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Kenya oil import bill surge widens trade imbalance

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Updated: October 5, 2011
fuel crunch

Increased fuel consumption. Oil is Kenya’s second largest import commodity accounting for over 25 per cent of the country’s total imports

Kenya’s oil import bill jumped 54.5 per cent in the first half of the year to Sh166.4 billion, latest economic data has showed. Oil prices have been on a steep climb since early this year when political instability in the Middle East and and North Africa (MENA) region triggered supply shortage fears.

A slump in the value of the shillingagainst the dollar has also pushed up the import bill. “The exchange rate has weakened and the low rainfall levels have called for more diesel consumption in power generation,” said Patrick Obath, chairman of Kenya Private Sector Association.

The data by Kenya National Bureau of Statistics shows the oil bill rose 62.9 per cent in July to Sh22.2 billion, compared to Sh13.6 billion in the same month of 2010. Oil is Kenya’s second largest import commodity accounting for over 25 per cent of the country’s total imports. The rise of the oil bill has widened Kenya’s half-year trade imbalance by 42.4 per cent. By June this year Kenya’s balance of payment was negative Sh410 billion, compared to a deficit of Sh287 billion for the same period last year.

Oil importers said the increase represents higher international oil prices caused by political instability in the MENA region as well as a weakening shilling and increased reliance on fuel for power generation. The proportion of electricity generated using diesel generators rose 89.5 per cent to 235 million kilowatt hours, while hdyro generated power dropped by 19.4 per cent to 262 million kilowatt hours in July, the KNBS data showed.

Kenya Power has reviewed the fuel cost segment of the power tariffs to a record Sh8.2 per unit beginning next month, up from the current Sh6.7 and Sh3.8 in January. The change will see households that consume 100 units of electricity or less pay Sh2,323.2 compared to Sh1,808.4 in January, a 28.4 per cent increase. The shilling was trading at an average of 91.10 to the dollar this July compared to 80.23 last July a 13.5 per cent drop. From July the currency has ceded further ground to touch low of 99.12 on Friday.

Inflation rate has risen to 16.67 per cent from 3.22 per cent in August last year. Motor gasoline prices have risen to Sh117.22 in the month of August being Sh25 higher than last year August price of Sh92.85. “Consumption has not been affected by inflation. When prices go up you expect people to be more efficient, conservative and consume less but it seems Kenyans are operating above the inflation rate,” said George Wachira, an industry analyst and former chairman of Petroleum Institute of East Africa (PIEA).

Data from PIEA shows that oils industry sales volumes stood at 2.2 million cubic metres for the six months to June this year. “There has been a lot of construction work taking place and an increase in the population of cars leading to increased fuel consumption,” said Mr Obath. Strong demand for the dollar by importers has contributed to weakening of the shilling as export inflows have fallen short.  Machinery and other capital instruments imports stood at Sh15.2 billion while transport equipment import bill was Sh11.1 billion.

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