Kenya’s economy is likely to suffer a $100 million (Ksh 12.9 billion) dent from exports to the US as a result of the United States’ new tariffs on imports, Central Bank of Kenya (CBK) Governor Kamau Thugge has hinted.

According to the governor, the country exports goods worth $650 million (Sh83.85 billion) to the US. However, with the new tariffs, the volume of exports is likely to reduce due to the extra costs, a factor that is likely to reduce the total earnings by the quoted amount.

“We have looked at the 10 per cent tariff increase on our exports to the US, and in an extreme case if that doesn’t affect the actual income, but it could reduce our exports to the US,” Thugge said during a meeting after the Monetary Policy Committee meeting. Despite the expected export hit, the governor noted that Kenya’s gross domestic product (GDP) is still solid at $122 billion. Thus, the tariff impact is relatively lower, he said.

“We do not expect that $100 million would have any significance on the overall balance of payment and therefore on the exchange rate.”

However, to help bridge this gap, the governor is banking on the current monetary policies which are set to significantly help boost local consumption by the private sector. This, however, appears to be a long-term strategy due to the slow adoption of the directives in the economy.

Thugge said the new 10 per cent Central Bank Rate (CBR) is expected to encourage banks to further lower their rates in a bid to allow the private sector to get affordable loans which would then allow them to counter financial constraints allowing room for scalability.

This typically will also lead to the creation of employment opportunities in the country, facilitating the flow of cash to the economy, acting as a driving force for the consumption of goods and services.

“By actually lowering the CBR to 10 per cent and trying to encourage banks to lend more. We expect therefore to maybe have an increased consumption by the private sector, we also expect an increase in investments and therefore by that we are trying to offset some of the negative impacts of lower exports by trying to encourage aggregate demand,” he explained.

At the same time, following the new tariff stance, Kenya could leverage on this to notably explore new economic opportunities that could help bring a turnaround essentially, according to the Ministry of Industry Trade and Investment Cabinet Secretary, Lee Kinyanjui.

He believes that Kenya having received relatively lower tariffs compared to other US trade partners, could help the country provide alternatives for the US as importing from countries with higher tariffs will prove to be more expensive.

Exporting competitors

For instance, Kenya could now relook its textile processing activities considering that key textile-exporting competitors like Vietnam slapped with a 46 per cent import tariffs, Sri Lanka with 44 per cent, Bangladesh 37 per cent, China, 34 per cent, Pakistan 29 per cent and India 26 per cent, will now have to make the necessary adjustment to match the previous profits margin.

“This presents an opportunity for investment in local textile production and value addition, that could attract businesses seeking to avoid higher costs from traditional suppliers,” Kinyanjui said in a statement after the tariffs were announced.  In his view, with the new tariffs, opportunities in the manufacturing sector arise, informing the need for the country to value add and diversify its exports products not only to the US but to other trading partners too.

“There is a great opportunity to diversify exports beyond our current exports. Kenya can explore opportunities to process and manufacture goods that are now more expensive from countries with higher tariffs. Industries such as apparel, leather, and agro- processing could benefit from increased demand,” the CS added.

However, greatest concerns remain at the national level where the sector is currently being negatively impacted by the high tax duties despite it already staggering.  The impact is being mirrored by the fact that in the East African Region, the country recently got surpassed by Tanzania trade wise despite it clinging on to the title over time.

Latest reports by Tanzania invest and shows that the country’s total exports significantly increased by 15 per cent to reach $16,09 billion (Sh 2.07 trillion) in 2024 from $13.6 billion (Sh 1.75 trillion) recorded in 2023 significantly accelerated by the manufacturing sector

Kenya’s main exports to the US include, Articles of apparels, coffee and Tea among other agricultural products.

According to the latest KNBS Balance of Payment (BOP) report, Kenya exported goods worth Sh24.6 billion to the US during Q3 of 2024, from Sh20.7 billion recorded during Q2 of the same yea