TRADE

Low exports and tourists to cancel Kenya's gains from cheap oil

Some of Kenya's commodities likely to take a hit from the price tiff include tea, coffee and vegetables, mostly exported to oil producing countries.

In Summary
  • Yesterday, a barrel of crude oil was going for almost $30. This is below $35 a barrel needed to sustain cash operating costs.
  • Saudi Arabia and Russia are among biggest tea buyers from Kenya after Pakistan which according to the Tea Directorate, purchased 17 million kilos last year
A general view of Saudi Aramco's Abqaiq oil facility in eastern Saudi Arabia/REUTERS
A general view of Saudi Aramco's Abqaiq oil facility in eastern Saudi Arabia/REUTERS

Kenya's gains from plummeting global prices may be canceled out by low foreign income value as domestic import and tourism market tighten expenditure.

Although the country is likely to buy crude oil at cheaper rates in coming months, its exports to oil-producing countries like Saudi Arabia and Russia are likely to drop as fuel price wars see a barrel drop to lowest levels since 1991.

Yesterday, a barrel of crude oil was going for almost $30. This is below $35 a barrel needed to sustain cash operating costs.

 
 

Some of Kenya's commodities likely to take a hit from the price tiff include tea, coffee, and vegetables, mostly exported to oil-producing countries.

Saudi Arabia and Russia are among the biggest tea buyers from Kenya after Pakistan which according to the Tea Directorate, purchased 17 million kilos worth Sh3.5 billion, representing 36 per cent of the total volume that was exported in 2019.

Other key export destinations for Kenyan tea last year were Egypt with 99 million kilos, the UK at 46 million kilos, the United Arab Emirates buying 25 million kilos among others.

Jael Mukuhi, a global trade expert yesterday told the Star that whereas a drop in crude oil prices is likely to ease the cost of doing business in oil-importing countries like Kenya, oil producers are likely to cut on expenditure as a result of low revenues.

''This is expected to see oil-dependent countries like UAE, Egypt, Saudi Arabia among others that buy agricultural products like tea and coffee order less,'' Mukuhi said.

She added that the drop in oil prices coupled with the spread of novel coronavirus that has led to shutdowns in some countries will hurt agricultural exports, tourism and diaspora remittance, Kenya's traditional forex earners.

East African Tea Trade Association managing director Edward Mudibo does not see any correlation between global oil prices and tea earnings, insisting that 76 per cent of Kenya's tea is exported to non-oil-producing countries.

 
 

''Almost 40 per cent of our tea goes to Pakistan, a non-oil-producing country. Very few oil producers like Egypt and UEA buy our tea. Others like Russia and Sudan are diversified,'' Mudibo said.

David Kimotho of Inland Securities is of opinion that oil-dependent economies will cut on expenditure on low revenues, hurting the global export and import chain.

''It is common sense that when revenues are low, you cut on expenditure for survival. That is what oil-dependent countries are likely to do,'' Kimotho said.

According to Kenya Private Sector Alliance (Kepsa), the drop in global oil prices will likely help ease inflation that is expected to surge on economic shocks brought about by the spread of coronavirus.

''Coronavirus continues to wreak havoc in the global economy, hurting both exports and imports. Cheaper crude oil prices will, however, help local businesses cut operational costs,'' Kespa said in its report on the impact of coronavirus.

According to the Kepsa survey, 61 per cent of the businesses have reported negative effects due to the Covid-19 outbreak.

On Monday, Tourism Cabinet secretary Najib Balala said numbers of international visitors to Kenya might be affected by the spread of coronavirus, hurting earnings from the sector.

Diaspora remittance which is now the leading forex income earner for the country is expected to drop in the coming months on controlled movement globally due to the virus. Last year, Kenya's abroad sent home Sh278 billion.