Mega projects to help spur economy in 2016

The Kenyan economy is projected to grow at between 5.5 and 6 per cent in 2016 as contractors of mega-infrastructural projects come under pressure from both national and county governments to put their final touches, says a new report that seems to link this year’s fiscal policy on the looming campaign period.

The report by Cytonn Investments says the Government will step up its infrastructural developments as a ‘campaign move’. The commissioning of 280 megawatts of geothermal and 20.4 megawatts of wind power coupled with completion of a number of ongoing infrastructural projects including roads and railways will go a long way in shoring up an economy that has been facing headwinds in the better part of 2015.

The switch from analogue to digital, which has led to a flurry of broadcasting licences being issued, will also play a big role in driving the economy in 2016, the report says.

In 2015, the country’s GDP growth was revised downwards by the World Bank by 0.6 percentage points to 5.4 per cent, following a volatile exchange rate and unsustainable infrastructural spending that wiped out the fiscal space leaving the government in a cash crunch.

The global lender also cited a lack of accountability and public participation in the affairs of both national and county governments as another reason that informed the downgrade. National Treasury also revised the country’s economic growth citing the effects of the El Nino phenomenon and tightening monetary policy.

Cytonn’s projection is nearly at par with the World Bank’s 5.7 per cent for 2016 but lower than the International Monetary Fund’s (IMF’s) 6.8 per cent.

In 2015, efforts to stabilise the shilling also saw the Central Bank raise its benchmark rate, a move that hurt Kenyan borrowers as banks raised their interest rates to as high as27 per cent to protect their profit margins. Experts also expect the troubled tourism sector to make a come-back in 2016 as the government’s move to inject about Sh6 billion to resuscitate the ailing sector and improved sector begin to take effect. Already a number of Western countries that had issued travel advisories have since lifted them.

While most of the campaign-period expenditures are often hurried in a bid to impress the electorates, Cytonn thinks this is normally the case with new projects. “This is not the case with on-going projects,” said Cytonn’s Chief Investment Officer Elizabeth Nkukuu who added that the government was going to invest more on social spending such as education and health.

However, with reports that the government is hell-bent to start exporting oil by September 2016, even as analysts say that earliest Kenya can do this is 2020, there are fears that economic prudence might be sacrificed at the altar of political expediency.

The report ‘Cytonn 2016 Business and Market Outlook’ states that as the country heads to 2017 polls, politics will take centre stage and be among the key determinants of spending and policy. Both national and county governments will revisit their campaign manifesto in a bid to impress the electorates.

The national government will be rushing to complete its mega-infrastructural developments including railway and roads to “make strides which they can leverage for votes,” noted the report.

Cytonn’s investment manager Maurice Oduor noted that the Jubilee administration will also be rushing to complete its campaign promises including the laptop projects which has faced numerous hurdles including procurement challenges.

However, the shilling will still be under pressure after United States’ Federal Reserve normalised the US’ monetary policy citing a resurgent economy. This means the dollar will continue to strengthen giving a hard time for our importers.