M a r k e t N e w s

Exports hold the key to Kenya’s economic take-off

Posted on : Monday, 1st February 2016

 Kenya’s import orientation has revealed key flaws. One clear problem is having a chronic and substantial current account deficit.

Secondly the government has to be hawk-eyed about the shilling depreciation to keep import bills manageable. Third, the country is unable to generate forex to pay foreign-denominated debt.
Finally, Kenya’s import economy exacerbates the country’s unemployment problem.
Thus there is a reason for serious conversation on how to re-orient the economy to be driven by manufactured exports and not the export of raw commodities.
If Kenya becomes a net exporter of raw commodities, be they agricultural or fuels and metals, the country will simply fall into the resource trap that so many African countries find themselves in where they cannot determine the value of their exports, thus falling victim to fluctuating commodity prices.
An export orientation rooted in industry and manufacturing is a means of avoiding this trap and will allow the country to have greater control of the pricing of exported goods.
Further, an export orientation is advantageous because momentum will shift from having a current account deficit to a surplus, and this would be good news for several reasons.
Not only would the government be comfortable with the devaluation of the shilling (where the momentum is at the moment), but exports also generate forex that the State can use to build reserves and to easily pay off foreign-denominated debt without having to go through the expensive headache of selling the shilling.
Secondly, an export orientation has proven to be an effective means of pulling millions out of poverty. As a net exporter, Kenya could create a big dent on unemployment rates as Kenyans will be hired by companies locally to make goods for people in other countries. Being a net goods exporter means you are a net job importer.
This set up puts Kenya’s labour market to good use. An export orientation rooted in waged employment builds disposable income, developing the local consumer market where more people have more money to buy more goods and services.
Further, an export orientation can be useful in mitigating risk as companies that export will have an easier time riding out fluctuations in the economy and more likely to stay in business. Finally, as an export economy serving numerous external consumer markets, this allows more companies to hire more people. Targeting a massive external market is a much more effective strategy for generating sales and profits beyond the limited domestic market.

Source : www.businessdailyafrica.com
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