Why a weaker shilling in East Africa is not all bad news

Dar es Salaam. The recent depreciation of the Tanzanian shilling against the currencies of regional peers Kenya, Uganda and Burundi is poised to benefit Tanzania’s exports.

Analysis by The Citizen indicated that as of Wednesday, the shilling has depreciated noticeably against the Kenyan shilling, Ugandan shilling, and Burundian franc.

This trend according to analysts presents a unique opportunity for Tanzanian exporters to capitalize on the reduced cost of their goods in these markets.

Tanzanian shilling has depreciated by approximately 24.2 percent against the Kenyan shilling over the past year, currently trading at Sh20.87 per Kenyan shilling, compared to Sh16.8122 per Kenyan shilling on Wednesday.

The significant depreciation means that Tanzanian goods and services have become cheaper for Kenyans, and conversely, Kenyan goods and services have become more expensive for Tanzanians, which may reduce Tanzania’s imports from Kenya.

According to the data by the Bank of Tanzania (BoT) the shilling is also traded at Sh0.7 per Ugandan shilling as of Wednesday, up from Sh0.64 per Ugandan shilling a year earlier– representing a 9.48 percent depreciation of the currency.

During the same period Tanzanian shilling depreciated slightly against the Burundian franc, trading at Sh0.926 per Burundian franc on September 4, 2024, compared to Sh0.8607 a year earlier, a depreciation of 7.6 percent.

Agricultural trade economist from University of Dodoma (Udom) Lutengano Mwinuka said the recent depreciation of the Tanzanian shilling against regional currencies is not particularly alarming or significant.

He explains that while the depreciation might not be severe, it can influence export dynamics by making Tanzanian goods more competitively priced in foreign markets, potentially boosting export volumes.

“But it certainly has implications for how Tanzanian exports are positioned against competitors in neighbouring countries. The weakened shilling can make Tanzanian goods cheaper and potentially more attractive to buyers in the respective countries,” said Mr Mwinuka.

Dr Daudi Ndaki of Mzumbe University said it is correct to say the Tanzanian goods and services have become relatively cheaper for buyers in the respective countries providing an opportunity to exporters.

“As Tanzanian goods become more affordable in neighbouring countries, we expect to see an uptick in export volumes. This increased demand can lead to higher revenue for Tanzanian exporters, particularly in sectors like agriculture and manufacturing,” he said.

Dr Tobias Swai of the University of Dar es Salaam said the effect of currency depreciation on exports is not straightforward and depends on several factors.

According to Dr Swai, the implications of a weaker shilling on trade are contingent upon the nature of trade relations, the types of products exchanged, and the volume and frequency of trade.

“A comprehensive approach to understanding these factors is essential to accurately gauge the true effect of currency fluctuations on trade,” he advised.

Moreover, the analysts were of the view that while the depreciation of the Tanzanian shilling may present opportunities for increased export growth, it is important to remain cautious about its broader economic implications.

Interestingly, the Tanzanian shilling has appreciated by 3.45 percent against the Rwandan franc, from Sh2 per Rwandan franc in September 2023 to Sh1.9866 per Rwandan franc in September 2024.

The Tanzanian shilling has also appreciated against the Congolese franc over the past year, currently trading at Sh0.96 per Congolese franc, up from Sh1.01 per Congolese franc on September 4, 2023, representing an appreciation of approximately 5 percent.