Why businesses in property, tourism industries quote prices in dollars in Tanzania

Historically, the US dollar has provided relative stability compared to the Tanzanian shilling, which has experienced volatility due to economic factors.

By pricing in dollars, stakeholders in these industries aim to mitigate currency devaluation risks, safeguarding investments against potential purchasing power losses.

Speaking to The Citizen, James Prevost, the managing director of REMAX Tanzania, a real estate agency, attributed the trend to the global stability of the US dollar compared to the shilling, something that he says plays a significant role in this pricing practice.

“Using the dollar provides a stable and internationally recognised currency for transactions, especially when dealing with international buyers,” he says.

This, according to him, can help mitigate currency exchange risks and uncertainties.

In his view, the nature of the real estate market involves global players, including developers, investors, and buyers, who are accustomed to dealing in dollars due to its status as a global currency.

“This makes it easier for them to evaluate and compare properties across different markets.”

He added that it can also help in marketing properties to a wider audience, including those from countries where the dollar is a preferred currency for investment purposes.

In his view, quoting prices in dollars in the real estate business is a strategic decision aimed at facilitating international transactions, reducing currency risks, and attracting foreign investment.

“This stability offers reassurance to investors and property owners, providing a reliable benchmark for pricing assets in these sectors,” he says.

Mr Provost’s reasons for the dollar use are corroborated by another realtor, Emillian Rwejuna, the managing director of Prime Locations, though he says it is not a blanket practice.

“All products targeting international organisations and individual foreigners are quoted in dollars to make it easy to understand, especially in the beach areas, but the products targeting local markets are all quoted in the Shilling,” says Mr Rwejuna.

He, however, says that some unscrupulous property owners and agencies take advantage of that advantage to maximise currency inflation risk, especially in upmarket areas.

He acknowledges the potential drawbacks of quoting prices in dollars, particularly in a predominantly cash-based economy like Tanzania.

Realtors, however, say that inflationary pressures can erode the value of local currency over time, making it less desirable as a pricing unit, especially for long-term investments such as real estate.

A property designer and developer in Zanzibar, who spoke to The Citizen on condition of anonymity, said reliance on foreign currency pricing exacerbates socioeconomic disparities and limits access to property ownership and hospitality services for ordinary Tanzanians.

“Exchange rate fluctuations and currency conversion costs can introduce uncertainties and complexities into transactions, affecting affordability and liquidity for local buyers and investors.”

In Zanzibar, where tourism is the main economic activity, most hotel prices and other related services are quoted in dollars.

Just like in the real estate industry, service providers claim it makes it easier for their bookings, which usually take place in foreign countries.

“Our main office is in Milan, and most of our clients are from Italy and Spain, so it is rather comfortable for us to quote prices in dollars rather than shillings because that is what they are familiar with,” said one official at Gold Zanzibar.

The authorities, too, seem to be comfortable with dollar use; according to Javed Jafferji, a board member of the Hotel Association of Zanzibar (HAZ), when they collect payments in dollars, they too submit the taxes in dollars.

“Whatever we collect in dollars, we pay to the Zanzibar Revenue Authority (ZRA) in dollars as well. But we do not restrict our customers from paying in foreign currency if they have the shilling,” said Mr Jafferji.

New directive

But this reliance could be short-lived after Tanzania’s Finance and Planning Minister, Dr Mwigulu Nchemba, last week issued a directive aimed at curbing the widespread use of the US dollar within the country.

In his budget speech to the national assembly, Dr Nchemba highlighted the detrimental effects of dollarization, where both public and private institutions demand payments in foreign currency for goods and services provided domestically, exacerbating the shortage of dollars and hindering economic progress.

The directive mandates that all transactions be conducted and advertised in Tanzanian Shillings, aligning with the legal framework of the country and promoting financial stability.

The Minister expressed concern over the practice of some institutions, including governmental bodies, requiring Tanzanians to pay fees, rent, work permits, licenses, and other charges in dollars.

He emphasised that this situation not only increased the unnecessary demand for foreign currency but also deprived those in need of dollars of essential goods and services from outside the country.

Furthermore, Dr. Nchemba reiterated the legal framework stipulated in Section 26 of the Central Bank of Tanzania Act of 2006, which designates the Tanzanian shilling as the sole legal tender for domestic payments.

Any transactions conducted domestically in foreign currency are deemed an offence under this act.

To address these challenges head-on, the Minister issued a directive effective July 1, 2024, instructing all stakeholders, including public institutions, businesses, civil society organisations, international entities, and individuals, to cease the practice of pricing goods and services in foreign currency.

In February, the Bank of Tanzania governor, Mr Emmanuel Tutuba, said in an interview with The Citizen that the central bank had observed violations of the directives.

“The central bank would like to remind the general public that the government’s directives are still valid and should be adhered to at all times. All prices of goods and services in Tanzania should be quoted in Tanzanian shillings,” he said.

He added: “We have continuously informed the public, including tenants, not to accept the use of foreign currency as payment for rent,” he stressed.

According to him, BoT has also been in talks with the Tanzania Law Society (TLS) not to accept rent contracts whose payment is pegged in foreign currency.

Prices to be paid by tourists or non-resident customers may be quoted and paid in foreign currency, he said, citing such services as accommodation, travel, airport and visa, transit trade, and cargo handling.