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Friday, July 28, 2017

Domestic headwinds hit 2017 growth prospects

Ndakaini Dam in Gatanga on Wednesday. The dam, which supplies 80 per cent of water in Nairobi, has seen water levels fall to an all time low/JOHN KAMAU
Ndakaini Dam in Gatanga on Wednesday. The dam, which supplies 80 per cent of water in Nairobi, has seen water levels fall to an all time low/JOHN KAMAU

Kenya’s economy is increasingly facing domestic headwinds which are threatening 2017 growth unlike previous years when external shocks have been the biggest threat, a report by the state statistician says.

The country has a standing two-year $1.5 billion facility from the International Monetary Fund on standby to cushion against unforeseen external shocks, mainly on the shilling. The facility, renewed last month, was first signed in November 2014. Treasury has insisted the loan can only be tapped if the country faces “exogenous shocks”.

Domestic challenges are, however, threatening to cool the steam in the economy more than external shocks, the Kenya National Bureau of Statistics has warned in the 2017 Economic Survey published on Wednesday.

They include a biting drought that has hit the country since the last quarter of 2016, affecting farming, electricity generation and water supply.

Rising loan defaults and interest controls – introduced last September through the Banking (Amenedment) Act 2016 – have also resulted in tight credit markets. Banks have become cautious on lending, with growth in loans to the private sector hitting the lowest point since the country suffered deadly post-election skirmishes in late 2007 and early 2008.

Private sector credit growth fell to 4.3 per cent in December 2016 compared to more than 17 per cent a year earlier, Central Bank of Kenya data showed in January.

Growth in the agriculture sector, which accounts for about a quarter of Kenya’s national wealth, fell to four per cent last year from 5.5 per cent in 2015, the Economic Survey shows. This has been blamed on drought.

“If the deceleration in growth of credit that started in 2016 continues, it is likely to constrain growth in 2017 especially in activities that are reliant on borrowing from commercial banks,” KNBS says in the annual report. “Due to the share of agricultural contribution to the gross domestic product, there will be a lower rural demand for goods and services.”

The economy is also projected to take a hit from increased competition in the manufacturing sector, as local industries encounter intensified competition in their traditional export markets.

“Local manufacturers have also continued to be affected by cheap imports and counterfeit goods,” KNBS director-general Zachary Mwangi said on Wednesday. “The impacts could further be experienced in sectors that have strong inter-linkages with these industries.”

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