20100104
aLLAFRICA

Nairobi — Hopes that Kenya's economy would achieve an annual growth rate of three per cent were dampened after it emerged that economic output remained flat in the three months to September.

Third quarter growth figures released by the national bureau of statistics showed that the economic growth rate stagnated at zero per cent between July and September, meaning Kenyans produced goods and services that just equalled the level of production in the comparative months of year 2008.

With the average annual growth rate up to September now standing at 2.1 per cent, the economy would have to grow by at least 5.6 per cent in the just ended fourth quarter to clock Treasury's annual GDP increase target rate of three per cent in 2009.

Kenya's economy has attained a 5.6 per cent fourth-quarter growth rate only twice (in 2007 and 2005) in the last decade, and economic experts said Treasury's annual growth target is now "well out of reach" based on this historical performance and available provisional growth figures for the past three months.

"I don't want to pre-empt anything, but I doubt we can achieve a 5.6 per cent growth rate in the fourth quarter going by interim data for the period," said Mr James Gatungu, a principal economist at the Kenya National Bureau of Statistics (KNBS). "The picture will however only become clearer later in January."

Minimal improvement

Economic experts said the best case scenario is that the growth rate in 2009 will fall within the IMF and World Bank's projections of just about 2.5 per cent, an expansion pace that just about matches the national population growth rate and hence represents minimal improvement in Kenyans' real incomes.

The stagnation in national output also contradicts the Central Bank of Kenya (CBK) governor, Prof Njuguna Ndung'u's, assertion in November that third quarter data pointed to an overall economic upturn.

"Analyses of second and third quarter economic indicators signal that the domestic economy is riding over the global economic crisis to a recovery path," said Prof Ndung'u in the November bi-monthly Monetary Policy Committee (MPC) statement.

Figures released by the statistics bureau on Wednesday however showed total gross domestic product (GDP) stagnated at Sh361 billion from July to September— the same level of economic output achieved in similar months in 2008 — which however represented a 3.2 per cent quarter-on-quarter increase over production in 2007.

Pounded by a quadruple of shocks that included lag effects of the 2008 post election crisis, persistent drought, a steep rally in food and fuel prices and weakening of the global economy.

Kenya's growth took a sharp nose-dive beginning April after what appeared to have been a strong re-bound in the first quarter when it recorded a four per cent enlargement.

The pace of economic expansion slowed to 2.4 per cent in the second quarter which was then followed by stagnation in the three months to September, the lowest third-quarter growth rate since 2002 when output shrunk by 2.5 per cent.

The agricultural sector which counts for about a quarter of Kenya's total GDP recorded negative quarterly growth of 3.5 per cent while manufacturing, transport and communications and construction which together represent an estimated one quarter of the GDP also declined by 2.4, 1.8 and 1.1 per cent respectively.

Negative growth

But the hotels and restaurants sector recorded a 44.4 per cent growth compared to a decline of 24.3 per cent in 2008 boosted by the traditional peak tourism season of the third quarter months. The steep recovery of this sector however has little effect on the overall GDP figures as it accounts for just about 1.6 per cent of Kenya's total economic output. Sheila M'Mbijjewe, a consultant economist and member of CKK's policy think tank the MPC, says performance of the agricultural sector still holds the key to Kenya's full economic recovery.

Though still billed as the country's economic backbone generating an estimated 80 per cent of direct and indirect employment especially in the rural areas, agriculture has also proved to be Kenya's Achilles' heel in recent years. Reliance on rain-fed production has seen the sector record consecutive negative growth pulling back total GDP growth in the last four years when effects of climate change have hit home by way of a persistent drought.

Agriculture sector's growth receded by five per cent last year and 2.4 per cent this year but is expected to grow by a positive one per cent next year based on a more favourable rainfall outlook according to a projection made by the World Bank last month.

Drought has pushed 10 million Kenyans to the borderline of intermittent food insecurity and driven home the realisation that Kenya's economic growth will always suffer heavily from the lag effects of lost productivity as food shortages feed to inflationary pressures and diminish demand for manufactured goods.

Treasury was forced to cut growth-spurring development spending last year by about Sh7 billion which went towards importation of emergency food supplies while the 2009/10 allocation of Sh3 billion for food import appears to fall way short of the estimated Sh48 billion that analysts say will be required to plug a looming deficit 16 million bags of maize.

"But the short rain season which appears to be sustaining now may just give the economy the required stimulus this year," says M'Mbijjewe.

The multi-pronged effects of erratic rainfall have also spread to the energy sector where the hydro-centric electricity generation has seen households and manufacturers have to absorb increased production costs on the back of a power and water rationing plan.

Overall demand

Ms M'Mbijjewe said policy interventions such as the ongoing state financing of targeted, economic stimulating labour-intensive projects will continue this year as a way of providing a safety net for jobless youth and also putting money into people's pockets with an eye on spurring overall demand for goods and services.

The World Bank has also suggested that Kenya should scrap all tariffs for maize and grain imports, give direct support to food and livestock production and implement targeted social protection programmes as short-term measures of dealing with the food crisis as it also engages neighbouring countries to allow free flow of food in the region. Treasury and the World Bank have projected growth of between 3.5 and four per cent this year.