For Kenya’s small and medium sized importers, global trade has opened exciting opportunities. From electronics to vehicle spare parts demand in Nairobi to clothing and household goods in Mombasa, suppliers across China, India, and Dubai are providing the products that fuel growth in the Kenyan market. However, many importers face a critical challenge: recurring cross-border payment issues with their global suppliers.
Current state of Kenyan importers
As of December 27, 2024, the Railway Development Levy (RDL) on imported goods went up to 2%. This rise directly impacts the importers and consumers with the price of goods increasing, particularly for small products. The levy contributes to the overall tax and duty burden, thereby increasing the landed cost of imports, which could lead to reduced consumer demand.
The only way to mitigate the costs is if importers absorb the extra amount or if the tax's effects are passed to consumers. Since businesses are likely to transfer this burden to customers, importers are ultimately responsible for managing the implications of this increase. Let’s break down the infrastructure of importing in Kenya and understand the current challenges.
Navigating regulations and tariffs
Though gradually liberalizing its imports from the EU under the Economic Partnership Agreement (EPA), Kenya’s plan for easing the import industry is phased over a long period and prevents rapid market flooding. The new regulations require importers to contend with changing trade agreements, tariffs, and regulations, as well as security threats, all of which can affect their business. The fluctuations and disadvantages to the regulations are born by Kenyan importers with a major portion of their budget consumed in tariffs.
Building a solid network
As Kenya's import landscape is dominated by a trade deficit, building a strong network is a major barrier to overcome. From port bottlenecks to limited access to international importers standards, unlike other established importers, Kenya has low leverage to reel in advantages from the exporters. This translates into paying higher prices to the suppliers, especially for SMEs, who pay higher operational costs and with limited purchasing power are restricted from supplier access. Compounded by tax burdens and an increased cost base, these factors cause significant financial losses, hindering investment, growth, and long-term viability.
Logistics and distribution
Global supply chain disruptions is another major challenge for Kenyan businesses in their import operations. Logistics and distribution disruptions lead to higher costs and delays for essential goods and materials reaching the consumer market. A major contributing factor is the often-poor road infrastructure, which hinders the efficient and reliable movement of goods. Additionally, rising prices for raw materials, fuel, and transportation further inflate production and import expenses for Kenyan businesses. A lack of comprehensive supply chain visibility plays a key role to the obstacle, making it difficult for businesses to effectively plan, track shipments, and guarantee timely delivery.
Impact on Kenyan SMEs
From currency volatility to high duties and taxes, Kenyan importers have to undergo various roadblocks in the process. Particularly for SMEs, financing import operations effectively is hindered by a lack of credit and collateral, according to the UoN Digital Repository. With little to no access and high operational costs, SMEs are the hardest hit by the import barriers of Kenya. This brings additional risks to mitigate and the need to find effective solutions that can lower the costs to importers.
Importer risks and their financial impact
Importers often face various risks when paying money overseas. These include the following:
Slow transfer
A supplier across the globe would expect clear funds transfer before letting that shipment leave the port. Traditional banks often take 3-7 business days, and that timeline is risky with competitors in the market who would have already secured the goods. This is a huge pain point for Kenyan importers wanting faster shipment and transactions to align with their deliveries.
High costs and hidden fees
Importers who pay in USD, CNY, or AED often face exchange rate mark-ups of 3-5% from banks or informal forex brokers. On a $50,000 order, that’s up to KES 350,000 wiped out before the goods even arrived. These hidden costs add up to the balance sheet and become a blocker in importing goods. It further discourages businesses to apply for import licenses or start the importation business in the market.
Uncertainty with payments
Banks often flag or hold transactions for compliance checks. Importers end up calling branches repeatedly, while suppliers grow impatient. Goods sit in warehouses abroad or Kenyan ports costing money for each day’s delay. These uncertainties with payments lead to a huge financial loss to parties on both sides of the transaction.
Trust on the line
With these trivial but crucial financial costs to manage, trust is the first layer to be eroded. The suppliers across the world hesitate supplying to Kenya and are discouraged with the delayed payments to do not-so-easy international transactions in the African continent.
Such crucial business relationships on the line need an urgent solution to bring Kenya back in the game of importing goods. A solution that can cater to the specific requirements of the country, a cookie cutter for the SMEs and a platform that can bring back trust, agility, and speed.
A game changer platform for Importers
According to DHL, Kenya is a growing market for imports, with total imports reaching over $21 billion in 2022 and projections for continued growth, making it a key destination in East Africa. This growth can be matched with a faster payment infrastructure that can facilitate the transactions hassle free and complete them with trust. An end-to-end payment structure can offer:
Payments arrive in hours, not days: No need for traditional banking services, directly transact with your customers to receive or send payments.
Transparent FX saves money: Automated FX available with 24/7 tracking of funds, save your favourable FX amount and receive updates.
One digital channel for multiple currencies and suppliers: One platform to manage 49+ currencies and do business with countries using multiple wallets.
The financial impact on small to medium scale importers doesn’t end with regulations and taxes. For businesses to succeed in Kenya's expanding import market, an efficient payment infrastructure providing speed, transparency, and multi-currency management is essential. This is due to the financial implications that lead to deeper cuts in their pockets and necessitate cost reductions.
Investing in a robust financial infrastructure like Verto that prioritises FX conversion and supplier payments with multi-currency management capabilities, allows them to reduce complexity and lower costs. Verto offers an all-in-one platform with an infrastructure designed for seamlessly converting currencies to the Kenyan Shilling and vice versa. This gives them back extra money for their business and takes care of the currency exchange hold ups.
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