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Costly fuel imports increase half year trade deficit to Sh814 billion – Business Daily

Trucks transporting fuel wait for their turn to be transshipped accross Likoni ferry channel to the mainland Likoni. PHOTO | LABAN WALLOGA | NMG
Kenya’s trade deficit for the first six months of the year widened by nearly a quarter on elevated expenditure on fuel and factory supplies from abroad, exerting pressure on the shilling and hurting job opportunities.
The trade deficit – the gap between merchandise imports and exports – deepened to Sh814.02 billion from Sh620.82 billion in the prior year amid persistent disruptions in global supply chains that have increased cost of importing goods.
The 23.73 percent, or Sh193.2 billion, expansion in the trade gap came at a time importers battled runaway shipping costs amid a shortage of dollars due to a mismatch in supply and demand.
Data collated by the Central Bank of Kenya (CBK) shows expenditure on imports jumped 25.96 percent to nearly Sh1.25 trillion in the half-year period, higher growth than 17.31 percent in earnings from exports to Sh434.02 billion.
Kenya has over the years struggled to narrow its goods trade deficit partly due to reliance on traditional farm produce exports such as tea, horticulture and coffee which are largely sold raw, fetching relatively lower earnings.
Betty Maina, the Industrialisation and Trade Cabinet Secretary, says most farmers export produce raw due higher taxes slapped on semi-processed or processed products in destination markets, largely in Europe.
“The biggest challenge around value addition is tariff escalation where when you sell in raw form you get zero tariff but when you process, additional duties emerge,” Ms Maina told the Business Daily.
“A lot of our farmers also do not have the capacity to do value addition. There are only a few people who can put up plant for processing vegetables for example.”
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 countries, thereby raising production and job openings in source markets.
A widening deficit in goods trade also piles pressure on the shilling as the demand for dollars outstrips supply.
The CBK data shows earnings from tea increased 17.3 percent to Sh79.73 billion in the six-month period, while coffee jumped 43.48 percent to Sh23.17 billion. The value of horticulture exports, however, dropped 11.27 percent to Sh64.84 billion.
On the other hand, expenditure on fuel imports nearly doubled, climbing 92.09 percent to Sh311.69 billion.
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Joseph Muongi

Financial.co.ke was founded by Mr. Joseph Muongi Kamau. He holds a Master of Science in Finance, Bachelors of Science in Actuarial Science and a Certificate of proficiencty in insurance. He's also the lead financial consultant.