Why Kenya’s economic prospects look promising
The year 2018 marked a turning point in Kenya’s economic growth. Projections suggest growth will be on an upward trend till 2022.
The World Bank in April 2018 explained this growth: “The economic expansion has been boosted by a stable macroeconomic environment, low oil prices, rebound in tourism, strong remittance inflows, and a government-led infrastructure development initiative.”
The shilling has been stable buoyed by remittances which were more than what we get from tourism. The low oil prices helped stabilise the shilling because we still import oil despite its discovery in 2011.
The relative peace after tumultuous 2017 electioneering brought tourists back and economic confidence.
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The government-led infrastructure projects from roads to ports, airports, and standard gauge railway created demand for goods and services and positively affected growth. It seems we are still Keynesians.
The interest rates remained stable in 2018 with the Monetary Policy Committee (MPC) leaving the CBK rate unchanged most of the year. The MPC meeting on November 27, 2018, however, admitted that interest rate caps have weakened the effectiveness of monetary policy transmission.
The MPC statement also painted an optimistic view of Kenya economy in 2018.
It cited “lower inflation because of lower food prices which offset the rise in fuel prices because of VAT, narrowing in the current account deficit due to increased exports of tea and horticulture, increased diaspora remittances, strong receipts from tourism, and lower imports of food and SGR-related equipment relative to 2017.”
MPC further cited improvement in the business environment, focus by the Government on the Big Four priority sectors, a stable macroeconomic environment and the expected increase in trade and tourist arrivals following the commencement of direct flights to the US.
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The trade tensions between USA and China is seen as a risk to growth. Kenyan graduate students are not that optimistic. They cite importation of everything from fish, sugar, and eggs as bad news, they also cite corruption and debt burdens.
The loss of property as buildings are destroyed is cited as another reason why the growth prospects are not bright.
They further cite bank retrenchment, the closing of factories such as Nestle and Sameer. Christine Gacheri, a human resource expert says “when you see companies closing down and relocating, we are in trouble”
Others, however, are positive like Armstrong Orito, a senior insurance underwriter who suggests that “political conditions and technology are key determinants of economic growth and we are doing well on that which may slightly improve Gross Domestic Product (GDP) growth.”
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He might have had handshake in mind in reference to political conditions. It seems to me that emotions about the economy are more powerful than data provided by official channels.
This should not surprise us. Few ordinary citizens have time to dig through the fog of data. They rely more on conventional wisdom spiced up by emotions. This might be an indication that our economists and policymakers do not talk to the ordinary person on the streets but to their fellow peers. To test for this communication gap, we checked the readability of the statement issued by the MPC meeting of November 27, 2018.
The Flesch-Kincaid reading ease was 10.3 per cent meaning that only 10.3 per cent of the general population can easily read and comprehend the write-up. You need to have grade 19, at least a master’s degree to understand the statement.
Economic growth is driven by our investment and consumption. If we get our politics and governance right, there will be more investors both local and foreign. There will be more consumption as we feel good about the future. The investors and consumers often react to sentiments; the reason good communication really matters.
In 2019, we must look beyond the borders. How will Brexit affect us? Will China-US trade tension persist? Will US sanctions on Iran raise oil prices?
How shall rising interest rates in the US affect us? Will Chinese growth keep decelerating?
Closer home, we hope the handshake is lasting and will not be turned into a fist in 2022.
We are intertwined with our neighbours, they are our key trading partners. I feel the potential of the East African Community has never been fully exploited. Will Somalia, DR Congo, and South Sudan be finally pacified and become great trading partners?
We also hope the weather will remain favourable, more tourist comes and Kenyans in the diaspora keep sending their money home. But the ultimate determinant of growth will be how you and I work under the government policies and regulations.
We can’t outsource economic growth to outsiders. The public and private sectors are like a pair of scissors, you can’t cut without one blade.
The Africa Development Bank in 2018 suggested that “Kenya’s economy remains resilient due to its diversity; services contributed the highest proportion to GDP growth.”
This diversity could inoculate us from the oil curse. We all hope the growth momentum gathered in 2018 will be maintained in 2019 and beyond.
We hope the 2022 polls or referendum does not interrupt the growth trajectory. Luckily, our economy seems to be ignoring politicians as GDP growth in the last two elections indicate. Is that a sign of political maturity?
But one question among ordinary citizens will linger on: “If the economy is growing, where is the money?” Does this question indicate that the trickle-down effect is a myth and some Kenyans benefit more from this growth than others?