Kenyan economists are predicting a mixed bag for the economy in 2015. But they differ on whether the country will achieve higher economic growth rates as envisaged in the Vision 2030 economic blueprint.
While the optimists say the country will manage a growth rate of above 6 per cent, as was predicted last July during the budget speech, others say it will be business as usual, meaning the economy will only expand by a small percentage as has been the case in the past few years.
Despite their differences, all agree that security and the performance of the agriculture sector will be major determinants of the economy’s performance this year.
Prof Gituro cited tourism as the sector worst hit by insecurity. Tourism is the country’s second biggest foreign exchange earner after tea.
Kwame Owino, the chief executive officer of the Institute of Economic Affairs, said the performance of the agriculture sector, which accounts for 26 per cent of GDP and 65 per cent of total exports has not been good due to unfavourable weather.
“If agriculture performs poorly this year, it will definitely affect growth rates,” Mr Owino said. The economy has been struggling due to over-reliance on rain-fed agriculture.
The country’s breadbasket
According to the Economic Survey 2014, the agriculture sector grew by 2.9 per cent in 2013, compared with 4.2 per cent the previous year, partly due to inadequate rainfall in the country’s Rift Valley breadbasket and some economists argue that things will be the same this year.
Prof Joseph Kieyah, a principal policy analyst at the Kenya Institute for Public Policy Research and Analysis (Kippra), is optimistic. He said the country can achieve the 6.1 per cent growth target, given that the economy has remained stable.
“Yes, the economy has been growing at a slow pace, but we are beginning to see increased borrowing by the private sector. This is a good indication of confidence in the economy,” he said.
The confidence indicator, he added, is reinforced by the increase in foreign direct investment. In the recent past, the oil and gas sub-sector has pushed Kenya’s FDI to high levels.
According to the latest United Nations Conference on Trade and Development (Unctad) World Investment Report, FDI inflows in 2013 stood at $514 million, up from $259 million the previous year, representing a 98 per cent increase.
“Kenya is developing as a favoured business hub, not only for oil and gas exploration in the region but also for industrial production and transport. The country is set to develop further as a regional hub for energy, services and manufacturing over the next decade,” the report says.
Prof Kieyah said that FDI will remain high in 2015 as oil and gas exploration continues, saying international investors have more confidence in the country’s economy.
“2014 was a defining year for the government, as it was mainly spent in laying the foundation for economic growth; 2015 will be the implementation stage. The mega projects being initiated will inject more money into our economy apart from creating employment, hence higher growth rates,” he said.
Prof Gerishon Ikiara, an economics lecturer at the University of Nairobi, is also hopeful, saying the 6.1 growth target can be met, especially if tourism picks up.
According to the Economic Survey 2014, the number of international visitor arrivals decreased from 1.7 million in 2012 to 1.5 million in 2013, mainly due to insecurity, and it is feared that last year’s figures will be even more disappointing. Official figures show in the first quarter of 2014 arrivals fell 4 per cent, compared with the same period in 2013.
“We hope things will be better for the sector in 2015,” Prof Ikiara said.
He said mega infrastructure projects like the standard gauge railway, the addition of 10,000km of roads in the next three years, construction of the Lamu port and the Galana Irrigation Scheme will help stimulate the economy.
“We can achieve a growth rate of between 5.5 per cent and 6.5 per cent,” Prof Ikiara said.
The rebasing of the economy last year increased the size of the country’s GDP to $55.2 billion from the 2013 figure of $44.1 billion. As a result, the country’s 2014 economic growth projection was adjusted to 5.7 per cent from 4.7 per cent.
It is a decision legislator John Mbadi fears will be used by the government in future to manipulate the growth rates and paint a positive picture.
Being ambitious
“The government has perfected the art of being ambitious. Remember, they changed the way of calculating GDP that gave the false impression of higher growth yet we all know the country is underperforming,” said Mr Mbadi, a member of the Parliamentary Budget and Appropriations Committee.
“Tourism is currently on its knees; the agriculture sector has not been performing well; coffee and tea exports are not doing very well at the international market; and last year’s horticultural exports to the European Union were affected since the government did not move fast enough to protect the country’s interests by signing the Economic Partnership Agreement,” Mr Mbadi said.
The EPA has since been signed and Kenya’s horticultural products reinstated to the duty-free regime under the market access regulations. Mr Mbadi also fears that increased government borrowing will affect the country’s economic stability.
Mr Owino said the slump in oil prices will be a boost to the economy as it will reduce inflationary pressures. The inflation rate has remained in single digits and even declined from a high of 8.36 per cent in August last year to the current 6.09 per cent, partly due to low international oil prices.
“We must also ensure that the Kenya shilling is managed at reasonable levels and does not depreciate further and make imports more expensive and affect our economic growth. However, a weak shilling can also help stimulate the tourism sector, but this can only happen if insecurity is fully addressed,” Mr Owino said.
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