Economists see brighter Kenya this year - Daily Nation

Economists see brighter Kenya this year

Tuesday January 1 2019

Isuzu East Africa Vehicle Assembly

Isuzu East Africa Vehicle Assembly plant staff at work as seen during a media tour along Mombasa Road on December 6, 2018. A good number of economists and analysts project a bright 2019 for Kenya. PHOTO | DIANA NGILA | NMG 

By CONSTANT MUNDA
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World’s leading banks, consultancies and think-tanks see the Kenyan economy expanding by 5.8 percent this year, unchanged from 2018’s estimated growth, sustained largely by increased private sector investments and consumption.

Heavy rains in the second quarter of 2018 and the March 9 truce between President Uhuru Kenyatta and opposition chief Raila Odinga – popularly known as the hand shake – likely lifted growth from a five-year low, economists have said.

A consensus growth outlook from 14 global firms indicate the country’s economy will expand at the same pace as 2018, with subdued performance in private sector credit and increased debt repayments posing downside risks to the outlook.

Researchers at FocusEconomics, a Barcelona-based economic forecast and analysis firm that compiles global forecast data on sub-Saharan Africa, say the economy likely sustained a solid pace of growth in the final quarter of 2018.

This is despite implementation of the eight percent value added tax (VAT) on petroleum products from September 21 and increased charges for electricity, which raised the cost of some basic goods, hurting household incomes.

Diesel, used to power farm and industrial machines as well as in public transportation, for example cost an average of Sh108.97 per litre last November as a result of the VAT, 16.71 per cent more than a year earlier.

Households consuming 200 units of electricity, on the other hand, paid Sh4,434.48 in November, a 12.63 per cent increment compared with 12 months before.

“Private sector activity seems to have expanded robustly in October and November, despite losing some momentum from H1 (first half), while the arrival of the short rainy season likely boosted agricultural and hydro-powered electricity output,” they wrote in their latest report on sub-Saharan Africa.

“Growth momentum will likely be sustained in 2019, as healthy remittance inflows and a tighter labour market drive solid private consumption, while upbeat business confidence fuels a strong expansion in fixed investment.”

Job opportunities

A higher growth means increased economic activities, which creates job opportunities for the rising population of unemployed graduate youth and raise revenue collection for the government.

Washington-headquartered Frontier Strategy is projecting the highest growth for Kenya in 2019 at 6.8 percent while New York-based Fitch Solutions sees the country clocking 5.2 percent – the slowest growth among firms surveyed.

US brokerage house Citigroup Global Markets and France’s giant lender PNB Paribas – the world’s eighth largest bank by assets – are both forecasting a 6.1 percent growth for Kenya.

London-headquartered Euromonitor International sees six percent growth, while Economist Intelligence Unit and Goldman Sachs each project a 5.8 percent expansion.

Others are JPMorgan, France-based credit insurer Euler Hermes and Oxford Economics, which are all projecting Kenya’s economy to expand by 5.7 percent and Standard Chartered of London (5.6 percent).

Economic research consultancy firm Capital Economics of UK and Swiss lender Julius Baer Group, on the other hand, have forecast a growth of 5.5 percent, while world’s largest lender HSBC sees Kenya’s economy growing 5.4 percent.

“Recent activity data suggests that Kenya’s economy remained strong in recent months. After jumping in September due to tax changes, inflation stabilised in October and November.

"We expect that the Central Bank of Kenya will keep its key rate on hold in 2019,” economists at Capital Economics said in a note on December 20.

Twin shocks

The economy last year recovered from 2017’s twin shocks of biting drought in the first half of last year, which hit farming activities hardest, and elevated political uncertainties following a bruising presidential contest that put on hold many investment decisions.

Kenya posted a solid growth of 6.3 percent in the April-June period of 2018 largely buoyed by good rains earlier in the year.

But expansion is estimated to have slowed in the third quarter (July-September) due to uncertainty among investors as a result of new taxation measures, before recovering again in the final quarter.

The consensus growth outlook from the 14 firms is, however, lower than Treasury, International Monetary Fund and World Bank Group’s projections of 6.2, 6.1 and 6.2 percent, respectively.

“However, the prevalence of the interest rate cap will likely continue to limit the availability of credit and could hinder the government’s ability to secure additional funding from the IMF. This, coupled with fiscal tightening measures, pose headwinds to the outlook,” FocusEconomics analysts said in the report.

Another risk to economic growth is increased expenditure on debt repayments which eats into development budget.

Servicing debt

Treasury data shows nearly Sh254.17 billion was spend on servicing debt in five months through November, nearly three times the Sh88.35 billion channeled into development projects overseen by State ministries, departments and agencies in the period.

“One concern we have over Kenya’s debt is the impact of a one-off shock (i.e. a drought or currency devaluation) which could cause either growth to slow sharply (to around one-two per cent) or the servicing costs on debt denominated in foreign currency to increase.

"Kenya costs are particularly vulnerable to the effects of an external shock due to their high current account deficit,” Capital Economics analysts said.

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