Export-Led Growth the cure to Kenya’s currency devaluation

By Anthony Mwangi

Kenya finds itself at a crucial juncture in its economic trajectory.  The Kenyan shilling (KES) has experienced significant depreciation against the United States Dollar (USD) and other world major currencies in recent months. For the first time, KES has hit a record high of Kes.160 to the USD. Equally, the KES has lost value against its East African sister nations’ currencies Ugandan Shilling (UGS) and Tanzanian Shilling (TZS). This depreciation has brought economic challenges, driving up import costs of food, fuel, raw materials, and medicine, among many others.  The resultant inflationary pressure for Kenya has had a huge impact of 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, Kenya 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 & apparel, leather & footwear, pharmaceuticals, and building & construction among many sectors, have great potential for growth and exports.

About 60 years ago, South Korea was one of the poorest countries of the world, with a GDP per capita of no more than US$87. Comparatively, Kenya had a GDP per capita of US$107 hence doing better than South Korea. In 2023, Kenya’s nominal GDP is circa US$110B while South Korea’s GDP stands at US$1.7trillion in 2023. On this background, Kenya can retrace the economic growth pathway and perhaps copy & paste South Korean development model and change our policy stance in favour of export-oriented policies and move on to the high growth trajectories. Korean experience asserts that strong manufactured export growth integrated with the absence of macroeconomic imbalances can build sound base for the cumulative process of high exports, high profits, high savings, high investment, high 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) pillar, has identified enormous opportunities to save billions of dollars spent to import basic food items. Suffice it to say that Kenya spent over US$3B (circa Kes500B) in 2022 on the import of food. For instance, Maize (Kes60B), Rice (34B), Edible oils (Kes160B), Peanuts (Kes.5B), and poultry products (Kes.4B). The list goes on and on. Most of these food products are imported because Kenya has failed to organize the value chains and realize self-sufficiency.  While the farmers are complaining about the lack of a market for their produce, agro-processors are equally unable to access quality raw materials from the country.

It’s unfathomable how Malawi, a country with a nominal GDP of circa US$13B, supplies over 90% of peanuts for industrial production worth circa Kes. 5 billion to Kenya. Through KAM’s A4I agenda, we are organizing value chains with a specific agenda of providing the aggregate demand data and linking agro-processors with Farmers. By organizing our value chains and linking Agriculture with Industry, 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 in to order to have a managed transition and avoid the negative unintended consequences brought forth by the provisions of the Finance Act 2023. The Finance Act 2023 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.

To achieve successful export-led growth, Kenya must enhance its competitiveness to be able to compete with other nations in the international marketplace. With the increased market access through various trade agreements such as the EAC, COMESA, AfCTA, EU-Kenya EPA, and AGOA, Kenya must up its game to fully maximize the opportunities and avoid losing out to other countries such as Egypt, Tanzania, Ethiopia and Uganda. By enhancing our global competitiveness through world-class quality, pricing and availability, Kenya’s export growth will be stupefying.

Out of 6,000 tariff lines approved under AGOA, Kenya utilizes only 6 tariff lines, with apparels as the leading export at US$500 in 2023/23. KAM’s sectoral deep dive on the export opportunities for textile and apparel demonstrates that Kenya can increase the US$500 export of apparel to circa US$10B by 2030. The jobs will increase from the current 50,000 in our EPZs to over 300,000. During the sectoral deep dives, KAM has come up with both strategic bets and low-hanging opportunities towards achieving this ambition. For instance, urgently fixing infrastructure at Naivasha Industrial Park and Dongo Kundu in Mombasa significantly moves the needle in the right direction. However, Kenya seems to sidetrack by taking on many projects like the County Industrial parks at the same time hence stretching the little resources that could have fixed Naivasha Industrial Park, first & fast.  A joke is told that Kenya acts like a very active marketing department for a factory that is not producing goods. Kenya has focused more on international trade deals and paid minimal attention to industrial competitiveness.

The successful implementation of an export-led growth strategy necessitates strong partnerships between the government, private sector, and other stakeholders. Collaboration will ensure a coordinated approach towards realizing a common objective: revitalizing Kenya’s currency. It is crucial for the government to actively engage industry associations like KAM to address the challenges facing manufacturers. Regular forums, working groups, and policy dialogues can facilitate the exchange of ideas and harness collective expertise to develop and implement effective strategies.

Embracing an export-led growth strategy is not only a solution to reverse the depreciation of the Kenyan shilling but also an opportunity for Kenya to diversify its economy and reduce its vulnerability to global economic fluctuations. By tapping into the expertise of KAM’s mapped export potential, expanding export markets, enhancing productivity, supporting SMEs, and fostering collaboration, Kenya can transform the current predicament into an opportunity for sustainable economic growth.

Utilizing 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 Chief Executive Officer of the Kenya Association of Manufacturers and can be reached at info@kam.co.ke