We should temper optimism for economic growth with caution

Jackson Okoth

Climbing out of a two-year slump, there are all indications Kenya’s economy, still considered the largest in East Africa, is turning the corner.

Although a GDP growth of between 3-4 per cent is forecast, this is still considered weak when mirrored against its neighbours Uganda, Tanzania and Rwanda.

While the financial infrastructure remained intact after the global financial crisis, commercial banks remain cautious and are yet to ease their lending rates.

This is worrying. The fact that commercial banks are still cautious in their lending only implies the fundamentals for economic recovery are not yet in place.

Europe, a key export market for Kenya, is still struggling out of recession and falling consumer spending. Not significant increases in export orders have been recorded in the last few months, an indication that the export sector is still depressed.

It is still unclear whether treasury will remain on course in the implementation of the stimulus package. While delays have already been experienced, the big-ticket infrastructure projects involving elaborate procurement processes and multilateral agencies, could take a while to implement.

Speedy implementation of the fiscal stimulus package will provide the much- needed momentum to economic growth through increased consumer spending.

While the two-year economic slump was triggered by among others post-election violence, the country is yet to heal from this ugly past completely.

The setting up of a new voters register, adoption of a new constitution and resettlement of post-election victims, remain unfinished business.

It is therefore a good sign that trade is picking up again at the Nairobi Stock Exchange, with foreigners driving most of the activity at the bourse. What is wrong with this picture is that local retail and institutional investors are yet to return to the bourse.

Part of the reason is the low investor confidence that hit the market after Safaricom shares fell below the IPO price. The hype that was created in the market that its price would rise sharply did not come to pass, to the disappointment of speculators and retail investors.

Effort should be made to rebuild the lost confidence and lure back local investors.

A thriving bond market is expected to grow further this year as a low-inflation environment increases the appetite for fixed income securities.

For a sustained recovery, the economy will have to rely on good rainfall, recovery of the global economy, developments on the political front and how fast we implement public spending programmes to stimulate growth.

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