NAIROBI, KENYA, FEB 20 — Kenya’s growth will stand between 5.25 per cent and 5.75 per cent in 2018 up from the pointed growth rate of 4.70 per cent in the first three quarters of 2017, investment bank Genghis Capital has projected.
In its ‘Genghis Playbook 2018’ released today, the bank which is also a broker at the Nairobi Securities Exchange argues that the growth will be bolstered by re-bound in both public and private investment, positive performance in the agricultural sector and continued rebound in the service sectors.
Similarly, heightened focus on food security, affordable housing, the manufacturing sector and universal affordable healthcare listed as key delivery pillars for President Uhuru Kenyatta in his second-term economic plan will positively contribute to the country’s economic growth.
Speaking during the Playbook launch, Elizabeth Wangechi, head of research, Genghis Capital said: “The Playbook 2018 seeks to bridge the gap between our clients and our research material. We move away from the traditional valuation reports and run our own Kenyan notional equities and fixed Income portfolios. These are further constructed along similar mandates to those faced by our clients.”
The Playbook 2018 has highlights global economic growth, inflation, current account deficit diaspora remittance and fixed income as key factors that will affect the country’s economy.
Global economic growth in the year is forecast at 3.90 per cent driven by uptick in activity and accommodative financial conditions.
Headwinds to growth include protectionism, geopolitical tension and an accelerated pace of core inflation in advanced economies.
The inflation outlook is mild inflationary pressure in first half period due to the base effect before ticking upwards in the second half.
Private sector credit growth is expected to remain stuck at current low levels of between 2.0 per cent and 4.0 per cent in the year due to continued crowding-out effect.
The country’s current account deficit is expected to further widen to 7.0 per cent in 2018 due to the expected high external capital goods expenditure and feed-through from rebounding global oil prices.
However, Diaspora remittance, tourism earnings and the re-bound in exports to are expected to support the shilling between 102.00 and 104.00 level in 2018.
The broad dollar strength due to US Fed interventions will however exert pressure on the local unit, the investment bank noted.
Secondary market turnover is expected to trend higher while corporate bond segment remains subdued.
The bond market is expected to witness increased activities with bond re-openings to meet development needs in the country, as the government moves to implement a number of projects mainly infrastructural.
According to Genghis, maturity structures in the bond market indicate refinancing risk hence recommends for longer-term bond issues to smoothen refinancing risk.
The Playbook has also outlined some positives for the banking sector despite the capping of interest rates which has led to a credit crunch in the country, mainly on Small and Medium-sized Enterprises and individuals.
This includes technology which is set to positively impact Non Funded Income (NFI); ability to mobilize cheap deposits by leveraging alternate channels like agency banking and mobile platforms and high capitalization, a strategy adopted by some banks to hold liquid assets in return favouring Capital Adequacy Ratio (CARs).
It however noted the sustained interest rate caps will cause banks to report a decline in profitability across board.
“With the impact of interest rate law, banks will to continue crowding-out private sector. Expect yield curve to remain flat at the long-end,” Wangechi noted.
Genghis projected GDP growth is however below the National Treasury’s forecast, which has placed growth at 6.0 per cent.
According to Treasury CS Henry Rotich, Kenya’s economy should rebound in 2018 after a slowdown last year, caused by drought and political commotion during the prolonged election cycle.
Treasury expects economic growth to rise to more than 6.0 this year and approach 7.0 per cent in the medium term.
The economy grew 5.0 per cent in the first half of 2017.
Meanwhile, the World Bank forecasts Kenya’s economy to grow by 5.5 per cent in 2018 up from the 4.9 per cent growth it had projected for 2017 as inflation eases.
Inflation, which measures the cost of living, however in January rose to 4.83 per cent from 4.50 per cent in December, driven by higher food prices, electricity and fuel.
The Genghis annual Playbook seeks to highlight key projections in macroeconomic, fixed income and equities frontiers with emphasis on sectors such as banking and insurance.