Kenya Transformation to Become the Largest Malaysian Palm Oil Importer in Sub-Saharan Africa

Kenya, with a population of approximately 53.7 million, has become the biggest importer of Malaysian palm oil in the Sub-Saharan Africa region this year. Based on the latest MPOB data, MPO exports to Kenya has risen by a massive 185.6% from just 111,261 MT in Jan-Sep 2019 to 317,726 MT so far this year.  As illustrated in Figure 1 below, the import of MPO started to pick up in April 2020 when demand was improving as Kenya palm oil importers started to replenish their inventories in anticipation of diminishing supply during the lockdown period to contain the Covid-19 pandemic. Since then MPO import volume continues to be trending upwards compared to the same period last year. During Apr-Sep 2020 period, the average monthly MPO imported by Kenya was 48,350 MT compared to just 14,950 MT per month in Apr-Sep 2019 period. The highest monthly MPO import recorded this year was 78,648 MT registered in August 2020.

Figure 1: Kenya Import of MPO Jan-Sep 2020 vs Jan-Sep 2019 (MT)

Source: MPOB

During this period, there is also a strong shift towards importing more crude palm oil rather than refined palm oil. Last year, the import of crude palm oil constitutes about 73.7% of total palm oil import, but this year the percentage has increased to 84.7%. The surge in demand for crude palm oil/olein from Malaysia this year can be attributed to two main factors. Firstly, Kenya palm oil duty import regime that favours CPO/CPL instead of processed palm oil. Kenya imposed a 10% import duty on CPO and 25% duty on refined palm oil.

Table 1: MPO Export to Kenya CPO vs Processed Palm Oil

  Jan-Sep 2020 Jan-Sep 2019 Change (Volume) Change (%)
Crude Palm Oil 269,201 82,027 187,174 228.2
Processed Palm Oil 48,524 29,234 19,290 66.0
Total 317,726 111,261 206,464 185.6

Source: MPOB

Secondly, Indonesia has not been able to export CPO to the African countries as Indonesia has to fulfil its domestic requirement and biodiesel mandate. Indonesia also must cater to demand from other CPO importing countries such as India and EU countries. Based on the latest available data, Indonesia palm oil export to Kenya until August this year is only one-third of the total export volume of last year.

Table 2: Palm Oil Imports into Kenya, by Country (MT)

  2015 2016 2017 2018 2019 Jan-Aug 2020
Malaysia 139,321 126,171 190,160 235,943 193,340 243,610
Indonesia 163,400 189,700 302,000 361,000 234,000 91,000

Source: MPOB, Oil World

Another factor that drives up the demand for palm oil in Kenya is the growth in food demand, especially in the FMCG sector. Besides satisfying Kenyan domestic requirements, imported Malaysian palm oil is also rerouted to neighbouring landlocked countries such as Burundi, Rwanda, and Uganda. A policy change by Kenyan neighbour, Tanzania also contributed to the surging CPO import by Kenya. Ever since the Tanzania government increased the CPO import duty to 35% in July 2018, the role of Kenya as an East African regional palm oil hub has grown more significant. The exemption of crude palm oil duty by the Malaysian government this year also gives plenty of incentive to Kenya buyers to import more CPO.

Kenya Economic Resilience Will Spur More Palm Oil Usage in the Future

Kenya is one of the fastest-growing economies in Sub-Saharan Africa, averaging more than 5 % of GDP growth over the last decade. The country is the regional financial and transport hub of East and Central Africa due to the size of its market, its geographical location, and improved connectivity

According to Focus Economics (https://www.focuseconomics.com/countries/kenya), in Q2, the Kenyan economy contracted for the first time since at least Q1 2010, as the impact of the coronavirus pandemic battered key sectors. However, the latest Q3 data suggests that the decline likely bottomed out in Q2. As most of the economies fall into recession this year, World Bank has tipped Kenya to escape contraction. In the latest World Economic Outlook, The International Monetary Fund (IMF) also has revised Kenya’s economic growth prospects upwards by one percent this year, up from the negative one percent projected earlier in June. For next year, it expects the country’s GDP growth to expand by 4.7 percent.

In view of the resiliency of the Kenyan economy during this pandemic, the growth forecast for next year, and all the key factors mentioned above, it is expected that Kenya continues to be one of the most important markets for Malaysian palm oil in Sub-Saharan Africa in years ahead. The Kenyan government is encouraging investments in the oils and fats industry whether in upstream and downstream activities. Kenya’s membership in regional trading as such COMESA and the East African Community (EAC) provides potential investors with a large regional market for palm oil based products. In view of this development, Malaysian palm oil exporters should take this opportunity to develop the market further by either increasing exports or investment in strategic areas such as bulking installation or refining, leveraging on the economic growth, and thus further gaining access to a large market under the regional market groupings.

Prepared by Iskahar Nordin 

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