Kenya Economic Update 2015

The World Bank launched the 12th edition of the #KenyaEconomicUpdate in Nairobi today.

  • John Randa of World Bank Kenya said they still predict Kenya will grow at 5.4% this year, and it’s economy is sustainable
  • He said In the last 4 years, Kenya government expenditure has grown 7%, while revenue has grown 2%..this is not sustainable
  • Also that when agriculture performs, the Kenya economy performs (but there are people who say agriculture is inconsequential)
  • World Bank John RandaBut the government getting more revenue from income tax, but what is coming from VAT is declining. Also that stocks in Nakumatt aisles are like those in SA, and perhaps Treasury should consider excise tax on unnecessary imports
  • Interbanks have been volatile, but less so than it was in 2011 (Arab Spring) and if all tools are used,  volatility can be managed,  but with better  communication to investors – and that while public debt is rising it’s still sustainable. 50% is not cast in stone, it is unofficial
  •  He said exports are a drag, that are falling behind as a share of GDP since 2011, while imports have remained the same. With the stagnation of manufacturing sector, exports are not growing. Kenya has to fix exports as that’s the only solution for the manufacturing sector. Past incentives don’t seem to have worked and while most manufactured products go to the region, there is completion from India and China – while local companies face poor transport, high input, and high credit cost. Still the government has r out several initiatives to help like easier business registration, infrastructure investments and the port improvements.

Government Spending has gone from Kshs 696 billion in 2011/12 to 1.5 trillion in 2015/16

  • But increased spending is not all due to counties. In  2012-13 national government was 24% of (XX), today it’s 26%.
  • They will have to make some cuts by looking at discretional spending – and there is a lot of space to cut in the 2 trillion budget e.g. obscure roads and also from the duplication of functions at both the national and county governments – such as the health ministry whose budget has not trimmed despite health being devolved to counties.
  •  The SGR, whose full impact will be seen in a few years, has already boosted GDP by 1.5%, according to the IMF.

Micah Cheserem, the former Central Bank Governor, and current Chairman of the Commission for Revenue Allocation, also made some remarks. He was introduced as having been appointed to the Central Bank (CBK) when Kenya had turbulence in 1993 and CBK went on to take the Kenya shilling from 82 to the dollar to 38 in 2 years.

  • If choosing between weak shilling or high rates, choose low-interest rates & let the market set the currency rates. If someone bought a flat in Lavington at 15%, they won’t afford it if the bank raises the mortgage rate to 25%.
  • The World Bank Kenya should do more county reporting and see what the 4.1% funding to counties has done. When this goes to 40%, this might be Switzerland
  • Government should release money & not disturb county pilots. Nairobians should travel & see changes from devolution. For many Northern Kenya counties (Turkana, Samburu, Mandera, Wajir), independence came in 2013, not 1963 and there’s no going back. Despite challenges & noise, devolution is working, and in 2.5 years, counties have done more things in some places than the national government in 50 years.

County Finance:  County leaders woke up to citizen participation in budgeting only after a court invalidated the Kiambu govt budget (quoting a Turkana county leader in a World Bank Kenya video)

  • Perception of success of devolution are tied to development – it is positive where there is infrastructure development. Kenyans care and judge development by roads and health facilities. 
  • Counties are still failing in sharing budget info as per the PFM act – e.g. finformation should put on web. They say uptake on the website it poor, but they are not making budget available via other sources,. Still the council of genres have put up all 47 county development place on the council website.

Other: Terry Ryan said, if you take out the ( Kenya Airways – one time purchase) airplanes, Kenya’s current account deficit comes down significantly.

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