The dwindling fortune of Kenya’s economy

BY ANTONY MUTUNGA

Kenya’s GDP growth increased to 6.3% in 2018 from 4.9% in 2017, thanks to increased production in the agricultural sector, continuous growth in the transport sector, acceleration in the manufacturing sector and a vibrant service sector. 

As a result, the country was expected to increase its growth come 2019. However, this is did not come to pass as Kenya experienced a slowdown recording a growth of 5.4%.

According to the 2020 economic survey by the Kenya National Bureau of Statistics (KNBS), Kenya’s economy was higher when compared to that of Sub-Sahara Africa, which stood at 3.1% in 2019, lower than its record of 3.3% in 2018. As compared to 2018, sectors that increased in the year include the financial and insurance, as well as the real estate.

According to the survey, the financial and insurance sector increased its growth to 6.6% from 5.3% in 2018. The financial sector on its own played a major role as it grew by 5.7% as compared to 4.8% in 2018. The period was characterized by a rise not only in credit to the private sector but in liquidity as well which grew by 8.1% to stand at Sh4.93 billion. On the other hand, the real estate activities grew from 4.1% in 2018 to 5.3% in 2019.

Also affected by the slowdown was the level of employment, which year-on-year was able to increase. Total employment excluding small-scale farming and pastoralist activities rose to 18.1 million in 2019 as compared to 17.3 million in the previous year. Both the formal and informal sector recorded a yearly increase in the number of job opportunities created.

Despite the accelerated growth in the said sectors, others have slowed causing the change in the country’s GDP growth. The most affected sector has been agriculture, which is the backbone of the country. The economic survey states that the growth of the agriculture, forestry and fishing sector has slowed to 3.6% from 6% in 2018. The reduction was as a result of poor rainfalls, which affected agricultural production. This has resulted in the low supply of food crops. 

In turn, it has caused the prices of the crops to be increased. In addition to unfavourable weather conditions, the volume of export of vegetables reduced by 15.2%. Another sector to slow down its growth is manufacturing, which has slowed from 4.3% to 3.2% in 2019. 

According to the survey, the production of tea and sugar recorded a decline of 4.9% and 10.2% respectively. Sugar saw the number of tonnes produced in year decline from 491.1 million tonnes to 440.9 million. On the other hand, production of processed tea decreased from 493 thousand tonnes in 2018 to 458.9 thousand tonnes in 2019. 

The transportation and storage sector also recorded a decline as it expanded by 7.8% in 2019 as compared to 8.5% in the previous year. This was the case despite an increase in the total passenger traffic by air increasing from 11.7 million in 2018 to 12.1 million in 2019 and in railway transportation, the volume of freight transported through the SGR increasing by 43.5% from 2,899 tonnes to 4,159 tonnes in the same period. Electricity supply was also not neglected by the slowdown.

Electricity supply experienced a decline in growth from 10.5% in 2018 to 7.9% in 2019. The slowdown is attributed to the decline in total electricity generation, from recording a growth of 9.1% in 2018 to standing at 3.2% in 2019. The production of electricity at the Seven Folks dams had been greatly disrupted by the insufficient rains in the period of long rains.

The balance of trade declined by 5.2% on a total deficit of Sh1.21 trillion due to the decline in the value of exports by 2.9% from Sh614 billion in 2018 to Sh597 billion in 2019. The increase in the value of imports by 2.4% from Sh1.76 trillion to Sh1.81 trillion was also to blame.

The economic slowdown of 2019 was projected ease as 2020 set in but due to the spread of the coronavirus, this is not the reality anymore. Several institutions such as the World Bank and Moody’s credit agency have downgraded their projections for Kenya amid the pandemic.

According to the World Bank changed, the country will record a mere 1% growth in 2020. Moody downgraded Kenya’s rating from stable to negative. Several sectors are feeling the pinch especially with the curfew and social distance requirements. Exports have declined as the transport sector, including air and water transport, has been grounded as the number of trips is greatly affected. This however, does not only affect exports but imports as well.

With businesses working at half capacity, the manufacturing sector is expected to decline as production will reduce before normalcy returns. On the other hand, the agriculture sector is also being affected as rainfall did not come as usual and those who rely on exporting their products find it difficult to reach their customers. Apart from COVID-19, the sector was already facing a crisis with swarms of locust invading most of the country damaging crops.

Food insecurity is expected to be on the rise especially as there is no clear end to the pandemic. Sectors that rely much on technology will be expected to experience a growth as it is playing a large part in enabling the economy to move on for now. The first half of 2020 has been one of the worst periods for the country and if the pandemic is not contained, the rest of the period might lead the country to a recession. 

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