High demand for industrial inputs raises import bill

High demand for industrial inputs in the first-half of the year has widened the balance of trade further, hinting at economic instability in the coming months even as tighter monetary policy continues to ease inflationary pressure.

Latest Kenya National Bureau of Statistics (KNBS) data indicate that imports widened by 25.3 per cent to Sh575 billion in the first five months of the year, compared to Sh489.6 billion by May last year.

Over the same period, exports recorded a modest six per cent growth, from Sh188 billion to Sh199 billion, forming just a third of imports.

“Food and beverages category was the main export category and industrial supplies the main import category,” KNBS says.

A wide gap between imports and exports, which has haunted the country for several years, was cited among factors that fuelled the fall of shilling last year.

Economic Survey 2012 indicates that Kenya exported goods worth Sh512 billion last year, almost a third of the Sh1.3 billion imports. This skewed arrangement — which means there was more demand for dollars (to pay for imports) than the shilling — led to free fall of the shilling to a record low of 107 to the dollar in October.

However, unlike last year when expensive petroleum and motor vehicles topped the list of imports, capital goods (used in production of other goods) dominated the list this year.

This growth in import of capital goods coincides with long rains when farmers usually increase their investment in inputs.

It also suggests that manufacturers and other sectors of the economy may have raised their production at firm level after the High Court ruling that extended the election date to March next year.

The KNBS figures show that in May alone, the share of industrial inputs reached 29.18 per cent of total imports, followed by fuel (and lubricants) transport equipment and machinery (capital equipment). These accounted for 25.49 per cent, 17.32 per cent, and 14.04 per cent respectively.

On the other hand, weak imports resulted from 4.5 per cent drop in the value of tea exports from Sh6.7 billion in April to Sh6.4 billion and four per cent drop in the value of coffee export from Sh2.4 billion to Sh2 billion.

“Food and beverages category was the main export category in May 2012 with a share of 36.74 per cent, while the values of non-food industrial supplies and consumer goods registered a share of 30.46 and 26.52 per cent respectively,” the data indicates.

To reverse this, the Kenya Association of Manufacturers suggests in its five-year industrial agenda released early this month that the government should intervene and reduce the cost of production and search for more external markets.

“Establish export expansion grants and export development fund to finance export promotion related activities,” the manufacturers propose to government in their 2012-2017 agenda.

Sector players still maintained that the current export performance was a result of hard work.