Kenya is one of Africa’s most dynamic and promising economies, but it still faces a major challenge: reducing its dependence on imported goods and services. According to a recent report by Stanchart, a leading African bank, Kenya will continue to be a net importer for the next 12 years, even as it boosts its exports under the African Continental Free Trade Area (AfCFTA).
The report, titled Future of Africa Trade, projects that Kenya’s exports will grow by 35% by 2035, reaching $20 billion (Sh2.9 trillion) annually. This will be driven by the AfCFTA, which aims to create a single market for goods and services across the continent, eliminating tariffs and non-tariff barriers. The AfCFTA is expected to increase intra-African trade by 52% by 2022, according to the United Nations Economic Commission for Africa (UNECA).
However, the report also warns that Kenya’s imports will remain high, exceeding its exports by a wide margin. This means that Kenya will still have a trade deficit, the difference between the value of goods and services it buys from other countries and those it sells to them. A trade deficit can negatively affect a country’s economic growth, exchange rate, foreign reserves, and debt levels.
According to the latest data from the Kenya National Bureau of Statistics (KNBS), Kenya’s trade deficit for the second quarter of 2023 was Sh343.2 billion, down from Sh365.8 billion in the same period in 2022. This was due to a 9.6% increase in exports, mainly from tea and horticulture, and a slight decrease in imports. However, the trade deficit in 2022 was Sh1.62 trillion, up from Sh1.41 trillion in 2021.
The main reason for Kenya’s high import bill is its reliance on imported petroleum products, machinery, vehicles, chemicals, and pharmaceuticals. These are essential inputs for its industrial and agricultural sectors and its transport and health systems. On the other hand, Kenya’s main exports are agricultural products, such as tea, coffee, flowers, fruits, and vegetables. These are mostly raw or semi-processed goods that fetch low prices in the international market.
Kenya must diversify its export base and add more product value to address this imbalance. This will require investing in infrastructure, technology, innovation, skills development, and quality standards. It will also require enhancing its competitiveness and productivity in manufacturing, tourism, ICT, and renewable energy sectors.
The report by Stanchart highlights some of the opportunities and initiatives Kenya can leverage to achieve this goal. For instance, it mentions the government’s plan to establish special economic zones (SEZs), designated areas that offer incentives and facilities for businesses to operate. The SEZs are expected to attract more foreign direct investment (FDI), create more jobs, and increase exports.
The report also notes that Kenya can benefit from its strategic location as a regional hub and gateway to East Africa and beyond. It can also tap into its large and youthful population, a source of demand and talent. Moreover, it can capitalize on its strong ties with other African countries, especially under the AfCFTA framework.
Kenya has made significant progress in improving its trade performance and integration with the rest of Africa. However, there is still a long way to go before achieving self-reliance and economic transformation. The report by Stanchart offers some insights and recommendations on how Kenya can overcome its challenges and seize its opportunities in the future of Africa trade.
Source: Business Insider Africa
