Kenyan economy grows at slower pace in Q2

Kenya's economic growth in the second quarter of this year has shown signs of slowdown, with the country's GDP expanding by 5.0 percent year-on-year compared to 6.3 percent in the same period in 2016. This decrease in growth comes amidst various challenges such as a sluggish private sector credit growth and an upcoming election. Aly-Khan Satchu, the CEO of Rich Management, discussed the implications of this economic slowdown in a recent interview with CNBC Africa. Satchu highlighted several key factors that have contributed to the slower economic growth rate. Firstly, the impact of politics on the economy is significant, with elections typically shaving off an average of 1.7 percent from GDP growth every election year. With Kenya entering into another round of elections, the political uncertainty is expected to continue affecting the economy negatively. Additionally, the agriculture sector has been heavily affected by drought, leading to a decline in agricultural output. This has further strained the economy, along with a collapse in private sector credit growth. The combination of these factors makes it unlikely for the economy to achieve a growth rate above 5 percent in the near future. The interview also delved into the performance of different sectors of the economy. Agriculture, manufacturing, and tourism were identified as sectors that contributed to the decline in economic growth. Specifically, the agriculture sector saw a drastic drop in growth from 7.1 percent last year to 1.7 percent this year, indicating the toll that drought has taken on the sector. Looking ahead, the future of agriculture in Kenya remains uncertain, given the increasing frequency of droughts and weather volatility in the region. The interview also touched upon the impact of the upcoming election on investor sentiment. Foreign investors and general market participants have adopted a cautious approach, leading to reduced trading activity in recent months. While there have been positive stories such as Safari Comm's expansion plans, overall market sentiment remains muted until there is more clarity on the political situation. The discussion then shifted to the financial services sector, which has been adversely affected by the economic challenges facing the country. The issue of the interest rate cap, implemented to regulate lending rates, was highlighted as a key concern. Central Bank Governor's recent calls for a review of the interest rate cap laws were discussed, but the lack of political will to address this issue remains a significant hurdle. The interview emphasized the need for a political decision to address the challenges facing the financial services sector. Lastly, the interview addressed the recent closure of one of Nakumatt Holdings' major branches in Nairobi and the company's ongoing financial struggles. The potential merger with Tuskys supermarket chain was deemed unlikely, considering Tuskys' lack of capacity to take on Nakumatt's debt. The interview concluded with a reflection on the lessons learned from Nakumatt's financial difficulties, particularly in terms of trade finance and supplier credit. Despite the challenges facing Kenya's economy, there remains cautious optimism for the future, with expectations of a turnaround once the current economic uncertainties are resolved.