UK pound slump a mixed fortune for Kenyan firms

British pound

A cashier displaying multiple denomination US dollar and British pound Sterling bank notes in central London on October 4, 2016. 

Photo credit: Niklas Halle'n | AFP

Kenyan firms face mixed fortunes after the British pound fell against the dollar, hurting the competitiveness of exports to the market but boosting earnings from shipments and services.

The British pound yesterday fell to a record low against the dollar as markets reacted to the UK’s biggest tax cuts in 50 years.

If the pound stays at this low level against the dollar, Kenya’s dollar-priced commodity exports and services to the UK are expected to benefit as they earn more for the same amount of sales.

This could be a double win for local exporters already reaping from dollar payments against a shilling that has heavily weakened against the greenback.

On the flip side, a weakened British pound could, however, erode the competitiveness of Kenyan exports to the UK with the country’s horticultural sector expected to bear the brunt.

This is because a weakened pound against the dollar implies that the cost of importing dollar-denominated goods into the UK goes up, eroding their demand and competitiveness.

Trade surplus

Kenya and UK are major trade partners, with imports from the UK rising from Sh29.2 billion in 2020 to Sh33.6 billion in 2021, according to Kenya National Bureau of Statistics (KNBS) data.

Meanwhile, Kenya’s exports to the UK were valued at Sh49.4 billion with Kenya enjoying a trade surplus of Sh15.8 billion with the UK during the period.

Kenya mainly exports agricultural products such as fruits, flowers, vegetables, coffee, and tea to the UK and imports vehicles, machinery, pharmaceuticals, textiles, and electronics from the UK.

The British Sterling pound fell to a record low against the US dollar yesterday dropping close to $1.03 before regaining some ground to stand at $1.08 in what could boost importers of goods from the UK.

The pound is among the currencies that have been falling against the greenback amid continued increases in benchmark lending rates by the US, while the Euro also fell to a 20-year low against the dollar in July amid the risk of recession.

The Kenyan shilling has also continued its free fall against the dollar, trading at a record low of Sh120.59 on Monday.

“It’s important for the Fed (US Federal Reserve) to regain its credibility in terms of raising rates aggressively. The problem is there will be a huge outflow of capital from our countries,” Central Bank of Kenya (CBK) Governor Patrick Njoroge told CNN last week.

External debt

The weaker pound is expected to make imports from the UK cheaper in a boost to importers in lower costs that could also translate to consumers in lower commodity prices.

The weaker pound will also slightly ease Kenya’s external debt burden, with 2 per cent of Kenya’s external debt load of about Sh4.3 trillion denominated in the pound.