THE KENYAN ECONOMY SHOWS SIGNS OF RECOVERY FROM THE DOLDRUMS OF THE PANDEMIC.

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Yesterday, the Kenya National Bureau of Statistics (KNBS) released the much awaited first and second quarters’ 2021 gross domestic product reports. Though we are yet to scale pre-pandemic levels, the report paints an economy that is slowly but surely recovering.

From the report, in the first quarter of 2021 economic growth decelerated to 0.7% compared to 4.4% in the corresponding period in 2020 due to the emergence of COVID-19 in March 2020. Conversely, the real GDP (GDP figure that is adjusted for inflation) grew by 10.1% in the second quarter as compared to a 4.7% diminution in the same period in 2020. This growth is ascribed to the easing of COVID-19 containment measures and the gradual re-opening of the economy that has seen the economy show signs of recovery.

Agriculture, fishing and forestry activities reported decreased activity in the beginning of 2021 and further went ahead to post a decrease of 0.9% in the second quarter as compared to a growth of  4.9% in the corresponding period in 2020. However, the plunge in this sector was cushioned by remarkable increases in milk production, horticultural exports and production of sugarcane.

The grass seems to be green for dairy farmers as milk processors registered a 37.9% jump in milk intake to stand at 208.5 million litres in the second quarter of 2021. Conversely, cane deliveries increased from 1, 666 metric tones in the second quarter of 2020 as compared to 1907 thousand metric tones in the second quarter of 2021. By the same token, the volume of cut flowers, fresh vegetables and fruit exports increased by 58.1%, 55.2% and 23.5%, respectively in the second quarter of 2021. On the downside however, the tea sector posted a significant plunge in the levels of tea production, from 143,037 metric tones in the second quarter of 2020 to 133,090 in the corresponding period of 2021.

The manufacturing sector, which was greatly imperiled by the disruption of global supply chains at the height of the pandemic in 2020 has recorded notable recovery, posting a real GDP growth of 9.6% in the second quarter as compared to a reduction of 4.7% in a similar period in 2020. According to the report, the food sub-sector expanded by 6.7% during the review period while production in the non-food sector registered a 12.2% increase which was buttressed by; a 10.0% in the growth of motor vehicle assembly, a 34.5% in the manufacture of galvanized iron-sheets and a 13.5 % increase in the manufacture of paper and paper products. Be that as it may, a decline of 0.9% (to stand at ksh1265.8 billion in the second quarter of 2020) in the amount of credit advanced to enterprises in the manufacturing activity was recorded. This decline in the amount of credit advanced to manufacturing entities could be a possible pointer to the improvement in the entities’ state of financial affairs which means, they are becoming less dependent on loans as a means to support the running of their day to day activities. On the flip side however, it could mean that there is a decline in investments in the manufacturing sector, with current players lacking incentive to further expand the scope of their operations and prospective entrants deterred from throwing their hats into the ring.

The construction industry recorded positive albeit slow growth in the second quarter of 2021 as compared to a similar period in 2020. The sector recorded a growth of 6.5% in the second quarter of 2021 as compared to 8.2% growth in a similar period in 2020. Credit advanced to the construction sector declined by 1.7% to ksh359.1 billion in the second quarter of 2021.

Lifting of restrictions in domestic and international movement earlier in the year accelerated growth in the transport and storage sector. The sector posted a 16.9% growth in the second quarter of 2021 as compared to the decline of 16.8% it posted in the second quarter of 2020.

Freight movement through the Standard Gauge Railway (SGR) recorded a 29.6% improvement to stand at 1326 thousand metric tonnes in the second quarter of 2021. Consequently, passenger transport through SGR increased from 6363 passengers in the second quarter of 2020 to 304,445 in the second quarter of 2021. Additionally, the consumption of light diesel grew by 27.4% compared to a contraction of 22.4 per cent in the corresponding quarter of 2020.

At the height of the pandemic in mid 2020, the Ministry of Health in a bid to curb the spread of the deadly virus issued strict guidelines that compelled eateries to offer take-away services only and later, operations at near half sitting capacity both of which led to a drop in their earnings. The cessation of movement into and out of some areas led to a decline of near 99% in visitor arrivals. However, with the easing of these restrictions mid this year, the sector has proceeded to register a 9.1% growth in the second quarter of 2021 as compared to a 56.8% contraction in the same period in 2020.

According to the report, the Kenyan Shilling depreciated against all major international trading currencies except the Japanese Yen in the second quarter of 2021 compared to the same quarter of 2020.On average, the Kenyan Shilling depreciated against the Pound Sterling, Euro and the US Dollar by 13.9 per cent, 10.8% and 1.2 %, respectively, during the second quarter. However, the Shilling gained notably against all the regional currencies except the South African Rand.

Trading at the Nairobi Securities Exchange (NSE) also took a hit as the NSE share index dropped from 1942.1 points in June 2020 to 1927.5 points in June 2021. On the other hand, inflation increased from an average of 5.31 per cent in the second quarter of 2020 to 5.98 per cent in the corresponding quarter of 2020 mainly on account of significant surge in prices of agricultural produce due to the unfavourable weather conditions.

                                                NSE 20-Share index and value of shares traded, January 2021 to                                                        June 2021

                                                  Source: KNBS quartely GDP report ,2021.


The Current account deficit on the other hand grew by 28.2 per cent from ksh85.9 billion in the second quarter of 2020 to ksh110.1 billion in the corresponding quarter of 2021. The widening of the deficit moved in tandem with the depreciation of the Kenyan shilling which means that as the shilling depreciated, exports increased while imports decreased. If this is left unchecked, exports will continue to rise, while imports decline, causing the shilling to depreciate even further.

The Treasury bill rate decreased from to 7.14% in June 2020 to7.03% in June 2021, while the lending and interbank rates increased from 11.89% and 3.27% in June 2020 to 12.02% and 4.63% in June 2021 respectively. The increase in inter-bank rates means that for the second quarter of 2021, your bank was less likely to lend you than it would have been in the corresponding period the in June 2020. The report also shows that, average deposit rates and savings rate decreased from 6.86 per cent and 4.15 per cent in June 2020 to 56.37% to 2.55% in June 2021.

                                            Trends in interest rates, January 2020 to June 2021

                                                Source:KNBS quartely GDP report, 2021

 

 

Comments

  1. UnknownNovember 11, 2021 at 8:13 AM

    The report is conspicuously clear that the Economy is soon recovering. We anticipate for more and more increased output Among the various levels of production,this is so due to the ceased COVID restrictions and the reopening of a 24hr Economy. I enjoy this reports bro, all the best buddy.

    ReplyDelete

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