The effects of the economic down turn being experienced in Kenya as a result of the depreciation of the shilling and hiked inflation is cutting across all sectors including the horticulture sector.
Although the Kenyan shilling has gained ground against the dollar after its worst fall ever to a record low of Sh.107, on Monday 24th 2011 the shilling closed the day at an average of Sh.100. The ripples of the weak shilling are being felt by the sector players especially on imports.
All sectors of the business are feeling the pressure, which has put the Central Bank in a dilemma to seek for solutions on how to deal with the currency’s turbulence. Economists estimate that a five per cent drop in the value of the currency could push up the rate of inflation and significantly slow down economic growth.
The volatility of major currencies against the Kenyan shilling has also affected the flower sector earnings.
Kenyan exporters are usually paid in Euros or Pounds but inputs are paid for in US dollars. This has a tendency to eat into the gains of the importers.
But the real impact of inflation and currency fluctuation became clear in the contraction of the economy by 4.6 per cent from the first three months of this year.
The second quarter performance data was released even as inflation rose for the eleventh straight month to 17.32 per cent – the highest since the government changed the method of calculating the figures in February last year.
The import-heavy economy reeling from an unprecedented decline in the value of the shilling posted an overall inflation rate of 16.67 per cent recently.
The second quarter growth in 2011 was mainly supported by improved activities in horticulture (farming of cut flowers, fruits and vegetables) and also a moderate growth in farming of sugarcane. The growth in these subsectors was mirrored in export of cut flower which increased from 16.6 thousand metric tonnes in second quarter of 2010 to 27.5 thousand metric tonnes during a similar period of 2011 reflecting a growth of 65.7 per cent,
Kenya Flower Council Chief Executive Jane Ngige, recently said that performance of the shilling against the dollar may not always translate into good tidings.
She said the appreciation of value of the dollar has made it more expensive for the industry to import flower inputs including fertilizers and chemicals.
Increasing labour costs could make investing in the booming flower industry unattractive.