Private equity can act as catalyst to spur growth in agriculture

With inflation hovering around 19 per cent, lending rates well above 25 per cent, a currency that had at its lowest point depreciated by 30 per cent last year and growth of the Nairobi Securities Exchange at negative 23 per cent, the current state of Kenya’s economy is still lacklustre.

Although the exchange rate has since stabilised, the prognosis in the short-to-medium term does little to inspire confidence.

Uncertainty continues to grow from a number of factors.

First, there is the military intervention in Somalia against the Al-Shabaab terror group. Second, is the unfolding political scenario arising from The Hague ruling.

Third, we have the looming election under a new constitutional dispensation.

Despite the economic malaise, the development aspirations as per the Vision 2030 remain a beacon of hope.

However, recent policy decisions to raise interest rates in an attempt to tame inflation have seriously undermined this ambition.

The ensuing tightening of liquidity in the credit market is already significantly slowing down capital investment and consumption — critical ingredients for economic growth. Last year’s drought, reportedly the worst in half a century, exposed the weaknesses in our economy.

Agricultural and energy sectors are vital to the economy and heavily reliant on what are increasingly unreliable and unpredictable rainfall patterns. This, I believe is the root cause of the current inflationary pressure.

The bleak outlook for our exchange rate and current account balance largely stem from the economic impact of adverse natural conditions on these two sectors.

Kenya imports more than 20 per cent of its food requirements annually. Increases in electricity tariffs have further eroded the competitiveness of our struggling industries, electricity prices are now over three times more than in China and twice those of Egypt.

With a population growth rate of more than one million annually, and faced with climate change, Kenya is faced with two potentially crippling crises — food scarcity (human energy) and power shortages (commercial energy).

Both are basic economic drivers but are not receiving the attention they deserve going by the recent monetary and fiscal policy interventions.

Effectively revamping our agricultural and energy sectors to achieve the Vision 2030 goals no doubt will require significant capital investment in the magnitude of trillions of shillings over the next two decades.

The question that begs is, where will this capital be sourced yet the government is cash strapped and operating at its debt ceiling, and considering the scarcity of foreign capital in the wake of eurozone crisis?