Economic growth depends on short rains

By Jackson Okoth

The economy is expected to rebound in the last quarter if the short rains are sufficient, an investment bank has said.

However, in the third quarter growth could be negative, pushed down by effects of drought and power outages.

"We expect the short rains to improve the food situation, including coffee and tea production. But effects of the expected El-Nino rains still remains unpredictable," said Mr Paul Mwai, CEO Africa Alliance Kenya Management Company during a media briefing in Nairobi yesterday.

The economy grew in the second quarter after two consecutive quarters of decline.

GDP rose

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Gross Domestic Product rose 2.1 per cent in the second quarter from a year earlier after a revised four per cent increase in the first three months of the year.

Among the worst hit sectors has been agriculture, still reeling from the effects of drought.

Cattle keeping communities have suffered massive losses as their livestock succumb to starvation due prolonged drought across the country.

"The impact is likely to be greater next year due to effects of drought," said Eleanor Kigen, a fund manager at African Alliance.

The hotels and restaurants in the tourism industry achieved the highest growth of 24.2 per cent reflecting a recovery in tourism.

However, even when the tourism sector appears to be on the rebound, the global crisis remains a challenge with local tourist numbers not substantial enough to cover the gap left by foreign visitors.

The construction industry remains resilient in the face of a slow economy and appears to have emerged unscathed.

Manufacturing strained

"Demand for cement has been sustained and has even grown," said Kigen.

The manufacturing sector remains under pressure as higher input costs, especially power and oil as well as subdued demand puts a strain on many companies. Due to the ongoing power cuts, ran at sub-optimal capacity.

"This short-term stress is likely to continue as demand remains suppressed and input costs edge higher," said Kigen.

Although inflation rate last month was 17.9 per cent, down from 18.4 per cent recorded in August, the cost of living is expected to stay at current levels or even increase.

"Although we expect the food situation to improve this quarter as a result of expected rains, we do not see an immediate impact on inflation," said Kigen.

An increase in food imports is likely to push up cost of living in the coming year.

Although the Government has put in place a Sh22 billion stimulus package, it faces the challenge of infrastructure, power and water problems.

-Additional reporting by Reuters