August elections worry banking and transport sectors most

Kenya’s banking and transport sectors are the least optimistic of the economy’s prospects as the country heads to the general election in August.

This is according to the CEO Business Confidence Index that measures the level of confidence that top managers in different sectors have in the economy carried out by the Kenya Private Sector Alliance (KEPSA) and research firm Trends and Insights for Africa (TIFA).

The survey, conducted between November 2016 and January 2017, polled 90 CEOs.

Out of eight sectors surveyed, the banking sector registered 42 index points while the transport sector registered 40 points out of a score of 100.

Conversely, the energy sector expressed the highest confidence level in the economy’s prospects, registering 67 points, followed by ICT with 63 points.

Explaining the survey’s outcome yesterday at KEPSA offices in Nairobi, TIFA Managing Director Maggie Ireri said since the enactment of the Banking Amendment Act 2016 capping interest rates, the banking sector has been forced to reduce overheads and staff costs.

“Banks have been forced to close some of their branches and also lay off staff. This move is expected to result in a reduced cost-to-income ratio, which should in turn positively impact the banks’ profitability,” said Ms Ireri.

On the other hand, the transport sector’s overall poor performance in the survey has been as a result of the little prospects in the air transport sub-sector.

The survey notes the air transport sector performance declined marginally by 0.8 per cent in the third quarter, mainly due to operational challenges experienced by national carrier Kenya Airways.

The bullish performance of the energy sector has specifically been attributed to the zero-rated import duty and VAT exemptions for equipment producing electricity through solar.

Below target

Plans to increase electricity connectivity to the national grid from the current 28 per cent to 65 per cent by 2022, the survey says, has fuelled optimism in the sector.

Tourism and manufacturing sectors recorded lukewarm optimism at 50 and 49 index points respectively.

“In the periods approaching election years, prospects of tourism tended to dim due to fears of political violence which kept tourists away.

“However, this year, there is a boost of conference tourism with major conferences such as the Oil and Gas Kenya Conference and many others pitching camp in the country,” said Ms Ireri.

Manufacturing, on the other hand, despite recording a favourable index of 49 points, has had a downward trajectory in 2016 with a 1.9 per cent growth in 2016.

The survey noted the sector’s performance was way below the targets set in the medium-term plans of 2012/2017 for the sector to grow by 8.7 per cent.

It further dampens the hopes of achieving the expected industrial development that is in sync with the Vision 2030 economic blueprint.

“The maize millers for example have felt the brunt of poor weather conditions where the yields decreased and they have been pushed to acquire raw materials at exorbitant prices,” explained Ms Ireri.