Kenyan economy is predicted to grow at 6.5 per cent in 2017 from an estimated 5.9 per cent last year driven largely by a historic spike in borrowing this year driven by government and private sector as the capping works itself out according to the latest forecast by Metropol Corporation.
This, even as the country is struggling with massive retrenchment and high food prices following a long dry spell that has heavily affected the country’s agricultural sector.
At least three major banks in the country have downsized in the past two months with others forced to fold or close business.
While most economists are blaming the current economic situation to amendments in the banking sector that saw interest rates capped 4 per cent over Central Bank Rate (CBR) for lending and 70 per cent of CBR for deposit rates, Metropol thinks otherwise.
It argues that the capping will work itself out over 2017 with increased public and private sector borrowing to historical levels of 15-20 per cent per year from current depressed level of 4 per cent.
According to Metropol, seven Tier 1 banks have excess liquidity of approximately Sh400 billion and can be expected to search for increased lending opportunities.
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This will see at least Sh100 billion ending up in government securities, while lending to private sector could increase by 50 billion on the back of increased mobile advances in this financial year.
This will rise to Sh80 billion during the 1st half of 2017/8, and Sh120 billion in the second half.
Infrastructure growth in the country has also been cited as major driver of the economic growth.
The report explained that the accelerated infrastructure project implementation in the country including the Standard Gauge Railway (SRG) and the World Bank’s Sh150 billion road program that will cover 10,000 kilometers will bring efficiency and lower the cost of doing business.
Higher FDI inflows
The Metropol report is also hopeful that the increased Foreign Direct Investments in the country will help drive the GDP.
It explains that FDI have been growing strongly since 2010. The report indicates that the country has been receiving an average inflow of $1.5 billion over 2014/2016, an aspect attributed to operations of a fully liberalized economy, good weather, a positive investment climate and developments in the oil and gas sector.
Struggling agricultural sector to pick up later in the year
Although the country is undergoing serious food shortage in the arid and semiarid counties, Metropol is confident that various measures taken by both the government and the private sector will soon bear fruits
The implementation of the 1.75 million acres Galana/Kulalu Ranch irrigation programme has been rejigged on realization of the water reservoir at high grand falls dam.
It however notes that not much is expected this year 2017.
The main reason being absence of high grand falls dam at Marimanti, Tharaka Nithi County. Now the project will go through an intermediate stage of 400,000 acres using flood control dam 1.
This dam is now under design and will be ready in late 2018. The model farm and other infrastructure investment activities are on-going.
The programme is intended to reduce food volatility connected with rain fed farming, particularly the supply of maize.
The programme will create 1.5-2 million jobs and make the country a net exporter of maize at a production level of 25-30 million bags based on 2 harvests per year on 500,000 acres
Increased activities in the energy sector
The energy projects have gained sustained traction.
Last mile connectivity project financed through AfDB and World Bank at Sh60 billion expects to complete 2 million connections by 2017, to achieve 70 per cent by 2020
Energy, particularly electric power is and has been a major constraint to development in terms of unit costs and availability.
This is attributable to historical under investment and low plant efficiency.
However, on recognition of lack of demand, the 5000MW program has been revised with some projects rejigged for later periods.
There was 2,300 MW installed capacity in 2016. Additional 280MW from Olkaria 5 & 6 are under implementation to be commissioned in 2017.
The 105MW Menengai geothermal is also under construction. The 310MW Lake Turkana wind power is under active implementation due for completion over 2017.
However, the feed-in of their first 100MW is tied to Ethiopia – Kenya high voltage transmission line which is delayed owing to land disputes. Other active wind power projects are Kipeto in Kajiado (80mw), and KenGen’s 400MW in Meru.
The 50MW Garissa solar plant is under implementation. This is a KenGen project and is likely to be realized according to plan in 2018.
Oil and Gas
The current drop in global prices is not expected to impact on the oil and gas activity for the reason that the commercial production is at least three years away, by which time a new global equilibrium (currently estimated at US$80 per barrel) will have been established.
The recent OPEC agreement for supply cut-backs of 1.8 million barrels per day is not expected to reduce current oversupply in 2017, and prices will remain subdued at below $60 per barrel at which level US production of shale oil and gas flood the market.