A rebound in agriculture, driven by favorable weather conditions, along with increased activity in the services sector, is expected to anchor Kenya's growth next year. NCBA Managing Director and CEO John Gachora has identified these two sectors as the drivers of the country's GDP growth, which could hit 6 percent in 2024.

"Agricultural output is likely to expand by 5 percent in 2024, according to our internal projections," Mr Gachora stated during NCBA's Economic Forum held under the theme "Macroeconomic Outlook; Divergence Across Economies and Sectors." On agri-export flows, including coffee, tea and horticultural crops, the lender says they will remain within their long-term-average trend performance.

“We have seen the government roll out significant fiscal adjustments with an outlined multi-step fiscal consolidation path anchored at a target deficit of 3 percent of GDP and a medium-term revenue strategy necessary to achieve long-term growth. With these “growth positive” adjustments, we now expect GDP to grow at 4.9 percent in 2023 and maintain an upward trend into 2024. Overall, therefore, we, remain quite optimistic on 2024 prospects,” said Gachora. The Central Bank, however, holds a more optimistic view, projecting Kenya's GDP growth at 5.5 percent.

"We anticipate the services sector to perform well in 2024. However, the broader economic strain could lead to some parts of the sector growing below their pre-COVID levels," Gachora added. Across the region, NCBA projects GDP in Tanzania, Uganda and Rwanda will grow by 6.1 percent, 5.7 percent and 7.0 percent respectively.

Weakening of Shilling

East Africa's largest economy has been grappling with inflation, a steady weakening of the shilling, which is putting pressure on the country's debt, and rising interest rates. All of these factors have negatively impacted the government's revenue targets, even as millions struggle with the high cost of living. According to Gachora, "It appears that the gap between the 'lived experience' at the household and enterprise level and reported national account numbers has widened recently."

The global economy has experienced multiple shocks, including the COVID-19 pandemic, geopolitical tensions, and high inflation rates. The spillover effects have been felt in most economies, including Kenya, as explained by Central Bank of Kenya Deputy Governor, Dr. Susan Koech.

In terms of inflation, markets like Kenya have experienced significant pressure. Nevertheless, overall inflation has decreased to 6.9 percent in October 2023, which falls within our target range, reflecting the impact of the monetary policy implemented by the CBK," Dr Koech pointed out.

During the forum, Dr. David Ndii, Chairman of President Ruto's Council of Economic Affairs, stated that the International Monetary Fund (IMF) is set to increase the Kenya program by $650 million ahead of the maturity of a $2 billion Eurobond next year.

Dr. Ndii noted that the maturing bond is fully funded during the NCBA Economic Forum. "It can augment our program up to $650 million, which they have agreed to do," he said.

Currently, an IMF team is in Kenya conducting the sixth review of the lending program approved two years ago. "With an ongoing IMF program, Kenya is expected to benefit from improved market confidence into 2024,” NCBA said.

As part of driving growth, Dr Ndii criticized Kenya's manufacturing sector, describing it as a capital-intensive structure with very high margins that may not take the country very far in the coming years. "We need an approach that creates more jobs and fosters competition," he added.

NCBA noted that manufacturing sector could remain weak at an annual growth of 2.6 percent on account of sustained household budgetary strain.

Read also: Agriculture holds up decelerating economy

Potential in agriculture

To help facilitate a turnaround, Dr. Ndii suggested that the country should focus more on tapping the potential in agriculture. "What farmers need more than anything is access to inputs, and this can kickstart our economy," he explained.

The Presidential advisor singled out the dairy sector as one of the industries in which Kenya can reap significant benefits in the medium term, stating, "No country, other than city-states, has achieved economic take-off without agricultural transformation. East Asia's industrialization occurred alongside the green revolution. Africa's cargo cult of trying to climb the development tree from the top will always end in a debt crisis," said Dr Ndii.

Kenya is the largest milk producer in Africa, closely followed by South Africa. However, the actual productivity is very low. "We are looking to increase milk exports in the medium term," Dr Ndii noted.

This year’s 8^th edition of NCBA Economic Forum was attended by the bank's corporate customers drawn from manufacturing, agriculture, among other sectors. Other than Dr Koech and Dr Ndii, other speakers were CEO Institute of Economic Affairs - Kwame Owino, Executive Director Kenya institute of Public Policy and Research, Dr Rose Ngugi and Head of policy Research & advocacy , Kenya association of Manufacturers, Job Wanjohi.

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