Kenya’s economy has remained relatively resilient against the backdrop of a prolonged electioneering period, fairly dry weather that punctuated the second half of last year and subdued credit growth in the private sector.
According to the National Treasury data, the country registered an economic growth of 4.8 per cent in 2017, a notable decline as compared to 5.8 per cent in 2016.
This marked growth has been predominantly driven by service allied sectors with agriculture and manufacturing recording significant deceleration.
According to the World Bank Economic Outlook, the economy is expected to rebound to a Gross Domestic product (GDP) growth of 5.8 per cent and 6.1 per cent in 2018 and 2019 respectively.
The government has fervently embarked on the Big Four agenda, its prima facie legacy undertaking, with the singular aim of catapulting the economy.
The agenda is to: support value addition and raise the manufacturing sector’s share GDP to 15 per cent by 2022, guarantee food security and nutrition, provision of universal health coverage, provision of at least 500,000 affordable new houses to Kenyans by 2022 with each component receiving significant budgetary allocations in the proposed 2018 budget policy statement.
For all intents and purposes, the agendas are well aligned with the economic pillar of Vision 2030, which aims to transform Kenya into a middle income country providing high quality life to its citizenry by 2030.
The vision came to birth after successful implementation of Economic Recovery Strategy (ERS) for wealth and employment creation which drove the economy to an all-time high of 6.1 per cent in 2006. The economic pillar focussed on six priority sectors; manufacturing for regional market, agriculture, tourism, wholesale and retail trade, business process offshoring as well as financial services.
The vision was anchored on an ambitious target of achieving and maintaining a sustained economic growth of 10 per cent per annum. This mark has been missed over the years with the country recording an average growth rate of about 5.7 per cent over the last five years.
The Tax Laws (Amendment) Bill 2018 weighs in the Big Four agenda; for instance a proposal to increase the tax deduction for depositors investing in home ownership savings schemes. The proposed Income Tax bill (ITB) has made drastic proposals and greatly summarised the current Income Tax Act (ITA).
Conversely, there are some provisions which may adversely impact the Big Four agenda. Among them, increasing withholding tax on service fees charged by oil and gas sub-contractors from 5.625 per cent to 10 per cent. This might increase contract pricing for foreigners who are predominant in the Kenyan extractive sector, consequently increasing cost of energy. The proposed reduction of investment deduction allowance of 150per cent under the ITA to 100 per cent will propel the aims and efforts of devolution as superior tax incentives will no longer be accorded to investments outside the municipalities of Nairobi, Mombasa and Kisumu.
In the foreseeable future, the economy is projected to grow marginally primarily due to the unfavourable factors littered in the country’s trajectory including; unpredictable weather patterns, subdued credit uptake by the private sector as well as rise in energy prices.
While the economy might grow marginally, political stability and focused investment in the Big Four agenda will be key in keeping the economy in check. To achieve an annual growth of 10 per cent as espoused by Vision 2030, there is need to put in place robust multi-sector initiatives to rid the economy of current bottlenecks as well as expand Kenya’s current capacity to ensure long term macro-economic stability.
Beth Muraya is a tax consultant at EY. The views expressed in the article are not necessarily those of EY