Kenya’s Exports Lag in Second Quarter of 2024 Amid Declining Coffee and Industrial Goods Shipments

Kenya’s export performance in the second quarter of 2024 exhibited a noticeable decline, primarily driven by reduced earnings from key export commodities such as coffee, iron and steel, industrial machinery, and paper and paperboard. According to the latest data released by the Kenya National Bureau of Statistics (KNBS), these decreases have collectively contributed to a contraction in the country’s export revenues, marking a critical challenge for Kenya’s trade sector amid global economic uncertainties.

While certain sectors showed resilience, such as tea and apparel exports, the overall trajectory underscores the vulnerabilities in Kenya’s export structure and highlights the need for diversification and strategic responses to global demand fluctuations. The mixed performance reflects broader trends in both domestic and international markets that are influencing Kenya’s trade activities.

The Impact of Declining Coffee Exports

Coffee has historically been one of Kenya’s flagship exports, revered for its high quality and commanding strong demand globally, particularly in European and Middle Eastern markets. However, the KNBS report reveals a significant drop in coffee export earnings during the period between April and June 2024, falling to Ksh 11.7 billion from Ksh 13.6 billion in the same period in 2023. This represents a 14% decline, which is attributed not only to lower global coffee prices but also to a decrease in the volume of coffee exported.

The volume of coffee shipped during the quarter dropped to 15,913.3 metric tonnes, compared to 18,874.7 metric tonnes in the previous year’s second quarter. Several factors contribute to this reduction, including unfavorable weather conditions that affected coffee yields, ongoing supply chain disruptions, and shifting demand patterns in key export markets. Furthermore, coffee growers in Kenya have been grappling with rising input costs, making it increasingly difficult to maintain production levels, which in turn affects export volumes.

Industrial Goods: Iron, Steel, and Machinery Exports Decline

In addition to coffee, Kenya’s industrial sector exports also suffered a significant blow. KNBS data shows that export earnings from iron and steel fell sharply to Ksh 6.8 billion in the second quarter of 2024, down from Ksh 8.3 billion during the same period in 2023. The decrease reflects both reduced global demand and heightened competition from other regions that offer similar products at more competitive prices.

Export earnings from industrial machinery and paper and paperboard also dropped, recording Ksh 1.9 billion and Ksh 1.1 billion, respectively. These sectors, while not as dominant as agriculture in Kenya’s export portfolio, play a crucial role in the country’s overall trade balance. The decline suggests a slowdown in industrial output, which could be a result of reduced manufacturing capacity, logistical challenges, and limited access to high-quality raw materials.

Kenya’s industrial goods export sector has traditionally faced challenges related to infrastructure, production costs, and competition. However, recent declines, particularly in iron and steel, highlight the vulnerability of this sector to external shocks, such as shifts in demand from key markets like China and India, as well as internal economic factors that affect production efficiency.

Bright Spots: Tea and Apparel Exports Show Growth

While the broader export landscape for Kenya has been challenging, certain sectors have demonstrated resilience, offering a glimmer of hope amid the downturn. Export earnings from tea, which remains one of Kenya’s top export commodities, rose by 2% during the second quarter of 2024. KNBS reported that tea export earnings increased to Ksh 44.8 billion from Ksh 43.8 billion during the same period in 2023.

The growth in tea exports is largely driven by an increase in the quantity of tea exported, even as global tea prices have remained relatively stable. Kenya’s position as a leading global tea producer, combined with strong demand from markets such as Pakistan, Egypt, and the UK, has helped sustain this growth. Additionally, the diversification of tea products, including specialty teas and value-added products, has enhanced Kenya’s competitiveness in international markets.

Similarly, the apparel and clothing accessories sector has shown notable growth, with export earnings increasing by 7.5% over the same period. Earnings rose from Ksh 11.8 billion in 2023 to Ksh 12.7 billion in 2024. This growth can be attributed to the increased demand for Kenyan-made clothing in key markets like the United States, where trade agreements such as the African Growth and Opportunity Act (AGOA) provide preferential access for Kenyan exports.

The apparel sector’s growth also reflects the global trend of sourcing garments from African countries due to the competitive labor costs and rising production costs in traditional manufacturing hubs in Asia. However, maintaining this momentum will require continuous investment in technology, innovation, and worker training to ensure that Kenyan apparel producers can meet evolving global demands.

Rising Imports Exacerbate Trade Imbalance

While Kenya’s export performance showed a mixed picture, the country’s import bill continued to rise during the second quarter of 2024. KNBS data indicates that spending on imports increased by Ksh 7.7 billion, bringing the total to Ksh 659.5 billion for the period. This increase was driven largely by higher expenditures on industrial machinery, aircraft, and associated equipment and parts.

The import of unmilled wheat, telecommunication equipment, and chemical fertilizers also saw significant increases, with wheat imports rising by 24.6%, telecommunication equipment by 83.1%, and chemical fertilizers by 41.7%. These increases reflect Kenya’s growing demand for inputs to support its industrial, technological, and agricultural sectors, as the country continues to pursue modernization and infrastructure development.

The rise in imports, however, has contributed to an increasing trade imbalance, as the growth in export earnings has not kept pace with the higher import bill. The imbalance places pressure on Kenya’s foreign exchange reserves, potentially leading to currency depreciation and inflationary pressures. It also highlights the need for a strategic approach to boost exports while managing imports to ensure sustainable economic growth.

Declining Imports of Rice and Iron and Steel

Not all imports saw increases, as the value of imported iron and steel, as well as rice, experienced significant declines. KNBS data shows that the value of imported iron and steel dropped from Ksh 39.3 billion in the second quarter of 2023 to Ksh 22.5 billion in 2024, a reduction of 42.7%. Similarly, the value of rice imports declined from Ksh 27 billion to Ksh 11.6 billion, representing a 57% decrease.

The decline in rice imports may be attributed to increased local production efforts and changes in global rice markets, while the drop in iron and steel imports could reflect reduced demand from the construction and manufacturing sectors in Kenya.

The Way Forward: Addressing Structural Challenges and Export Diversification

Kenya’s export sector, while facing several headwinds, holds potential for recovery and sustained growth. The challenges posed by declining earnings from coffee and industrial goods underscore the need for a diversified export base that can withstand global market fluctuations. Coffee, while a traditional export, must evolve to adapt to changing market dynamics, including shifts in consumer preferences toward specialty and sustainably sourced products.

The Kenyan government, alongside industry stakeholders, must also focus on improving productivity in the agricultural and industrial sectors by investing in modern technology, enhancing supply chains, and supporting value addition. Efforts to diversify export markets and products will be critical to reducing the country’s reliance on a few key commodities and markets.

Additionally, addressing infrastructure bottlenecks, improving access to finance for small and medium-sized enterprises (SMEs), and fostering innovation within the manufacturing sector will be essential to boosting industrial goods exports. Kenya must also continue to leverage trade agreements such as AGOA to expand its apparel exports and build on the success seen in the tea and garment industries.

In conclusion, while Kenya’s export performance in the second quarter of 2024 highlights significant challenges, it also offers opportunities for growth and transformation. By addressing structural issues and capitalizing on its competitive advantages in agriculture and apparel, Kenya can build a more resilient and diversified export economy capable of withstanding global economic shocks and driving long-term development.