Businesses & Financial News

Kenya’s Agricultural sector recovery to boost GDP

By Monica Muema

Kenya’s economy is expected to recover on improved performance of the agricultural sector, according to new research by Scope Markets.

The country’s real gross domestic product (GDP) growth is projected to decelerate from an annual average of 5.7 per cent seen in the period between 2015 and 2019 to 1.5 per cent this year – however, economist say if takes longer than expected to bring the COVID-19 pandemic under control, GDP could contract by 1 per cent in 2020, and see a delay in the projected recovery to 5.2 per cent growth in 2021.

But the new report by Scope Markets projects an accelerated growth owing to the improved agricultural performance as export markets open up with the easing of Covid-19 restrictions – with the improved performance to have ripple effects on the entire value chain on the Kenyan economy.

Agricultural sector contributes 35 per cent of the gross domestic product (GDP) and constitutes 40 per cent of the export earnings and is also a market for industrial goods such as machinery, equipment and fertilizers used in the farming process.

“Covid-19 pandemic has had a negative impact on all businesses and sectors within the Kenyan economy, but with the easing of restrictions in key export markets, the agricultural sector was set for a rebound in 2021/ 2022,” reads in part the report released yesterday.

The country’s major agricultural exports are tea, coffee, cut-flowers, and vegetables. Kenya is also the world’s leading exporter of black tea and cut-flowers.

Agriculture also contributes another 27 per cent of GDP indirectly through linkages with other sectors. The sector employs more than 40 per cent of the total population and more than 70 per cent of Kenya’s rural dwellers.

Scope markets notes that the performance of East Africa’s biggest economy is expected to improve significantly with a 17 percent increase in tea export earnings to US$ 850 million (Ksh9.1 billion) in the first eight months of 2020.

Flower exports are also recovering as European markets ease lockdowns, which is critical considering the European market accounts for 70 percent of Kenya’s cut flower exports.

The analysts indicate that the significant recovery of the agricultural sector is expected to catalyze accelerated economic recovery with the US$750 million or Sh8 billion World Bank grant putting the sector on a firm recovery path.

While the positive signs of recovery are visible, the report cast is worried about the country’s budget funding terming it, “a cause of concern for the Kenyan economy.”

Available figures show that the budget gap of East Africa’s biggest economy is seen at Sh840.6 billion in the current fiscal year or 7.5 per cent of the Gross Domestic Product. Kenya, however, declined the G-20’s offer on debt relief because it would have a negative impact on existing commercial lending terms.

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