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Kenyan firms risk forex losses on new Tanzania currency rule
Tanzania implemented new foreign currency regulations requiring that all prices for goods and services in the country be quoted exclusively in its local currency.
Kenyan businesses, including banks and industrialists, risk currency losses after Tanzania implemented new foreign currency regulations requiring that all prices for goods and services in the country be quoted exclusively in its local currency.
In the new regulations that took effect on March 28, 2025, all prices for goods and services in Tanzania will be quoted exclusively in Tanzania shillings (Tsh) as part of a strategy to reinforce the use of the local currency for domestic transactions.
The new regulations, that followed amendments introduced through the Finance Act 2024, prohibit contracts for goods and services to be concluded with foreign currency payment provisions, except for cases explicitly permitted.
The rules also demand that payments relating to employees, services, or goods procured locally must be made in Tanzanian shilling and the existing contracts with foreign currency payment provisions be amended within one year to ensure compliance, or they will become null and void, unless an extension is approved by the Minister of Finance.
The changes are likely to trigger currency losses for Kenyan and other foreign businesses with subsidiaries or operations in the Tanzanian market.
Currency conversion losses occur when the value of a foreign currency declines against a company's home currency, leading to a financial loss when converting the foreign currency back to the home currency.
“Manage potential exchange risks by monitoring exchange rates and assess financial implications” Auditax International, a Dar-es Salaam-based audit and risk management firm, said in an advisory note on the likely impact of Tanzania’s forex rule changes on businesses.
The Kenya shilling has in the past year rallied to gain 15.3 percent against the Tanzania shilling—pointing to the currency losses that could hit Kenyan businesses under the new rule by Dodoma.
Currently, there are more than 500 Kenyan businesses with a significant presence in key sectors of Tanzania, including banking, telecommunications, and manufacturing,
Kenyan banks have already had a taste of the impact of the fluctuations of regional currencies, booking Sh57 billion in currency losses in the financial year ended December 31, 2024, after the shilling appreciated against the dollar and the currencies of countries in the region where they have subsidiaries.
Top lenders including Equity Group, KCB Group, NCBA, DTB Group, Stanbic Bank and I&M Group run regional affiliates across Uganda, Tanzania, Rwanda, South Sudan, Burundi and the Democratic Republic of Congo.
These subsidiary units conventionally prepare their financials in their respective home currencies commonly referred to as functional currency.
However, when their respective financials are combined into the group business financial reports, the currency is translated into shillings through a concept known as reporting currency.
This means that there would be exchange losses or gains, depending on whether the shilling has strengthened or weakened against the respective operating currencies of the subsidiaries.
Tanzania’s new forex rules, however, allow some transactions to be conducted in foreign currency, including payments by the Government of Tanzania to regional organisations that are in Tanzania, transactions involving diplomatic missions and "international organisations”; foreign currency loans issued by local banks and financial institutions; and purchases at duty-free shops.
Kenya is a key trade partner with Tanzania despite recurrent trade spats between the two countries. Data by the Kenya National Bureau of Statistics shows that the value of domestic exports to Tanzania fell 7.36 percent to Sh51.84 billion in 2024 from Sh55.96 billion in the prior year.
That marked the first fall in earnings from total goods sold to Tanzania since 2017 when protectionist policies imposed by the late President John Magufuli resulted in a 17.72 percent drop to Sh29.27 billion.
This analysis excludes the year 2020 when the value of exports to Tanzania also contracted 6.0 percent to Sh31.83 billion on transport restrictions to curb the spread of Covid-19 infections.
