Kenya, Uganda economies ride on agriculture to boost growth

Monday July 9 2018

tea farm, agriculture

A tea farm in Nyeri County in central Kenya. Tea and coffee account for close to one-third of the country’s economic output. FILE PHOTO | NMG 

By ALLAN OLINGO
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Agriculture was the main driver for the Kenyan and Ugandan economies in the first three months of this year, expanding almost 10 per cent from 2017.

Kenya said its economy expanded by 5.7 per cent in the first three months of 2018, compared with 4.5 per cent over the same period last year.

Uganda’s economy for its part expanded at 6.4 per cent, from 4.5 per cent over the same period last year, driven by agriculture which recorded a growth of 6.6 per cent.

Last Monday, the Kenya National Bureau of Statistics (KNBS) said that the agriculture sector expanded by 5.2 per cent in the first quarter, compared with one per cent over the same period last year, lifting the country out of its growth lull.

Kenya now expects growth to rebound to 5.8 per cent this year, from 4.9 per cent in 2017.

“The significant acceleration in growth was mainly attributable to improved weather conditions, as well as improved confidence among businesses and consumers after the conclusion of the general election in 2017,” KNBS said.

Kenya has witnessed good rainfall this year, in sharp contrast to the dry spells of last year.

This has boosted the country’s foreign exchange earners like tea and coffee which account for close to one-third of economic output.

“We expect better crop production based on favourable weather, and as the government’s new development agenda kicks into gear, we should see the economy expand 6.3 per cent this year,” said Central Bank Governor Patrick Njoroge.

In the first quarter, Kenya also saw its current account deficit improve to $1.07 billion from $1.29 billion in the corresponding quarter of last year.

Its exports rose by 7.1 per cent $1.62 billion, while imports grew by 6.5 per cent to $4.32 billion.

Trade balance

On the negative, the trade balance worsened by 6.1 per cent to a deficit of $2.69 billion in the first quarter of this year, from $2.53 billion in the first quarter of 2017.

Kenya also saw remittances from the diaspora increase in the first quarter of 2018 to $1.29 billion.

The country’s financial net inflows increased by 51.8 per cent to a surplus of $3.23 billion, mainly as a result of proceeds from the Eurobond.

The gross official reserves increased by 9.4 per cent to $9.44 billion at the end of March, from $8.63 billion over the same period last year.

For Uganda, the industrial sector grew by 9.7 per cent over the three months of this year, compared with two per cent over the same period in 2017, driven by good performance of construction and mining sectors.

Telcos drove up the services sector growth by 8.2 per cent, compared with six per cent in 2017.

Resilient economies

Rating agency Moody’s said that Kenya and Tanzania are the most resilient to economic shocks because of their diversification and economic size.

The agency said Kenya has shown resilience despite experiencing multiple shocks in 2017, managing 4.9 per cent economic growth.

“The Kenyan economy is more diversified than its regional peers, which has supported its relatively high and stable growth rates over the past decade.

This comes in spite of the economy being hit by multiple shocks in recent years, including droughts that weighed on agricultural activity, political uncertainty in 2017 that weighed on business and consumer sentiments, and the negative impact of the interest rate cap on bank lending rates,” said the agency.

While Kenya’s GDP growth is likely to be in the range of five to six per cent in 2018 and 2019, Tanzania’s is projected to grow by 6.5 - 7.5 per cent.

Tanzania’s economic growth ranks with that of Rwanda over the next two years.

Moody’s also said that East Africa’s growth rates are likely to be among the highest in sub-Saharan Africa.

Fastest growing economies

“Kenya, Tanzania, Rwanda, and Uganda will remain among the fastest growing economies in sub-Saharan Africa and globally. We expect growth to remain highest in Rwanda and Tanzania. By and large, we expect GDP growth rates of 5-6 per cent in Uganda and Kenya, and 6.5-7.5 per cent in Tanzania and Rwanda,” the agency said.

Last month, Tanzania’s Finance Minister Philip Mpango said that the economy was expected to grow by 7.2 per cent this year, up from 7.1 per cent last year, while the fiscal deficit will increase on the back of higher infrastructure spending.

“We expect this growth to be supported by vibrant activity in mining, transport and communications. We also expect the inflation rate to stay at single digit levels. The fiscal deficit will reach 3.2 per cent of GDP in the 2018/19 fiscal year, from around 2.1 per cent in 2017/18,” said Dr Mpango.

Tanzania’s infrastructure drive has seen allocations for key projects rise this financial year.

Projects include the standard gauge railway, roads, power plants and expansion of port facilities.

Dar es Salaam is also planning to invest around $6 billion over the next five years in its agricultural sector, a mainstay of the economy.

Rwanda in June said that its economy expanded by 0.6 per cent in the first quarter of 2018 driven by the services sector, agriculture and industry, which grew by 12 per cent, eight per cent and seven per cent respectively.

Last week, the World Bank said that Rwanda's GDP was expected to grow 7.2 per cent this year, driven by agriculture, improved export performance, increased consumer consumption and the services sector.

Rwanda's economy grew at 6.1 per cent in 2017, to hit $9 billion in 2017, up from $7.8 billion in 2016, figures from the National Institute of Statistics of Rwanda show.

“Although we have seen Rwanda’s GDP growth remain below its average for the second year in a row, net exports have contributed positively to the country’s latest growth projections,” said World Bank senior economist Aghassi Mkrtchyan.