Kenya’s drawn out election coupled with the political impasse is
impacting negatively on the economy, threatening to have a spillover
effect on the neighbours with whom it trades heavily.
Latest
market and economic data, with a few exceptions, such as tourism and
horticulture paint a picture of an economy in suspense as the two
political poles maintain hardline positions, whose negativity is already
showing in the macro and micro sides of the region’s largest economy.
The
data from the Central Bank of Kenya’s Credit Survey released last month
paints a gloomy picture as commercial banks lament how raised political
risks have led to a tightening of credit and are jeopardising almost
all economic sectors.
Already, the banking sector’s
loan book growth shrunk by 0.84 per cent in June from March’s two per
cent, while the ratio of gross non-performing loans to gross loans
increased from 9.5 per cent in March to 9.91 per cent in June,
attributable to the challenging business environment.
“This
decrease in gross loans was mainly attributable to a reduction in loans
granted to support the transport and communication, trade, agriculture,
real estate, mining and quarrying sectors. Commercial banks expect an
increase in the levels of non-performing loans (NPLs) in the third
quarter of 2017 with 42 per cent of this expected rise in NPLs is
attributed to the industry’s perceiving increased political risk ahead
of the upcoming presidential election,” the banking regulator said.
To
the economy, this is bad news given the fact that economic growth
figures for the third quarter that ended last month are yet to be
released.
The Kenya National Bureau of Statistics (KNBS) data released two
weeks ago shows the economy slowed to five per cent in the second
quarter as compared to 6.3 per cent over a similar period last year even
as the National Treasury is grappling with a $276.19 million shortfall
in the revenue targets for the first quarter of the 2017/18, with the
second quarter already predicted to be even lower.
“Growth
was constrained by subdued performances in agriculture, manufacturing,
electricity and financial sector thereby dampened the overall growth
momentum during the quarter in review,” KNBS said, adding that the
growth in financial sector was also dampened by the effect of continued
slow uptake of credit.
Central Bank of Kenya Governor
Patrick Njoroge admitted that the extended low activity in the
post-election season would affect the economy.
“Consumers
will delay their decisions if there is too much uncertainty. That has
ripple effect. If there is more noise there will also be delay in terms
of government execution of products.”
Stanbic Bank’s
PMI survey, a measure of private sector activity, dropped sharply last
month to 42 from 48.1 in August, which was already its lowest ever
figure since the index started three years ago. Any reading below 50 is a
sign of contracting business.
“We saw companies report
that the general election choked the private sector economy, citing
lower business due to uncertainty amid the heated political climate.
This resulted in a downturn for the private sector,” Jibran Qureshi,
Stanbic regional economist said.
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