BY VICTOR ADAR
If you thought there would be a more robust growth this year, think again. Financial services firm, Metropol, says growth will be passive because apart from the Standard Gauge Railway (SGR), the other hotbed projects such as Lamu Port, the crude oil pipeline, the power sector stuff like Lamu coal plant, Likoni gas plant, and Kinangop wind, and the 10,000km roads programme, have not taken off as expected and will not therefore generate the expected growth.
In an economic growth report, the firm further indicates that the expected slow growth is attributable to challenges to do with land and ease in acquisition (picture Lamu coal, Kinangop wind), delayed financial closure (Lamu coal), uncertainty in international oil prices (crude oil pipeline), and poor structuring in terms of roads.
At this rate, things will only look promising if investment projects are sustained. But on the back of negative forecast, the 2,000km of roads valued at Sh100 billion already contracted is expected to have a positive impact on growth this year as well as in 2017.
In addition, COMESA, which account for 20% of exports will also register more gains being a key support to exports due to strong growth (of over 6%) prospects of the East and Southern Africa region. New exports from the mining sector (titanium, niobium and coal) will also contribute to narrowing this deficit.
According to chief economist of Metropol Corporations, Ndiritu Muriithi, in the medium term, exchange rates should be stable from higher foreign direct investment hinged on oil and gas prospects. He notes that things have changed a lot more that Kenyans ought to take advantage not only of the strong shilling but also credit ratings.
“The shilling cost of our import is high, and it was happening in the context of declining oil. But capital flows are quite high… so let’s look at payments in overall as exchange rate is determined by overall outflows,” Muriithi says, adding that some people were trading at slightly under Sh100 against the dollar in what he calls a “psychological figure of 100”.
Despite the effects of projects lagging behind being some of the things that are slowing the growth, hopes to benefit from the smartphone revolution are true. Back in the day, financial institutions used to send negative reports to the Credit Reference Bureaus, where defaulters were the central point. But that has changed since now with mobile phones it is easy for lenders to pass this information. That’s why a small loan owed to Safaricom through mShwari, for example, can do more harm than good. And perhaps the reason why little amount like, say Sh500 ought not to land you on the blacklist.
Analysts say that credit rating is the most important where bottom-line is the way you pay back your dues. If you are a defaulter, your credit score will be low compared to people who pay back their loans early, or on time.
“You can improve your credit rating by paying for your dues. You can then use your credit score to negotiate a good interest rate. If it (credit score) is good you don’t have to take loans at 15%, or 22%, for example, you can request for something lower,” says Muriithi.
With the banks having also adopted more efficient systems such as mobile money, and agency banking, argues the economist, credit bureau referencing is maturing with the sharing of both positive and negative data – perhaps all this should contribute to lower charges.
Food security is another area to watch, especially with the implementation of the 1.75 million acres Galana/Kulalu Ranch irrigation programme. Valued at Sh250 billion, this programme has been rejigged on realization of the water reservoir at high grand falls dam.
It will go through an intermediate stage of 400000 acres using flood control dam 1 – this dam is now under design and will be ready in late 2018.
The programme is intended to reduce food volatility connected with rain fed farming, particularly the supply of maize. The programme will create 1.5 to 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.
“We expect improved food outcome which is courtesy El-nino. We also expect improved tourism because adversaries have been withdrawn. Tourism will rebound because of the improving security situation,” says Muriithi.
On energy projects
Last mile connectivity project financed through AfDB and World Bank at Sh30 billion expects to complete 1 million connections in 2016 brings more light. As always, 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 (at only 56%) of installed capacity. So the declared aim of government to increase installed capacity by 5,000MW over 2014-2017 period will go a long way.
There was 2,200 MW installed capacity in 2015. During the year, 280MW of Olkaria I & IV geothermal came on stream. Another 280MW from Olkaria 5 & 6 are under implementation. The 105MW Menengai geothermal is also under construction. The 310mw Lake Turkana wind power is under active implementation. Other active wind power projects are Kipeto in Kajiado (80mw), Kinangop (80mw) and KenGen’s 400MW in Meru.
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 about Sh8, 100 per barrel (US$80) will have been established.
The detailed engineering design contract for the oil pipeline to Lamu Port was signed in October between Toyota Tyushu and Kenya, Uganda & Rwanda in Kampala. At an estimated cost of Sh600 billion, the pipeline (and related components) is the key to the $25 billion LAPPSET project.
Short-term interest rates
Increased government expenditure and disbursements on the SGR and the AfDB and World Bank power and roads projects will lead to increased liquidity in the market, which should lead to further easing of interest rates over 2016/2017 period. This increased liquidity is expected to be non-inflationary, since it will come through the production side.
The expressed political and policy stance is for a lower interest rate regime. On-going legislation aimed at introducing retail purchases of government securities is expected, at enactment, to put further downward pressure on rates. Lower rates will lead to increased flow of credit to productive sectors (rather than Government) with consequent increase in private sector output and job creation.
