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The East African : Mar 16th 2015
The EastAfrican BUSINESS MARCH 14-20,2015 MEETING FOREX OBLIGATIONS Regional central banks shore up forex reserves to stem volatility East Af≥ican Community Moneta≥y Union P≥otocol ≥equi≥es each membe≥ state to maintain 4.5 months’ wo≥th of impo≥ts By ALLAN OLINGO The EastAfrican R egional central banks have, over the past few months, been shoring up their forex reserves in order to cushion local currencies from volatility. Statistics show that the central banks in Uganda, Tanzania and Kenya were holding a combined $15.1 billion in forex reserves in 2014, up from $14 billion the previous year, meeting the desired 4.5 months’ worth of imports that the East Africa Community Monetary Union Protocol requires them to maintain. Rwanda recorded an improvement in its foreign currency reserves last year, despite a drop in export earnings. The increase went against the International Monetary Fund’s forecast of a drop. According to figures from the IMF, Rwanda’s forex reserves were set to drop to $900 million by the end of 2014, from $1.1 billion in 2013, due to a combination of factors that included delays in disbursement of aid money by some development partners, weak exports and a high import bill. Presenting the Monetary Policy and Financial Stability Statement, National Bank of Rwanda’s Governor John Rwangombwa said that the country was able to build more reserves in 2014, despite a drop in export earnings, because of a relatively slower pick-up in forex obligations. “The increase of 10.3 per cent in the country’s forex resources in the banking sector, higher than the increase in expenditures of 8 per cent, has supported the efforts of BNR to stabilise the currency and keep foreign reserves covering 4.6 months of imports. As a result, the reserves, calculated in months of imports, increased from 4.5 months in 2013,” Mr Rwangombwa said. In its 2015 outlook, rating agency Fitch expects Rwanda’s forex reserves to drop to an average of 3.8 months of current account payments due to a decline in donor grants that will limit the $15.1b rebuilding of foreign reserves. Uganda and Tanzania experienced a drop in their foreign currency reserves due to ongoing public infrastructure funding programmes; Kenya recovered from the November decline to close the year firmer than 2013. Because of the drop in their reserves, the central banks moved to shore them up in order to stem volatility and buffer the local currency market. Depreciation of the Rwandan franc in 2014 remains the lowest in the region. Data from regional central banks shows that the Kenya shilling depreciated by 5.9 per cent, the Uganda shilling by 10 per cent, while the Tanzania shilling shed 8.4 per cent. The Central Bank of Kenya said that in November its foreign currency reserves fell to $6.97 billion, representing 4.54 months of import cover, down from $7.09 billion at the end of October which represented 4.68 months of cover. By the end of last year, the reserves stood at 4.9 months of import cover at $7.5 billion. In the third quarter of last year, the Central Bank bought dollars through the sale of sovereign bond proceeds. In a statement, the bank said that the level of import cover was the largest that Kenya has ever attained. “The current level of reserves is not only adequate to meet any unforeseen market developments, but it also confirms that inflows into the foreign exchange market has continued. The Central Bank is cushioned to weather any shocks that may affect the economy,” the bank said. Tanzania’s hard currency reserves fell to $4.2 billion in 2014, which is 4.1 months of import cover, from $4.5 billion in 2013. This is way below the EAC monetary union target. Bank of Tanzania said that they expect an improvement in the reserves by the middle of the year. “The drop in the reserves was due to changes in the exchange rate between major currencies. The weakening of currencies against the dollar impacted negatively on the level of reserves, but we expect a rise in the first half of 2015,” Bank of Tanzania said. Donors have held back their Total forex reserves central banks in Uganda, Tanzania and Kenya were holding in 2014 budget support for 2014/15, over the Tegeta escrow account corruption scandal, and the government has had to intervene to honour some of its financial 37 Cluste≥s seen as way fo≥wa≥d fo≥ ≥egion’s shipping secto≥ By GITONGA MARETE Special Correspondent STAKEHOLDERS IN the maritime industry are rooting for the development of clusters of companies in order to grow the sector. “Maritime activities are interconnected. Dealing with the sector in clusters means that the value of the whole exceeds the sum of its parts,” said Kenya Maritime Authority (KMA) director general Nancy Karigithu at a recent international maritime conference in Nairobi. A maritime cluster would include inland and coastal shipping companies, ports, fishing, off-shore and leisure activities, construction work and defence. South African Maritime Safety Authority chief executive officer Tsietsi Mokhele said a robust ship registry would lead to the success of a maritime cluster. “Shipowners and operators can provide the necessary impetus for a globally competitive cluster. This is especially important when it relates to offshore oil and gas industries, where national offshore shipowners are essential to the development of onshore industries,” Mr Mokhele said. At the conference, tourism Foreign exchange reserves can cushion local currencies from depreciation. Picture: File COMMON RESERVES In November last year, EAC central bank governors agreed that each country should have enough dollars to buy 4.5 months’ worth of imports. With the coming of a monetary union, central banks of member states will be required to deposit foreign exchange reserves with the East African Central Bank (EACB) obligations. Uganda’s foreign reserves stood at $3.4 billion or 4.2 months of import cover at the end of 2014. The country is financing ongoing projects in the oil, transport and energy sectors, which will put pressure on its reserves. Adam Mugume, Bank of Uganda’s executive director for research, said the government’s contribution of $420 million to the Karuma and Isimba hydropower projects was the largest payment that affected the reserves. “We have been working to boost so as to stabilise the common currency. The foreign exchange reserves will comprise gold and foreign currencies, IMF reserves and special drawing rights. Once the protocol is in effect, all foreign exchange transactions by the member governments will be carried out through the EACB or our foreign reserves to cater for ongoing projects, including those in the pipeline, which bears significant financing obligations,” Dr Mugume said. In Burundi, Deloitte forecast that the country’s reserves could fall in 2015, as the revenues expected from external support may not be enough because of the uncertainty of the general election. Burundi’s Finance Ministry is working towards stabilisation of foreign reserves to 4 months, which it hopes will encourage imports. stakeholders recommended that facilities be developed at the Mombasa port to take advantage of the cruise business that is expected to rebound after successful suppression of piracy in the Indian Ocean. They also want the tourism sector to be represented at the Kenya Ports Authority board. Speaking at the conference, Mohamed Hersi, the chief executive officer of Heritage Hotels, said Lamu and Shimoni should be considered as ports of call for cruise tourism. “We would like to be represented on the KPA board so that we can push for the development of cruise facilities at the smaller ports. In addition, Mombasa port should not only be for containers,” he said. In 2004, 42 cruise ships arrived in Mombasa, with 15,166 passengers. But the numbers dropped as piracy took over in the Indian Ocean, with 2012 being the worst when not a single cruise vessel called in at Mombasa port. Kenya Ship Agents Association chairman David Mackay said there is potential for East Africa to attract at least 40 cruise ships. “If one or two of the cruise lines have a vessel in the Indian Ocean for five months a year, from November to April, cruise calls could be up to 40 per annum result in $20 million in revenue for Kenya,” Mr Mackay said.
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