Kenya's economy headed for 6.0 percent growth this year

The PMI index up to may this year

The Kenyan economy is expected to hit 6.0 per cent growth this year, analysts say. The economy has posted a robust growth in the first quarter which is expected to continue in the second quarter. National GDP growth is expected to accelerate in the second -half of this year A Flurry of reviews on the Kenyan economy project an economy on the go.

Data on the first quarter review by KNBs shows that the economy posted a strong growth, in the region of 5.5-5.8 per cent. And the players in the private sector expect good tidings this year, says a survey by Central Bank of Kenya.

The barometer of industrial activity, the Purchasing Manager's Index (PMI) has been on the growth trajectory since last October when it hit rock bottom at 34.4. It closed last month at 55.1 down from the previous month’s 56.1. The April level was the highest in 16 months.

The PMI is a composite measure of economic performance month-on-month covering 400 firms in Kenya’s private sector. It measures weighted change in such variables as; New Orders which is weighted at  0.3, Output at 0.25, Employment at  0.2, Suppliers’ Delivery Times at  0.15, Stock of Items Purchased at  0.1 A reading above 50 shows growth in economic activity while a reading below 50 projects a decline.

The PMI does not project the future but its survey found some latent demand, an indication that the growth trajectory is here to stay. Even then, analysts say, that it points to a robust growth this year.

This has analysts, including the Central Bank of Kenya, see the economy posting a 6.2 growth this year. Going by the pace of the first quarter, analysts expect the economy to raise the tempo in the second half. The long rains were good and well distributed and this is expected to buoy agriculture output going forward. The sector grew by 5.1 percent in the first quarter. Consequently, many agree with the CBK that the economy could touch 6 percent.

 The turnaround has been caused by many factors, among them; good long rains, the end of prolonged political bickering, following swearing of President Kenyatta for his second term.  The handshake on March 9^th removed major risk factor in the economy –Raila Odinga’s militancy and the risk of frequent riots and violence. This opened the purse-strings both in Kenya and overseas resulting in a rise in domestic and foreign demand for local goods.

These factors will be strengthened by low power bills that will become effective next week. The cost of electricity is likely to go down further once the 310MW Lake Turkana wind power comes on stream in September.

 The Windpower will raise the total generating capacity from renewable energy sources to 1967 MW which is 74 percent of the 2650 MW capacity. The availability of all these cheap sources is expected to lower demand for fossil fuels generated energy and lower prices.

But the goose that lays the golden egg is the agriculture sector. Expert reports show that Agriculture in generates 24 percent of the GDP directly, that is $18 billion at the current GDP estimated at US$75 billion. It also contributes another 27 percent indirectly to the GDP that is $20.25 billion.  In effect, the sector contributes, both directly and indirectly half of the national wealth that is, $39 billion.

 The sector produces 62 percent of our exports, employs 40 percent of the entire labour force and 70 percent of the rural folk. It also generates an estimated 45 percent of Government revenue. The sector also produces over 75% of industrial raw materials and more than 50% of the export earnings. The National Statistics Office says that the sector grew by 5.1 percent in the first quarter. And given the good rains in the second quarter, the sector is expected to drive robust growth this year.

 Experts say there is a positive correlation between productivity in the agricultural sector and other sectors. It thus drags others sectors out of the doldrums.

Given the conducive environment, all analysts expect the economic growth to accelerate in the second half. In January, all analysts including the projected a growth above five percent. The Economist Intelligence Unit, for instance, projects a growth of 5.3 percent this year which is in the range of projections by other analysts whose projection range from 5.7 to 6.2 percent. 

However, the favourable environment is likely to push the growth further, perhaps to six percent.

The ongoing construction of mega projects

is said to be one of the sectors driving growth in Kenya.  The expected turn around in the Kingpin of the economy, “agriculture supported by good rains, and an upturn in investment should bump up growth this year,” says the Economics Focus group, a view supported by the AFDB in its Kenya’s outlook which projects a 5.6 percent growth rate this year.

It expects the services sector to continue leading the growth because, Kenya is the hub of ICT, Financial and logistics services in East Africa. It states that the continued investment in Rail and roads and the construction of the second runway at Jomo Kenyatta International airport will be a shot in the arm for economic performance this year. The start of direct flights from Nairobi to New York expected in October is expected to open new markets for Kenyan produce in the US. Macadamia nuts are said to be pushing ahead with an export of US$52 million last year up from $72,000 ten years ago,