The weakening of currencies in the eastern and southern African region against the shilling and the dollar last year made Kenyan exports expensive leading to a cut in earnings.
A new World Bank report says countries in the East African Community and the southern African region saw their currencies depreciate against the Kenya shilling and the dollar, making local goods uncompetitive.
Though the shilling depreciated, others in the region depreciated by an even bigger margin, leaving the local unit relatively stronger.
“The currencies in the regional markets weakened against the dollar and the Kenya shilling. Consequently, Kenyan exports became more expensive in the regional markets and earnings declined,” said the World Bank report launched at Kenyatta University Thursday.
Kenya’s export earnings from Rwanda fell by 32 per cent while those to Tanzania declined by 37 per cent and those to Uganda 0.2 per cent.
The decline followed the trend in the depreciation of the currencies in the EAC region and other trading partners in southern Africa. While the Kenyan unit fell by about 13 per cent by last December, Tanzanian and Ugandan shillings weakened by 24.4 per cent and 6.6 per cent respectively and the South African rand by 30.2 per cent.
Though Kenya lost some earnings from regional export markets, it gained in other global markets including the United States and the UK. In the UK, export earnings grew by 11.5 per cent and those from the US rose by 5.5 per cent in 2015.
“Export earnings from two leading markets, the UK and the USA increased by 11.5 and 5.5 per cent respectively and protected export earnings and offset the contraction in other markets,” said the report whose main authors were the World Bank economists Jane Kiringai and Maria Laura Sanchez.
The US actually overtook the UK in the value of trade with Kenya. The extension of the African Growth and Opportunity Act (Agoa) was the key factor behind increased trade with the US.
“Notably, trade with the US now exceeds the UK and is largely driven by preferential access through Agoa,” said the Bank.
The report noted that Kenya has tended to lose grip on its key traditional and largest export markets, which include not only in east Africa but also in Europe.
“This has been a declining trend in Kenya’s largest export market, Uganda, as well as the UK, another significant trading partner, since 2011,” said the report.
It goes on to say that among the reasons for the falling export earnings from the traditional trading partners may have something to do with start of the fully fledged EAC customs union, which terminated preferential access for goods produced under various export promotions schemes and the prevalence of non- tariff barriers to trade.
There has also been an economic slowdown notably in Egypt, the UK and Malawi in recent years, the document added.
It however said trade with the Americas grew while Asia and Australia has risen by 10 per cent between 2010 and 2015.
“The rebalancing of the Chinese economy also holds great potential for export growth for countries that export consumer goods. These new markets offer an opportunity for policy changes that could encourage productive job creation,” said report.