Why Kenya must now think beyond Russia and Ukraine
An oil rig at Cheptuket in Elgeyo-Marakwet County.
The Parliamentary Budget Office (PBO) now says the Russia-Ukraine crisis presents an opportunity for Kenya to rethink how it can grow its economy from over-relying on the two Eastern Europe countries for oil, foodstuffs among other essential goods.
Kenya depends heavily on the pair for oil and gas, metals, minerals, chemical fertilisers as well as wheat production.
However, invasion of Ukraine on February 24, 2022, by Russia, the world’s second-largest exporter of oil and gas, presents Kenya with a challenge that has equally threatened to plunge the global economy into a new crisis worsening an already weak economic recovery.
This is notwithstanding that the global economy is fresh from the ravages of Covid-19.
The crisis has already seen the global supply of oil and gas, foodstuffs among other essentials, dwindle.
But even as this uncertainty looms, PBO in its latest quarterly report to parliament, says that for instance, the global shortage of oil supplies may hasten oil exploration in other parts of the world, including Kenya.
This, according to the report, puts Kenya on the right track to attract the best technology and innovations to exploit the oil deposits in larger areas of Northern Kenya.
“Currently, the oil discovered in Turkana 10 years ago has not borne any significant impact to Kenyans and remains untapped after years of delayed investment commitments. Attracting more investors and competing with new technology will be a game-changer,” the PBO document says.
PBO advises parliament and its committees on fiscal matters.
The report notes that investing in technology, innovation and exploration of mineral deposits will result in high economic growth, as well as job opportunities for Kenyans and eventually, an increase in per capita income.
“Fuel price stability will be achieved, and many oil-related levies will be repealed. The government will be able to direct its spending toward more impactful public expenditures while also aiming to save money,” the PBO document says.
In the supplementary budget for 2021/22 financial year, the government allocated Sh31.7 billion to the Petroleum Development Levy, which had been depleted, to cater for fuel subsidy and stabilise fuel prices due to increasing fuel prices in the country.
In the days to come, the outlook of higher fuel prices may render this subsidy unsustainable.
The PBO document indicates that Kenya is the fourth largest trading partner with Russia in sub-Saharan Africa- after South Africa, Senegal and Nigeria.
The total volume of trade between Kenya and Eastern Europe is about Sh59.6 billion with a trade deficit of Sh33.41 billion in favour of Russian as at 2020.
“Trade dynamics and prospects of Kenya in Russia and Eastern Europe have been on the rise in the recent past due to bilateral trade agreements signed by the two countries recently,” says the budget office.
Although Kenya primarily imports oil from the United Arab Emirates (UAE), Saudi Arabia, India, China, and Malaysia, the go slow by various refineries and oil shipping companies in trading with Russia makes Kenya vulnerable.
This vulnerability exposes Kenya to the crisis since the major oil importers from Russia will opt for alternative sources like the UAE, leading to supply shocks.
A reduction in the supply of the commodity to the rest of the world has already resulted in high prices of petroleum products.
For instance, in March this year, crude oil prices rose to $116.81 per barrel compared to $74.38 per barrel at the end of 20217.
The energy sector is one of the key drivers of the Kenyan economy supporting the manufacturing and the agriculture sectors, the key contributors to economic growth.
Higher oil prices means increased cost of production, which will invariably be passed on to the consumer leading to a higher cost of living
Russia is also a significant player in cereals and grains in the global economy.
On its part, Ukraine is a major commodity producer particularly of wheat and corn and, jointly with Russia, accounts for about 29 percent of global wheat exports.
Other than wheat, Ukraine and Russia are both major exporters of some of the world's most basic foodstuffs- 19 percent of global corn supplies and 80 percent of global sunflower oil exports.
