End of SGR works cuts China imports to a three-year low

Completion of the Standard Gauge Railway (SGR) line from Mombasa to Naivasha has helped cut Kenya’s imports from China by nearly Sh51 billion in two years, pushing the country’s import bill to a three-year low.

Data from the Kenya National Bureau of Statistics (KNBS) indicates that orders from China dipped Sh41.42 billion in the January-September 2019 period, adding to the Sh9.40 billion drop in the same period last year.

The fall points to reduced shipment of capital goods such as transportation equipment and machinery from China on completion of the multi-billion-dollar modern railway project that set back taxpayers more than Sh500 billion.

KNBS data shows that Beijing shipped in goods worth Sh250.78 billion in the nine months to September, a 14.17 percent drop from the Sh292.2 billion it imported in the same period last year and Sh301.60 billion in 2017.

“Last year and the year before we were importing locomotives and other capital goods required to complete the SGR before operations and that’s part of what raised those imports. But there are no more locomotives this year. These were high-value capital goods coming in at once,” Kwame Owino, chief executive of think tank Institute of Economic Affairs (IEA), told the Business Daily.

The passenger service on the Mombasa to Nairobi SGR line started operations in mid-2017 and cargo in January 2018. The new track linking the capital city to Naivasha started passenger operations in October.

The SGR project and other deals to build mega roads projects propelled China to become the country’s largest source of imports ahead of traditional markets such as India and Japan.

The 14 percent dip in orders from China helped trim Kenya’s total import bill by 3.69 percent to Sh1.28 trillion in the nine-month period from Sh1.33 trillion in a corresponding period in 2018 and Sh1.297 trillion a year earlier.

However, Kenya did not capitalise on reduced demand for goods from abroad to grow her exports, with earnings dropping Sh22.94 billion, or 4.87 percent, to Sh444.70 billion in the review period. A slowdown in export earnings suggests a difficult operating environment for domestic enterprises, hurting income and job opportunities.

The contraction in total imports was, nonetheless, enough to narrow the country’s trade deficit – the gap between imports and exports – by Sh26.13 billion to Sh834.03 billion in the nine-month period, the KNBS data shows.

The trade statistics, sourced from the Kenya Revenue Authority (KRA), show that shipment of transport equipment dropped Sh20.14 billion, or 13.56 percent, to Sh128.38 billion, while machinery imports dropped to Sh209.85 billion from Sh211.10 billion.

Expenditure on non-food industrial supplies slumped Sh27.14 billion, or 5.82 percent, to Sh439.19 billion while consumer goods not stated elsewhere slipped Sh8.33 billion, or 7.64 percent, to Sh100.62 billion.

Kenya has made penetration of value-added farm produce such as tea, coffee and fruits to China and India a priority in the ambitious Integrated National Exports Development and Promotion Strategy launched in July 2018.

“China and India have always been providing export rebates. So, they are competitive and get incentives to export that put us in a disadvantageous position with regard to imports,” Sachen Gudka, chairman of Kenya Association of Manufacturers (KAM), had said in October.

“If Kenya is to industrialise and really be a manufacturing powerhouse in the region, we need to have value addition and having the right tariffs across the value chain.”