Nairobi - Global growth disappointed again in 2015, slowing to 2.4 percent and is expected to recover at a slower pace than previously envisioned. Growth is projected to reach 2.9 percent in 2016, as a modest recovery in advanced economies continues and activity stabilizes among major commodity exporters, according to the World Bank’s January 2016 Global Economic Prospects.
Locally, the year 2015 was informative for the Kenyan economy and government. So what is in store for the economy in 2016?
According Kwame Owino, the Chief Executive Officer Institute of Economics Affairs (IEA), there are key factors that will bolster economic growth as well as factors that may threaten growth.
Inflation started inching upward last year and reached 8 percent in December 2015, above the 7.5 percent limit preferred by the Central Bank of Kenya (CBK).
The bulk of this inflation has been import inflation associated with the KES weakening against the USD, pushing up import bills. This spillover effect may continue to drive the cost of imports upward fuelling more rises in inflation. Therefore, the CBK should continue to keep an eye on inflation and take action to pull inflation below the 7.5 percent limit when needed.
Part of the debate that dominated conversation about the economy at the end of last year was rising interest rates. A combination of factors such as rate hikes to control KES depreciation, aggressive borrowing from government in domestic markets and high T-bill rates contributed to some banks signaling intent to raise rates. Sadly, the news does not get better this year; as mentioned, inflation is at 8 percent and as this is above the preferred CBK limit, it is possible that the CBK will raise interest rates to try and manage upward pressure on inflation. Further, as the US economy continues to recover, it may lead to a further strengthening of the dollar against the KES.
Thus, again as we saw last year, CBK may raise interest rates to manage KES depreciation against the dollar. In terms of any foreign borrowing in which government would want to engage this year, IMF’s Lagarde makes the point that the increase of interest rates in the USA has already contributed to higher financing costs for some borrowers, including those in emerging and developing markets. Therefore, government should be ready to borrow on more expensive terms in international markets this year. Also, bear in mind that government’s management of the Eurobond has negatively impacted investor confidence in government fiscal management; this is likely to translate into more expensive borrowing terms as well.
Political Activity gearing up to 2017 General Election
It is almost certain that electioneering period has already started this year, with politicians beginning to build momentum for elections next year. Sadly in Kenya, intensification of political activity tends to be correlated with lower growth. Luckily, this is a threat that can be managed if politicians on all sides of the political divide are responsible in comments made and avoid negative political sensationlisation of issues in their bid to garner votes.
The good news for the economy is that key infrastructure projects are progressing well. In terms of transport infrastructure, the construction of the standard gauge railway in Kenya is ahead of schedule. Further, there are updates and expansions in the country’s airports and ports and the tarmacking of 10 000 kilometres of new roads is ongoing. Secondly, important strides are being made in energy infrastructure; solar power projects will add 1 gigawatt of power to the grid, there is a 310-megawatt wind farm in Lake Turkana as well as the drilling of 20 new geothermal wells. The implications of how such investment, some of which will be completed this year, could fuel economic growth is apparent.
Ease of doing business
Kenya climbed 21 places on the World Bank’s Ease of Doing Business Index to 108 in 2016. This is a positive sign to investors both local and international in terms of Kenya’s attractiveness as a business and investment destination. It is important that stakeholders keep the positive momentum going in order to bolster Kenya being perceived as an attractive country in which to invest.
The biggest question that any Kenyans might want an answer is how do they survive the year 2016, well it all depends on an individual but economist like John Randa from World Bank and Ally Khan Santchu an independent economic analyst and author of several economic journals.
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They suggest that Kenyans should follow these simple rules to survive the 2016 economic tumbles:
Examine your life, not your neighbour's
Kenya is a country driven by sentiment, where people tend to choose a plan depending on what their neighbours and friends have opted for.
This is a very bad idea, explain experts, as their reasons for opting for a particular plan may vary drastically from yours. So, look at the life you lead and spend wisely, advises John Randa the senior Economist from World Bank.
"Many people mix up spending priorities, which is not right. Instead, one should look at what is basic needs and luxury needs. Period.
"And if no one is financially dependent on you, that does not mean that you should start spending money left, right and center; instead, set it aside for saving," he remarks.
Most Kenyans have a very sketchy idea about investments and that needs to change, he says.
"They have a short-term view of things and go in for investments in a hurry."
Set up an emergency Fund base
Before opting for a life investment policy or a long-term plan, make sure that you have something more basic like an emergency fund ready.
"This will, to some extent, take care of emergencies like when you lose your job," explains Santchu.
Gauge your situation and opt for a plan. For instance, if your office does not offer a health insurance, opt for a plan that will cover both you and your family.
First save, then spend
A basic rule, says Randa, is to never spend money before you earn.
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"I don't think you should have to borrow to buy something that will not save you money or give you returns, unless it's for something like buying a house which is of lasting relevance and saves you rent, or an emergency," he explains.
Randa says at least 20 to 30 per cent of your salary must go towards savings.
"But that doesn't mean you have to compromise on your current life. You have to strike a balance," he explains.
Always start saving early; it's the best habit you can inculcate.
"Stretch yourself when it comes to your savings," says Randa, adding: "You should discipline yourself and challenge the limits of your comfort level when it comes to saving money."
Link your investments to your long-term goals
Randa explains that one must look at the liquidity of investments before choosing one. "If you are going to retire in five to six years and you'll need money, choose an investment accordingly.
Or if you are going to need money in 10 years' time when your child turns 18 and you'll want to send him or her abroad for studies, choose a plan keeping that in mind.
Do away with unnecessary spending
Before you buy something, ask yourself -how urgently do I need this? Can I wait for a couple of months before buying this? If the answer is yes, then the purchase is most probably an unnecessary one," says Santchu. He adds that the strategy has worked wonders for him.
Limit the number of loans
Randa explains that he has seen youngsters who have the attitude of borrowing but don't realize that repaying the loans will hurt their future plans. Although one cannot do without debt today, especially when you are trying to invest, its advisable that you don’t accrue more debt that you can repay and still stay financially stable.
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