War in Ukraine Seen Putting Brakes on Kenya’s Strong Recovery

(Bloomberg) -- After experiencing the fastest economic growth in more than a decade, Kenya now expects slower expansion this year due to the spill over effects of Russia's invasion of Ukraine, according to Treasury Secretary Ukur Yatani.

East Africa's biggest economy expanded by 7.5% last year and growth would have accelerated to 9% in 2022 were it not for challenges such as food and fuel inflation, scarcity of grains especially wheat, and the weakening of the shilling against the dollar, Yatani said Thursday in the capital Nairobi. Expansion is instead forecast at about 6.7%, he said.

“The last time we recorded such growth was many years ago,” Yatani said of output in 2021. “We deserve a pat on the back. That required good stewardship of the economy.”

Agriculture is projected to register growth in 2022 after shrinking 0.2% last year -- the first contraction in four years -- on account of good weather and a fertilizer subsidy, the minister said.

While the ongoing rainy season will also help soften food inflation, price growth will remain elevated in the second and third quarters due to food and fuel prices, he said. The government will continue to tap a stabilization fund to “cushion the public from rapid rises in prices of fuel.”

Political Disruption

Other than the war in Ukraine, a slowdown in global growth due to rising interest rates and Covid-19 shutdowns in China are likely to weigh on capital inflows and demand for Kenya's exports. The nation is the world's top exporter of black tea and the largest supplier of cut flowers in Europe.

Back home a persistent drought and a local currency that's trading at all-time lows will also strain growth and fan inflation. Average inflation was 6.1% in 2021, the highest in three years.

The International Monetary Fund sees growth slowing to 5.7% in 2022, while the Central Bank of Kenya projects expansion of 5.9%.

Yatani said the ministry doesn't expect much disruption from presidential elections scheduled for Aug. 9. Election-related violence that accompanied past voting periods discouraged investment in the economy. The worst fighting followed the election in 2007 when more than 1,000 people were killed.

“Our forecasts factor in a slowdown in activity around the August elections,” said Razia Khan, head of research for Africa and the Middle East at Standard Chartered Bank. The bank estimates growth at 4.8% this year.

“The outcome is too close to call for now; former Prime Minister Raila Odinga and Deputy President William Ruto, who has mobilized significant youth support, are both considered frontrunners,” she said.

Read: Ruto Remains Front-runner in Kenya's Election Race, Poll Shows