The prevailing political uncertainty in Kenya following annulment of the August 8, presidential results by the Supreme Court on September 1, is threatening to destabilize the economy, the Kenya Private Sector Alliance has said.
This, combined with the prolonged drought that has hit the country since the last quarter of 2016 has continued to derail the country’s economic growth, an overview of the Kenya’s economy by Kepsa indicates.
According to the private sector lobby group, Kenya’s growth prospects remains hostage to the current political environment and is increasingly growing less immune from a potential recession, if the current political uncertainty is not addressed.
“For the moment, the demonstrations that have been witnessed mainly in parts of Kisumu, Siaya, Homa-Bay, Migori, Nairobi and Mombasa counties have disrupted business operations with most businesses operating fewer hours a day in these areas,” Kepsa says in a report released on Friday.
Movements of goods have been disrupted and private assets damaged, especially in urban areas of Kisumu, Siaya, Homa-Bay and Migori counties.
There have been targeted products and services boycott in these areas too. In addition, some businesses have had to contend with safety threats of their personnel, affecting productivity of their operations, according to Kepsa.
The government had initially projected the economy to expand by 5.9 per cent in 2017. However, this projection was lowered in the month of September owing mainly to drought and political uncertainty amidst preparations for a fresh presidential election.
During the first quarter of the year, the economy expanded by only 4.7 per cent (compared to 5.3 per cent same quarter in 2016), mainly due to poor agricultural performance as a result of drought.
Similarly, the second quarter of 2017 registered economic expansion by five per cent compared to 6.3 per cent recorded in similar quarter in 2016.
Growth in the agriculture sector which accounts for 32.6 per cent of Kenya’s GDP declined from 5.5 per cent in 2015 to 4.4 per cent in 2016 and further to 1.4 per cent in the second quarter of 2017, compared to 7.1 per cent in quarter two, 2016.
This has been attributed to the long dry spell experienced during the year, which affected most food crops.
The scarcity and reduced supply of main food commodities was responsible for the increased consumer prices.
The manufacturing sector , currently accounting for 9.2 per cent to the GDP also recorded reduced growth rate of 2.3 per cent in quarter two of 2017 compared to 5.3 per cent same period in 2016 due to reduced production of sugar, manufacture of edible fats, margarine and processing of milk.
“The food sub-sector was affected mostly by the unfavorable weather conditions which affected agricultural production and in turn affected the agro-processing activities,” Kepsa says.
Within the non-food subsector, there was a decline in the production of cement, assembly of motor vehicles, and manufacture of galvanized sheets as business activities in these areas slowed down due to uncertainties over the elections and low credit access.
On elections effects, the Matatu Owners Association reported losses in revenue of up to Ksh700million in the public transport sector in the week following the elections, and daily losses of up to Ksh75 million.
This is 25 per cent of the Ksh300million revenue generated daily by the sector since September 1, 2017.
The construction sector has also registered a decline in growth at 7.5 per cent compared to 7.6 per cent recorded in the same period in 2016.
Electricity supply also recorded a reduced growth rate of 6.1 per cent compared to 9.6 per cent in quarter two 2016, due to a 36.8 per cent reduction in production of hydro-electric power following the long droughts.
According to the Kepsa economic overview, tourism , accommodation and food services continue to be the leading sector though at a slower growth rate of 13.4 per cent compared to 15.8 per cent in quarter two 2016 riding on improved security, increased marketing and increased demand for conference tourism.
Visitor arrivals through the Jomo Kenyatta International Airport(Nairobi) and Moi international Airport in Mombasa increased by 14.4 per cent to 213,543 in quarter two , 2017 from 186,685 in a similar period last year.
The sector hosts over 1.3 million visitors annually and contributes 10 per cent to the GDP.
The private sector has however cautioned that the sector remains “extremely sensitive to the state of security and the general political environment.”
The prospects for third quarter of 2017 are lower and could fall below five per cent , kepsa has cautioned, considering a combined effect of decreased private sector activities due to political uncertainty, low growth in private sector credit and the persistent drought.
There is also low investor confidence in the country as investors adopt a wait and see attitude as they hold back investment decisions until after elections.
“The combined effect of the cost of repeat elections, prolonged drought and political uncertainty is likely to reduce further economic growth during the last quarter of the year,” Kepsa said in its overview.
