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Kenya’s economy to remain strong as continent shrinks to 20-year low

By Paul Wafula | October 26th 2016 at 12:00:00 GMT +0300

A section of Thika Superhighway. Treasury Cabinet Secretary Henry Rotich says Kenya will benefit from the huge investments in infrastructure. (PHOTO: COLLINS KWEYU/ STANDARD)

Kenya will shrug off the slump in growth on the continent to be among the best performing economies in Sub Saharan Africa. The continent is set to slow to its lowest level in more than 20 years.

The latest Regional Economic Outlook report by the International Monetary Fund (IMF) says Kenya will be among 22 countries in the Sub-Saharan Africa that will maintain robust growth, reaping from cheaper oil.

But the oil exporting countries will be the worst hit after they took a beating from the drop in oil prices. “With lower commodity prices and a generally less supportive global economic environment, average growth in the region is foreseen to decelerate sharply to 1.5 per cent this year - well below population growth and in sharp contrast to the high growth rates of the past 15 years,” the report launched yesterday in Nairobi reads in part.

The report adds that while the projection is for a modest recovery for the next year (to nearly 3 per cent), this is predicated on prompt action to address large macroeconomic imbalances and policy uncertainty in some of the region’s largest economies.

IMF paints a picture of the emergence of two Africas. In one camp, there are 23 commodity-exporting countries such as Angola, Nigeria and South Africa, which are under severe economic strains and are depressing the overall growth.

In the other camp, there are the remaining 22 economies in the region that enjoy ‘reasonably high growth’. “In recent months, the near term prospects of oil exporters in particular have worsened, notwithstanding the modest up-tick in oil prices,” it says in part.

The report notes the adverse effects of the decline in prices of 2014-15, first mainly felt within the oil-related sectors, have spread to the entire economy, leading to a more entrenched slowdown. Consequently, output among oil exporters is expected to shrink by 1.3 per cent this year, weighed down by a deep contraction in Nigeria, but also in Chad, Equatorial Guinea and South Sudan, while Angola will barely escape recession.

South Africa is also struggling. The report says that output expansion stalled in South Africa early this year, hampered by low commodity prices and poor confidence. Other countries battling with the same fate include the Democratic Republic of Congo, Ghana, Zambia and Zimbabwe who are either decelerating sharply or stuck in low gear.

On the flip side, non-resource-intensive countries such as Kenya, Cote d’Ivore or Senegal remain undiminished. Growth for this group as a whole is expected at 5.5 per cent this year, just below the average 6 per cent experienced during 2004–2014 as they benefit from a lower oil import bill. “West Africa, or Ethiopia and Kenya in East Africa are still foreseen to grow at a 6 to 8 per cent clip in the next couple of years,” the report says.

Treasury Secretary Henry Rotich said Kenya will also benefit from the huge investments in infrastructure as well as a more diversified economy. “Investors are eager to continue investing in Kenya. Our economy is already diversified so as we go towards oil exportation, we will be able to avoid the oil curse and use oil revenues only as another source of revenue and not the only revenue,” Rotich said.

The IMF recommends that countries that are still growing rapidly should rebuild buffers in comparatively favourable times to stem the increase in public debt. “In an environment of tighter and more volatile financial markets, striking the right balance between much-needed development spending and hard-won debt sustainability remains the main challenge,” the report adds.

Natural disasters

The report also found the sub-Saharan Africa as highly vulnerable to natural disasters. It cites the severe drought that affected most of the eastern and southern Africa as an example of the disasters.

Structural factors such as high reliance on rain fed agriculture, capacity constraints for preparedness as well as post-disaster response, and limited access to insurance, contribute significantly to these vulnerabilities.

“In particular, natural disasters exert long-term economic damage to the region’s economies, due to their adverse effects on human capital and infrastructure,” it adds.

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