Citibank Group projects stable food, oil prices, seeks robust farming

By JAMES ANYANZWA

Citibank Group expects the economy to pick up momentum.

The optimism arises from to a peaceful political transition and stability in food and oil prices.

But the US-based financial conglomerate cautions that volatility in agriculture and tourism sectors would stifle growth. These two jointly account for 30 per cent of the Gross Domestic Product (GDP),

The Group’s Chief Economist and Director in-charge of Economic and Market Analysis Mr David Cowan, noted that despite oil discovery in Turkana County, the ‘oil and gas’ driven economic boom is still a distant prospect.

“We do expect growth to pick up over the coming years as private sector confidence increases,” Mr Cowan said. “But growth will still be constrained unless we expect a robust recovery in both the agricultural and tourism sectors,” he said.

Cowan, however, noted that Kenya would not suffer any major food or oil price shock in the next 12 months. “We do not expect a major external food or oil price shock in the next 12 months,” he said.

 But Kenyan growth has been volatile in some sectors notably agriculture and tourism – which account for around 30 per cent of GDP,” he observed. Between 2008 and 2013, Agriculture and Tourism sectors grew at an average of one per cent and 2.7 per cent respectively.

This compares unfavourably with the construction sector, which grew by 6.9 per cent, wholesale and retail (6.1 per cent), financial intermediation (6.6 per cent) and transport and communication (4.8 per cent.)

Bullish economy

According to Cowan, Kenya’s fiscal policy has been expansive since 2008 and supportive of growth for the five-year period (2004-2008).

State spending averaged 25 per cent of the gross domestic product (GDP) for the five-year period (2004-2008) and increased to an average of 29 per cent between 2008 and 2012.

Citibank, however remains bullish that Information Technology sector, financial services and its rising exports to the region would drive the country’s economic growth.

The country’s overall economic activity in 2012 showed improvement despite various challenges. The hurdles included a turbulent global economy, delayed long rains and a weakened shilling in the beginning of the year.

The economy grew marginally to 4.6 per cent last year from 4.4 per cent in 2011 and State projects a six per cent growth this year.

“Clearly the fiscal deficit has turned out much worse than expected in the 2012/13 fiscal year,” said Cowa.

He noted that State spending particularly on salaries rose to eight per cent of the GDP from 6.9 per cent the previous year. “Other recurrent spending also rose sharply but partially helped by a rise a revenue –income tax and other taxes,” he said.

Cowan noted that robust growth, increase in the fiscal deficit, erratic domestic food production growth and high global oil prices have combined to increase imports resulting in the deterioration of the current account deficit.

The country’s imports for the five-year period from 2004-2008 averaged 36.7 per cent of GDP and increased to 42.1 per cent for the five-year period from 2008-2012.