The shilling has been boosted by pro-active measures by the Central Bank of Kenya (CBK) to bulwark it against depreciation. FILE PHOTO | NMG
What you need to know:
The economic landscape is broadly fragile and key focus should be employed in a number of areas to rev up economic growth.
The economy has shown signs of distress in the course of the year. Official data by the Kenya National Bureau of Statistics (KNBS) estimated second quarter GDP growth rate at five per cent; the slowest pace in the review quarter since 2013.
Of the 16 broad sectors, 11 sectors showed a deceleration in their annual real growth. The slowdown in both agriculture and electricity supply sectors was attributed to inadequate rains in the review period.
Although the two sectors contributed close to the 30 per cent of the second quarter’s growth, it will be foolhardy to attribute the growth decline to a dearth in rainfall.
The economic backdrop of the recent past has been anything but rosy. Private sector credit growth, last reported at 1.60 per cent for the month of August, has been anaemic.
Although the weakness in the indicator was sparked off by the banking sector structural weakness, triggered by the closing of Dubai Bank in August 2015 that first skewed market liquidity distribution and ultimately, credit tightening – the interest rate capping in September 2016 acted as the proverbial last straw that broke the camel’s back.
Credit growth for the private sector has slumped from above 20 per cent in July 2015 to the current depressed levels.
Sentiment in the private sector, too, has not painted a bright picture. Purchasing Managers Index (PMI), which monthly surveys close to 400 firms representing the whole economic strata has pointed to a contraction marked by a figure below 50 in seven of the last eight months. There has also been a slowdown in output activities coupled with a slash in employment.
That private sector activities have been dampened by a protracted electioneering period, more salient in third and early fourth quarters, cannot be gainsaid.
It is imperative that the economic engines for the coming year be fired up. Both the Treasury and International Monetary Fund (IMF) revised 2017 growth projections downwards to five per cent as a result of the prolonged election uncertainty.
However, it will be remiss not to highlight some bright economic spots. The first one is the shilling. Although starting the year on some high volatile swings attributed to then-imminent dollar strength, it ‘only’ shed 1.20 per cent in the January-October period.
The shilling has been boosted by pro-active measures by the Central Bank of Kenya (CBK) to bulwark it against depreciation.
Secondly, the measure of living standards has come off 232 basis points since the last Monetary Policy Committee meeting in September and the implied future policy guidance is that a rate retention is likely to be the outcome of its November 23rd meeting.
Despite the bright spots, the economic landscape is broadly fragile and key focus should be employed in a number of areas to rev up economic growth.
The first area of focus should be on employment. The economy should be diversified away from the highly-biased agricultural economy, whose soft underbelly is exposed by weather-related risks and strides to be made into growing the manufacturing sector which hitherto has been contributing approximately 11 per cent of annual GDP.
Recently, the World Bank’s annual Ease of Doing Business report indicated structural reforms have been made in the country in setting up of businesses. More efforts have to be done to create a business-friendly environment.
Churchill Ogutu is macroeconomic and fixed income analyst at Genghis Capital Ltd.
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