Kenya’s import-export mix reveals opportunities and untapped potentialTuesday September 20 2022
In 2007, the government set out a plan to transform Kenya into a newly industrialising, middle-income country providing a high quality of life to all its citizens by 2030 in a clean and secure environment.
This was documented in the Vision 2030 blueprint. At its core, it is founded on three key pillars — economic pillar, social pillar and political pillar.
The key enablers of Vision 2030 were identified as infrastructure; ICT; science, technology & innovation; land reforms, among others.
Under the economic pillar, six priority sectors were selected as the anchors, these are: tourism, agriculture and livestock, wholesale & retail, trade, manufacturing, financial services, business process offshoring and IT- enabled services.
The growth and development of the priority sectors was also set to have an impact on Kenya’s import-export ratio.
The import-export ratio is the ratio of the value of exported goods and services vis-à-vis the value of imported goods and services of a country. The difference between the value of exports and imports is referred to as the balance of trade.
Globally, countries strive to achieve a trade surplus in which case the value of their exports exceed the value of their imports. This is more so due to the positive impact on job opportunities and increased foreign currency reserves.
It is, however, inevitable that a country is likely to experience a trade deficit during its early stages of growth and development. This is due to the likelihood of an increase in the importation of raw materials or capital equipment for use in the construction of key infrastructure projects.
There is also a possibility of an increase in the importation of raw materials or semi-processed goods for use by various manufacturing entities. Additionally, in a bid to tap into the required expertise, the country may tend to procure the services of foreign service providers.
The trend is expected to reverse as the country industrialises and is thus able to increase the value of its exports while reducing the value of its imports or the rate of growth of exports is expected to outpace the growth in imports.
Generally, a trade deficit does not indicate that a country is on the wrong growth trajectory. A closer analysis of the items that are imported by a country is necessary to assess the effectiveness of a country’s economic policies.
For instance, the importation of capital goods, raw materials or semi-processed goods is a good indicator that a country is likely to experience growth through the expansion of key sectors such as manufacturing.
Based on the latest statistics by the Kenya National Bureau of Statistics (KNBS), export earnings improved from Sh643.7 billion in 2020 to Sh743.7 billion in 2021.
On the other hand, imports increased from Sh1,643.6 billion in 2020 to Sh2,151.2 billion in 2021. On overall, the balance of trade widened by 40.7 percent to 1,407.6 billion in 2021.
In 2021, the top export earners were horticulture with Sh165.7 billion, tea with Sh130.9 billion, articles of apparel & clothing accessories with Sh42.7 billion, and unroasted coffee with Sh26.1 billion.
On the other hand, the top imports were petroleum products with Sh335.3 billion, industrial machine with Sh254.8 billion, iron sheet with Sh155.5 billion and animal/vegetable fats and oils with Sh120.8 billion.
A closer analysis of the composition of Kenya’s top export earnings indicate that the country is still heavily dependent on the exportation of raw agricultural produce. It also indicates the success of Export Processing Zones (EPZ’s) in promoting the growth of the apparel industry.
While Kenya, remains a key manufacturing hub in EAC, the statistics paint a gloomy picture of the country’s success in driving the manufacturing sector to be a key exporter beyond the EAC.
A similar analysis of the key imports depicts a mixed result with the importation of industrial machinery pointing towards increased investment in capital projects. Petroleum products could also indicate increased industrial activity if most of the petroleum products were for industrial use.
The importation of animal/vegetable fats and oils is, however, an indicator of the country’s inability to tap into the industry despite the availability of vast arable land that could be used to grow or keep the necessary raw materials.
The government should thus use the import-export ratio to assess the success of its policies and put in place measures to safeguard successes while working to improve on its weaknesses.
For instance, there should be continuous improvement in the operating environment to foster the growth of the manufacturing sector.
At the same time, the country should not relent on nurturing the growth of nascent industries such as business process offshoring and IT-enabled services which have shown indicators of the ability to transform the country into a technology hub.
By and large, it requires a concerted effort by the government and the private sector to re-align Kenya’s import-export mix which will eventually sustain the country’s economic growth and development.