Kenya Economy to Rebound After First Contraction in 29 Years

(Bloomberg) -- Kenya expects a strong rebound this year after its economy contracted for the first time in nearly three decades as the coronavirus pandemic hit the nation's key sectors, including tourism and education.

Output declined by 0.3% in 2020, Treasury Secretary Ukur Yatani said Thursday. Production fell despite an overhaul of Kenya's national accounts data that show gross domestic product was 10.753 trillion shillings ($97.8 billion) last year. In 2019, the Kenya National Bureau of Statistics estimates GDP of 10.256 trillion shillings with the new reference year of 2016 from 2009, compared with 9.74 trillion shillings with the previous data series. 

The economy, which grew 5% in 2019, exited a recession in the last quarter of 2020 after posting marginal growth of 1.2% in the three months through December. The economy last shrank in 1992, when it contracted by 0.3%.

Kenya now sees the economy expanding at more than 6% in 2021 after the pandemic-induced contraction last year. The pace of vaccine roll-out and the impact of containment measures will dictate economic recovery this year and in the near term, Yatani said. Macroeconomic indicators will remain stable and supportive of “a significant rebound in 2021,” Yatani said.

While a bigger economy may lower Kenya's debt ratios and allow the government to borrow more, it may reduce access to low interest-rate loans meant for small economies. From earlier projections, the nation's fiscal deficit is seen at 5.6% of GDP in 2022-23 from an approximately 7.5% in the year through June.

New-Look Economy

Kenya revised its data to cover more economic activities and capture emerging industries. This is the seventh revision of Kenya's national accounts statistics, with the most recent being in 2014. The revised GDP size maintains Kenya's ranking as sub-Saharan Africa's biggest economy after Nigeria and South Africa.

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Agriculture grew 4.8% last year, compared with 2.3% in 2019 when drought slashed crop yields. Education contracted by 10.7%. The accommodation and food services category, which includes tourism, shrunk by almost 48%.

The revised data, however, shows that the contribution of farming to the economy fell to a five-year average of 20.4%, compared with almost 33% previously. The contribution of the information and communications sector expanded to 2.6% from 1.4% after the weight of telecommunications industry, where Kenya's biggest company Safaricom Plc is, more than doubled. 

GDP growth was revised down to about 4%-5% from about 6% over most of 2013-19, according to Charlie Robertson, global chief economist at Renaissance Capital.

“The relative importance of ICT to agriculture has changed pretty dramatically,” Robertson said. “But agriculture is still six times more important, just not 25 times as important as before.”

Total employment outside small-scale agriculture last year contracted by 4.1% to 17.4 million jobs, most of them in the informal sector.

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