Kenya’s position in Africa’s trade index, as measured by Stanbic Bank, has slipped one place to sixth, following a challenging first half of the year marked by high interest rates.
The latest Stanbic Bank Africa Trade Barometer places Kenya behind South Africa, Namibia, Mozambique, Tanzania, and Nigeria. However, Kenya outperformed Ghana, Zambia, Uganda, and Angola in the index, which surveys 10 key sub-Saharan African economies.
The survey assesses trade openness, access to finance, macroeconomic stability, infrastructure, foreign trade, governance, economy, and traders’ financial behaviour.
Kenya experienced declines in macroeconomic stability, governance, infrastructure quality, and credit access. High interest rates, with the Central Bank of Kenya’s base lending rate reaching a 12-year high of 13%, further exacerbated the situation. Although the rate has since been reduced to 12%, the impact on business sentiment remains.
The report notes that Kenya’s drop to sixth place reflects declining business perceptions of export growth, credit access, infrastructure quality, and government support for trade. This downward trend over the past three years has seen Kenya’s trade attractiveness ranking fall from fourth place in 2022.
While Kenya’s governance perception negatively impacted its ranking, there were some improvements, such as in border and customs efficiency and financial behaviours related to credit terms. The country’s macroeconomic environment has made a moderate contribution to its trade attractiveness.
In 2023, Kenya’s GDP growth surged to 5.6%, driven by agriculture and services. However, civil unrest in June negatively affected tourism. The Kenyan shilling, though volatile, has shown relative strength against the US dollar, supported by strategic moves like the Eurobond buyback.
Kenya’s business confidence index remained steady at 55, reflecting a balance between optimism (Eurobond buyback, GDP growth, subdued inflation) and pessimism (contentious tax proposals and protests). Government support for trade declined, with businesses expressing concerns about the impact of the Finance Bill 2024 protests.
Access to credit has tightened, with rising interest rates making borrowing more expensive. Businesses are seeking alternative financing options and turning to digital payments like mobile money. Infrastructure challenges, exacerbated by floods, have further hindered trade.
Despite these challenges, Kenya’s cross-border trade continues to expand, driven by trade agreements and regional partnerships. By addressing barriers like access to finance and improving infrastructure, Kenya can regain its competitive edge and boost its regional leadership.
“While Kenya has faced some challenges in trade competitiveness, especially related to inflation and infrastructure, the thriving services sector demonstrates our capacity for growth. By addressing key barriers like access to finance and improving trade infrastructure, Kenya can regain its competitive edge and further boost its regional leadership,” said Paul Mungai, Head of Trade & Africa China Banking at Stanbic Bank Kenya.