EAC largest economy record slower economic growth despite increase in exports

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By EA Trade Review Reporter

Kenya’s economic growth declined to 4.4 per cent last year from a high of 5.8 per cent in 2010 despite an increase in exports.

According to the economic survey released in Nairobi Tuesday, the value of exports grew 24.7 per cent from Sh409.8 billion in 2010 to Sh511 billion.

However, the composition of the export basket remained narrow with the agricultural products dominating the sector. Tea exports increased from Sh91.6 billion to Sh102.2 billion, horticulture (Sh83.3 billion) Coffee (Sh19.2 billion) and tobacco manufactures (Sh18.6 billion).

The report says Kenya’s trade balance worsened further by 49.7 per cent in 2011 compared to 21.3 per cent the previous year due to the high import bill mainly due to high cost of crude oil that rose from Sh194.6 billion to Sh330.7 billion last year.

“The value of imports grew by 38.9 per cent from sh947.4 billion in 2010 to Sh1.3 trillion in 2011,” says the report.

“The current account deteriorated to a deficit of Sh296 billion in 2011 from s deficit of Sh187.7 billion in 2010. This deterioration is mainly due to the widening trade deficit.”

The report says all sectors except hotels and retail trade (5 per cent) and education (4.9 per cent) recorded improvement. Others that include agriculture, transport and communication, financial services and manufacturing reported allowed growth.

The agricultural sector that is viewed as the engine of growth recorded a lower growth of 2.4 per cent in 2011 compared to 6.4 per cent the previous year. Besides erratic weather conditions that affected major export crops including tea, high cost of agricultural production due to high costs of farm inputs.

“All major crops registered declines in production in the year under review for rice, cotton, pyrethrum and sisal,” said the survey report.

“Global supply constraint resulted in higher and better prices for tea and coffee.”

The manufacturing sector grew by 3.3 per cent compared to 4.4 per cent in 2010 due to increase in price of primary inputs and fuel costs, depreciation of the shilling which increased cost of imported intermediate inputs.

The dry weather conditions also led to reduced availability of raw materials to agro-based industries.

However, total sales from the Export Processing Zones firms grew by 21.6 per cent in 2011 to stand at Sh39.3 billion from Sh32.3 billion despite the challenges witnessed in the global market.

Despite an impressive growth of 7.8 per cent, the money, banking and financial sector fell short of 2010 growth of 9 per cent mainly due to persistent high inflation that forced the Central Bank of Kenya to raise its lending rate and hence high interests that discouraging borrowing.

However, overall domestic credit grew by 20.8 per cent to Sh1.5 trillion up from Sh1.3 trillion the previous year. Increased credit to the private sector grew by 30.8 per cent, which more than offset a decline of 5.5 per cent in credit to central government.

The stock market also slowed down during the year with NSE 20 share Index dropping 27.8 per cent to 3,205 from 4,433 in December 2010. Market capitalization also dropped by 26 per cent from 1.16 trillion to Sh868 billion.

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