Kenya’s Economic Growth Undershoots Expectation on Drought

David Herbling
·3 min read

(Bloomberg) -- Kenya’s economy performed worse that expected in the fourth quarter as a drought, tighter financial conditions and government spending cuts weighed on output and consumption.

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Gross domestic product expanded 3.8% in the three months through December from a year earlier, compared with a downwardly revised 4.3% in the previous quarter, Kenya National Bureau of Statistics said in a presentation on Wednesday. That was the slowest pace in seven quarters and below the 4% median estimate of six economists in a Bloomberg survey.

The growth rate fell to 4.8% for for the whole of last year, from a revised 7.6% in 2021. That undershot both the National Treasury’s 5.5% estimate and the International Monetary Fund’s forecast of 5.4%.

The slowdown in growth in the fourth quarter was mainly driven by a 0.9% contraction in agriculture, which makes up a fifth of total output and employs more than 70% of people in rural areas. Farming production also shrank for a second consecutive year in 2022 as annual average rainfall almost halved.

Manufacturing expanded by 1.8% in the final quarter, compared with 6.2% a year earlier, while the wholesale and retail trade grew 2.7%, down from 6.7%.

Kenya “will achieve a better growth in coming years” supported by current favorable weather conditions and government investments in its so-called bottom-up economic strategy, Treasury secretary Njuguna Ndungu said Wednesday.

Read more: Why East Africa Is Facing Its Worst Famine in Decades: QuickTake

The plan envisions increased funding for agriculture and small businesses, the construction 250,000 affordable housing units yearly, the provision of universal health care and bolstering the digital economy, including investing in fiber networks.

Leading indicators for the first quarter of this year showed the economy was performing well, according to Macdonald Obudho, the statistics agency’s director-general. The IMF sees Kenya’s economy expanding 5.3% this year, while the central bank forecasts 5.8%.

Key risks to the outlook include a slowdown in global growth, rising interest rates, restricted access to capital markets and a sharp selloff in the shilling. President William Ruto’s plans to cut spending by about $3 billion in the fiscal year through June and triple annual tax collections to rein in the country’s debt could also hinder consumption.

Read more: Investors Are Unloading Kenyan Bonds as Default Fears Rise

Eastern Africa’s second-largest economy, which has signed up to an IMF program to help reduce its debt vulnerability, spends about two-thirds of tax revenue on servicing loans and has seen its currency depreciate 9.4% against the dollar this year.

Anti-government protests led by opposition leader Raila Odinga, who continues to challenge the outcome of last year’s elections that he narrowly lost to Ruto, may also weigh on economic growth. The protests, which resumed Tuesday after being suspended for a month, have caused some businesses in the capital Nairobi to close, while others have been looted.

--With assistance from Rene Vollgraaff and David Malingha.

(Updates with treasury secretary’s comments in sixth paragraph.)

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