Service, tourism sectors to drive Kenya’s growth
Kenya’s economic outlook for the coming years appears promising, with the East African Economic Outlook 2024 report by RSM indicating a projected growth rate of 5.1 percent this year and 5.7 percent next year for East African economies.
This growth is expected to be sustained by the service, tourism, agriculture and transport sectors, highlighting a positive trajectory for the region.
RSM Eastern Africa Consulting Ltd, an audit, tax, and consulting firm, reveals that Kenya, Tanzania, Rwanda, and Uganda are experiencing growth in various sectors such as agriculture, manufacturing, financial services, and infrastructure.
In Kenya, the economy grew by 5.9 percent in the third quarter of 2023, driven by a 6.7 percent growth in the agriculture, forestry, and fishing sector.
This growth was attributed to favorable weather conditions in the first three-quarters of 2023, boosting productivity in the sector, explained Ashif Kassam, executive chairman of RSM Eastern Africa.
The financial and insurance sector also saw significant growth, expanding by 14.7 percent. Additionally, the construction sector experienced a 3.8 percent growth, with cement consumption rising by 5.9 percent in the same quarter.
These positive indicators point to a resilient economy that is adapting to changing circumstances and driving growth across various sectors.
Furthermore, Kenya has recorded a positive trade balance of $408.3 billion with East African Community (EAC) partner states, indicating a robust trade relationship within the region. The service sector, particularly in Kenya and Tanzania, has been a key driver of economic growth, with services exports increasing to $10.7 billion in 2021 from $8 billion in 2020, representing a 34 percent uptick.
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EAC Common External Tariff
This growth is primarily attributed to the travel and other services categories, which account for more than two-thirds of total trade in services.
Despite these positive trends, challenges remain, particularly concerning the EAC Common External Tariff. The frequent Stay of Application to the tariff by EAC member states has created an uneven playing field for manufacturers in the region, distorting the market and making imports from outside the EAC bloc more competitive.
“It creates unlevelled playing field to manufacturers in the region distorting the market making imports outside the EAC bloc cheaper,” said Kepsa Chairman Jas Bedi. “The projected global economic slowdown from 3 percent in 2023 to 2.9 percent in 2024 may potentially dampen exports and foreign direct investment in both Kenya and in the region.”
One of the main concerns for Kenya’s economy is inflation, which is expected to remain high in the first half of the year but moderate by the last quarter, allowing the Central Bank of Kenya (CBK) to begin monetary easing.
Factors contributing to inflation include the Kenyan government’s fiscal policy, new tax rates, and levies introduced through the Finance Act 2023.
These include the housing levy charged on personal wages, a standard VAT rate of 16 percent on fuel, and an increased capital gains tax of 15 percent. The Central Bank has also maintained a high-interest rate of 10.5 percent throughout the quarter, impacting borrowing and investment.
Other challenges driving high cost of doing business in the East African region are illicit trade, counterfeits, sub-standard goods, high cost of electricity, transport and currency depreciation.
Despite these challenges, Kenya remains among the top-performing economies in Africa, with a strong economic rebound expected for EAC Partner States.
With a projected GDP growth rate ranging from 4.1 percent to 7.2 percent, the region is poised for significant economic growth and development in the coming years, noted EAC Deputy Secretary-General for Customs, Trade, and Monetary Affairs Annette Mutaawe Ssemuwemba.
This positive outlook, coupled with the resilience of the Kenyan economy, positions the country well to thrive against inflation and continue on a path of sustainable growth and prosperity.
