Export-led growth is the lasting cure to Kenyan currency's depreciation

Kenya Association of Manufacturers CEO Anthony Mwangi. [Courtesy]

Kenya finds itself at a crucial juncture in its economic trajectory. The Kenyan shilling has experienced significant depreciation against the United States Dollar and other major world currencies in recent months.

For the first time, the shilling has hit a record high of 160 to the dollar. Equally, it has lost value against its East African sister nations’ currencies in Ugandan and Tanzania. This depreciation has brought economic challenges, driving up import costs of food, fuel, raw materials, and medicine, among many others.

The resultant inflationary pressure for Kenya has had a huge impact on the overall cost of living. The Kenya Association of Manufacturers (KAM) firmly believes that embracing an export-led growth strategy holds the potential to reverse the situation and mitigate against the free fall of the local currency.

Export-led growth has proven to be an effective strategy for developing economies facing currency depreciation and trade imbalances. By harnessing the nation's manufacturing potential and diversifying export markets, Kenya can bolster its economy and restore the value of its weakening currency.

In 2023, KAM undertook an extensive sectoral deep dive to evaluate the export potential for Kenya across 20 value chains. The textile and apparel, leather and footwear, pharmaceuticals, and building and construction sectors among many others, have great potential for growth and exports.

About 60 years ago, South Korea was one of the poorest countries of the world, with a GDP per capita of no more than $87. Comparatively, Kenya had a GDP per capita of US$107 at the time, hence doing better than South Korea. In 2023, Kenya’s nominal GDP is circa $110 billion while South Korea’s GDP stands at $1.7 trillion.

On this background, Kenya can retrace the economic growth pathway and perhaps copy and paste the South Korean development model and change our policy stance in favour of export-oriented policies and move on to the high growth trajectories.

While advocating for export-oriented policies, it is important not to lose focus on import substitution. In agriculture for example, KAM's analysis of several value chains, through the Agriculture for Industry initiative, has identified enormous opportunities to save billions of dollars spent to import basic food items. Suffice it to say that Kenya spent over $3 billion in 2022 on the import of food.

For instance, maize (Sh60 billion), rice (Sh34 billion), edible oils (Sh160 billion), peanuts (Sh5 billion), and poultry products (Sh4 billion). Most of these food products are imported because Kenya has failed to organise the value chains and realize self-sufficiency. While the farmers are complaining about the lack of a market for their produce, agro-processors are equally unable to access quality raw materials from the country.

It is unfathomable how Malawi, a country with a nominal GDP of $13 billion, supplies over 90 per cent of peanuts for industrial production worth about Sh5 billion to Kenya. Through KAM's A4I agenda, we are organising value chains with a specific agenda of providing aggregate demand data and linking agro-processors with farmers.

By organising our value chains and linking agriculture with industry, Kenya will immediately stop the haemorrhage of forex currently going to the import of food, raw materials and intermediate raw materials for industrial processing.

However, this requires fact-based, data-driven decision-making to have a managed transition and avoid the negative unintended consequences brought forth by the provisions of the Finance Act, 2023. The Act introduced the Export Promotion and Investment levy on raw materials meant for industrial processing. This single policy misadventure has been catastrophic to the cement, steel, and paper sectors.

To achieve successful export-led growth, Kenya must enhance its competitiveness to be able to compete with other nations in the international marketplace. With increased market access through various trade agreements such as AfCFTA, EU-Kenya EPA and AGOA, Kenya must up its game to fully maximise the opportunities and avoid losing out to other countries such as Egypt, Tanzania, Ethiopia, and Uganda.

- The writer is chief executive of Kenya Association of Manufacturers