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How key sectors dragged down economy in 2019

By Macharia Kamau | January 19th 2020 at 12:00:00 GMT +0300

FORECAST:  Despite Treasury’s optimism, analysts say GDP growth is unlikely to hit six per cent in 2020

Last year might go down as among the worst the Kenyan economy has experienced in recent past.

When the National Treasury publishes the numbers for 2019 in a few months, few will be shocked by the fact that economic growth last year will only have slightly outperformed 2017 - which was equally bad.

The economy is projected to have grown at between 5.4 and 5.6 per cent in 2019, better than what was witnessed in 2017, but the latter year having had to contend with the high-pitched political noise that culminated in the General Election in August and a repeat presidential election in October.

Data collated from different government agencies shows how badly the economy was hurting last year, explaining the high number of job losses, a string of profit warnings and the Kenya Revenue Authority missing its tax collection targets in the half year to December.

According to the quarterly economic reports by the Kenya National Bureau of Statistics (KNBS), nearly all economic sectors reported slower growth while some posted negative growth.

In an update on Tuesday, Treasury said KRA missed its half-year tax collection target by Sh88.3 billion, netting Sh857.8 billion over the period to December.

KRA failed to hit the target for all the tax categories, with the biggest miss registered under income tax.

KNBS data shows that aside from construction and tourism, all other sectors posted a slowdown over the nine months to September compared to a similar period in 2018.

Construction was driven by investments in infrastructure by the government as opposed to the real estate sector, which too suffered different challenges including difficulties in accessing credit.

The standard gauge railway’s phase 2A was among the key infrastructure projects and it was at the centre of the sector’s growth. Even then, growth over the three quarters was only marginally higher (at 6.5 per cent) than in 2018 (6.3 per cent).

Other key sectors to the economy including agriculture and manufacturing suffered. A mix of factors that ranged from poor rainfall over the March – May long rains season as well as turmoil in key export markets for Kenyan products such as tea and cut flowers contributed to the poor growth.

These include the UK that is in the process of exiting the European Union, Iran that has been hit by US sanctions and devaluation of Pakistan currency that saw the country import less tea.

“The slowed performance was mainly on account of delayed rains that characterised the (first) quarter under review and curtailed agricultural production” said KNBS in the quarterly GDP updates.

The statistics body further said the agricultural sector’s growth in the third quarter was hampered by a notable drop in production of key crops.

Earnings from tea, fruits and vegetables - critical foreign exchange earners - as well as sugar cane declined over the period.

One of the pointers to a struggling manufacturing sector was the marginal increase in power consumption. Between January and October, power consumption rose by 2.7 per cent to 7,400 gigawatt hours from 7,206GWh the previous year.

The marginal growth could be a pointer to the tough economic times that businesses went through in the course of 2019, with many power intensive firms slowing down on electricity usage.

Cement production, for instance, dropped to 3.9 million metric tonnes in the period to August 2019, compared to over four million tonnes produced over a similar eight-month period in 2018.

There were also significant layoffs within the year as companies took measures to cut costs. Firms sent home workers or announced plans to restructure their operations as profits thinned.

They included Telkom, Stanbic, East Africa Portland Cement and East African Breweries.

Others were Air Afrik, Finlay Flowers, Sportspesa, Betin, Andela.

Despite the misses, Treasury is optimistic that the economy will rebound this year to grow at six per cent but revised the growth for 2019 to 5.6 per cent on account of lower than expected growth in agriculture.

Analysts however note that this could be too ambitious and the best the economy can do in 2020 would be 5.8 per cent.

“We project 2020 GDP growth to come in between 5.6 per cent and 5.8 per cent, supported by improvement in private sector credit growth… stable growth of the agricultural sector and public infrastructural investments,” said analysts at Cytonn.

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