Kenya has this year posted a drop in the value of imports for the first time since the Covid-19 pandemic era due to reduced expenditure on key supplies such as materials for factories, machinery and fuel, fresh official data show.
Traders spent Ksh1.43 trillion ($9.7 billion) on goods ordered from abroad for the first seven months of the year compared with Ksh1.46 trillion ($9.9 billion) in a similar period last year, according to the data collated by the Central Bank of Kenya (CBK).
The 2.09 percent— about Ksh30.57 billion ($207.96 million)— fall has come when global prices of major imports moderated as disruptions in supply chains eased, helping to cut the cost of shipping.
Challenges in global supply chains were last year exacerbated by Russia’s war in Ukraine at a time when they were yet to recover from pandemic-induced shocks.
The drop in import bill was largely helped by a 15.83 percent fall in expenditure on intermediate goods used by manufacturers to Ksh212.43 billion ($1.45 billion) in the January-July period from Ksh252.37 billion ($1.72 billion) in a similar period last year. Kenyan factories largely rely on foreign markets for the supply of materials.
The country further experienced a 9.68 percent year-on-year decline in the value of machinery and transportation equipment to Ksh237.78 billion ($1.62 billion), the provisional data shows.
The CBK in June attributed the fall in expenditure on machinery to a slowdown in public investment in infrastructure projects, including roads.
The Ruto administration spent Ksh52.48 billion ($357 million) on road projects in the financial year ended June, for instance, compared with Ksh62.88 billion ($427.8 million) that had been budgeted by the previous regime.
Public expenditure on projects in the energy sector was 62.33 percent lower than Ksh24.03 billion ($163.5 million) in the original budget, according to separate data from the Treasury.
Expenditure on fuel, the main driver of the import bill, also dropped 5.93 percent to Ksh356.66 billion ($2.4 billion) in the seven-month period compared with a similar period the year before.
The fall in value of fuel orders largely mirrors a reduction in prices of Murban crude oil from peaks of about $130 per barrel in March 2022 to about $96 today. Kenya imports refined fuel from Murban crude oil, largely from the United Arab Emirates.
The expenditure on food imports, however, bumped 46.97 percent to Ksh193.01 billion ($1.3 billion) on the back of a drop in staple maize, rice, wheat, and sugar whose production dropped last year on a biting drought amid high cost of inputs, including fertiliser.
The overall drop in imports helped to narrow Kenya’s goods trade deficit – the gap between merchandise exports and imports – in the review period by 8.81 percent to Ksh867.53 billion ($5.9 billion). The shrink in goods trade imbalance came despite earnings from exports growing at the slowest pace since the pandemic.
Exporters earned Ksh561.87 billion ($3.82 billion) in the first seven months of the year, a 10.47 percent rise from Ksh532.38 billion ($3.62 billion) a year earlier.
The growth in value of exports was slower than 18.5 percent in the corresponding period to Ksh508.63 billion ($3.46 billion) and 16.33 percent to Ksh429.24 billion ($2.92 billion) in similar period in 2021.
Income from tea, Kenya’s largest farm export by earnings, increased 7.18 percent to Ksh99.93 billion ($679.8 million) in the January-July period, while horticulture exports increased 8.78 percent to Ksh81.99 billion ($557.8 million).
Revenue from coffee exports, however, was flat, falling 1.91 percent to Ksh26.64 billion ($181.2 million), the data that CBK obtains from the Kenya Revenue Authority shows.
“We expect exports to increase by about 6.7 percent basically driven by tea and horticulture exports. At the same time, we expect imports to remain broadly unchanged,” Central Bank of Kenya governor Kamau Thugge said on August 9.
“That slower increase in imports and a large increase in exports will improve our trade balance and current account deficit.”
A persistently higher trade deficit, economists say, slows down the creation of new job opportunities for the growing skilled youth as most revenue earned within Kenya is spent on imports, thereby raising production and job openings in source markets.
A widening import-export gap also piles some pressure on the shilling as the demand for dollars outstrips the supply.
The shilling, for instance, lost about 15.39 percent of its value against the US dollar in the first seven months of the year under review to 142.36 units on average, largely on the back of higher demand for the greenback by importers.
Kenya has over the years struggled to narrow its goods trade deficit partly due to reliance on traditional farm produce exports such as tea, horticulture, and coffee that are largely sold raw, fetching relatively lower earnings.
Most Kenyan traders export produce raw because of higher taxes slapped on semi-processed or processed products in destination markets such as Europe, fearing that value addition will make exports less competitive in the global markets.
“Kenyan products are competing with products from all over the world and, therefore, we need as a country and even at factory level to be globally competitive,” Kenya Association of Manufacturers CEO Antony Mwangi told the Business Daily in a past interview.
“If you look at some of the goods that we sell [abroad] like apparel, even with duty-free access to the US market, we are still 15 to 20 percent more expensive than our competitors in Central Asia like Bangladesh and Sri Lanka. The reason is that production cost in Kenya is very high because of expensive power, water, and labour.”