Kenya to miss 5pc growth target

The government will most likely miss its economic growth target for 2013 after posting weaker than expected progression in the first three quarters of the year.

Data released by the Kenya National Bureau of Statistics last week revealed a marginal slump in the third quarter period ended September blamed on poor performance of agriculture and services industry.

KNBS said the economy progressed at 4.4 per cent in the three month period, weaker than the 5.1 per cent recorded in the first quarter but slightly stronger than the second quarter, which recorded 4.3 per cent growth.

The figures are below what experts say would have put the country on a path to realising the government’s annual growth target of between 5.6 per cent and 6 per cent.

In an economic review, the International Monetary Fund in October said the country had to record economic growth rates of between 6 per cent and 6.5 per cent in the last two quarters of the year to hit the initial target.

“Achieving the target squarely depends on the performance recorded in the second half of the year. It is realistic given that the country received ample rainfall so agriculture is expected to drive growth through the third and fourth quarters.

“And with the new government now settled in office, the economy is bound to benefit from increased public spending,” IMF resident representative Ragnar Gudmundsson said then.

With KNBS figures released last week falling below the anticipated level, experts say the country has very little chances of hitting the projected annual growth rate.

In an economy whose backbone has been agriculture for decades, increased spending on agricultural innovations, irrigation and value addition will be a key driver towards the double digit growth the government hopes to achieve in the medium term.

In its latest economic update, the World Bank called for fresh interventions to lower the cost of credit saying the high lending rates were stifling the growth of important sectors.

Though the cost of borrowing has come down, according to the data from KNBS, commercial bank loans remain highly unaffordable to most Kenyans.

“The cost of borrowing declined significantly with interest rates on commercial banks’ loans declining to an average of 16.94 per cent during the review period from an average of 20 per cent recorded in the third quarter of 2012,” KNBS said in its quarterly dispatch.

The World Bank blamed high interest rates for cash flow challenges faced by small entrepreneurs in the country thereby crippling a sector that is central to national economy.

“High interest rates leave them with little recourse but to dig deeper into their personal savings or turn to family and friends to raise funds for day-to-day operations. Given the seminal role SMEs play in growth and job creation, channelling credit to this sector is a critical function of banks,” the report reads in part.

The micro, small and medium enterprises sector is a key driver of Kenya’s economic growth and has been identified as a key economic pillar in the national blueprint, Vision 2030.

“The difference between the average rate of interest charged by banks on loans to customers and the average rate of interest banks pay on savings deposits remains persistently high, at the same time, banks profitability has grown,” reads the report.

The success of a government’s renewed attempt to reign in on the high interest rates regime will be key in the performance of the economy in 2014. 

It is a long overdue intervention that could finally unlock the immense potential of the Kenyan enterprising community whose efforts to expand are often hindered by the dire financing challenges.

For years now, banking is the only sector in Kenya that has been recording growth in profitability while the economy is on a slump.

It is not economically viable to operate a business financed by a bank debt charging 25 per cent interest, which in most instances is more than the profit margin for most of the ventures. Revival of development banks should be top in the government’s priority list.

A study released two weeks by the Standard Chartered Bank forecasting economic development in 2014 says Kenya will record a positive growth leveraging on “expected healthy credit growth”.

“Kenya’s growth prospects are favourable, with trend growth expected to pick up in the years ahead. Activity will benefit from the boost to private-sector confidence, following peaceful 2013 elections. Inflationary pressures should remain modest given the favourable weather outlook,” the report said.