Highs and lows of economy in 2015

Like a galleon on the high seas, this year, the economy has tumbled through violent storms. It has also sailed on peaceful waters of stability and optimism. We highlight the highs and lows as 2015 comes to a close.

Boost for tourism

The year has been gripped with fervour, which grew into a bright optimism as Kenya hosted important conferences and world leaders pitched camp. A remarkable national pride was evident on the faces of Kenyans as they spent time and resources in playing good hosts. US President Barack Obama’s July visit opened the world’s eyes to the fact that Kenya is no longer a struggling, insecure country where tourists are ever in danger of Al Shabaab attacks.

The world saw Kenya in different light and investor confidence was boosted, with many American businesses expressing interest in venturing into various sectors. The Obama entourage spent an estimated Sh5.7 billion in the two days it camped in Nairobi.

Like an ancient pilgrim making a journey to a holy land, Pope Francis sauntered into town with a majesty that captured the hearts of all Kenyans. His visit did not only send a religious message to Christians, but also asserted the security Kenya enjoys and the strength of the institutions that hosted him. This went a long way into putting the country in the global eye and assured all and sundry that it is safe to invest here. Besides, when the Pope was asked whether he fears terrorists here, he answered: “I fear only mosquitoes.”

The 2015 Global Entrepreneurship Summit was held in Nairobi on July 25-26. The Summit was the sixth annual gathering of entrepreneurs at all stages of business development - business leaders, mentors, and high-level government officials. It was the second to be held in Africa after Morocco’s 2014 edition. In this summit, US President Barrack Obama promised over Sh100 billion for youth and women entrepreneurs across the world, with Kenya becoming a major beneficiary. Beyond money, one million young entrepreneurs are to be trained by the US private sector, amid a host of other economic gains.

The WTO tenth Ministerial Conference that happened mid-December was the first of its kind in Africa. It pulled businessmen and trade ministers from all over the world, and for a time Kenya was the talk in international media on trade matters. Though the Doha round talks were not concluded, a series of small victories such as fishing subsidies and import tariffs for devices like mobile phones were promised.

Low oil prices

It came as welcome news when the prize of crude oil per barrel went down from a high of $76.5 (Sh7,878) to a low of $40 (Sh4,093). Given that oil forms the bulk of our imports, such a sharp drop could drive down inflation and ensure Kenyans enjoy a high lifestyle at small cost. Although cheap oil is wreaking havoc on exploration companies, if the prices remain the same or drop further, 2016 could be a promising year economically for non-oil producing countries.

Low power connection fees

It came as a sweet surprise when Kenya power lowered electricity connection fees from Sh35,000 to Sh15,000 to enable more Kenyans to be connected to the national power grid. It became even sweeter when President Kenyatta announced that those without money can be connected but keep paying in small installments.

The rural electrification programme that was started by former President Mwai Kibaki has also gained momentum with many rural homes and businesses being connected. Electricity is the backbone of socio-economic development of any country and is associated with provision of numerous services to people which directly enhances their quality of life. With increased connectivity, economic prospects could go up.

Largest geothermal plant

Kenya’s 280 MW Olkaria geothermal power plant which is the world’s largest, is providing almost 20 per cent of the nation’s total power capacity. Kenya is among the world’s most active regions for geothermal development, and figures from the Kenya National Bureau of Statistics show that 381.6 MW of geothermal power was generated in December alone. According to the Kenya Electricity Generating Company (KenGen), geothermal power now accounts for 51 per cent of the nation’s installed power capacity, displacing hydropower as the top energy source. With this kind of energy, there could be low reliance of the expensive thermal energy.

Imperial Bank under receivership and Dubai Bank closure

The central Bank of Kenya (CBK) put Imperial Bank under statutory management in October this year, after learning that ‘unsafe and unsound’ business conditions existed in the bank. The move put a spotlight on banks in the country, and sent a cue to Uganda where all its subsidiary was also placed under receivership.

Sad tales of customers who had placed their life-long savings in fixed deposit accounts in the bank, tore the country’s spirit and marked a new low in confidence within the banking sector. The Capital Markets Authority, (CMA) had a few days earlier okayed the lender to raise Sh2 billion corporate bond, a move that had many wondering whether Imperial Bank had all along escaped the regulator’s eye. Barely a month before in August, Dubai Bank had come tumbling down for failing to pay its debtors and flouting regulatory rules. CBK ordered its closure and subsequent liquidation.

Slowing economy

The economy slowed due to delays in planned road infrastructure spending, weaker tourism receipts, and volatile external capital flows. The IMF cut Kenya’s 2015 economic growth forecast to 5.6 percent from the projected 6.5 per cent. The slowing economy saw more than a dozen companies report suppressed earnings and others issue profit warnings. Since the beginning of the year, a total of 14 listed companies have issued profit warnings, with shareholders watching in despair as billions of shillings get wiped out from the book values of several firms. The Parliamentary Budget Office (PBO) also cut Kenya’s growth targets to 4.8 per cent, following in the footsteps of IMF.

High interest rates

The government is ahead of target in its domestic borrowing programme, having borrowed Sh175.5 billion (total domestic borrowing is set to be Sh219 billion for this year) for the current fiscal year compared to a target of about Sh109.5 billion. Assuming a pro-rated borrowing throughout the financial year, the pressure on rates is expected to persist. Most of these borrowings are short-term instruments that mature within the current fiscal year and the government will face pressure in refinancing the obligations as they mature. The government sought to borrow Sh78.8 billion in syndicated loans from local banks to plug a gaping Sh600 billion hole in the budget, which was brought about by low tax collections and lack of thriftiness.

The government’s borrowing ways, pushed the Treasury Bill and bank interest rates to highs of 23 per cent last seen more than a decade ago. The pressure to borrow more led investors to demand higher returns. The Central Bank of Kenya raised the benchmark rate by 300 basis points to 11.5 per cent, in an attempt to stem a sliding shilling. Banks reacted swiftly by increasing the cost of loans to as high as 27 per cent. Families and small businesses were hit hard and discontent soured all over.

Year of Scandals

It was also a year of scandals that shocked the country reminiscent of Goldenberg and Anglo-Leasing days. The scandals affected investor confidence and slowed down the economy. Politicians and civil servants were linked with bribery claims from the tobacco company British American Tobacco (BAT).Respected names in the public domain were said to have received bribes in order to let the company easily access the Kenyan market.

Also, questions were raised on how the $2.75 billion Eurobond was used. The information memorandum that the government issued ahead of its going to the international debt market was that the money would be used to finance general budgetary spending and infrastructure projects such as expansion of airports, sea ports, roads, pipelines, and geothermal plants.

Kenya received Sh196.9 billion as net proceeds of the Eurobond.Proceeds of the bond were initially used to settle a costly Sh68.1 billion syndicated loan borrowed from commercial banks in 2012 to fund development projects. But now the Treasury has admitted that it cannot identify projects financed by the sovereign note, a rather strange admission that smacks off scandal.

High inflation rate

By November this year, the inflation rate had hit 7.32 per cent from 6.72 per cent the previous month. The expenditures of both urban and rural households were highly affected, with prices of basic commodities soaring. For seven times this year, the inflation rate has been higher than the 6.02 per cent rate at the end of 2014. It was little wonder that by December, the consumer food basket had become quite expensive. And yet Central Bank Governor Patrick Njoroge says he is okay with the current inflation rate.