Columnists
How export-led growth could help cure Kenya shilling devaluation ills
Thursday February 01 2024
Workers at an apparel factory in Nairobi Industrial Area on December 13, 2023. PHOTO | LUCY WANJIRU | NMG
Kenya finds itself at a crucial juncture in its economic trajectory. The Kenyan shilling has experienced significant depreciation against the US dollar and other world majors in recent months. For the first time, the local unit hit a record high of Sh160 to the greenback. Equally, it has shed value against regional currencies.
This depreciation has brought economic challenges, driving up import costs of food, fuel, raw materials, and medicine, among many others. The resultant inflationary pressure has had a huge impact on the overall cost of living. The Kenya Association of Manufacturers (KAM) firmly believes that embracing an export-led growth strategy holds the potential to reverse the situation and mitigate against the free fall of the local currency.
Export-led growth has proven to be an effective strategy for developing economies facing currency depreciation and trade imbalances. By harnessing the nation’s manufacturing potential and diversifying export markets, the country can bolster its economy and restore the value of its weakening currency.
In 2023, KAM undertook an extensive sectoral deep dive to evaluate the export potential for Kenya across 20 value chains. The textile and apparel, leather and footwear, pharmaceuticals, and building and construction sectors among many others, have great potential for growth and exports.
While advocating for export-oriented policies, it is important not to lose focus on import substitution. In agriculture for example, KAM’s analysis of several value chains, through the Agriculture for Industry (A4I) initiative, has identified enormous opportunities to save billions of dollars spent to import basic food items. Suffice to say that Kenya spent over $3 billion in 2022 on the import of food.
Through KAM’s A4I agenda, we are organising value chains with a specific agenda of providing aggregate demand data and linking agro-processors with farmers. Through this, Kenya will immediately stop the hemorrhage of forex currently going to the import of food, raw materials and intermediate raw materials for industrial processing.
However, this requires fact-based, data-driven decision-making to have a managed transition and avoid the negative unintended consequences brought forth by the provisions of the Finance Act, of 2023.
The Act introduced the Export Promotion and Investment levy on raw materials meant for industrial processing. This single policy misadventure has been catastrophic to the cement, steel, and paper sectors.
Employing an export-led strategy will not only strengthen Kenya’s manufacturing sector but also improve the welfare of its citizens. As a nation, we must seize this opportunity and work together to propel Kenya towards economic resilience, elevating our global standing and guaranteeing a brighter future for generations to come.
The writer is the CEO Kenya Association of Manufacturers and can be reached at [email protected].
