A more competitive strategy is needed to grow the export sector

Thursday October 12 2017

A worker packs flowers for export at Finlays in Naivasha.

A worker packs flowers for export at Finlays in Naivasha, Nakuru County on February 10, 2015. PHOTO | SULEIMAN MBATIAH | NATION MEDIA GROUP  

By PETER WARUTERE
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The export sector is a drag on the economy, essentially by failing to provide sufficient foreign exchange to cover financial obligations, including imports and debt payments.

While imports continue to expand in leaps and bounds, exports increase at a snail’s pace, causing ever-increasing trade and balance of payments deficits.

Statistics for 2016 indicate that while Kenya exported goods valued at $5.7 billion, imports were $14 billion.

This imbalance imposes a serious constraint to economic growth. The National Trade Policy launched in July is supposed to address this problem.

The policy being implemented by the Ministry of Industry, Trade and Cooperatives focuses on transformative action, including diversifying the export base, improving value chains and penetrating new markets.

It’s a tall order given the high rate of import growth relative to the marginal increase in export value.

BALANCE

Exports need to grow at 14 per cent a year to 2030 for a better balance to be achieved, according to Mr Jaswinder Bedi, the chairman of the Export Promotion Council.

Stakeholders at an export forum hosted by the EPC last Friday, had a litany of issues, ranging from cost and low productivity to poor incentives, that they want the government to resolve.

The export sector crisis is not just about the scale of the import-export balance and foreign exchange crisis.

The Kenya National Bureau of Statistics report for the second quarter of this year shows that imports expanded at 15.5 per cent, while exports grew by 2.9 per cent.

PERFORMANCE

The export base is built around five major products, which account for nearly 60 per cent of the total value.

They include tea and horticulture, which account for 40 per cent of the value, petroleum re-exports, apparel and clothing, and coffee.

The collapse of the coffee industry under the weight of mismanagement and debt, is one of the saddest stories of export performance.

The export market is equally narrow. Kenya depends on just three markets for nearly 60 per cent of its export revenue — the European Union, the East African Community and the Common Market for East and Southern Africa.

Other markets, including the Middle East, United States and Asia remain untapped. The sector needs to be anchored on Kenya’s competitiveness as a source market.

INFRASTRUCTURE

This depends on the quality of products and other factors, including the cost of production, credit, and infrastructure.

The massive investment in infrastructure, including roads, railways, airports, water and electricity, boosts export growth. Modern transport infrastructure has improved the ease of doing business for the private sector and increased efficiency in the transfer of goods and services from the source to markets.

This should be an incentive to build a strong, diversified export base. Trade policy needs to focus on high value exports, and those that have the potential to engage many players, particularly youth. Textiles, leather and cashew nuts are good examples.

The potential in the United States under the African Growth and Opportunity Act provides a golden opportunity  to expand cotton farming in western, eastern, Rift Valley and coastal regions.

FARM INCOMES

Increasing output and deepening value chains will increase farm incomes and improve opportunities, contributing to regional growth and equity.

The export sector can also become a catalyst for solving two major national problems. One is creating jobs and income opportunities for the large pool of educated but idle youth, who are the most vulnerable to exploitation by politicians, particularly during elections.

The second is improving the sustainability of farming and rural enterprises, which are largely owned and managed by an ageing class of farmers and entrepreneurs. Engaging youth in quality jobs and enterprises can integrate them into long-term economic prosperity.

 

Mr Warutere is a director of Mashariki Communications Ltd, [email protected]