NAIROBI, Kenya, Jan 18- Kenya’s economic growth is expected to accelerate slightly in 2016 to 6 percent, according to the Oxford Business Group (OBG).
This will be driven primarily by continued infrastructure expenditures for projects such as the Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) corridor.
“Among this year’s planned investments is Kenya’s flagship project for the Vision 2030 development programme, the majority-Chinese-funded Standard Gauge Railway, which will connect the nation’s main port in Mombasa to the capital Nairobi, further easing the flow of goods in the region,” the OBG report shows.
The Kenyan economy performed comparatively strongly in 2015, even in the face of global economic headwinds, such as slow growth in Europe, and domestic hurdles, including weaker tourism receipts and a depreciating currency.
Going by the Gross Domestic Product (GDP) in the first three quarters of 2015, the economy needs to grow by 6 percent in the fourth quarter if the country is to achieve the governments new growth forecast of 5.6 percent to 5.8 percent.
The agriculture sector’s robust projections, which is one of the country’s key export earners, followed strong year-end rains, while recovery in the tourism industry is also expected to drive growth.
“Once the country’s highest foreign exchange earner, the tourism sector has plunged in recent years following a spate of security incidents over the past two years that led many foreign governments to issue travel advisories urging their citizens to avoid the East African nation. International tourist arrivals fell by 18.4percent year-on-year between January and August 2015,” the report explained.
To fund the country’s capital investments, the government continues to borrow from international debt markets including a Sh61 billion syndicated loan from international financiers in November and has been working to boost domestic revenue collection.
However, revenue collection between July and September reached only Sh277.2 billion against expenditures of Sh337.4 billion, causing a cash crunch, forcing the government to turn to domestic markets to raise funds.
“Significant government borrowing from local markets in September and October caused interest rates to rise rapidly. The rate on one-year Treasury bills jumped to 22.4% in October, as investors demanded higher premiums on government loans.”
Rates have since normalized to around 12.5percent, but if revenue collection remains weak, liquidity levels could be affected further in the New Year.
Heavy borrowing in 2015 also pushed up the country’s debt-to-GDP ratio, which stood at around 54percent as of end-November, up from 52.8percent in June.
The US Federal Reserve’s mid-December interest rate hike could also have an impact on Kenya.
The strengthening US dollar has contributed to the shilling’s 11.5percent depreciation in 2015, which in turn could have implications for Kenya’s growing dollar-denominated foreign debt, which amounts to 59percent of the total, according to the Budget Office.
Oxford Business Group is a global publishing, research and consultancy firm, which publishes economic intelligence on the markets of the Middle East, Africa, Asia and Latin America and the Caribbean.
The Report: Kenya 2015, will be produced in partnership with KenInvest and the Kenya Private Sector Alliance (KEPSA). Contributions will also be made by the Kenya Association of Manufacturers and Ernst & Young.