Kenya’s Economy Expected to Expand between 5.7 and 5.9% in 2019

In 2018, the Kenyan economy recorded an average growth of 6.0 percent for the first three quarters of 2018, compared to an average of 4.7 percent in a similar period in 2017.

The growth was mainly supported by (i) recovery in agriculture due to improved weather conditions, (ii) increased output in the manufacturing, and wholesale & retail trade sectors, and (iii) continued recovery of the tourism sector.

Market analysts now project that the 2019 GDP growth will come in between 5.7 percent and 5.9 percent, lower than the 6.2 percent suggested by some quarters.

The economy is set to receive a backup from the continued growth of the agricultural sector, as a result of expected improvement of weather conditions.

The government has increased budgetary allocation to the agricultural sector for ongoing irrigation projects, strategic food reserves, cereal, and crop enhancement and crop insurance schemes, in order to enhance food security and nutrition, which is a key pillar on the “Big 4 Agenda”.

There is continued strong growth in the real estate and tourism sectors. Tourism has continued to record doubled digits growth, having averaged 15.1 percent in the first three quarters of 2018 mainly boosted by a rise in the number of visitors’ arrivals as well as a notable rise in conference activities.

Growth in the real estate sector is expected to be supported by improved infrastructure, as well as the increased focus on the affordable housing initiative.

Public infrastructural investments are expected to be driven by the budgetary allocations in infrastructural projects, with the highest allocation being on road constructions at 87.5 billion shillings (domestically financed) and 34.2 billion shillings (foreign-financed).

Growth in the manufacturing sector driven by the Kenyan Government’s initiatives, like reducing the cost of energy, aimed towards supporting the various industries, such as textile, leather, and agro-business.

Private sector credit growth improved in 2018, averaging 3.4 percent in the 10-months to October, compared to 2.3 percent in a similar period in 2017, but remained below the 5-year average of 12.4 percent.

The low credit growth has persisted since the enactment of the Banking (Amendment) Act, 2015, with banks finding it difficult to adequately price risk, prompting banks to reassess their risk assessment framework, preferring to lend to the government at the expense of the private sector, as returns are higher on a risk-adjusted basis.

With the rate cap still in place coupled with the implementation of IFRS 9, which requires banks to be more prudent in terms of provisioning for bad loans, analysts expect private sector credit growth to remain well below the government target of 18.3 percent.