Why Kenyans did not eat a GDP growth of 6.3 per cent in 2018

Treasury Cs Henry Rotich during the launch of 2019-2022 economic survey at KICC. [Beverlyne Musili/Standard]
Experts have differed over the Government's statistics on the state of the economy.

Yesterday, Treasury Cabinet Secretary Henry Rotich's economic survey report showed an extraordinary 6.3 per cent gross domestic product (GDP) growth in 2018, despite skepticism from several reputable economic institutions.

While few experts were willing to publicly poke holes in the numbers by the Kenya National Bureau of Statistics, Samuel Nyandemo, an Economics lecturer at the University of Nairobi, dismissed what he termed as 'Rotich’s numbers'.

“I don’t think so (economy growing by 6.3 per cent). It should be 5.4 per cent. Those are Rotich's figures,” said Mr Nyandemo, who attributed his estimate to independent institutions.

6.3pc growth

The report released by Mr Rotich has rekindled debate on whether GDP figures have any bearing on the lives of ordinary Kenyans.

The Government was decent enough to acknowledge that it had not figured out a way to share this prosperity with the masses.

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Rotich recognised in his speech that the 6.3 per cent growth was not enough to dent endemic poverty and inequality despite the Government prioritising investment in health and education to tackle the two problems.

“…there is a need to redistribute this wealth and jobs by investing in health and education,” said Rotich while unveiling the Economic Survey 2019, which is a compilation tracking the economic performance over the last year.

Rotich’s view about unequal growth suggests that the opportunities created in the economy are only for a few, but he did not explain how investing in health or education would take wealth to the masses.

The inability to share the reported prosperity is a chronic problem that was recently highlighted by President Uhuru Kenyatta in his State of the Nation address.

“Wananchi want to know what these economic indicators mean to their lives. They cannot relate to how GDP impacts on the price of unga.

Legitimate concerns

"Many of our citizens are wondering why their children are still struggling to find jobs. These concerns are legitimate and every citizen is entitled to have answers from their government,” said President Kenyatta.

In the past, Mark Bohlund, Bloomberg’s Africa and Middle East economist, has questioned the “quality” of data from Herufi House. KNBS’ numbers, he reckoned, did not tell the full story.

In a 2017 interview with Standard, he wondered how the economy was doing well when private sector with poor credit extension to the private.

In 2018, for example, credit to the private sector increased at a slow pace of 1.9 per cent compared to 4.9 per cent in 2017. This growth is slow compared to 25 per cent growth during President Mwai Kibaki’s time.

Robert Shaw, a Nairobi-based economist, said the good rains received last year was the main reason all sectors thrived coming from a “horrible” 2017.

“I think we should have done even better considering that our economy is driven by agriculture,” he said.

Momentum for production picked up throughout the year a slow start which was a hangover period from the effects of the previous year, he added.

“Harvests in the last quarter gave a major boost,” said the economist.

While agriculture rebounded to grow by 6.4 per cent compared to 1.6 per cent in the previous year, maize farmers were still grappling with rotting grains in their silos following a bumper harvest, while tea farmers received little for their leaves as global prices plummeted.

Also, some economic indicators in 2018 painted a picture of an economy in which the private sector was not doing as well as the numbers showed.

Whereas GDP at market prices grew faster from 4.9 per cent in 2017 to 6.3 per cent, taxes on goods and services produced during this period - and which had grown by 5.4 per cent in 2017 - grew at a slower rate of 5.2 per cent, pointing to an under-performance of the private sector.

The private sector is the main taxpayer and when it is not doing well, Government revenues decline. The private sector’s performance in 2018 was underwhelming which raises the question: where did the growth come from?

A tough operating economic environment saw 18 firms that had been profitable in 2017 plunge into losses, pushing up the number of loss-making firms in 2018 to 36 from 31, according to an analysis of audited results for over 100 listed and non-listed companies by our sister publication Financial Standard.

Prominent firms that featured in this list of gloom included the three subsidiaries of Britam Holdings Ltd, Sanlam Kenya, flour miller Unga, Transnational Bank, and private equity fund Abraaj Group. Other companies that saw their financial fortunes dissipate include Dyer & Blair Investment Bank, Old Mutual Securities, ABC Capital and Eveready East Africa.

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Treasury CS Henry Roticheconomic survey reportGDP