- Across the East Africa region, Rwanda posted the strongest performance.
- Uganda’s economy grew by 4.4 percent in 2022 compared to a 6.7 percent uptick in 2021.
- Tanzania’s real GDP expanded by 4.5 percent in 2022 compared to 4.9 percent growth in 2021.
Kenya’s economy recorded a slower growth of 4.8 percent last year as agriculture slumped due to severe drought. In 2021, Kenya posted 7.6 percent growth as the country emerged from Covid-19 induced economic fallout.
Latest data from the Kenya National Bureau of Statistics show that East Africa’s economic powerhouse growth outpaced its neighbours. Kenya saw its nominal GDP increase to $98.24 billion, from $87.98 billion in 2021, retaining its pole position over East African peers.
Uganda’s economy grew by 4.4 percent in 2022 compared to a 6.7 percent growth in 2021. The marginal drop was partly on account of recovery in hospitality and other service sectors as schools reopened in 2022.
Tanzania’s real GDP expanded by 4.5 percent in 2022 compared to 4.9 percent growth in 2021. The growth was mainly driven by improved performance in tourism sector and reopening of trade corridors.
Rwanda’s economy, albeit small compared to the three leading economies, recorded the strongest performance. Latest data shows Rwanda posted six percent uptick, a slower expansion rate compared to 10.9 percent growth in 2021.
High infrastructural spending
In Rwanda, the growth was mainly attributed to high infrastructural spending and government support for SMEs. Across the border in Burundi, authorities reported an accelerated growth of 3.3 percent last year compared to a 3.1 percent expansion realised in 2021.
On average East African Community real GDP expanded by roughly 4.9 percent. This was a slower pace than the 6.7 percent growth recorded in the previous year
“The deceleration in growth was partly due to disruption in global supply chains, depressed agricultural activities and tightened policies, which led to declines in household demand,” the Kenya Economic Survey 2023, released in Nairobi on Wednesday, explains.
Inflation in the region surged to 6.4 percent from 4.4 percent in 2021 fueled by high energy and food prices.
New jobs in Kenya
The slower growth witnessed in came amid contraction in the agriculture sector, the backbone of the Kenya’s economy. Even so, employment increased as the different sectors picked from the effects of the Covid-19 pandemic.
Employment in the modern and informal sectors, went up to 19.1 million in 2022 as a total of 816, 600 new jobs were generated in Kenya. Jobs in the modern sector recorded a growth of 3.7 percent in the 12-month period compared to an increase of 5.9 percent in 2021. Last year, a total of 113, 700 jobs were created in the modern sector, the survey notes.
The number of self-employed and unpaid family workers in the modern sector increased by 2.7 percent to 168,100. Across Kenya, opportunities in the informal sector remains the main source of employment.
The new jobs created were a relief for Kenya, which saw 740,000 jobs lose in 2021 due to the Covid-19 pandemic. At the height of Covid-19 pandemic in 2020, the number of employed people fell to 17.4 million from 18.1 million. In Kenya, informal jobs are often concentrated in trade, manufacturing, transport and other services activities.
Key sectors performance
The survey shows growth in Kenya’s manufacturing sector slowed down to 5.1 percent compared to 6.7 percent realised in 2021. However, the decelerated growth could partly be attributed to globalization and competition from cheap imports.
Further, accommodation and food service activities recorded the highest growth in employment at 23 percent. This was followed by administrative and support service activities, water supply; sewerage, waste management and remediation activities, and education which registered a growth of 10.3, 8.8 and 7.9 percent, respectively.
Agriculture, forestry and fishing sector contracted by 1.6 percent in 2022 compared owing to severe drought that hit the country. The sector registered a contraction of 0.4 per cent in 2021.
“This was attributed to drought conditions that characterized the period under review,” KNBS director general McDonald Obudho notes.
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Agriculture the dominant sector
Some of the key sectors that supported growth were financial and insurance (12.8 percent), ICT (9.9 percent), and transportation and storage (5.6 percent).
Despite slowing down markedly in 2022 in volume terms, agriculture remained the dominant sector. The industry accounted for about 21.2 per cent of the overall GDP in 2022. Further, industry-related activities accounted for 17.7 percent, while service activities accounted for 61.1 percent of Kenya’s GDP.
Most subsectors in agriculture declined resulting to a contraction of 1.6 percent in the sector’s gross value added in 2022. Drought in most parts of the country severely affected agricultural production.
According to KNBS, maize production decreased from 36.7 million bags in 2021 to 34.3 million bags in 2022. Similarly, tea production decreased to 535,000 tonnes from 537,800 tonnes in 2021 due to depressed rainfall in tea zones.
Volume of horticultural exports also dipped to 392,000 tonnes in 2022 from 405,500 tonnes in 2021. The quantity of marketed milk dropped to 754.3 million litres from 801.9 million litres in 2021 largely due to scarcity of livestock feeds.
Sugarcane and Coffee production
However, sugarcane deliveries increased to 8.7 million tonnes from 7.8 million tonnes in 2021 on account of favourable weather.
Coffee production, a key forex earner, increased from 34,500 tonnes in crop year 2020/21 to 51,900 tonnes in crop year 2021/22. The production of beans was partly attributed to conducive weather conditions in the growing areas. Bumper harvests could also be tied to improved crop husbandry.
In tourism, yet another major forex source, Kenya saw improved performance driven by an increase in international visitor arrivals. Last year, visitor arrivals crossed the one million mark hitting1.5 million from 871,300 reported in 2021.
“The increase in the international visitor arrivals was mainly due to continued relaxation of Covid-19 travel restrictions in 2022 and countries around the world opening their borders for travel,” the government statistician says.
However, despite the growth, the number of visitor arrivals remained below the pre-Covid-19 period. Hotel bed-nights occupancy rose by 27 percent to 7 million in 2022 from 5.5 million.
Read also: Kenya’s Tourism Industry Rebounds with 70.45% Increase in International Arrivals in 2022
Bigger trade deficit
While Kenya recorded a growth in exports, it equally saw the value of imports rise, widening its trade deficit. By and large, East Africa’s economic powerhouse remains a net importer.
Expenditure on merchandise imports rose by 17.5 percent to $18.3 billion while earnings from exports grew by 17.4 percent to $6.4 billion. The growth in total exports was not sufficient to offset the growth in imports, resulting to the widening of the balance of trade deficit to $11.8 billion.
Increase in import expenditure was largely on account of petroleum products which amounted to $4.4 billion, and government notes accounting for nearly a quarter of the total import bill in 2022.
Tea recorded the highest earnings of $1.2 billion due to improved international prices for the leaf and was Kenya’s top export commodity.
Meanwhile, real GDP in the Sub-Saharan Africa region grew by 3.9 percent in 2022 compared to a 4.8 percent jump in 2021. The region was strongly affected by tightened global financial conditions and high global inflation during the year.
Lackluster performance in South Africa and Nigeria also dragged the region’s growth. In Nigeria, the dismal performance was mainly due to low oil production and rising uncertainty ahead of 2023 elections. Inflation hit 14.5 percent in the period under review from 11 percent in 2021 owing to high energy and food prices.
Further, current account deficit as a percentage of GDP worsened to 2 percent in 2022 from 1.1 percent recorded previously.
The global economy is expected to decelerate in 2023 on account of tightening of monetary policies. Additionally, high inflation, ongoing effects of Russia-Ukraine war and the lingering effects of Covid-19 pandemic paint a gloom picture.
Despite the grim outlook, Kenya’s economy is expected to remain resilient this year. Policymakers in Nairobi are banking on a robust performance in the services sector and recovery in agriculture.
Already, leading indicators in the first quarter of 2023 point to strong activities in wholesale and retail trade. In addition, accommodation and food services, education, and information and communication sectors are projected to remain strong.
Kenya’s agriculture is set to recover from two consecutive annual contractions on account of good rains and subsidized fertilizer programme. Further, this year’s economic performance is likely to be reinforced by the Government’s development agenda on economic turnaround and inclusive growth.
On the downside, the 2023 growth will be hampered by a decline in domestic demand as a result of elevated inflation and high interest rates. The reduction in domestic demand is likely to suppress private investment.
The weakening of the Kenya Shilling against the US Dollar on the other hand is likely to make imports expensive. A weak local unit could also see trade with the rest of the world become very slow. Additionally, projected decline in global demand due to recession could reduce demand for Kenyan goods.