The Kenyan economy recorded an average growth of 5.4 percent for the first three quarters of 2019, compared to an average of 6.0 percent in a similar period in 2018.
The subdued growth, according to Cytonn, was mainly as a result of slowdown in agricultural activities due to delayed long rains, which curtailed agricultural production, and decreased output in transport and electricity activities, due to the rise in prices of fuel and insufficient long rains in the first and second quarters, respectively.
Private sector credit growth improved in 2019, averaging 4.2 percent in the 10-months to October, compared to 3.4 percent in a similar period in 2018, but remained below the 5-year average of 11.2 percent.
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“The low credit growth had persisted since the enactment of the Banking (Amendment) Act, 2015, which made it difficult for banks to adequately price risk, prompting them to reassess their risk assessment framework, preferring to lend to the government where the returns were higher on a risk-adjusted basis, at the expense of the private sector. With the rate cap repeal and the ongoing reforms in the banking sector to strengthen the credit information sharing mechanism and promote transparency in pricing, we expect private sector credit growth to improve but remain well below the government target of 18.3 percent,” noted Cytonn.
The Kenyan Shilling remained resilient in 2019, appreciating by 0.5 percent against the USD during the year to close at Ksh101.3, from Kshs 101.8 in 2018, mainly supported by inflows of hard currency from remittances by Kenyan workers abroad and offshore investors. On a year-to-date basis, the Kenyan Shilling has depreciated by 0.3 percent against the US Dollar.
“We expect the shilling to remain stable within a range of Ksh101.0 and Ksh104.0 against the USD in 2020 with a bias to a 2.4 percent depreciation by the end of 2020.
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The pressure on the Kenyan shilling is expected to arise from increased oil imports bill, as a result of the U.S – Iran diplomatic row, which has seen average crude oil prices increase by 9.9 percent to an eight-month high to USD 72.0 a barrel, from USD 65.5 a barrel in December 2019.
The pressure will also arise from subdued diaspora remittances growth following the close of the 10.0 percent tax amnesty window in July which has seen cumulative diaspora remittances increase by a marginal 5.0 percent in the 12-months to November 2019 to USD 2.8 billion, from USD 2.7 billion, which was slower than the 40.8 percent growth recorded in a similar period of review in 2018 and the ongoing spat between U.S and Iran which could lead to a slowdown in diaspora remittances.
Repayments of the principal loan extended to Kenya for the first phase of the mega railway project having kicked off this year is expected to cause a decline in the country’s forex reserves with a good chunk of forex reserves in Kenya being from the issuance of debt.
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Economic growth is projected to come in at 5.6 percent – 5.8 percent in 2020, supported by the improved private sector credit growth, and expectations of a recovery of the agriculture sector.
Risks to growth, however, lie in some of the major sectors which recorded subdued performance in 2019 such as the agricultural sector due to erratic weather patterns, manufacturing sector, and taxes on products,
2020 is expected to have muted inflationary pressures and the inflation rate to average 5.2 percent, which is within the government target range of 2.5 percent to 7.5 percent.
The number of international arrivals is expected to grow annually by 6.7 percent to approximately 2.3 million in 2020, from the estimated 2.2 million in 2019.
The investment opportunity is in Westlands & Parklands, Kilimani submarkets, which recorded relatively high rental yields of 10.8 percent and 9.5 percent in 2019, respectively;
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