Financial institutions pumped an additional Sh135.55 billion into Nairobi’s economy last year, underlining the critical role that cash-rich banks and insurance companies play in cementing the city’s position as the richest county in Kenya.
The latest Gross County Product (GCP) report published by the Kenya National Bureau of Statistics (KNBS) shows that the financial and insurance activities contributed Sh885.6 billion to Nairobi’s total output, or 23.2 percent, in 2023.
This was an increase of 18.1 percent from Sh750.06 billion that banks, insurance, pension funds, and investment banks added to the city’s gross value added (GVA).
The GCP reports provide a monetary measure of the net market value of all the final goods and services produced within each of the 47 counties.
The GVA, a key indicator of economic performance, is the value of goods and services produced in a specific area, industry, or sector of an economy.
Although Kenya is largely an agricultural economy, the financial sector is the lifeblood of the economy, enabling players in the other sectors to save, borrow and invest.
The financial sector’s contribution to Nairobi’s total output topped that of the other industries, reflecting its role in turning the wheels of the city’s economy, especially by offering intermediation services like borrowing and saving to firms and households.
The GCP report showed that Nairobi remains the richest county, with an economic output of Sh3.811 trillion in nominal terms, an increase of 12.77 percent from Sh3.38 trillion in 2022.
Adjusted for inflation, or an increase in consumer prices, Nairobi’s GCP grew by 6.1 percent.
Although pre-tax profits for banks in the review period declined, gross loans increased by Sh522.2 billion to Sh4.199 trillion, underlining the increased contribution of the sector to Nairobi’s total output.
Nairobi hosts dozens of commercial banks, including KCB, Equity, NCBA, Co-operative, Diamond Trust Bank, Absa, Stanbic, Standard Chartered and Family Bank.
The KNBS report shows that three-quarters of the country’s output by the financial and insurance valued at Sh1.18 trillion was in Nairobi.
Other sectors that had taken up a big chunk of Nairobi’s total output were real estate, reflecting the high demand for housing due to the capital city’s growing population. The real estate activities contributed Sh628.4 billion to the county’s output in 2023 compared to Sh566.28 billion in the previous year.
The transport sector’s contribution to the total output in the review period was Sh581.23 billion, an increase of 21.83 percent from Sh454.35 billion in 2022.
Nairobi, like other cities and towns, has been able to enjoy its boom by virtue of being a commercial hub, KNBS said.
“Counties with major commercial centres, such as Nairobi City, Kiambu, Mombasa, Nakuru, and Machakos, have higher GCP compared to the predominantly rural counties,” says the report.
The city also has a huge population, which is also a factor that drives economic growth.
Nairobi continues to dominate the Kenyan economy, with a share of close to a third of the total GCP.
Similarly, counties surrounding Nairobi such as Kiambu and Machakos have benefited from their proximity to the capital city’s massive market, with the county having a population of 4,750,056 by the end of 2023.
The GCP report shows that in the five-year average to 2023, Kiambu has the second-largest share of the economy at 5.6 percent, followed by Nakuru with a contribution of 5.2 percent. In 2023 alone, however, Nakuru’s share (5.7 percent) was bigger than Kiambu’s 5.5 percent.
The report notes significant economic disparities, with the majority of counties (33) contributing less than two percent each to the national cake.
Although most Kenyans grow crops and keep livestock as their mainstay, commercial hubs such as Nairobi, Kiambu, Mombasa, Nakuru, and Machakos have higher GCP compared to the predominantly rural counties.
“Nonetheless, counties with diverse economic activities, especially in agriculture, like Meru, Kakamega, and Nyeri, also made significant contributions to the GVA (Gross Value Added),” says KNBS.