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Kenya's changing trade patterns and the fall of Europe

By Macharia Kamau and Dominic Omondi | Published Sun, September 10th 2017 at 00:00, Updated September 9th 2017 at 19:26 GMT +3
Cargo containers at the Port of Mombasa. Kenya is experiencing a shift in the pattern of its exports and imports.

In summary

  • Kenya is experiencing a shift in the pattern of its exports and imports
  • It is clear that the trading landscape is changing - and has been changing for a long time, twenty-seven years ago, Kenya's trade with Africa was almost insignificant
  • Europe's and US influence in global politics started waning, and their place was taken up by countries such as China and India, and other Asian countries

Kenya is experiencing a shift in the pattern of its exports and imports, with some of her key traditional markets slowing down on the goods they are sourcing from the country.

After the release of the Leading Economic Indicators for June 2017, it emerged that Pakistan had leapfrogged Uganda to become Kenya's leading export destination, buoyed by growing tea purchases by the Asian country.

Exports to Uganda, which has for decades been the top market for Kenyan goods, have for sometime now experienced marginal growth. Trade with Tanzania also took a hit following a diplomatic row, while China's hold on the country's imports tightened.

It is clear that the trading landscape is changing - and has been changing for a long time. Twenty-seven years ago, Kenya's trade with Africa was almost insignificant. Africa's share of exports was six per cent while imports took up less than one per cent.

Indeed, there was little, if any, trade with its East African neighbours in 1990 - perhaps due to the embargo that had been placed after the collapse of the East African Community in 1976.

China which today has a stranglehold in most sectors of the country's economy, was nowhere in 1990. Its share of imports was a paltry 1.3 per cent, with Kenya getting most of its manufactured products from Europe.

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Today, the Asian giant - which has also grown to become the second largest economy in the world - after the United States is literally pouring its cheap manufactured products into the local market, touching off a backlash from local manufacturers including those in the jua kali sector.

In the early 90s, and indeed all the way back to the years after Kenya's independence, the United Kingdom and other European countries reigned supreme. Its trade was by and large two-ways: To Europe, from Europe. Imports from the European continent took up a massive 65 per cent of Kenya's import bill.

Europeans also consumed most of Kenya's produce, taking up 68 per cent of the country's share of exports. The United States was alsoKenya's critical trading partner, with a 6.1 per cent share of the import bill.

Then things started changing, not really in Kenya but at the global level. Europe's and US influence in global politics started waning, and their place was taken up by countries such as China and India, and other Asian countries. These came to be known as the emerging economies. They have taken over the global economy with a storm.

Dr Scholastica Odhiambo, an Economics lecturer at Maseno University, thinks the newcomers benefited from technology transfer by firms from US and Europe. A country such as China became the world's chief manufacturer, spewing out cheap goods to be consumed by everyone in the world.

In the spirit of looking East, which some people have wrongly attributed to President Mwai Kibaki's perceived fallout with Western powers, Kenya also faced East. As such, Europe's share of imports plunged by 51 per cent even as those from Asia surged by 41 per cent.

"By the 1980s, China was regenerating itself, and so were Brazil and India," says Dr Odhiambo, naming the BRICS countries, (Brazil, Russia, India, China and South Africa), that have emerged to give old economic powerhouses a run for their money.

Kenya thus shifted alliance, importing more from China, India and other Asian countries.

"But a country like China also looked at African leaders, did not like to be criticised. And this is how they managed to get more trade with the continent," says Dr Odhiambo.

And now, after the country's trade with East Africa improved, things have begun to change once again. Uganda has slowed down on the uptake of Kenyan goods.

According to the Kenya National Bureau of Statistics data, exports from Kenya to Uganda grew marginally to Sh21.91 billion over the first five months of this year compared to Sh21.49 billion over a similar period last year.

Interestingly, exports to Pakistan have grown substantially and the country dislodged Uganda as the biggest export market for Kenya. According to KNBS, Kenyan exports to Pakistan almost doubled, growing 91 per cent over the first five months of this year and were valued at Sh24.8 billion, compared to Sh12.9 billion over a similar period in 2016.

Pakistan has traditionally been a huge market for Kenyan tea and recent reports show exports to the country could be driving the growth, with the Tea Directorate noting that the country accounted for 32 per cent of the tea exports in the first quarter of this year. The country is a large consumer of tea and sources over 70 per cent of its tea from Kenya.

But it is not just Pakistan's uptake of Kenyan products that has gone up, imports from other Asian countries also surged during this period.

Kenya's imports from Middle Eastern countries of Saudi Arabia and United Arab Emirates doubled in the first five months of the year.The region has traditionally exported petroleum products but has in the recent years been diversifying, with a number of its industries now exporting chemicals, plastics and steel, which are finding their way into Kenya.

The value of imports from Saudi Arabia grew 120 per cent to Sh53.4 billion in the months between January and May from Sh24.3 billion over the first five months of 2016, according to data from KNBS. Imports from the United Arab Emirates also grew by a substantial 53 per cent and were valued at Sh40.9 billion in the months to May this year, compared to Sh26.7 billion last year.

The growth in imports from the two countries was despite a reduction in the consumption of petroleum products in the country, which have in the past been the primary goods that Arab countries sold to Kenya.

Data shows Kenya's consumption of petroleum products reduced 21 per cent over the first half of this year to 1.9 million tonnes from 2.4 million consumed in the six months to June 2016. Such products include super petrol, diesel, kerosene and cooking gas.

The report by KNBS shows that the amount of goods that Kenyan traders sell to Tanzania has drastically reduced this year largely due to the spat the two countries have had that is now affecting cross-border business.

Value of Kenyan exports to Tanzania dipped by 33 per cent to Sh8.2 billion between January and May this year, compared to Sh12.5 billion worth of goods that Kenyans exported to Tanzania.

The two countries have historically held different opinions on various issues, which has usually affected cross-border trade as well as movement of people. This has in the recent past escalated, with the two countries taking turns at restricting goods from each other's manufacturers.

Ministers of Foreign Affairs from the two countries in late July agreed to lift trade restrictions the two countries had imposed on each other but this was short lived, with Kenyan manufacturers reporting difficulties in accessing the Tanzanian market and Kenyan universities ordered to shut down their colleges in the country.

The Economic Survey notes that in 2016, Africa was the leading destination of Kenya's exports, accounting for 40.6 per cent, with East African Community accounting for 21.1 per cent of the total exports, in 2016. Europe and Asia accounted for 24.5 and 24.3 per cent of the total exports, with European Union and the Far East accounting for 21 per cent and 15.6 per cent, respectively.

Kenya also saw a decline in the value of goods that its neighbours transit through Kenya. For instance the amount of petroleum products that are re-exported to Rwanda have declined. In June, Kenya Pipeline Company asaid its market share for petroleum re-exports to Rwanda had gone down to 25 per cent, with the landlocked country preferring to import through Tanzania.

The two countries grew to be the third and fourth sources of imports for Kenya, with China and India still the top sources of goods for the country.

China remained the largest source of imports and goods from the Asian giant over the first five months of the year were valued at Sh175 billion. This was a 49 per cent growth compared to Sh117 billion over a similar period in 2016.

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