KenyaThe Big 4 priorities to boost Kenya’s economy Published 1 year agoon June 18, 2018By Vaultz Publisher Share Tweet Kenya’s economy grew by 4.9 per cent in 2017, recording the slowest margin in five years amid prolonged electoral process and adverse weather. That pace of growth falls far below the 5.9 per cent recorded in 2016, data released in April by the Kenya National Bureau of Statistics (KNBS) indicate.The last time Kenya recorded growth below five per cent was in 2012, also an election year, when the economy expanded by 4.5 per cent.“The slowdown in the performance of the economy was partly attributable to uncertainty associated with a prolonged electioneering period coupled with adverse effects of weather,” said Treasury and Planning Secretary Henry Rotich.Kenya’s economy remains resilient due to its diversity; services contributed the highest proportion to GDP growth.Kenya’s economy grew by 4.9 per cent in 2017, recording the slowest margin in five years amid prolonged electoral process and adverse weather. That pace of growth falls far below the 5.9 per cent recorded in 2016, data released in April by the Kenya National Bureau of Statistics (KNBS) indicate.The last time Kenya recorded growth below five per cent was in 2012, also an election year, when the economy expanded by 4.5 per cent. “The slowdown in the performance of the economy was partly attributable to uncertainty associated with a prolonged electioneering period coupled with adverse effects of weather,” said Treasury and Planning Secretary Henry Rotich.The KNBS data shows that agriculture, which accounted for 31.5 per cent of the 2017 GDP grew by only 1.6 per cent compared with 5.1 per cent in 2016. All the segments except cut flowers shrunk during the period. Export earnings from cut flower grew by 16.1 per cent to hit Ksh82.2 billion ($819.9 million) in 2017.Kenya’s economy is expected to grow 5.5 percent this year compared with the estimated 4.9 percent in 2017, thanks to better weather and less political risk after last year’s presidential election, the World Bank said in April.A severe drought in the first quarter of 2017, political turmoil due to a disputed and then re-run presidential election and sluggish private sector credit growth all helped cut the 2017 economic growth to the lowest in five years, from 5.9 percent the previous year.Notwithstanding the projected rebound in economic activity, risks are tilted to the downside. The Government of Kenya has outlined four big priority areas for the next five years. Thes eare agricultural and food security, affordable housing, increased share of manufacturing, and universal health coverage.Support from the public and more importantly the private sector will be required to achieve the big 4. Specific measures to create fiscal room to support the big 4 can include: enhancing domestic revenue mobilization through the rationalization of tax exemptions; slowing the pace of expansion of recurrent spending; and improving the efficiency of spending.Boosting agricultural productivity and food security will require reallocating more resources to agriculture and improving the efficiency of current spending in the sector.To eradicate poverty by 2030, Kenya will need a combination of higher growth, more inclusive growth, and growth that is increasingly driven by the private sector and translates into more rapid poverty reduction. Kenya’s finance ministry has also reiterated growth to rebound to 5.5 percent this year but pressure to curb the government’s fiscal deficit could cause it to scale back ambitious infrastructure projects, weighing economic output.“The dissipation of political uncertainty and the recovery in the global economy is supporting a rebound in business sentiment,” the World Bank said in its latest report on the Kenyan economy. The country’s crop growing areas have been enjoying good rains since March, boosting expectations of improved harvests.Farming is the biggest sector. But the World Bank said higher oil prices, reduced government investment in infrastructure and still-weak credit growth could curb some of the optimism. Kenya capped commercial lending rates in September 2016 at 4 percentage points above the central bank’s benchmark rate, which now stands at 9.5 percent, in an attempt to limit the cost of borrowing for businesses and individuals.The central bank said last month the cap probably cut last year’s estimated economic growth rate by 0.4 percentage points because it limits credit to small and medium businesses who are deemed too risky by lenders. The World Bank said its forecast was premised on the potential resolution of the cap issue and a reversal of the decline in credit to the private sector.Private sector investment’s impact on growth had fallen to -0.7 percentage points of gross domestic product in the four years to 2017, from 1.3 percentage points in the four years from 2013, the bank said in the report. It attributed the drop to the higher government spending, investor nerves over last year’s election and the decline in private sector credit that was made worse by the presence of interest rate caps.INFLATIONKenyans also had to contend with steady buildup in inflationary pressure on the back of rising oil and food prices through 2017. The KNBS data shows inflation rose to an average of 8 per cent last year, up from 6.3 per cent the previous year.“We have lined up several interventions, which together with continuing political stability, good rains and macro-economic environment will lead to better economic performance in 2018,” said Mr. Rotich. “Inflation is expected to ease in 2018 supported by lower food prices due to good rains and improved agriculture,” he added.After multiple headwinds dampened growth in 2017, a nascent rebound in economic activity in Kenya is gaining momentum. Notwithstanding the projected rebound in economic activity risks are tilted to the downside. The Government of Kenya has outlined four big priority areas for the next five years.These are agricultural and food security, affordable housing, increased share of manufacturing, and universal health coverage. Support from the public and more importantly the private sector will be required to achieve the big 4.Specific measures to create fiscal room to support the big 4 can include: enhancing domestic revenue mobilization through the rationalization of tax exemptions; slowing the pace of expansion of recurrent spending; and improving the efficiency of spending.Boosting agricultural productivity and food security will require re-allocating more resources to agriculture and improving the efficiency of current spending in the sector. To eradicate poverty by 2030, Kenya will need a combination of higher growth, more inclusive growth, and growth that is increasingly driven by the private sector and translates into more rapid poverty reduction.President Uhuru Kenyatta won re-election in November in a second vote after the first in August was annulled by the Supreme Court citing irregularities. Around 100 people, mainly opposition supporters, were killed mainly by Kenya police during the prolonged election season.“Despite the slowdown in 2017 our outlook is bright,” Rotich said at the launch of the annual economic survey. “We expect growth to recover to 5.8 percent in 2018 and over the medium term the growth is projected to increase by more than 7 percent.”Growth slowed to 4.9 percent last year from a revised 5.9 percent in 2016, the statistics office said. Rotich said the projected economic rebound is supported by favourable economic fundamentals including inflation, which has dropped to about 4 percent this year. “The ongoing investments in infrastructure, improved business and factory confidence and strong private consumption are expected to support growth,” he said.Kenya’s diversified economy is better able to withstand shocks like the commodity price drop that started in 2014 and hit oil-producing African countries such as Nigeria and Angola. But its economy was hobbled by a severe drought in the first quarter of last year that was followed by poor rainfall.The services sector including tourism grew strongly last year and that helped to offset the slowdown in farming and manufacturing, said Zachary Mwangi, director general of the Kenya National Bureau of Statistics. Tourism is vital for hard currency and jobs and grew 14.7 percent while earnings surged 20 percent, he said.In contrast, growth in the agriculture sector, which accounts for close to a third of overall output, slid to just 1.6 percent in 2017 from 5.1 percent the year before.The government says manufacturing is a priority due to its potential to create jobs and it grew at 0.2 percent last year from 2.7 percent the year before. Production of cement, sugar and processed milk slid as firms reeled from the impact of the election and high costs. Related Topics: Up NextThe Budget to Boost Economic Growth Don't MissEconomic performance and outlook for Kenya Continue Reading Advertisement You may like Click to comment KenyaKenya’s economy to grow at 6% in 2019 amidst Q3 growth expansion Published 5 days agoon August 15, 2019By Vaultz Publisher Q3 to maintain growth pedalFor the third quarter of 2019, Kenya’s real economic growth is likely to bounce back to 5.8 percent, above the trend of 5.3 percent. Analysts from Genghis Capital suggests the economic growth of Kenya for Q3 to be driven by the service sectors. “We doubt the going concern of the counties in the near-term. What was a tail risk situation at the start of Q2, 2019 has morphed into a base case; the unresolved Division of Revenue Bill, 2019,” said Genghis in their latest outlook. The bullish tone on the private sector at the tail end of last quarter will likely spill into Q3 2019.A slow start of the budget cycle will offset this high degree of exuberance. The inflation rate in July touched a 3-month high of 6.3 percent from 5.7 percent in June highlighting increased pressure on the consumer spending ability.The hike in inflation has been attributed in great part to the acceleration in the pricing of key agricultural commodities including maize and sifted grain flour and the implementation of new taxes under tax amendments by the National Treasury.While the overall food and non-alcoholic beverages index has retreated by a single percentage point since the last review, with a slide to the pricing of commodities such as milk, potatoes and sukuma wiki, biting maize grain shortages has countered hopes for further relief to the costing of food.“The decline in price of these commodities outweighed the observed increase in the cost of other commodities like maize grain, maize flour-loose, carrots and onions which increased by 0.52, 1.33, 6.81 and 1.19 per cent, respectively, over the same period,” noted the Kenya National Bureau of Statistics (KNBS) in its end month (July) inflation publication.New taxes targeted at the ‘sin’ alcohol and cigarette industries which were made operational on July 1, 2019 to include a Ksh18 and Ksh24 hike of excise duty charged on wine and whisky respectively and a raise of a Ksh.61 tax on a packet of cigarettes have seen the index jump by 0.8 percent during the month.At the same time, the impact of fluctuating petroleum prices has seen the cost of housing, electricity and transport rise in spite of a hold in the increase of diesel and kerosene prices by the Energy and Petroleum Regulatory Authority (EPRA) in mid-July.While the impending harvest season will further support recourse in the rise of food prices; taxes, fuel costs and a depreciating shilling are, when combined, expected to anchor further shocks to the consumer disposable income represented in the Consumer Price Index (CPI).The Kenya Revenue Authority (KRA) is expected to implement new excise taxes on non-alcoholic beverages and cosmetics beginning September 1, 2019 to effectively eat into the level of disposable income available to consumers.Meanwhile, the pricing of petroleum commodities in the international market is set to remain unpredictable in the near-term irrespective of its recent cool down as tensions in the oil-rich Persian Gulf persists.The recent devaluation of the Kenyan shilling against the US dollar will however make for the gravest concern on inflation, given the dollar’s impact on major purchases of imports and pricing of essential services including the electricity billing’s fuel-cost charge.The shilling has been on a free-fall in the past couple of months, hitting both the two and five-year low in a matter attributed mainly to increased foreign currency demand by investors and heightened liquidity in the financial markets.The over-supply of money in the economy has brought forth real risks of more money chasing fewer goods in a build-up which when held in the long-run poses the risk of hyper-inflation.The shilling touched a low Ksh.104.20 valuation against the dollar at the close of trading on 23rd July before recovering marginally on the following day.While inflation is once again on the rise, the rate holds within the government targeted range of 2.5 to 7.5 percent aligned to the ongoing medium term III plan, with the range being most recently retained for the eighth consecutive year by the National Treasury.On the maize debate that is ongoing, analysts say they do not foresee maize supply shock to either give headline or food inflation a lift in Q3 2019. The CBK Monetary Policy Committee (MPC) reaction function signals a stable CBR at 9.0 percent in Q3 2019. Investors say they expect the local currency to be at 102.5 – 103.5 levels in Q3 2019.At the macro level, the reduced big-ticket needs in FY2019/20, increased remittances (5.2 percent y/y to USD 1.45 billion in 1H19) and lower ADNOC Murban crude price will support the local currency.The maturity of the 2-year bond (FXD1/2017/2Yr) in the current depressed yield environment will likely nudge its refinancing (a 2-year primary bond paper) in the month of August.“We believe the issuance of longer tenor bonds will remain the baseline scenario although net domestic borrowing target in FY2019/20 (KES 289.2Bn) is higher than FY2018/19 (KES 255.4Bn).”Investors should expect interbank rates to average 4.0 percent at the end of Q3 2019 from the current sub 2.0% levels. In the event a modification of the interest rate cap comes to pass at the tail end of Q3 2019, “we expect a normalization at the long end of the yield curve beginning Q4 2019.”CBK Maintains Lending RateThe Central Bank of Kenya (CBK) on 24th July maintained the benchmark lending rate at 9 percent due to the relatively stable inflation rate.Patrick Njoroge, CBK governor, who chaired the Monetary Policy Committee (MPC) meeting in Nairobi said that the inflation expectations remained well anchored within the target range, and that the economy was operating close to its potential.“The MPC will continue to closely monitor developments in the global and domestic economy, including any perverse response to its previous decisions, and stands ready to take additional measures as necessary,” Njoroge said in a statement issued in Nairobi.The monetary policy organ met to review the outcome of its previous policy decisions as well as the recent economic developments against a backdrop of domestic macroeconomic stability, increased optimism on the economic growth prospects, and increased global uncertainties.Njoroge said there is need to be vigilant on the possible effects of the recent increases in fuel prices, the ongoing demonetization, and the increased uncertainties in the external environment.The committee noted the gradual demonetization through the withdrawal of the older 1,000 shilling notes (10 U.S. dollars) and the close monitoring by CBK will ensure that the process is not disruptive to the economy.The governor noted that month-on-month overall inflation remained relatively stable and within the target range in May and June 2019.“The inflation rate stood at 5.7 percent in June compared to 5.5 percent in May. However, food inflation rose to 6.6 percent in June from 6.0 percent in May, reflecting increases in the prices of non-vegetable food crops particularly maize, due to uncertain supply,” Njoroge said.According to the MPC, non-food-non-fuel inflation remained below 5 percent, indicative of muted demand pressures and spillover effects of the recent rise in fuel prices.“Overall inflation is expected to remain within the target range in the near term largely due to expectations of lower food prices following improved weather conditions, and lower electricity prices with the reduced reliance on expensive power sources,” Njoroge observed.The governor added that the economy remained strong in the first quarter of 2019, despite the effects of the delayed long rains on agricultural production.The MPC noted that the leading indicators of economic activity point to stronger growth in the second quarter of 2019.“Consequently, growth in 2019 is expected to remain strong, supported by agricultural production, strong growth of micro, small medium enterprises and the service sector, foreign direct investment, and a stable macroeconomic environment,” he added.The apex bank said that the real GDP growth stood at 5.6 percent, reflecting a stronger than expected performance of agriculture and a resilient services sector, particularly information and communication, accommodation and restaurants, and transport and storage.Njoroge added that the alignment of the 2019/20 financial year government budget to the Big 4 priority sectors is expected to boost economic activity in manufacturing, agriculture, construction and real estate, and health sectors.Growth on right gearKenya’s gross domestic product (GDP) is likely to expand by at least 6 per cent this year, the country’s finance minister said, sticking to rosy government forecasts despite delayed rains that could hit agriculture, a mainstay of the economy. The Kenyan economy grew 6.3 per cent in 2018, the statistics office said, helped by adequate rainfall, which spurred farming, which contributes about a third of output. Growth had slumped to 4.9 per cent the previous year in 2017. “The Kenyan economy remains resilient. It is expected to perform better in 2019, growing by at least over 6 per cent,” the minister, Henry Rotich, said at an event to disclose last year’s economic performance. The World Bank trimmed its forecast for Kenyan growth in 2019 to 5.7 per cent this month from an earlier forecast of 5.8 per cent because the main rainy season was delayed. Food shortages and water scarcity could worsen if the rainy season – from March to May — fails entirely, the country’s meteorological department said just days after the World Bank’s move. “Uncertain rainfall may act as an inadvertent drag on growth,” said Razia Khan, the head of research for Africa at Standard Chartered in London. The government, however, which expects the economy to grow by at least 6.3 per cent in 2019, according to President Uhuru Kenyatta in a speech earlier in the month of July, stuck to its optimism. “Though the onset of the long rains have delayed, it is still early to predict on its impact on agricultural production,” Rotich said. Last year’s recovery in growth was driven by agriculture, excluding fisheries and forestry, which expanded by 6.6 per cent, up from 1.8 per cent in 2017, said Zachary Mwangi, director general of the Kenya National Bureau of Statistics. 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