Isuzu East Africa Vehicle Assembly plant staff at work as seen during a
media tour along Mombasa Road on December 6, 2018. A good number of
economists and analysts project a bright 2019 for Kenya. PHOTO | DIANA
NGILA | NMG
World’s leading banks, consultancies and think-tanks see the
Kenyan economy expanding by 5.8 percent this year, unchanged from 2018’s
estimated growth, sustained largely by increased private sector
investments and consumption.
Heavy rains in the second
quarter of 2018 and the March 9 truce between President Uhuru Kenyatta
and opposition chief Raila Odinga – popularly known as the hand shake –
likely lifted growth from a five-year low, economists have said.
A
consensus growth outlook from 14 global firms indicate the country’s
economy will expand at the same pace as 2018, with subdued performance
in private sector credit and increased debt repayments posing downside
risks to the outlook.
Researchers at FocusEconomics, a
Barcelona-based economic forecast and analysis firm that compiles global
forecast data on sub-Saharan Africa, say the economy likely sustained a
solid pace of growth in the final quarter of 2018.
This
is despite implementation of the eight percent value added tax (VAT) on
petroleum products from September 21 and increased charges for
electricity, which raised the cost of some basic goods, hurting
household incomes.
Diesel, used to power farm and
industrial machines as well as in public transportation, for example
cost an average of Sh108.97 per litre last November as a result of the
VAT, 16.71 per cent more than a year earlier.
Households
consuming 200 units of electricity, on the other hand, paid Sh4,434.48
in November, a 12.63 per cent increment compared with 12 months before.
“Private
sector activity seems to have expanded robustly in October and
November, despite losing some momentum from H1 (first half), while the
arrival of the short rainy season likely boosted agricultural and
hydro-powered electricity output,” they wrote in their latest report on
sub-Saharan Africa.
“Growth momentum will likely be
sustained in 2019, as healthy remittance inflows and a tighter labour
market drive solid private consumption, while upbeat business confidence
fuels a strong expansion in fixed investment.”
Job opportunities
A
higher growth means increased economic activities, which creates job
opportunities for the rising population of unemployed graduate youth and
raise revenue collection for the government.
Washington-headquartered
Frontier Strategy is projecting the highest growth for Kenya in 2019 at
6.8 percent while New York-based Fitch Solutions sees the country
clocking 5.2 percent – the slowest growth among firms surveyed.
US
brokerage house Citigroup Global Markets and France’s giant lender PNB
Paribas – the world’s eighth largest bank by assets – are both
forecasting a 6.1 percent growth for Kenya.
London-headquartered
Euromonitor International sees six percent growth, while Economist
Intelligence Unit and Goldman Sachs each project a 5.8 percent
expansion.
Others are JPMorgan, France-based credit
insurer Euler Hermes and Oxford Economics, which are all projecting
Kenya’s economy to expand by 5.7 percent and Standard Chartered of
London (5.6 percent).
Economic research consultancy
firm Capital Economics of UK and Swiss lender Julius Baer Group, on the
other hand, have forecast a growth of 5.5 percent, while world’s largest
lender HSBC sees Kenya’s economy growing 5.4 percent.
“Recent
activity data suggests that Kenya’s economy remained strong in recent
months. After jumping in September due to tax changes, inflation
stabilised in October and November.
"We expect that
the Central Bank of Kenya will keep its key rate on hold in 2019,”
economists at Capital Economics said in a note on December 20.
Twin shocks
The
economy last year recovered from 2017’s twin shocks of biting drought
in the first half of last year, which hit farming activities hardest,
and elevated political uncertainties following a bruising presidential
contest that put on hold many investment decisions.
Kenya posted a solid growth of 6.3 percent in the April-June period of 2018 largely buoyed by good rains earlier in the year.
But
expansion is estimated to have slowed in the third quarter
(July-September) due to uncertainty among investors as a result of new
taxation measures, before recovering again in the final quarter.
The
consensus growth outlook from the 14 firms is, however, lower than
Treasury, International Monetary Fund and World Bank Group’s projections
of 6.2, 6.1 and 6.2 percent, respectively.
“However,
the prevalence of the interest rate cap will likely continue to limit
the availability of credit and could hinder the government’s ability to
secure additional funding from the IMF. This, coupled with fiscal
tightening measures, pose headwinds to the outlook,” FocusEconomics
analysts said in the report.
Another risk to economic growth is increased expenditure on debt repayments which eats into development budget.
Servicing debt
Treasury
data shows nearly Sh254.17 billion was spend on servicing debt in five
months through November, nearly three times the Sh88.35 billion
channeled into development projects overseen by State ministries,
departments and agencies in the period.
“One concern we
have over Kenya’s debt is the impact of a one-off shock (i.e. a drought
or currency devaluation) which could cause either growth to slow
sharply (to around one-two per cent) or the servicing costs on debt
denominated in foreign currency to increase.
"Kenya
costs are particularly vulnerable to the effects of an external shock
due to their high current account deficit,” Capital Economics analysts
said.
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