Kenya’s economy to grow at 6pc – Experts

By O’Brien Kimani

The Kenyan economy has shown resilient growth this year to remain one of the fastest-growing in the world.

Experts say 2017 is expected to be a critical year for the economy with looming elections, a sluggish global economic growth and the full impact of Brexit.

The Kenyan economy is projected to grow at a 6 percent pace above the 3 percent and 2.5 percent growth for Africa and the world.

After growing at a rate of 5 percent in the last four years, the Kenyan economy is now entering a critical year as the country gears for what is being billed as one of the most competitive elections in the history of the nation.

Political noise is expected to slow Foreign Direct Investment as most investors enter into a wait and see mode. The economy has been a global star performer to outpace many economies in the world.

At a projected growth rate of 6.5 percent the Kenyan economy is expected be to one of the fastest growing in the world. But economic experts agree on one thing, the road ahead is tough.

The World Bank predicts that Kenya’s economy will grow by 6% in 2017 and 6.1% in 2018. The bank says public investment, loose monetary policy and closer integration in the East African Community will support Kenya’s economy in 2017.

However, rising political uncertainty regarding presidential elections in August next year and sluggish world economic growth will put pressure on growth.

In 2016, the banking sector experienced what would perhaps be one of the biggest shake ups in the industry after President Uhuru Kenyatta signed into law the Banking Amendment Act which caps interest rates at 4 percent above the Central Bank Rate.

This would prompt commercial banks, amid protests and uncertainty, to reduce their interest rates from an average of 20 percent to 14.5 percent in line with the new law.

According to the World Bank, the capping of lending rates for commercial banks could also pose a risk to economic growth.

The National Treasury forecasts Kenya’s economy will grow 6 percent in 2017 and by 7% a year in the medium term before accelerating to 10 percent by the year 2020.

According to the Kenya National Bureau of Statistics (KNBS) quarterly report, Kenya’s economy expanded by 6.2% in the second quarter compared to 5.9% in the same period in 2015.

This growth was mainly supported by agriculture, transportation; real estate and retail trade. Manufacturing, construction, financial and sectors slowed down during this quarter.

On 28th November, the Central Bank of Kenya (CBK) held its main policy rate on hold at 10.00%. The Bank had cut the interest rate at its previous meeting in September in a bid to support lending to the private sector.

The International Monetary Fund says Kenya needs to embark on fiscal consolidation while increasing her tax base to arrest a yawning budget deficit.

During the year, the Central Bank of Kenya put Chase Bank under receivership for one year, appointing the Kenya Deposit Insurance Corporation as the receiver manager after the bank experienced liquidity difficulties. CBK governor Dr. Patrick Njoroge explained that panic withdrawals and inaccurate reports on Social Media about the bank’s management had led to a run on Chase Bank.

Nonetheless, three weeks after being put under receivership, Chase Bank reopened its doors to customers under the management of Kenya Commercial Bank making it the first bank to ever get back on its feet after being put under receivership.

Last month consumer prices rose 0.71% over the previous month, coming in above the 0.62% increase observed in October.  However the figure remains within the Central Bank’s inflation target range of 5.0% plus/minus 2.5 percentage points.

Annual average inflation remained at the previous month’s 6.5% in November. The foreign exchange market remains relatively stable despite the volatility in global financial markets following the results of the U.S. elections and the seasonal increase in demand for foreign currency.

CBK says growing export demand is expected to shield the Kenyan currency from demand pressures. However a slowdown in private sector credit growth, which is a direct consequence of the government’s decision to limit commercial banks’ interest rates, and the relatively weaker currency, could hold back activity growth in the private sector.

Activities at the Nairobi Securities Exchange remain depressed as the market suffers from a bear run that picked early this year. The market has shed close to 30 percent of her value. All eyes are now fixed on 2017 to see how the Kenyan economy will perform.

  

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