A Look at Kenya’s Economic Growth and the Expectations for the future

Kenya’s economy grew by 4.9 percent in 2017 compared to 5.9 percent in 2016 in line with the expectations of such market analysts as Cytonn Investments who had predicted a growth of between 4.7 – 5.2 percent.

The decline in performance, according to Kenya National Bureau of Statistics, was attributed to:

1. Adverse effects of weather conditions due to the widespread drought experienced in Q4’2016 and suppressed long rains in 2017 that led to a decline in agriculture sector growth,
2. Uncertainty associated with the prolonged election period that led to a deceleration of growth in the manufacturing sector.

The growth in Q1, Q2 and Q3 came in at 4.7, 5.0 and 4.4 percent from 5.9, 6.2 and 5.7 percent in 2016 respectively.

The first quarter of 2017 suffered from subdued growth in agriculture due to the effects of the 2016/17 drought, while the third quarter’s growth suffered the negative effects of uncertainty in the political environment brought about by the prolonged election period.

Exports increased by 2.8 percent to 594.1 billion shillings in 2017 from 578.1 billion shillings in 2016 with the major earners being tea and horticulture, collectively accounting for 49.1 percent of total domestic export earnings.

Despite being the major earners, the total export volumes of tea and horticulture declined by 5.8 percent to 924,234 tons from 981,542 tons in 2016, on account of the adverse weather conditions experienced in the first half of 2017.

Imports grew by 20.5 percent to 1.7 trillion shillings in 2017 from 1.4 trillion shillings in 2016, driven by an increase in importation of industrial machinery, petroleum products, motor vehicles, and iron & steel.

Asia accounted for 64.2 percent of total imports in 2017 with China, India, United Arab Emirates and Saudi Arabia having the lion’s share, accounting for 73.5 percent of the total Asian imports.

Average deposit rates increased to 8.2 percent in December 2017 from 7.3 percent in December 2016, while commercial bank average lending rates remained unchanged at 13.6 percent in December 2017.

Total domestic credit rose by 7.9 percent compared to 6.4 percent in 2016, primarily due to a 12.1 percent growth in credit to the national government, compared to the decline in private sector credit growth to 2.4 percent from 4.1 percent in 2016, indicating increased lending to the government.

The slower growth in the financial & insurance sector is mainly attributed to effects of the interest rate cap, eroding interest income earned by banks in 2017.