Weak demand for tea, flowers slows economy

Weak demand for agricultural exports has led to a slowdown in the economy, in a second consecutive dip at 5.5 per cent for the second quarter ending June.

Tea and coffee exports were most affected in three-month period with export sales dropping by almost a fifth, according to fresh official statistics released yesterday. Sluggish activity in the international trade of agricultural produce, the most important economic pillar, could scuttle growth projections for the year where the State has forecast the Gross Domestic Product to expand by 6.9 per cent for the year.

Bags of tea leaves waiting to be collected at Giakaibei buying centre. Tea and coffee exports were most affected in the three-month period, with export sales dropping by almost a fifth. (PHOTO: KIBATA KIHU/STANDARD)

“The country’s real Gross Domestic Product (GDP) is estimated to have expanded by 5.5 per cent during the second quarter of 2015 compared to 6 per cent in the same quarter of 2014,” the Kenya National Bureau of Statistics reported. Higher selling prices and better rainfall helped productivity in the agriculture sector expand by 5.4 per cent, much faster than the 2.1 per cent reported in the April to June 2014.

“..., the country experienced good rains that led to improved agricultural activities despite suppressed demand of key agricultural exports.” World Bank has a more optimistic forecast about the Kenyan economy expanding by 6 per cent, helped by the better rainfall. Already, a sharp depreciation of the Kenyan currency and the anticipated impact of the El Nino rains have presented the most prominent shocks to the economy. In the quarter under review, tea production declined by 17.2 per cent to 93,646 metric tonnes compared to 113,106 metric tonnes recorded the same period of 2014.

But the drop in production was countered by a rise in prices that was mainly attributed to the depreciation of the local currency against the US dollar. Vegetable exports also shrank by over 2,000 metric tonnes in the three-month period. Exports of fruits however reported a steady growth of almost a quarter, to 12,080 metric tonnes.

Electricity generation and financial mediation were the star sectors of the economy in the period, growing by 10.2 per cent and 6 per cent respectively. KNBS cites the growth in the energy sector to electricity generation and accelerated connectivity across the country.

New investments in geothermal power generation saw the addition of 280 MW to the national grid in the period, to support the increased generation from water. The new geothermal plants have also slashed the reliance on the expensive thermal generation from diesel plants that are increasingly being retired. In the three months alone, thermal generation contracted by 57.4 per cent.

Current account

The balance of payments position worsened to a deficit of Sh47.8 billion compared to a surplus of Sh166.8 billion on account of heightened importation of material inputs for development of infrastructure projects. Poor exports also meant that the current account deficit worsened by 61.8 per cent to Sh151 billion.

The balance of payments tracks all the amounts entering and leaving the country including new investments, while the current account measures the volume of trade by comparing imports and exports.

A deficit in the current account means the country was importing more than the value of its exports. KNBS also released the inflation numbers for September, reporting that the drop in the petroleum prices internationally was handing a reprieve to Kenyan households.

Prices for cooking gas dropped by almost a quarter to an average of Sh2,393 compared to Sh3,111 in September last year. More modest dips were reported on other fuels including kerosene and diesel, helping to dampen the increased prices on potatoes, beans and onions. The price of Irish potatoes has shot by over 42 per cent this September over the last.