{"id":429300,"date":"2011-05-24T09:59:22","date_gmt":"2011-05-24T09:59:22","guid":{"rendered":"http:\/\/www.ghanamma.net\/2011\/05\/24\/kenya-tough-times-beckon-as-economy-slows\/"},"modified":"2011-05-24T09:59:22","modified_gmt":"2011-05-24T09:59:22","slug":"kenya-tough-times-beckon-as-economy-slows","status":"publish","type":"post","link":"https:\/\/www.ghanamma.com\/2011\/05\/24\/kenya-tough-times-beckon-as-economy-slows\/","title":{"rendered":"Kenya: Tough Times Beckon As Economy Slows"},"content":{"rendered":"
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\"The<\/a><\/p>\n

22 May 2011<\/p>\n

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Nairobi \u2014 This was supposed to be a stress-free year for the Kenyan economy and one that would hammer home the trickle-down economics favoured by President Kibaki’s administration since coming to power eight years ago.<\/p>\n

But the verdict is out that 2011 poses tough economic times for Kenyans despite growth accelerating to 5.6 per cent last year — the highest rate since 2008.<\/p>\n

Towards December last year, the effects of the financial crisis to the economy had thawed and no new shocks could be foreseen.<\/p>\n

But the resurgence is not to be. Kenya has cut its growth forecast for this year to 4.2 per cent from an earlier projection of 5.7 per cent given by Finance Minister Uhuru Kenyatta, as surging inflation and weakening currency continue to pile pressure on the country’s economy.Data in the Economic Survey 2011 released by the Kenya National Bureau of Statistics and the Ministry of Planning on Tuesday showed growth was powered by improved productivity in key sectors such as energy, agriculture, construction and financial services.<\/p>\n

The pick-up in the pace of growth reflected stronger consumer spending and a larger inventory build-up in the manufacturing sector that greatly benefited from a 19 per cent increase in the volume of trade.<\/p>\n

“The country is experiencing high commodity prices that may slow economic growth in 2011,” said Planning Assistant Minister Peter Kenneth.<\/p>\n

Kibaki dilemma<\/strong><\/p>\n

But the dim projections on the economy look set to soil the trickle-down economics President Kibaki has been pushing for, as he prepares to vacate office next year when his constitutional term ends.<\/p>\n

When he rose to power, President Kibaki had set himself a target of growing Kenya’s economy by at least 10 per cent annually by 2012 — a medium-term goal he hoped would create more jobs, raise household earnings and close the gap between the rich and the poor.<\/p>\n

But now, these targets could be threatened by a slowdown in the economy which could cut profitability in corporate Kenya, reverse the momentum for job creation effectively increasing unemployment rate and pushing more Kenyans into poverty.<\/p>\n

The government has come under heavy criticism over the failure of the benefits of growth to trickle down to lower income groups, leaving household incomes to lag far behind the rate of inflation and the cost of living.<\/p>\n

In its recent review on the economy, the National Social and Economic Council (NESC) — a key State organ that is responsible for Kenya’s economic policy — said the realisation of the target 10 per cent annual rate of economic growth was not enough to lift the estimated 60 per cent of the population from poverty — even if that level of activity was sustained in the next two decades.<\/p>\n

“For economic growth to impact on poverty, it has to be sustained at relatively high levels and also be well distributed,” said NESC in a report, Poverty Reduction Requires Economies to Address Inequalities and Economic structures — In Addition to Sustaining High Levels of Growth.<\/p>\n

Planning Minister Wycliffe Oparanya warned that depreciation of the Kenya shilling, poor rainfall, high food prices and political instability as the country enters an election year in 2012 could hurt growth prospects.<\/p>\n

Last week, the local unit hit an all-time low of 86.77 against the dollar after continued central bank hard currency purchases and operations to drain liquidity from the money market undermined the local currency, traders said.<\/p>\n

The Economic Survey showed the high cost of living eroded the ability of millions of Kenyans to save last year, thinning out the pool of investment funds that the economy needs to increase the pace of growth.<\/p>\n

Inflation has surged for six months now, hitting the double digit levels last month when it rose to 12.05 per cent in April from 9.19 per cent in March.<\/p>\n

As a result, household budgets rose to cater for the high cost of basic goods like food, rent, electricity and fuel, Kenyans cut on their savings.<\/p>\n

Data shows gross savings fell to Ksh310 billion ($3.6 billion) last year from Ksh313.7 billion ($3.65 billion) in 2009 — a 2 per cent drop.<\/p>\n

“The ratio of gross savings to GDP declined slightly from 13.3 per cent in 2009 to 12.2 per cent in 2010 as a result of increase in consumption expenditure,” said the Economic Survey 2011.<\/p>\n

The decline in the savings rate came on the back of a one per cent drop gross savings as a ratio to average disposable income to 11.4 from 12.4 the previous year, an indicator that on average, Kenya created less wealth compared with the rate of population growth during the period, leaving less money in each household.<\/p>\n

The national savings rate is considered key to an economy’s ability to increase its rate of growth, create jobs and improve living standards because it is the pool from where productive sectors derive the money they need to invest and drive expansion. For instance, it is the savings with banks, fund and pension managers that are used to buy government bonds, enabling the state to raise the money it needs to invest in key infrastructure such as roads, power sources and information technology that drive economic growth.<\/p>\n

The latest statistics dims hope that Kenya could realise the government’s medium term goal of raising the savings rate to between 25 per cent and 28 per cent. Increased savings rate, also leaves banks with a pool of deposit to lend to productive sectors of the economy and drive growth.<\/p>\n

“Kenya is already close to middle-income levels, and should achieve this earlier if current growth rates are maintained,” says the International Monetary Fund it its latest Regional Economic Outlook for sub-Saharan Africa.<\/p>\n

As Kenya prepares to release its 2011\/2012 fiscal year budget in three weeks, Finance Minister Uhuru Kenyatta is faced with a dilemma of finding a policy mix that will ring-fence the 2010 growth rate, stem rising cost of living, spur the economy’s ability to create jobs and put more money in the pockets of households by supporting key sectors.<\/p>\n

The Kenyan economy created 504,000 new jobs last year, a measly 1,000 more than those created in 2009, a signal that the economic expansion was not sufficient to oil the job creation machinery. Most of the new jobs were mainly in the construction, building, wholesale and retail and hotel and restaurant sectors.<\/p>\n

“Among the policy interventions needed to safeguard growth in 2011 include scale up policy for more incentives for food production and irrigation, widening social protection policies and relief for four million vulnerable Kenyans and providing better coordination of key players in production and distribution in the food sector, ” said Mr Oparanya.<\/p>\n

“Others are removing tariffs on imported grain for a limited time actualising the 8 million strategic grain reserves, maintaining the recent reduction in taxes on diesel and kerosene and accelerating the strategic oil reserves policy,” he added.<\/p>\n

<\/p>\n

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\nKenya: Tough Times Beckon As Economy Slows<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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Towards December last year, the effects of the financial crisis to the economy had thawed and no new shocks could be foreseen<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[],"class_list":{"0":"post-429300","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-local-news"},"yoast_head":"\nKenya: Tough Times Beckon As Economy Slows - Ghanamma.com<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ghanamma.com\/2011\/05\/24\/kenya-tough-times-beckon-as-economy-slows\/\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Kenya: Tough Times Beckon As Economy Slows - Ghanamma.com\" \/>\n<meta name=\"twitter:description\" content=\"22 May 2011 Nairobi \u2014 This was supposed to be a stress-free year for the Kenyan economy and one that would hammer home the trickle-down economics favoured by President Kibaki's administration since coming to power eight years ago. 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