Money Markets
National Economic and Social Council CEO Julius Muia. He says Kenya’s
earnings have not kept pace with the growth of imports and capital
flows. PHOTO | FILE | NATION MEDIA GROUP
By CHARLES MWANIKI
In Summary
- The latest international trading data from the Kenya National Bureau of Statistics (KNBS) shows that in the first seven months of this year, the trade deficit stood at Sh578.3 billion, compared to Sh510.6 billion over the same period in 2013.
The widening balance of trade arising from heavy
capital goods’ imports and declining export earnings is likely to keep
the shilling under pressure in the short to medium term.
According to National Economic and Social Council CEO Julius
Muia, Kenya has seen a growth in imports, especially equipment and
machinery, tied to the stepped up rollout of Vision 2030 infrastructure
projects.
At the same time lower income from the country’s
key exports such as tea, coffee and horticulture, coupled with a decline
in tourism earnings due to rise in insecurity have led to the widening
of the balance of payments. This has continued to weaken the shilling
against major international currencies.
“Unfortunately, Kenya’s earnings from exports,
remittances from the diaspora and foreign investments have not kept pace
with the growth of imports. In the absence of radical changes in the
composition of exports, imports and capital flows, the shilling will
continue to be under pressure,” Dr Muia told the media in Nairobi
yesterday.
The latest international trading data from the
Kenya National Bureau of Statistics (KNBS) shows that in the first seven
months of this year, the trade deficit stood at Sh578.3 billion,
compared to Sh510.6 billion over the same period in 2013. Total imports
to July 2014 stood at Sh897.33 billion, compared to Sh809 billion in
seven months to July 2013.
The shilling in turn has remained under pressure
this year, and has depreciated by 3.5 per cent to the dollar, exchanging
at a mean of 89.41 units yesterday.
The upside of the heavy capital expenditure will
come from the infrastructure yield to accrue from the projects such as
the standard gauge railway from Mombasa to Malaba, the paving of 10,000
kilometres of road and the expansion of the Jomo Kenyatta International
Airport.
“While significantly improving the ease of doing
business in Kenya, these projects will certainly unleash substantial
multiplier effects in the economy,” said Dr Muia.
Other projects include plan to generate an
additional 5,000 megawatts of power by 2017 and the development of the
Lamu Port Southern Sudan-Ethiopia Transport (Lapsset) corridor.
Dr Muia though noted that declining international
oil prices could offer short term relief to the economy, especially to
the transport and manufacturing sectors. Oil prices have dropped below
the $85 level per barrel in the past two weeks, from about $110 in June.
Leading producer Saudi Arabia has indicated it is unlikely to cut
production to boost prices in the short term, indicating a possible
further drop in prices.
Dr Muia said the outlook for agriculture has improved, with the projected good rainfall and rollout of irrigation programmes.
The pledge by international financiers to provide funding of up to $8.3 billion (Sh740 billion) towards security and development in the horn of Africa is expected to have a positive impact on tourism.
The pledge by international financiers to provide funding of up to $8.3 billion (Sh740 billion) towards security and development in the horn of Africa is expected to have a positive impact on tourism.
Despite the mixed fortunes Kenya recently rebased
its economy, raising the size of the GDP by 25 per cent to move into
lower middle income status at a per capita income of $1,269. The aim, Dr
Muia says, is to move to upper middle income with per capita income of
between $4,086 and $12,615.
cmwaniki@ke.nationmedia.com
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