NAIROBI, Kenya, Nov 28 – Analysts have cautioned that the “politics of rage” being experienced in advanced economies, as witnessed in the outcome of the Brexit and the US election, are set to put further pressure on Africa’s economic growth that could affect Kenya as well.
Barclays Africa Group Limited (BAGL) Chief Economist Jeff Gable also highlights that strengthening of the dollar, rising finance costs, and lower capital flows will dampen the region’s growth, alongside reduced tourism spending and lower remittances.
He however says for Kenya, agricultural output and surging infrastructure spend will maintain Kenya on its current growth trajectory, despite these external setbacks.
“With tourism arrivals having shown significant recovery during 2016 from the lows of 2015, the Brexit vote may now dampen that recovery in the short to mid-term,” he said. “But the far higher levels of infrastructure and oil investment, and strengthening agricultural output, mean GDP growth is likely to remain strong over the long term.”
Kenya’s relative insulation from falling commodity prices, as a buyer rather than a supplier of many of the world’s fuels and minerals, sees the country’s economy now growing faster than the average for sub-Saharan Africa, and running markedly ahead of the world’s average GDP growth.
He however warns of the balance of payments deficits that continue to be a cause of concern as interest payments on government debt this year consuming about 20 per cent of the country’s tax revenues.
He also expects a continued depreciation of the shilling into 2017, with the biggest risks related to elections and dollar strength.
Beyond the political risk, there is a real possibility of further market setbacks.
“With more than a quarter of the bonds in major indices currently offering negative yields, global funds have moved into risk assets, notably gold and emerging markets. But as the scope for monetary policy nears its limits, any reversal could be sharp,” he said.
This could see investment funds withdrawing at speed from many African markets, putting further pressure on the Kenyan shilling.