Kenya’s economy is likely to register a decelerated growth this year below the benchmark 5.4 per cent, financial information and analytics focused firm S&P Global now say.
It expects economic growth to be lower by 0.3 percentage points compared to the baseline in 2024, as the country navigates the aftermath of the recent floods that rocked most parts, following above-average rainfall between March-April-May.
This resulted to widespread flooding and damage to infrastructure with the devastating floods have caused significant disruptions to various sectors, including agriculture, transportation, and retail. T
The negative impact of the 2024 floods on Kenya's overall GDP appears likely to be higher than the 2018 floods, since Nairobi - the largest county in Kenya - had been affected by the recent floods whereas this was not the case in 2018, the US-based firm notes.
The magnitude of the disruption to Kenya's aggregate national GDP however depends on the flood-affected counties' contribution to Kenya's overall GDP and the composition of those counties' industries.
Counties that were most affected include Nairobi, Machakos, Kisumu, Kilifi, Kajiado,Homa Bay, Busia, Garissa and Tana River.
Nairobi which was hard-hit, for instance, contributes 28.3 per cent to Kenya's overall GDP.
The top five industries in Nairobi, in terms of their percentage contribution to the county's GDP, include finance and insurance, housing, wholesale and retail trade, transport and storage, and construction.
S&P Global forecasts that the resumption of service-related economic activity in Nairobi is likely to be much faster than other counties, where economic activity is dominated primarily by the agricultural sector.
“Still, temporary disruptions to Nairobi's economic activity, such as the closure of rail cargo services between Nairobi and Mombasa, cancelling of satellite commuter train services, and retail sales disruptions due to road infrastructure disruptions, are expected to reduce Kenya's overall economic growth performance,” it said in a report.
For other, much-smaller flood-impacted counties such as Garissa and Tana River, the firm’s regional explorer data shows that the agricultural sector accounts for over 30 per cent of local GDP. In Kisumu county, economic activity is more diversified, encompassing transport and storage, agricultural production, and manufacturing.
The recent anti-government protests and the withdrawal of the Finance Bill 2024 are also seen as major factors that will affect the economy, as government moves to cut its spending plans for the financial year 2024-2025.
Meanwhile, the growth in imports because of the floods which affected crop production and local industries' low performance over the demonstrations period, are projected to lead to overshoot on prior estimates of Kenya's current-account deficit of 5.6 per cent of GDP in 2024.
This will be due to the increased demand for imported goods associated with investments as the government's infrastructure rehabilitation programmes gain momentum.
Higher food imports also are likely given the disruptions in the domestic food supply chain caused by the floods.
“We predict that exports of goods, particularly tea, will remain resilient. Tea plantations in Kenya are located primarily in highland areas. As a result, tea production is more vulnerable to adverse temperature fluctuations and insufficient rainfall or droughts than to floods,” S&P said.
The increase in flood-related imports may be partly offset by expanded remittances if expatriates provide additional financial support to households facing financial difficulties.
The widening current-account deficit threatens to put pressure on the Kenyan shilling in the second half of 2024, particularly in a stronger US dollar environment.
In turn, this is likely to result in a slower pace of monetary easing by the Central Bank of Kenya.
“We had forecast the central bank's policy rate at 10 per cent at end-2024, compared with the current level of 13 per cent. However, the marginal increase in price pressures and greater need to defend the currency now make the policy rate likely to end 2024 at around 11 per cent,” said Ronel Oberholzer, Head of sub-Saharan economics.
The 2024 floods are likely to have significant adverse implications for Kenya's already strained fiscal position during fiscal years 2023-24 and 2024-25.
Kenya's fiscal position already was under pressure with recurring expenses consuming about 90 per cent of revenue.
Such financial constraints have already led to the cancellation of a $1.3 billion (Sh167. 1 billion) road contract and a hold on new road projects until existing ones are completed.
“It will require proactive measures to enhance revenue generation, such as exploring alternative sources of income and implementing effective tax collection strategies. Previous tax-raising measures have not always resulted in the expected revenue increase, and public opposition to new tax measures could restrict revenue collection,” Director, Economics, S&P Global Market Intelligence, Thea Fourie, said.
The Kenyan Revenue Authority fell short of its ambitious tax collection targets for the 2023-2024 fiscal year by about Sh267 billion, collecting Sh2.2 trillion of the Sh2.49 trillion, which was revised downwards from Sh2.76 trillion.
The economy performed dismally in the first quarter of this year, Kenya National Bureau of Statistics data indicates, having expanded by five per cent compared to a growth of 5.5 per cent in the corresponding quarter of 2023.