Kenya continues to buy more than it’s selling to Africa, official statistics shows, pushed by falling competitiveness that has made domestic goods expensive in international markets.
Nairobi slipped into a trade deficit with Africa for the first time since the authorities started keeping such data publicly earlier in 1999, and the gap keep widening as the year draws to close.
Latest provisional data show trade deficit in Africa — the gap between imports and exports — stood at Sh4.25 billion in the first eight months of the year compared with 12 months earlier.
Total sales by Kenyan companies to other African countries remained flat, falling by Sh756 million, or 0.52 percent, to Sh145.88 billion against a Sh7.70 billion or 5.42 percent, growth in imports to Sh150.13 billion in the period.
Kenya continues to buy more than it’s selling to Africa, official statistics shows, pushed by falling competitiveness that has made domestic goods expensive in international markets.
Nairobi slipped into a trade deficit with Africa for the first time since the authorities started keeping such data publicly earlier in 1999, and the gap keep widening as the year draws to close.
Latest provisional data show trade deficit in Africa — the gap between imports and exports — stood at Sh4.25 billion in the first eight months of the year compared with 12 months earlier. Total sales by Kenyan companies to other African countries remained flat, falling by Sh756 million, or 0.52 percent, to Sh145.88 billion against a Sh7.70 billion or 5.42 percent, growth in imports to Sh150.13 billion in the period.
Overseas sales in Africa by Kenyan firms between January-August have fallen steadily in five fives from a high of Sh161.16 billion in 2015 to Sh145.88 billion in 2019, according to the Central Bank of Kenya (CBK) provisional data.
Over that period, goods Kenyan companies and traders ordered from the rest of Africa have risen to Sh150.13 billion from Sh98.72 billion.
A higher growth in imports than exports, economists say, denies Kenya an opportunity to create more jobs for growing unemployed skilled youth because local firms lose out market to foreign factories and traders.
Nairobi has struggled to sustainably expand its exports to African countries since the turn of the decade, a sign domestic factories have been losing their market share largely because of import substitution amid dwindling industrial competitiveness.
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 levies, fees and taxes.
“Our cost imbalance with regional peers at the moment is 13.3 percent from about 12 percent last year, but hopeful it will decrease with some of the concessions in the budget (Finance Bill 2019),” KAM Chair Sachen Gudka said in an interview.
“The 13.3 percent is broken down to 7.5 percent is on inbound competitiveness where we have seen some steps taken (in the Finance Bill) and four percent on process competitiveness and the remainder two percent on outbound competitiveness.”
Inbound competitiveness reflects charges such as Import Declaration Fees (IDF), Import Declaration Levy (IDL) and logistics costs from the Mombasa port such as port storage and demurrage charges as well as standard gauge railway (SGR) fees, among others.
Process competitiveness at the factories is mainly shaped by costs of utilities such as electricity and water, while outbound competitiveness is shaped by the costs incurred from the time a product has been manufactured to the time payment is made such as levies charged by counties and late payment for supplies.
Manufacturers were among the biggest winners in this year’s Finance Bill, which would become law after President Uhuru Kenyatta returned it to Parliament asking legislators to remove September 2016 legal ceilings on interest charged on loans.
Some of the interventions expected this financial year from July include a 30 percent refund on total cost of power to be deducted from corporation tax for profitable firms and a cut in IDF on raw materials and intermediate goods to 1.5 from 2.0 percent and increase the same on finished imports to 3.5 percent.
Others are reduction on value-added tax (VAT) withholding rate to two from six percent and exemption from the standard 16 percent VAT for locally manufactured computer motherboards and all inputs used in their manufacture, among others.
“We expect to see a reduction because of concessions in the budget, especially on the IDF, rebates on power against corporation tax,” Mr Gudka said. “The power rebate will, especially help industries which are in tax paying position and there’s a competitiveness boost for them.”
The power rebates rules stipulate that all manufacturers will get a 20 percent refund on their power costs, with the remainder 10 percent dependent on annual turnover, power consumption and capital expenditure.
Low energy costs, Mr Gudka said, would boost local production of some of the commodities, which are ordered from abroad such as iron ore and textiles.
“We can actually create a strong textiles industry here. The biggest input cost for them is power, which takes up close to 25 percent,” he said. “You need to make power competitive for us to have import substitution and be competitive, especially now when we are entering the African Continental Free Trade Area (AfCTA).”
Implementation of AfCFTA is expected to facilitate free movement of goods, services and labour in Africa.
“The realisation of the Africa Continental Free Trade Area guarantees Kenya a market opportunity of about 1.3 billion people,” said Industry and Trade secretary Peter Munya mid-June.
“Among the top 25 Kenya exports destination countries 10 are from Africa namely Uganda, Egypt, Rwanda, Sudan, Tanzania, Democratic Republic of Congo (DRC), Somalia, South Sudan, Ethiopia and Burundi.”
Uganda remains the largest destination for Kenyan goods in Africa with value of exports amounting to Sh41.01 billion in the first eight months of the year, 0.35 percent higher than Sh40.87 billion a year earlier. Uganda is followed by Tanzania (Sh21.54 billion from Sh19.86 billion in January-August 2018), Rwanda (Sh14.77 billion from Sh12.26 billion), Egypt (Sh12.87 billion from Sh13.67 billion), DRC (Sh9.11 billion from Sh10.25 billion) and Somalia (Sh8.31 billion from Sh10.48 billion).
Africa accounted for 36.19 percent (Sh145.88 billion) of the estimated Sh403.13 billion total Kenyan exports between January and August, the CBK data show, slightly improved from 34.60 percent (Sh146.63 billion) share of the Sh423.81 billion total sales posted a year ago.
Leather, textiles and agro-processing sub-sectors are largely seen as low-lying fruits to jump-start President Uhuru Kenyatta’s plan to revive and modernise Kenyan factories under the manufacturing pillar of the Big Four agenda.
Small-sized factories in leather and textiles business would be given incentives under the Big Four agenda such as access to affordable capital through the proposed merger of State-owned development financiers — Kenya Industrial Estates, Development Bank of Kenya, Industrial Development Bank of Kenya.
They are also to be helped in accessing new exports markets and expanding the existing ones largely in Africa through the Integrated National Exports Development and Promotion Strategy, unveiled in July 2018.
