By JAMES ANYANZWA
Kenya: The Government expects the economy to grow by six per cent this year amid an expanded budgetary spending of Sh1.64 trillion whose financing is becoming a matter of grave public concern.
The 2013/2014 budget is expected to finance expanded Government operations under the devolved system of government and help spur economic growth, weighed down by both domestic and external shocks.
But even as the Government remains bullish over the expected economic turnaround some industry stakeholders are concerned over the growing Government spending, public wage bill and uncompetitiveness of the Kenyan economy as an investment destination.
“I think there are much more fundamental problems in our economy. There is no economic wealth being generated by the people in Government. These people are making Kenya a very expensive destination to operate,” said Dr Jim Macfie, a Lecturer at Strathmore School of Business.
According to the Ministry of Devolution and Planning, the resurgence in economic activities hinges on increased investor and business confidence following a peaceful political dispensation.
Devolution and Planning Secretary Anne Waiguru has also singled out stable macroeconomic environment, stable shilling exchange rate, sufficient rainfall, reforms in the security, governance and justice sectors and the projected easing and stability of the internal oil prices as other critical factors set to drive growth.
“The economy’s short to medium term forecast is for sustained and rising growth,” she said. Ms Waiguru was speaking during the launch of the 2013 Economic Survey report that showed that the economy grew by 4.6 per cent last year driven by growth in sectors such as agriculture and Building and Construction.
“Depending with the actions we take now in government I have no doubt in my mind that the six per cent growth projected for this year can be achieved and even more,” said Vimal Shah, Chairman, Kenya Private Sector Alliance (Kepsa).
“The Government’s six per cent growth forecast is achievable but the biggest risk is the cost of living, cost of power and petroleum. The cost of transporting raw materials in Kenya is too high. The railway line is a disaster and this has caused the cost of goods to be very expensive,” said Polycarp Igathe, Chairman, Kenya Association of Manufacturers (KAM).
However, there are fears that a weakening shilling, widening current account deficit and the resurgence in interest rate and inflationary pressures, could dampen the country’s economic growth. Other economic threats include erratic weather patterns, escalating oil prices and uncertainty in the global economic environment. “Interest rates will also be under pressure between now and June while inflation is expected to be in the range of 5-6 per cent between 2013 and 2016,” said Ignatius Chicha, Head of Markets at Citibank Kenya.
“Kenya remains vulnerable to the economic slow down in Europe,” added Chicha.
The overall economic activity in 2012 showed improvement despite a myriad of challenges that include a turbulent global economy, delayed long rains and a weakened Kenya shilling in the beginning of the year. Stable macroeconomic environment, increased domestic demand, and modest growth in credit, as well as notable growths in Agriculture, Wholesale and Retail Trade, and Transport and Communication supported this performance.
However, all sectors of the economy, recorded a slow down in growth save agriculture and construction sectors which grew by 3.8 per cent and 4.8 per cent compared with 1.5 per cent and 4.3 per cent in 2011 respectively. Wholesale & retail trade grew by 6.4 per cent from 7.3 per cent while growth in transport and communications slowed down to four per cent from 4.7 per cent in a similar period.
Growth in the manufacturing sector fell to 3.1 per cent from 3.4 per cent while financial intermediation shrunk to a growth rate of 6.5 per cent compared to 7.8 per cent recorded in 2011.
Tourism earnings, which are a key source of foreign exchange earnings, plunged by 1.9 per cent from Sh97.9 billion in 2011 to Sh96 billion in 2012.
International visitor arrivals decreased by 6.1 per cent from 1.8 million in 2011 to 1.7 million in 2012.
The performance of the sector was mainly affected by a slow down in the global economy especially in the Euro zone coupled with travel advisories following security concerns.
The stock of Central Government outstanding public debt increased by 14.8 per cent from Sh 1.3 trillion as at June 2011 to 1.5 trillion as at June 2012. Domestic debt stood at Sh 768.0 billion and accounted for 50.6 per cent of the total stock of Debt while External debt stood at Sh 749.2 billion.
The ratio of total debt to GDP stood at 44.1 per cent in 2012 compared to 43.4 per cent in 2011. The financial sector grew slower in 2012 to post a growth of 6.5 per cent in 2012 compared to a 7.8 per cent growth in 2011.
