Country paper
Kenya is one the countries in the world which have been involved in international trade.
According to US Department of State in the Bureau of Africa Affairs, most of exports from this country mainly come from agricultural sector. This includes coffee, tea, sisal, and horticultural products. Kenya also exports soda ash, fluorspar, hides and skins. Her major export markets are United Kingdom, Uganda, Tanzania, Pakistan and United States. The major imports include vehicle, machinery, crude petroleum, resins and plastic materials, iron and steel, phamacuteuticals, refined petroleum products, paper and paper products and wheat and fertilizers. Her major suppliers are Japan, United States, United Arab Emirates, India, China and South Africa. The report state that Kenyas total imports and exports in the year 2008 were 9.9billion and 4.4billion depicting unfavorable balance of trade since total imports value exceed total exports value.
Kenya terms of trade have not been favorable. Her imports include capital goods whose world prices are high and with less price variations. On the other hand, Kenyas imports mainly consist of agricultural products whose prices are usually low accompanied with great price variations. The terms of trade have been unfavorable for some years according to U.N. in HYPERLINK httpunstats.un.orgunsdtradeWS20AddisAbaba04Country20powerpoint20presentationsCountrypresentationKenyaCustoms.pdf Processing of Kenyas External Trade Statistics work. Kenya trade balance in 1999,2000,2001,2002 and 2003 were (1,182.5), (1473.4), (1812.7), (1,137.5), and (1,298.6) respectively where data is given in million US . This shows that the country has been experiencing unfavorable balance of trade.
The Ministry of Trade of Kenya in its Kenya Bilateral Trade Statistics presentation show that Kenya balance of trade was 1,6667,467,244 and (2,059,531,469) in year 2006 and 2007 respectively data given in Kenya shillings. Another source of the data comes from World Trade Organization in Rank in World Trade. Kenya total exports both the merchandise and commercial services was 7,492 while imports were 12,737all this measured in million US .
Another work that gives more information about Kenya trade situation is the Kenya Central Bank review statement reported in (East African Standard 26). The report postulates that current account deficit increased by 38.5 in the year 2010.
All these shows that Kenyas terms of trade are unfavorable. She is importing more than what she is exporting.
The countrys budget deficits which had occurred in previous years have been funded through borrowing. The country is a borrower and for many years budget deficit been occurring and it has been mainly funded through borrowing from external and internal sources. Kenya is rated as a less developed country and has been experiencing deficit in her current account.
Data used includes
1. U.N. HYPERLINK httpunstats.un.orgunsdtradeWS20AddisAbaba04Country20powerpoint20presentationsCountrypresentationKenyaCustoms.pdf Processing Of Kenyas External Trade Statistics.
Year Exports importsTrade balance19991728.62911.2(1182.5)20001749.83227.3(1473.71)20011877.33690.0(1812.5)20022177.63315.0(117.5)20032409.93708.5(1298.6)
2. Data from world trade organization (WTO)
Merchandise tradeValue 2008Merchandise exports ( million US)4972Merchandise imports ( million US)11074Commercial services( million US)valueCommercial services exports( million US)2520Commercial services imports( million US)1663
Trade pattern
Most of the coffee exports go to European Union. Horticulture and tea is also are also
exported to European countries. Tea and coffee is exported to Asian countries. COMESA
provide market for tea and processed products. Most vehicles are imported from Japan while
capital goods imports are imported from US, European Union and China.
Kenya also imports rice from Pakistan. Phamacuteuticals are mostly imported from India. Libya
has also joined Asian countries in supplying petroleum to Kenya.
Since Kenya has a comparative advantage in producing tea and coffee as compared to
various countries she has specialized in production of this trade to increase the chances of
gaining from international trade. As postulated in classical theory of comparative advantage
Kenya has opted to produce much of tea, export it to countries with less comparative advantage
in exchange of goods which are highly costly for her to produce.
Kenya trade prospects
Kenya is one of the countries in the world whose effort to promote trade been intensified
by the government. Export promotion strategy has been embraced by the government. Import
substitution strategy has little space in this country. The government has been encouraging
exports through various ways. Tax on exports has been reduced substantially andor totally
scrapped off for some products. The setting of the Export Processing Zone (EPZ) was an effort
by Kenya government to promote exports. However given fluctuations in demand of agricultural
goods, the prospects in trade cannot be predicted with certainty. The fact that her exports consists
mostly agricultural products then various factors are likely to hinder the success of production of
such goods. Kenya has experienced several dry periods since 2000. This has highly affected
agriculture and consequently its share in international trade.
On the other hand, the opening up of the world in terms of trade globally will contribute to expansion of trade since market for Kenya goods will be large. Kenya is also a member of various trading blocs. These blocs are meant to ease the trade among members. These organizations include Common Market for East and Southern Africa (COMESA) and Common Wealth. Africa Growth and Opportunity Act (AGOA) is also a great opportunity for trade to Kenya. Kenya is facing different problems that have hindered its growth in terms of international trade.
These problems include
Prolonged drought periods.
The country has been experiencing prolonged periods of drought which has adversely affected agricultural sector. The agricultural production has consequently reduced and this has led to reduction in exports from agricultural sector.
Political instability and corruption
Kenya political environment has note been calm. The conflict between the two ruling parties (Orange Democratic Party and Party of Nation Union) in coalition government has undermined decision making and proper governance. This has increased cases of corruption and the resultant conditions have not been friendly to trade.
Fluctuations of world market prices and high competition
The country usually exports goods derived mainly from agriculture. In the recent years the prices of these products have been fluctuating adversely. Low prices have acted as disincentive to farmers consequently reducing production. Coffee production has greatly reduced due to this reason. High competition from countries producing same product has also been faced. Coffee from Kenya has faced great competition from Brazilian coffee.
The way forward
Government should intensify its effort to increase irrigation schemes projects. The
current schemes should be expanded and be improved. As far political instability is concerned the ruling principles should campaign for unity between their followers. The national values should be emphasized. Strict laws to fight corruption should be enacted. Institutions that fight corruption should also be empowered.
Kenya should give incentives to farmers when prices are low due to world price
fluctuations. This may include subsidized inputs and low rates loans. Quality of products
should be improved to overcome world competition.
The classical trade model
According to (William 10-15), classical trade theory state that, a country may have absolute advantage in producing one commodity compared to another country. Absolute advantage means that a country can produce a certain product more efficiently.
Classical economists also state that a country may also have a comparative advantage in production of two commodities as compared to another country. A country will choose to produce a product which it have more comparative advantage and import the one which it has less comparative advantage.
Assuming that A represents Kenya and B represents U.S.A. Given that two goods, flowers and machinery can be produced in both countries. Then using the below diagram, neoclassical model can be explained
CountryflowersMachineryUSA46Kenya21
Given that one unit labor is used to produce one unit of flower or machinery then the following conclusion can be made. U.S.A has a comparative advantage in production of both commodities. One unit of labor can produces 4 units of flowers as compared to 2 units of flowers produced in Kenya. U.S.A also has a comparative advantage in production of machinery. One unit of labor will produce 6 units of machineries as compared to 1 unit of machinery produced in Kenya. U.S.A has comparative advantage in production of both commodities but greatest comparative advantage is in production of machinery (the ratio 61 is greater than 42). The trade between two countries is feasible and both countries will gain U.S.A will produce machinery and import flowers from Kenya. On the other hand Kenya will produce flowers export this to USA in exchange of machineries
In the graph below OII represent U.S.A offer curve. OI represents Kenyas offer curve. At X terms of trade are determined. Ray OX shows the rate at which flowers will be exchanged with
machinery. Machinery and flowers are represented by A and B respectively.
Conclusion
International trade should be emphasized in goods where not only absolute advantage exist but also even where comparative advantage exists. Since international trade leads to mutual gains the practices of protectionism that hinder trade should be eradicated. Liberalization of trade should be emphasized.