Local manufacturers who depend on the importation of raw materials are suffering as a result of the depreciation of the Kenyan shilling.
East Africa Breweries Limited is one manufacturer that has been impacted by the depreciation of the Kenyan currency. As a result, the company has increased its exports and is searching for ways to expand its operations in foreign markets where foreign currencies are performing better than Kenyan ones.
“We are growing much faster in the market outside of Kenya, so whether it is from an export perspective or from markets just outside Kenya their growth is helping us, one because our currency is now weaker against theirs, but also as they grow then you’re able to mitigate the risk in one territory, compared to another.”
Therefore, we are promoting export growth, growth where we receive foreign exchange revenue, and growth where the environment is still more optimistic than it is at the moment, according to EABL CFO Risper Ohaga.
EABL CEO Jane Karuku states, “Kenya is really suffering whether it’s the pound or it’s the dollar. We are suffering both at the cogs levels I mean cost of goods because we have some dollar pound denominated cost and then also as we report our statutory… Obviously, Tanzania and Uganda are doing better than us from a currency perspective.”
The brewer has voiced concerns about the consumer’s wallet despite increasing their volumes, pointing out that they have chosen lower-value and discounted products in the wake of the challenging macroeconomic environment, which has forced them to reprioritize their expenditures and reduce their expenditure on alcohol by 200 basis points in the first half of the year.
“I think the biggest threat to the business is the consumer’s affordability piece in terms of the wallet contracting, the other one is the cost of doing business, remember I talked about we’ve seen electricity go up, fuel cost go up, so from a Kenyan and across East Africa perspective cost of doing business is going up but more importantly, I think the interest cost and forex cost are stressing the bottom line much more,” added Karuku.
Due to the shilling’s depreciation, EABL reported a Ksh. 2.3 billion loss in foreign exchange pressure during the last half year.
In addition, the brewer suffered a 22% decrease in profit after tax, from Ksh. 8.7 billion to Ksh. 6.8 billion, due to a 21% increase in cost of sales brought on by high inflation that drove up input prices.
While actual sales rose from Ksh.57.3 billion to Ksh.66.5 billion, a 16 percent rise, in the preceding year. The same half of the brewer reported an increase in beer sales of 18%, while spirit sales only increased by 13% due to higher input costs and excise taxes.
