Kenyan economy in 2016, extrapolations into 2017

PHOTO:COURTESY

The Kenya National Bureau of Statistics (KNBS) has given us a scorecard for the economy in 2016 and extrapolated it to 2017. What were the surprises if any? Economic growth was 5.8 per cent, not bad; global GDP growth was 2.9 per cent in 2016.

The effect of external forces on our economy—from Brexit to the American elections —is highlighted. What takes place in faraway lands affects us. Brexit or USA elections, is not just breaking news, it affects our well being. A strong US dollar or pound makes our currency weak, making our imports expensive. In a country with a trade deficit like ours, that makes matters worse.

If our trading partners’ economic growth rate slows down, it dampens demand for our exports leading to lower prices and less money for everyone along the supply chain, right to farmers in Shamakhokho or Ekalakala. Internally, the report notes we are gripped by the vagaries of the weather. Subdued rains reduce the supply of food which sets the prices soaring, though we are quick to blame politicians.

One quick observation is the decline in production of key food crops; maize, wheat and rice. Coffee, tea and horticulture production went up. Horticulture has to a large extent weaned itself from rain. Can its success be replicated in food crops like rice and maize? The success of horticulture can be attributed to something else seldom talked about— less government.

On specific sectors, why did fishing decline, and it’s not affected by the weather? There is no doubt that blue economy remains the least exploited part of our economy. I bet Indian Ocean can feed Kenya and leave us with surplus to export. And did I hear I can’t take a boat from Mombasa to Malindi; what Arabs and Portuguese did hundreds of years ago?

Why did manufacturing grow by 3.5 per cent as credit declined by 4.6 per cent? Was it due to the interest rate cap? The contribution of manufacturing to GDP has remained stubbornly low in the last 50 years.

On the public finances, the issue of deficit finances has remained. Does anyone know of any year since independence when we ran a budget surplus? Some observers have suggested that interest rate cap law was to benefit the Government borrowing. What’s the truth?

The decline in NSE index remains unexplained. Is it political sentiments or economic fundamentals? Since the economy has not experienced any significant decline, why should NSE index drop? Or could it be that NSE index does not capture all the information? It, however, seems that the index and the economy in general slow- down is as a result of polls uncertainty.

The good news is that inflation has been checked by low petroleum prices, and tight monetary policy, which includes the interest rate cap. This is an economic paradox. With interest rate caps, we would have expected more borrowing and a rise in inflation. That could explain one thing; high interest rate was not the only reason Kenyans do not borrow. After all, shy-locks are thriving.

The other bright side is tourism with 1.4 million visitors. We should not rest till we get 20 million tourists. Some countries like France get tourists equivalent to their population!

Like manufacturing, credit to building & construction declined as the growth in the industry. However, driving around Nairobi seems to contradict data that the construction industry declined last year. The bright side was road construction which experienced a boom with consumption of cement, a key barometer in this sector, going up.

The energy sector enjoyed a steady growth of about 5.7 per cent and new power connections grew by 38 per cent. The brighter side for all of us was lower petrol prices, which were driven by lower demand in China, because of lower economic growth and increased supply. OPEC could not agree on cuts while fracking increased supplies farther.

Transport enjoyed robust growth going by numbers of air passengers and cargo through the ports. A surprise was a decline in the number of registered vehicles, yet we find it hard to keep tabs on new number plates some which are fading while new. In ICT, growth was recorded with number of internet users reaching 39 million.

That is a high number in a population of about 48,211,569 by UN estimates. One hopes such high level of use of internet is making the economy more efficient and productive. The decline in print media was noted, not surprising as the digital natives are coming of age.

In international trade, our balance of trade is still negative and our major exports are still commodities like tea, horticulture, apparel and clothing accessories, unroasted coffee and tobacco. Our imports are capital and technology intensive products such as petroleum products, industrial machinery, aircraft and associated equipment, road motor vehicles and iron and steel. No wonder our trade balance is negative (more imports than exports). This has not changed over the years.

In the social sector, more kids are going to schools at all levels, and more medical personnel have been hired, improving access to these vital services. Of interest is the number of jobs created, about 832,900 of which only 85,600 were in the modern or formal sector, the rest were in the informal sector. The contention over jobs is likely to be hot since most Kenyans do not consider informal jobs as ‘jobs’ even if one earns more than the formally employed.

The future lies in informal sector, despite the focus of our education on the formal sector from textbooks to case studies. The increase in total wage payments in the public sector increased by 9.1 per cent, yet but the number of jobs increased by only 2.5 per cent. Why?

Still on social sector, the number of crimes reported to police went up by 6.2 per cent and cases reported to EACC rose by 40.1 per cent. But the cases filed in court decreased and so did the number of prisoners—not surprising.

What of 2017? It looks rosy with global economy expected to rebound. Key trading partners expect robust growth which would be a plus for us. A stable exchange rate and growth in sectors like construction will pull the economy along. But drought, still persisting in first quarter of 2017, and uncertainty over 2017 polls are blots in the growth trajectory.

What of uncertainty in Middle East and North Korea? But if we can extrapolate the 2016 performance to 2017, there should be no reason to lose our sleep. The elections will come and go. It does not matter who wins, they all have a stake in the economy. In fact, one of the best insurance for the Kenyan economy is that the key political contestants are all