Kenya’s economy will slow down this year to expand at 5.7 per cent, according to a World Bank report.
It’s a slight decrease from last year, mainly due to poor performance of the agricultural sector.
In the report, the World Bank says the drought threat in the country will slow down the gains made in 2018.
Further, poor investments by the private sector, profit warnings by companies and slow credit growth to the agriculture sector will also puncture Kenya’s economic prospects.
The report, Kenya Economic Update, paints a picture of an economy standing on quicksand due to over-reliance on rain-fed agriculture, shrinking land sizes and poor investment in the sector; the main driver of the economy.
“Delayed start to the March-May 2019 long rainy season could affect the planting season resulting in poor harvests.
“In addition, ongoing emergency intervention to address food shortages in several counties could impose fiscal pressure constraining capital spending.
“These developments have slowed the growth forecast for 2019 and for the medium term relative to our October 2018 update,” the World Bank report notes in part.
The projection dents President Uhuru Kenyatta’s growth prospects. During his State of the Nation address last week, Mr Kenyatta was optimistic on the fundamentals of the economy.
“The state of our economy is strong,” said the President. “Our broad-based economic growth averaged 5.6 per cent over the last five years, outperforming the average global growth.”
In 2018, provisional estimates show the economy grew by 6.1 per cent.
This encouraging growth performance was supported by strong public and private sector investments as well as prudent macroeconomic policies.
“In 2019, we expect an even stronger growth of 6.3 per cent, reflecting continued improvement in the business environment, momentum associated with execution of the Big Four Agenda, and sustained macroeconomic stability.” Though official numbers are yet to be released, Kenya’s economy is estimated to have grown by 5.8 per cent in 2018 helped by low inflation rates.
“Even more encouraging was the performance of our tourism sector; earnings grew 20 per cent — proof that even when our politics is at its hottest Kenya keeps its visitors’ confidence,” President Kenyatta said.
Slow down in the economy will mean fewer jobs are created.
It will also make it harder for the Kenya Revenue Authority to collect more taxes needed to fund the ever-growing government expenditure. The report highlights the sorry state of affairs in the agricultural sector with the authors noting that things will only get worse unless the government urgently invests in the sector.
“Kenyan farms are generally small and shrinking and are becoming uneconomical to operate,” the report says.
What should concern policymakers more is the finding that about 87 per cent of farmers in Kenya have less than two hectares of land, while 67 per cent operate on less than one hectare.
It also says that land scarcity is also reflected in the surge in rental prices of agricultural land.
“With 83 per cent of Kenya’s land area being arid and semi-arid, one would expect use of irrigation in farming would be a top priority.
“Nonetheless, only two per cent of arable land is under irrigation compared to an average of six per cent in sub-Saharan Africa and 37 per cent in Asia,” the report notes, adding that the low usage of irrigation means Kenya’s agriculture is fully rain dependent and susceptible to drought shocks.
It says that while Kenya represents a vibrant and enabling market for Fintech, the more traditional banking needed to service commercial agriculture is lacking.
“Only about four per cent of bank lending is for agribusiness despite a majority of Kenyans being employed in agriculture or agribusiness,” the report says.
The bank vouches for innovative livestock insurance programmes that target subsistence farmers.
“With improved value-chain structure and performance, there are opportunities for increased private sector activity in the areas of value-chain finance, equipment finance, and various forms of insurance,” the report says.
Ladisy Chengula, a lead author of the report, said in an interview in Nairobi that despite agriculture contributing to about two thirds of Kenyan exports and supporting the manufacturing sector, the country has continued to ignore the sector.
“There is little investment in irrigation.
“A country like South Sudan has three million hectares under irrigation while Kenya only has 150,000 hectares,” he said.