Apprehensions related to fiscal policy changes and social unrest, most notably the June 2024 Finance Bill protests, have contributed to a slight dip in Kenya’s overall trade attractiveness according to the latest Stanbic Bank Africa Trade Barometer (SB ATB).

In the report that evaluates 10 key AfCFTA signatory nations, which together account for 66% of Africa’s GDP, Kenya moved from 5th to 6th position compared to last year’s SB ATB report.

“While Kenya has faced some challenges in trade competitiveness, especially related to inflation and infrastructure, the thriving services sector demonstrates our capacity for growth. By addressing key barriers like access to finance and improving trade infrastructure, Kenya can regain its competitive edge and further boost its regional leadership,” said Paul Mungai, Head of Trade & Africa China Banking at Stanbic Bank Kenya.

Nonetheless, Kenya’s business confidence index scored a steady 55 points, mirroring last year’s score and summarising the mixed economic sentiments amongst businesses.

The stability of this score reflects a delicate balance between optimism fuelled by the successful Eurobond buyback, GDP growth, and subdued inflation, against a backdrop of pessimism due to the contentious tax proposals and resulting protests, which impacted trade and tourism.

The slight decline in Kenya's overall SB ATB ranking can be attributed to persistent inflationary pressures, recent tax reforms, and perceived drops in government support for cross-border trade.

Kenya’s government support index for trade experienced the sharpest decline, dropping from 57 to 45, with surveyed Kenyan businesses signalling a decrease in business sentiment towards government backing of cross-border trade. Larger businesses perceived government support more favourably than smaller enterprises, possibly due to their capacity to leverage available resources and navigate complex regulatory landscapes.

Despite initiatives to embrace trade agreements and policy reforms aimed at facilitating trade and reducing barriers, the need for tax relief and improved customs efficiency remains a key concern for businesses striving to engage effectively in cross-border trade.

Access to credit within the period of the survey proved to be another major challenge for Kenyan business the drop in the index from 49 to 45 signalled tighter credit conditions for Kenyan businesses. Rising interest rates have made borrowing more expensive, pushing many businesses to seek alternative financing options, such as supplier credit arrangements.

In tandem, there has been a noticeable shift towards digital payment systems, with mobile money increasingly being used for cross-border transactions, particularly among small businesses. Mobile money usage for trade has risen to 44%, while the reliance on cash for transactions has decreased by 17%, reflecting growing concerns over security and currency volatility.

Furthermore, infrastructure challenges persist, exacerbated by severe flooding in early 2024 that caused damage across 42 counties, valued at over USD 35 million (approximately Ksh 4.5 billion). The decline in the trade infrastructure index, which dropped from 53 to 48, highlights the urgency of improving Kenya’s transport and logistics systems to support more resilient trade operations. Businesses have voiced concerns about the state of roads, ports, and rail infrastructure, which were significantly impacted by the floods.

“Despite these challenges, Kenya’s cross-border trade continues to expand, buoyed by trade agreements with the European Union, China, and within the East African Community (EAC). Although the trade openness index saw a slight drop from 50 to 49, trade relations with Tanzania and Southern Africa are strengthening, providing new market opportunities for Kenyan exporters. The 2024 FOCAC Summit is also expected to enhance trade partnerships with China, offering a framework for increased cooperation,” said Mungai.

Now in its fourth edition, Standard Bank (trading in Kenya as Stanbic Bank) leveraged its presence and expertise across the continent to create the Stanbic Bank Africa Trade Barometer (SB ATB), which focuses on South Africa, Namibia, Mozambique, Tanzania, Nigeria, Kenya, Zambia, Ghana, Uganda, and Angola.

The report examines trade performance across several vital categories, such as trade openness, access to finance, macroeconomic stability, and infrastructure development.

In Kenya, 235 businesses were surveyed. 59% of these businesses were in Nairobi, 9% in Mombasa, 12% in Nakuru, 11% in Kisumu and 9% in Eldoret.