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Economy

Flat exports as trade deficit hits Sh946bn

The port of Mombasa. FILE PHOTO | NMG
The port of Mombasa. FILE PHOTO | NMG 

Kenya’s trade deficit widened to a record Sh946.8 billion in the 10 months to October driven by the doubling of food imports and purchase of machinery from abroad.

The deficit, the gap between imports and exports, widened by Sh265.36 billion compared to the similar period last year, fresh data from the Central Bank of Kenya shows, underlining the country’s continued reliance on imports amid a near flat growth in exports.

This is the first time in three years the deficit has widened and it shows the impact of the increased food imports due to drought that posed a major risk to people, livestock and wildlife.

Imports grew 23 per cent to Sh1.45 trillion in the 10 months while exports grew a measly 2.4 per cent to Sh498.3 billion.

Analysts say the widening deficit is putting pressure on the shilling against global currencies like the dollar and denying Kenya an opportunity to create more jobs because domestic market is getting lost to foreign manufacturers.

A big deficit usually increases demand for the dollar which piles pressure on the shilling, forcing the central bank to intervene, thus depleting foreign exchange reserves. 

Forex reserves, statistics show, fell from a high of $8.31 billion (Sh856.85 billion) in early May to $7.10 billion (Sh753.73 billion) at the end of November.

A flat growth in exports suggests a difficult operating environment for enterprises, further hurting income and employment opportunities.

Kenya’s main exports are mainly agro-based like coffee, tea and horticulture that was equally affected by the biting drought.

Around 2.7 million people relied on food aid after low rainfall in October and November last year and rainy season in the April-June season.

Import subsidies

Poor weather forced Kenya to buy food like rice, maize, sugar and milk powder to meet local demand and ease rising prices. Retailers were limiting the amount of maize flour, sugar and butter a customer could buy following shortages.

This prompted subsidies and waiver of import duties to smoothen purchase of food abroad.

The increased food imports reversed the fall in the deficit witnessed since 2014. Food imports in the 10 months doubled to Sh204.5 billion, representing a growth of 126 per cent.

Machinery, however, accounted for the largest share of the imports at Sh417.499 billion, which was a 15.05 per cent growth compared with the 10 months to October 2016.

“The current account deficit is expected to narrow to 6.2 percent of GDP by December 2017 (from 6.5 per cent in September) as a result of a slowdown in SGR-related imports, and improved weather conditions which will support food production and agricultural exports,” CBK governor Patrick Njoroge says.

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