What the economy expects from the country’s next president

By Dominic Omondi | Published Thu, August 10th 2017 at 03:52, Updated August 10th 2017 at 03:56 GMT +3


  • Incoming Head of State will find a mountain of issues to solve ranging from high cost of living, huge debt and wage bill, unemployment, low credit uptake turbulent retail sector among others
  • Major signs of recession include jittery stock market, insolvency and bailouts, job losses and slowdown of the real estate and retail markets.

Major signs of recession include jittery stock market, insolvency and bailouts, job losses and slowdown of the real estate and retail markets.

Kenya is no there yet, but it has had a dose of these turbulence in the run up to Tuesday’s election. The next president voted will have a full tray of economic issues to address when he takes oath of office.

“I believe we are in a mini recessionary environment and the government will have to do a lot to claw us out of it post August 8, elections. A lot of support will have to be made,” said Deacons Chief Executive Officer Muchiri Wahome. 

Cost of living

Inflation will be the most important factor to address after the year started of on an overheated economy - threatening to push basic food items out of the reach of most Kenyans. “Hopefully in a year, we will have addressed the issues such as banking sector in terms of the rate caps, food security and the general cost of living,” said Wahome.

The National Super Alliance (NASA) has promised that as an alternative government, they will address the high cost of living by lowering rent and boosting food security.

The Jubilee administration on the other hand has opened the cash vaults— allowing the country to import subsidised foods by handing businesses duty free access to maize, wheat, milk and sugar which have helped tame the rising cost of food.

Drastic fall in the prices of basic food items helped relieve the cost of living for Kenyans as inflation moved towards the Central Bank of Kenya (CBK) set target.

According to the latest figures by the Kenya National Bureau of Statistics (KNBS), inflation in July dropped to 7.47 per cent, down from 9.21 per cent recorded in June and a five-year high of 11.7 per cent registered in May.

This was mainly driven by food prices after the country failed to mitigate the effects of drought that disrupted agriculture and saw death of livestock in arid and semi-arid areas late last year.

While importation has provided momentary relief, the next government must reassess the whole subsidy structure to give incentives to the farmers rather than importers who may further distort food prices and discourage farming. Kenyans are also optimistic that improved weather conditions as well as mitigation of army worm attack will deliver good yields for the country.

“Weather will improve, it is already harvest time in some parts of the country,” said XN Iraki, a lecturer at the University of Nairobi. Oil prices have been some of the biggest drivers of Kenya’s inflation as the country relies on thermal power to supplement hydro power and geothermal power. Oil determines transport costs, and makes up a sizable value of imports putting pressure on the shilling against the dollar.

However, the ‘black gold’ has recently taken a beating - its prices falling to an old-time low due to oversupply in the global markets which has cut its value by half. “I do hope oil prices will remain steady too, before we start producing ours,” Mr Iraki added.

Dr Fredrick Ogola, Director of the Institute of Strategy and Competitiveness and Senior Lecturer of Strategy and Decision Making at Strathmore Business School says the government should give a directive to the Central Bank of Kenya on levels it finds acceptable and applicable to manage the cost of living,

Currently, Kenya’s inflation band falls between 2.5 per cent and 7.5 per cent. “The president of the day needs to set the range of inflation that is acceptable, and reasonable. Its also good to project the progress from when he is sworn in to when his term ends, that’s strategic,” Dr Ogola said.


Retail sector

Retail industry which is an indicator on how much disposable income Kenyans have has shocked many with huge contractions that has seen the biggest regional retail chain, Nakumatt, fight insolvency and seek State led bailout.

This came barely a year after the Government bailed out Uchumi Supermarket, Kenya’s oldest retail chain, even as suppliers dig in over an alleged Sh40 billion sector wide debt.

However, most of these problems have been caused by internal inefficiencies and fraud which has seen the current government move to police the sector by creating a regulator.

“The next government will hopefully address problems in the retail sector which is actually the pulse of the economy... and when you see issues like Nakumatt, it’s a huge thing,” said Mr Wahome. 

Business environment

Private sector has significantly slowed down as business take a wait and see approach hoping that a free and fair election will help  Kenya achieve political maturity and ensure peace which will bring back certainty into the business sector.

According to Stanbic Bank’s Purchasing Managers Index, the seasonally adjusted PMI rose from a survey-record low of 47.3 to 48.1 in July, below the neutral 50 threshold for the third consecutive month, the longest sequence of decline recorded since the inception of the series in January 2014.

“Elevated political temperatures and a lack of access to credit for firms and households, kept the Stanbic PMI in contractionary territory for the third consecutive month,” said Jibran Qureishi, Regional Economist for East Africa at Stanbic Bank.

He says the private sector could begin to gradually show some signs of improvement on the ouctocme of a relatively peaceful election.

The financial markets have also seen a drop in foreign investor participation towards the election. The Capital Markets Authority (CMA) in its Soundness report noted that as at June 2017, foreign investors accounted for 57.9 per cent of the total market turnover, compared to 76.9 per cent in March 2017.

In the year to June 2017, in respect of daily participation, foreign investor exposure significantly dropped. “Once there is peace after polls, attractiveness will return and the flows will resume. All will depend on who wins and his economic and political policies.

For Jubilee we are sure but for NASA we are not,” stated Iraki. The new government will need to step up activities in the Nairobi International Financial Centre which has been enacted into law and take advantage of the double tax agreement signed with  the United Arab Emirates to garner more financial deals.

The government will also need to rump up activities in the financial markets to ensure the pioneer CMA products such as M-Akiba, Real Estate Investment Trusts, Gold Exchange Traded Funds and Asset Backed Securities take off.

According to Dr Ogola, Kenya remains attractive to invest in, but goodwill is low due to political stability index and also corruption. 

Rate cap

Businesses have also complained about the interest rate caps being sighted as the major handicap that will affect economic growth this year, besides the elections.

“In the event that the interest rate capping law remains in place longer, economic activity is unlikely to improve meaningfully over the near to medium-term,” said Mr Qureishi.

Dr Iraki however opines that the rate cap ‘is likely to be repealed’ because it does not make economic sense.

The new president will not have the political burden that forced the hand of the current government into price controls but the president-elect will have to approach the issue with the precision of a surgical blade.

Thanks to a study by CBK, the President will have policy guideline to remove the pain of rate cap but enforce some reform so that lenders do not return to the days of charging rates above 20 per cent.

CBK is also working with credit information sharing agencies and Credit Reference Bureaus to have lending priced individually. This will see borrower not lumped up together or charged a flat rate, as was in the past where good borrowers shouldered the burden of defaulters.

“The then president will need to either kill the interest capping or make other financial reforms to enable interest capping working by stopping banks from borrowing too much to the government at the expenses of the SMEs,” Mr Ogola said.

“Remember India did away with interest capping in a way that led to the expansive growth of financial services and also the GDP as a whole.”



On the economy, the government will need to reassess its sources of funding, especially since the Eurobond season in Africa has just ended. Kenya’s debt stands at over Sh44 trillion.

Already, African countries have been turning to the International Monetary Fund with defaults in countries such as Mozambique and Congo and expensive refinancing in Ghana as well as slowdown of commodity prices that attracted many commercial lenders to African bonds.

The next president will be faced with the October 2015 syndicated loan that is maturing and the fact that the current government has committed to PTA Bank to offer a Eurobond in two years to secure the January syndicated deal.

“I have done some work with PTA Bank, I believe they offer value and it’s not bad to continue with the deal. But the president-elect needs to come up with alternatives instead of just picking a deal that first present itself,” noted Ogolla.

“The government is lazy is getting an optimal solution... therefore pick the most appropriate strategies for financing the syndicate loan. Any serious presidential candidate should be thinking about this already,” said Dr Ogola.

The executive office will need to reassess debt strategy, according to Iraki, who observed that they should even consider the unpopular move and ‘raise taxes to fund projects or scale down borrowing or reschedule debt payments’.


Expenditure (Growing wage bill).

Ballooning wage bill is another issue that has frustrated most Government’s progressive plans to build roads, schools, or ensure every Kenyan has access to affordable healthcare.

A good chunk of the country’s budget goes to the recurrent expenditure which includes administrative costs as well as paying salaries. This has denied development projects of much-needed funds.

Between July and December 2016, ministries, departments and agencies spent a total of Sh612.7 billion, according to figures from the Controller of Budget.

Out of this, more than half, Sh347.9 billion, went into recurrent programmes. About 43 per cent of this, or Sh149.5 billion, was spent on personnel emoluments.

Only Sh264.7 billion went to development, a devastating state of affairs for a country that has cast its eyes on becoming an industrialised economy by 2030.

The Salaries and Remuneration Commission has tried to nip the problem by cutting the pay and additional perks of 2,222 MCAs, 349 MPs, 67 senators, 47 governors and the President among other top earners in public service.

There is a lot to be done especially on the back of workers agitating for better pay including teachers, doctors, nurses and lecturers.

Dr Iraki opines that it is difficult to deal with the problem since workers will not stop asking for money and the government may not find it politically correct to fire public servants. “Who wants to sack anyone as in the private sector? Workers tasted blood, they will want more . This needs a bold action like linking pay to productivity,” Dr Iraki said.

Dr Ogola however says it is not justifiable to continuously increase salaries, reinforcing that Kenya should instead address the cost of living.

“The wage bill thing is historical and it’s hard to think of a short-term strategy. But pushing in the direction of improving productivity as the wage bill goes up will be appropriate. This rise in wage bill isn’t necessarily good for the economy since it makes Kenya un-competitive but can be sorted out by addressing the cost of living, through managing inflation,” he said.

So much that President Uhuru Kenyatta launched the national debate on public wage bill sustainability, noting that the “growth in public sector wage bill is unsustainable and unacceptable.”

He even went ahead and dismissed a court decision that had awarded teachers a hefty pay hike, saying: “That was a court error. I can’t pay, I won’t pay.” Unfortunately, as the country came close to an election, the President had somehow found money somewhere to give teachers a handsome pay increase.

Corruption and resource wastage

“What do you want me to do?” This statement, associated with President Uhuru Kenyatta, has become popular among his critics, who have wanted to demonstrate how helpless he has been in the fight against graft.

The President said this during the State Summit on corruption, blaming Judiciary, the Director of Public Prosecutions’ office.

“Show me any one administration since independence that has taken action on corruption like I have done. I have removed everybody. I have done part, at great political expense, by asking these guys to step aside,” said President Kenyatta.

The fight against corruption is one which has never been won by successive Governments since independence with the country constantly in the infamous club of most corrupt countries in the world, according to Transparency International’s Corruption Perception Index.

In 2016 Kenya was ranked 145 out of 176 countries in the index, ahead of failed or fragile states such as Somalia, Chad, Libya, Chad, Burundi, Democratic Republic of Congo and Zimbabwe.

From the National Youth Service Scandal in which the taxpayers lost close to Sh1 billion to dubious projects, to Afya House Scandal in which close to Sh5 billion was said to be lost through dodgy deals, corruption has haunted President Kenyatta’s administration just as Mwai Kibaki’s administration before him.

The Guditor General’s report showed that expenditure worth billions of shillings could not be accounted for by both the county and national governments.



It is not clear what fraction of the Kenyan population that has reached the working age is unemployed as the Kenya National Bureau of Statistics does not give this data. Some quarters have estimated that about 40 per cent of Kenyans are unemployed, a good chunk of this population being young people.

The World Bank, however, has estimated that unemployment in the country has increased from 18.8 per cent in 1991 to 22.2 per cent in 2016.

Although the economy has been churning out on average 800,000 jobs annually, over 80 per cent of these jobs have been low-paying informal jobs that can barely sustain workers.

Most firms have also been laying off staff in droves due to tough business environment with some being forcing to close shops and move their operations out of the country. This leaves a huge gap for the new Head of State to fill.


 Other issues

The president elect will also have to figure a way to boost exports, industrialise and export more through value addition. “The then president needs to invest in sectors that would generate income especially with exports,” Dr Ogola said.

For instance, there are so many local industries that can be build, SME investing and access to credit will assist this,” Dr Ogola said. It is also widely expected that if the country avoids a period of uncertainty as in the case of a re-run, the economy will pick up.

Dr Ogola  notes that in the US, there is a believe that if you give tax breaks to either middle class or the upper class, there is an impact on the GDP.

While Barack Obama believed that tax breaks to the middle class makes a better America with regards to GDP, Mitt Romney believed that tax breaks to the upper class builds a stronger America.

“NASA candidate Raila Odinga in the debate talked of growing informal sector and SMEs to grow a stronger economy while Jubilee believed that providing infrastructure and energy would bring the trickle down effect. In that regard, the then president just needs to use data, evidenced based decisions and bring back our GDP,” Ogola said.


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