CBK banks on emerging markets spur exports

The Central Bank of Kenya is betting on increased growth in the US and BRIC nations—Brazil, Russia, India and China—to boost Kenya’s export business and offset the slow demand for key commodities in the Euro zone.

But financial analysts reckon that markets in US and emerging nations would not be enough to cover for the lost demand from Europe since they account for about 10 per cent of Kenya’s export.

The Euro zone takes 29 per cent of Kenya’s export and its weak economy has cut demand for key commodities such as horticultural products e and coffee, which account for 24 per cent or Sh324 billion of the country’s exports.

Austerity measures to curb the Euro Zone sovereign debt crisis have ended up discouraging public spending, dampening demand for Kenyan exports, the Central Bank has said.

“The World Economic Outlook revision for both the Euro Zone and the UK were lower and this together with austerity measures being implemented may dampen demand for Kenya’s exports,” Prof Njuguna Ndung’u, the Central Bank of Kenya (CBK) governor said in his latest update of the economy.

“There are expectations that the global economic recovery is predicated on continued high growth of the BRIC economies. This is expected to increase demand for Kenya’s exports,” he added.

CBK is also counting on the positive forecast of the US economy to support demand from the emerging nations.

So far, horticulture has borne the biggest brunt of the soft European economy, cutting earnings by Sh7 billion in the six months to June.

Data from the Kenya National Bureau of Statistics (KNBS) indicates that export earnings from the horticultural sector dropped to Sh19.5 billion in the six months to June, compared to Sh26.2 billion in the same period a year earlier.

Players in the sector attributed the poor showing to reduced demand from the European markets.

About 82 per cent of Kenya’s horticulture exports are taken up by Europe, with the remaining 18 per cent going to the US, the Middle East, Japan and Russia.

Horticultural products are Kenya’s biggest foreign exchange earner, raking in Sh71.6 billion from flower, fruit and vegetable exports last year, down from Sh73.7 billion the previous year.

If CBK’s expectations of the BRIC economies are not achieved, then this could lead to a freeze in employment and staff cutbacks as horticulture players look for ways to reduce their growing wage bill—which was inflated by a 24 per cent increase in workers pay following a strike threat in May.

The Food and Agriculture Organisation ) attributed the decline in Kenya’s main exports—black tea— to the Europe debt crisis and increased global supply.

Coffee exports have also dropped and the report says Kenya’s production is likely to fall 8.2 per cent to 670,000 bags in 2010-11, the lowest amount produced in more than 30 years.