Kenya’s economy is projected to grow by 5.8 per cent next year supported by strong remittance inflows and rising household income from agriculture harvests and lower food prices.
According to the World Bank’s biannual report, gross domestic product growth in Kenya will increase to 5.8 per cent in 2019 and could rise to six per cent by 2020.
The bank notes that economic headwinds in 2017 adversely impacted manufacturing, but with their easing a modest recovery is underway, albeit uneven.
“Manufacturing is still recovering and activity remains sluggish. The sector growth rose from 0.5 per cent in 2017 to 2.7 per cent in 2018, but still remains weak compared with a three-year average of 3.6 per cent over 2013 to 2016,” states the report released in Nairobi last week.
After a prolonged drought and lower credit to the private sector last year, East Africa is projected to grow by 6.1 per cent this year thanks to a rebound in agriculture due to favourable weather and a rise in private sector growth.
Increased rains, an improved business environment as well as easing of political uncertainty are the key drivers of Kenya’s recent growth, underpinned by strong agricultural output and good performance by the service sector.
Kenya please please please, can we borrow a leaf from some of these countries? It’s been researched, investment in infrastructure does not necessarily result in a country’s economic growth. https://t.co/iGYqdhAHOm
— Wangui (@Wangui___) October 17, 2018
“Apart from the road network, which has improved significantly over the past decade, the standard gauge railway has eased movement of people and the port of Mombasa, which still has its own challenges, has improved vessel turnaround times and reduced container transit time,” said Peter Chacha, a senior World Bank economist at the release of the October 2018 economic update.
The downside of the projections is the recently introduced VAT of eight per cent on petroleum products, which, combined with rising global oil prices, will affect household incomes.
Kenya’s economic growth looking up — World Bank https://t.co/yUmoFnnWF0
— Latest News KE! (@LatestNewsKe) October 17, 2018
Further, the Bank projects that with the law that restricts movement of interest rates and banks leaning towards government securities, credit is unlikely to grow, especially for small and medium-sized enterprises.
SMEs are also likely to be affected by the recent reduction of the policy rate by the Central Bank of Kenya.
In August, the CBR was lowered from 9.5 per cent to 9 per cent. This means that banks will get lower margins of profit, which could result in less lending to SMEs.
The Big Four is a government initiative meant to spur growth through boosting manufacturing, achieving universal health coverage, enhancing food and nutrition security and supporting the construction of at least 500,000 affordable houses by 2022.