Economy
Kenya is moving again as the economy reverses with seven consecutive declines
Wednesday 05 July 2023
Karaoke Jatiba arranges groceries at his stall in Nyeri City Market on May 3, 2023. Photo | Joseph Kanye | NMG
Kenya’s economy has reversed seven consecutive quarterly growth declines after pulling back from a protracted election period and a season of unemployment growth defined by rising inflation.
The latest official figures show that in the three months through March the economy posted the fastest growth in the past four quarters, defying a rising cost of living caused by a prolonged drought.
The quarter ending in March was the first time the economy pressed seven straight declines from a high of 10.3% in 2021 to 3.7% in December, indicating glimmers of recovery from post-pandemic global supply disruptions.
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Kenya’s National Bureau of Statistics (KNBS) reported on Tuesday that the country’s gross domestic product grew by 5.3 percent in the first quarter of the year, faster than the 3.7 percent rate in the previous period ending in December 2022.
The growth rate was also higher than the quarter ending in September (4.3 percent) and the second quarter of last year (5.2 percent), when the country faced the twin shocks of a severe drought and global supply disruptions linked to Russia’s invasion of Ukraine.
However, the expansion of economic activity in January-March 2023 was slower than 6.2 percent in the same quarter last year before the country began to feel the full impact of the Russia-Ukraine war on global supply chains.
The National Bureau of Statistics attributed the performance primarily to “sufficient rainfall,” which lifted agricultural activities to a growth of 5.8 percent, the first since the last quarter of 2020.
“Growth was largely supported by a recovery in agricultural activities, which grew by 5.8 percent due to adequate precipitation during the quarter under review,” KNBS wrote in its first-quarter GDP report.
The remarkable improvement in the performance of the sector is attributed to the favorable climatic conditions that led to an increase in production, especially the production of food crops during the period under review. The performance was evident in the significant increase in the exports of vegetables and fruits, which were recorded during the previous quarter.
Despite the overall growth in agricultural production compared to the same quarter of last year, producers of tea, coffee, sugarcane and milk recorded weak production on the back of severe drought from previous quarters.
Shipments of milk to processors decreased by 15.7 percent to 166.5 million litres, tea by 13.0 percent to 118,100 metric tons, and coffee by 5.4 percent to 11,284.9 metric tons.
However, shipments of sugarcane to mills rose 0.4 percent to 2.17 million tons.
The Russia-Ukraine war has affected global fertilizer supplies, leading to a price hike that hit farmers harder last year, sending prices of food crops, including staple corn, soaring amid a prolonged drought said to be the worst in four decades.
And KNBS data showed that the resulting food inflation dragged the expansion of economic activity in the quarter of the review, by putting pressure on household budgets at a time when real salaries remained negative for the third year in a row.
The inflation rate – a 12-month measure of the cost of living – was 9.13 percent in the January-March period compared to 5.34 percent in the corresponding period in 2022.
This was mainly driven by higher food and energy prices amid a weaker shilling, which fell 11.1 percent against the US dollar, the reserve currency in international trade.
The Central Bank of Kenya, which is tasked with stabilizing demand-driven rates, increased its benchmark interest rates to 9.50 percent in the review period from 8.75 percent to manage expectations of a further increase in the cost-of-living measure.
Increasing the prime lending rate makes borrowing more expensive as banks use the rate as a basis for loading their spreads when pricing loans.
Growth in the benchmark central bank rate, technically known as (monetary) policy tightening, is expected to prompt consumers to cut or defer spending on luxury goods, thus helping to curb rising inflationary pressures from the demand side.
Rising inflation amid the depreciation of the shilling hurt output in the manufacturing sector, which relies heavily on overseas markets for supplies.
Growth in the sector slowed to 2.0 percent from 3.8 percent in the first quarter of 2022, supported by the production of bakery products such as bread as well as the processing and preservation of fish.
Activities in the transportation and storage sector also slowed to 6.2 percent from 7.7 percent a year earlier, supported by rail services amid rising fuel costs, which hurt road transport fares.
Growth in the construction sector, which was largely driven by public investment in infrastructure projects, slowed by half to 3.1% from 6.0% previously on the back of lower cement consumption.
Other sectors that recorded slow expansion include financial and insurance services to 5.8 percent from 17.0 percent due to higher cost of borrowing, and information and communication technology to 8.7 percent from 9.0 percent.
Accommodation and food services – for which real value added to the economy has not yet recovered to pre-pandemic levels – increased by 21.5 percent compared to 40 percent.
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KNBS said: “The accommodation and food service activities sector is growing steadily due to the dissipation of the effects of the Covid-19 pandemic, which has consequently improved the economic environment in most tourist destinations.”
“Visitor arrivals through the two major airports (Jomo Kenyatta International Airport and Moi International Airport) increased by 50 per cent from 225,321 visitors in the first quarter of 2022 to 337,937 visitors in the quarter under review.”
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