Drought, high cost of petroleum products drag down Kenya's economy

A snail used in the illustration of slow economic growth. [Getty Images]

The Kenyan economy grew at a slower pace last year, weighed down by the prolonged drought that has hit the country over the last three years and a higher cost of petroleum imports.

The drought resulted in agriculture, the economy's largest sector, posting negative growth for a second consecutive year. Kenya's real gross domestic product (GDP) - which is the value of all goods and services that Kenyans produced - grew by 4.8 per in 2022.

The growth was slower compared to 7.6 per cent growth in 2021, according to the Economic Survey 2023 published by the Kenya National Bureau of Statistics (KNBS) yesterday.

This is even as the economy generated 816,600 new jobs, a majority of them - 86 per cent - in the informal sector.

Other than agriculture, which registered a negative 1.9 per cent (-1.9) growth in 2022, the economy was battered by the high cost of petroleum products, with the import bill nearly doubling on account of high prices globally.

Covid downturn

At the same time, most of the sectors registered decelerated growth, which KNBS noted was due to the high growth recorded in 2021 as the economy recovered from the Covid-related downturn in 2020.

"The real GDP decelerated from revised growth of 7.6 per cent in 2021 to 4.8 per cent in 2022. On the other hand, the nominal GDP increased from Sh12.03 trillion in 2021 to Sh13.37 trillion in 2022," said KNBS in the survey.

"Most of the sectors of the economy posted decelerated growths mainly due to the significantly high growths attained in 2021 that signified recovery from the economic downturn in 2020. During the period under review, all economic activities registered positive growths except agriculture, forestry and fishing, which contracted by 1.6 per cent."

While agriculture remained the largest sector in the economy, contributing 21.2 per cent to GDP, it has been losing grip with its contribution reducing from 21.5 per cent in 2021 and 22.7 per cent in 2020.

The poor performance by agriculture also affected the cost of living, with the annual inflation rate standing at 7.7 per cent in 2022 from 6.1 per cent.

The higher inflation rate was driven by food and non-alcoholic beverages whose prices rose 13 per cent.

"The increase was mainly attributable to the high cost of food and non-alcoholic beverages (13.1 per cent), transport (8.1 per cent) and housing, water, electricity, gas and other fuels (5.9 per cent)," said the Survey.

National Treasury Cabinet Secretary Prof Njuguna Ndungu said that despite the slower growth rate, Kenya's economy performed fairly when compared to the global economy.

It was, however, lower compared to its East African Community peers, with the region registering a growth of 4.9 per cent on average.

"Despite the drop, this growth is higher than the 3.9 per cent recorded for the sub-Saharan region and 3.4 per cent estimated for the global economy," Prof Ndung'u said yesterday in Nairobi, adding that the economy is still grappling with numerous shocks that will scar it for years to come.

"The nation is seeking ways to foster economic recovery after several layers of persistent negative shocks, some of which are still evident. These negative shocks have impacted on economic activity and the cost of living."

A total of 816,600 jobs were created last year, increasing the number of Kenyans in employment to 19.1 million. A majority of the new jobs were created by the informal sector, with 702,900 new employment opportunities. According to the survey, informal jobs are often concentrated in trade, manufacturing, transport and other services activities.

"Employment in the modern and informal sectors went up from 18.3 million in 2021 to 19.1 million in 2022. A total of 816,600 new jobs were generated in the economy in 2022," said the survey. The economy reeled from the high cost of petroleum products as global oil prices shot up. According to the survey, the total import bill of petroleum products grew by 80.4 per cent to Sh628.4 billion in 2022, which accounted for a quarter of the country's import bill at Sh2.49 trillion.

In addition to the high oil prices, the situation was made worse by the weakening of local currency against major world currencies, which meant that importers had to spend more of the local currency to buy the same quantity of products.

"Expenditure on imports increased by 17.5 per cent to Sh2.49 trillion in 2022 from Sh2.12 trillion in 2021. The growth in the value of imports was largely due to an increase in imports of petroleum products and industrial machinery, which jointly accounted for 36.4 per cent of the total import bill in 2022," said the report.

"During the period under review, there was an increase in expenditure on imports especially due to increased international prices of petroleum products amid the continued weakening of the Kenya Shilling against currencies of key trading partners."

Domestic exports

Earnings from domestic exports increased by 16.9 per cent to Sh779.6 billion in 2022 from Sh666.7 billion in 2021. "The growth was largely due to an increase in earnings from domestic exports of animal and vegetable oils (76.8 per cent), iron and steel (43.9 per cent), coffee (42 per cent), titanium ores and concentrates (39.4 per cent) and tea (24.7 per cent).

Earnings from tea rose from Sh130.9 billion in 2021 to Sh163.3 billion in 2022 accounting for 20.9 per cent of total earnings from domestic exports," said KNBS. The construction sector expanded by 4.1 per cent in 2022 compared to a 6.7 per cent growth in 2021.

The manufacturing sector's growth however slowed down to 2.7 per cent in 2022, compared to 7.3 per cent in 2021.

Transportation and storage sector activities decelerated to a growth of 5.6 per cent in 2022 compared to a growth of 7.4 per cent in 2021.

Accommodation and food service activities sector's real gross value-added grew by 26.2 per cent in 2022 compared to a growth of 52.6 per cent in 2021. The huge leap is on account of the continued recovery of the sector, which was hard hit by Covid-19.

The electricity sector's gross value added grew by 4.9 per cent in 2022 compared to 5.3 per cent in 2021. Financial services and ICT registered higher growth rates in 2022 compared to 2021.