Markets & Finance
Egypt crisis hits Kenya as exports fall by Sh2 billionThursday October 17 2013
Kenyan exports to Egypt have fallen by Sh2 billion in the first eight months of the year, as political unrest in the North African country slowed demand for Kenyan goods.
The main catalyst for the reduction in the exports, which by August 2013 stood at Sh11.8 billion compared to Sh13.9 billion in the first eight months of 2012, is a fall in tobacco product exports, according to the Kenya Association of Manufacturers (KAM).
The 16 per cent drop of Kenyan exports to Egypt has coincided with a difficult political period which has seen President Mohammed Morsi ousted by the military, and his Muslim Brotherhood party banned.
A breakdown of export numbers to Egypt made available by KAM shows that tobacco exports comprising manufactured tobacco, cigarettes and leaf went down significantly in the months of June and July 2013.
“There was an 87 per cent drop in tobacco and tobacco related products which account for over 10 per cent of the Kenyan exports to Egypt. KAM member, British American Tobacco has experienced a decline in the export of semi processed leaf to Egypt due to lower demand,” said KAM chairman Polycarp Igathe.
The bulk of Kenya’s exports to Egypt comprise of tea, whose volumes have not been badly affected by the unrest as those of tobacco. Up to August, the value of Kenyan tea exports to Egypt stood at Sh11 billion, compared to Sh11.3 billion a similar period in 2012.
In percentage terms, tea exports represented 93 per cent of total exports to Egypt in the first eight months of 2013, compared to 81 per cent in a similar period in 2012, reflecting the sharp fall in tobacco exports.
Any fluctuation in tea exports to Egypt, however, has a magnified effect on the economy, given that Egypt is the leading importer of Kenyan tea, which is in turn the country’s biggest foreign exchange earner.
(READ: Military takeover in Egypt now hits Kenya tea exports)
In its last monetary policy committee brief in September, Central Bank pointed to the unstable political climate in the North Africa and Middle East region as a threat to the country’s macroeconomic stability due to its importance as a tea import market and source of oil imports.
“Following the instability in the Middle East and Northern Africa (MENA) region…foreign exchange inflows from tea exports to the region, which account for about a third of Kenya’s tea exports, could be affected. These developments coupled with the high current account deficit remain a threat to macroeconomic stability,” said CBK.
However, Mr Igathe said while aware of the difficult and somewhat volatile environment in Egypt, manufacturers remain optimistic that exports will improve in the future after the country settles down politically.
He added that there is a need for Kenya to expand its export product portfolio so as to be in better shape to handle shocks in the destination markets, with individual exporters having the onus to do more market research in the destination markets.
There is also a need to address the negative balance of trade between the two nations, he said, adding that there is a concerted effort by manufacturers to expand Kenyan products market share in Africa.
According to Kenya National Bureau of Statistics data in the 2013 Economic Survey, in 2012, the value of Kenyan exports to Egypt stood at Sh21.4 billion shillings, compared to imports worth Sh29.8 billion.
In 2011, the balance was in favour of Kenya, with exports worth Sh23.4 billion against imports worth Sh17.8 billion from Egypt.
In the wider African market, Kenya enjoyed an advantage in that exports stood at Sh250.6 billion in 2012 compared to imports worth Sh140.7 billion. Exports to Egypt comprise nearly 10 per cent of Kenya’s exports to African countries.
Kenya’s exports to Egypt are largely agricultural, while Egyptian exports to Kenya are mainly manufactured goods. Egyptian companies have an advantage of cheaper electricity, oil and gas to gain competitive advantage in terms of cost of production.
Egypt is the largest manufacturer in the Common Market for Eastern and Southern Africa (Comesa) Free Trade Area.