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Kenya: Economic Survey 2016

Kenya: Economic Survey 2016
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04 May 2016

The 2016 Economic Survey, an annual publication of the Kenya National Bureau of Statistics (KNBS) presenting socio-economic highlights of the economy for the last five years, was launched on 3 May 2016 at the Kenyatta International Convention Centre (KICC).

Kenya’s economy expanded by 5.6 per cent in 2015 compared to 5.3 per cent growth in 2014. In absolute terms, the country’s Gross Domestic Product (GDP) at current market prices stood at KSh 6.2 trillion in 2015. This growth was mainly supported by a stable macroeconomic environment and significantly improved performance of agriculture, construction, finance and insurance and real estate sectors. However, accommodation and food services remained largely subdued and contracted by 1.3 per cent in 2015 which was a less severe performance compared to a decline of 16.7 per cent in 2014.

The year under review was characterized by inflationary pressures and volatility in exchange rate. Subsequently, the monetary policy was principally aimed at achieving and maintaining stability in the general price levels in the economy with the ultimate goal of achieving an inflation target of 5.0 per cent. As a result, Central Bank Rate (CBR) was raised from 8.5 per cent to 10.0 per cent in June, and further to 11.5 per cent in July. There was mixed performance in interest rates during 2015 on account of the changes in the CBR. The 91-day Treasury bill rate dropped from 8.58 per cent in December 2014 to 8.26 per cent in June 2015 and rising to 9.81 by December. Commercial banks’ loans and advances and lending interest rates rose to 17.45 per cent in December 2015 from 15.99 per cent in December 2014.

Overall inflation eased from 6.9 per cent in 2014 to 6.6 per cent in 2015 mainly due to lower prices of energy and transport. Monthly inflation rate fluctuated between 5.5 per cent and 8.0 per cent but was largely contained within the Central Bank’s target throughout the year. The Kenya Shilling exhibited considerable stability buoyed by the significant fall in the international oil prices and increased diaspora remittances. However, the continued underperformance of the tourism sector negatively affected the strength of the shilling in 2015. The dismal performance in the tourism sector was attributed to security risks posed by terrorism, the aftermath of ebola pandemic in West Africa and partly to some countries’ failure to lift travel advisories issued in the past.

The growth in agriculture was mainly supported by improved weather condition that resulted in significant increase in outputs of maize, horticultural produce and livestock. The construction sector remained vibrant in the year under review to record an accelerated growth of 13.6 per cent mainly driven by the ongoing public infrastructure development coupled with a significant growth in the real estate sector. Transport sector registered a marked growth in 2015 on account of low oil prices which is a key input in the sector. Electricity production increased by 9.7 per cent in 2015 mainly attributed to increased production of geothermal energy coupled with lower fuel costs for thermal power generation. The financial and insurance sector maintained a robust expansion to grow at 8.7 per cent in 2015. This growth was mirrored by a 19.2 per cent rise in total domestic credit to KSh 2.8 trillion in December 2015 compared to a growth of 16.1 per cent in December 2014.

The ratio of current account balance to GDP improved notably from 11.0 per cent in 2014 to 7.6 per cent in 2015 largely due to a decline in the import bill against a substantial growth in export earnings. The decrease in the import bill was mainly due to the fall in the international oil prices. The financial sector continued to post impressive performance in 2015 owing to a considerable expansion of the financial services sub-sector. However, the growth was somehow dampened by the continued decline in the level of activity in the insurance sub-sector whose growth slowed down to 4.9 per cent in 2015. The financial sector’s performance was clearly manifested in the performance of other sectors especially construction, manufacturing and agriculture that recorded significant rise in credit advanced by commercial banks and cooperative societies. The growth was also driven by a significant growth in domestic credit to the National Government from KSh 424.9 billion in 2014 to KSh 538.0 billion in 2015.


Summary and Outlook

International Trade and Balance of Payments

Total exports rose by 8.2 per cent to KSh 581 billion in 2015, while total imports declined by 2.5 per cent to KSh 1,578 billion. This resulted to the balance of trade improving from a deficit of KSh 1,081 billion in 2014 to a deficit of KSh 997 billion. The volume of trade increased marginally from KSh 2,156 billion in 2014 to KSh 2,158 billion in 2015. The rise in the total export earnings compared to the decline in the total import bill led to the improvement of export-import ratio from 33.2 per cent in 2014 to 36.8 per cent in 2015. Terms of trade of all items improved from 73.1 per cent in 2014 to 84.9 per cent in 2015, mainly due to improved unit prices of the export commodities coupled with a decline in import prices of mineral fuels.

In 2015, Africa remained the leading destination of the country’s exports accounting for 41.7 per cent of the total exports at KSh 242 billion, with exports to EAC partner states accounting for 52.3 per cent of the total exports to Africa. Europe was the second leading destination of exports, accounting for 25.1 per cent of the total exports at KSh 146 billion. Asia was the main source of imports in 2015, accounting for 62.2 per cent of the total value of imports, with China being the main source of imports.

Manufacturing

The sector’s real output grew by 3.5 per cent in 2015 compared to a slower growth of 3.2 per cent in 2014. This was attributed to reduced production costs arising from lower cost of petroleum and electricity inputs. The manufacturing quantum index recorded a slower growth of 3.9 per cent in 2015 compared to 6.3 per cent registered in 2014. This increase was mainly driven by increased production of pharmaceutical products; beverages; meat and meat products; and non-metallic minerals and plastic products. Producer Price Index (PPI) increased by 3.91 per cent in 2015 compared to an increase of 3.03 in 2014, mainly due to high cost of imported raw materials arising from depreciation of the Kenya Shilling against major currencies.

Credit to manufacturing sector increased from KSh 237,422 million in 2014 to KSh 290,069 million in 2015. Formal employment in the sector rose by 2.7 per cent from 287.4 thousand persons in 2014 to 295.4 thousand persons in 2015. The Export Processing Zone (EPZ) program recorded improved performance in employment, exports, imports, and expenditure on local goods and services, with total sales increasing by 12.1 per cent to KSh 64.1 billion in 2015. Export of apparel under the African Growth and Opportunity Act (AGOA) increased by 14.4 per cent to KSh 34.6 billion in 2015.

Outlook

The performance of Kenya’s economy in 2016 is likely to be determined largely by internal factors. However, exogenous factors will also shape the economy but probably to a lesser extent. Generally, all the sectors of the economy are expected to continue in their current growth trajectory. The long rains are forecasted to be depressed in some parts of the country but sufficient and well spread in the main food growing regions. Against this background, agriculture sector’s output is likely to slowdown but record a moderate positive growth. Similarly, the manufacturing sector is also likely to be supported by lower fuel prices and improved supply of electricity as well as sustained delivery of inputs from the agriculture sector.

The financial intermediation sector is likely to remain robust despite the recent takeover of three commercial banks by the Central Bank of Kenya due to financial impropriety. The expected sustenance of growth momentum by most of the economic activities is likely to boost credit uptake and therefore favour the financial and insurance activities. The construction industry is also expected to maintain an increased role in the creation of value addition due to the ongoing public infrastructure development and continued investment in fixed assets by the private sector.

Fuel prices are expected to remain at around the level experienced during the first quarter of 2016 and therefore help contain inflation within the Central Bank’s target. The Kenya shilling is likely to remain stable against its major trading currencies similar to all other key macroeconomic indicators. The value of Kenya’s import of goods is likely to decline further mainly due to low international oil prices. On the other hand, export earnings are expected to grow in line with a projected growth of world merchandise trade in 2016. The current account deficit will most probably narrow further due to the expected slowdown in imports.

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Kenya: Economic Survey 2016 | Full report - Author(s): KNBS (File size: 3.12 MB)
Kenya: Economic Survey 2016 | Popular version - Author(s): KNBS (File size: 3.87 MB)
Source KNBS
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Date 04 May 2016
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