Board Of Directors

Operating Environment: Kenya

Operating Environment: Kenya

Estimates of Gross Domestic Product (GDP) indicate that the economy grew on average by 6.0% during the first three quarters of 2018 compared to 4.7% in a similar period of 2017. Favorable weather conditions and a stable macroeconomic environment created a conducive environment for the growth during the period. The growth was mostly supported by pickup in agriculture, trade and transport.

A rebound in activities of the manufacturing sector also contributed significantly to the improved performance during the period.
Accommodation and food service and information and communication recorded the highest growths of 16.0% and 9.1%, respectively.

Overall inflation in 2018 averaged 4.7% compared to 8.0% in 2017. The high inflation in 2017 was driven by high food prices. In 2018 adequate rainfall drove food prices to low levels and inflation during the year was due to increase in fuel and electricity prices.

Year on year, the shilling appreciated 1.4% (only African currency to do so) to close the year at 101.85 to the USD. The shilling has averaged 101.30 to the USD in 2018 compared to 103.42 in 2017 (a 2.05% appreciation). This was as a result of increased exports of tea and horticulture, increased diaspora remittances, strong receipts from tourism, and lower imports of food and SGR-related equipment relative to 2017.

The CBK usable foreign exchange reserves remained strong at USD 8,001 million (5.2 months of imports cover) as at end of December 2018. This fulfilled the requirement to endeavor to maintain at least 4 months of imports cover, and the EAC region’s convergence criteria of 4.5 months of imports cover.

The Central Bank Rate (CBR) averaged 9.3% in 2018 compared to an average of 10% in 2017. During the year under review, the monetary policy committee reviewed the CBR downwards twice, each by 50 basis points (bps) (March and July). This reduced on the commercial banks’ lending rate, averaging 13.06% in 2018 from 13.67% in 2017.

The yield on the 91-day treasury bill averaged 7.74% in 2018 compared to 8.37% in the previous year. The period was characterized by declining yields on treasury bills with oversubscriptions on all the three different tenure bills.

Domestic credit grew by 4.6% in the month of December 2018, averaging 2.4% in the 12 months to December 2018. Strong growth in private sector credit was observed mainly in finance and insurance; consumer durables; business services and private households.
Public debt in Kenya grew by 15.4% year on year driven by 15.9% growth in external debt, while domestic debt grew 14.8%.

2019 looks to be a strong year for Kenya supported by the ‘handshake’ which eased political tension, creating renewed political momentum, while spurring business confidence and continued macroeconomic stability will contribute to growth. Moreover, Kenya’s Big Four economic plan envisages enhancing structural transformation, addressing deep-seated social and economic challenges, and accelerating economic growth to at least 7% a year. By implementing the B4 strategy, Kenya hopes to reduce poverty rapidly and create decent jobs.