Trade deficit widens on rising imports

Kenya’s trade deficit widened by Sh44 billion in the first six months of the year compared to a similar period in 2013 on the back of a rising import bill, forecast to soar higher in view of the planned massive infrastructure projects.

External trade data from the Kenya Bureau of Statistics shows the country’s import bill in the six months to June rose by Sh63.2 billion to a new high of Sh748.6 billion, having stood at Sh685.4 billion over a similar period in 2013.

The rise in the import bill eclipsed a Sh21.2 billion increase in export earnings that stood at Sh276 billion in June 2014 compared to Sh256.9 billion in June 2013.

Experts say the import bill was bound to rise in the current economic environment where the country is undertaking major projects that require the importation of capital goods.

Projects in the queue include the standard gauge railway, roads and Lamu Port construction and the 5,000 megawatt power projects set to see importation of equipment and raw materials, widening the trade gap further.

“The problem of rising imports may not be handled fully in the short term. The government, however, needs a clear strategic programme on import reduction,” said Gerishon Ikiara, a lecturer in international economics at the University of Nairobi.

Most of the projects are expected to be implemented over the next several years.

Kenya’s imports are mainly industrial supplies at 30 per cent of the total import bill, fuel and lubricants at 24 per cent, machinery and other capital equipment at 17.3 per cent and transport equipment at 12.5 per cent.

READ: Kenya’s trade deficit grows on reduced exports

Main exports include food and beverages at 40.5 per cent, consumer goods at 29 per cent and industrial supplies at 27 per cent.

The increase in imports cut across all main categories, with industrial supplies imports going up by Sh9 billion, fuel imports up by Sh13 billion and machinery imports up by Sh14 billion.

The investment in capital goods is, however, expected to pay dividend in future, especially by lowering the cost of doing business in Kenya for the manufacturing sector, whose competitiveness has been hampered by high power and transport costs.

Besides, new road arteries like the Thika Super Highway and the Nairobi bypasses have opened commerce and real estate investments to the tune of billions of shillings.

In the short term, a weaker shilling could give export earnings a boost by making Kenyan goods and raw exports more competitive on the international market while discouraging importation of goods that can be produced locally.

In recent weeks the Kenyan shilling has gradually lost to the hard currencies and could break through the 89 to the dollar barrier in the coming days.

Exporters will be hoping for better fortunes in the second half of the year, with an eye on prices of commodities such as tea and horticulture.