Positive Externalities From The Kenya’s Current Account Deficit

supply chain 2

Kenya actively participates in international trade to expand its market and have access to products that it lacks domestically. In 2021, the country’s total export was estimated at USD 6.739 billion with horticulture and tea among its leading export items valued at approximately USD 1.4 billion and USD 1.1billion, respectively. In that same year goods worth USD 19.6 billion were imported into the country.

Over two-thirds (67%) of these imports originated from Asian countries, 15.4% from European nations while 10.6% came from fellow African nations. As of 2021, China has been ranked among the leading foreign exporters into Kenya accounting for over 20.5% of the imports, followed by India 10.8%, United Arabs Emirates 8.3%, and Saudi Arabia 5.3%. At continental level, Kenya imported more from Tanzania (2.5%) and Egypt (2.3%).

In that similar period, among the products with the highest dollar value in the import were; mineral fuels including oil estimated at USD 3.5 billion (17.9% of total imports), machinery including computers at USD1.6 billion (8.1%), vehicles at USD1.4 billion (7%), iron & steel at USD 1.3 billion (6.6%), electrical machinery, equipment at USD 1.2 billion (6.1%), animal/vegetable fats, oils, waxes at USD 1.1 billion (5.4%) and cereals at USD 1 billion (5.3%). Cumulatively, imports from China amounted to USD 4.03 billion, India USD 2.11 billion, United Arabs Emirates USD1.63billion and Saudi Arabia USD1.05 billion.

A quick comparison of the export and import values reveals that the country’s current account has a deficit. This implies that Kenya suffers from relatively uncompetitive exports and that the deficit is being financed by attracting capital inflows from foreigners who end up owning most of the domestic assets. On the flipside, current account deficit (CAD) promotes higher levels of consumption that would have otherwise been impossible because consumers prefer cheaper imports. This advantage has promoted more entrepreneurial activities across different sectors, contributing significantly to Kenya Revenue Authority’s revenue collection. The authority collects revenue from the imports through, import duty, excise duty, Value Added Tax (VAT) and Import Declaration Fees (IDF) & Railway Development Levy (RDL).

The Importation Process for Local Entrepreneurs

Despite the importation process being touted as long and time consuming because of the logistics involved, local entrepreneurs are actively engaging in the business activity.  This is evidenced by the volumes of shipments received at the Port of Mombasa. In the first quarter of 2021, the port handled 9.54 million tons of cargo and received over 389,515 containers in that year, most of which originated from China.

End to end process Kenyan importers – a case of China

Finding reliable suppliers

Business to Business (B2B) relationships between Kenya and China have been constantly facilitated by China’s e-commerce giants such as Alibaba, Aliexpress, Analema among others. They have databases with thousands of Chinese suppliers in different sectors. To avoid being scammed, local firms conduct due diligence on these potential suppliers, by double checking their credentials, leveraging their contacts in China or requesting for a product sample that attracts a freight cost of about USD 50.

Understanding import requirements and documentations

To import any commodity into the country, the importer enlists the services of a clearing agent to help in electronically processing import documentation through Kenya Customs and clear the goods on their behalf.

The import documents required for customs clearance include;

  • Import declaration form (IDF)

The importers consult with the clearing agents in applying for the IDF from the Kenya Revenue Authority which is a requirement for any commercial importation. The IDF contains information on the value of the cargo for tax calculation, the quantity, the quality in which other bodies such as KEBs, KePHIS, and Public Health department may step in and the classification (Harmonized System (HS) Code). The HS is a standardized numerical method of classifying traded products, used by customs authorities around the world to identify products when assessing duties and taxes and for gathering statistics.

  • Certificate of Conformity (COC)

The certificate is issued when the imports have been inspected and meet the minimum set of regulatory, technical and safety requirements. KEBS introduced the Pre-Export Verification of Conformity (PVoC) to ensure that goods meet mandatory safety, quality and security requirements, enable international trade, avoid delays in customs and reduce potential losses from the import of non-compliant products. PVoC entails physical inspection prior to shipment, sampling, testing and analysis in accredited laboratories, audit of product processes, documentary check of conformity to regulations and assessment of conformity to Kenyan Standards.The Standard Global Service (SGS) delivers on this role on behalf of KEBS. Exports to Kenya must also obtain an additional Import Standardization Mark (ISM), which is mandatory for all imported products sold in Kenya to help consumers identify in the local market imported products that have been certified by KEBS.

  • Bill of Lading

This is a legal document issued by a carrier (the company that transports products for another company and is responsible for any possible loss) to a shipper with details of the type, quantity, and destination of the goods being carried.

  • Packing List

It must indicate the package number, description, weight in metric ton, length in meter, width in meter, height in meter and cubic measurement of all packages. These details should match those in the Bill of Lading and Commercial Invoice

  • Commercial Invoice

This is the receipt that indicates all the payment information including cost of the imported goods, insurance costs and freight charges (CIF) duly documented. CIF is an international shipping agreement, which represents the charges paid by a seller to cover the costs, insurance, and freight of a buyer’s order while the cargo is in transit, and is only applicable to goods transported via a waterway. Once the goods have reached the buyer’s/importer’s port of destination, in the Kenyan Context The Port of Mombasa; the buyer assumes responsibility for any fees or charges for unloading and delivering the shipment to the final destination.

  • Exemption Letter

Special consignments such as those relating to charities, major projects, governmental organizations, diplomatic missions, can apply for exemption of duties and/or VAT, by writing to the Treasury.

Identifying a good loading port

Compared to Kenya, China has many loading ports. Among the popular loading ports in China include, Shenzhen, Tianjin Port, The Ports of Guangzhou, Qingdao, Dalian Port, Shanghai and Ningbo Port. Importers choose loading ports where the suppliers can easily drop off the cargo to an identified shipping company who ensures that the goods reach the port of destination smoothly. China Ocean Shipping Company (COSCO), CMA, EMC(Evergreen Marine Corporation) are among the most preferred shipping companies to Kenya. Sometimes the importers prefer transport agents who are easily found in the port cities such as DHL and EMS to deliver the goods much faster to Kenya depending on the prices.

Order Placement

With a good understanding of the cost and processes involved in getting the goods to Kenya, importers place an order. If the cargo is shipped by sea, it takes an average of 30 days to arrive at the port of Mombasa. If the cargo is being transported by air, it takes utmost 4 days to touch down

Cargo Collection

Depending on the mode of transportation, the cargo can be collected from the nearest international airport or the Port of Mombasa. At this juncture, the custom duties and inspection charges will apply. Clearing and forwarding agents come in handy to expedite the clearance process. The imported goods can then be collected and transported to the importer’s warehouse or to their business premises.

In summary, importation business has not only created more job opportunities, but also enabled Kenyans to have access to a market with products that are not produced locally.

Author: Fie-Consult