Kenya’s Economic Recovery Vibrant Despite Headwinds

The roll out of vaccines globally against the COVID-19 pandemic heralds that the economic downturn of 2020 may be coming to an end. Though the pace of vaccinations in Africa is behind that of the global west, the expectation of incoming vaccines, in the tail end of the first quarter of 2021 and through the second quarter, has boosted market confidence. Market analysts are therefore positive that Africa’s economic recovery will be better than expected. This is particularly true in the Kenyan context, with the economy expected to register the fastest growth in sub-Saharan Africa (SSA).

The World Bank estimates that the Kenyan economy may expand by 6.9% in 2021, reversing the contraction of 1% experienced in 2020. Per the World Bank, this will easily surpass the growth forecasts of Kenya’s regional competitors, with economic growth in Rwanda, Tanzania and Uganda estimated at 5.7%, 5.5% and 2.8%, respectively. This is similarly expected to exceed the economic growth forecasts of Nigeria and South Africa, set at 1.1% and 3.3%. The IMF, however, sets Kenya’s economic growth forecasts at 5%, taking a conservative view of the anticipated 2021 economic gains.

The strong economic performance, other than being propped up by positivity over the end of the COVID-19 pandemic, is supported by increased private sector spending and favourable government policies purposed at stimulating economic growth. Debt relief has also played a key roll by easing pressure on the exchequer. Kenya secured debt repayment holidays through June 2021 totalling to KES 60 billion, from its Paris Club creditors as well as its Chinese creditors. Eased debt service obligations within this period, which translates to freed up capital, may be used to further support the country’s economic recovery injecting much needed capital into circulation.

Kenya’s debt appetite, however, may be cause of concern, as noted by a number of analysts. Indeed, given the country’s aggressive developmental strategies, and increased monetary obligations, Kenya is likely to pursue additional debt funding within the year. This, according to the IMF, increases the risk that Kenya may not be in a position to maintain its debt service obligations, which currently amount to 30%-35% of the government’s revenue. However, the National Treasury strikes a more positive tone, noting that Kenya’s increased spending on infrastructure projects will pay off in the long term through the spurring of economic activity. Focus on major transport arteries is purposed at increasing market access to the hinterland, which is expected to result in increased private sector growth and the creation of employment opportunities. To this, it is noted that despite criticism, Kenya has not failed to honour its debt obligations in the past, unlike some SSA countries.

As a whole, and considering the economic impacts of the COVID-19 pandemic, Kenya’s economic outlook for 2021 remains bright. However, in order to maximise its economic position, the country ought to target public sector spending to sectors that are likely to produce medium term gains. Increased support for the private sector will additionally strengthen the country’s economic position.

Karen Kandie – MD, IDB Capital