Uhuru’s second anniversary: the economic scorecard


Today marks exactly two years since President Uhuru Kenyatta was sworn in as Kenya’s 4th President. An assessment of his administration about its legacy on economic matters this early is a little unfair as the administration’s major economic policy announcements are yet to be fully implemented or their impact felt. But to its credit, the government has not been idle or inactive. What and how much has it done? Let’s take a look at some of the basic economic parameters to see whether the economy is really looking up or down after 24 months of President Kenyatta’s rule.

1. GDP growth – The economy grew at 5.3 percent last year and is expected to grow at between 6.5 and 6.9 percent this year. These are not sparkling rates for an economy that has far much more potential, but is a good deal better than in most places and is surely a sign of good things to come. Given the slow global economic growth rate, Kenya is in fact considered one of the fastest growing economies in the world.

2. FII and FDI Flows – Foreign Direct and Institutional flows have increased over the last two years with improved investor sentiments. Kenya is now seen as among the three top investment destinations in Sub Saharan Africa, and the most preferred in the region. To its credit, President Kenyatta’s administration has unleashed plans for attracting investors and improving the ease of doing business in the country with the creation of a one-stop shop for investor services. Investors can now fast track entry into the market as laws and regulations that were previously disparate have now been simplified, cutting back on intricate bureaucratic red tape and piles of regulations that held back investments in the past.

3. Stock Markets – The stock market has risen to record levels and is one of the best performing markets in Africa. The Nairobi All Share Index (NASI) grew by approximately 20 percent last year.The market has over the last 2 years seen significant growth in prices and market capitalisation. The administration has played a big role in the demutualization of the Nairobi Securities Exchange (NSE) and has facilitated other capital markets reforms to improve market depth and breadth. One major negative is the confused manner in which the Kenyatta administration re-introduced the capital gains tax. A tax that is not expected to raise much is already having a big negative impact on the economy because of change in behaviour of businesses and individuals trying to comply with it.

4. Inflation and interest rates – Inflation is higher than when President Kibaki handed over the baton but at 6.31 percent last month, it is still in single digit and within the National Treasury’s preferred band of 2.5-7.5 percent. Whereas commercial lending charges have not dropped as much as the admin would have liked, they have nevertheless come down. The jury is still out as to whether the new loan pricing formula, or Kenya Banks Reference Rate (KBRR) introduced by the Central Bank of Kenya (CBK) last year has had much impact but rates have declined to below16 percent for the first time since 2011.

5. Exchange rates – The shilling has weakened against the dollar since President Kenyatta took over from Sh84.69/Dollar as of April 9, 2013 to Sh92.13/Dollar as of April 5, 2015. Insecurity affecting key sectors like tourism and low tea and coffee prices have played a role in the weakening of the local currency. Most of the weakening, however, is due to the fact that the dollar strengthened when the US Fed first hinted at slowing its bond purchases, raising the prospect of higher yields in the rich world thus reducing the attraction of investing elsewhere. The shilling has however remained relatively stable.

6. Credit Ratings – Kenya was awarded favorable long term credit ratings by both Moody (B1) and Standard & Poor’s (B+) credit rating agencies last year during the Eurobond issuance which reflects the view that the country’seconomic setting offers a conducive environment for reforms. The ratings and overall debt outlook enabled Kenya to negotiate a favorable rate for the bond. The successful issuance of the bond itself was a major economic achievement for the administration.

7. National Debt – Whereas the absolute size of the national debt has significantly grown under President Kenyatta, it has nevertheless continued to be well managed. The country’s NPV of debt as a percentage of GDP, a measure of debt sustainability, is around 45 percent against the WB/IMF thresholds of 74 per cent for Kenya.

While leading indicators suggest a pick-up in the economy, a lot still needs to be done in terms of administrative barriers, infrastructure, fiscal consolidation, tax regimes, labour market reforms etc. However, If the economy alone mattered, President Kenyatta and his administration are well on track to get Kenya moving forward. The problem is that political leaders are responsible for more and economic development is highly correlated with other factors such as security, national cohesion and corruption and waste, which unfortunately this administration has not done as well as it has managed the economy.

(The write is the Senior Vice President, Financial Risk Management, Riyad Bank, Saudi Arabia)

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