Food tops imports as factory supplies, machinery plunge

Groceries trader in Nyeri town. FILE PHOTO | NMG

Food has emerged as the biggest driver of Kenya’s expenditure on imports with orders for major capital goods falling, signalling a slowdown in key sectors of manufacturing and construction.

Latest official data shows traders splashed a record-high Sh256.76 billion on food imports in the first nine months of the year, partly helped by a waiver on taxes, which was extended by the William Ruto administration to ease prices.

Goods that were shipped tax-free included white maize, rice, yellow maize, soya beans, soya bean meal, assorted protein concentrates, and feed additives, which were in short supply following a prolonged drought and disruptions in the global supply chains last year.

Read: Turn Kenya farms yellow with maize for food security

Data collated by the Central Bank of Kenya shows orders of food items from abroad in the review jumped 43.18 percent over Sh179.33 billion a year earlier. The rate of growth was more than two times the pace last year, according to CBK statistics.

Food stocks

The waiver was granted in a bid to “bridge the food stocks deficit as well as lower and stabilise food prices,” said Treasury Cabinet Secretary Njuguna Ndung’u earlier in the year.

The provisional data indicate food was the only major import that posted a significant growth in the January-September window, with orders for goods that have traditionally driven Kenya’s import bill retreating.

Read: Here is what is wrong with the Kenyan economy

Expenditure on industrial materials, largely shipped in as intermediate goods, took the biggest hit in the review period, falling by double-digit year-on-year. Orders for the materials, chiefly consumed by factories, contracted 14.54 percent to Sh273.24 billion, the lowest levels since Sh210.75 billion during the pandemic year. The drop largely reflects a struggling manufacturing sector plagued by higher taxes and import costs amid dipping sales in an elevated inflation environment, which has eroded consumers’ purchasing power.

The latest Kenya National Bureau of Statistics (KNBS) data on manufacturing sector performance showed a marginal 1.5 percent growth in the second quarter (April-June 2023), the lowest increase in output since 2017, save for the contraction arising from the Covid-19 pandemic in 2020.

Raw materials

“Kenya is taxing raw materials, intermediate inputs, and packaging materials, which puts her at a competitive disadvantage compared to other EAC partner states. Tax costs on raw materials increased from 13 percent to 64 percent for Kenya,” Job Wanjohi, who heads Policy, Research and Advocacy at the Kenya Association of Manufacturers (KAM) told the Business Daily on October 5.

“KAM has received feedback from manufacturers that they have not only lost their domestic market but also export market as increased taxation outbids them from securing contracts.”

Read: Duty-free goods cost KRA Sh30bn foregone tax

Orders for fuel, a key input in production, also contracted 6.46 percent to Sh473.90 billion in the nine months, while expenditure on machinery and transport equipment (which includes motor vehicles) went down 3.6 percent to Sh321.35 billion.

The CBK statistics, based on data tracked by the Kenya Revenue Authority, further show a 0.85 percent fall in imports classified as chemicals to Sh298.54 billion.

Read: Restricting imports will support local capacity for sustainable food security

Overall, the total import bill was largely flat, falling 1.07 percent, or Sh20.47 billion, for the nine months through September to Sh1.88 trillion.

The reduced total expenditure on goods from abroad amid a slower 13.72 percent growth in exports to Sh747.33 billion helped narrow Kenya’s goods trade deficit – the gap between merchandise exports and imports – for the first time since Covid.

The merchandise trade deficit dropped to Sh1.14 trillion from Sh1.28 trillion a year ago.

“What explains that reduction in imports is virtually everything we were importing is going down. The increase in food imports has helped us reduce pressure on food prices,” said Central Bank governor Kamau Thugge on October 3.

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