For a long time, Kenya has maintained the title of king in East Africa thanks to its lead in different industries such as technology and finance. However, this is fast becoming a thing of the past as her neighbours start to come up while Kenya seems to loosen its grip on the crown.
Countries such as Ethiopia and Rwanda have seen their economies flourish while Kenya’s has dwindled, or, at best, remained stagnant.
Every year the country’s debt has increased reaching Sh5.42 trillion with the domestic debt at Sh2.70 trillion and the external debt amounting to Sh2.72 trillion as of March 2019 according to the Central Bank of Kenya. If the Government continues borrowing from outside to keep up with its spending, the debt will reach dangerous levels and the country could be facing the possibility of a debt crisis.
As much as external borrowing is not always harmful as it can help boost an economy’s growth, it also brings with it the interest and principal repayments that are usually paid in foreign currency. As a result, this exhausts the country’s foreign exchange reserves and weakens the nation’s currency. Kenya being a country that imports more than it exports, it records low domestic productions, meaning it has to import what it needs for consumption and production. This, in turn, leads to high inflation rates in the long term.
According to Trading Economics, Kenya’s imports as of June 2019 stood at Sh144 billion while exports stood at Sh51.1 billion amounting to a negative balance of trade of Sh93.5 billion. To make matters worse, the country has also recently experienced a change in its regional trade for the first time in the nation’s history. Data from Central Bank of Kenya (CBK) shows that the value of total exports to African countries decreased by 1.96% from Sh109.70b in the first six months of 2018 to Sh107.55b in the same period of 2019. On the other hand, the total imports to Africa decreased by 0.99% from Sh108.80b in the first half of 2018 to Sh107.71b in the same period of 2019.
This means that the country was recording a trade deficit in intra-regional trade for the first time since the CBK started tracking trade records in 1998. The trade deficit goes to show how Kenya is slowly losing its influence in the region. Despite producing different products all over the country, they are losing the competitive edge to imported goods from other regions in Africa. Local goods are finding it difficult to challenge imported goods as they can offer low prices. Unable to match the price of imported goods without making loses, local producers see their products stall on shelves or warehouses as buyers within and outside the country are unwilling to purchase them.
As other countries have looked to policies that can reduce their reliance on imports such as producing the products they imported before, Kenya has lagged, not only relying more on imports but also failing to ensure their exports are more competitive compared to her neighbours. In fact, according to the data from CBK, Uganda, which is the biggest buyer of Kenyan goods, has minimized its reliance by reducing the value of its imports from Kenya from Sh34.50b in the first half of 2013 to Sh30.77b in the same period of 2019.
Despite reducing imports from Kenya, the neighbouring country increased its exports to Kenya from Sh6.42b in the first half of 2013 to Sh13.95b in 2019. The same has been experienced with other countries such as Tanzania and the Democratic Republic of the Congo. In the case of Tanzania, the value of imports from Kenya has reduced from Sh19.73b in the first half of 2013 to Sh15.79b in 2019 while the value of exports to Kenya has increased from Sh5.53b to Sh12.95b in the same period.
The trade relationship between Kenya and DR Congo has been the same, whereby exports have declined while imports have increased. If this is to go on then Kenya is expected to experience a worse rate of unemployment than it already has. As we rely more on imports and exports continue to decrease, local producers tend to suffer more as they lack the market for their goods. In fact, according to Charles Ogutu, a research analyst at Genghis Capital, the trade deficit is expected to affect job creation negatively. By relying on imports, we have outsourced jobs to our trading partners. This will dent the manufacturing jobs as targeted under the Big Four Agenda,” he said.
To avoid increased unemployment, the Government needs to give more support to local producers to increase exports. For instance, it can increase taxes on imported goods and reduce the charges that local producers have to deal with to give them an advantage.
The Treasury has proposed various policies to change this but they are yet to be implemented. It has, for instance, proposed the reduction of the import declaration fee for raw materials while that of finished goods be increased.
Not only would this boost local products, it will also force imported goods to realign their charges to accommodate the fees thus equalizing the playing field.
For Kenya to remain the king of the region in terms of trade, these changes are necessary to secure the local businesses, which contribute much to the economy. And as the African Continental Free Trade Area (AfCFTA) slowly becomes a reality, the Kenyan government needs to be prepared to safeguard its local producers and be able to fully benefit from the agreement, raising the nation back to its former glory.