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Kenya: A pivotal country in East Africa

14 October 20196 min reading

The economy of Kenya is the largest by GDP in East and Central Africa. It serves as the commercial hub for East Africa, with coastal ports that allow for imports to be received and transported to landlocked neighbors. Agriculture remains the backbone of the Kenyan economy. It has been undertaking agricultural sector reforms that are expected to spur growth. However, it will continue to rely on imported food and farm products in the coming years. The most important agricultural imports are wheat, palm oil, sugar, corn, and rice.

Kenya is located on the East Coast of Africa bordering the Indian Ocean to the east, Sudan and Ethiopia to the north, Somalia to the northeast; Uganda to the west, and Tanzania to the south. It covers an area of 582,646 sq km ranks number 47 in the world in terms of size. Kenya has a market-based economy and is generally considered the economic, commercial, financial and logistics hub of East Africa. Kenya has the potential to be one of Africa’s success stories from its growing youthful population, a dynamic private sector, a highly-skilled workforce, improved infrastructure, and its pivotal role in East Africa.

The economy of Kenya is the largest by GDP in East and Central Africa. Kenya is the ninth-largest economy in Africa and the fourth in Sub-Saharan Africa. It serves as the commercial hub for East Africa, with coastal ports that allow for imports to be received and transported to landlocked neighbors. The country’s per capita GDP was $1,608 in 2017, but unemployment and poverty remain high with an estimated 40% of the population living below the poverty line.

Kenya is home to more than 47 million people with an estimated population growth rate of 2.5 percent in 2017, more than twice the global average. The country’s population growth has put significant pressure on its natural resources and arable land and has stressed the labor market and social service sector.

Agriculture remains the backbone of the Kenyan economy, contributing one-third of GDP. About 75% of Kenya´s population work at least part-time in the agricultural sector, including livestock and pastoral activities. Over 75% of agricultural output is from small-scale, rain-fed farming or livestock production. The country’s major agricultural exports are tea, coffee, cut flowers, and vegetables. Kenya is the world’s leading exporter of black tea and cut-flowers.

Kenya relies heavily on imported food and farm products. The most important agricultural imports are wheat, palm oil, sugar, corn, and rice. In 2018, Kenya imported $2.5 billion of agricultural products from the world. Indonesia is currently the top agricultural exporter to Kenya.

Kenya’s high rainfall areas constitute about 10 percent of its arable land and produce 70 percent of national commercial agricultural output. Kenya has been undertaking agricultural sector reforms that are expected to spur growth. A new regulatory framework, arising from the consolidation and harmonization of the sectoral laws is under implementation.

CORN IS THE MOST IMPORTANT STAPLE FOOD Corn remains the most important staple food in Kenya and its consumption continues to increase despite calls by the Government of Kenya for diet diversification. Corn is also a key raw material in animal feeds. Kenya is a corn deficit country, necessitating importation mainly from the East African Community (EAC) countries. Imports from outside the EAC currently attract a steep external ad valorem tariff of fifty percent, unless waived by EAC for a specific period to address dire shortages.

Kenya’s corn sector is faced with huge post-harvest losses (estimated at between 30-40%) due to low capacity in farm, and community level storage and handling infrastructure. At the national level, storage and handling functions are dominated by NCPB, which is a major misalignment of storage capacity and surplus production areas. USDA Foreign Agricultural Service (FAS) forecasts a dip in Kenya’s harvested corn area in marketing year (MY) 2019/2020 due to low morale among farmers caused by a marketing crisis that engulfed the sector in the MY 2018/2019.

Kenya’s corn local supply deficit is expected to widen in MY 2019/2020 due a decrease in production, against growth in consumption. Due to the existing import ban of GM products, and Kenya’s preference for white corn, the bulk of the imports are expected from Uganda and other countries in Common Market for EAC regions.

FLOUR IMPORTS DECREASED Wheat is the number one imported agricultural product in Kenya. According to USDA estimates, about 85 percent of domestic consumption was imported in 2018, valued at approximately $355 million. Between 2014 and 2018, Kenya purchased two-thirds of the wheat it imported from Russia, Ukraine, Argentina, and Germany, with most of the balance coming from Canada and Poland. Domestic increases in local milling capacity have allowed Kenya to mill its own wheat flour and consequently, imports of flour have decreased

FAS forecasts a decrease in Kenya’s wheat production in MY 2019/2020 due to a reduction in planted area, as farmers shift to other more competitive enterprises such as barley, horticulture, dairy, sorghum, and pyrethrum. Wheat consumption is expected to increase in MY 2019/2020, consistent with the trends in past years, and driven mainly by an expanding and robust foodservice sector.

A growing preference for wheat products is also evident in both rural and urban areas and manifests in increases in both commercial and home-baking. The proliferation and growth of international pasta, confectionery, and breakfast cereals brands in the Kenyan market also points to favorable demand trends wheat and wheat products.

FAS forecasts a surge in wheat imports in MY 2019/2020 due to the widening local supply deficit. Kenya’s wheat imports are assessed at 10 percent ad-valorem tariff for registered millers; otherwise, the EAC common external tariff of 35 percent applies.

PASTA BECOMES MORE POPULAR Pasta is becoming more popular thanks to its low cost, shelf-stability, and simple preparation. Imports doubled between 2013 and 2017, but unlike in other African countries, Kenya’s millers do not yet produce uncooked pasta. The majority of pasta is currently being imported from Turkey and Egypt.

RICE CONSUMPTION INCREASING Rice is the third most important food crop in Kenya after maize and wheat. Local production can barely cope with the increasing demand and importation has been inevitable. Rice imports into Kenya are mainly from Pakistan, Vietnam, Thailand, and India.

Rice consumption in Kenya is expected to maintain an upward trend, driven mainly by increasing household incomes, and urbanization. Kenya’s local production meets only about 20% of consumption and the resultant deficit is offset by imports by private traders. Kenya exports modest amounts of rice to neighboring countries Uganda and South Sudan.

Sources: www.export.gov www.fas.usda.gov www.fao.org

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