Image: Electric motorcycles made in Kenya by Roam. Image courtesy of Roam

Kenya Signs Deals To Import Fossil Fuels On Credit For 6 Months To Relieve Pressure On Demand For Foreign Currency

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Kenya recently signed some deals with firms from Saudi Arabia and the United Arab Emirates (UAE) to supply diesel, petrol, and jet fuel on credit for the next 6 months to ease mounting  pressure on the demand for foreign currency as well as to try to stem the Kenya shillings slide vs. the US dollar and other major currencies. In a deal backed by government-to-government arrangements, Saudi Aramco, Abu Dhabi National Oil Company, and Emirates National Oil Company will be supplying fossil fuels on credit to Kenya.

Reports say Kenya’s demand for fossil fuels is now close to $500 million per month! That’s a huge chunk of Kenya’s total import bill. At this pace, in 12 months, Kenya would be spending $6 billion on fossil fuel imports!

The continued reliance on fossil fuel imports is one of the main drivers of Kenya’s trade deficit. Let’s look at the last few years:

According to the last Economic Survey from the Kenya National Bureau of Statistics (KNBS), there was 30.9% growth in imports in 2021. The increase in imports widened the trade deficit from KSh 999.9 billion in 2020 to KSh 1.4 trillion in 2021. That’s a trade deficit of about US$11.8 billion! Imports rose from KSh 1.6 trillion in 2020 to KSh 2.1 trillion, mainly driven by an increase in imports of petroleum products.

Kenya trade deficit table
Source: KNBS 2022 Economic Survey
Kenya petroleum fuel imports table
Source: KNBS 2022 Economic Survey

This shows that there has been a huge jump in demand for petrol, diesel, and related fossil fuels from about $3 billion in 2021 to the $6 billion Kenya would need this year at around $500 million per month. It won’t stop there, as demand will keep rising in the near future as more vehicles are added to the country’s fleet.

By moving to get fuel on credit for 6 months and only starting to pay for it after the 6-month period, instead of the usual upfront  payments, they really hope to slow down the slide of the local currency in the short term. How about in the long term?

This is perhaps a perfect time to really catalyse the local electric mobility sector and to start to significantly reduce fuel imports by substituting those imports with locally generated renewable electricity to power electric vehicles.

Kenya has an installed electricity generation capacity of 3,321 MW. The peak demand is 2,132 MW. However, it is the low overnight off-peak demand of 1,100 MW that Kenya Power wants to exploit initially to power Kenya’s transition to electric mobility. Renewables make up most of the generation capacity in Kenya and provided 89% of Kenya’s electricity generation in 2021 thanks to contributions from geothermal, wind, hydro, and some utility-scale solar.

Kenya is one of the major players in the geothermal space and is in the top 10 in the world when it comes to installed geothermal generation capacity. Electric vehicles in Kenya will be charged using some of this very clean electricity. As most of EV charging globally happens overnight, this low off-peak demand targeted for EV charging will help unlock efficiencies from available generation capacity such as Kenya’s geothermal plants, as well as boosting Kenya Powers revenues, whilst helping to reduce Kenya’s huge fossil fuel import bill.

At the moment, Kenyans import mostly internal combustion engine vehicles and then also import the fossil fuels that immediately get literally burnt in those ICE vehicles. EVs currently make up less than 1% of Kenya’s vehicle fleet. So, this hard-earned and scarce foreign currency literally comes into the country and is combusted in no time.

The trade deficit shows that Kenya needs to earn more by exporting more, and also at the same time work towards reducing the import bill and moving to a more sustainable trade surplus position. A faster transition to electric vehicles could be one of the best ways to reduce pressure on demand for foreign currency in the next 5 years or so.

The good thing is that the global electric mobility sector is now well developed as compared to when countries like Norway started the drive to go electric en masse. In terms of electric cars, there are now more models and brands available around the world from the major new energy vehicle (NEV) automakers as well as the traditional auto industry giants. In England, for example, there are now more than 200 EV models consumers can choose from, and although supply is still constrained to a certain extent, it is much better than a few years ago. The UK market is an important market for Kenya, as a lot of used vehicles are imported from there as well as from Japan.  A look at the trends in the used vehicle market can give use some insights.

In Kenya, a consumer can import a vehicle that is at maximum 8 years old. Generally, a lot of vehicles that are imported are in the 4- to 8-year-old range. Looking at the UK 5 years ago, the Mitsubishi Outlander Plug In Hybrid was very popular and now we are starting to see quite a lot of these used Outlander PHEVs being shipped to Kenya from the UK and also from Japan. They are actually gaining some popularity in the Kenyan market. Perhaps these plug-in hybrids give people some comfort as a way into electrified vehicles since charging infrastructure is not yet as well developed in Kenya. The charging infrastructure is growing, though, with companies such as EVChaja now installing charging stations around the country.

If Kenya puts out the right incentives for EVs, we could start seeing more people importing full battery electric vehicles, perhaps 3- to 5-year-old BEVs from England. The other major source market, Japan, has been slow to adopt EVs, but this is changing and in the next couple of years there could be a good selection of non–first generation Nissan Leafs that could find their way to Kenya. First-generation Leafs are now older than 8 years old and therefore can no longer be imported into Kenya. Also, their batteries were not the best due to lack of active thermal management. The other opportunity and perhaps a much bigger opportunity in the electric car segment is the growing range of affordable electric cars in China. An opportunity could be to work with some of these Chinese OEMS to assemble affordable right-hand-drive vehicles in Kenya. There could be a good addressable market for this for the right selection of vehicles at prices that can compete with the popular used 5-year-old to 8-year-old vehicles from Japan. Kenya imports about 100,000 used vehicles per year, and perhaps an affordable selection of electric vehicles from China can in the medium term target to capture a good chunk of this market. Even at 10%, 10,000 vehicles is a decent market to consider.

The electric motorcycle also presents a major opportunity. Although there isn’t yet any electric motorcycle in the same class as the current ICE motorcycles from the major manufacturers from India and China, there is an enormous amount of work that has been done by Kenyan startups. Several firms in Kenya have designed and developed their own electric motorcycles to suit the local market and are now starting to emerge from the pilot phase and are starting to scale up their operations. With over 300,000 ICE motorcycles imported into Kenya per year, this is perhaps the biggest immediate opportunity. The other important sector that is also starting to get some traction is the electric bus sector for intracity transit. There’s a big opportunity for electric mobility to play a key role to address challenges with the huge petrol and diesel import bill.


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Remeredzai Joseph Kuhudzai

Remeredzai Joseph Kuhudzai has been fascinated with batteries since he was in primary school. As part of his High School Physics class he had to choose an elective course. He picked the renewable energy course and he has been hooked ever since.

Remeredzai Joseph Kuhudzai has 756 posts and counting. See all posts by Remeredzai Joseph Kuhudzai