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Sanctions block Sh10bn Kenya exports to Russia

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US President Joe Biden. PHOTO | SHUTTERSTOCK

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Summary

  • The blockade of the exports, estimated at nearly Sh10 billion annually, came after major container and shipping lines temporarily suspended cargo shipments to and from Russia in response to the sanctions.
  • Excluding Russian banks from SWIFT, the international payment system, and its central bank from international operations has made it harder for the country to pay for imports and receive cash for exports.
  • The exclusion of Russian banks from SWIFT will make it riskier and more expensive for Kenyan exporters, halting exports like spices, nuts and vegetables to Russia.

Kenya’s exports of tea, flowers, coffee and fruits to Russia have been derailed in the wake of sanctions imposed on Moscow by Western nations after its invasion of Ukraine, hurting local smallholder farmers.

The blockade of the exports, estimated at nearly Sh10 billion annually, came after major container and shipping lines temporarily suspended cargo shipments to and from Russia in response to the sanctions.

Excluding Russian banks from SWIFT, the international payment system, and its central bank from international operations has made it harder for the country to pay for imports and receive cash for exports.

SWIFT [Society for Worldwide Interbank Financial Telecommunication] is a secure messaging system that facilitates rapid cross-border payments and its instructions are typically honoured without question, making international trade flow smoothly.

The exclusion of Russian banks from SWIFT will make it riskier and more expensive for Kenyan exporters, halting exports like spices, nuts and vegetables to Russia.

Russia’s assault on its neighbour is the biggest state-to-state invasion in Europe since World War Two, prompting suctions from the US, Britain and EU.

The impact of the economic sanctions was felt on the Mombasa Tea Auction this week where buyers for the Russian market — the fifth-largest consumer of Kenya’s tea after Pakistan, Egypt, UK and UAE— kept off.

The unified international retaliation against Russia over its brutal military aggression against Ukraine has taken a toll on trade between Nairobi and Moscow, which topped Sh45 billion in 2020, tilted in favour of the world’s largest country by area.

Russia is largely seen as a growth market for Kenya’s sluggishly growing exports. Tea is the leading export while Kenya’s coffee enters the country as re-exports from other countries.

Russia, for example, bought 29.61 million kilos of tea worth Sh6.25 billion last year from 25.14 million kilos valued at Sh5.02 billion in 2020, according to industry data.

East African Tea Trade Association — which controls the Mombasa auction — said the Danish shipping giant Maersk and CMA CGM of France have sent advisories to Kenya’s exporters informing them of the suspension of supplies to and from Russia either via sea or land.

“Even if you are lucky to get tea to Russia because we don’t know whether tea falls under foodstuff or beverage, how would you get payment when sanctions are there that they cannot remit money from that country?” EATTA managing director Edward Mudibo said on the phone.

The Kenya Flower Council, which represents large-scale flower firms, says getting connectivity between Nairobi and Moscow has become a challenge as most exporters rely on Amsterdam in the Netherlands to reach Russia.

“The bulk of our (cut flower) produce was going through Amsterdam and trucked from there all the way to Russia, and the way the EU has taken a position, no one is going to take a risk moving into Russia because they have to isolate Russia from all fronts,” KFC chief executive Clement Tulezi said via telephone.

“They have stifled investments and foreign exchange in Russia. It’s unlikely we will do business with Russia in the nearest future until this is sorted out once and for all because our business is governed using the dollar as the major currency and then the euro.”

Without SWIFT, Russian banks could use other channels for payments such as phones, messaging apps or email, which are less efficient and secure.

“We don’t have much direct exports (to Russia), but most of our coffee ends up in Russia other countries. We’ll need time to work on that statistics because that has been affected straightaway,” head of the Coffee Directorate Enosh Akuma said.

The restrictions of Moscow to trade using the dollar will cripple its ability to trade with countries such as Kenya.

Maersk of Denmark, Switzerland-based MSC and France’s CMA CGM on Tuesday temporarily stopped non-essential deliveries to Russia, with foodstuffs, medical and humanitarian supplies the only exception.

Denmark’s Maersk, which is the second-biggest carrier after MSC, said separately it would temporarily halt all container shipping to and from Russia.

France’s CMA CGM, the world’s third-biggest container line, later on Tuesday announced it had suspended all bookings to and from Russia until further notice, citing safety concerns.

The moves follow similar decisions already taken by Singapore-headquartered Ocean Network Express and Germany’s Hapag Lloyd — effectively cutting Russia off from the world’s leading container shipping companies, adding to freight challenges ahead.

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