An analysis of the salient features of Economic Survey 2023

May 15, 2023 - Reading Time: 5 minutes - By Naisiae Simiren

The Kenya National Bureau of Statistics (KNBS) recently published the Economic Survey 2023. Economic surveys are aimed at promoting a better understanding of the economic situation and key challenges facing the government and pointing towards ways of improving overall economic performance. Economic growth in 2022 sustained the growth momentum realised in 2021, however, there was a slight decline in economic performance. For instance, world real GDP growth decelerated to 3.4% in 2022 from 6% in 2021. The decline is attributed to factors such as the Russia-Ukraine war that disrupted international supplies, strict monetary policies of various countries and the strengthening of the US dollar against other currencies.

In Africa, the economy grew by 3.9% in 2022 compared to a growth of 4.8% in 2021. The drop was a result of declined direct investments, and inflation which led to reduced household consumption and strict monetary policies. The situation was similar in the East Africa Community whose real GDP was at 4.9% compared to a growth of 6.7% in 2021. Closer home, the Real Gross Domestic Product (GDP) was recorded at 4.8% in 2022 compared to a revised growth of 7.6% in 2021.

Inflation according to the survey report rose to 8.7% from a recorded 4.7% in 2021 due to the soaring prices of energy, currencies depreciation against the dollar and the continuing Russia-Ukraine invasion, whereas, global trade volume expanded by 5.1% in 2022 compared to 10.6% growth in 2021.

In Kenya, service-based sectors recorded tremendous growth compared to other sectors. For instance, financial and insurance, information and communication, and transportation and storage recorded a growth of 12.8%, 9.9% and 5.6% respectively. In comparison to the economic survey 2022, manufacturing, wholesale and retail trade and real estate were key contributors to the economic growth alongside financial and insurance.

According to the survey report, agriculture remained the dominant sector, accounting for about 21.2% of the overall GDP in 2022. Industry-related activities accounted for 17.7%, while service activities accounted for about 61.1% of the total GDP in 2022. In the previous survey report, these sectors though dominant recorded a high percentage contribution compared to the current review period. Agriculture recorded 22.4 per cent of the overall GDP in 2021 whereas industry-related activities accounted for about 17%. Service activities in the previous period accounted for 60.6% which in the current review period has recorded an increase in GDP contribution.

During the review period, the Central Bank Rate (CBR) was raised from 7% in December 2021 to 7.50% 8.25% and 8.75% in June, October, and December, respectively. In the previous survey report, the lending rate was at a constant rate of 7% to cushion borrowers from the effects of Covid-19. Similarly, lending interest rates for loans and advances increased from 12.16% in December 2021 to 12.67 per cent in December 2022. The current lending rate is close to the highest lending rate adopted in August 2018 which stood at 12.78%, the effect of this continues to affect private individuals’ appetite for borrowing.  

In the previous survey report, the 91-day Treasury Bill rate rose to 7.26% while the average commercial bank deposit rate increased to 6.50% from 6.30%. The survey report indicates an increase in the 91-day Treasury bills rate and the savings deposit rate at 9.33% and 3.56% respectively in December 2022. This shows that the State’s appetite for domestic borrowing has influenced the increase in 91-day Treasury Bills which affects deposits rate.

Further, there was an increase in broad money supply which in the previous period stood at KSh 4.2352 trillion, the current report indicates that the broad money supply as at the end of December 2022 was at KSh 5.0424 trillion. The increase is mainly attributed to an increase in domestic credit, particularly net lending to private sectors. However, net foreign assets declined by 51.9% from KSh 589.3 billion as at the end of December 2021 to KSh 283.4 billion as at end of December 2022. The decline in net foreign assets was also reflected in the previous survey report which stood at KSh 592.3 billion as at end of December 2021. The decline in net foreign assets partly reflected a reduction in reserves at the Central Bank due to scheduled debt service, and an increase in commercial bank’s borrowing from foreign sources.

In terms of public finance, the national government revenue including grants is expected to grow by 14.9 per cent from KSh 2.2308 trillion in 2021/22 to KSh 2.5621 trillion in 2022/23 while expenditure is expected to increase by 11.4 per cent from KSh 2.926.8 trillion in 2021/22 to KSh 3.2607 trillion in 2022/23. The total stock of the national government debt increased by 9.5% from KSh 8.0958 trillion in June 2021 to KSh. 8.861.7 trillion in June 2022. In the previous survey report, the total stock of national government debt was KSh 7.1881 trillion as at the end of June 2021 indicating a significant increase in the current report. As at December 2022, the gross public debt increased to KSh 9.146 trillion. The gross public debt comprised 51.1% external debt and 48.9% domestic debt. The increase in public debt is attributed to external loan disbursements, exchange rate fluctuations and the uptake of domestic debt.

In terms of sectors, this analysis seeks to highlight sectors that are key focus pillars under the Kenya Kwanza government.  The construction sector registered a growth of 4.1% in 2022 compared to a growth of 6.7% in 2021. Cement consumption increased from 9.1 million tonnes in 2021 to 9.5 million tonnes in 2022 as a result of road construction and an increase in the number of residential housing units. This year, expenditure on housing units by the government is likely to increase especially since the Kenya Kwanza government manifesto made a commitment to increase the supply of new housing to 250,000 per annum and the percentage of affordable housing supply from 2% to 50%. In the likelihood the government is able to implement this commitment, real estate should be a key contributor to the GDP as the Finance Bill also seeks to discourage the importation of cement by increasing import duty and introducing export and investment promotion levies. This will protect local industries that with little to no external competition will lower the prices of a bag of cement.

The ICT sector value recorded a growth of 7.7% from KSh. 564.8 billion in 2021 to KSh. 608.1 billion in 2022. Mobile commerce transactions grew by 32.7% from KSh 15.3 trillion in 2021 to KSh. 20.3 trillion in 2022. Internet infrastructure, available bandwidth capacity increased by 9.9% to 12 million Mbps in 2022. Internet subscriptions also rose from 93.2 per 100 inhabitants in 2021 to 106.3 in 2022. The Kenya Kwanza government committed in the manifesto to universal broadband availability throughout the country within five years. This they aim to achieve by increasing and fast-tracking broadband connectivity across the country by construction of 100,000km of national fibre optic connectivity network. Therefore, an increase in available bandwidth capacity will continue soaring.

In addition, the survey report 2023 indicated a decline in total domestic telephone traffic from 80.1 billion minutes in 2021 to 78.3 billion minutes in 2022 while international telephone traffic grew from 1.0 billion minutes in 2021 to 1.1 billion minutes in 2022. This will further increase if the Kenya Kwanza government can implement its commitment to reducing the cost of calls and data to allow citizens, especially the youth, to use online platforms for entertainment, information and business.

 Implementation of the commitments by the Kenya Kwanza government will see a significant contribution to the real GDP. However, certain factors such as debt servicing remain a hurdle in achieving the desired rate of economic growth.


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