Government bets on agriculture, improved security to drive economic growth

Kenya is betting on huge investments in security and a recovery in the agriculture sector to grow the economy by 6.9 per cent this year, a target set in January.

The Government is also counting on lower oil prices to reverse the decline in economic growth after insecurity, and sluggish agriculture and manufacturing sectors slowed Kenya’s economic engine from 5.7 per cent in 2013 to 5.3 per cent last year.

Oil prices are projected to remain subdued throughout the year due to possibilities of sustained oversupply, as Iran and Libya add to the current output, following improving political environments.

In support of his revenue projections for the 2015-16 Budget estimates tabled in Parliament last week, Treasury Cabinet Secretary Henry Rotich said the Government had made the assumption inflation rates would be maintained within the target of 5 per cent (plus or minus 2.5 per cent) in the medium term.

“Economic growth in Kenya is expected to accelerate, boosted by lower oil prices and higher public and private investment, and recovery of the agriculture sector,” Mr Rotich said in his report.

The Government tabled a Sh2.2 trillion expenditure plan, up from Sh1.8 trillion in the current financial year.

Different script

Agriculture remained the key sector driving Kenya’s 5.3 per cent economic growth last year, according to the Economic Survey 2015. It accounted for 27.3 per cent of the value of national output last year — more than twice the manufacturing sector’s contribution.

But efforts to revive the agriculture sector, which has been growing at a slower rate, may be frustrated by depressed rainfall experienced in the first quarter of the year. In addition, weather forecasts point to a possibility of insufficient long rains in parts of the country.

The irony is that the Treasury seems to be reading from a different script than that of the Kenya National Bureau of Statistics (KNBS), which is not as upbeat on the recovery of the sector.

The Economic Survey notes the agriculture sector grew at a decelerated rate of 3.5 per cent from Sh795 billion in 2013 to Sh822 billion in 2014. According to the KNBS-produced report, the performance of the sector is likely to remain close to last year’s figures given that the country still has an over-reliance on rain-fed agriculture.

To boost growth, the Government also hopes to stabilise interest and foreign exchange rates during this period.

Also, falling electricity prices are expected to lower the cost of living and support a revival of manufacturing.

“On average, electricity prices might fall slightly in 2015 due to the increased share of geothermal electricity generation,” the survey notes in its outlook.

It notes that despite the manufacturing sector contracting, it contributed 10 per cent of the country’s GDP, followed by transport and storage, which had an 8.3 per cent share.

“The manufacturing sector’s real output expanded at a slowed growth of 3.4 per cent, compared to a revised growth of 5.6 per cent in 2013,” the report notes.

Sugar production and galvanised sheets are some of the sectors that registered negative growth.

Revenue performance

Rotich said the Government is hoping to grow its revenue from the Sh1.16 trillion expected to be realised by the end of this financial year, to Sh1.35 trillion the next year, which starts July 1. This represents 16 per cent growth.

This revenue performance, he said, would be underpinned by reforms in tax policy and revenue administration.

To deliver the results, the Treasury said the Government would create a conducive business environment, and invest in agricultural transformation, food security, and critical infrastructure in transport and logistics.

Rotich added that the Jubilee Government would focus on five pillars in line with Vision 2030 to prop up the economy, which includes investing in quality and accessible health care and education, as well as strengthening the social safety net to reduce the burden on households, alongside supporting devolution.

But Kenya’s growth is set to be impacted by a slump in the regional and global economic landscapes. Global growth is projected at 3.5 per cent in 2015 and 3.8 per cent in 2016.

Growth in emerging markets and developing economies is projected to be lower, primarily reflecting weaker prospects for some large emerging market economies and oil-exporting countries.

According to the 2015 Budget Policy framework, sub-Saharan Africa’s growth is expected to slow down to 4.5 per cent in 2015 from 5 per cent last year. However, it is expected to rebound in 2016.

“The projected slower growth in 2015 reflects the impact of the sharp decline of oil and commodity prices, and subdued outlook for Nigeria and South Africa,” the report notes.

On the other hand, it adds, the region’s eight oil exporters that have limited fiscal and external buffers are expected to undertake fiscal adjustments, while growth for the rest of the region will benefit from lower oil prices.

Ebola outbreak

Kenya will also continue to feel the impact of the Ebola outbreak in West African countries such as Guinea, Liberia and Sierra Leone.

“The spillovers from the Ebola outbreak affected the aviation industry in Kenya, the sub-region and the rest of the world,” Rotich said in his brief to Parliament.

When aviation is hurting, Kenya’s tourism sector is affected.

Despite the positive message coming from the Government on the tourism sector, the real and perceived threat of terrorism, which has severely disrupted the sector, still exists, and it may take more than increased spending on security to reverse the dip.

The real estate sector, which registered double-digit growth last year is also expected to continue its growth momentum.

The building and construction sector expanded by 13.1 per cent, up from 5.8 per cent in 2013. Loans advanced to the sector also went up 13.6 per cent from Sh70.8 billion to Sh80.4 billion in 2014.

The information and communication sector, which also reported significant growth after broadband subscriptions jumped 71 per cent to 4.2 million, is expected to be a critical pillar in the growth story of 2015. Digital migration is also expected to contribute significantly to GDP.