On the last Friday of August, the financial market opened to a weakened franc, trading at Rwf705 for a single dollar down from Rwf700 a week before. That exchange rate has since prevailed.
While BNR’s figure at close of business that Friday suggested dealers bought the dollar at Rwf684.4 and sold it at Rwf691.2, it was a different story on the market where overwhelming demand for dollars saw the exchange rate shoot-up.
Yet comparatively, the franc remains steady against other major international currencies such as the British Pound and the Euro, whose demand locally is relatively lower.
So why is the franc depreciating against the dollar?
The central bank explains that there is high demand for dollars because of the increased volumes of imports, especially capital goods, needed to buttress the current robust economic growth.
These imports are paid for in dollars which the country must earn through exports such as coffee, tea and minerals. Unfortunately, Rwanda’s exports didn’t bring in enough dollars in the first six months of the year because prices for the country’s top foreign currency earners dropped significantly.
But that is just part of the story. The Sunday Times has established another reason why the demand for dollars is escalating. There is an emerging trend where local businesses seem to increasingly prefer transacting in dollars, instead of francs.
This is particularly common among local property owners who price and demand their rental fees in dollars rather than the currency in which most of the people earn, the Rwanda franc.
Owners of apartments located in some of Kigali’s posh suburbs are especially guilty of a practice that could slowly turn Rwanda into a ‘dollar economy,’ if not stopped.
Mark Barigye earns a monthly salary in francs. On that Friday, he went to buy $280, to pay his monthly rent for his single bed roomed apartment, but the situation was not pleasant.
“This month last year, I bought the same amount of dollars at Rwf182,000, in July this year I paid Rwf193,000 and this month, I have just paid close to Rwf200,000,” said the 32-year-old graphic designer at a publishing company in the city.
While his rent is technically increasing every month because of the exchange rate, his salary is not but the landlord is the winner in this. Barigye’s experience is shared by eight other tenants who live on the same building.
Is this a legal practice? “No,” says Dr Monique Nsanzabaganwa, the deputy Governor National Bank of Rwanda, the regulator of the financial sector. “We are not aware of that so far but if it’s as you say it, then it’s illegal.”
Unfortunate, that seems to be the case. The Sunday Times journalist spoke to two city property agents pretending to be looking for commercial and residential space to rent. The first agent said he has houses but the owner charges in dollars.
“I have very good apartments in Nyarutarama, Kacyiru and Remera but charges are in dollars though you can also pay in francs at the dollar rate,” said the agent who could only identify himself as Lawrence.
Lawrence is an uptown agent with a base in Nyarutarama, arguably Kigali’s most affluent neighborhood. In there, he has several apartments he’s vending including one located near the golf-course where a three-bedroom apartment is at $1,300 per month.
Lawrence has another apartment in Kacyiru, which he describes as a ‘cheaper’ two-bedroom apartment priced at $1,100 but with a possible discount for longer-term stay.
Kamali is another agent contacted by Sunday Times. He announces that a commercial building located behind Ecobank in Kigali charges and takes payments in dollars. A square metre is priced at $18.
But the property owners have their own reasons for charging rent in foreign currency.
“Construction is expensive and property owners are losing money because of a weak franc but they feel safer if they take the stable dollars,” says Kamali.
For more details, Lawrence directed The Sunday Times to a local website carrying pictures of the houses he is vending. On visiting the website, several houses can be seen priced in dollars and they are clearly not for the average Rwandan as very few can afford to give away $2,000 in rent fees every month.
If Kigali houses are being priced and paid for in dollars, should tenants demand their employers to pay them in dollars as well? And what would become of the franc and the economy in general?
BNR rescue package
The effects of an expensive dollar will be felt by every Rwandan in form of increased prices. This situation is commonly known as inflation.
Either way, everybody will be a loser because those buying dollars to pay rent will certainly spend more francs for a single dollar while those paying in francs but at the dollar rate will also certainly feel the same pinch.
Morris Kwibuka, a former banking official now in self-employment, says the only way out is for the government to place a policy directive that prohibits unnecessary use of the dollar locally or inject more dollars on the market to meet the huge demand.
BNR seems to be doing the latter. According to officials, the regulator intends to release over $300 million to the market in order to reinforce the franc.
However, the package could turn out to be a drop in the ocean if the current local greed for dollars is not arrested.
Experts reason that given low export earnings, the few available dollars should be left to importers to pay for imports, because if the dollar is expensive, imports coming to Rwanda will also be priced expensively. This leads to high inflation and will affect every consumer.
In the first half of 2014, Rwanda’s exports rose marginally by 1.2 per cent in value but imports value increased by 13.0 percent. The bad trade returns widened the country’s receipt deficit by 17.4 per cent.
Simply put, earnings from exports could only pay for 24.6 per cent of the cost of imported goods into the country.
The only hope to overturn this discourse lays in a recovery of export earnings. The first six months were bad with prices of all traditional exports such as coffee and tea plummeting while minerals got hit even harder.
For instance, the value of coffee decreased by 36.7 per cent, tea 10.2 per cent while flag minerals such as coltan lost by 40.8 per cent and wolfram 4.1 per cent; the value of pyrethrum also decreased by 62.1 per cent.
Last season, Rwandan tea exporters turned up with high volumes 5.1 per cent more than previously and clogged up the Mombasa auction forcing prices to drop from $2.85/Kg in January to $2.12/Kg in June 2014. This saw earnings drop by 10.2 per cent.
Therefore, with Rwanda’s main foreign exchange earners such as coffee, tea and minerals still struggling due to poor prices, incoming dollars will be limited. Reducing on local demand for dollar for local transactions such as rent could be the key in calming the rate.