Strong shilling reshapes trade dynamics: Analysts

DAR ES SALAAM: TANZANIA’S strengthening shilling is reshaping trade dynamics, making imports more affordable for businesses and consumers.

As the local currency gains against major foreign currencies, importers enjoy lower costs and reduced inflationary pressures, but exporters risk losing market share as the country’s goods become more expensive for international buyers.

According to Trading Economics, the shilling/US dollar exchange rate rose to 2,462/50 yesterday, up 0.10 per cent from the previous session. However, over the past month, the shilling has weakened 0.31 per cent, but it’s up by 9.63 per cent over the last 12 months. Last November the shilling was trading 2689/70 against the green buck.

An economist and investment banker, Dr Hildebrand Shayo, said yesterday the appreciation of the shilling against the US dollar introduces a complex interplay of opportunities and challenges for the country’s economy, particularly given its robust gold export sector.

“The appreciation of the shilling indicates that export earnings, upon conversion to local currency, have the potential to bolster fiscal stability by augmenting the government’s purchasing power for domestic investments and imports,” he said.

Nonetheless, the appreciation of the shilling presents complex implications for both exporters and importers.

He said the country ranks among Africa’s notable gold producers, with an estimated 61.7 tonnes (61,680.81 kg) of gold produced in 2024, a 12.6 per cent increase from 2023.

According to the London Bullion Market Association (LBMA), production is estimated at approximately 50 tonnes per year, resulting in Tanzania’s gold export earnings reaching approximately 3.4 billion US dollars for the year ending January 2025.

Tanzania, the secondlargest gold producer in the Southern Africa Development Community (SADC) region, has seen strong production and export growth, underscoring gold’s key role in foreign exchange, exports and the mining sector.

Dr Shayo said with gold prices consistently hovering around 4,000 US dollars per ounce, the country is positioned to gain substantially from ongoing export revenues.

Exporters, especially in non-gold sectors like agriculture and manufacturing, may find that a stronger shilling raises the cost of the domestic goods in international markets.

This change could lead to reduced competitiveness and a fall in export volumes. Conversely, importers benefit as the costs of acquiring foreign goods such as machinery, fuel, fertilisers and industrial inputs decrease.

This has the potential to lower production costs for local industries and support the ongoing development of infrastructure in line with the government’s industrialisation agenda.

The overall impact depends on the country’s ability to effectively balance its export performance against the advantages of cheaper imports, ensuring that the benefits from high-value gold exports outweigh any potential declines in other sectors.

He said Tanzania’s status as a leading gold producer in Africa serves as an important safeguard against the potential adverse impacts of currency appreciation.

“Sustained high gold prices can strengthen current account, boost foreign exchange reserves and increase fiscal revenues through royalties and taxes,” he said.

This enables the government to invest in key sectors like manufacturing, agriculture and renewable energy, promoting a more diversified export base.

Managed carefully, the interplay of a strong shilling, rising gold prices and targeted investment can support sustainable, inclusive growth and advance the country’s long-term development goals under Dira 2050.

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Alpha Capital Head of Business Development and Customer Service, Geofrey Kamugisha said the appreciation of the shilling, supported by strong gold exports, has both advantages and drawbacks for the economy.

“A stronger currency can be positive in the sense that it lowers the cost of imports. Businesses and consumers may find imported goods, machinery and fuel more affordable, which can help control inflation and ease production costs for some sectors,” he said.

However, he noted that the same appreciation can make the exports less competitive abroad.