Q1 growth slows down to 8-year low but exports up

Kenya’s economic growth slowed down to 4.9 percent in the first quarter of this year from 5.5 percent last year, the slowest pace in eight years, hit by the uncertainty created by the global coronavirus pandemic.

This was the slowest first quarter growth since 2012 despite an overall rise in exports, according to data by the Kenya National Bureau of Statistics (KNBS).

“The economy was affected by the resultant uncertainty that was already slowing economic activity in some of the country’s major trading partners,” KNBS said.

Kenya’s economic growth was largely weighed down by a 9.3 percent contraction in accommodation and food service – from a growth of 11 percent a year earlier - due to a sharp drop in tourists from major source markets such as the US and Europe, which had already put in place Covid-19 containment measures.

Growth was, however, lifted by agriculture, which accounts for more than one third of the national Gross Domestic Product (GDP).

Agricultural activities expanded by 4.9 percent compared with 4.7 percent in the previous year, an indication that the migratory locusts did not reach the country’s main farmlands and that weather remained fair.

Favourable rainfall helped expand production of tea by nearly half to 158,600 tonnes while the volume of sugarcane delivered to millers went up by 10.2 percent, according to the KNBS data published yesterday.

However, the volume of cut flower exports, a major foreign exchange earner, decreased from 49,163 tonnes in the first quarter of 2019 to 42,639 tonnes this year.

The pace of economic activity was also hurt by slowdown in construction and manufacturing sectors. Construction activities slowed down to 5.3 percent from 6.1 percent in the first quarter of 2019, largely due to reduced activity on the standard gauge railway (SGR) project that hurt importation of construction materials such as fabricated metal products and cement as well as other materials.

Similarly, the manufacturing sector, which is expected to churn out most of the high-quality jobs under President Uhuru Kenyatta’s ambitious Big Four Agenda, slowed to 2.9 percent from 3.5 percent in the corresponding quarter in 2019.

Growth in the processing of food products such as sugar, tea and grain mill items was subdued by contraction in manufacture of bakery, coffee as well as fats and margarine products in the review period, according to the KNBS.

“The macroeconomic environment that prevailed in the first quarter of 2020 was premised on the need to cushion the economy from the anticipated potential shocks related to the Covid-19 pandemic,” the statistics office said.

Companies started reporting falling sales ahead of Kenya announcing restrictions late March to curb the spread of coronavirus as reflected in the number of job losses in the review period.

Some 287,481 Kenyans lost their jobs in the first three months of the year, a quarterly labourforce survey by the KNBS showed early in June, with the situation worsening from April due to partial trade lockdowns and travel restrictions.

“It’s safe to say that, at least with anecdotal evidence available so far, the epicentre of the Covid-19 impact on economic activity will be in the second quarter of this year,” Jibran Qureishi, the economist for East Africa at Stanbic Bank, said in April.

Young people aged 20 to 34 were hammered hardest by job losses with KNBS data putting unemployment among workers in this age bracket at 771,439 in the three months to March.

The Covid-19 containment restrictions were imposed on March 25, a pointer to a worsening of the employment market in the second quarter when business reeled most from effects of the coronavirus.

Kenya’s private sector activity contracted between January and May, according to Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) — a survey which tracks monthly business performance largely in services and manufacturing sectors.

The slowed down economic activity has hit hardest payroll and corporate taxes, which account for more than half of government revenues, while excise and import duty have also been hammered by reduced purchasing power.

Latest data published by Treasury Secretary Ukur Yatani, for instance, shows tax receipts for January-May 2020 amounted to Sh550.64 billion, a decline of Sh57.43 billion or 9.44 percent compared with Sh608.07 billion in the corresponding period a year ago.

Mr Yatani has also said he expects the under-performance in revenue collection to deepen in May and June as effects of travel restrictions, ban on mass gathering and the dusk-to-dawn curfew imposed to curb the spread of coronavirus take a toll on the economy.