Exports fail to rally on strong dollar

Tuesday February 3 2015

Uganda Coffee Development Authority officials

Uganda Coffee Development Authority officials prepare coffee varieties during a demonstration in Kampala recently. Foreign exchange earnings from coffee, just like other exports, declined due to low volumes. File Photo. 

By Dorothy Nakaweesi

In 2014, Uganda’s export market exhibited volatile growth putting the country’s balance of trade on the wire.
According to data from Uganda Bureau of Statistics, the country opened the year at $233.6m (Shs667b) worth of export earnings before peaking at $242.6m (Shs692.6b) in May and falling again for the rest of the year. Earnings closed the year (November) on a low of $221.4m (Shs632b).
Total export earnings stood at $2.4b (Shs6.9 trillion) in 2014 compared to $2.8b (Shs8 trillion) registered in 2013.
The above earnings were less by the December figures that are yet to be released. However, the margin between 2013 and 2014 earnings is so wide that it would be hard to be covered by December earnings.
The fall, which stood at about Shs2.1 trillion, translates into a percentage decline of 14.7 per cent.
Contrary to expectations, exports did not leverage on the strong dollar exhibited in the last half of the year.
The dollar has since November heavily appreciated against major currencies, which subsequently should have lifted Uganda’s export earnings.
The shilling, according to Mr Adam Mugume, the Bank of Uganda director for research, has since January 2014 lost by more than 12 per cent against the dollar.
As of last week, banks quoted the unit in the Shs2,880 range after it had peaked at Shs2, 905 mid last month.
The fall, according to available data, indicates that the unit has lost by more than Shs400 having opened last year in the Shs2,499 range.
Coffee, Uganda’s biggest foreign exchange earner, opened the year at $38.8m (Shs110b) before peaking at $41.0m (Shs117b) in April but exhibited gradual declines throughout the year closing at $29.4m (Shs84b).

Substantial loss
The trend indicates a fall of more than Shs27b.
The low earnings, according to Mr Joseph Nkandu, the executive director of National Union of Coffee Agribusiness and Farm Enterprises (Nucafe), are a result of low export volumes.
However, he says the strong dollar has lifted aggregate earnings for exporters with a kilogramme of washed coffee rising to $3 (Shs8,700) down from $1.4 (Shs7,200 in April).
Flowers, one of Uganda’s non-traditional exports, showed sustained growth in the first half of the year posting $5.2m (Shs14b) in January but recorded declines in the second half closing at $3.6m (Shs10.2b).
Uganda exports much of its flowers to the European Union, whose currency (Euro), according to available data, has been weakening against the dollar.
The weak Euro, according to Mr Sudhir Ruparelia, the Rosebud Limited chairman, has fed into the company’s earnings increasing the cost of doing business.
Rosebud is Uganda’s leading exporter of rose flowers with a market share of more than 40 per cent.
However, fish exports throughout the year posted sustained growth opening at $9.1m (Shs26.3b) before closing at $13.61m (Shs39.5b).
The growth, especially in the months closing the year was, according to Mr Phillip Borel, the vice chairman of Uganda Fish Processors and Exporters Association a result of increased demand on the international market. The increased demand, Mr Borel says, is a result of low production in the temperates as much of the fishing activity reduces during the winter season.
Similarly, tea posted strong growth opening at $7.7m (Shs22.3b), before peaking at $10m (Shs29b) in May.
However, the commodity returned to its pre-peak earnings closing the year with a marginal decline of $7.6m (Shs22b).
The decline, according to Mr Wilberforce Ssekitooleko, the executive secretary, Uganda Tea Association, resulted from the global fall in prices experienced as a result of supply surplus.
Tea prices fell to as low as $1 (Shs2,860), compared to a high of $1.8 (Shs5,220) recorded between 2012 and 2013.
Despite the turbulence experienced in Uganda’s tobacco industry, and the campaign against cigarette smoking, the commodity posted growth opening the year at $7.8m (Shs22.6b) before closing at $15.3m (Shs44.3b).
Between May and July, the company closed its leaf processing plant in Uganda moving its operations to Nairobi, Kenya.
Cotton, which for years had been one of Uganda’s leading traditional exports, struggled throughout the year opening at $5m (Shs14b) before closing at $120,000 (Shs343m).
Gold, which in the past had posted strong growth as a re-export commodity, saw its fortunes shed in 2014 opening the year with no export earnings.
However, in April the commodity posted earnings of $200,000 (Shs571m) before closing the year at $400,000 (Shs1.1b).
Interestingly, simsim, which had opened the year strongly at $12.58m (Shs36.5b), experienced rapid declines throughout the year closing at $1.16m (Shs3.3b).

earnings in ($000)
What they say

“We are making losses because of the weak Euro. We have had to shelf most plans. Our focus now is on cutting costs,”
Mr Sudhir Ruparelia, Rosebud chairman.

“There has been an aggregate benefit from the strong dollar but the low export volumes have cut back on earnings,”
Mr Joseph Nkandu, Nucafe, executive director.

EAC currencies on ropes

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East African currencies have since November exhibited volatility losing by an average of more than 6 per against the dollar.
The Uganda shilling, for instance has suffered more, losing by more than 12 per cent in the period under review.
The Tanzania shilling has lost by 7.5 per cent compared to the Kenyan shilling which has lost by more than 6 per cent in the same period.
The Rwanda and Burundi Francas, which are pegged against the dollar, have registered minimal losses depreciating by about 3.4 per cent and 0.1 per cent respectively.
Mr Stephen Kaboyo, the Alpha Capital managing director last week said a number of fundamentals are responsible for the depreciations underpinning low foreign exchange inflows for Uganda and low tourist numbers for Kenya’s tourism industry as the key drivers of the depreciation.
However, other analysts including Mr Adam Mugume, the research director at Bank of Uganda believe the strong recovery of the US economy is weakening major currencies across the globe.
“Most currencies, with the exception of the Chinese Yuan have weakened against the dollar due to the strong recovery posted by the US economy,” he said.
The shilling, for instance, has since November shed more than Shs500 against the dollar.
At the close of last week, the unit was selling in the range of Shs2,850-2,880 having hit a low of Shs2,905 mid last month.
Beyond East Africa, the Nigerian Naira and the South African Rand, two of Africa’s largest economies, have been posting losses depreciating by at least more than 5 per cent.
The Naira, for instance, has in the period under review depreciated by more than 8 per cent compared to the Rand, which has since November lost by about 6.6 per cent against the dollar.

By Martin Luther Oketch

dnakaweesi@ug.nationmedia.com

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