Kenya: Expensive fuel widens trade deficit to Sh852bn

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Official data has showed that Kenya’s goods trade deficit for the first eight months of the year widened by 35.31 percent, largely on increased expenditure on importation of fuel products and factory supplies.

The trade deficit – the gap between merchandise imports and exports – increased to Sh852.14 billion from Sh629.75 billion a year ago amid a recovery in global oil prices and persistent disruptions in supply chains which have increased the cost of shipping materials.

According to provisional trade data published by the Kenya National Bureau of Statistics, expenditure on imports bumped 27.4 percent year-on-year to Sh1.34 trillion in the review period, higher than the 15.64 percent growth in earnings from exports to Sh489.55 billion.

A persistently higher trade deficit, economists say, slows down the creation of new job opportunities for the growing skilled youth as most revenue earned within Kenya is spent on buying goods from foreign factories, thereby raising production and job openings in source markets.

A widening deficit in goods trade also piles some pressure on the shilling as the demand for dollars remains elevated.

Central Bank of Kenya Governor Patrick Njoroge has flagged rising price pressures in global markets – spurred by supply constraints in major global ports and rising fuel prices – as a “greater concern” to containing prices of goods and services in a net import economy.

“This (cost pressure) has been heightened by supply bottleneck. So (there are) difficulties in getting supplies where they should be and this is not necessarily finished products, but sometimes components,” Dr Njoroge said

“That’s a big concern because it will lead to a significant increase in pricing of products.”

The trade data shows imports were largely lifted by increased expenditure on shipping in fuel and non-food industrial supplies, while growth in exports was hurt by reduced earnings from cut flowers and tea.

Expenditure on fuel imports shot up nearly by half, climbing 48.50 percent to Sh223.64 billion, while the order book for non-food industrial supplies jumped 34.04 percent to nearly Sh536.30 billion on economic recovery which has spurred demand and pressured prices upwards.

Earnings from cut flowers contracted 8.44 percent to Sh67.62 billion in the January-August 2021 period while income from the sale of tea abroad declined 2.41 percent to Sh87.05 billion at a time increased global supply has hurt prices.

Kenya has struggled to diversify its exports away from traditional tea, horticulture, and coffee which are largely sold raw, exposing its farmers to price shocks in international commodity markets.

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