Slump in tourism slows down growth to 5.8 pc

The wave of insecurity that buffeted Kenya’s tourism sector in the second quarter of the year slowed down economic expansion to 5.8 per cent compared to 7.2 per cent in a similar period last year, official statistics released Monday show.

The Kenya National Bureau of Statistics (KNBS) said accommodation and restaurant activity was down 18.6 per cent revealing for the first time how hard the wave of terrorism attacks in key tourism regions of the Coast and Nairobi had hit the economy.  

“The provisional estimates of Gross Domestic Product (GDP) show that the economy expanded by 5.8 per cent during the second quarter of 2014 compared to 7.2 per cent recorded during a similar quarter of 2013,” said a belated statement signed by Zachary Mwangi, the acting director at KNBS.

Rising insecurity saw a number of Western nations, including Britain and the United States, which are key source markets for Kenya’s tourism, advise their nationals against visiting the country, significantly cutting the number of tourists.

The KNBS data, which was released after more than a week’s delay, also show that activity slowed down in the real estate, professional and administration services that closed the quarter at 2.6 per cent and 2.3 per cent respectively.

Under the newly launched system of national accounts, real estate has been separated from construction (for roads) giving a clear picture of the ongoings in the housing sector.

The economy’s expansion at 5.8 per cent in the second quarter was mainly powered by robust activity in the construction sector, which grew by 18.9 per cent, manufacturing at 9.1 per cent and financial services at 8.3 per cent.

“Information and communication, wholesale and retail trade were also significant,” said Mr Mwangi.

READ: Kenya’s GDP grows six per cent in Q2

Release of the economic data, the first since Kenya reviewed the formula it uses to compute GDP figures, commonly known as rebasing, shows that the economy slowed down in the first half of the year compared to a similar period last year – having registered a 5.1 per cent growth compared to 6.8 per cent in the first half of 2013.

Treasury secretary Henry Rotich said the government had been forced to revise annual GDP estimates – to between 5.3 and 5.5 per cent – because of tourism sector challenges and a slowdown in major European economies that buy nearly a quarter of Kenya’s goods.

“We have had tourism cancellations that have adversely affected our growth. We have therefore revised our growth projections down because of the wave of cancellations of tourist bookings and its adverse impact on transportation, Kenya being a regional transport hub,” Mr Rotich said in Washington at the IMF/World Bank annual meetings.

The minister also warned of a looming drought as a risk even as he underlined the economy’s resilience to withstand the shocks.

The latest data was released after the recent rebasing of the GDP with 2009 as the base year. Earlier, the official data showed that the economy grew by 4.3 per cent in the second quarter of last year, much lower than the rebased figure of 7.2 per cent.

Release of the GDP data was traditionally released by end of September. The fresh computation of economic data showed that the economy is 25 per cent bigger than initially thought at Sh4.8 trillion.

Newly-released data shows that manufacturing grew by 9.1 per cent while financial and insurance expanded by 8.3 per cent in the second quarter of the year. Information and communication expanded by 6.4 per cent while wholesale and retail trade grew by 6.8 per cent.

The figures show that a slowdown in the exports sector is also weighing down overall economic activity as the current account deficit -- the difference between exports and imports-- continues to widen.

Expenditure on imports grew by 22.5 per cent to Sh403 billion, widening the gap with the country’s export earnings that expanded by 13 per cent to Sh128.8 bi8llion.