Low appetite for imports helps narrow Kenya’s trade deficit

Kenya’s import bill for the 10 months to October last year went down significantly, offering much-needed reprieve to the country’s balance of payments.

The decline saw the country’s trade deficit decline by 13.2 per cent to Sh705 billion - the lowest since 2012, according the latest figures from the Kenya National Bureau of Statistics (KNBS).

“In 2016, improvement in trade deficit reading was mainly driven by an 8.8 year-on-year drop in imports,” commented the Standard Investment Bank in a statement to newsrooms.

The drop in imports was driven by reduced purchases of transport equipment which averaged 10.4 per cent of total imports in 2016 compared with 16.3 per cent in 2015. During the period under review, the imposition of higher excise taxes on cars hit the car importation business hard.

Volume of vehicles sold last year plunged 30 per cent, with the industry selling about 13,535 units compared to 19,523 units a year earlier.

In October last year, the National Treasury removed excise tax on locally assembled vehicles, opting to charge 20 per cent of a used imported vehicle’s value instead of the flat fee of Sh200,000.

The decline in imports of transport equipment proved a double-edged sword, with the taxman collecting less revenue from importation of motor vehicles.

Besides oil, which constitutes about 22.4 per cent of Kenya’s total imports, the country also imports cars, delivery trucks, tractors and bi-wheel vehicles such as motorbikes. Transport equipment comprises about 6.3 per cent of the country’s total imports.

Most of the Kenyan cars, about 72 per cent, are imported from Japan, another 16 per cent from the United Kingdom and about 2.8 per cent from South Africa. Other sources of Kenyan cars include Germany, India, Thailand and China.

Kenya also imports aircraft. Some analysts suspect national carrier Kenya Airways’ financial woes might have played a role in the suppressed demand for aircraft in the period under review.

Although Japan remains Kenya’s largest source of delivery trucks (47 per cent), China has a significant share of the delivery cars brought into the country (18 per cent) - probably due to China’s involvement in huge infrastructure projects in the country. However, importation of machinery, according to the national statistician, increased, pushing its contribution of total imports to 21.4 per cent from 17.9 per cent in 2015.

According to SIB, importation of fuel remained fairly static at 14.2 per cent of total imports from 15 per cent in 2015.

Most notably however, fuel imports represented 17.1 per cent of total imports in October, the highest level since December 2014. In March 2012, fuel hit a high of 32.9% of total imports.

Exports last year declined 1.3 per cent year-on-year, versus 6.2 per cent year-on-year growth in 2015. The decline was, however, lower than the 2.8 per cent year-on-year drop in 2013, according to SIB. “Kenya’s trade balance, and therefore currency performance, remains heavily exposed to imports, especially given lackluster exports performance,” said SIB.