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The Kenyan Economy: 2017 Recap -Linda Rono

 

Economic growth is how much more an economy produces in terms of goods and services. To measure the growth, there has to be a comparison from one period of time to another.

Kenya is the biggest economy in East Africa and also one of the largest in Africa (after other economic giants including South Africa, Nigeria, Egypt and Algeria). It is interesting to note that over the past five years, Kenya’s economic growth rate has ranged between 5.4-5.9% the lower side having been experienced in 2014. Before then, in 2012, we were at 4.9%.

 

Of particular interest in this article is the year ended, 2017. The World Bank had predicted a 5.5% growth for Kenya’s economy which was a dip from 2016’s 5.8%. To put it in context, 2016 was a unique year, as a number of factors generally favored our economy’s growth, oil prices were quite low, there was increased public investment, a significant boom in the tourism sector and a stable macroeconomic environment, among others.

2017 was a bad year for Kenya. There are external factors that contributed to this performance including new policies implemented by the Trump government, and also Brexit, however, we had other problems at home that led to us closing the year at a 5.6% GDP:

1. Drought- cash crops such as tea ,which is one of biggest export earners were destroyed, and that meant a reduction in revenue earned from exports. Livestock and other crops too were destroyed leading to increased prices of food products and inflation that hit an all-time (or at least in the last decade)high of 11.48% . The drought also caused reduced water levels. Most of our electricity is generated from hydropower, therefore, decrease in water levels consequently led to increased electricity prices, thus affecting the common mwananchi and the manufacturing sector.

2. Interest Cap- this was signed into law by the president for commercial lending rates to be kept at not more than 4% above CBK rate which stood at around 10.5% . Banks make money from Interest spreads. This is the difference between what the charge borrowers and what they pay out to depositors. The cap meant they could only charge interest to a certain limit,14.5%in this case, while what they paid out remained at a constant of around 7.35%,thus their margins were minimal. Banks in such cases opt to lend money only to those with a lower risk of default and tend to avoid lending to SMEs and consumers/the common mwananchi, who actually greatly stimulate the economy.

Kenya Economy
3. Elections- this affected the private sector due to the ‘wait and see’ attitude adopted by most players. One election on its own is a problem, you can imagine how much more loss was experienced after the first election was nullified, another date set up, and finally two parallel swearing-in ceremonies planned fueling ideologies of division of the country into two. Both local and foreign investors too had no choice but to adopt the same wait and see attitude, so generally, the level of investment was on the low.

Many will note that the year was slow, business was bad, people were broke, there was less spending and other observations that we made as Kenyans. The above reasons explain why our 2017 wasn’t so rosy though there could be other smaller factors that contributed to this poor ‘performance’.

Kenya’s GDP is expected to improve in 2018. While the government is hoping it will get to more than 6%, The World Bank forecasts it will be at 5.8%. Let’s hope 2018 will be a better year for sure.

 

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