Kenyan tea traders are worried that Pakistan's worsening troubles could further shrink exports and affect earnings.
Tea export demand to the leading market has been shrinking at the weekly Mombasa auction in recent weeks, as the South Asian country battles depending financial woes occasioned by rising inflation and falling forex reserves.
Pakistan which takes up more than 38 per cent of Kenyan tea exports has witnessed the worst inflation in nearly 50 years having hit 31.5 per cent last month, from 27.6 in January.
This is three times higher the cost of living in Kenya where inflation was recorded at 9.2 per cent in February.
This came amid government austerity measures among them energy price increases, higher taxes and currency weakening to meet the International Monetary Fund’s loan condition.
The country has witnessed a major slump in its forex reserves since last year, falling to a 10-month low of $3.09 billion (Sh394.6billion) last month.
They however slightly increased to $3.25 billion (Sh415.1 billion )in the week ending February 17.
Even so, its reserves only provides up to three weeks of import cover as the $350 billion (Sh44.7 trillion) economy continues to grapple with a balance of payment crisis.
According to the East Africa Tea Trade Association (EATTA), Pakistan buyers have reported struggling to secure dollars to make orders at the Mombasa auction, which last week had about 39.38 per cent of volumes offered for trade untouched.
This is on the 16.2 million kilos where 9.6 million kilos were sold.
The pattern is expected to continue this week.
"More buyers are increasingly shying off from buying though uptake is still there, but not at the desired rate. They are facing a challenge,” EATTA managing director Edward Mudibo told the Star in a telephone interview.
Kenya mainly depends on five key markets which take up to 75 per cent of her exports with Pakistan being the biggest market.
Egypt, the second biggest market, takes about 18 per cent of Kenya teas sold weekly at the Mombasa auction.
Other key buyers are UK (9%), UAE, Russia and Sudan each five percent, Yemen (3%) while Afghanistan and Poland each take up two per cent share of the exports.
Iran is at the lower end with one per cent with the rest of the world taking up the remaining.
Afghanistan and Egyptian Packers have lent strong support dominating in recent sale with Yemen and other Middle Eastern countries more active, market data indicates.
Sudan, the UK, Russia, Kazakhstan, and other CIS states have also maintained inquiry while Iran and Pakistan Packers showed selective interest, Mudibo notes.
Local packers have maintained activity while Somalia has been active but at the lower end of the market.
Prices however increased slightly despite the volatile export market where economies are battling high inflation, including Egypt.
A kilo averaged 2.19 (Sh 279.68), up from $2.15 (Sh 274.58) the previous week.
This was however lower compared to the same sale last year when a kilo fetched an average $ 2.50 (Sh 319.28 ).
Islamabad is expecting external financing inflows likely to happen this month, after a deal with the IMF is finalised.
The move will be a relief for Kenya tea traders which remains on a wait-and-see mood.
"If anything happens in Pakistan it is always a matter of concern but we also need to look for more markets. That way, we will diversify our export markets and be able to navigate such times,”Mudibo said.
Egypt has also been battling high inflation affecting Kenyan tea exports.
Inflation rate in the country is expected to be 33.00 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations.
It was recorded at 21.3 per cent in December of 2022.
Main upward pressure came from prices of food and non-alcoholic beverages (37.9% vs 30.9%).
The central bank of Egypt allowed the Egyptian pound to depreciate by about 14.5 per cent in October last year, and progressively continue to weaken in November and December amid a foreign currency shortage.
Kenya’s trade ministry has been concerned over forex reserves challenges in key export markets, which has affected their ability to buy Kenyan goods.
“We need to reduce dependency on hard foreign currencies,” Investments, Trade and Industry CS Moses Kuria notes.