WB raises the red flag over drop in Kenyans’ savings

The World Bank has raised the alarm on Kenya’s falling savings amid increased appetite for imported goods, warning that the trend is slowing economic growth.

The bank reckons that Kenyans are not investing in ventures like real estate and enterprises that can drive growth and generate jobs.

This has put Kenya’s investment as a share of the Gross Domestic Product (GDP) — national wealth — at 20 per cent, a mark that is well below the global standard of 25 per cent.

The middle class has mainly been blamed for the low investments given their propensity to splash cash on cars, electronic devices and clothing, with increasing taste for trendy fashion attracting luxury brands to set up shop in Nairobi.

The World Bank reckons that Kenya’s savings rates as a share of the country’s disposable income has remained at below 15 per cent over the past decade in a period that the middle class has swelled and the number of dollar millionaires increased.

It urged the country to boost its savings rate in order to create a pool for domestic funds to be invested internally and to a level that can boost the quality of its economic growth.

“Kenya investment rate as a share of GDP has been several percentage points lower than the rate in its peer countries,” the World Bank said in a new report on the country’s economy.

“The economy has largely relied on foreign savings as a source of new investments since 2007, while national savings have been declining.”

The number of Kenyans classified as middle class doubled in the last decade to almost a fifth of the population or 6.5 million, data from the African Development Bank (AfDB) shows.

Knight Frank’s annual Wealth Report says the number of dollar millionaires in the country rose to 8,962 up from 8,760 reported the previous year when the economy is estimated to have grown at a moderate pace of 5.5 per cent.

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This has created a legion of savvy consumers, given their exposure to global trends due to foreign travel experiences, subscription to premium pay-TV and access to the Internet.

This type of consumption has hurt savings. But Finance Minister Henry Rotich said low interest rates offered by banks for deposits could be one of the reasons for the low savings, adding the government was investing in job creation and health services.

The reduced hunger for investments does not bode well for a country where nearly one in every five youths of working age has no job compared to Uganda and Tanzania where about  one in every 20 young people are jobless.

The Treasury expects the economy to grow about six per cent this year, faring better than others on the continent.

But the economy is plagued with slow job creation and a big part of the population being left out of the benefits of economic expansion.

“Taken as a whole, the past decade’s economic performance can be described as remarkable by Kenyan standards, but in a broader perspective it is not even close to stellar,” says the World Bank.

The Parliamentary Budget Office (PBO) recently said this type of consumption has had a negative effect on the economy, including putting pressure on the current account deficit which partly contributed to the shilling losing 11 per cent of its value against the dollar last year.

It added that Kenya must strive to improve the quality of its products to a level that meets the needs of the wealthy for it to benefit from the burgeoning middle class.

Kenya’s imports stood at Sh1.5 trillion last year, having eased from Sh1.6 trillion in 2014, largely due to lower oil prices.

But the value of merchandise such as clothes, cars and electronics increased by 13.3 per cent to Sh128.5 billion, highlighting the appetite of the middle class for these goods.