Economy feels the weight of Egyptian protests

The aftershocks of the political turmoil in Egypt are ricocheting on the domestic economy, heightening anxiety over a slump in export trade ­- including that of tea – and renewed pressure from oil-instigated imported inflation.

Effects of the crisis have already emerged at the weekly tea auction in Mombasa where the demand for the commodity dipped sharply on Monday for a second session running while petroleum marketers anticipate higher prices after global oil prices shot up to $102 per barrel — threatening to raise the cost of living.

A curfew imposed by the Egyptian authorities has also seen Kenya Airways change its crew base from Cairo to Khartoum.

A curfew imposed by the Egyptian authorities has also seen Kenya Airways change its crew base from Cairo to Khartoum.

Airlines such as Kenya Airways have also witnessed changes in their business schedules with the volume of passengers from Cairo now higher compared to the number travelling to Egypt, a member of the Common Market for Eastern and Southern Africa (Comesa) Free Trade Area.

A curfew imposed by the Egyptian authorities has also seen Kenya Airways change its crew base from Cairo to Khartoum.

Traders said that during the auction on Monday, there was low demand for the 6.89 million kg of tea put on offer with 43.01 per cent of the offer remaining unsold.

This was the highest unsold amount in recent times despite the interest of buyers from Kazakhstan, Sudan, Yemen, Iran and Russia.

“Egyptian packers and Afghanistan were rather quiet while Bazaar showed less activity. Somalia was operating at lower levels,” the Africa Tea Brokers Limited (ATB) said in a market report after the sale.

Dealers and traders at the auction expect this trend to carry on at least in the short term on the effects of the turmoil in Kenya’s main export market.

“The turmoil will weigh on demand and pricing at the weekly auction for some time but we hope things change for the better,” said Mr Peter Kimanga, a tea trader.

The North African nation has in the past ten days witnessed widespread unrest around its main towns including Cairo and Alexandria as thousands of young protestors pushing for the removal of President Hosni Mubarak took to the streets.

President Mubarak late on Tuesday ruled out the possibility of quitting office before September but indicated that he would not run for another term when the country holds elections later in the year—heightening fears that the turmoil would drag on for longer.

Analysts said a prolonged crisis in Egypt could affect the Kenyan economy which enjoys strong trade ties with the North Africa State.

“Kenya and Egypt have a lot in common in terms of trade and investment ties and the turmoil in the north will most likely affect some of our strategic imports and exports,” Trade permanent secretary Abdulrazaq Ali said.

Market data showed that tea is the single most important Egyptian import from Kenya but the Maghreb nation also buys tobacco and tobacco products (with British American Tobacco using Kenya as regional export hub), tyres, chemicals, oils, sisal, as well as fruits and vegetables from its East Africa partner.

Fresh cut flowers, dried flowers printing inks also form part of the shipments to Egypt.

Egypt on the other hand, brings into Kenya sugar, molasses, iron and steel products, tyres, car batteries, paper products, chemicals, cement sacks, detergents (like Ariel), baby care products (including the popular P&G brand Pamper), cables and connectors.

Other imports from Egypt include electrical transformers, pharmaceutical products, engineering equipment, insulation material, rice, house appliances, rugs and carpets, petroleum oils, wax and paraffin.

Air conditioning appliances, furniture, telephone exchanges, plastics and paints and ceramics also form part of the imports.

Players in the tea industry said the sub-sector risks the heaviest knocks should the turmoil in Egypt prolong.

“We are quite worried about the goings-on in Egypt because it could affect our top most forex earner for 2010,” Agriculture permanent secretary Romano Kiome said.

Kenya raked in a record Sh97 billion from tea exports in 2010 — making it the single largest forex earner.

The once dominant horticulture fetched Sh78 billion in 2010 while the Tourism Ministry is yet to publish the final earnings from the industry for last year.

Egypt is currently the single largest buyer of Kenyan tea, having overtaken Pakistan.

Statistics by the Tea Board of Kenya show that the country bought 93 million kg of Kenyan tea in 2010 — an equivalent of 21 per cent of the total exported volume.

But apart from the threats on tea exports, a rally in global crude prices triggered by the unrest in Egypt is expected to add pressure on the local economy where the government is grappling ways of stemming rising inflation.

The unrest has seen global prices of crude shoot back within the range of $100 per barrel—placing importers such as Kenya on bigger danger of hikes in consumer prices.

Reports by Reuters said oil prices were steady on Wednesday, with Brent close to a 28-month high, on concerns that anti-government protests in Egypt would trigger a wave of regime change in the Middle East and North Africa, source of more than a third of the world’s oil.

ICE Brent for March gained 15 cents to $101.89 a barrel after touching $102.08 on Tuesday, the highest price for a front-month contract since September 2008.

U.S. crude added 6 cents to $90.83.

“With geopolitical tensions in Egypt remaining unresolved, price risks remain skewed to the upside,” Reuters quoted Credit Suisse analysts including Stefan Graber as having said. “We expect oil prices to ease once tensions fade due to ample global inventories”

Barely a fortnight ago, Energy Regulatory Commission (ERC) allowed marketers to increase the maximum pump prices of petroleum products by a marginal rate of two per cent until the next review on February 14 to offset the rise in global crude rates.

ERC director general Kaburu Mwirichia said the increases on fuel prices were in line with the developments on the global front after the price of murban crude oil climbed by seven per cent in December alone to $91.85 per barrel compared to $85.65 per barrel in November.

Analysts said the renewed pressure on crude prices in the wake of the unrest in Egypt is likely to add to the growing threats of inflation, coming at a time when the country is expecting drought that could push up the cost of living.

Inflation has been rising since October when it slid to 3.09 per cent, the lowest since November 2002.

Treasury has a 5 percent medium-term target for inflation. Kenyan inflation fell for most of 2010 mainly on the back of good food production and low mobile telephone tariffs.

Data released on Monday by the Kenya National Bureau of Statistics (KNBS) showed that Kenya’s inflation rate rose to 5.42 per cent in January from 4.51 percent in December on the effects of higher food prices, rents and school tuition costs.

Analysts say rising international food and fuel prices will put pressure on the inflation rate this year.

Treasury however downplayed the threats of inflation in the short term and expressed confidence that the current trend would correct itself.

“The upward movement of the index is largely captive of the traditional dry period around January but we expect things to correct around March when the rains come. It is transitionary,” Economic secretary Geofrey Mwau said. “We shall worry a lot if the rains don’t come by April but for now we hope things cool off…we expect rains to come. The current situation is mainly due to pressure on demand side, we would have been more worried if the pressure was on the supply side.”


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