EDITORIAL: Tough policy decisions needed to spur economy

Judging by the latest private sector credit growth data, Kenya’s economic growth narrative does start to raise serious questions.

Credit growth slowed down to its lowest level in more than a decade -- at just 4.3 per cent in the 12 months to December 2016, according to the data.

This number stands in stark contrast with the six per cent growth for the year – meaning there is a real disconnect between the headline numbers and the real economy, where ordinary Kenyans exist.

The gap lies in the fact that the growth is mainly driven by big ticket public project spending, which in reality can only drive headline growth.

The fact is that the government cannot undertake projects in the scale of the standard gauge railway in perpetuity, and at some point the country will need to see the benefits trickling down to the woman on the street.

These point to fundamental problems in the economy. While it may be argued that an interest rate cap law that came into effect last September has played a part in the weak credit growth, the fact is that the slowdown preceded the law signalling the presence of underlying issues beyond the banking sector itself.

More Kenyans are struggling to meet basic needs and the continuing job losses across key sectors such as banking and manufacturing indicate that companies are not doing well either.

The Kenya Revenue Authority also remains behind target in payroll tax collections that contribute the bulk of the country’s total tax revenue.

The obvious conclusion from all this is that jobs growth has not kept pace with the Treasury’s projections, another indicator that the businesses are struggling to access the necessary capital to help them expand.

This state of affairs calls for some hard decisions on the policy side. It is also incumbent upon the Central Bank of Kenya’s monetary policy committee to come up with measures that will spur credit growth, even in the face of pressure from banks whose interest rates are tied to the central bank rate.

Government departments such as the Treasury, the Ministry of Trade and Industrialisation, Devolution ministry and country governments whose policies directly affect the business community, must address issues that have been pointed out to be an impediment to ease of doing business.

To this end, corruption must be addressed, given the cost it imposes on businesses and individuals, making enterprise in Kenya unnecessarily tough to crack.