Improved Tourism and Agricultural Sectors Key Drivers to Expected Growth

The Kenyan economy is expected to expand by around 6.0 percent y/y in 2019 supported by continued improvement in the tourism and agricultural sectors.

This is according to the Stanbic Bank Kenya 2019 Economic Outlook which stated that output from the industrial sector could gain momentum while noting that however, downside risks to the country’s GDP estimates were notable.

According to the outlook, enhanced political risks and economic challenges facing high-quality tea buyers like Pakistan and Iran could weigh demand down for Kenya’s tea exports and the uncertainty surrounding the Brexit process and what it portends for Kenya’s horticulture and floriculture industries is also at risk.

“However, this concern could be counterbalanced by recent efforts to diversify exports towards other markets for cut flowers. Also, perennial delays by both local and national government in making payments to the private sector had substantially weighed down economic activity in 2018. Thus, it will be imperative for authorities to honor these payments more frequently going forward so as to ensure that the private sector does not face further cashflow problems,” read a statement on the outlook.

The lender reiterated that despite the impressive 6 percent GDP growth recorded in 2018, the impact of the interest rate capping law had evidently made life very difficult for the private sector.

Hs may not be readily evident by merely looking at banking sector profits, however, closer scrutiny of commercial banks’ balance sheets reveal that banks are predominantly making profits from non-banking activities such as investing in government paper. While it is clear that SMEs were the first to bear the brunt of the rate cap law, it would appear that the contagion has also spread to larger corporates in no small part due to their reliance on SMEs,” further read the statement.

The lender emphasized that a repeal of the rate cap law is considered a priority in 2019 could unleash the otherwise scuppered potential of the private sector which in turn will enable SMEs to continue to underpin the resilience of the Kenyan economy.

Stanbic Bank advised that due to the elevated public debt levels and the urgent requirement to consolidate public finances, now more than  ever would be paramount to inject private stimulus into the economy which should lend credence to the proposal to repeal the interest rate capping law and thereby unleash  the private sector to become a dominant engine of growth.