Kenya National Trading Corporation loses over US$6M in rice deal due to currency depreciation

KENYA – The Kenya National Trading Corporation (KNTC), a state-owned enterprise, has revealed how it incurred losses amounting to KES 800 million (US$6.2M) in a rice supply deal with a company linked to a prominent city businesswoman.

The KNTC’s role in importing essential commodities like rice is part of a broader government directive aimed at stabilizing prices and ensuring food security.

Lucy Anangwe, the Managing Director of KNTC disclosed this during a court hearing at the Milimani Law Courts on February 5, attributing the financial setback to the depreciation of the Kenyan shilling against the U.S. dollar.

Anangwe, who has been with KNTC since 2008 and rose through the ranks to become Managing Director, explained that the corporation had contracted several suppliers, including the businesswoman’s firm, to provide rice and other essential commodities.

These suppliers were financed through letters of credit issued by a local bank. However, the fluctuating exchange rate between the Kenyan shilling and the U.S. dollar led to significant losses for the corporation.

The contract, signed in January 2023, stipulated that payments would be made in U.S. dollars. At the time of negotiation, the exchange rate was KES121 (US$0.93) to the dollar, but by the time of payment, it had risen to KES155 (US$1.2).

This sharp depreciation meant that KNTC had to pay KES3.9 billion (US$30. 2M) instead of the initially projected KES3.1 billion (US$24M) for 43 metric tonnes of rice procured at US$600 per metric tonne.

“If we had negotiated at Sh121 and the dollar appreciated, we were ultimately losing Sh34 for every dollar,” Anangwe told Chief Magistrate Charles Ondieki.

She further explained that KNTC had the option to purchase rice at 460,460,520, or US$600 per metric tonne but opted for the highest price point, which exacerbated the financial impact of the currency depreciation.

Kenya relies heavily on rice imports to meet its domestic demand, as local production accounts for only about 18% of the total consumption.

According to the Kenya National Bureau of Statistics (KNBS), the country produces approximately 180,000 metric tonnes of rice annually, while consumption stands at around 1 million metric tonnes. The deficit is bridged through imports, primarily from Pakistan, India, Thailand, and Vietnam.

The government has been making efforts to boost local rice production through initiatives such as the National Rice Development Strategy (NRDS) and the promotion of irrigation schemes in regions like Mwea, Ahero, and Bunyala. However, challenges such as high production costs, inadequate infrastructure, and climate change have hindered progress.

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