Food shortage looming
Economists are warning that violence in Rift Valley will affect food production, supply and dampen foreign exchange earnings from tea exports if the political stalemate is not resolved soon. Maize, tea and milk production stand to suffer most resulting in inflation and reduced foreign exchange revenue. Group Economists — the research arm of South Africa Standard Bank which has interests in Stanbic Bank — gave a grim verdict on the Kenyan economy including the weakening of the shilling due to decreased foreign exchange.
The shilling has slumped to a 15- month low to the dollar as a result of subdued tourism activity, falling export inflows and liquidity concerns.
Ms Yvonne Mhango, an economist at the bank’s African research desk and one of the authors of the report, told Business Daily that displacement of workers in large tea plantations and small scale farmers in the Rift Valley may affect the level of agricultural output which in turn will affect the economy.
“Rift Valley is one of the fertile regions of the country that has been affected by the violence. It is also an area that produces most tea for export,” said Mhango. Analysts predict that as a result of the displacement and transport hitches, delayed tea and coffee auctions and the disruption of regional trade foreign exchange earnings from exports are bound to be adversely impact the trade balance, at least in the short term.
Saying the prediction has some levels of accuracy, Trade permanent secretary David Nalo said that Rift Valley being the granary of the country, there is urgent need that displaced farmers and plantation workers resume normal day to day activities to stamp out any adverse effects.
“Rift Valley is the milk, grain and tea reserve for most parts of Western, Nyanza regions and the rest of the country in addition to the vast Rift Valley province,” said Nalo.
The PS, however, said that a transport committee had been formed to look into ways of securing the main corridors and secure distribution channels across the country to reduce the effects of unrests on the economy.
“Anything that affects production and distribution channels particularly for basic foodstuff affects the whole economy.”
Although Kenya may have one of Africa’s most diversified economies, its agriculture sector remains the largest generator of national output.
This makes the displacement of smallholder farmers from the fertile Rift Valley — which produces the bulk of agricultural output — a serious concern.
The brutality of the clashes between rival supporters compounded by the lack of a political resolution suggests that people that have fled because of the violence are, like investors, likely to adopt a wait-and-see attitude before returning, the report said.
The report also notes: “As tea is Kenya’s largest export commodity, the implication of the post-election violence on the country’s trade balance and by implication the international reserves position, is a weaker shilling.
Furthermore, a slowdown in capital inflows that in recent years have been spurred by improved confidence in the Kenyan economy could impact the financing of the current account and hence weigh heavily on the balance of payments.’
Analysts warn that the implication of such a stand implies that agriculture-— which constitutes about 20 per cent of national output — will be affected this year and food production may reduce putting millions of lives at risk of starvation.
There are fears that reduction of export of tea coupled with the rising petroleum prices, and additional transportation costs, the shilling may come under duress and weaken further.
International Monetary Fund has also forecast that Kenya is unlikely to achieve its growth target of 6.5 per cent economic growth rate projected for 2008.
Pressure on the fiscal deficit is also expected to mount as indications are that budget support will at the very least be reduced, projected funds expected to be raised from the Safaricom IPO and the Eurobond are now expected to be less than the pre-election projections.
Business Daily
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