The countries import bill declined by Kes 14.4 Billion in the month of February. This further reduced trade deficit to Kes 69.7 Billion from Kes 83.7 Billion in January 2013. Does this decline in imports have any effect on our economy and the general welfare of the citizens?
Having imported Kes 117 Billion worth of goods and services in December, Kes 130 Billion in January and Kes 116.4 Billion in February, Kenya is a net importer, and can’t maintain her growth momentum with reduced import levels. Kenya’s imports are majorly Consumption in nature rather than investment oriented. Does it mean Kenyans are finally Buying and Consuming Made in Kenya products?
With almost 50 per cent of imports (fuel, machinery and transport equipment) being used in production process, it indicates a possibility of increased efficiency which would lead into higher production growing the country’s export capacity going forward.
There are basically five main reasons for which a country may decide to import a certain good or service:
1. it simply does not exist in the country: a mineral which is not in the country’s soil, an agriculture product that can’t be produced there, an innovation that has been introduced in other countries;
2. it does not exist at a specific level of quality; thus, a country imports better products than domestic production, also as far as advertising or packaging are concerned;
3. it represent a product variety that is appreciated domestically but not produced exactly in this horizontal or mixed differentiation;
4. it is cheaper abroad, since producers there are more efficient, are faced by lower costs, better exploit economies of scale and/or accept lower profits;
5. at the current domestic price, producers do not supply enough good or service as the demand requires, also because of ex ante coordination problems; accordingly, consumers buy abroad for insufficient domestic production.
For financing imports, a country must rely on export, foreign credit, foreign direct investments, aid. Countries issuing internationally accepted currency.
Importance of Decline in Imports
Effects on Trade Deficit– The Country’s overall trade deficit is most likely going to reduce, this will have a positive impact on both the Exchange Rate (hence the strengthening the Kenyan shilling ) and a reduction of the Public Debt as a result on decline in government borrowings to pay for the import deficit.
Increase in Employment Levels– a decrease in imports might also mean that the consumers have shifted their demand from imported goods to locally produced commodities This is most likely going to boost local production due to increased market and demand leading to higher employment levels especially in agriculture and industrial sectors.
Signals improved macro-economic Environment– This might be attributed to decline in borrowing rates, improved business environment and political stability meaning that local production is improving as result on stabilization in the Macro economic elements.