Recession wilts Kenya’s flower export market

Kenya’s economy could take further beating from the global economic turmoil this year as scarcity of trade financing and a slowdown in demand for horticultural produce in Europe withers out growth of the country’s top foreign exchange earner, a new report indicates.

A recent tightening of access to credit and delayed payment for deliveries is slowing down the movement of goods in the multi-billion shilling horticulture industry that trade experts say could further erode Kenya’s balance of payment position and thin out official foreign exchange reserves with serious consequences for the economy.

Exposure of Kenya’s economy to commodity markets arises from the fact that export of flowers and vegetables is the country’s top foreign exchange earner having overtaken remittances and tourism that have been hard hit by the global economic recession.

Kenya needs hard foreign currencies to pay for the billions of dollars worth of imports it consumes every year as well as capital goods to support economic growth.

Central Bank of Kenya has warned that the economy’s exposure to risks arising from continued erosion of her balance of payment position (BOP) may increase with the slowdown in the uptake of key export commodities.

“Recession in advanced countries is likely to restrain, if not reduce, demand for Kenya’s exports including tea, horticulture and coffee in 2009,” Treasury says in a letter of intent to the International Monetary Fund (IMF).

Netherlands-based Centre for Promotion of Imports from Developing Countries (CBI) says concern over falling demand for horticultural produce in Europe has made it difficult for exporters to access trade financing and eroded creditworthiness of buyers slowing down the movement of Kenya’s top export commodities to foreign markets.

Kenya Flower Council chief executive Jane Ngige said scarcity of trade financing has particularly deepened in recent months forcing the organization to petition commercial banks for a review of their position.

“The crisis has caused panic and everyone is trying to find a way to shield themselves,” she said.

“Unfortunately, most of the measures being taken are slowing down business and widening the country’s exposure to the global economic crisis,” she said.

But commercial banks say the introduction of stringent lending measures and a rapid scaling back of consumer lending activities deemed to be risky are meant to reduce their exposure to the risk of massive loan defaults in a turbulent market.

Kenya’s agriculture is considered risky owing to its dependence on unpredictable weather conditions as well as the frequent outbreaks of epidemics. The CBI report says that Kenya’s exposure to the changes in global commerce is rising with the steady decline in demand for luxury products in Europe.

It says demand for exotic tropical fruit and vegetables have particularly slowed down in recent months a trend that may continue into the third quarter of the year.

“There is insufficient demand in local markets. The mismatch between local demand and supply means domestic markets are a poor alternative for exporters,” CBI says in a report published in Kenya Export Promotion Council (EPC) bulletin.

Massive drops
The report indicates that Kenya’s horticultural exporters have recorded massive drops in order volumes as many buyers, who previously ordered bulk consignments, reverted to placing more frequent, but smaller orders.