Oil import bill surge eats into forex reserves

A surge in Kenya’s oil import bill has eaten into the country’s export earnings, exerting pressure on the local currency.

While the amount of money spent by Kenya on oil has risen by 70 per cent - from Sh48.4 billion in the second quarter of 2016 to Sh82.1 billion in the same quarter in 2018 - exports increased by a paltry six per cent.

A kilogramme of tea - Kenya’s main export- can buy 5.1 litres of crude oil from the international market today compared to 9.5 litres mid-2016.

This is an indication of Kenya’s deteriorating external position where it is paying more than it is earning.

In 2016, a kilogramme of tea fetched on average Sh297 while a litre of petroleum went for Sh31. But even as the price of crude oil have spiked, that of tea has been stagnant. As at September, a kilogramme of tea declined to Sh241 while a litre of petrol rallied to Sh47.

Generally, Kenya’s import bill has grown faster than its export earnings, leaving the country in a precarious position.

In yesterday’s trading, the shilling weakened against the dollar to exchange at a high of 102.50. For some time, the shilling remained steady against the greenback at 101.

Kenya imported goods valued at Sh460.6 billion in the quarter to June this year, an increase of Sh37.1 billion compared to Sh423.5 billion over a similar quarter last year.

Petroleum products accounted for a substantial margin of the increase, growing by Sh27 billion to Sh82.1 billion compared to Sh55.9 billion last year.

“The higher import bill in the review period was largely driven by increased expenditure on commodities such as petroleum products…. Value of imported petroleum products increased to Sh82.1 billion in the second quarter of 2018 from Sh56 billion in the corresponding quarter of 2017,” said Kenya National Bureau of Statistics in its latest Quarterly Balance of Payments report.

“Imports, mainly petroleum products from the Middle East, increased by 58.4 per cent to Sh99 billion in the second quarter of 2018. In the Middle East, United Arab Emirates and Saudi Arabia are our major trading countries with respect to imports.”

The growth in the value of petroleum imports has been on the back of a rally in fuel prices that hit a four-year high this year. The prices of Brent Crude Oil had risen to $79 (Sh7,900) per barrel by end of June this year, from a low of about $30 (Sh3,000) in January 2016.

The sharp rise in the import bill is in comparison to the value of goods that Kenya exported to other markets, including its neighbouring countries that are key trading partners.

It exported goods worth Sh139.6 billion in the quarter to June this year, a marginal rise from Sh132.4 billion the previous year.

The rise in exports is barely enough to cover the growth in the cost of petroleum imports, which are supposed to power the economy and generate enough goods for local consumption and export.

However, there was declining consumption of diesel, petrol and kerosene inSeptember following imposition of value added tax on petroleum products.

Use of diesel, a key economic driver owing to its heavy in manufacturing and transport sectors, declined 23.4 per cent in September compared to August, according to KNBS data.

Kenyans consumed 162,570 tonnes of diesel, a 23.4 per cent decline from 212,370 tonnes used in August. Uptake of petrol declined to 92,880 tonnes from 126,000 consumed in August.