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Kenya lowers risk with less reliance on commodities

Titanium extraction in  Kwale. Africa is home to a third of the world’s minerals. FILE photo | nmg
Titanium extraction in Kwale. Africa is home to a third of the world’s minerals. FILE photo | nmg 

Kenya’s dependence on commodities has reduced substantially in the last 10 years, a distinction for the country in a period that saw nine more developing economies intensify their reliance on earnings from raw materials.

The State of Commodity Dependence Report released by the United Nations Conference on Trade and Development (UNCTAD) shows Kenya’s commodity exports dropped from an average of 66 per cent of the value of merchandise sold in 2009/10 to 64 per cent in 20014/15.

According to UNCTAD, a country is dependent on commodities when its commodity exports account for more than 60 per cent of its total merchandise sales.

Earnings from exports was valued at $3.621 billion (Sh362.1 billion) in 2014/15 or 5.9 per cent of Kenya’s GDP, down from 8.3 per cent of GDP a decade ago when earnings totalled Sh317.7 billion.

Commodity dependence can negatively affect life expectancy, education, and per capita income says UNCTAD, adding that two thirds of commodity-dependent developing countries also ranked low in human development.

“In the context of dramatic volatility in commodity prices, developing countries will struggle to achieve the Sustainable Development Goals unless they break the chains of commodity dependence,” said UNCTAD Secretary-General Mukhisa Kituyi.

“Many developing countries have been commodity-dependent for the past three decades, and it is worrying to see that the numbers are going up,” Dr Kituyi added.

The rise in commodity dependence was most noticeable in Africa, where seven new countries entered the category in 2014-2015, bringing the total to 46, UNCTAD said.

Over the same period, the number remained stable at 17 in Latin America and the Caribbean, while the Asia and Oceania region saw its total increase by two to 28. For about five years, Africa has registered booming growth in key sectors propped by, among other things, high commodity prices, better governance and deep investments in technology.

The buoyant run is, however, being threatened as global prices of oil, iron and copper plummet — creating a dilemma for decision makers in Africa as the high economic growth slows down.

Africa is home to a third of the world’s mineral and a tenth of oil reserves and the falling prices have dented the economic outlook.

For Kenya, the fall in the proportion of raw material exports implies that earnings from processed goods has grown significantly over the 10-year period.

The country’s top raw commodity exports include tea, vegetables and petroleum oil (re-exports), while processed merchandise include cooking fat, soap and long life milk.

The European Union, East Africa, Pakistan, the United Arab Emirates and Egypt have remained Kenya’s top export markets for decades.

Of the commodities that Kenya exports, agricultural produce accounted for 20 per cent of the 2014/15 earnings, down from 19 per cent a decade ago.

The UNCTAD data also shows Kenya has slowly been scaling down its import of commodities with the proportion falling to 32 per cent of all the merchandise ordered in 2014/15 from 35 per cent a decade ago.

In absolute terns, however, commodity imports grew from Sh386.1 billion in 2009/10 to Sh559.9 billion in 20041/15 implying the growth has been slower than the GDP expansion rate.

Fuel and food orders dominated the list, accounting for 59 and 33 per cent of the 2014/15 import bill respectively.

India, UAE, Bahrain, EU and US remain top sources of imports which are mainly fuel and food items, the data shows.

Through the period, Kenya’s trade in merchandise (both export and import) grew from Sh655.9 billion to Sh1.2 trillion, the data states.

The UNCTAD report shows that developing countries saw their revenue from commodity exports jump 25 per cent to $ 2.55 trillion.

The rise in commodity dependence was most noticeable in Africa, where seven new countries entered the category in 2014-2015, bringing the total to 46, the report states.

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