Economy

60pc of Kenya’s exports used to buy China goods

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Chinese President Xi Jinping (R) with Kenyan President Uhuru Kenyatta in Beijing on April 25, 2019. PHOTO | PSCU

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Summary

  • Imports from China hit a new high of Sh441 billion in 2021, a 22 percent jump from the previous year, while Kenya’s total export earnings stood at Sh739 billion.
  • This means that Kenya paid China Sh60 for every Sh100 it earned from selling items like flowers, tea and coffee in Europe to buy Chinese products such as electronics, textiles and household goods.
  • Kenya spent an additional Sh107.5 billion in debt repayments to China in the period, effectively raising the total forex outflows to Beijing to 74 percent of total export earnings.

Kenya spent 60 percent of its export earnings on China-made goods, cementing Beijing’s dominant position in the country’s economy.

Imports from China hit a new high of Sh441 billion in 2021, a 22 percent jump from the previous year, while Kenya’s total export earnings stood at Sh739 billion.

This means that Kenya paid China Sh60 for every Sh100 it earned from selling items like flowers, tea and coffee in Europe to buy Chinese products such as electronics, textiles and household goods.

Kenya spent an additional Sh107.5 billion in debt repayments to China in the period, effectively raising the total forex outflows to Beijing to 74 percent of total export earnings.

These loans are, however, serviced from the official forex reserves held at the Central Bank of Kenya, while imports are financed from commercial dollar deposits.

Cheaper imports from China have edged out local products and costlier imports from other countries in recent years, dimming the growth of Kenya’s industrial sector whose share of jobs in the economy has fallen.

Kenya sources a wide array of consumer and capital products from China while exporting just Sh15 billion worth of goods to the Asian economy.

The trade deficit with China is the largest among Kenya’s major trading partners.

These imports include industrial and construction machinery, consumer and capital goods, electronics, clothing items and commercial vehicles.

Meanwhile, Kenya’s most valuable exports to China are mainly raw materials, minerals and ores such as molybdenum, niobium, tantalum, vanadium and zirconium, which are, however, produced in low volumes.

Kenya’s efforts to grow exports to China through agricultural produce have been slow to pick up amid stringent measures imposed by Beijing.

These include a requirement to freeze avocados before export in order to control the fruit fly pest. This trade imbalance between the two countries is a major factor in Kenya’s widening trade deficit, which hit a record of Sh1.41 trillion in 2021, putting pressure on the country’s forex reserves and the shilling.

Chinese construction material producers have also set up base in Kenya, helping grow their country’s share of capital good exports and edging out India which previously dominated this segment.

China’s rise has intensified its battle with its Asian rival India that has recently made major inroads into Kenya with big-ticket contracts in the healthcare and energy sectors.

In 2014, China overtook India to become Kenya’s top source of imported goods. Kenya mainly imports textiles, pharmaceuticals, industrial machinery, vehicles, electronic, motorcycles, tuk-tuks and semi-processed goods from India.

Key items imported from China include heavy machinery, electronics, vehicles, textiles and a range of household goods.

The two Asian nations entrenched their presence in Kenya with intense economic diplomacy that started with President Mwai Kibaki’s election in 2002.

The rivalry has benefited Kenya in terms of foreign direct investments and a wider variety of consumer goods and opened new sources of technical and financial assistance.

But the biggest losers from the India-China rivalry have been the traditional Western trading partners such as Britain whose share of the Kenyan market has been steadily declining.

India was a distant second to China in exports to Kenya at Sh231 billion last year, ahead of the UAE, whose exports stood at Sh178.8 billion.

The imports from the UAE rose by 93 percent on the back of costly crude, whose price rose 52 percent during the year.

The gulf country is the main source of Kenya’s petroleum imports, which rose by 65 percent to Sh373.5 billion last year. Kenya has been importing in the refined state since the Mombasa refinery was shut down in September 2013.

Imports from Saudi Arabia, which is also an exporter of petroleum, fertiliser, and plastics to Kenya, went up by 60 percent to Sh114.7 billion in the period.

The costs of petroleum and associated products are likely to go up further this year as crude prices continue to rise on the back of the Russia-Ukraine conflict, which has raised fears of a supply hitch since Russia is the fourth-largest oil producer in the world.

Besides product shipments, China is also a major bilateral lender to Kenya, providing hundreds of billions for the development of mega infrastructure such as roads and a modern railway over the last decade.

Loans from China have more than doubled since 2014 to Sh786 billion last December.

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