Business leaders hope for recovery as prolonged elections storm ebbs

Hooligans vandalise a telecommunications mast during a demo in Kisumu on November 20. file photo | nmg
Hooligans vandalise a telecommunications mast during a demo in Kisumu on November 20. file photo | nmg 

Business leaders are looking forward to a recovery in the new year as they bid farewell to 2017, which is going down as one of the toughest 12 months for business and the economy.

The optimism that 2018 will bring better tidings springs from the fact that the combative and prolonged electioneering period has come to an end —removing politics from the list of factors polluting the business environment.

The damage of the business environment can be seen from both the macro level and dwindling fortunes of individual firms that have forced the government to pull down previous 5.5 per cent GDP growth forecast for this year.

National output is now projected to come in at five per cent in 2017, crystallising a series of corporate bankruptcies, major sale declines and layoffs across diverse industries such as banking, manufacturing, automotive and retail.

“I think 2018 will definitely be better. Hopefully we will not have political disruption, so consumer and investor confidence will be back,” said James Mworia, the chief executive of Centum Investment Company Plc #ticker:ICDC .

“The global economy is doing very well. We’ve had localised issues.”

The presidential election, initially slated for August 8, ended up taking an unprecedented extra three months following the nullification of the first poll.

With risk aversion having already built up ahead of August, the prolonged election process basically smothered economic activity in the second half of the year as seen through production and consumption of key commodities.

Cement production fell below the half-a-million mark for the first time in 21 months after manufacturers lowered their output to 451,651 tonnes in August, according to data from Kenya National Bureau of Statistics.

That was in response to weaker demand as consumption of the commodity dropped 6.3 per cent to 4.3 million tonnes in the nine months ended September compared to 4.6 million tonnes the year before.

Industrialists say they are also hopeful of a better 2018, anchoring their confidence on the conclusion of the elections and the Jubilee government’s four-point growth agenda that includes boosting manufacturing and food production.

“In my view 2018 will be a relief now with the government settled in with a strong agenda to support the local economy,” said Pradeep Paunrana, the chief executive of ARM Cement #ticker:ARM .

Mr Paunrana added that the Central Bank of Kenya (CBK) should help reverse the credit crunch, arguing that this should reinvigorate economic growth by enabling new investment and consumption.

Private sector lending growth stood at 1.6 per cent in August after months of steady decline, with agriculture, manufacturing, trade and mining industries recording significant reduction in credit access.

Banks wound down credit taps in response to the capping of interest rates beginning September last year, with the lenders preferring to load up on government debt which they argue offers better returns for their risk-free status.

Other business leaders say they don’t expect the rate cap law to remain in its current form for long, echoing CBK Governor Patrick Njoroge’s finding that controlling interest rates is hurting the economy.

“Hopefully rate caps will be reviewed mid next year,” said Rita Kavashe, the chief executive of Isuzu East Africa.

She added that increased lending to the private sector should further fuel pent-up demand for new motor vehicles, benefiting an industry that recorded one of the lowest sales this year on what has been blamed on tighter credit markets and a wait-and-see stance.

“We expect the pent-up demand to materialise next year,” Ms Kavashe said, adding that new vehicle dealers could see sales growth of up to 10 per cent from this year’s nadir.

New motor vehicles sales are set to close at an eight-year low of about 11,000 units, marking the second time orders have plunged since 2009, according to data from the Kenya Motor Industry Association (KMI).

Signs of renewed investor confidence can be gleaned from the financial markets which dipped in the wake of the political uncertainty but recovered after the Supreme Court upheld Uhuru Kenyatta’s re-election as president in the second poll.

The NSE All-Share Index, measuring the entire basket of listed firms, closed at 171.36 points yesterday in what amounts to a 29.2 per cent gain since the beginning of the year.