Treasury Cabinet Secretary Njuguna Ndung’u on Wednesday told the National Assembly that Kenya is banking on BRICS countries namely; India, China, Saudi Arabia, and Russia together with non-BRIC member Malaysia to end the dollar crisis in the country.
Responding to questions from MPs on the measures his ministry is taking to resolve the shortage in dollar supply, Prof. Njuguna attributed the current dollar crisis in the country to the trade deficit between Kenya and the five countries.
According to the CS, once the 5 countries de-dollarize their economies, Kenya's economy will start recovering.
Ndung’u told parliamentarians that of the total imports Kenya made in the year up to May 2023, 43.7 per cent were from the five countries.
When questioned how this was affecting trade in Kenya and contributing to the dollar crisis, the CS revealed that the trade imbalance has compounded the foreign exchange issue.
The Treasury CS revealed that these economies account for about 70 per cent of Kenya’s trade deficit.
China is a significant trading partner for Kenya, with imports from China making up 19.3% of Kenya's total imports.
In contrast, Kenya's exports to China account for only 3.1% of its total goods exports.
"Exports to India, China, Saudi Arabia, Russia, and Malaysia accounted for 1.0 per cent, 3.1 per cent, 1.4 per cent, 0.6 per cent, and 0.3 per cent, respectively, in the year to May 2023," the CS noted on the imbalance of trade.
"The main products exported to these countries are tea, fruits, vegetables and cut flowers. Fish also accounts for a significant proportion of exports to China."
The Treasury reports that Kenya primarily imports items such as oil, machinery, transport equipment, and raw materials (ores) from five countries.
How De-dollarisation Will Help Kenya
The predominant currency for trade with these foreign nations is the US dollar.
Given Kenya's higher imports compared to exports, it often needs to tap into its limited dollar reserves to cover the trade deficit.
"Kenya's trade deficit with these countries amounted to US$ 11.8 billion and US$ 11 billion in the years to May 2022 and May 2023, respectively. Therefore, domestic demand for US dollars would significantly reduce if de-dollarization in the respective trade partner countries progresses," Ndung'u explained how de-dollarization would help Kenya's economy.
If these countries were to adopt a different currency for trade, Kenya could preserve more of its dollar reserves for transactions with Western nations.
This, in turn, will help stabilize the exchange rate of the Kenyan shilling against the dollar.
A stronger shilling against the dollar would also mitigate the growth of informal currency exchange markets, commonly known as black markets.
During a BRICS Summit in South Africa in August, Brazilian President Luiz Inacio Lula da Silva advocated for member countries to explore the creation of a common currency for trade and investment as a means to reduce reliance on the US dollar.
The Kenyan government is optimistic that the economic bloc will take action on this proposal.