World Bank: It’s been tough three years for private sector

The past three years have been tough for private investors, the World Bank says.

Private sector investment has gone down even as the Government aggressively pumped money to improve roads, railways, ports network and the power sector, said the World Bank in its latest Kenya Economic Update.

This has had the effect of crowding out the private sector, as the Government borrowed at the expense of the private sector.

Share of GDP

World Bank Chief Economist Allen Dennis said since 2013 the share of private sector investment as a share of GDP (gross domestic product) has been declining. However, public investment has been on the rise.

“I would like to see the private sector as the goose that lays the golden eggs,” said Allen, noting that it is the private sector that creates durable employment and revenues. “And it is the private sector that really moves this economy,” he added.

Private sector investment as a share of GDP declined from 1.6 per cent in 2014 to a low of -2.8 per cent in 2016, as the private sector grappled with headwinds including access to credit. This, Allen said, compares badly to a fraction of 2.1 per cent in 2010 when the economy grew at 8.4 per cent.

“Unlike the resilience in public investment flows, private investment is subdued,” read part of the report. Subdued private investment is due to the drop in lending rates, with overall credit growth to the private sector reaching its lowest level in 2017.

“Apart from ICT sector, the weakness in credit growth to the productive sector has been broad-based,” read the report released yesterday.

Credit growth to agriculture decelerated by 7.6 per cent, manufacturing (-3.3 per cent), mining (-7.6 per cent) and construction (-1.5 per cent).

“This weakness in private sector activity is reflected in subdued imports of machinery and capital equipment imports,” said the report.

The World Bank also cited Stanbic’s Purchasing Manager’s Index (PMI), which showed business sentiment to have contracted for five successive months since April- the first time in the indicator’s history. Moreover, the capping of interest rate has seen banks reallocate credit from private to Government.

Economic growth

The World Bank projects the economy to grow at 4.9 per cent in 2017, a climb-down from an earlier projection of 5.5 per cent. This estimate is not significantly at variance with IMF, which put Kenya’s economic growth for 2017 at 5 per cent.

Treasury has projected the economy to grow at 5 per cent, compared to 5.8 per cent growth in 2016. National Treasury expects the economy to grow by 5.1 per cent.

The World Bank said the economy had been beset by a number of headwinds including a crippling drought that drove up headline inflation as harvests declined.

There is also suppressed credit extension to the private sector and a prolonged electioneering period that has thrown the investment environment into a state of uncertainty.