Tanzania Grapples with Dollar Crisis: Black Market Surfaces as Businesses Struggle

By Adonis Byemelwa

In the bustling markets of Tanzania, a hushed murmur echoes through the air as businesses raise their voices in a chorus of worry over the burgeoning black market, a vivid byproduct of the persistent dollar crisis gripping the nation.

The scarcity of dollars, a tale that unfolded last year, weaves its narrative against the dramatic backdrop of global upheavals – from the echoes of the relentless COVID-19 pandemic to the thunderous rumbles of the Russia-Ukraine war.

Add the crescendo of the US Federal Reserve's interest rate hike and the whirlwind of climate change, and you have a symphony of challenges, painting a vivid picture of economic struggle in the heart of Tanzania.

The repercussions of these crises have disrupted supply chains, resulting in increased global commodity prices and a heightened demand for dollars. This scarcity is affecting both small and large enterprises, hampering their ability to access the essential hard currency required for foreign transactions, including fuel importation and IT services.

A dollar shortage occurs when a country's reserve of US Dollars is insufficient for effective international trade. The term gained prominence after World War II when stable currencies were scarce, prompting the US-sponsored Marshal Plan to alleviate the shortage.

In Tanzania, the annual average of imports is $14.59 billion against exports of $12.61 billion, leading to a trade deficit of $1.98 billion. This deficit underscores the global reliance on the US dollar, affecting many African countries, where the dollar is involved in 85 percent of international trade.

President Samia Suluhu Hassan highlighted the challenges, cautioning that while Tanzania has reserves to last for months, neighboring countries are struggling even to cover a week's worth of imports. Similar scenarios have been observed in Kenya, Nigeria, and Sudan, where dollar shortages have led to economic difficulties.

In response, the Bank of Tanzania (BoT) has implemented various measures to address the dollar shortage. These include selling dollars to oil marketing companies, establishing an export credit guarantee scheme, purchasing and exporting gold, and banning the use of the dollar in local transactions.

Last year the BoT governor, Emmanuel Tutuba, emphasized that Tanzania's foreign reserves stand at $5.5 billion, sufficient to cover almost five months of imports. The central bank is also set to establish the Export Credit Guarantee Scheme to provide cheap credits for processors of various export products.

However, businesses report challenges in obtaining dollars through official channels, with allegations that financial institutions are capitalizing on the crisis to sell dollars at higher prices. Some businesses claim that banks limit daily transactions, leaving them scrambling for alternatives.

Reports suggest that black market foreign exchange transactions are becoming prevalent, with individuals offering dollars at rates exceeding official quotes. The BoT prohibits foreign exchange transactions outside approved premises, aiming to prevent counterfeit currency circulation.

Despite denials from the Tanzania Bankers Association (TBA) chairman, Theobald Sabi, and a lack of awareness of a black market, businesses recount encounters with individuals outside banking halls offering dollars at higher rates.

Institute of Management and Entrepreneurship CEO Donath Olomi acknowledges the challenges posed by a demand-supply imbalance. He suggests taking legal action against those exploiting the situation while seeking a lasting solution to the crisis.

As Tanzania grapples with the dollar crisis, the situation underscores the need for strategic measures to alleviate the impact on businesses and the economy at large. The government's initiatives, coupled with international trade adjustments, will play a crucial role in stabilizing the currency and ensuring sustainable economic growth.

In the tumultuous landscape of Tanzania's economic struggles, the looming dollar crisis casts a long shadow over businesses and the wider economy, necessitating urgent and strategic interventions. The acute shortage of dollars has become a pressing concern, causing ripples that extend beyond the business realm and into the daily lives of Tanzanians.

The repercussions of the dollar scarcity are multifaceted, with businesses, both small and large, struggling to secure the necessary funds for essential foreign transactions. From fuel importation to vital IT services, enterprises find themselves in treacherous waters, hindered by a shortfall of hard currency. The consequences reverberate across industries, threatening not only the stability of businesses but also the livelihoods of those dependent on them.

As businesses encounter hurdles in accessing dollars through official channels, a darker undercurrent emerges in the form of a flourishing black market. Allegations abound of financial institutions capitalizing on the crisis, selling dollars at inflated prices and leaving businesses with limited daily transactions. This situation forces desperate enterprises to explore alternative avenues, inadvertently contributing to the growth of illicit foreign exchange transactions.

The clandestine dealings in the black market not only exacerbate the economic challenges but also pose risks of counterfeit currency circulation. The government, in collaboration with financial institutions, faces the uphill task of curbing these unauthorized transactions to safeguard the integrity of the currency and protect businesses from potential scams.

In this intricate dance of economic uncertainties, the Tanzanian government's initiatives assume paramount importance. Strategic measures, coupled with international trade adjustments, are imperative to stabilize the currency and foster sustainable economic growth. A comprehensive approach that addresses both the root causes of the dollar shortage and the consequences of its illicit trade is essential for steering Tanzania towards a more resilient and prosperous economic future.