Kenya's top forex earner in trouble

Earnings from horticultural produce are on the decline as major buyers of Kenya’s famed flowers, fresh vegetables and fruits cut spending.

The latest data by the Kenya National Bureau of Statistics (KNBS) shows that income from the sale of cut flowers, a key export especially to Europe, has been on the decline this year.

Earnings from flowers reduced 11.5 per cent over the first eight months of the year to Sh69 billion compared to Sh77 billion that the sub-sector earned over the same period last year.

Earnings from the sale of fruits, on the other hand, remained flat at Sh10.1 billion over the eight months while vegetables posted a marginal growth to Sh17.8 billion from Sh16.8 billion over a similar period last year.

The performance by horticulture mirrors that of tea, which has been on a free fall, with the earnings going down to Sh73.7 billion over the eight months to August this year, a 24 per cent drop from Sh96.2 over the same period last year.

Industry players say the political crisis that the United Kingdom is going through as it seeks to leave the European Union is to a large extent to blame for the decline in horticulture earnings.

They also point to the weakening of the sterling pound against other currencies, with the mean exchange rate against the shilling going down to around Sh131 mid last year from Sh140 at the beginning of the year.

The decline has extended this year and has seen the pound trade at below Sh130 against the shilling at some point this year.

The strengthening of the local currency against the pound has meant local exporters to the UK earn less for the same quantity of produce.

“There are currency issues, especially in the UK. When the currency is not strong because of the instability in the country, it directly affects our earnings. A lot of vegetables and flowers go directly to the UK. The volumes have not been much affected, it has a lot to do with value,” said Fresh Produce Exporters Association of Kenya (FPEAK) Chief Executive Hosea Machuki.

He said certain local factors have also pushed the cost of producing horticulture and slowly resulted in the country losing the edge in terms of pricing.

“As a country, we are also not as competitive as we should. When the Government delays paying people refunds, when they have not effected zero rating of agro chemicals from 16 to zero, these are factors that add to increased cost of doing business,” said Mr Machuki.

Other than the currency, Brexit has also destabilised the UK and seen it buy less of Kenyan flowers.

According to KNBS data, the UK imported Sh18.5 billion worth of goods in the eight-month period compared with Sh19.5 billion last year.

Britain is currently preparing to exit the European Union in what is expected to affect trade ties with Kenya in the coming months. The UK has been a key market for Kenyan produce particularly tea and flowers.

The Netherlands, another key market for Kenyan flowers, reported flat growth in imports from Kenya at Sh28.6 billion.

The country, the flower market capital of the world, re-exports most of the flowers it imports to the EU.

It has also been hit by Brexit jitters, affecting the quantity of the produce it buys from countries like Kenya.

The UK is the third-largest importer of Dutch flowers (many of them re-exports) after Germany and France.

The horticulture industry is among the critical pillars of the Kenyan economy, which together with coffee, tea and tourism are the key foreign exchange earners for Kenya.

Last year, export earnings from cut flowers grew by 37.7 per cent to Sh113.2 billion and accounted for 73.6 per cent of total fresh horticulture exports earnings.

KNBS attributed the high export earnings from cut flowers to better prices offered by buyers, mostly European. Earnings from exports of fruits rose by 42.4 per cent to Sh12.8 billion while the value of vegetable exports increased by 14.9 per cent from Sh27.7 billion.

A recent deal between Kenya and China to increase the volume of avocados to the Asian market is expected to boost earnings from the fruit.

After months of push and pull, particularly on the requirements that China imposed on Kenyan exporters, the country was in September exported its first batch of the fruit and expects to build on this.

The poor performance by horticulture as well as tea could be a pointer to a slower than expected performance by the agricultural sector this year.

The International Monetary Fund (IMF) has revised downwards the projection of Kenya’s economic growth this year to 5.6 per cent, down from 5.8 per cent.

This is compared with a growth rate of 6.3 per cent last year.

The World Bank too expects a slowdown in exports to affect the country’s economy this year.

In a recent report, the Bretton Woods institution revised downwards this year’s economic growth for a number of African countries, and while this did not include Kenya, it noted that agricultural exports in Kenyan have been dropping, which might affect the economy.

“The downward forecast revision for 2019 mostly reflects temporary drags from stressed economies, including Mozambique, Sudan, and Zimbabwe, but slowdowns are also seen in Kenya due to sluggish agricultural exports,” said the World Bank in the Africa Pulse report released last week.

emacharia@standardmedia.co.ke