NAIROBI, Kenya, Jan 31 –The government has identified the direction of the new US administration as the biggest factor in Kenya’s economy in 2017.
Central Bank Governor Dr. Patrick Njoroge says the new administration’s protectionist agenda is a significant risk to Kenya’s projected economic growth of 5.7 percent in 2017.
“If protectionist policies are put in place, first it will hurt the US, it will also hurt emerging markets and everyone else in the globe,” said Njoroge. “Now it’s unclear where we are going”
Njoroge explained economic uncertainty creates volatility in the global markets which makes investors hold making key decisions.
“If the new administration puts in place measures to ease financial regulations, we may risk going back where we were in 2007/2008…this has potential to create a financial crisis,” said Njoroge.
CBK’s Monetary Policy Committee listed external shocks, including the Brexit outcome, potentially having an adverse effect on Kenya’s economy compared to the August elections and drought which saw December inflation rise by 1.5 percent.
Kenya’s export to the US is predominantly apparel through the AGOA treaty, which will be at risk if Trump’s administration rescinds the agreement essentially shutting down the Export Processing Zones which employs thousands.
However, the same protectionist stance taken by Trump has handed Kenya and other African countries a lifeline after the US withdrew from the Trans-Pacific Partnership Agreement (TPP).
The agreement would have opened the American market to textile duty-free products from Asian countries like Asia, subjecting Kenya’s products to intense competition in the US.
Njoroge also pointed out to Trump’s immigration policies could limit movement of labor and effectively reduce remittances, Kenya’s biggest source of foreign currency.
Internally, CBK says prevailing dry weather conditions will slowdown the agricultural sector in the first quarter of 2017.
Kenya secured a $1.5 billion precautionary loan from the IMF to buffer against adverse effects, but Njoroge notes this “insurance” would not be adequate to cover Trump policies.
CBK says the economy in the third quarter of 2016 was robust, supported by macroeconomic stability, public investment in infrastructure, lower energy prices and the recovery of the tourism sector.