Economic growth surged to 5.8 per cent in the third quarter ended September compared to 5.2 per cent in the same period last year, reflecting robust activity in agriculture and construction sectors but indicating that the expansion rate could fall short of the Treasury’s annual target.
The financial and insurance, wholesale and retail trade and transport and storage sectors were the other the main drivers of economic growth in the period, according to data released by the Kenya National Bureau of Statistics (KNBS) yesterday.
With the simple average of growth rate in the first nine months of the year now standing at 5.5 per cent, it would require an even more robust economic expansion in the fourth quarter for the Treasury to realise its annual target of between 5.5 and 6.0 per cent.
“The [5.8 per cent] growth was mainly supported by strong expansions in agriculture, construction; financial and insurance, wholesale and retail trade, and transport and storage. Activities of the construction industry recorded the fastest growth of 14.1 per cent,” said KNBS director-general Zachary Mwangi in a statement.
The Treasury has steadily lowered the 2015 annual growth target from the original estimate of seven per cent, citing a range of factors, including higher costs of credit and the destructive El Nino rains. A lower growth outcome means the economy will not generate as many jobs as the Treasury had projected, confining the unemployed to more misery.
The statistics bureau attributed a 23.3 per cent jump in new bank credit — equivalent to Sh579 billion — as among the major factors that propelled overall growth in several sectors during the three months to end of September.
The agricultural sector expanded by 7.1 per cent from 6.8 per cent in the same quarter last year, reflecting the impact of the long rains recorded between March and May.
“The growth was supported by increase in the production of most major crops and the dairy sub-sector against a background of improved weather conditions,” said the KNBS.
Construction – comprising new buildings, roads and rail – saw a frenetic activity, expanding by 14.1 per cent during the three months compared to 8.8 per cent in the same period last year.
The growth in construction was supported by increased credit to the sector, the statistics bureau said.
“The accelerated growth was mirrored in the increased credit advanced to the sector and cement consumption,” said the KNBS.
Credit advanced by commercial banks to the construction sector increased in the third quarter to Sh100.8 billion from Sh78.8 billion in 2014. The growth mirrored the trend in cement consumption, which increased by 10.7 per cent from 1.3 million metric tonnes in the third quarter of 2014 to 1.4 million metric tonnes in the same period this year.
Other economic sectors that performed well during the quarter were transport and financial services. The real estate sector — measured in terms of rent earnings — was slower at 5.4 per cent compared to 6.2 per cent in the same quarter last year.
Joseph Kieyah, an economist based at the Kenya Institute of Public Policy Research and Analysis (KIPPRA), said that the growth was consistent with the increase in consumption, investment and government spending in recent months.
“We have seen that the government is spending and consumption is there. We have also had new investments such as in the standard gauge railway and roads. That definitely has continued to drive growth,” said Prof Kieyah.
He noted that the huge amount of imports had however contributed to the low level of net exports, a key component of the GDP equation. In broad terms, the GDP comprises the total sum of new investments, government spending, consumption and net exports.
“What we have a problem with is net exports. Our imports are high but our exports are not growing quickly enough to match this.
We would want to grow at a faster pace, but GDP growth of above five per cent is still a good performance,” said Prof Kieyah.
The KNBS said that exports of cut flowers increased during the quarter while exports of fruits declined.
“Tea exports increased to 95.8 thousand metric tonnes from 90.7 thousand metric tonnes in the corresponding quarter of 2014. The auction prices of tea increased by 45.5 per cent during the review period to average at $3.2 per kilogramme,” said the KNBS.
In the case of coffee, auction sales recorded a marginal increase to stand at 8,015 metric tonnes from 7,930 metric tonnes. Cane deliveries increased by 3.8 per cent during the third quarter of 2015 to an estimated 1,738 metric tonnes from a decline of 7.2 per cent recorded in a similar quarter in 2014.
The financial intermediation sector – comprising banks, insurance companies and stockbrokers – recorded improved growth of 10.1 per cent during the period compared to 7.1 per cent growth in the same quarter of 2014.
“Overall domestic credit increased by 23.3 per cent to Sh2.8 trillion. As at end of September 2015, credit to private sector stood at Sh2.2 trillion, representing a growth of 20.9 per cent compared to the same point in 2014,” said the data provider.
Prof Kieyah, however, said that the high interest rates could apply brakes to growth because of reduced private sector investments.
The Central Bank of Kenya (CBK) raised the benchmark rate from mid this year in order to curb the sudden depreciation of the local currency. This pushed up lending rates from October this year, with many bank borrowers receiving letters notifying them of increased loan charges.
The manufacturing sector, a major employer, benefited from lower oil and electricity prices and commercial bank credit to record a growth of 2.8 per cent during the quarter compared to 1.5 per cent in the same period in 2014.
“Activities of the manufacturing sector benefited from lower oil and electricity prices during the review period. … Commercial bank credit to the manufacturing sector grew by 19.3 per cent to Sh280.4 billion by end September 2015,” said the KNBS.
Accommodation and restaurants, in line with the performance of the whole tourism sector, contracted by 2.3 per cent during the third quarter but this was a slower pace compared to the 20.5 per cent in 2014.
“The suppressed performance of the sector was attributed to both internal and external factors among them the lagged effects of insecurity and negative travel advisories by some key tourist source countries,” said KNBS.