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Ideas & Debate

Why exports hold the key to Kenya’s economic take-off

Kenya’s import orientation has revealed key flaws. One clear problem is having a chronic and substantial current account deficit.

Secondly the government has to be hawk-eyed about the shilling depreciation to keep import bills manageable. Third, the country is unable to generate forex to pay foreign-denominated debt.

Finally, Kenya’s import economy exacerbates the country’s unemployment problem.

How so? As an import economy we are essentially exporting jobs by hiring people from other countries to make goods for us to buy.

Thus there is a reason for serious conversation on how to re-orient the economy to be driven by manufactured exports and not the export of raw commodities.

If Kenya becomes a net exporter of raw commodities, be they agricultural or fuels and metals, the country will simply fall into the resource trap that so many African countries find themselves in where they cannot determine the value of their exports, thus falling victim to fluctuating commodity prices.

An export orientation rooted in industry and manufacturing is a means of avoiding this trap and will allow the country to have greater control of the pricing of exported goods.

Further, an export orientation is advantageous because momentum will shift from having a current account deficit to a surplus, and this would be good news for several reasons.

Not only would the government be comfortable with the devaluation of the shilling (where the momentum is at the moment), but exports also generate forex that the State can use to build reserves and to easily pay off foreign-denominated debt without having to go through the expensive headache of selling the shilling.

Secondly, an export orientation has proven to be an effective means of pulling millions out of poverty.

As a net exporter, Kenya could create a big dent on unemployment rates as Kenyans will be hired by companies locally to make goods for people in other countries. Being a net goods exporter means you are a net job importer.

This set up puts Kenya’s labour market to good use. An export orientation rooted in waged employment builds disposable income, developing the local consumer market where more people have more money to buy more goods and services.

Further, an export orientation can be useful in mitigating risk as companies that export will have an easier time riding out fluctuations in the economy and more likely to stay in business.

Finally, as an export economy serving numerous external consumer markets, this allows more companies to hire more people.

Targeting a massive external market is a much more effective strategy for generating sales and profits beyond the limited domestic market.

As a result, Kenyan business owners can be in charge of profitable businesses that build their wealth and that of the country.

This will also be good news for the government, because a larger number of profitable companies will translate into higher tax collection and revenue generation. Thus government will become more self-reliant in financing key development projects.

However, an export orientation has its challenges. Exporting comes with regulatory, commercial and financial challenges that businesses would not have otherwise faced if they focused on growing revenues in their domestic market.

Further, as we saw in the 2008-2009 financial crisis, if external consumer markets are hit by financial troubles, this affects exporters.

However, these are risks that can be mitigated. For example, the government can provide more effective direction on the requirements of exports into various markets and, with the private sector, help businesses to access export finance to grow.

Further, Kenyan companies can begin by focusing on export markets within Africa where the trend is consumer market growth.

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