Consumer driven growth, low global commodity prices key to boosting Kenya GDP growth

Consumer driven growth and low commodity prices are driving Kenya’s GDP growth according to a new report from the Institute of Chartered in England and Wales (ICAEW): Economic Update: Africa Q4 2019.

Most East African countries have a positive economic outlook, largely due to the positive performance brought about by economic diversification. The professional accountancy body provides GDP growth forecasts for various regions including East Africa which is set to grow by 6.1%, compared to West and Central Africa at 3.7%, Franc Zone at 4.9%, and Southern Africa at 2.2%.

The ICAEW report, produced in partnership with forecaster Oxford Economics, states that East Africa’s growth has been reinforced by low commodity prices, which have kept inflation at bay, providing a strong base for continued GDP growth. This growth comes against the backdrop of a slowing global economy impacted by the US Federal Reserve implementing ‘insurance’ interest rate cuts due to growth concerns, as well as slowing GDP growth in China.

Michael Armstrong, ICAEW’s Regional Director for the Middle East, Africa and South Asia, said that Kenya’s economic diversification has played a key role in keeping the country’s growth rate higher than its continental counterparts. “Growth in Kenya is currently driven mostly by the consumption model; however, its strong service industry provides an opportunity to diversify and increase growth avenues for the economy in general,” said Mr. Armstrong.

“This growth is also reinforced by falling global commodity prices which at the moment form a huge part of the prices of basic goods,” he added.

The report also highlights how the drive to renationalise Kenya Airways, the national carrier, may see the organisation make the most of growing tourist numbers travelling to the country. “In addition to shoring up the airline’s balance sheet, nationalisation will exempt Kenya Airways from taxes on engines, maintenance and fuel,” the report states.

This solution however has its doubters who view it as an unsustainable move. “The move will undoubtedly improve the company’s financial position over the short term, but there is a lot of uncertainty over whether increased government involvement will actually benefit Kenya Airways’ longer-term sustainability, especially when considering that most other airlines are moving away from nationalisation, towards privatisation,” the report continues to state.

A large number of passengers are set to pass through Kenya in the coming years, with the International Air Travel Association (IATA) projecting that total air passengers through Kenya will increase from 6.8m in 2018 to over 10m by 2026.

Ethiopian Airlines is the only profitable airline in sub-Saharan Africa and is increasingly acquiring shares in smaller carriers on the continent in an effort to become the powerhouse pan-African airline. Kenya Airways also fails in comparison to Ethiopian Airlines on activity levels, with the former only covering 56 cities while the latter flies to more than 120 destinations.

The report goes on to mention that East Africa’s economic growth is expected to remain robust, easing slightly from 6.3% this year to 6.1% in 2020. Economic growth in the franc zone is also expected to remain strong, increasing from 4.7% in 2019 to 4.9% next year. North Africa’s economic performance remains volatile due to instability in Libya, with regional growth picking up from 2.8% this year to 4.5% in 2020. In Egypt, the region’s economic anchor, favourable policy adjustments are translating into improved macroeconomic fundamentals and a positive growth outlook.

Although it will pick up next year, GDP in the continent’s other regions will remain relatively subdued, largely due to lacklustre performances of Nigeria, Angola and South Africa. Growth in West & Central Africa is expected to increase from 3.4% in 2019 to 3.7% next year, largely held back by a subdued economic performance in Nigeria due to some erratic and ineffective policy decisions such as the closure of its land borders to all movement of goods, with no definite timeline for reopening them . In Southern Africa, growth is expected to come in at 2.2% in 2020 compared with a 1.3% expansion in 2019. The South African economy will keep stagnating this year, also due to policy uncertainty, while electricity constraints have had a negative impact on industry and have deterred investment in general.

The full Economic Insight: Africa report can be found here: