitutes – cassava and banana flour for bread and our own sunflower and soybean oil while we await our larger quantities of palm oil from Sango Bay, Mayuge, Buvuma. Maruzi, Bundibugyo, etc.,” he added.

“Cuting taxes or subsidies, especially on imports, is suicidal because our people may buy recklessly and we end up using up our foreign exchange reserves. Furthermore, lowering taxes or subsidies means taking money away from planned projects and putting it into consumption.”

Also read:Museveni’s speech: No state intervention amid high Cost of living

Tanzanian President Samia Suluhu on Thursday ordered the authorities in the Kagera region to allocate between 70,000 and 100,000 hectares of land for the massive cultivation of sunflower and palm oil to end the country’s shortages.< /p>

Tanzania’s annual consumption of cooking oil is 650,000 tons, but the local production capacity is 290,000 tons annually, according to official statistics.

“Tanzania has been dependent on imported cooking oil and the country experienced during the year an acute shortage of this raw material pandemic when countries producing cooking oil closed their borders,” she told workers at the Kagera sugar factory.

The President said the cooking oil shortage t end the country would have to grow sunflowers massively palm oil, noting that Kage ra had vast arable land that could be used for the project.

Frank Dafa, trade policy expert at the Confederation of Tanzania Industries, commented on the budget proposals for the 2022/23 financial year and called for a tax policy that allows investors to prefer. They proposed reducing the import tariff on cooking oil from 25 percent to 10 percent.

– Additional reporting from Xinhua