India Beats China to Top Trading Spot With Kenya

India has reclaimed its position as the second largest exporter of goods to Kenya, signalling that it is gaining momentum in the race with China for control of Africa’s fast-growing consumer markets.

The value of India’s exports to Kenya rose to Sh97.6 billion or 18.7 per cent of Kenya’s total imports in the first eight months of the year compared to China’s Sh87.2 billion or 16.7 per cent of imports, according to the Kenya National Bureau of Statistics (KNBS).

India has been Kenya’s second largest source of imports for much of the past decade but lost the position to China last year after Beijing deepened its presence in East Africa with mega infrastructure development projects.

Last year, the value of China’s exports to Kenya grew by 62 per cent to reach Sh120.6 billion or 12.7 per cent of total imports, relegating India — which exported goods worth Sh103.2 billion or 10.8 per cent — to the third position.

The United Arab Emirates, with goods worth Sh126 billion or 24.3 per cent of total imports, was the largest source of imports to Kenya in the first eight months of the year – a position it holds mainly because of the large quantities of petroleum it supplies to East Africa.

Kenya mainly imports textiles, pharmaceuticals, industrial machinery, vehicles, electronic and semi-processed goods from India while key items in the list of China’s exports to Kenya include heavy machinery, electronics, vehicles, textiles and a range of household goods.

The two Asian tigers have deepened their presence in Kenya with intense economic diplomacy since President Kibaki came to power in 2003. The rivalry has benefitted Kenya in terms of foreign direct investments, a wider variety of consumer goods and as new sources of technical and financial assistance.

“It has helped lower our import bill, besides diversifying import markets and increasing foreign direct investment inflows,” said Gerishon Ikiara, an economics lecturer at the University of Nairobi.

Though the India/China rivalry has played out as a battle of the Asian giants, Mr Ikiara said the biggest losers have been the traditional Western trading partners such as Britain whose share of the market has been on a steady decline.
President Kibaki has actively encouraged this shift to the East and has backed it up with exchange of high-level diplomatic visits that have yielded multi-billion shilling trade and investment deals.

Last year, India sent its largest business delegation to Nairobi where big government deals were closed and doors opened for the Asian giant’s entry into new segments of Kenya’s consumer market.

A communiqué released after a meeting between Prime Minister Raila Odinga and India’s minister of Commerce and Industry, Anand Sharma, said the two countries had agreed to increase the value of bilateral trade to Sh240 billion ($2.5 billion) in the next two years.

Mr Odinga said Kenya would rely on India for quality generic drugs that can be used in public hospitals as the newly-created anti-counterfeit agency seeks to rid the country of fake drugs.

The PM firmed up the Nairobi deals with a visit to India where the Export-Import Bank of India (Exim Bank) offered Kenya a $61.6 million (Sh6 billion) loan to finance construction of new power transmission lines.

Under the deal, Indian companies will supply equipment and manpower for the project and make a 100 per cent expenses claims with Exim Bank – the force behind India’s globalisation ambitions.

The bank has, for instance, helped Indian companies export cement and sugar to Kenya with the provision of guarantees or letters of credit through PTA Bank.

India has also offered Kenya technical and financial support to revive the ailing textile industry.

The Asian country, which has one of the world’s best ICT skills pools, is also eyeing major contracts in Kenya’s agribusiness, business process outsourcing (BPO), e-learning and e-government sectors.

These ambitions have deepened India’s rivalry with China which has gained significant economic clout in the past three years.

China, the biggest beneficiary of Kenya’s massive infrastructure projects, has also been expanding its reach to broadcasting, telecoms, textile and the general consumer goods markets.

China has emerged as a major supplier of shoes, textiles, batteries, and motor vehicles parts to Kenya, gaining significant market share with its low price mass market strategy that has caused disquiet among local traders dealing in rival merchandise.

Since Mr Kibaki came to power, Chinese firms have won contracts to build some of the largest infrastructure projects in Kenya, including the upgrade of Thika Road at a cost of Sh27 billion and a national fibre-optic network.

The President has made several trips to China during his nine-year rule, sealing multiple deals with Beijing and opening doors for Chinese firms to tender for local contracts.

Chinese firms have been among the top contenders for a multi-billion shilling contract to build a new port at Lamu and a railway line linking the port with Southern Sudan and Ethiopia.

They have also fought with rivals for multi-million shilling tenders to build the first three berths and associated infrastructure at the port of Lamu, a standard gauge railway line from Mombasa to Malaba and a mass transit light rail network for Nairobi metropolis.

Like India, Chinese companies have relied on their country’s Export-Import Bank (Chexim) and China Development Bank (DBK) to finance their forays into Kenya.

Last year, China topped the list of Kenya’s FDI sources, having invested Sh40.2 billion in the country. (Though the two Asian powers have realised steady growth of their exports to Kenya, Nairobi has only marginally expanded the value of trade with them, resulting in a huge trade imbalance.

This is because Kenya’s commercial engagement with the Asian nations is mainly pegged on low-value primary commodities like tea, coffee and hides.Besides, Kenya lacks the high-value primary exports that are the main drivers of India and Chinese interest in the continent.

Large volumes of oil

China imports large volumes of oil mainly from Angola, Sudan, the Republic of Congo and Equatorial Guinea, with Angola alone accounting for more than 50 per cent of oil imports from Africa.

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Gold is India’s major import from Africa and accounts for more than half of all India’s imports from the continent. It is almost exclusively supplied by South Africa.

India and China are big trade partners but their economic and political ambitions have led to intense rivalries that have sparked fears of possible war between the two nuclear powers.

Trade between the two countries is projected to rise from about $70 billion to $100 billion in the next four years despite the bitter territorial disputes on their common borders.

Both countries are building military infrastructure near disputed territories in what is seen as preparation for a possible military mobilisation should the dispute escalate into a war.