Tough economic times for Kenya persists as shilling weakens

The economy grew by 3.8 percent in the fourth quarter of 2022 supported by robust activities from the services sector as compared to 8.6 percent in a similar quarter of 2021. 

High Inflation

The overall inflation declined marginally from a peak of 9.4 percent in the fourth quarter of 2022 to 9.1 percent. 

The lynchpin agriculture sector performed miserably growing by a paltry 4.8 percent as compared to 7.6 registered in 2021.  The poor performance in the agriculture sector was due to low production of select food crops such as maize, fresh produce, tea, milk, and exported vegetables. 

Cut flowers also performed lower than expected. However, production of cash crops such as coffee, sugarcane, and fruits for exports increased, but with little economic muscle. 

Also driving up the inflation figure was the unrelenting fuel prices as the government removed fuel subsidies which left consumers vulnerable to local and international fuel price shocks. Fuel inflation increased to 13.7 percent from 13.0 percent in the previous quarter, reflecting the elevated international oil prices. 

The story was not different at the Nairobi Securities Exchange where Market capitalization declined by 11.6 percent, a direct pointer to the steady movement away from the bourse by wary investors.

The Non-Agriculture Sector

The non-agriculture sector was the main driver of growth in 2022. It grew by 6.3 percent compared to 9.5 percent in 2021, heavily driven by strong performance of the services sector. It contributed 5.2 percentage points to real GDP growth.

The Services Sector

A key player in the non-agricultural sector, the services sector recorded healthy growth of 7.0 percent compared to 9.8 percent in 2021 and contributed 3.9 percentage points to real GDP growth. 

This sector includes transport and storage, financial and insurance, information and communication, and accommodation and food services. 

The Industrial Sector

It forms a part of the non-agricultural sector which registered a deceleration in 2022. The sector recorded a low growth of 3.9 percent compared to 7.5 percent in 2021 and contributed a paltry 0.7 percentage points to real GDP growth. The slowdown was reflected within the manufacturing, electricity and water supply, and construction sub-sectors. 

The manufacturing sub-sector growth slowed down to 2.7 percent from 7.3 percent in 2021, on account of low agro-processing activity, following subdued performance of the agriculture sector. 

However, there was increased production of motor vehicles, vehicular fabrications, and structural metal products. The manufacturing sector, with more conceptual blueprints than other sector, continued its downward spiral with a dwindling outflow of manufactured goods.

The construction sub-sector, a key pillar of the industrial sector, expanded marginally by 4.1 percent as compared to 6.7 percent in 2021. This was mainly supported by civil works such as construction and maintenance of roads. 

However, the importation of construction materials such as cement clinkers, iron and steel, non-ferrous metals, and structural metals declined. The sector recorded a miserable growth of 2.4 percent in the fourth quarter of 2022 compared to 7.0 percent in a similar quarter of 2021, reflecting a slowdown in public infrastructure activity with the resultant effect of slumped employment and minimal trickle-down economic activities. 

The Balance of Payments

The current account balance is estimated to have narrowed to USD 1,092 million in the first quarter of 2023 from USD 1,225 million in the first quarter of 2022, reflecting a decline in imports and good performance in exports of goods. 

The lower import bill was attributed to a decline in the importation of manufactured goods, machinery and transport equipment. 

Secondary income inflows remained strong and improved by USD 181 million to USD 1,806 million in the first quarter of 2023 from USD 1,624 million in a similar quarter in 2022.

Debt situation

Kenya’s overall Public Debt, and publicly guaranteed debt increased by 2.7 percent during the third quarter of FY 2022/23. Domestic and external debt increased by 1.5 percent and 3.8 percent, respectively. 

The 1.5 percent increase in domestic debt was on account of increased uptake of Treasury bonds. The share of domestic debt to total debt decreased by 1.6 percentage points to 48.3 percent by the end of the third quarter of FY 2022/23 from 49.9 percent in a similar quarter in FY 2021/22. 

The proportion of debt securities to total domestic debt stood at 97.7 percent by the end of the third quarter of FY 2022/23, same level as in a similar quarter in FY 2021/22.

Ratio of public debt to GDP was estimated at 69.1 percent by the end of third quarter of FY 2022/23 compared to 68.4 percent in the previous quarter

Way Ahead…

The way ahead is still scuttled with a lot of “socio-economic debris” as a result of political and economic upheavals orchestrated locally and internationally, not for the faint hearted. 

The inflation figure of 9.1 percent is however still beyond the comfort zone of a maximum of 7.5 percent.

The Kenyan shilling is still in the rough seas way after it left shore, exchanging at Ksh142 to the USD, it is a rough guess as to when it will throw down its anchor. 

In 2022, it was stated that for every one hundred shillings collected almost sixty percent goes towards debt payment, if this persists it is catastrophic. 

High fuel prices will undoubtedly continue to feature prominently in the second and third quarters economic reviews, as the government raised VAT on it from 8% to 16%. 

Manufacturing persists in only getting nice blue prints and calls to action, agricultural production remains subdued as favorable weather eludes farmers.  

There are still a number of factors such as the war between Russia and Ukraine working to the detriment of Kenya’s economy not to mention a regime of tough economic times world over. 

Kenya’s chief economist must act prudently and decisively to manage the macro-economic factors that are key to a thriving economy.