Kenya’s Economic Growth Could be Impacted by Unpredictable Weather

Kenyan Wall Street | Kenya’s economy is expected to remain resilient in 2024 after a 5.6 percent expansion last year from a revised growth of 4.9 percent in 2022.

• The annual Economic Survey by the Kenya National Bureau of Statistics (KNBS) says the resilience in 2024 will mainly be supported by a robust services sector, strong performance in agriculture aided by anticipated adequate rainfall, and a decline in global commodity prices that is expected to reduce the cost of production.
• In 2023, agriculture remained the dominant sector, representing 21.8 percent of the total GDP.
• Combined, service activities contributed 61.3 percent of the GDP while industry-related activities comprised 16.9 percent of the GDP in 2023.

“The outlook for the domestic economy may be hampered by risks related to unpredictable weather conditions occasioned by climate change which could adversely affect agricultural production and result in domestic inflationary pressures,” warns the survey

“The tight fiscal stance being pursued by the Government may also lead to tight liquidity affecting aggregate demand. Externally, escalation of geopolitical tensions particularly the Israel-Palestinian, Israel-Iran, and Russia-Ukraine conflicts could result in higher commodity prices which would pose a risk to domestic inflation outcomes,” reports the survey.

Other key drivers of the growth in 2023 included Information and Communication (9.3 percent), Transportation and Storage (6.2 percent), Financial and Insurance (10.1 percent), Real Estate (7.3 percent), and Accommodation and Food service activities (33.6 percent) sectors.

However, the mining and quarrying sector recorded a 6.5 percent contraction, largely attributable to a decline in the production of most minerals such as titanium and soda ash.

“Nominal GDP grew by 12.0 per cent reaching KSh 15,108.8 billion in 2023, from KSh 13,489.6 billion in 2022. Gross National Disposable Income increased to KSh 15,882.5 billion in 2023 from KSh 14,051.0 billion in 2022.”

During the review period, the Central Bank Rate (CBR) was raised to 10.50 percent as of June 2023, and 12.50 percent as of December 2023 compared to 8.75 in December 2022.

This was necessitated by the need to address inflationary pressures occasioned by the depreciation of the Kenyan Shilling against major currencies and high global prices during the review period. As a result, overall interest rates increased during the review period. The 91-Day Treasury bill interest rate increased to 15.70 percent in December 2023 from 9.33 percent in December 2022.

The Inter-bank rate rose to 11.65 percent in December 2023 from 5.39 percent. The average commercial bank’s interest rate for loans and advances increased to 14.63 percent in December 2023, from 12.67 percent in December 2022.

Manufacturing Sector

The manufacturing sector grew by 2.0 percent in the year under review compared to a growth of 2.6 percent recorded in 2022. The share of the industry to GDP was 7.6 percent in 2023.

The volume of output grew by 2.8 percent in 2023 compared to a growth of 3.7 per cent in the previous year. The highest growth in the volume of output was recorded in agro-processing subsectors: Prepared Animal Feeds (17.0 percent), Dairy Products (16.4 percent), Prepared and Preserved Fruits and Vegetables (11.6 percent), and Meat and Meat Products (10.1 percent).

The non-food subsectors that recorded growths included Leather and Related Products; Plastic Products; and Fabricated Metal Products except machinery and equipment at 21.7, 16.2, and 15.3 percent respectively, in 2023.