Key economic indicators blink red as Kenya shifts from polls

Ugali and Kunde the delicacy affected by overpricing of flour in shops and wholesales  PHOTO DAVID GICHURU

As the country got lost in the hubbub of the General Election, the Kenya National Bureau of Statistics released its Leading Economic Indicators for June 2017. And if the leading presidential candidates cared to look at the report, they would have realised that a number of indicators were actually blinking red.

This is where President Uhuru Kenyatta - if the Supreme Court vindicates him after his competitor Raila Odinga challenged his win in Court - will begin his second term.

Although a number of macro-economic indicators such as interest rate, inflation and exchange rate are not in the red, they are not in safety either. The cost of living is still beyond the reach of most Kenyans, banks are not extending loans to the private sector and the country’s exports have stagnated.

Dr Scholastica Odhiambo, an Economics lecturer at Maseno University, says the uncertainty around the elections brought turbulence into the economy, with investors uncertain as to who was going to take over the Government.

“During the elections, prices tend to go down and inflation might also go up as a result of political spending,” she said, adding that that is why most indicators are dipping.

“Even at the NSE, people sell their stock as investor confidence dips,” said Dr Odhiambo, noting that on Election Day, all businesses were on standstill awaiting the outcome.

Weekend Business gleaned through the report, and here is a list of the indicators and how they are doing.

1. INFLATION

Life got harder for the urban poor and those in the rural areas as prices of basic commodities increased in the first six months of 2017 compared to the same period last year. This is after an analysis of changes in the Consumer Price Index (CPI) which measures changes in the prices of a basket of consumer goods and services purchased by households.

CPI for low-income households in Nairobi and those in rural areas increased at a faster rate than the national average, as prices of basic commodities such as maize flour, sugar and vegetables surged.

Poor people in Nairobi suffered the most - perhaps due to the high cost of living in the capital with food alone taking up a huge chunk of their meagre income.

The index for the low-income in Nairobi rose from an average of 170.1 in the first six months last year to 187.7 in the same period this year, an increase of 10.3 per cent.

This was not the case with the middle and upper-income population, whose CPI increased by 6.9 per cent and four per cent respectively. Price changes among the middle income went up from 144.4 to 153.4 while that of the upper-middle increased from 145 to 151.

Life in the rural areas, where most Kenyans eke out their living from farming, was marginally better than for the poor in Nairobi. CPI for rural folks increased by 20 per cent from 166.9 in the first six months of 2016 to 186.8 in the same period this year.

The average year-on-year inflation that had jumped to a five-year high of 11.7 per cent in May 2017 has since climbed down to within the Government’s desired level of 7.47 per cent in July as the effects of the drought start to wear off.

2. INTEREST RATES

Policy makers might not be worried so much about the oscillations of interest rates charged by banks on loans after Parliament put a ceiling on the cost of lending.

However, there have been mixed feelings on whether the capping has impacted negatively on credit extension to the private sector which grew at an all-time low of 2.1 per cent, according to figures from the Central Bank of Kenya (CBK).

Average interest rates charged by commercial banks dropped from 18 per cent in January 2016 to 13.66 in January 2017 following the enactment of the Banking (Amendment) Act, 2016.

But even as the credit extension to the private sector has stagnated, with the IMF blaming it on the interest rate control, CBK has for the last seven months declined to tinker with the benchmark rate, noting that constrained lending could not necessarily be as a result of monetary policy issues.

It will be interesting to see how the Government handles the credit control conundrum in the next five years.

3. EXCHANGE RATES

At the beginning of 2017, the shilling was on a free-fall against the US dollar - albeit not against other major currencies. At some point, the currency weakened against the greenback, touching a 15-month low of 103.60/80 to the dollar.

With a weaker shilling against the dollar, the country’s exports got a knock but the bad situation did not last long. The shilling has since stabilised at around 103 against the dollar.

It could even strengthen against the dollar with the greenback beginning to weaken as investors come to the realisation that Donald Trump’s lofty promises of cutting interest rates and investing more in public infrastructure might not come to be.

4. NSE 20 SHARE INDEX

Trading at the Nairobi Securities (NSE) was, surprisingly, impressive during the electioneering period, with the benchmark index hitting a 22-month high a day after President Uhuru Kenyatta was declared the winner.

According to KNBS, although the NSE 20-Share Index dipped slightly to 3,607 in June, 2017 compared to 3,641 in the same month last year, it shrugged off the effects of the elections, trading well above the psychological mark of 3,000 for the better part of the year.

Only in January and February 2017 did the index go below the 3,000 mark.

05. Agriculture

Agriculture is still reeling from the effects of the drought that lowered harvests of critical food crops, including maize, potatoes, cabbages, sukuma wiki and sugar. Production of maize, Kenya’s staple, declined considerably due to poor rains.

In the first five months of 2017, the quantity of coffee sold at the Nairobi Coffee Exchange went down from 24,735 tonnes to 22,933, though the price improved from an average of Sh397 per kilogramme to Sh455 in the same period.

The script was the same with tea, whose production went down even as the produce fetched better prices in the world market.

Quantity of tea produced went down from 249,353 tonnes between January and June 2016 to 200,912 in the same period this year. However, the average price went up from Sh240 per kilogramme in 2016 to Sh309 in 2017.

Sugar, which went missing from the shelves of most supermarkets forcing the Government to open the borders for entry of the sweetener, has suffered in terms of production.

The quantity of cane delivered for milling declined by 33 per cent from 3.1 million tonnes in the first five months of 2016 to 2.1 million metric tons in the same period this year.

6. EXPORTS AND IMPORTS

The country’s international trade is not as impressive, with the trade imbalance stagnating.

Moreover, Kenya’s grip on the East African region seems to be loosening especially in Tanzania, with the quantity of goods sold to Dar-es-Salaam reducing sharply in the first half -- blamed on a trade spat between the two countries.

Kenya’s exports to its neighbour reduced by a third in the first five months of this year, a trend that is likely to be sustained throughout 2017 if efforts to resolve diplomatic and trade rows are not successful.

Although exports to Uganda did not dip, they grew at a dismal rate of 1.9 per cent, a situation that saw Pakistan overtake Uganda as Kenya’s leading export destinations within the period. The value of exports to Uganda increased marginally from Sh21.5 billion in the first five months of 2016 to Sh21.9 billion in 2017.

There was, however, a dramatic increase in imports from China, UAE and Saudi Arabia, a situation that might have wiped out a good chunk of the country’s foreign currency reserve and worsened the current account deficit.

7. BUILDING AND CONSTRUCTION

The value of building plans approved by the County Government of Nairobi dropped by 16 per cent in the first five months of this year compared to the same period in 2016.

Total value dropped to Sh105.7 billion from Sh126.3 billion, pointing to slowed construction activities this year. The reduction was attributed to heightened political campaigns.