Why Kenya is likely to avoid China’s economic turmoil

Central Bank of Kenya (CBK) Governor Patrick Njoroge speaks at a press conference on the Monetary Policy Committee (MPC) decisions on January 21, 2016, at CBK. PHOTO | DIANA NGILA | NATION MEDIA GROUP 

In Summary

• Central Bank of Kenya (CBK) governor Dr. Patrick Njoroge says that Kenya has diversified trade partners and this would shield it from China’s problems.
• However, this trade has fallen by almost half due to a decline in demand for African commodities with recent economic data showing that the value of Chinese imports fell 14.3 per cent in the 12 months to August 2015 in renminbi terms.
• The European Union (EU), which is Africa’s biggest trading partner, accounting for 23 per cent of Africa’s trade in 2014, buys 22 per cent of Kenya’s export to the rest of the world.

Kenya is not likely to feel the impact of the turmoil that the Chinese economy is currently going through.

Analysts say Kenya’s diversified partnership is bound to cushion it from the headwinds buffeting the world’s second largest economy, which is facing unprecedented downturn.

Central Bank of Kenya (CBK) governor Dr. Patrick Njoroge says that Kenya has diversified trade partners and this would shield it from China’s problems.

“Somehow there’s a lot of turmoil out there and markets are trying to digest the bad news about the economic outlook but we have differentiated ourselves quite well,” the CBK boss told journalists at a press briefing on Thursday.

The slowdown has been attributed to China’s move to shifts its economy to consumption and services rather than investment and manufacturing. This new direction is motivated by decreased demand for Chinese goods by other countries and the weakening of its currency, the yuan.

In the past decade, ­­China became a darling of Africa with trade between them increasing dramatically from $4 billion in 1995, to $30 billion in 2004 and $222 billion in 2014.

TRADE HAS FALLEN

However, this trade has fallen by almost half due to a decline in demand for African commodities with recent economic data showing that the value of Chinese imports fell 14.3 per cent in the 12 months to August 2015 in renminbi terms.

CBK’s monetary policy committee which met on Wednesday said the impact on Kenya will be limited due to weak trade and financial linkages to the China economy.

“The Chinese slowdown may not affect Africa as much as people think because Europe is its largest trading partner,” Africa Global Research Standard Chartered Chief Economist, Razia Khan said.

According to CBK data, Kenya’s exports are mainly destined for the regional markets within Africa which takes up 41.9 per cent of all exports. Of this, East Africa Community buys 22 per cent of Kenyan exports to Africa while the Common Market for East and Southern Africa (Comesa) takes up 28 per cent.

The European Union (EU), which is Africa’s biggest trading partner, accounting for 23 per cent of Africa’s trade in 2014, buys 22 per cent of Kenya’s export to the rest of the world.

China only buys 1 per cent of Kenyan goods but brings back 20 per cent in imports.

“Our diversification is very helpful because despite the worrisome clouds out there Kenya seems to be in a much stronger place,” Dr Njoroge said.

In fact the CBK boss says he sees Kenya’s exports performing better this year in horticulture and cut flowers after resolution with European market over minimum residual levels on exports