Kenyan importers spent three-quarters of the country's annual budget bringing in goods from abroad, limiting job prospects for the country's increasingly skilled youth and putting pressure on the shilling versus major world currencies. The cost of importing fuel and food raised import expenditure by 16.21 percent to Sh2.49 trillion, according to official figures compiled by the Central Bank of Kenya. The import bill amounts to 73.45 percent of the original Sh3.39 trillion budget for the fiscal year ending in June. In this blog, we will discuss the recent notification in detail.
Kenyan importers spent three-quarters of the country's annual budget bringing in goods from overseas, limiting job opportunities for the country's growing skilled youth and putting pressure on the shilling's exchange rate against major international currencies.
According to Kenya Trade Data, numbers compiled by the Central Bank of Kenya, the cost of importing petrol and food increased import spending by 16.21 percent to Sh2.49 trillion. The import bill represents 73.45 percent of the initial Sh3.39 trillion budget for the fiscal year ending in June.
The cost of essential commodities such as petroleum products, wheat, edible oil, steel, and paper will reach all-time highs in 2022 due to persistent disruptions in global supply chains that began a few years ago due to Covid curbs and were exacerbated by Russia's brutal war in Ukraine in February last year.
The increased import bill against a limited basket of export items contributed to a 15.26 percent increase in the country's goods trade imbalance last year.
Because of higher taxes levied on semi-processed or processed items in destination countries such as Europe, most Kenyan traders export raw produce, believing that value addition will make exports less competitive in global markets. Know about Kenya import export data.
Manufacturers have primarily attributed the relatively moderate increase in merchandise trade export revenues to the high cost of manufacturing, citing high energy prices as a major growth inhibitor.
If you look at some of the commodities we sell [abroad] like clothes, even with duty-free access to the American market, we are still 15 to 20 percent more financially costly than our competitors in Central Asia like Bangladesh and Sri Lanka. The reason for this is that production costs in Kenya are quite high due to the high cost of power, water, and labor, by Kenya Association of Manufacturers officials.
Kenyan products compete with items from all around the world, so we need to be globally competitive as a country and even at the factory level.
According to economists, a persistently higher trade deficit slows the creation of new job opportunities for Kenya's growing skilled youth because the majority of revenue earned within Kenya is spent on purchasing goods from foreign countries, thereby increasing production and job openings in source markets.
A growing trade deficit puts pressure on the shilling as demand for dollars outstrips supply. For example, the shilling has lost 8.76 percent of its value against the US dollar this year to an average of 123.05 units, owing mostly to more demand for the greenback than supply.
Expenditure on fuel and lubricants from abroad increased 72.13 percent to Sh656.62 billion, indicating record-high growth that prompted the previous administration to cushion consumers on petroleum product purchases in order to stem inflationary pressures on key sectors such as transportation, manufacturing, and agriculture. Get Kenya Import Data
The fuel price stability scheme, for example, cost taxpayers Sh81 billion in the fiscal year ending June 2022, showing the impact of State action on the country's revenue.
Because of the exorbitant expense of the subsidy, President William Ruto's administration decided to discontinue super petrol in September. It has, however, refused super fuel buyers a price cut, which it has since used to subsidize diesel purchases while preserving the kerosene cushion.
The unpredictable oil prices have been branded a "challenge for consumers and economic stability" by the Treasury.
In particular, the recent fuel price increase as a result of a worldwide price shock has severely impacted Kenyans, with considerable budgetary ramifications, Treasury officials stated in the 2023 Budget Policy Statement (BPS). The government will establish a legal structure to ring-fence the Fuel Stabilisation Fund in order to stabilize consumer costs against unforeseen swings in global oil prices."
Other drivers of the 2022 import bill were food, which increased 20.40 percent year on year to Sh247.40 billion during a period when wheat and edible oil reached record highs, and chemicals used by manufacturers, which increased 14.39 percent to Sh389.50 billion.
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