Kenya’s policies to cut its swelling trade deficit have failed to reverse the trend after the value of the gap between its imports and exports widened to more than Sh1.3 trillion.
This is after the cost of importing fuel, industrial raw materials and food widened Kenya’s goods trade deficit for the first 10 months of the year by nearly a quarter, hurting job opportunities for youth and exerting pressure on the shilling.
The trade deficit – the gap between imports and exports – bumped to Sh1.37 trillion from Sh1.11 trillion in the prior year on the back of disruptions in global supply chains that raised the cost of importing goods.
The expansion of 23.09 per cent, or Sh256.60 billion, in the merchandise trade gap, came at a time traders battled runaway shipping costs amid a shortage of dollars due to a mismatch in supply and demand.
The cost of essential commodities such as petroleum products, wheat, edible oil, steel and paper hit record levels earlier in the year on Covid-induced disruptions in global supply chains that were exacerbated by Russia’s war in Ukraine from February.
This means traders have this year been spending more dollars to buy a similar volume of commodities they bought last year.
The latest official data collated by the Kenya National Bureau of Statistics shows expenditure on imports for the 10-month crossed Sh2 trillion, largely driven by the cost of fuel, industrial supplies and foodstuffs.
Kenya’s import bill was 21.89 per cent year-on-year to nearly Sh2.10 trillion during the review period, a higher rise than 19.69 per cent in earnings from exports to Sh728.2 billion.
A persistently higher trade deficit, economists say, slows down the creation of jobs for the growing skilled youth as most revenue earned within Kenya is spent on buying goods from foreign countries, thereby raising production and job openings in source markets.
A widening import-export gap also piles pressure on the shilling as the demand for dollars outstrips supply.
For instance, the shilling has lost 8.76 per cent of its value against the US dollar this year through Monday this week to an average of 123.05 units, largely on the back of higher demand for the greenback than supply.
Kenya has over the years struggled to narrow its goods trade deficit partly due to relying on farm produce exports such as tea, horticulture and coffee which are largely sold raw, fetching relatively lower earnings.
Most Kenyan traders export raw produce because of higher taxes slapped on semi-processed or processed products in destination markets like Europe, fearing that value addition would make exports less competitive in the global markets.
“Kenyan products are competing with products from all over the world and, therefore, we need as a country and even at factory level to be globally competitive,” Kenya Association of Manufacturers chief executive Antony Mwangi told the Business Daily.
“If you look at some of the goods that we sell [abroad] like apparel, even with duty-free access to the US market, we are still 15 to 20 per cent more expensive than our competitors in Central Asia like Bangladesh and Sri Lanka. The reason is that production cost in Kenya is very high because of expensive power, water and labour”.
The trade data shows imports were largely lifted by increased expenditure on shipping petroleum products while growth in exports was hurt by reduced earnings from cut flowers.
Expenditure on fuel and lubricants shot up 89.26 per cent in the 10-month period to Sh553.29 billion, pointing to the record high cost of fuel that prompted the previous administration to introduce subsidies to stem inflation.
The fuel price stabilisation scheme cost taxpayers Sh81 billion in the financial year ending June 2022, for instance, highlighting the adverse impact of the intervention on the country’s revenue.
The high cost of subsidy prompted President William Ruto’s administration to drop the covers on super petrol from September but has since maintained it on diesel and kerosene to stem hard knocks on the cost of living.
Global diesel prices climbed to record levels in October, costing 70 per cent more than a year ago while their relative difference to the price of crude is 425 per cent higher.
Paris-based International Energy Agency (IEA), the global body which provides policy guidelines and analysis on the oil sector, says production of diesel has been hit by the stretched capacity that started even before Russia’s invasion of Ukraine in February.
This followed closure of 3.5 million barrels a day of refinery capacity in Russia since the start of the Covid-19 pandemic, the IEA said.
The KNBS data shows expenditure on food imports also climbed 15.48 per cent to Sh201.99 billion at a time items like wheat and edible oil hit record highs, while the order book for non-food industrial supplies climbed 15.28 per cent to Sh783.07 billion.
Earnings from tea exports increased 25.47 per cent to Sh119.97 billion in the first nine months of the year, while income from coffee exports grew by half to Sh31.43 billion in the review period.
The export earnings were, nonetheless, hurt by a 38.46 per cent drop in cut flowers to Sh48.04 billion in the nine-month period.