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Newsunplug Kenya > Blog > Business > Kenya’s trade imbalance increased by Sh20 billion due to high import costs.
Business

Kenya’s trade imbalance increased by Sh20 billion due to high import costs.

Ivy Irungu
Last updated: July 4, 2024 7:16 am
Ivy Irungu 11 months ago
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Kenya’s trade deficit expanded by Sh20 billion in the first quarter of 2024, according to data released by the Kenya National Bureau of Statistics (KNBS). This widened the balance of payments gap from Sh110.5 billion in the first quarter of 2023 to Sh131.2 billion in the same period of 2024.

The KNBS attributed this increase to higher expenditures on critical imports such as petroleum, industrial machinery, and air transport equipment.

Despite a 28% rise in export earnings from tea and horticultural products, which boosted merchandise exports to Sh298.4 billion, it was insufficient to offset the deficit. Merchandise imports, measured on a free on board (FOB) basis, rose by 17.9% to reach Sh640 billion.

FOB denotes the cost of delivery up to a specified point covered by the seller in international shipping terms. The expanding trade deficit indicates a potential decline in the country’s capacity to generate local employment and maintain currency stability.

“Net income from services registered a notable decline during the period under review from Sh40.7 billion in the first quarter of 2023 to Sh26.4 billion in the first quarter of 2024. This was observed across exports of the majority of the service categories which declined during the review period,” KNBS said in the Q1 2024, report.

In the first quarter of 2024, domestic export earnings rose by 19.5%, while imports grew by 16.0% to Sh684.0 billion compared to the same period in 2023. The increase in exports was largely driven by tea and horticultural products, which saw a Sh30.6 billion rise.

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Other notable exports included articles of apparel, clothing accessories, and essential oils. However, earnings from titanium ores and concentrates more than halved due to decreased export volumes. According to the Broad Economic Category (BEC) classification, food and beverage commodities contributed 45.6% to the total revenue from domestic exports.

Conversely, spending on imported chemical fertilisers decreased from Sh32.1 billion to Sh9.7 billion, and unmilled wheat imports dropped from Sh26.9 billion to Sh19.3 billion during the same period.

In the first quarter of 2024, non-food industrial supplies constituted the largest portion of the import bill, accounting for 34.3%. Expenditure on fuel and lubricants totaled Sh173.8 billion, marking a 19% increase from the first quarter of 2023 and representing 25.4% of the total import bill.

Total exports during the same period grew by 28%, reaching Sh298.4 billion compared to Sh232.7 billion in the first quarter of 2023. Africa remained the primary market, contributing 38.3% to export earnings.

Key destinations included Egypt (up 45.7%), Democratic Republic of Congo (up 56.0%), Tanzania (up 18.0%), Uganda (up 7.4%), and South Sudan (up 25.7%). Major exports included tea to Egypt, wheat flour to the Democratic Republic of Congo, and washing machines to South Sudan.

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Exports to Asia saw a significant increase to Sh42.7 billion, up by 76.4%, driven by higher exports to Saudi Arabia and the United Arab Emirates, including tea to Saudi Arabia and goat meat to the UAE. However, exports to Iran decreased by 45.5% primarily due to reduced tea exports.

In Western Europe, exports to the EU grew by 39.9%, with notable expansions in cut flowers, avocados, and kerosene-type jet fuel to the Netherlands. Revenue from exports to the UK rose from Sh13.5 billion to Sh19.0 billion, driven by tea and cut flowers.

Exports to the Americas increased by 46.7% to Sh23.6 billion, prominently featuring re-exports of kerosene-type jet fuel to the USA.

Import expenditure increased by Sh94.2 billion in the first quarter of 2024. Asia accounted for 64.2% of the import bill, totaling Sh439.0 billion, with increased imports from Malaysia, Pakistan, and China.

Imports from the Middle East declined by 13.9% to Sh126.1 billion, primarily due to reduced imports of fertilisers from Saudi Arabia and gasoline from the UAE. Imports from the EU grew by 51.9%, driven by notable increases from Belgium and the Netherlands.

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Import expenditure from Russia halved, primarily due to reduced imports of wheat and fertilisers. Imports from Africa increased by 14.8% to Sh72.0 billion, with significant rises from South Africa and Tanzania. Import expenditures from the American continent more than doubled to Sh65.1 billion, largely due to increased imports from the USA.

During the first quarter of this year, the Kenyan economy decelerated by 0.5% to 5%, influenced by slower growth in the construction, transportation, and storage sectors. Specifically, the transportation and storage sectors slowed to 3.8% from 6.6% in the preceding period.

“Electricity and Water Supply sector recorded a decelerated growth of 2.4 per cent in the first quarter of 2024 compared to a growth of 3.7 per cent in the corresponding quarter of 2023.”

However, agriculture, forestry, and fishing activities grew by 6.1 percent, followed by real estate (6.6 percent), financial and insurance (7 percent), information and communication (7.8 percent), and accommodation and food services (28 percent).

“Similar to the first quarter of 2023, agricultural production was vibrant in the corresponding quarter of 2024, owing to favourable weather conditions that supported crop and animal production during the quarter,” the report continues.

 

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