Kenya among African nations least exposed to China’s slowing economy

Money Markets

A worker picks tea in Nandi Hills. Kenya mainly exports leather, tea, coffee, sisal fibre, scrap metal and horticultural produce to China. PHOTO | FILE 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• Fitch Ratings says in the report that Kenya’s exposure is less than five per cent compared to Congo, Nigeria, Zambia and Ghana where exposure is higher at over 10 per cent. Kenya exported goods worth only Sh4.2 billion in 2013.

Kenya is among the sub-Saharan African countries that are likely to suffer least from the declining China commodity imports, a new rating agency report shows.

Fitch Ratings says in the report that Kenya’s exposure is less than five per cent compared to Congo, Nigeria, Zambia and Ghana where exposure is higher at over 10 per cent. Kenya exported goods worth only Sh4.2 billion in 2013.

The analysis was done in the context of the falling China gross domestic product (GDP), which means the country will increasingly import less should the economy deteriorate. Africa is a key supplier of raw material for its slowing industrial juggernaut.

But despite the low exposure to China slowdown, Fitch Ratings noted that Kenya’s ability to grow in excess of six per cent in GDP has been undermined by domestic shocks such as unpredictable weather and security challenges.

“The security situation in Kenya has deteriorated since military operations began in Somalia in 2011, prompting over 135 attacks orchestrated by Al-Shabaab, a militant Islamic terrorist group operating out of Somalia,” said Fitch Ratings.

The report notes that Kenya’s investment spending is expected to be 8.7 per cent of the GDP, up from the 6.2 per cent realised in 2013/14.

However, it noted the forecast 2013/14 level of 10.7 per cent was not achieved, raising questions as to whether the expected spending for 2014/15 will actually be realised.

In regard to the Asian nation, recent news has indicated the country is headed for the lowest growth since 1990 threatening commodity-dependent economies. In the third quarter between July and September, the Asian country’s economy grew by 7.3 per cent.

International Monetary Fund research indicates that China’s fixed-asset investments (FAI), which have been the main driver of its growth, influences export growth in Africa.

READ: China topples India as main exporter to Kenya

It says that a one percentage point change in China’s FAI growth is associated with an average 0.64 percentage point increase in SSA countries’ export growth.

In November, data showed that China was experiencing weak investments and factories were slowing down in production, leading to prediction that the full-year growth would miss the government’s target of 7.5 per cent.

This finding was supported by Fitch Ratings analysis of the China economy. “GDP growth is currently projected to slow to 6.8 per cent in 2015 and 6.5 per cent in 2016,” said Fitch Ratings.

This will be a far cry from the double-digit growth the Asian economic giant has experienced most of the past decade.

The IMF sees slow growth in China all the way to 2017— though its numbers show more optimism than Fitch’s — driven mainly by the transition from an investment-led growth strategy to domestic consumption.