Forex at risk as imports beat exports to the rest of Africa

What you need to know:

The cash spent on imports from African markets increased by Sh11.71 billion to Sh168.741 billion against an export earning of Sh164.525 billion.
This is the first time that Nairobi is running a negative trade balance with Africa since 1999, the earliest such trade records are publicly available.
Kenya has struggled to sustainably expand its exports to African countries since the turn of the decade.

President Uhuru Kenyatta’s policy of boosting trade with Africa states has become counterproductive, putting pressure on the shilling as Kenya accumulates a Sh4.22 billion trade deficit in the first nine months the year.

The cash spent on imports from African markets increased by Sh11.71 billion to Sh168.741 billion against an export earning of Sh164.525 billion, statistics published last week by the Central Bank of Kenya (CBK) show.

Since he romped to power in 2013, President Uhuru Kenyatta has been pushing for increased trade with African states. This is the first time that Nairobi is running a negative trade balance with Africa since 1999, the earliest such trade records are publicly available.

Higher growth in imports than exports, economists say, denies Kenyans jobs because local firms lose out the market to foreign factories and traders. It also exerts pressure on the shilling as traders spent more dollars on purchasing foreign goods than they earn from exports.

Kenya has struggled to sustainably expand its exports to African countries since the turn of the decade, further analysis of the official trade statistics indicate, a sign factories in Nairobi have been losing their market share partly due to import substitution amid deteriorating industrial competitiveness.

Exports to key markets such as Uganda (the single largest market) and Tanzania have plateaued from recent highs because factories in those countries are increasingly producing goods they previously ordered from Nairobi.

The CBK data, sourced from Kenya Revenue Authority, further show earnings from sales in other regional markets such as Ethiopia, Democratic Republic of Congo (DRC) and South Africa have, on the other hand, fallen.

The Kenya Association of Manufacturers (KAM), the sector lobby, has blamed the “continued erosion in our competitiveness” on higher operating costs as a result of electricity bills, levies, fees and taxes.

“You need to make power competitive for us to have import substitution and for us to be competitive, especially now when we are entering the African Continental Free Trade Area (AfCFTA),” KAM chairperson Sachen Gudka said in an interview in October.

The AfCFTA is expected to facilitate free movement of goods, services and labour in Africa.

Orders from Kampala rose 2.0 percent to Sh47.02 billion between January-September, while Tanzania’s increased 10.23 percent to Sh24.44 billion.

Exports to the DRC, however, fell to Sh9.98 billion from Sh11.60 billion in the same period last year and Sh14.12 billion the year before and Sh14.87 billion (in 2016), according to the Central Bank data.