The value of Kenya’s exports to Uganda crossed the Sh100 billion mark for the first time in November 2023, owing to a weak currency that had made the local goods cheaper in the neighbouring country.
Official data shows that Kenya exported goods valued at Sh105 billion to Uganda in the year to November last year, a period that saw the Kenyan shilling lose 17.45 percent of its value against the Ugandan shilling.
Generally, with a weak shilling Kenyan products become cheaper, in what is a boon for the local producers of iron, steel and cement which are the main commodities that Kenya exports to the East African neighbour.
By the end of 2022, a Ugandan trader needed 30.18 units of their country’s shilling to get a Kenyan shilling, according to data from the Central Bank of Kenya (CBK).
However, by the end of November last year, the same trader only needed 24.9 of the Ugandan currency, which means they could buy more of the Kenyan products with the same amount.
The value of goods exported to Uganda in the 11 months was more than the Sh80 billion that Kenyans exported to the neighbouring country in the whole of 2022, according to data from the Kenya National Bureau of Statistics (KNBS). The value of domestic exports that does not include re-exports such as refined petroleum products increased by 45 percent from Sh73 billion in the year to November 2022.
Antony Mwangi, the managing director of the Kenya Association of Manufacturers (KAM), and whose members are the major exporters to Uganda, reckoned that the increase has little to do with increased production.
“Kenya’s currency has not only depreciated against the US dollar but also against Ugandan shilling. So goods from Kenya are much cheaper,” said Mr Mwangi.
“So it may not be because of the increase of products that we are exporting, it may be because our currency now is weaker,” he added.
In the border town of Busia, for example, there have been reports of Ugandans crossing over to Kenya to buy cheaper Kenyan products such as cooking oil, wheat flour and other household products.
For a long time, it was Kenyans who crossed over to the Ugandan side to buy cheaper goods from the Yoweri Museveni-led nation.
The two countries, together with Tanzania, are the founding members of the East African Community (EAC), a free trade area with a membership of eight countries.
Kenya’s exports to Uganda, and Uganda’s imports to Kenya, do not attract any tariff.
“It is still much cheaper for Uganda to import goods and services from Kenya. The cost of production of goods and services they are importing are high in Uganda also, causing them to demand from outside,” said Kennedy Manyala, an economist.
For a while, Kenyan exports to Uganda have faced stiff competition from similar products coming from China and India, despite the latter attracting a higher duty.
This is a boon for local cement producers as well as iron and steel manufacturers as these comprise Kenya’s largest export commodities to Uganda.
Kenya also exports common salt, oil, perfumes, polishing and cleansing preparations, as well as palm oil to Uganda. Other than EAC, Uganda and Kenya are also members of the Common Market for Eastern and Southern Africa (Comesa), another free trade area.
Experts note that the Kenya shilling has been competitive against the dollar in the EAC when it comes to trading and investment.
This means that one can settle accounts in all the EAC member States in Kenya shilling.
Nonetheless, the exchange rates among the EAC currencies have always been dictated by the US dollar, according to James Njoroge, chairman of China-Dubai Traders Group, who is also a trader in the region.
The dollar, said Mr Njoroge, is a “super currency” that determines the value of all other currencies and how they exchange.
Uganda is currently embroiled in a trade tiff with Kenya over the latter’s fuel import scheme with Kampala arguing that it was getting a raw deal following Nairobi’s decision to enter into a government-backed deal with three Gulf oil majors.
Kampala has since lodged a case at the East African Court of Justice against Nairobi for blocking the use of its pipeline to transport fuel.
Source: Business Daily