Kenya’s growth slows in Q1 hurt by drought, credit slowdown

Kenya's growth slows in Q1 hurt by drought, credit slowdown
A worker picks tea at a plantation in Githunguri near Kenya's capital Nairobi, file. REUTERS/Thomas Mukoya/File Photo

Kenya announced mixed economic news on Friday as inflation and growth slowed ahead of August elections, relieving voters plagued by high prices but doing less to burnish the ruling party’s business-friendly credentials.

President Uhuru Kenyatta is seeking a second five-year term but his chief rival Raila Odinga has seized on inflation, which touched a five-year high last month, and shortages of the staple maize flour to criticise the government.

Kenyans will vote for a president, parliamentarians and local representatives on Aug. 8.

Kenyatta is touting his infrastructure push and an economic performance that far outshines the region. Kenya forecasts growth of 5.9 percent this year, compared with 5.8 percent in 2016. The World Bank predicts the economy will grow by 5.5 percent this year.

The forecasts do not build in a large dose of economic activity due to the elections, indicating that many investors believe a repeat of the violence that followed disputed 2007 polls, when more than 1,200 people were killed, is unlikely.

On Friday, the statistics office said growth slowed to 4.7 percent in the first quarter, down from 5.9 percent in the same period of 2016. It blamed the slowdown on drought and a major credit slowdown.

Private sector credit growth dropped to 3.3 percent in March from 17 percent at the end of 2015, after the central bank tightened regulations and introduced an interest rate cap.

“It is a very difficult environment for the incumbent in the election or whoever wins the election,” said Robert Shaw, a Nairobi-based economist.

“We have got unfortunate events like the lack of rain and then you have got a situation where there is a fairly bearish sentiment.”

Providing some relief, Kenya’s inflation fell to 9.21 percent year-on-year in June, down from 11.70 percent a month earlier, the statistics office said.

Agriculture, including exports of tea and coffee, accounts for more than a quarter of annual output in the region’s largest economy. But farmers have been hurt by a regional drought that left 2.7 million people in need of food aid. The U.N. said on Thursday the number of people who will need food aid is expected to rise to 3.5 million by August.

The drought has caused a national shortage of the staple maize flour used to make the popular dish ugali, causing a national outcry and sending the government scrambling to import corn in the face of critical headlines.

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