Dollar Scarcity and High Interest Rates Deter Investors in East Africa: EABC Report

Dollar Scarcity and High Interest Rates Deter Investors in East Africa: EABC Report

In East Africa, the struggle with the scarcity and volatility of the dollar, high-interest rates, and limited access to credit deter potential investors.

According to the “Report on the Ease of Doing Business in the East African Community (EAC) 2023” published by the East African Business Council (EABC), several factors are posing threats to businesses in the region.

These include unregulated foreign exchange markets at the border, protracted legal tax appeals and rulings, and lengthy customs valuation procedures.

In a survey involving 252 companies, trade finance challenges emerged as a pressing issue. Specifically, the scarcity of the dollar, elevated interest rates, and restricted access to credit were highlighted as key obstacles.

John Kalisa, the CEO of the East African Business Council, pointed out, “The dollar is putting pressure on local currencies, causing them to depreciate, which, in turn, complicates business operations.” He emphasized that dwindling dollar reserves indicate a trade deficit, emphasizing the need for enhanced productivity to address this imbalance.

Recent currency performance illustrates the severity of the issue. Commercial banks last week quoted the Ugandan shilling at 3,735/3,745 to the dollar, while the Kenyan shilling faced significant losses against the US dollar, reaching a 21.6 per cent decrease from the previous year.

Meanwhile, the Bank of Tanzania reported that the country’s shilling had hit a new record low, averaging 2,428.7 against the dollar.

The report highlights disparities in applying the Common External Tariff (CET) even after its harmonization and points to high trading costs due to challenges in cross-border payments, multiple taxes and fees, local government levies at border crossings, and regulatory authorities primarily focused on tax collection rather than facilitating free trade.

To address these issues, the report recommends coordinated actions such as simplified business registration processes, improved access to finance, streamlined contract enforcement, and tax payment procedures. Additionally, it emphasizes the need for better communication of government policies and regulations to the business community to foster a more conducive investment environment within the EAC.