The Kenyan economy is projected to grow by 5.8 per cent on average in 2019, according to GDP projections from 16 research houses, global agencies, and government organizations that were tracked during the half-year period to June.
This will be driven by among others, growth in the agriculture sector, implementation of the Big 4 Agenda projects by the government, and recovery in the business environment evidenced by the Stanbic Bank Monthly Purchasing Managers’ Index (PMI), which rose to 51.3 in May 2019 from 49.3 recorded in April, an indication of improving business conditions.
Among firms that have projected the growth includes Cytonn Investment which had foreseen a 5.8 per cent growth in H1’2019 and a similar growth in the second half of the year.
“Cytonn maintains a positive outlook for the macroeconomic environment in Kenya in their H1’2019 review, with expectations of strong economic performance with a GDP growth of between 5.7% – 5.9% supported by growth in the agriculture sector,” the firm said in a report on Monday.
This is however lower than the Central Bank of Kenya (CBK)’s projection of 6.3 per cent, International Monetary Fund(IMF)’s 6.1 per cent, Citigroup Global Markets(6.1%), African Development Bank(AfDB)’s 6.0 per cent and PNB Paribas(6.0%).
Other forecasts include those by UK HSBC(6%), Euromonitor International(5.9%), Focus Economics(5.8%),World Bank(5.8%),JPMorgan(5.7%), Euler Hermes(5.7%),Oxford Economics (5.6%),Standard Chartered(5.6%),Capital Economics(5.5%) and Fitch Solutions(5.2%).
Cost of living
The average inflation rate increased to an average of 5.2 per cent in H1’2019, as compared to 4.3 per cent in H1’2018, with June’s inflation rate rising to 5.7 per cent from 5.5 per cent in May 2019.
This was driven by among others, a steady rise in the cost of non-food commodities mainly fuel prices which have been on the rise in recent times.
This has been occasioned by soaring global fuel prices and a strong dollar against the Kenya shilling.
The Central Bank of Kenya (CBK)’s Monetary Policy Committee (MPC) met three times in H1’2019, leaving the Central Bank Rate (CBR) unchanged at 9.0 per cent. This is in line with the expectations of key institutions among them Cytonn.
The MPC cited inflation expectations remained well anchored within the target range and that the economy was operating close to its potential as evidenced by inflation remained within the 2.5% – 7.5%, target during the review period, stability in the foreign exchange market and improving private sector credit growth, coming in at 4.9 per cent in the 12-months to April, compared to 4.3 per cent in the 12-months to March.
“The outlook of the seven indicators that we track remained unchanged from the beginning of the year, with three being positive, three being neutral and one being negative, and thus we maintain our positive outlook on the 2019 macroeconomic environment supported by expectations of a relatively strong economic growth at between 5.7 per cent and 5.9 per cent , a stable currency, inflation rates within the government’s target, and stable interest rates in 2019,” commented Caleb Mugendi, Investment Associate at Cytonn.
“The challenges to the growth include poverty, governance, skills gap between the market requirements and the education curriculum and climate change which could affect the agriculture sector” added Mugendi.
Government Borrowing:- has remained “negative” according to Cytonn which still maintains its expectations of Kenya Revenue Authority (KRA) not achieving their revenue targets, which has been raised by 14.2 per cent in the FY’2019/2020 budget to Ksh2.1trillion (US$20.4billion), from Ksh1.9 trillion(US$18.5billion) in the just ended financial year which closed on June 30.
As per the Q3’2018/2019 Budget outturn, KRA had only managed to raise Ksh1.2 trillion (US$ 11.7 billion) against a target of Ksh1.3 trillion (US$12.7billion), representing 91.5 per cent the targeted revenue collection and it is doubtful that it will meet its target.
This is expected to result in further borrowing from the domestic market to plug in the deficit, which coupled with heavy maturities of government securities, might lead to pressure on domestic borrowing.
Exchange Rate:-has remained “neutral” according to Cytonn which expects it to remain so for the rest of the year.
“We expect the Kenya Shilling to remain stable against the US Dollar in the range Ksh101.0 – Ksh104.0 against the USD in 2019, with continued support from the CBK in the short term through its sufficient reserves currently at USD 9.2 billion (equivalent to 5.8 months of import cover),” Cytonn notes.
“We have maintained our outlook on Interest Rates at “neutral”, and expect it to remain so throughout the year,” the investment firm adds in its report, “the interest rate environment has remained stable in 2019, with the CBR having been retained at 9.0% in the three MPC meetings held in 2019. With the heavy domestic maturities in 2019, we expect slight upward pressure on interest rates going forward, as the government tries to meet its domestic borrowing targets for the 2019/2020 fiscal year.”
Inflation:-remains “positive” and is expected to remain within the government target range of 2.5% – 7.5%.
Risks are however abound in the near-term, arising from the late onset of the traditionally long rains season which has disrupted food supply leading to a flare in food inflation, coupled with the continued rise in global fuel prices.
Cytonn’s outlook on Investor Sentiment remains “neutral” for the rest of the year in the wake of an improvement in foreign inflows in the capital market to a net buying position of US$17.7 million in H1’2019 from a net selling position of US$93.4 million in Q4’2018, an indication of improved investor sentiments.
“We expect improved foreign inflows from the negative position in 2018, mainly supported by long-term investors who enter the market looking to take advantage of the current cheap valuations in select segments of the market,” the firm notes in its report.
Security:-has been maintained at “positive” for 2019 as security is expected to be upheld, given that the political climate in the country has eased.
Despite the recent terror attack experienced during the first half of 2019, Kenya was spared from travel advisories, evidence of the international community’s confidence in the country’s security position.
Cytonn’s GDP projection remains unchanged from the beginning of the year though it is lower than the 6.3 per cent growth in 2018, but higher than the 5-year historical average of 5.4 per cent.
Cytonn Investment is an independent investment management firm, with offices in Nairobi – Kenya and D.C. Metro – U.S.
It is primarily focused on offering alternative investment solutions to individual high-net-worth investors, global and local institutional investors and Kenyans in the diaspora interested in the high-growth East-African region.
Currently, Cytonn has over Ksh82 billion (US$797.9million) of investments and projects under its mandate, primarily in real estate.