Why Kenya economy is finally out of bad times

By James Anyanzwa and John Njiraini

The worst is over, the economy is finally looking up, and Kenyans can look into the future with optimism.

This is the general message the Government is sending to Kenyans after a tough period characterised by runaway cost of living, recession and general apathy.

The changed fortunes are evident after the economy emerged from the abyss of dampening growth of 1.7 per cent in 2008 to 2.6 per cent last year.

The positive growth is expected to continue in the coming years with a projected growth of between 4-5 per cent this year. But with the economy on a rebound buoyed by favourable weather, the hard living conditions that have weighed heavily on many Kenyans appear to be thawing away. "The growth is definitely back on track," declared Planning Minister Mr Wycliffe Oparanya when he launched the 2010 Economic Survey. The annual survey is usually released a few days before unveiling of the national budget, which Finance Minister Mr Uhuru Kenyatta yesterday announced would be read on June 10.

Strong footing

Oparanya whose docket also includes National Development and Vision 2030 revealed the effects of post-election violence, prolonged drought and the global financial crisis on the economy have largely eased off and the country was back on a strong footing.

The resurgence was attributed to good performance by the tourism sector, which proved itself to have recovered from the scare and damaging effects of the post-election violence.

Also playing pivotal roles were the building and construction industry, transport and communication sector and the Sh22 billion economic stimulus package.

The 2010 Economic Survey indicates that the agricultural sector continued to plummet for the third year running, despite prospects of improved economic growth. [PHOTO: MARTIN MUKANGU/Standard]

The revival of economic activities coupled with the Government’s intervention measures resulted in an improvement in job creation with the number of new jobs registered last year growing to 55,500, up from 34,000 the previous year.

Both the private and public sectors recorded positive growths in employment of 3.1 per cent and 2.4 per cent respectively.

Total employment, excluding those in rural small-scale and pastoralist activities, grew by 4.5 per cent to 10.4 million, mainly due to favorable business environment, availability of credit from financial institutions and increased investment opportunities last year.

The recovery of the global economy, which recorded a negative growth of 0.8 per cent last year, is expected to contribute to increased demand for Kenya’s exports and a higher number of tourist arrivals. According to the survey, hotels and restaurants sector grew by 4.2 per cent in 2009 compared with negative 36.1 per cent in the previous year, while building and construction registered a 14.1 per cent growth, up from 8.2 per cent recorded in a similar period the previous year.

Transport and communication recorded a 6.4 per cent growth, up from 3.1 per cent in 2008, financial intermediation posted 4.6 per cent growth from 2.7 per cent in 2008.

The overall government expenditure on roads is projected to rise to Sh60.8 billion in 2009/2010 fiscal year against Sh46.4 billion registered in 2008/2009.

Fishing activities expanded by 7.4 per cent compared with a negative 13.2 per cent in the previous year.

Political stability

The turnaround in the tourism sector was attributable to successful tourism promotion, recovery from the effects of the post-election violence and the reversal of global recession and increased political stability.

However, the agricultural and manufacturing sectors, which are critical components of the economy continued to plummet for the third year running.

Growth in these sectors declined mainly due to poor weather conditions, high input costs, depressed demand both in the regional and international markets, competition by cheap imports and high energy costs.

Agriculture and Forestry, which constitutes 25 per cent of the country’s economy contracted by 2.7 per cent in 2009 having shrunk by 4.3 per cent the previous year.

On the other hand manufacturing sector grew by two per cent compared to 3.6 per cent in the previous period. Mining and Quarrying recorded a negative growth of 4.2 per cent, with electricity and water supply registering a negative 3.1 per cent growth.

Oparanya said sustenance of the government’s economic stimulus programme over the next two years would restore the economy onto a higher growth trajectory. "If we continue with the economic stimulus we should be able to grow our economy even more," he said.

The Government is hoping to revamp economic activities in order to achieve and sustain the growth rates at 10 per cent in line with the Vision 2030 objectives.

Oparanya emphasised the need to utilise local resources to grow the economy to the projected levels. "Sincerely, if we have to grow we have to depend on our own local resources. My appeal is that we collect more taxes and use them to grow our economy," he pleaded.

The financial sector, which has been selected as a key pillar for the attainment of the Vision 2030 objectives expanded by 4.6 per cent in 2009 compared to 2.7 per cent the previous year, mainly due to increased profitability by banks.

Expansion in domestic credit, however, slowed to 18.2 per cent compared to a growth of 23.3 per cent in 2008. The minimum cash ratio requirement was reduced to 4.5 per cent by July 2009, up from 6 per cent in December 2008.

Total electricity generation rose by 0.2 per cent to 6,468.8 Giga-watt per hour (GWh) from 6,455.6GWh in 2008. Electricity production from hydroelectric power sources declined by 35 per cent — to 2,122 GWh — from 3,267 GWh. The decline was attributed to low water levels at the power generation dams resulting from inadequate rains.