Kenya’s GDP to Slightly Feel the Heat over Prolonged Drought and delayed Long Rains

Kenya’s gross domestic product (GDP) will slightly feel the heat of the prolonged drought across the country as well as the unexpected delayed onset of the long rains.

Kenya’s drought situation has continued to worsen with the National Disaster Management having mapped out 14 counties that are already in the red zone and require urgent attention in terms of water and food.

Most farmers across the country have been left a worried lot following delays in the much-awaited long rains. With the delayed rains, the planting cycle is likely to be disrupted and this will trickle down across various sectors that directly or indirectly rely on the agricultural sector.

According to the Kenya Economic Update 2019 Report, Kenya’s GDP growth is projected to slow down to 5.7 percent in 2019 as a result of the emerging drought challenges. Things are not bound to remain gloom throughout as the report indicates that the GDP is set to rejuvenate to 5.9 and 6.0 percent in 2020 and 2021 respectively.

Despite the impending disruption in the agricultural sector, Kenya’s growth will be anchored on the ongoing key investments aimed at supporting the implementation of the Big 4 development agenda coupled with the improved business sentiment.

Economic analysts in the Kenya Economic Update 2019 Report still hold the view that the implementation of the interest rate caps slowed down Kenya’s economic growth and will continue to derail the recovery in private credit growth.

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The delays in long rains will affect the planting season. A large share of agriculture in Kenya is solely dependent on rainfall and in the absence of it, poor or no harvests at all are likely to be witnessed. The majority of Kenyan households who carry out farming do it for food and to some extent economic purposes.

Although many people still underscore the importance of the agricultural sector, it is one of the major contributors of cash flows in most rural areas in Kenya. Any disruption in the sector means that most households are likely to drift into poverty

To help salvage the agricultural sector, over the medium term, there is a need for policy and institutional reforms that will include irrigation, post-harvest losses management, enhanced input markets to improve management of agriculture risks stemming from frequent droughts.

Apart from the likely dip in the agricultural sector, other sectors such as the industrial sector (manufacturing, construction, and electricity and water) is projected to pick-up slightly in 2019 due to inherent pent-up investment demand and ongoing government infrastructure projects.

The performance in the services sector is projected to remain stable according to the Kenya Economic Update 2019 report. The services sector is projected to grow at an average rate of 6.5 percent over the medium term.

Wholesale and retail trade is expected to continue their strong growth as credit growth to this sector is rising. Reforms in the ICT sector, particularly those that support improved delivery of government services, enhance connectivity and broadband access, will lower the cost of doing business and support improvements in total factor productivity over the medium term.

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Kenya’s economy is set to face both domestic and external risks. The risks, however, will largely depend on the government policies and reactions towards them according to the report.

The fiscal slippage as witnessed before could reduce the much-needed funds for the Big 4 agenda. This will in turn trickle down to other sectors, especial the private sector. The country’s appetite for borrowing continues to rise and with the recent turning on to the domestic market for borrowing, the sector will be crowded and this might limit the private sector’s access to credit.

As already mentioned, there is a risk of drought that will hit hard the agricultural sector. The planting season is being disrupted. This is set to negatively impact on harvests. Some counties across the country have already started witnessing famine.

Kenya is also still at the risk of facing another terror attack from the Al-Shabaab militants. In the event that this happens, the tourism sector will be affected and this will be felt by the economy.

With risks coming out of the country, Kenya is likely to face the tighter global financial condition that will be as a result of an unexpectedly rapid normalization of monetary policy in advanced economies. The faster and unexpected increase in oil prices across the global market will be felt by the economy too. There is already an escalating trade tension among Kenya’s major trading partners, something that could also affect growth across the globe.