Kenyan Treasury Cabinet Secretary Njuguna Ndung'u told the nation's National Assembly on Wednesday that the country was eyeing de-dollarization to address its dollar crisis.
According to Ndung'u, Kenya is relying on several BRICS nations and BRICS member-to-be — India, China, Saudi Arabia and Russia — as well as Malaysia, a non-BRICS member, to solve its dollar shortage. He noted that Kenya's economic revival depends on these countries de-dollarizing their economies.
Ndung'u explained that the trade imbalance between Kenya and the aforementioned countries had caused a dollar shortage. This comment followed inquiries from Members of Parliament about his ministry's measures to tackle the issue.
Kenya's primary currency for trade with these five foreign nations is the U.S. dollar. With Kenya importing more, it uses its limited dollar reserves to offset the trade deficit. If these countries embraced an alternative currency for trade, Kenya could retain more dollar reserves for dealings with Western nations.
Ndung'u informed members of parliament that out of all the imports Kenya made in the year leading up to May 2023, 43.7 percent had come from these five countries.
China held a substantial position as a trade partner for Kenya, accounting for 19.3 percent of Kenya's total imports. In contrast, Kenya's exports to China represent a much smaller portion, representing 3.1 percent of its overall goods exports.
According to the Treasury, Kenya's main imports from five countries include oil, machinery, transport equipment and raw materials (ores). Conversely, Kenya exports comparatively smaller quantities of products such as tea, fruits, vegetables and cut flowers to these nations.
When questioned about its effect on trade in Kenya and its role in the dollar crisis, Ndung'u revealed that the trade imbalance had worsened the foreign exchange problem. He further said these economies represent approximately 70 percent of Kenya's trade deficit.
Africa's de-dollarization efforts
During a June speech at the Djibouti parliament, Kenyan President William Ruto emphasized the importance of reducing dependence on the U.S. dollar for trade within the African continent.
Ruto urged fellow African leaders to substitute the greenback with the Pan-African Payments and Settlement System (PAPSS) in the flow of goods and services. PAPSS was introduced in January 2022 to facilitate trade using local currencies among African nations.
The alternative payment system receives support from African central banks. It was created in collaboration with the African Export-Import Bank (Afreximbank) and the Secretariat of the African Continental Free Trade Area (AFCFTA), as reported by the East African.
The President clarified that his intention was not to oppose the U.S. dollar but to simplify trade within the continent. He stressed that countries could still use the dollar for trade with the U.S.
Ruto's initiative was in line with the de-dollarization movement in many countries. At a BRICS Summit held in South Africa last month, Brazilian President Luiz Inacio Lula da Silva proposed that member nations should consider establishing a shared currency for trade and investment to decrease their dependence on the dollar.
Countries within the ASEAN region have also moved away from the dollar in their dealings. Similarly, the UAE has begun using the yuan when selling gas to China through a French company.