Kenya’s growing appetite for imports widen trade deficit

Devolution and Planning Cabinet secretary Ann Waiguru (right) and Kenya National Bureau of Statistics (KNBS) Chairman Terry Ryan during the launch of 2015 economic survey at KICC.  Photo: Beverlyne Musili/Standard)

Kenya's trade deficit continues to widen owing to a large import bill dampening the prospect of East Africa's largest economy sustaining its current growth streak.

This comes even as economists warn that the country's reliance on exports is exposing the economy to shocks and should be addressed.

According to 2015 Economic Survey released this week by Kenya National Bureau of Statistics, imports of aircrafts and associated equipment like road motor vehicles, industrial machinery and petroleum products pushed up the country's import bill.

"The balance of trade deteriorated from a deficit of Sh911 billion in 2013 to a deficit of Sh1.08 billion in 2014 translating to an increase of 18 per cent," it said. "During the period under review, the import bill increased by 14.5 per cent while the earnings from exports registered a smaller increase of 7 per cent."

This means that growth in the local manufacturing industry is threatened which in turn reduces the capacity of the economy to create more employment opportunities. The balanced of payments further improved from a surplus of sh31 billion in 2013 to a surplus of 126 billion in 2014.

This was on account of high international reserves attributed to proceeds from the sale of the Eurobond.

Earlier this year, the World Bank cautioned that Kenya's trade with the external market remained weak and vulnerable, as import growth continues to outpace export growth and short-term flows finance the current account deficit.

"Sluggish external demand for exports, especially from the Euro area and emerging economies, contributed to the widening of the current account deficit," stated the World Bank in the latest edition of the Kenya Economic Update.

Import growth

The bank stated that the level of the deficit points to underlying structural weaknesses in Kenya's economy that need to be addressed. "Merchandise exports have weakened significantly since 2012, and high oil prices (until 2014) drove import growth."

The vulnerability of the external account emanates from the fact that the current account is financed mainly from short- term flows, which can easily reverse should the global economic environment change.

According to bureau of statistics, Kenya's current account deteriorated further by 30 per cent from a deficit of Sh411 per cent in 2013 to a deficit of Sh536 billion in 2014.

The financial account surplus further increased by 67 per cent from Sh424 billion in 2013 to Sh710 billion in 2014 due to increased capital flows.

Analysts note that the faster rise in imports amid drop in exports has shrunk the country's foreign exchange reserves, contributing to the weakening of the Shilling that is currently exchanging at 94 against the dollar.