Economists are divided over the extent to which economic activities will recover from last year’s slowdown, largely because of uncertainties over agricultural production and growth in loans to the private sector.
The crippling effect of drought, political tensions and the law capping loan charges by commercial banks pulled down growth in 2017 to estimated 4.7-4.8 per cent, the lowest since 2012.
With easing political tension after a bruising presidential contest, which saw a historic repeat of presidential poll that incumbent President Uhuru Kenyatta comfortably won after main Opposition candidate Raila Odinga boycotted citing inadequate electoral reforms, most economists see growth jump above five per cent in 2018.
Forecasts by 18 firms suggest that Kenya’s economy is likely to expand by an average of 5.46 per cent this year.
The Central Bank of Kenya has projected the highest growth of up to 6.2 per cent while economists at Standard Chartered Bank are isolated with a forecast of below five per cent.
StanChart chief economist for Africa Razia Khan said the lender’s outlook of flat expansion in national wealth at 4.6 per cent is partly informed by expectations of reduced public spend on infrastructure compared to the first half of 2015, while private sector credit growth will remain constrained.
A monthly consensus forecast by FocusEconomics – a Barcelona-based economic analysis firm, which tracks growth projection from 11 global leading banks, consultancies and think-tanks – on February 20 retained Kenya’s growth outlook at 5.3 per cent from an estimated 4.7 per cent last year.
World Bank Group and the International Monetary Fund have projected a growth of 5.5 per cent for Kenya this year, while African Development Bank sees a 5.6 per cent expansion in the economy.
Most of the forecasts assume that a return to relative political stability will boost recovery in services sectors, while agriculture will rebound on the back of a more favourable weather.
A biting drought following lower-than-normal rainfall in October and November 2016 and April-June 2017 rainy season resulted in a slump in crop and animal production.
Suppressed agricultural production also slowed down manufacturing of food products and agro-processing.
Farming activities are a major contributor to Kenya’s growth having accounted for nearly a third of the gross domestic product (GDP) in 2016.
Most economists have pegged their growth prospects in Kenya on improved weather conditions and thus increased agricultural output, failure to which expansion could remain flat.
“The biggest risk (to growth outlook) is all around the agricultural sector especially with reports of possibility of La Niña,” Citibank’s chief economist for Africa David Cowan, who has projected a 5.6 per cent growth, said in an interview on February 13.
Environment and Forestry Principal Secretary Charles Sunkuli early February warned of a possibility of La Niña, a condition of unusually cold ocean temperatures linked to prolonged dry spell in East Africa, this year.
The weatherman has forecast that most parts of the country will experience dry weather, with western Kenya, central Rift Valley and parts of Central and Nairobi expected to receive near-normal rains from this month through May – traditionally Kenya’s rainy season.
“Even in the areas where we are anticipating depressed rainfall. You can have one day where you have extremely heavy rainfall and then it floods,” Kenya Meteorological Department director Peter Ambenje said on February 19.
There is, however, a consensus that there will be a rebound in services sectors, hardest hit by unpredictable investment environment following seven months of intense political campaigns through last November.
Activities in sectors such as building and construction are expected to pick up again from an estimated six-year low after government and property developers shelved or scaled down investments from second half of 2017.
"Overall, growth will be bolstered by rebound in both private and public investment, positive performance in agricultural sector and continued rebound in service sectors,” analysts at Genghis Capital, which has forecast a growth of up to 5.75 per cent, have said in their economic outlook report.
Tourism sector – recovering from six years of battering by insecurity perceptions linked to al-Shabaab militants in east-neighbouring Somalia– was nonetheless a surprise package, growing 20.37 per cent in revenue year-on-year to Sh120 billion despite poll jitters.
“The upgrade of the (Jomo Kenyatta International) Airport has helped in opening up new routes such as the New York (where inaugural flights are expected from October) which will bring in more high-end visitors,” Barclays Africa Group chief economist Jeff Gable, who sees a 5.5 per cent growth, said in mid-January.
The economists are, however, unanimous the September 2016 ceiling on loan charges by commercial banks poses the greatest risk to Kenya’s unrealised growth potential.
Most of the outlooks have, in fact, not factored in the possibility of the rate cap law being reviewed this year, arguing that significant impact could only be felt from next year.
The Treasury last Thursday said it was working on programme to review the 18-month interest controls, which will include a consumer protection bill to protect borrowers against exorbitant costs. The plan will be presented to the National Assembly before end of the current financial year in June.