Construction keeps economy afloat as manufacturing dips

Money Markets

The construction of standard gauge railway super bridge piers underway at the Tsavo. PHOTO | FILE 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• KNBS data shows the economy grew by 4.9 per cent in the first quarter of the year, slightly higher than the 4.7 per cent recorded in the same quarter last year.
• The construction sector grew at the highest rate of 11.3 per cent mainly helped by the ongoing construction of the standard gauge railway that started a few months ago.
• Poor performance in the manufacturing and tourism sectors continued to drag growth.
• The KNBS figures show that a steep decline in the processing of tobacco and maize slowed down activity in the manufacturing sector.

Strong growth in the construction, trade and transport sectors helped save the Kenyan economy from slowing down in the second quarter of the year, newly released official data shows. 

The Kenya National Bureau of Statistics (KNBS) said the economy grew by 4.9 per cent in the first quarter of the year, slightly higher than the 4.7 per cent recorded in the same quarter last year.

The data shows that poor performance in the manufacturing and tourism sectors continued to drag growth. The manufacturing sector activity slowed down to 3.5 per cent compared to 6.4 per cent in a similar period last year.

The construction sector, which mainly consists of infrastructure projects such as roads, rail and real estate, grew at the highest rate of 11.3 per cent mainly helped by the ongoing construction of the standard gauge railway that started a few months ago.

“The growth was mainly supported by strong expansion of construction, finance and insurance, information and communication, electricity and water supply, wholesale and retail trade, as well as transport and storage,” said KNBS director-general Zachary Mwangi.

The 4.9 per cent growth was below analysts’ expectation that the economy would expand by at least five per cent in the first quarter of the year.

“I expected the economy to grow by no less than five per cent. Looking at the headline number of 4.9 per cent, it seems things aren’t going according to expectations,” said Johannesburg-based Sub-Saharan economist for investment bank Renaissance Capital Yvonne Mhango.

The Treasury has said that it expects the economy to grow at between 6.5 per cent and 7 per cent this year but hopes of attaining the target now look to be slipping away.

READ: Treasury sees 6.9pc growth as pay demand threatens gains

The many challenges facing the Kenyan economy have already forced the International Monetary Fund (IMF) to revise its full-year growth projection from 6.9 per cent to 6.5 per cent.

The 4.9 per cent growth rate was slowest in the past four quarters.

Decline in manufacturing

The KNBS figures show that a steep decline in the processing of tobacco and maize slowed down activity in the manufacturing sector.

“The decelerated growth was attributed to decline in manufacture of tobacco, processing of canned fruits, maize meal and sugar. On the other hand, growth in the sector was supported by assembly of motor vehicles, production of beer, manufacture of galvanised sheet, production of soft drinks and cement,” the KNBS said in the report.

Industrialisation secretary Adan Mohamed said during the launch of a steel plant in Ruiru recently that local manufacturers were experiencing delays in obtaining work permits and getting VAT refunds —revealing the extent to which red tape is affecting productivity in the key sector.