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The rise in gas prices in Kenya just a tip of the ice bag! Whats the cause and what’s more?

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East Africa is staring at a ballooning import bill for petroleum products. And a long spell of imported inflation from the Russia-Ukraine war.

Inflation

The economic outlook for the region has seen inflation rise for Uganda. With the consumer price index inflation is expected to peak at 3.8 percent, from 3.5 percent.

While in Tanzania annual inflation has eased to 4.0 percent. In Kenya, it is projected at 5.08 percent, and in Rwanda 2.0 percent.

Kenya, is the largest supplier of flowers to Russia after Ecuador and Colombia. Will not export flowers and import grains and fertilizer from both Russia and Ukraine.

Border closures

“Passenger and cargo aircraft cannot travel to the region. You cannot enter the Ukrainian airspace and largely our exports to Russia reach Moscow through Poland.”

“And Poland neighbors Ukraine. Definitely, our trade with Russia will be affected by that closure of the airspace. By NATO,” said Johnson Weru, Principal Secretary in the Trade Ministry.

“Russia and Ukraine are part of the region with the highest world supply of grain. Including wheat and yellow maize, and fertilizer, which is also an input in the production of grains. The effect may not be immediate but it is going to be there.”

Prices

Global wheat prices have gone from $345 per tonne to $460. Over the past week. According to a survey by the Kenya Association of Manufacturers.

Fertilizer prices in Kenya are also set to shoot above Ksh7,000 ($63.7). For a 50-kilogram bag. On fears that Russia’s invasion of Ukraine will impact global supply.

Ugandan and Tanzanian trade with Russia and Ukraine has also suffered a setback. Ugandan coffee exports estimated at $7 million to Russia as well as wheat imports ($25.5 million) have also been affected.

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Foreign exchange earnings

Flowers are the largest source of foreign exchange earnings for Kenya after tea. With production in 2020 estimated at 140,000 tonnes.

The flower sector earned about Ksh108.7 billion ($983 million) in 2020, according to the Kenya Flower Council.

The Ukraine crisis has also affected trade in the East African region. As prices of wheat have increased in the past few days. It has also affected the importation of farm equipment and fertilizer.

Reliance

“Kenya relies on both Ukraine and Russia for grain. Particularly in the second half of the year. Since other sources such as Argentina and Australia harvest in December,” said Phylis Wakiaga, chief executive of the Kenya Association of Manufacturers.

“Depending on the availability of wheat, prices are projected to cross $500 per tonne. Which translates into $550 per tonne upon landing in Nairobi.”

“This would then translate to approximately Ksh5,650 ($51.4) per 90kg bag. Approximately Ksh180-Ksh200 ($1.64-$1.82) for a 2kg packet and approximately Ksh60-Ksh67 ($0.55-$0.61) for a loaf of bread.”

Threat to supplies

“Undeniably, there is a threat to wheat supply, and this is set to affect the general population.”

Russia and Ukraine are part of the region with the highest world supply of grain, including wheat and yellow maize.

“In 2020, Kenya exported goods and services worth Ksh8 billion ($72.73 million) to Russia. And imports worth Ksh37.996 billion ($345.4 million),” said Ms. Wakiaga.

Imports and exports

“This means that Kenya, is a net importer of wheat, maize, and fuel from Ukraine and Russia. Will most likely feel economic heat if the crisis persists,” she added.

Kenya’s exports to Russia and Ukraine include tobacco and its substitutes. Coffee, tea, mate and spices. Live trees, plants, bulbs, roots, cut flowers, edible fruits, nuts, peel of citrus fruit, and melons. 

Experts are yet to explain the extent to which Russia’s military invasion of Ukraine will impact the region’s economies. But what is clear is that it will increase inflationary pressures on energy, food, and other products.

Crude oil

After Russian tanks crossed into Ukrainian territory. Global benchmark Brent crude crossed the $100 mark per barrel, for the first time since 2014.

And this week touched $110, as experts say the prices are not about to retreat.

Finances of oil marketing companies are constrained closer to home. By tensions between Russia and Ukraine and feared the worst.

If the two European countries went to war – a reality that has come to pass. When Putin ordered his troops over the border.

Price benchmark

Boniface Kipchirchir, the head of operations at Stabex International Uganda, explains that Platts. The price benchmark for the oil industry. Rose from an average of $648 per metric tonne of crude in December 2021 to $820 per tonne in February.

In liberal EAC markets like Uganda, which has seen fuel prices skyrocketing over the last two months. The rise in the international benchmark translates into an increase by over Ush600 (15 cents) per liter at the pump.

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Three Global Firms Signed By Nairobi Financial Hub On Its Launch

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Three companies were signed by Nairobi’s international financial centre on the day of its launch. The three include Prudential plc, ARC Ride Kenya and AirCarbon Exchange (ACX).

The Nairobi International Financial Centre (NIFC) is a special economic zone for financial firms.

Prudential, one of the world’s biggest insurers and asset managers, became the first firm to formally join the NIFC.

Singapore-based global carbon exchange ACX came along with Prudential. It seeks to set up a carbon exchange in Kenya.

Check out: Why Buyers Are Now Running Away From Popular Used Toyota Cars

NIFC has also admitted ARC Ride Kenya. It is a new start-up that is going to establish an electric vehicle assembly plant in Nairobi. The plant will produce two and three-wheeled electric bikes and scooters.

Also, the Financial Centre is determined to bolster the manufacturing sector in the country. It has signed an MoU with the Kenya Association of Manufacturers (KAM), to help increase financing and investment in the sector.

NIFC authority has hinted at being in discussion with other participants seeking to join it and will give official news soon.

“Last year Prudential Plc, one of the world’s biggest insurers and asset managers, made a commitment to relocating their Africa headquarters from London to Nairobi and join the Centre. Today we are proud to announce that Prudential becomes the first firm to formally join the Nairobi International Financial Centre,” Vincent Rague, Chairman NIFC Authority.

After many years of waiting, the hub will eye large foreign firms, boosting capital flows to Kenya and the region.

The authority has singled-out four sectors that it will prioritise for growth: financial technology, green finance, investment funds, and becoming a hub for regional multinationals.

The NIFC general regulations have been enacted, as the initial set of tax incentive proposals have been passed.

Also read: The Ultimate Guide to Digital PR

Certification from the NIFC Authority must be applied by Firms considering conducting business through the NIFC.

A 15% corporate tax will benefit firms operating a carbon market exchange or emission trading system under the NIFC. The 15% advantage will happen for the first 10 years of operation.

Companies certified by the NIFC Authority and have invested a minimum of Sh5 billion will benefit from the certainty that, the Capital Gains Tax applicable at the time they make their investments will remain unchanged during the lifetime of the investments.

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Hackers Make Tactical Change, Now Targeting Small Businesses

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Traditionally, cybercriminals have been targeting big companies with aim of demanding ransoms running into millions. Nonetheless, the trend no longer holds, as new studies have shown the shift in hackers’ interest from big companies to small and medium ones.

Studies have shown that hackers are shifting their focus to small online businesses which they believe are more vulnerable.

Experts have warned that these SMEs and payment portals, especially those relying on mobile payment solutions, are now facing high risks of cyber attacks coordinated by these hackers.

Speaking during the inaugural Africa Cybersecurity Congress held in Nairobi, Hadi Maeleb, Agora Group co-founder and CEO said the threats to online businesses were growing at a high rate.

Further, he stated that more than 90% of business owners are unaware that their enterprises are at risk, despite the high growth rate of the attacks.

“Cybercriminals are now targeting small businesses more as they have realized that these enterprises do believe they would be exposed due to their comparatively low turnovers until they lose their data and payments are compromised,” said Mr Maeleb.

With the adoption of e-commerce platforms, State agencies, financial institutions, healthcare, energy and utilities have persistently faced cyber-attacks in the recent past.

According to CAK- Communications Authority of Kenya’s first-quarter data (between January to March 2022), a total of 79.2 million cyber-attacks were reported. This has prompted the government to issue 28,848 advisories in an attempt to fight the rising attacks.

Invest in Cybersecurity

Mr Maeleb noted that business owners should invest in cybersecurity tools as there is no magical solution to cybercrime.

“This ‘democratization’ of cyberattacks is expected to push losses due to business interruption, financial theft, personal data breaches and even ransom payments over the Sh4 trillion mark by end of 2022,” he said.

At the peak of the pandemic, several states adopted tough lockdown measures such as social distancing, working from home, and online learning.

Also read: Why Buyers Are Now Running Away From Popular Used Toyota Cars

Hackers shifting focus to small businesses.

This adoption of digital solutions such as e-commerce, remote working and banking went up as Kenyans turned to online platforms to curb the spread of the coronavirus.

“Unfortunately for them, the business of cybercrime has evolved to a point where attacks like ransomware are now sold as a service,” he added.

Even though these measures triggered the adoption of digital platforms, they also increased vulnerability such as ransom, data breaches, harassment, cyberbullying, and data breaches.

Kenya’s ICT Policy which came into effect in 2006, is credited for creating an enabling environment for the growth and usage of technology.

Kenya’s ICT Policy which came into effect in 2006, is credited for creating an enabling environment for the growth and usage of technology.

To achieve Kenya’s Vision 2030 goal of a regional ICT hub, the tech sector was expected to contribute directly and indirectly to an additional 1.5% of Kenya’s GDP by 2017/2018.

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Why Buyers Are Now Running Away From Popular Used Toyota Cars

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As it has been noted that Kenyans are now running away from the popular used Toyota car models, contrary to what has been a tradition in the country. The rise in their costs has seen even dealers cut down on imports of these vehicles due to decreased demand.

Traditionally, popular models such as Toyota Premio and RAV4 have been synonymous with middle-income earners over the years. However, this is no longer the trend.

Car dealers say more Kenyans are now going for vehicles such as Nissan Sylphy and Mazda, which cost less compared with popular Toyota models.

Toyota Vs Nisaan and Mazda models

According to Charles Munyori, the secretary-general of Kenya Auto Bazaar Association, Nissan Sylphy and Mazda’s CX5 and Axela, are quickly gaining popularity among Kenyans.

Mr Munyori said the price of a Toyota RAV4 has short up to Sh3 million currently from Sh2.8 million in February while a Premio is going for Sh2.2 million from Sh2 million four months ago.

On the contrary, Mazda Axela is now selling for Sh1.6 million with Nissan Sylphy (Blue Bird) going for at least Sh1.5 million.

Currently, consumers find these brands to be the best alternatives to their preferred models, as they are relatively cheaper and good.

Check out: Stabex, Uganda’s largest Oil Company That has Been Linked To DP Ruto

With the rising household costs, these car prices are making them affordable to most Kenyans as they struggle to balance the high cost of living.

“We are seeing a shift where Kenyans are now moving from the popular brands such as Toyota Premio and RAV4 to other models. This shift has been occasioned by the high cost that these cars are now fetching at the market,” said Mr Munyori.

“In fact, most of the car dealers are hardly bringing in Premio and RAV4 models because they are not moving and they will tie up money that they would need for importation of more vehicles,” he said.

Ex-Japanese vehicles

Ex-Japan vehicles dominate the Kenyan second-hand sector with a more than 80% market share.

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The buyers in the sector prefer these cars as their spare parts are easier to obtain locally compared to other brands. Additionally, buyers believe that the resale value of Toyota vehicles are higher than that of other brands like mazda or Nissan.

Reasons for risisng vehicle cost

The rising cost of vehicles in the country has been linked to the unavailability of dollars locally, a shortage of electronic chips in Japan, and a weakening shilling against the dollar.

The country is currently experiencing extreme dollar shortage, that one has to wait for at least three days to get $20,000 or $25,000 from the banks.

“We have to wait for like nine days in order to accumulate $80,000, and this has seen car dealers delay in making their orders. We are really feeling the impact of the dollar shortage in the market,” Mr Munyori said.

banks have imposed regulations on dollar purchase. This has forced traders to face difficulty in meeting their obligations.

Industrialists are forced to start seeking dollars in advance. The shortage puts a strain on supplier relations and the ability to negotiate favourable prices in gap markets.

On the other hand, Semiconductors are used in making electronic devices. Their shortage has forced the vehicle manufacturers to scale down the production. The quantity and quality cannot be maintained with decrease in one of the crucial raw material.

Finally, the shilling has persistently remained weak against the dollar. this has made it costly for importers shipping in goods.

The shilling has hit a record low trading at of Sh 117.06 against the dollar. This predicts a continued rise in imported goods, and signifies a further dollar shortage crisis.

The continuous depreciation in shilling stability is attributed to increased demand for dollars from importers. This highly arises on importaion of crude oil and merchandised goods.

It should be noted that most external debt is repaid in the dollar. Therefore, a weakened shilling increases prices of imported goods, and puts pressure on the country’s debt repayment.

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