Help to navigate US Dollar Shortages affecting my business

[Nodus]

Shortly I am from Tanzania an East African country, my last intro post was a couple of years ago in this post.

How I made $264,998 at 26 y.o in 2021 living in a 3rd World African Country

We have been scaling significantly since the last time I posted, expecting to hit at least $2M in revenue this year. We import items anywhere from $50,000 - $100,000 each month and 98% of all our payments for imports are done by US Dollars.

In the beginning, things were easy, take your invoice to the bank, convert your local currency from your account to USD automatically, and make the wire transfer. Easy

From the beginning of 2023, the local currency (Tanzanian Shilling) began taking a nose dive, and exchange rates in commercial banks against the dollar began to sharply rise, Worst of all the US Dollar became unavailable - the banks didn't have any dollars to sell so invoices began pilling up and late deliveries, out of stock inventories increased.

The largest commercial bank in Tanzania even limited the amount of Dollars one can purchase per day to $500 only. That means you have to open a USD account, show up to the bank every day and all you can get is the $500 which is deposited to your USD account, which you accumulate and hopefully after some days pay for an order. As a business, this has knee-capped us greatly, this means for for a $100,000 payment, at this rate you have to wait 200 (working) days!! for one invoice. and on top of that the rates keep rising daily. They have risen more than 15% since January cutting deeply into our margins as we sell by local currency.

We have contracts with major institutions ranging from 1 to 3 years to supply these items at a given price - so simply raising the price is not a viable option for pre-existing contracts.

Methods that work:
1. Card payments still work (VISA, Mastercard, Paypal, etc) and can purchase by debit/credit card on most platforms such as Alibaba, Payment processors like Stripe, etc, but most of our suppliers do not have these available and only limited to a few thousand dollars before the 3% card fees become significant. The challenge here is that most our manufacturers do not accept/cannot receive online payments. Also in Tanzania, you can only send payments via processors like Paypal/Stripe BUT CANNOT RECEIVE PAYMENTS

2. US Dollar payments from the few services we do :- regulatory consulting including pharmaceuticals and medical device registration. Companies that want their products in Tanzania regulated markets do pay us in US Dollars, but the payments are not significant and few in number to cover our needs

Any ideas on how to navigate this? Has anyone here faced these challenges before? I am open to try any suggestions you put forth.

Thanks

 

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[Robdavis]

Shortly I am from Tanzania an East African country, my last intro post was a couple of years ago in this post.

How I made $264,998 at 26 y.o in 2021 living in a 3rd World African Country

We have been scaling significantly since the last time I posted, expecting to hit at least $2M in revenue this year. We import items anywhere from $50,000 - $100,000 each month and 98% of all our payments for imports are done by US Dollars.

In the beginning, things were easy, take your invoice to the bank, convert your local currency from your account to USD automatically, and make the wire transfer. Easy

From the beginning of 2023, the local currency (Tanzanian Shilling) began taking a nose dive, and exchange rates in commercial banks against the dollar began to sharply rise, Worst of all the US Dollar became unavailable - the banks didn't have any dollars to sell so invoices began pilling up and late deliveries, out of stock inventories increased.

The largest commercial bank in Tanzania even limited the amount of Dollars one can purchase per day to $500 only. That means you have to open a USD account, show up to the bank every day and all you can get is the $500 which is deposited to your USD account, which you accumulate and hopefully after some days pay for an order. As a business, this has knee-capped us greatly, this means for for a $100,000 payment, at this rate you have to wait 200 (working) days!! for one invoice. and on top of that the rates keep rising daily. They have risen more than 15% since January cutting deeply into our margins as we sell by local currency.

We have contracts with major institutions ranging from 1 to 3 years to supply these items at a given price - so simply raising the price is not a viable option for pre-existing contracts.

Methods that work:
1. Card payments still work (VISA, Mastercard, Paypal, etc) and can purchase by debit/credit card on most platforms such as Alibaba, Payment processors like Stripe, etc, but most of our suppliers do not have these available and only limited to a few thousand dollars before the 3% card fees become significant. The challenge here is that most our manufacturers do not accept/cannot receive online payments. Also in Tanzania, you can only send payments via processors like Paypal/Stripe BUT CANNOT RECEIVE PAYMENTS

2. US Dollar payments from the few services we do :- regulatory consulting including pharmaceuticals and medical device registration. Companies that want their products in Tanzania regulated markets do pay us in US Dollars, but the payments are not significant and few in number to cover our needs

Any ideas on how to navigate this? Has anyone here faced these challenges before? I am open to try any suggestions you put forth.

Thanks

I haven't faced this problem myself, so the following are just suggestions:

What countries are you importing from? Is it all from the USA?

If it isn't, then can you try either or both of the following approaches?

For imports from other African countries, try settling the transaction in local currency. I have heard that Afreximbank is trying to help African entrepreneurs to settle in local currencies more often. Maybe check their website.

For imports from outside Africa, but not the USA, could you try offering payment in a different currency, (preferably one that you can get) eg. Euros, Canadian Dollars, UK Pounds, Chinese Yuan/ Renmimbi, Australian Dollars, Swiss Francs, etc etc.

 

[amp0193]

The challenge here is that most our manufacturers do not accept/cannot receive online payments

Not sure what you'll have access to, but there are services that will let you pay with credit card, and then they send the wire transfer (for a fee). I haven't used any personally, but I hear Melio is one. Depends on what sort of credit limit you can get access to.


Can you convert currency twice? Convert from shilling into something else that's not USD. Send that to supplier, and let them exchange it on their side?

Maybe use a service like Wise to handle this (I use Wise for all international supplier payments... maybe they can help, but your situation is unique so I'm not sure).



Sorry to hear about the problems, keep at it. These are the barriers that will keep others out.

 

[Nodus]

Not sure what you'll have access to, but there are services that will let you pay with credit card, and then they send the wire transfer (for a fee). I haven't used any personally, but I hear Melio is one. Depends on what sort of credit limit you can get access to.


Can you convert currency twice? Convert from shilling into something else that's not USD. Send that to supplier, and let them exchange it on their side?

Maybe use a service like Wise to handle this (I use Wise for all international supplier payments... maybe they can help, but your situation is unique so I'm not sure).



Sorry to hear about the problems, keep at it. These are the barriers that will keep others out.

Thank you. Will definitely try that service.

With regards to converting it multiple times. The loses in this are huge. Since banks have both buying and selling prices for foreogn exchange this can tremendously increase the fees and total payment amount significantly

 

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[amp0193]

The loses in this are huge.

Yes of course, but are the losses greater than the opportunity cost of not having product in stock to sell?

It may be worth giving up large percentages in fees, just to keep the business going until the exchange rates eventually stabilize.

 

[Nodus]

I haven't faced this problem myself, so the following are just suggestions:

What countries are you importing from? Is it all from the USA?

If it isn't, then can you try either or both of the following approaches?

For imports from other African countries, try settling the transaction in local currency. I have heard that Afreximbank is trying to help African entrepreneurs to settle in local currencies more often. Maybe check their website.

For imports from outside Africa, but not the USA, could you try offering payment in a different currency, (preferably one that you can get) eg. Euros, Canadian Dollars, UK Pounds, Chinese Yuan/ Renmimbi, Australian Dollars, Swiss Francs, etc etc.

We import from many countries including the US, Germany, UK, China, India.

The only African countries we import from are Egypt and South Africa, whose volumes are very low. For China and India based suppliers we already pay them on their local currency. But they peg the payment to the dollar exchange rate of the day, so payments keep fluctuating based on the dollar even though you pay by their local currency.

Not every African currency is directly convertible, for instance you cannot convert directly Tanzanian shillings into Egyptian Pounds. So we have to pay our Egypt suppliers in USD

 

[Nodus]

Not sure what you'll have access to, but there are services that will let you pay with credit card, and then they send the wire transfer (for a fee). I haven't used any personally, but I hear Melio is one. Depends on what sort of credit limit you can get access to.


Can you convert currency twice? Convert from shilling into something else that's not USD. Send that to supplier, and let them exchange it on their side?

Maybe use a service like Wise to handle this (I use Wise for all international supplier payments... maybe they can help, but your situation is unique so I'm not sure).



Sorry to hear about the problems, keep at it. These are the barriers that will keep others out.

Melio seems to have a solution for what we want because we can still pay by card and they make the wire transfer, but unfortunately it only works in the US. Any alternatives that work worldwide?

 

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[amp0193]

Any alternatives that work worldwide?

I don't know of any, but now that you know such services exist to solve the problem that you have, I hope that your research will lead you to something you have access to.

 

[Subsonic]

I see a huge opportunity here to do payment processing for small businesses in 3rd world countries.