TRALAC - Trade Law Centre

Kenya: Exporters reap record pay from weakening shilling

Sunday, 29 January 2012

Source: Business Daily (Kenya)

Exporters who earn revenues in hard currencies have started to report big gains from a mix of a weak shilling and high global commodity prices that prevailed for most of last year.

Just days after the tea industry reported a record Sh109 billion in annual earnings, key foreign exchange earners are gearing up for big leaps in revenues from their 2011 operations.

“A weak shilling and high commodity prices gave the textile industry its best earnings ever from the US market,” Kenya Association of Manufacturers chairman Jes Bedi said on Friday. The sector earned a record Sh25 billion ($292 million) under the preferential African Growth and Opportunity Act (Agoa) in 2011.

Break 2010 record

Horticulture — the country’s number two foreign exchange earner — also looks set to break its 2010 record of Sh78 billion, having bagged Sh73.1 billion in the first ten months of last year.

High prices also helped the coffee industry to shrug off a threatening encroachment by real estate, netting Sh18.7 billion in the first 10 months of last year, already above the Sh16.3 billion it earned in the whole of 2010.

The tea industry had by October earned Sh83.72 billion against the 2010 total revenues of Sh97 billion. Industry insiders said the industry would have performed better had it not been for intense competition from rival beverages and lower output.

“Potential consumers are turning to alternatives, especially juices in place for tea,” the Tea Board of Kenya CEO, Sicily Kariuki, said when Ministry of Agriculture officials released their 2011 report.

The shilling depreciated rapidly last year from 80 units against the dollar in January to a low of Sh 107 in October with attendant inflationary pressure on domestic consumers.

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The National Economic and Social Council (NESC) is concerned that the high earnings of last year may not be repeated this year because of a possible drop in agricultural production from a forecast dry spell as well as low demand in the international markets, the product of a slowdown in global economic growth.

Negative trends

While opening the council’s full meeting about a week ago, Prime Minister Raila Odinga challenged technocrats to help Kenya “defy these negative global trends.”

The council recommended additional incentives to encourage diversification of exports, improve efficiency in energy use and strengthen economic and diplomatic relationships with emerging economies to counter the slowdown.

Uncertainty persists as the economic crisis in the eurozone — Kenya’s main market outside East Africa — signals reduced margins in 2012.

“We are keeping a close eye on global events as we make plans for the year”, said Jane Ngige, CEO of the Kenya Flowers Council.

“So far, the value (unit prices) for horticultural products has gone down although demand remains unchanged”.

The Coffee Board of Kenya has predicted increased production in 2012, buoyed by improved earnings of last year but uncertainty reigns.

“We have witnessed big fluctuations in prices of coffee in the international market from October last year,” said David Muriithi, an executive at Nairobi Coffee Exchange.

“Production of coffee has also been unpredictable and this makes it impossible to use the trend to predict value for 2012.”

Last week, the share prices of tea firms largely ignored the industry’s huge earnings at the Nairobi Securities Exchange with Kapchorua Tea and Limuru Tea remaining constant at Sh115 and Sh335 respectively.

Share prices of Sasini Ltd (Sh12.15) and Williamson Tea (Sh254) lost ground by 1.22 per cent and 0.39 per cent, respectively after the announcement .

“This shows that the exporters were anticipating these good results all along and even factored these expectations in the share prices,” said Eric Musau, an analyst at Standard Investment Bank.

But the harvest time extends beyond commodity trade to include other foreign exchange receipts. Official data suggests that tourism and diaspora remittances will register sterling performances — especially when the receipts are measured in shilling equivalents in the months that they were received last year.

Tourism industry earnings soared by 44 per cent in 2010 to net the country Sh74 billion and the numbers also look set to rise.

Data gathered by the Tourism Board of Kenya in the first nine months of 2011 shows that tourist arrivals at JKIA hit 931,507, representing a 16.4 per cent increase over the same period in the previous year.

On Friday, industry players said that while a weak shilling would be a magnet for heavy spenders, it played no part in attracting tourists to Kenya.

“In the long run, a weaker domestic currency attracts a high number of tourists to a destination but this was not the case in 2011,” said Fred Kaigwa, the chief exective of the Kenya Tour Operators Association.

He said the fall in the value of the shilling was too abrupt to influence growth during the year.

“Tourists who arrived in the country last year could not have anticipated the rapid depreciation of the shilling since they usually make their booking six months to two years in advance,” said Kenya Association of Hoteliers and Caterers chief executive officer Mike Macharia.

Remittances

Data prepared by the Central Bank of Kenya indicates that the $805.9 million remittances received from Kenyans in the diaspora in the first 11 months of last year had already exceeded the $641.9 million received in the whole of 2010.

That the weaker shilling influenced the decision by Kenyans staying abroad to raise their level of remittances back home can be deduced from the sharp growth in receipts between September and November – the months during which the slide in the value of shilling reached its peak.

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“ Latest AGOA Trade Data currently available on AGOA.info


Click here to view a sector profile of Kenya's bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.


Other regularly updated trade statistics on AGOA.info include: (click each link to view)

  • AGOA-Beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.