Small businesses helped buoy the Kenyan economy in the face of drought and prolonged political uncertainty, the central bank said Friday.
The economy, said Central Bank of Kenya (CBK) governor Patrick Njoroge, showed “extraordinary resilience” supported by micro, small and medium enterprises (MSMEs).
Dr Njoroge said the MSMEs in wholesale and retail, transport and storage and the real estate sectors helped cushion the economy, adding that they accounted for 18 per cent of the annual economic output.
He projected the economy to expand by 5.1 per cent this year, scaling down from an initial forecast of 5.7 per cent. He said he expected the growth at a faster pace in 2018.
“How is the country growing at a relatively strong respectable pace even as we have certain headwinds coming our way? The answer is micro, small and medium enterprises. They are the backbone of the recovery and resilience we have seen in 2017,” said Dr Njoroge during a press briefing in Nairobi.
For the better part of the year, the economy has faced a slowdown due to drought, political turmoil as well as tightening in credit growth – partly caused by cap on lending rates.
The CBK’s projection is in line with that of the National Treasury which also reduced its forecast from 5.9 per cent to 5.5 per cent and recently to 5 per cent.
The International Monetary Fund also cut its 2017 growth estimate for this year to 5 per cent from its initial forecast of more than 5 per cent.
The economy is however expected to rebound next year, with agriculture showing good signs of recovery attributed to favourable weather and prospects of a return to normalcy seen after the Supreme Court upheld the re-election of President Uhuru Kenyatta as winner of the October 26 repeat poll.
Mr Kenyatta is set to be sworn in on Tuesday.
A decline in food prices saw October inflation drop to 5.7 per cent from 7.1 per cent a month earlier.
“Inflation does not seem to be much of a concern going forward, its outlook is well anchored. It has been falling towards the mid-point of the target range of 5 per cent,” said Dr Njoroge.
The easing of the cost of living saw the CBK retain its base lending rate at 10 per cent citing lower inflationary pressure.
Dr Njoroge said the Monetary Policy Committee would continue to monitor the impact of the interest rates caps on lending, adding that a study on the same would be finalised soon to allow debate on its review.
He however cautioned the banks, which have been calling for the lifting of the caps, to be prudent on their loan pricing, “it is the individual risk of that particular investor that should be charged, not the risk of the whole industry”.