Kenya’s export revenues dropped by Sh8 billion in the third quarter of 2014 compared to the previous quarter in the same year due to declining earnings from tea and tourism.

Interestingly, the import bill rose by Sh49 billion in the period under review, a situation likely to worsen Kenya’s terms of trade, shows the Kenya National Bureau of Statistics (KNBS) data.

In the third quarter – period between July and September 2014 – earnings from exports dropped by 5.7 per cent to Sh133 billion from Sh141 billion realised between April and June last year. Kenya paid Sh452 billion in imports between July and September 2014 compared to Sh403 billion in the preceding quarter.

“The expansion in the import bill was mainly due to increases in the value of imports of machinery and transport equipment, manufactured goods and fuel products,” KNBS said.

LIKELY TO DECLINE

A parliamentary budget office report released last year indicated that Kenya’s exports are likely to decline by 5.1 per cent in the next two years due to lower-than-expected tourist arrivals, muted activity in the private and agriculture sectors, as well as declining competitiveness of exports.

Kenya is a net importer and depends on tourism, tea, coffee and horticulture for foreign exchange earnings to enable it meet its import bill and to stabilise the shilling.

Last year, tea and tourism faced huge challenges that cut foreign exchange. The price of tea, Kenya’s largest forex earner, hit record lows, while tourism faced a double whammy of insecurity and travel warnings by top source markets.

Tea revenues dropped by Sh16 billion in the year to October 2014. The greenleaf fetched Sh96 billion in the period ending October 2014, a 14.3 per cent drop from Sh113 billion the commodity earned in the year to October 2013.

The poor market of the cash crop has now cast a dark cloud over the country’s export revenues and farmers’ bonuses going forward.

Over half of the country’s revenues come from tea, coffee and horticulture but the low prices that the greenleaf is fetching are expected to put pressure on the current account.

Tourism, another key sector, is on its knees, owing to insecurity that has sparked holidaymakers’ flight from Kenya. Analysts have indicated that should the poor prices of tea persist, coupled with a slump in tourism, the economy will be exposed to macro-economic shocks.

MACRO-ECONOMIC SHOCKS

The worsening of the overall balance of payments is also attributed to exhaustion of foreign exchange reserves, which the government used to service a $600 million debt. The Central Bank’s plan to stabilise the shilling depleted the foreign exchange reserves further. Should Kenya’s trade balance worsen on the back of falling export earnings, this may result in macro-economic shocks last seen in 2011 and 2012.

A huge import bill, as a result of external market shocks, saw the shilling hit a historic low in 2011 even as inflation spiralled to 19.72 per cent in the same year. As a consequence, interest rates were raised to help stabilise the economy.