Kenya is the largest and the most advanced economy in the East and Central African (EAC) region with strong growth prospects supported by an emerging, urban middle class and an increasing appetite for high-value goods and services.
Agriculture is key to Kenya's economy, contributing 26 percent of the Gross Domestic Product (GDP) and another 27 percent of GDP indirectly through linkages with other sectors. The sector employs more than 40 percent of the total population and more than 70 percent of Kenya's rural people.
The agriculture sector, according to the Food and Agriculture Organization (FAO), accounts for 65 percent of the export earnings, and provides the livelihood (employment, income, and food security needs) for more than 80 percent of the Kenyan population, and contributes to improving nutrition through the production of safe, diverse and nutrient-dense foods.
The sector is also the main driver of the non-agricultural economy including manufacturing, providing inputs and markets for non-agricultural operations such as building/construction, transportation, tourism, education, and other social services.
According to a report published by Brookings, Kenya is the major exporter and importer of the East African Community (EAC), accounting for around 46 percent of the exports and 41 percent of the imports for the whole region. Kenya is also responsible for more than half of manufacturing value-added produced by the EAC.
According to the KNBS, in 2019 up to 84 percent of all jobs in Kenya were in the informal sector excluding small-scale farming and pastoral activities. COVID-19, declining revenues, growing public debt, and locust invasions pose major threats to Kenya’s economic recovery despite strong signs of a rebound in economic activities.
The African Development Bank Group (AfDB) has stated that the demand and supply shocks that culminated from the outbreak of COVID-19 hit all sectors especially tourism, industry, and agriculture which is still suffering from the locust invasion.
On the demand side, containment measures will reduce household consumption, slow investment, and reduce exports and imports. As a result, real GDP growth in 2020 is projected to decelerate to 1.4% (baseline), from 5.4% in 2019, and to 0.6% in the worst case.
Projections from Fitch Solutions indicate that Kenyan real GDP growth will slow from 5.4% in 2019 to 1.1% in 2020. Fitch Solutions however expects that an uptick in private consumption will lead Kenya’s economic recovery over the coming quarters, helping GDP growth to pick up to 4.4% in 2021.
Kenya’s Treasury expects growth of less than 2.5 percent compared to 5.4 percent last year, and international institutions are making lower forecasts.
Kenya confirmed its first COVID–19 case on 12 March 2020 and has since been battling to recover from the damages caused by the pandemic on its health system, lives, and livelihoods.
The impact of the COVID-19 on the Kenyan economy became glare when GDP shrank 5.7% year-on-year in the second quarter, swinging from the 4.9% growth recorded in the first quarter, which marked the first contraction in at least a decade, according to Kenya’s Statistical Institute (KNBS).
The contraction is Kenya’s first quarterly contraction since the global financial crisis 12 years ago, as the Covid-19 pandemic shut businesses and kept people at home
Moreover, indicators suggest that the economy started to recover in Q3, as exports remained robust, agricultural production was strong and hotels reported a recovery in the tourism sector.
The OCHA situational report in October showed that approximately 1.7 million people are projected to be affected in the urban informal settlements in Kenya because of the COVID-19 pandemic. In urban areas, the most significant shocks usually faced affecting food security are an increase in food prices and a decrease in income or the loss of a job. Female-headed households, who constitute 30.2 percent of the poor population, are at particularly high risk.
The urban poor spend an estimated 50 percent of daily income on food, and the slowdown in economic activity due to movement restrictions has affected their ability to buy their minimum food and non-food needs.
The AfDB indicated that escalation in supply shocks could stoke higher prices for imports and domestically produced products, fueling inflation, which is projected to tick up 5.6–5.7% in 2020, against 5.2% in 2019.
Kenya’s inflation jumped to a five-month high in October, largely driven by increased transport, electricity, and food prices.
To keep the recovery on track, at its 29 September meeting, the Monetary Policy Committee of Kenya’s Central Bank decided to maintain the Central Bank rate unchanged at 7.00%, where it has been since 29 April.
Declining Revenues & Debt
Revenue collection underperformed by Sh40 billion in the first two months of the financial year, July and August, amid the coronavirus-related disruptions. Tax collections in the three months to September dropped 14.69 percent to Sh317.6 billion, raising fears Kenya’s budget deficit for this financial year could increase due to revenue shortfalls, says the Business Daily on 3rd November 2020.
Kenya plans to spend Sh904.7 billion on debt repayments this financial year ending June 2021 from Sh707.8 billion the previous year against expected taxes of Sh1.52 trillion. This means that nearly 60 percent of taxes will be committed to debt repayments.
The fiscal deficit is projected by the AfDB Group to widen to 7.9% in the baseline, mainly due to increased health spending and the social and economic stimulus package, and expected low revenues. Public debt is forecast to increase to 68.2% of GDP in 2020 from 58% in 2019 as a result.
Broke Kenya seeks second Covid-19 loan from IMF
Kenya has for the second time in less than six months reached out to the International Monetary Fund (IMF) for budget support to weather the coronavirus economic hardships.
IMF resident representative Tobias Rasmussen said the government had asked the Bretton woods institution for another loan following the $739 million (Sh79.3) billion received in May that Kenya sought to help it respond to the economic shocks caused by the pandemic.
This signals the gravity of the country’s rapidly deteriorating cash-flow situation that is marked by falling revenues and worsening debt service obligations.
The loan will be the third from the World Bank after the Washington-based lender started issuing such financing to Kenya last year.
The Jubilee administration looks set to borrow an average of Sh2.5 billion daily before the end of President Uhuru Kenyatta’s final term in August 2022, highlighting its growing appetite for foreign debt.
Treasury Chief projects in a draft Budget Review and Outlook Paper new loans of Sh1.87 trillion in the two years to June 2022 or Sh2.5 billion daily, pushing Kenya’s debt to Sh8.06 trillion.
According to the Business Daily, if that comes to pass, Mr. Kenyatta will have borrowed at least Sh6.1 trillion to implement his manifesto in 10 years in power having inherited slightly more than Sh1.89 trillion in June 2013.
Kenya Flower Exports Take a Blow from Lockdowns
Kenya’s flower industry, the largest exporter of blooms to Europe, saw export earnings increase in the period through July, as did those of tea and fruit compared to last year, according to data from the statistics agency.
However, the Kenya Flower Council (KFC) laments that the recent lockdowns across Europe are a blow to Kenya’s flower subsector. According to KFC CEO, Clement Tulezi, thousands of flower workers’ jobs hang in jeopardy following fresh lockdowns in England, Germany, and France.
The KFC indicated that the ongoing second lockdown will lead to reduced orders saying that prices on the auction have dropped by 20 percent. Kenya flower orders at the Royal Flora Holland’s auction in the Netherlands have fallen by 20 percent occasioned by the significant decline in demand from the United States, United Kingdom, Germany, and France.
On October 30, France began its second lockdown in just seven months in a nationwide effort to curb the resurgence of COVID19 infections. Supermarkets were ordered to close sections that sell non-essential items with the directive affecting clothes shops, florists, toyshops, and jewelers.
According to the Horticultural Crops Directorate, the European Union is Kenya’s principal market in horticultural export produce with the UK, Netherlands, and France being the main markets.
KFC stated that the first lockdown in Europe between March and August adversely affected the flower export industry. A slump in demand saw millions of stems destroyed, a rise in losses for growers, and a reduction in salaries and manpower across the board.
Tulezi calls on the Kenyan government to hold stakeholder engagement with the European authorities to lift these restrictions to safeguard jobs for thousands of Kenya flower workers. He said that there are talks with partners in Europe to push for the listing of flowers as essential products to maintain sales margins during the peak season.
Kenyan fresh flowers will use sea transport as an alternative to air transport to reach international markets. According to the Kenya Flower Council chief executive, Clement Tulezi, sea transport is cheaper compared to airfreight.
Tulezi added that the port of Mombasa has been optimized to facilitate horticultural exports through the creation of more than 560 points for the packaging of different horticultural products. Tulezi said that Kenya should emulate Colombia which exports more than 70 percent of its horticulture by sea.
In May 2020, the export value of cut flowers had a substantial decline in Kenya and amounted to roughly 6.2 billion Kenyan shillings (KSh) (about 58 million U.S. dollars). The value is also lower in comparison to the same month in 2019. The flower industry has a significant impact on Kenya's earnings.
Kenya's flower exports are projected to decline to 130,000 tons in 2020 compared to an average of 160,000 tons for the past two years due to the effects of COVID-19, the industry said.
Clement Tulezi, CEO of Kenya Flower Council said the country is only able to airlift about 3,600 tons per week to overseas markets compared to some 4,000 tons before the outbreak of COVID-19.