Fostering Trade for Robust Growth and Dynamic Job Creation © 2024. World Bank Group This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank Group encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. 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TABLE OF CONTENTS ABBREVIATIONS ............................................................................................................................................................................................................................................................. i ACKNOWLEDGEMENTS............................................................................................................................................................................................................................................. ii EXECUTIVE SUMMARY............................................................................................................................................................................................................................................... iii THE STATE OF KENYA’S ECONOMY 1. Recent Economic Developments ................................................................................................................................................................................................................. 2 1.1 The global and regional economy .................................................................................................................................................................................................... 2 1.2 Recent developments in Kenya........................................................................................................................................................................................................... 2 1.3 Real economy................................................................................................................................................................................................................................................. 3 1.4 External sector ............................................................................................................................................................................................................................................... 4 1.5 Monetary policy and financial sector performance................................................................................................................................................................ 6 1.5 Fiscal developments................................................................................................................................................................................................................................... 8 2. Outlook and Risks ............................................................................................................................................................................................................. 11 2.1 Baseline forecast........................................................................................................................................................................................................................................... 13 2.2 Risks to the outlook.................................................................................................................................................................................................................................... 15 SPECIAL FOCUS 3. The Role of Trade Integration in Promoting Economic Growth and Job Creation ................................................................................... 18 3.1 Kenya’s recent trade patterns and performance...................................................................................................................................................................... 18 3.2 Kenya’s trade integration journey...................................................................................................................................................................................................... 20 3.3 Challenges to trade integration.......................................................................................................................................................................................................... 21 3.4 Trade integration as a means to boost jobs, productivity, and innovation............................................................................................................. 22 3.5 Expanding horizons: trade integration and environmental considerations........................................................................................................... 24 LIST OF FIGURES Figure 1: Government expenditure has grown the most in the last four year.................................................................................................................... 3 Figure 2: Low PMI in 2023 reflected reduced business activity of the industry.................................................................................................................. 4 Figure 3: Trade has been on a continuous downward trend since the early 2010s, driven by a fall in merchandise trade ����������������� 4 Figure 4: Current account deficit narrowed.............................................................................................................................................................................................. 5 Figure 5: Tourism sector remained resilient .................................................................................................................................................................................................. 5 Figure 6: Global economic tightening and domestic macroeconomics uncertainty constrained financial inflows in 2023 �������������� 6 Figure 7: The Kenyan shilling strengthened in Q1 2024 ................................................................................................................................................................. 6 Figure 8: Reserve buffers are adequate but remain below the CBK’s statutory minimum ........................................................................................ 6 Figure 9: Inflation eased and stabilized within the CBK’s target.................................................................................................................................................. 7 Figure 10: Short-term interest rates continue to rise............................................................................................................................................................................. 8 Figure 11: Primary balance remained positive in the first nine months of FY2023/24.................................................................................................... 9 Figure 12: Achieving consolidation targets requires effective revenue forecasting.......................................................................................................... 9 Figure 13: There has been change in external debt in favor of multilateral creditors...................................................................................................... 11 Figure 14: Rising expenditure on interest payments leaves limited room for spending on priority areas ........................................................ 11 Figure 15: OSR collection continues to fall below target.................................................................................................................................................................... 11 Figure 16: Contained spending pressures will reduce government borrowing.................................................................................................................. 15 Figure 17: A declining share of exports by economic size....................................................................................................................................................... 18 Figure 18: Lack of new agricultural export products and a declining market share in the E.U........................................................................ 19 Figure 19: Net services exports have increased significantly compared with goods............................................................................................. 20 Figure 20: Kenya’s percent change in income with respect to baseline 2035 ........................................................................................................... 20 Figure 21: Kenya’s change in trade by value US$B with respect to baseline 2035 .................................................................................................. 20 Figure 22: High bilateral trade costs affect major trade partners........................................................................................................................................ 21 Figure 23: High and Increasing Tariffs are in Opposition to Trends in The Rest of the World............................................................................... 22 Figure 24: Productivity lever untapped in Kenya’s growth performance trend.......................................................................................................... 24 LIST OF TABLES Table 1: Balance of payments, 2022–23 (US$ millions)......................................................................................................................................................... 7 Table 2: Kenya fiscal operations (FY2021/22 – FY2023/24)................................................................................................................................................. 12 Table 3: Key economic indicators and forecasts, 2021 to 2026 (percent, unless otherwise stated)........................................................ 13 LIST OF BOXES Box 1: Performance of own source revenue by county governments ................................................................................................................ 11 ABBREVIATIONS AfCFTA Africa Continental Free Trade Agreement KNBS Kenya National Bureau of Statistics AGOA African Growth and Opportunity Act KSh Kenya Shilling BETA Bottom-Up Economic Transformation MSME Micro, Small and Medium Enterprises Agenda MTP Medium-Term Plan CBK Central Bank of Kenya NDC Nationally Determined Contribution CEM County Economic Memorandum NPLs Non-Performing Loans CET Common External Tariff NTM Non-Tariff Measures CEPA Comprehensive Economic Partnership OSR Own Source Revenue Agreement PFM Public Finance Management CHN China PMI Purchasing Manager Index COMESA Common Market for Eastern and Southern Africa Q1,Q2,Q3,Q4 First quarter, second quarter, third quarter, Fourth quarter COMTRADE United Nations Commercial Trade RCA Revealed Competitive Advantage DPO Development Policy Operation ROE Return on Equity EU European Union SAGAs Semi-autonomous Government Agencies EAC East African Community SLB Sustainability-linked Bbond ECI Economic Complexity Index SME Small and Medium-Sized Enterprises EMDEs Emerging and Developing Economies SOEs State-owned Enterprises EPA Economic Partnership Agreement SPS Sanitary and Phyto-Sanitary ESA East and Southern Africa STIP Strategic Trade and Investment Partnership ETH Ethiopia SSA Sub-Sahara Africa EU-EPA European Union Economic Partnership Agreement TFP Total Factor Productivity FDI Foreign Direct Investment TSA Treasury Single Account FTA Free Trade Agreement TZA Tanzania FX Foreign Exchange UAE United Arab Emirates FY Financial Year UN United Nations GBR Great Britain UGA Uganda GDP Gross Domestic Product UNCTAD United Nations Conference on Trade Development H1 First half US$ United States Dollar HoAI Horn of Africa Initiative USA United States of America ICT Information and Communication Technology VAT Value Added Tax IMF International Monetary Fund WDI World Development Indicators KEN Kenya WTO World Trade Organization KEPHIS Kenya Plant Health Inspectorate Service y/y Year-on-Year June 2024 | Edition No. 29 i ACKNOWLEDGEMENTS The Kenya Economic Update (KEU) is a World Bank report series produced twice a year that assesses recent economic and social developments and prospects in Kenya, and places these in a longer-term and global context. Through special topics, the KEU also examines selected policy issues and medium-term development challenges in Kenya. It is intended for a wide audience, including policymakers, business leaders, financial market participants, and the community of analysts and professionals engaged in Kenya’s changing economy. The production of the KEU is led by the Macroeconomics, Trade and Investment (MTI) Global Practice team for Kenya. The first part – Recent Economic Developments, and Outlook and Risks – was produced by Naomi Mathenge, Jorge Tudela Pye, Angélique Umutesi and Stanley Mutinda (all MTI) and logistical support from Anne Khatimba. The second part – The Role of Trade Integration in Promoting Economic Growth and Job Creation – was produced by the Finance, Competitiveness and Innovation (FCI) Practice team comprising of Elizabeth Kibaki-Obiero, Soujanya Krishna Chodavarapu, Alejandro Espinosa-Wang, Ankur Huria, Fatima Anjum Quraishi, and Guillermo Carlos Arenas with contributions from Jorge Tudela Pye. The report was prepared under the overall guidance of Abha Prasad (Practice Manager, MTI) and Alwaleed Alatabani (Practice Manager, FCI), Marek Hanusch (Program Leader and Lead Economist, Equitable Growth, Finance and Institutions for Kenya, Rwanda, Somalia and Uganda), Philip Schuler (Lead Economist, MTI), Hassan Zaman (Regional Director for Eastern and Southern Africa), Keith Hansen (Country Director for Kenya, Rwanda, Somalia and Uganda), and Anne Margareth Bakilana (Manager, Operations, for Kenya, Rwanda, Somalia and Uganda). The report benefited from excellent peer reviews from Miguel Angel Saldarriaga Noel (Senior Economist), Elwyn Davies (Senior Economist), and Ganesh Rasagam (Lead Private Sector Development Specialist). The report also benefited from valuable regular discussions with officials at the National Treasury, Ministry of Trade and Industry, Central Bank of Kenya, The International Monetary Fund, and the Kenya National Bureau of Statistics. The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. For questions about this report please email nmathenge@worldbank.org For information about the World Bank and its activities in Kenya, please visit: https://www.worldbank.org/en/country/kenya ii June 2024 | Edition No. 29 EXECUTIVE SUMMARY Tight monetary policies, restrictive financial conditions, narrowed due to Kenya’s limited access to international and the slowdown of global trade continued to weaken financial markets owing to elevated borrowing costs. global growth. Global economic growth declined in 2023 Despite the subdued private capital inflows, the and is expected to decline further in 2024. Although the government effectively mobilized alternative financing monetary tightening in advanced economies is expected mostly from international financial institutions bolstering to end and the global headline inflation has reduced, investor confidence. This culminated in Kenya's access to policy rates are expected to only decline gradually, as core global credit markets in February 2024, marked by the inflation has been more persistent. Commodity prices issuance of a US$1.5 billion Eurobond for an early partial declined in 2023 and are expected to decline further in buyback of a US$2 billion Eurobond maturing in June 2024. 2024. At the regional level, growth in Sub-Saharan Africa This had a marked positive impact on investment sentiment is expected to rebound in 2024-25 driven by a boost in which contributed to stabilizing the exchange rate. private consumption from the reduction in inflation and increasing real incomes. However, tight monetary policies A tighter monetary policy, agricultural recovery, and and fiscal consolidation efforts will keep investment and easing global inflation contributed to a decrease in public consumption subdued in 2024 even as inflation inflation. Overall inflation has significantly moderated declines. Fiscal balances are expected to improve in 2024 and is now at the mid-point of the Central Bank of Kenya but external borrowing costs remain high. target range (5 percent) primarily driven by lower food prices, lower imported inflation, and monetary tightening. Kenya’s economic growth in 2023 experienced a Nevertheless, overall growth in private sector credit cyclical rebound and accelerated despite the challenging slowed as increased lending rates led to reduced loan environment. Real GDP expanded in 2023 compared to demand. Furthermore, the ratio of non-performing loans 2022 from recovery in the agriculture sector following (NPLs) to gross loans has increased with smaller banks improved weather conditions. The services sector also facing considerable challenges compared to larger banks. grew while the industrial sector continued its deceleration There were notable NPLs increases in the real estate, trade, as investment and business sentiment plummeted in 2023. personal and household, energy and water and building The slowdown in industry reflects weak productivity and and construction sectors. low investments. Limited availability of foreign currency and higher interest rates increased production costs for The fiscal outturn in the first nine months of FY2023/24 firms, more so for net importers of capital goods due to the shows the government’s continued efforts to remain sharp depreciation of the shilling. Reforms in the interbank on a fiscal consolidation path. Steady revenue growth foreign exchange market by the Central Bank of Kenya driven by implementation of tax administration and policy have however improved efficiency including enhancing measures in the Finance Act 2023 and government’s price discovery. efforts to contain growth in primary expenditures resulted in an increased primary surplus. Despite increased primary The external sector experienced challenging domestic surplus and reduced primary expenditure, achieving fiscal and external conditions. Imports of goods and services consolidation targets requires realistic revenue forecasting. contracted reflecting lower domestic demand amidst high Revenue mobilization has consistently been below targets, inflation, fiscal consolidation, and a weakened currency. undermining the credibility of the budget process. This Exports of goods and services declined primarily due to can lead to unjustifiably large expenditure allocations and decreased global demand. Consequently, the current without adequate revenues can lead to accumulation of account deficit narrowed. Tourism continued to recover pending bills. Indeed, accumulated pending bills remain with tourist arrivals reaching their pre-pandemic level and elevated to date. Settling existing pending bills could the net secondary income remained resilient owing to an unlock cash flow to government contractors and suppliers, increase in remittances. Capital inflows declined with the reduce non-performing loans, stimulate growth of the decline in foreign direct investment due to low investor small and medium enterprises, and reduce government confidence, while portfolio and other financial inflows arrears which constitute another form of domestic debt. June 2024 | Edition No. 29 iii Executive Summary Debt service obligations have been growing, which additional value to its export basket. Kenya’s exports have constrain spending on productive and social sectors significantly underperformed, both in nominal and in real as well as job-creating investments. The government terms. A proximate cause for this is that the country has has been implementing mitigating factors to reduce the diversified little during the last few years. As of 2021, Kenya cost of borrowing, including prioritizing treasury bonds ranked 46th out of 133 countries in terms of the diversity with longer term maturities for domestic financing and of its export basket, moving down its place in the ranking concessional borrowing for external financing. by 9 positions in the past 15 year. The country added 14 new products to its export basket, less than neighboring Looking ahead, ongoing fiscal consolidation efforts, countries like Uganda (20), Tanzania (22), and Ethiopia (25). tight monetary policy, and fading tailwinds from the Moreover, the country has lost competitiveness in markets agricultural rebound are expected to slow down GDP that it has been exporting to. growth to 5.0 percent in 2024. The stronger outlook compared to the December 2023 edition reflects improved Kenya is proactively utilizing all channels on the global, macroeconomic conditions following the resolution of continental, and regional level to enhance its role in the the immediate liquidity constraints with the issuance of global economy and increase regional and international the February Eurobond. Service sector resilience and the trade integration. It is one of the six African countries recovery of exports in 2024 is expected to boost growth. participating in the WTO Joint Statement Initiative on The growth outlook assumes adequate rainfall, authorities’ e-commerce digital trade rules that will facilitate electronic staying on course on the planned fiscal consolidation transactions and foster an open and trusted digital strategy, and the continuous implementation of the economy. It has also been a critical driver of the African government’s structural reform agenda. Favorable Continental Free Trade Area (AfCFTA). As an early signatory, agricultural harvests, moderate inflation, a recovery in it was one of the first eight countries participating in the employment, and modest growth of credit to the private AfCFTA guided trade initiative. In addition, the significant sector will support growth in private consumption. strides that Kenya has made in bilateral relations signals its Remittance inflows to Kenya are projected to remain openness to trade as a driver of growth. resilient, providing further support to household incomes. The external position is expected to remain Kenya's trade integration aspirations extend beyond favorable and supportive of macroeconomic stability as export growth: they aim to convert this growth into job global trade improves. opportunities. The Bottom-up Economic Transformation Agenda (BETA) reflects these aspirations, emphasizing Kenya’s efforts in trade integration could significantly job creation, particularly for underrepresented and contribute to substantial economic growth and job low-income groups, to mitigate inequality and bolster creation. However, the share of total trade has been economic resilience. Trade integration is also instrumental consistently falling over the last decade. Compared with for enhancing productivity and innovation in the country. other countries of similar economic size, the gap in the Targeted policy considerations are crucial to fully capitalize export-to-GDP ratio is significant and increasing, with on economic growth and robust job creation from trade Kenya's ratio being about a third of the average ratio for integration. These include revising trade and investment a country of similar size. However, the potential for export policies to foster export orientation, cementing policy expansion remains significant, including addressing areas coherence and predictability as well as strengthening where Kenya's Revealed Competitive Advantage indicates institutions, enhancing strategic skills development and underperformance of existing key exports, e.g., coffee. multifaceted support to export orientation and drawing in more Foreign Direct Investment (FDI) as a lever for Trade patterns shows that agriculture is the largest optimizing the role of trade integration. The country needs contributor to Kenya’s exports, followed by minerals to also mitigate trade and climate related vulnerabilities and chemicals. Merchandise exports have not grown especially for agricultural exports. much, and Kenya has introduced few new products with iv June 2024 | Edition No. 29 The State of Kenya’s Economy Photo: ©Arne Hoel / World Bank The State of Kenya’s Economy 1. Recent Economic Developments 1.1 The global and regional economy respectively. These events are contributing to a decline Tight monetary policies, restrictive financial conditions, of global inflation, which will continue in 2024-25 but will and the slowdown of global trade continued to weaken remain above its pre-pandemic average beyond 2024. global growth. Global economic growth slowed down to 2.6 percent in 2023 and it is expected to continue Despite global headwinds and a challenging domestic this downward trend in 2024 (2.4 percent). Although the context, economic growth in Sub-Saharan Africa (SSA) monetary tightening in advanced economies is expected is expected to rebound in 2024-25. The reduction of to end and the global headline inflation has reduced, inflation and increasing real incomes will boost private policy rates are expected to only decline gradually, as core consumption in the region, contributing to a rebound in inflation has been more persistent. In an environment of GDP growth of 3.4 percent in 2024 and 3.8 percent in 2025 relatively high real interest rates, economic growth in the from 2.6 percent in 2023. More diversified economies are United States in 2024 would reach 1.6 percent from 2.5 projected to grow faster, but the overall recovery remains percent in 2023, while slightly increase in the Euro Area to fragile. Around half of SSA countries are growing at rates 0.7 percent from 0.4 percent in 2023 as energy prices ease. below their 2000–19 levels. Tight monetary policies and Financial conditions in the United States eased during 2023 fiscal consolidation efforts will keep investment and public and, as of 2024:Q1, economic growth is outperforming consumption subdued in 2024. Inflation remains high, expectations, putting pressure on global interest rates.1 but it is expected to continue its decline as global supply Nonetheless and albeit these developments, high chains normalize and commodity prices fall. More than interest rates in advanced economies have challenged half of African governments are facing external liquidity the financial conditions in Emerging and Developing problems, face unsustainable debt burdens, or are actively Economies (EMDEs), as several EMDES still face liquidity seeking to restructure or reprofile their balance sheets. And challenges and elevated borrowing costs. Moderate even if fiscal balances are expected to improve in 2024, consumer sentiment and challenges experienced by the external borrowing costs remain high. The East African property sector has been slowing down China’s growth, Community is projected to grow at a faster pace, by 5.3 which is expected to reach 4.5 percent in 2024 from 5.2 percent in 2024 and by 5.8 percent in 2025-26.3 percent last year. Still, global trade is expected to pick up in 2024, driven partially by a recovery of demand for goods, 1.2 Recent developments in Kenya after remaining flat in 2023. Going forward, global growth Tight fiscal and monetary policies, inflation, and external is projected to accelerate in 2025 (2.7 percent) as both liquidity challenges framed Kenya’s macroeconomic advanced economies and EMDEs recover, interest rates performance in 2023. The policy framework was decrease, and global financial conditions ease. 2 tightened to address Kenya’s twin fiscal and current account deficits, inflation pressures, capital outflows, Commodity prices are expected to continue their and foreign exchange (FX) shortages. The year was also downward trend in 2024. Despite being above pre- overshadowed by concerns around its ability to repay a pandemic levels, prices of most commodities fell in 2023 US$ 2 billion Eurobond that was due in June 2024. High due to moderate demand. It is expected that oil prices borrowing costs constrained the country’s ability to access will slightly increase by 1.2 percent in 2024 to US$84/ the global capital markets for at least two years, prompting bbl, reflecting increasing geopolitical tensions and a tight increased domestic borrowing, reduced FX reserves supply-demand balance. In the same way, food prices and tight interbank markets, and a sharp depreciation fell by 9 percent in 2023 and will fall by 6 percent in 2024 of the shilling. During 2023 and beginning of 2024, the due to abundant supply of major crops. The prices of government accelerated its fiscal consolidation efforts coffee (arabica) and tea (average) followed a similar trend by implementing reforms to expand the tax base and in 2023, with declines of 19.3 percent and 10.2 percent, rationalizing non-priority spending, while the Central Bank 1 National Financial Conditions Index (NFCI) as of April 17, 2024. Federal Reserve Bank of Chicago. 2 World Bank. 2024. Global Economic Prospects, January 2024. 3 World Bank. 2024. Africa Pulse #29, April 2024. 2 June 2024 | Edition No. 29 The State of Kenya’s Economy of Kenya (CBK) tightened its monetary policy stance. This goods and services, which contracted by 3.1 percent in resulted in a stronger macroeconomic policy framework at real terms. Real exports continued to underperform and the start of 2024 that helped to mitigate Kenya’s fiscal and fell by 4.5 percent in 2023. However, private consumption external imbalances. expenditure grew by 6.1 percent, explaining more than 80 percent of GDP growth. 1.3 Real economy Kenya’s economic growth in 2023 experienced a cyclical From the supply side, the rebound of the agricultural rebound and accelerated despite the challenging sector and the continuous resilience in services drove environment. Real GDP expanded by 5.6 percent in 2023, Kenya’s GDP in 2023. The agriculture sector grew by 6.5 an acceleration from the 4.9 percent from 2022. Two percent in 2023, after contracting by 1.5 percent in 2022 consecutive years of drought had dampened agricultural and 0.4 percent in 2021; it contributed 1.1 percentage production which, in addition to the tight global financial points to overall GDP growth. Improved weather conditions, brought down overall growth. The 2023 figure conditions during 2023, mostly rains in the leading food brings headline growth above its pre-pandemic average basket regions of the country, drove the recovery in beans, (4.6 percent per year between 2011-2019) and well-above wheat, and maize production, major components in potential GDP growth. Had agricultural value-added agriculture’s value added.4 The services sector grew by 6.8 grown at its average pre-drought rates since 2011, and percent during the year, almost at par with the growth rate not considering the sector’s large multipliers across the in 2022, with tourism and financial services contributing economy, real growth would have been closer to 5 percent, the most to the growth. Despite lower travel receipts, 28.7 not far from its historical trend. percent more tourists arrived in Kenya compared to 2022, which supported resilience to the accommodations and However, the macroeconomic tightening and rationing food services sector (at 33.6 percent). Although at a slower of FX slowed down government consumption and pace, the number of international travelers to the country plunged investment expenditure, although private reached its pre-pandemic levels. Furthermore, the financial consumption remained robust. Fiscal consolidation services sector grew by 10.1 percent y/y, lower than in efforts slowed down real government consumption, which 2022 but well above its 2011-2019 average of 6.6 percent. grew by 3.5 percent in 2023. It has grown consistently in Public sector borrowing supported the sector’s overall the last 10 years, except in 2020 following the outbreak of performance, potentially crowding out private borrowing the COVID-19 pandemic (growing by 3.1 percent in 2020), as private sector borrowing slowed down in real terms. and since 2011, has grown the most (Figure 1). Investment expenditure fell by 5.5 percent alongside imports of The industrial sector continued its deceleration as business sentiments plummeted. The sector contributed Figure 1: Government expenditure has grown the most in the last four year 0.3 percentage points to overall GDP growth, its lowest (Kenya’s Real GDP by Expenditure Category Index (2011 = 100)) contribution in the last 10 years. All industrial subsectors Private consumption Government consumption recorded lower growth in 2023 compared to 2022. Investment Exports (G&S) Imports (G&S) Real GDP Manufacturing, which accounts for around half of 210 industrial sector output, grew by 2.0 percent during 2023, 190 slower than 2022, while the construction sector grew by 170 3.0 percent. The slowdown of both subsectors reflects 150 130 the overall macroeconomic conditions that Kenya went 110 through in 2023. Limited availability of foreign currency 90 and higher interest rates increased production costs for 70 firms, more so for net importers of capital goods due to 50 2011 2013 2015 2017 2019 2021 2023 the sharp depreciation of the shilling. Kenya’s Purchasing Source: Kenya National Bureau of Statistics. Manager Index (PMI) averaged less than 50 points 4 Production in millions of bags of beans, wheat, and maize grew by 81.3, 62.6, and 29.9 percent, respectively. Projections based as of November 2023. Central Bank of Kenya. 2024. Monetary Policy Committee Meeting Background Information. February 7, 2024. June 2024 | Edition No. 29 3 The State of Kenya’s Economy during 2023, signifying reduced business activity and tightening contributed to the narrowing of the current contributing to the decline in industrial activity (Figure 2). account deficit. Foreign direct investment (FDI) and other Moreover, the decline of the real value of construction of financial inflows decreased, accompanied by a reduction in non-residential buildings, in addition to muted growth in FX reserves. Foreign exchange reserves, however, remained cement production and consumption, shows the effects close to four months of import cover throughout the year. of tighter financial conditions in the private sector and the Despite these challenges, tourism continued to grow, development spending rationalization in the context of albeit at a slower pace compared to pre-pandemic levels. the government’s fiscal consolidation strategy. 5 As a result, both imports and exports contracted. Imports Employment deteriorated in 2023 as average earnings of goods and services contracted by 10.3 percent in 2023 in fell and informal employment outpaced growth in US$ terms, reflecting lower domestic demand amidst high private wage employment. Real average earnings fell by inflation, fiscal consolidation, and a weakened currency. 4.1 percent in 2023, continuing their declining trend since Oil import bill declined by 13.4 percent y/y in December 2020. Although total wage employment in the country 2023 as domestic fuel prices rose despite an overall decline grew by 4.1 percent, private sector wage employment grew in average international oil prices. During the same time, by 3.3 percent while informal employment grew by 4.5 machinery and equipment imports declined by 13.5 percent in 2023. Private sector wage employment added percent, mainly due to the completion of large import- around 68 thousand workers in 2023, and the informal intensive infrastructure projects, the rationalization of sector added close to 721 thousand workers. Increasing public investments by the government, and budget under- cost of living and the macroeconomic conditions seem to execution.6 Meanwhile, exports of goods and services have put a toll in the labor markets, both in terms of real also fell, with receipts declining by 8.2 percent in 2023. earnings and formal job creation. Receipts from key exports like tea and horticulture exports declined by 2.8 percent and 1.6 percent, respectively, 1.4 External sector reflecting subdued demand from traditional agricultural During most of 2023, the external sector experienced export markets; exports to the USA fell by over 20 percent challenging domestic and external conditions. Although in 2023, one of Kenya’s biggest trade partners. As a result, currency depreciation provided some impetus in demand the current account deficit narrowed by 29.2 percent y/y for Kenya exports, this was offset by poor global economic in December 2023 and reached US$4,086 million (4.0 performance leading to reduced global demand. The percent of GDP from 5.1 percent of GDP in 2022). Overall, depreciation, however, contributed to reduced domestic total trade has been on a continuous downward trend demand as prices rose. The reduction in both global and since the early 2010s, driven by a fall in merchandise trade domestic demand, coupled with global macroeconomic (Figure 3).7 The former went from representing 58 percent Figure 2: Low PMI in 2023 reflected reduced business activity of Figure 3: Trade has been on a continuous downward trend the industry since the early 2010s, driven by a fall in merchandise trade (Kenya’s Purchasing Manager Index (PMI) January 2020-March 2024) (Trade as a share of GDP, 2011-2023) 70 Total trade Merchandise goods 70 60 60 50 50 Share of GDP 40 40 30 20 30 Nov -20 Nov -22 Nov -22 Nov -23 May -20 May -22 May -22 May -23 Sep -20 Sep -22 Sep -22 Sep -23 Jul -20 Jul -22 Jul -22 Jul -23 Mar -20 Mar -22 Mar -22 Mar -23 Mar -24 Jan -20 Jan -22 Jan -22 Jan -23 Jan -24 10 2011 2013 2015 2017 2019 2021 2023 Source: S&P Source: WDI and KNBS 5 Government’s development spending reduced from 4.3 percent of GDP in 2021/22 to 3.5 percent in 2022/23. 6 IMF, 2024. 7 Total trade is defined as the sum of exports and imports as share of GDP. 4 June 2024 | Edition No. 29 The State of Kenya’s Economy of GDP in 2011 to 32 percent in 2022. High trade costs slightly increase from 2022 due to low investor’s confidence, and weak integration to global and regional value chains, FX shortages, and still relatively high global interest rates. compounded by the declining relative competitiveness of Portfolio and other financial inflows have narrowed since goods exports relative to services, are key reasons for these 2022 as Kenya had limited access to international financial trends. Part 2 of this KEU looks at opportunities for Kenya 8 markets (Figure 6). Despite the subdued private capital to boost trade and become a driver of growth. inflows, the government effectively mobilized alternative financing owing to the tightening conditions in the global Nevertheless, Kenya's external sector has exhibited signs credit market. Since early 2024, Kenya secured significant of recovery in 2024. Imports recorded a modest uptick in funding from International Financial Institutions, bolstering Q1 2024 as the Kenya shilling continued to gain against the investor confidence. This culminated in Kenya’s re-access US dollar. The oil import bill continued to decline further to global credit markets in February 2024, marked by the in February 2024 by 15.1 percent y/y. Tea and horticulture issuance of a US$1.5 billion Eurobond for a partial buyback exports grew by 0.4 percent and 2.4 percent y/y in February of the US$2 billion Eurobond maturing in June 2024, and 2024, respectively. of an US$1.58 billion infrastructure bond, of which foreign investors were about half of the participants thus increasing Tourism continued to recover, and though tourist arrivals dollar supply. These issuances not only spurred a reversal of grew at a slower pace compared to 2022, they reached the rapid shilling depreciation but also contributed to the their pre-pandemic level. Tourist arrivals increased by 30.7 improvement of reserve buffers. percent in 2023, compared with the 71.3 percent recorded in 2022 (Figure 5). Still, despite the growth in tourist arrivals, The shilling recorded an over 20.0 percent depreciation travel receipts declined by 7.9 percent in nominal US$. Net against the US Dollar in 2023, exacerbated by the Secondary income remained resilient owing to an increase limited availability of FX and increased demand for US in remittances of 3.9 percent 2023 with a stronger y/y dollars. To prevent a further depreciation, the government growth of 9.0 percent in the 12 months to March 2024 implemented measures to address the foreign FX market reaching US$4,380 million. 9 challenges of US dollar liquidity and exchange rate volatility such as reviving the inter-bank forex market and Private capital inflows declined in 2023 primarily establishing a government-to-government petroleum due to global economic tightening and domestic supply arrangement.10 However, after the bond issuances macroeconomics uncertainty; however, the latter in February 2024, the shilling appreciated by close to 20 dissipated following the February 2024 Eurobond percent, and was one of the best-performers in Emerging issuance. FDI inflow reached US$412 million in 2023, a Markets (Figure 7).11 Figure 4: Current account deficit narrowed Figure 5: Tourism sector remained resilient Monthly tourist arrivals Trade balance (percentage of GDP) Non-remittance secondary balance (percentage of GDP) 250,000 Remittances (percentage of GDP) Current account balance (percentage of GDP) 8 200,000 6 Number of tourists 4 Share of GDP, % 150,000 2 0 100,000 -2 -4 50,000 -6 -8 0 -10 Sep-20 Sep-22 Sep-22 Sep-23 Jul-20 Jul-22 Jul-22 Jul-23 Mar-20 Mar-22 Mar-22 Mar-23 Jan-20 Jan-22 Jan-22 Jan-23 Jan-24 Nov-20 Nov-22 Nov-22 Nov-23 May-20 May-22 May-22 May-23 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2021 2022 2023 Source: CBK Source: Ministry of Tourism and Wildlife, CBK & KNBS 8 World Bank, 2023. Kenya Country Economic Memorandum. 9 Central Bank of Kenya, April 2024. Recent Monetary and Financial Developments. Weekly Bulletin, 12 April 2024. 10 National Treasury & Economic Planning, September 2023. Press Statement on The Government-To-Government Importation of Petroleum Products. Press Release, 26th September, 2023 11 Kenya has a floating exchange rate regime that is market determined and the Central Bank does not intervene directly in the exchange rate market. The Central Bank intervenes in the FX market through its policy rate. June 2024 | Edition No. 29 5 The State of Kenya’s Economy Figure 6: Global economic tightening and domestic Figure 7: The Kenyan shilling strengthened in Q1 2024 macroeconomics uncertainty constrained financial inflows in 2023 Capital account (percentage of GDP) Foreign direct investment (percentage of GDP) Ksh/US$ US Dollar Index Portfolio investment (percentage of GDP) Other investments (percentage of GDP) 170 130 12 160 10 125 150 US Dollar Index 8 140 120 Ksh/US$ Share of GDP 6 130 120 115 4 2 110 110 100 0 90 105 -2 03/01/2022 28/02/2022 27/04/2022 28/06/2022 25/08/2022 25/10/2022 21/12/2022 20/02/2023 19/04/2023 19/06/2023 15/08/2023 11/10/2023 08/12/2023 08/02/2024 08/04/2024 -4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2021 2022 2023 Source: CBK Source: CBK Reserve buffers remain above the conventional 1.5 Monetary policy and financial sector adequacy level but are below the CBK’s minimum performance statutory requirement.12 Reserves dwindled due to limited A tighter monetary policy, agricultural recovery, and access to international borrowing and shilling depreciation easing global inflation contributed to a decrease in but rebounded in the first four months of 2024 with inflation. Inflationary pressures moderated, with the Kenya’s enhanced access to the global credit market. headline inflation slowing to 5.0 percent y/y in April 2024, Official reserves reached US$7.2 billion (equivalent to down from 7.9 percent recorded a year earlier. This reduction 3.8 months of import cover) by end of April, up from was primarily driven by lower food prices, supported by US$6.5 billion (3.6 months of import cover) recorded in agricultural recovery, lower imported inflation as price the same period in 2023, and an improvement from the growth cooled globally, and the tightening of monetary US$6.7 billion (3.7 months of import cover) recorded in policy.13 This counteracted inflation associated with the December 2023 (Figure 8). The current level of reserves shilling’s depreciation. Demand side pressures, as reflected is above the 3-month conventional import coverage but in the non-food non-fuel inflation remained muted for still below the CBK’s 4 months statutory requirement. most of 2023 and in early 2024. Inflation remained within External financing is however expected to improve in the CBK target range of 5±2.5 percent, lingering on the 2024 putting less pressure on domestic financing. upper end of the range since July 2023 and converging Figure 8: Reserve buffers are adequate but remain below the CBK’s statutory minimum O cial reserves Import cover Minimum import cover requirement (Months) 10,000 6.0 9,000 5.5 5.0 O cial reserves in million US $ 8,000 Import cover in months 4.5 7,000 4.0 6,000 3.5 5,000 3.0 4,000 2.5 2.0 3,000 1.5 2,000 1.0 1,000 0.5 - 0.0 Jun -22 Jun -23 Aug-22 Aug-23 Feb-22 May-22 Jul -22 Sep-22 Feb-23 May-23 Jul -23 Sep-23 Feb-24 Jan -22 Mar-22 Jan -23 Dec-23 Mar-23 Jan -24 Dec-23 Mar-24 Oct-22 Oct-23 Nov-22 Nov-23 Apr-22 Apr-23 Apr-24 Source: CBK 12 In general, a 3 months traditional (conventional) buffer is needed, which is a "rule of thumb" to revising reserve adequacy in EMs. However, as every rule of thumbs, it adapts to the context of each country. For countries where there is high rollover risk (from external debt) or even at high risk of debt distress (like Kenya), more needs to be done to assess if the reserve coverage is "adequate". 13 Central Bank of Kenya. April 2024. Monetary Policy Committee Meeting, Press Release, April 3, 2024. 6 June 2024 | Edition No. 29 The State of Kenya’s Economy Table 1: Balance of payments, 2022–23 (US$ millions) 2022 2023 (US$ million) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 A. Current account balance -1,225 -1,771 -1,774 -1,005 -674 -897 -809 -1,706 Trade balance -2,450 -2,901 -2,804 -2,396 -1,958 -2,129 -1,969 -2,976 Exports (goods & services) 3,456 3,553 3,533 3,315 3,507 3,390 3,209 2,756 o/w Travel receipts 232 277 302 296 318 300 213 188 Imports (goods & services) 5,907 6,453 6,336 5,710 5,465 5,519 5,178 5,732 o/w Oil 1,137 1,568 1,634 1,210 1,171 1,207 1,114 1,310 Income 1,624 1,595 1,572 1,772 1,808 1,743 1,761 1,785 o/w Remittances 1,024 1,028 957 1,045 1,020 1,024 1,081 1,094 B. Capital account balance 65 42 5 30 55 36 23 13 C. Financial account balance -727 -1,717 -1,594 -344 876 -2,332 346 -2,696 Direct investment, net 85 2 -19 -14 -5 2 -23 -21 Portfolio investment, net 184 125 28 145 325 4 96 71 Financial derivatives, net 1 7 5 -33 9 13 31 1 Other investment, net 434 1,764 1,032 948 -40 2,952 838 3,176 D. Net errors and omissions -627 106 -772 396 478 -369 488 -1,156 E. Overall balance 1,060 -94 946 235 1,017 -1,102 644 152 F. Reserves and related items -1,060 94 -946 -235 -1,017 1,102 -644 -152 Change in reserve assets -1,060 55 -709 186 -1,017 1,082 -506 -162 IMF net inflows 0 39 -237 -421 0 19 -138 10 Memorandum items Gross reserves (held by both CBK & commercial banks) 12,590 12,581 11,337 11,343 10,901 13,166 13,852 14,176 Imports cover 4.9 4.9 4.4 4.3 3.9 4.4 4.0 4.2 Quarterly GDP at current prices 29,206 28,618 26,870 28,639 28,502 26,577 25,593 26,781 Source: CBK & KNBS to the midpoint in April 2024 (Figure 9). Food inflation percent recorded during the same period in 2023, decreased to 5.6 percent y/y in April 2024, down from while housing, water, electricity, gas and other fuels 10.1 percent recorded in April 2023 as agricultural and transport inflation declined from 9.5 percent to 6.5 harvests improved, following adequate rainfall in 2023. percent. The latter was mainly due to a drop in kerosene Core inflation, which excludes food and energy prices, and electricity while transport index reduced as petrol slowed to 3.5 percent in April 2024, down from 4.4 and diesel pump prices continued to drop. Figure 9: Inflation eased and stabilized within the CBK’s target Core In ation Food In ation Housing, water, electricity, gas & other fuels + transport in ation 10 9 Percentage point contributions to annual percentage change 8 7 6 5 4 3 2 1 0 Nov -22 Nov -23 Jun -22 Jun -23 Jul -22 Jul -23 Mar -22 Aug -22 Mar -23 Aug -23 Dec -23 Dec -23 Mar -24 Apr -22 Apr -23 Apr -24 Jan -22 Jan -23 Jan -24 May -22 May -23 Feb-22 Feb-23 Feb-24 Sep-22 Sep-23 Oct-22 Oct-23 Source: CBK & KNBS June 2024 | Edition No. 29 7 The State of Kenya’s Economy The CBK tightened monetary policy to curb inflation. Figure 10: Short-term interest rates continue to rise In 2023, the CBK raised its policy rate by 375 basis points, Real lending rate Real policy rate Credit to private sector growth 16 including a 200-basis-point increase in December, the 14 largest hike in over 10 years. In February 2024, the CBK 12 raised the policy rate by an additional 50 basis points, 10 8 bringing it to 13.0 percent. Cumulatively, the policy rate 6 has been raised by 600 basis points between May 2022 and 4 February 2024. 2 0 -2 The banking sector capital and liquidity buffers remain -4 Nov -22 Jan -22 Nov -23 Jan -23 Jan -24 Sep-22 Sep-23 Jul-22 Jul-23 Mar-22 May-22 Mar-23 May-23 Mar-24 adequate, but there is concentrated exposure to the sovereign. As of December 2023, banking sector capital Source: CBK adequacy ratio stood at 18.3 percent, down from 18.6 percent recorded in September 2023. During the same manufacturing, transport and communication, mining period, the liquidity ratio stood at 51.0 percent, up from and quarrying, and finance and insurance sectors. This 49.3 percent in September. Both the capital adequacy reflects sustained demand for credit, particularly by Micro, and liquidity ratios exceed the statutory thresholds. The Small and Medium Enterprises (MSMEs) for working capital Return on Equity (ROE) for the sector decreased from 25.0 requirements as most businesses strove to stay afloat percent in September 2023 to 23.0 percent in December and cushion themselves against increase in prices of raw 2023. This was due to a higher increase in shareholders' materials due to the impact of a weakening shilling.17 funds compared to profits. 14,15 Banks continue to record The number of loan applications and approvals remained profitability against the backdrop of tightened monetary resilient, reflecting sustained demand for credit. policy and rising interest rates (Figure 10) supported by wide net interest margins. However, there are concerns 1.6 Fiscal developments about the deterioration of asset quality in the sector. The The government has kept the pace of fiscal consolidation ratio of Non-Performing Loans (NPL) to gross loans stood at in FY2023/24. The combination of measures to enhance 15.5 percent in February 2024 compared with 14.8 percent revenue collection and rationalization of non-priority in December 2023, with smaller banks facing considerable expenditures resulted in a low fiscal deficit (5.6 percent challenges compared to larger banks. There were of GDP), marginally lower than the budgeted (0.2 percent notable NPLs increases in the real estate, trade, personal of GDP) and a primary surplus (0.8 percent of GDP) in and household, energy and water and building and FY2022/23 for the first time in over a decade. Fiscal construction sectors. Nevertheless, banks have continued outturn in the first nine months of FY2023/24 shows the to make adequate provisions for the NPLs which has also government’s continued efforts to remain on a fiscal affected their profitability, potentially reversing some gains consolidation path. Steady revenue growth driven by from increasing interest income. 16 implementation of tax administration and policy measures in the Finance Act 2023 and government’s efforts to Private sector credit growth slowed down as rates contain growth in primary expenditures resulted in an increased and the asset quality deteriorated. The increased primary surplus of 0.4 percent of GDP in the first growth in commercial banks' lending to the private sector nine months of FY2023/24 (Figure 11). slowed to 12.3 percent in 2023 compared to 20.5 percent recorded in 2022. This was primarily due to reduced loan Revenue grew moderately in the first nine months demand due to higher interest rates which slowed loan of FY2023/24. During H1 FY2023/24, government portfolio growth. However, credit demand varied across implemented measures in the Finance Act 2023, including sectors. Strong credit growth was recorded in agriculture, increased income tax for high income bracket, increased 14 Shareholders' funds refer to the total value of the assets of a company that are owned outright by its shareholders. 15 Central Bank of Kenya. (2023). Credit Survey Report for the period ended December 2023. 16 Central Bank of Kenya. April 2024. Monetary Policy Committee Meeting, Press Release, April 3, 2024. 17 CBK. 2023. Market Perceptions Survey. 8 June 2024 | Edition No. 29 The State of Kenya’s Economy value added tax (VAT) on petroleum products, and increased starting new ones has led to a slowdown in development excise duty on different goods and services18. In nominal spending. Development expenditure in the first nine terms, total revenue and grants expanded by 13.4 percent months of FY2023/24 remained subdued. in the first nine months of FY2023/24 higher than 10.6 percent during the first nine months of FY2022/23. Income Despite a positive primary surplus and low growth of tax and VAT remained the major source of government primary expenditure, achieving consolidation targets revenue, accounting for 61.7 percent of total revenue requires effective revenue forecasting. Overall revenue including grants during this period. As a share of GDP, mobilization has been substantially weaker than projected non-tax revenue experienced the largest increase over the years (Figure 12). For instance, in the first nine following timely reporting of appropriation in aid by months of FY2023/24, total revenue performance fell 9.6 semi-autonomous government agencies (SAGAs) which percent short of the target (i.e., KSh 1,932 billion against reached 2.1 percent of GDP against a target of 1.8 percent a target of KSh 2,144 billion). Unrealistic revenue forecasts of GDP and previous year’s level of 1.7 percent. undermine the credibility in the budget process and can lead to unjustifiably large expenditure allocations that The government has continued with expenditure will eventually require either an in-year and potentially prioritization in FY2023/24. First, in line with commitment disruptive reduction in spending or an unplanned increase to contain expenditure growth in non-priority areas, the in borrowing to sustain spending relative to the target.20 government has curtailed growth of primary expenditures. Expenditure on wages remained steady in the first nine Improved planning and budgeting could enhance months of FY2023/24 partly attributable to the ongoing budget credibility and reduce the frequency and the process to contain the wage bill including restricting amounts of reallocations in supplementary budgets. new hiring of civil servants except for critical services Supplementary budgets are provided for in Article 223 and reviewing of benefits and allowances. In addition, 19 of the Constitution of Kenya and PFM Act Article 44, for government recorded no expenses on subsidies to private unforeseen and unavoidable circumstances, and should be or public corporations compared to KSh 43.4 billion (0.3 approved by parliament. While in-year budget adjustments percent of GDP) during the first nine months of FY2022/23. are essential to address emerging challenges, misuse of Second, budget allocations for FY2023/24 were aligned supplementary budgets undermines the credibility of with government priorities under the bottom-up the budget process and achieving consolidation targets. economic transformation agenda (BETA). Finally, focusing Kenya’s has been rated good on supplementary budget as on completion of ongoing infrastructural projects before part of the assessments of fiscal forecasting and budgeting Figure 11: Primary balance remained positive in the first nine Figure 12: Achieving consolidation targets requires months of FY2023/24 effective revenue forecasting (Percentage of GDP) (Percentage deviation from target) Total revenue Primary expenditure* Primary balance 10 14 5 12 10 0 8 -5 6 -10 4 -15 2 0 -20 First nine month of 2022/23 First nine month of FY2023/24 FY2019/20 FY2020/21 FY2021/22 FY2022/23 FY2023/24* Source: World Bank Staff calculations based on National Treasury Source: World Bank Staff calculations based on National Treasury Note: *include adjustment to cash basis and discrepancies Note: *Data for the first nine months of FY2023/24 18 World Bank. 2023. A Balancing Act: Opportunities for Making Growth More Inclusive During Challenging Times. Kenya Economic Update edition 28; Washington, DC. 19 https://www.treasury.go.ke/wp-content/uploads/2021/03/Circular-No.16-2020-on-Guidelines-for-Preparation-of-the-2021.22-2023.24-Medium-Term-Budget.pdf 20 World Bank. 2019. Kenya Public Expenditure Analysis 2019 Creating fiscal Space to deliver the Big 4 while undertaking a needed fiscal consolidation. Washington DC, https://documentsinternal.worldbank.org/search/31205704 June 2024 | Edition No. 29 9 The State of Kenya’s Economy practices in 2014 and 2019. However, actual expenditure Improved primary balance and spending reprioritization has been lower than supplementary and original printed has helped the government reduce the stock of budgets, undermining the budget as an effective guide debt and meet liquidity challenges in 2024. Total to expenditure . For instance, in FY2022/23, actual 21 government borrowing declined from 5.9 percent of expenditure as a share of GDP was 0.6 percentage points GDP in FY2021/22 to 5.4 percent in FY2022/23 and is lower than the second supplementary budget estimates, estimated at 5.5 percent of GDP in FY2023/24. The stock and 1.4 percentage points lower than the original budget. of domestic debt declined while external debt rose driven by increased debt stock from multilateral creditors Accumulated pending bills remain elevated. Pending (Figure 13). In addition, the composition of Kenya’s debt bills by the national government reached KSh 489.9 has marginally shifted in favor of external debt with the billion (equivalent to 3.3 percent of GDP) in March 2024. share of external debt increasing from 49.9 percent in Settling existing pending bills could unlock cash flow FY2021/22 to 52.1 percent in FY2023/24; while domestic to government contractors and suppliers, reduce non- debt share declined to 47.9 percent from 50.1 percent. performing loans (Section 1.4), stimulate growth of the Total public debt is estimated to marginally decline to 68 small and medium enterprises, and reduce government percent of GDP in FY2023/24 from 72 percent of GDP in arrears which constitute another form of domestic debt . 22 FY2022/23 in the context of continued fiscal consolidation, The government established a pending bills verification strong economic growth, and currency appreciation committee in February 2024 for stocktaking and verifying (reducing the local value of FX debt). pending bills that have accumulated from July 1, 2005 to June 30, 2022. Prevention of further accumulation of Debt service costs are rising. Debt service obligations have pending bills requires adherence to PFM measures and been growing, which constrain spending on productive improved cash management to avoid late payments at the and social sectors as well as job-creating investments. First, end of fiscal year. The planned transition to the Treasury the rising expenditure on interest payments (estimated Single Account (TSA) (approved by the Cabinet) and at 5.7 percent of GDP and accounting for 37.9 percent of supported through the recently approved Development tax revenue in FY2023/24) leaves limited room for public Policy Operation (DPO) will improve government’s ability spending on priority areas (Figure 14). Second, debt to manage cash. repayment of the principal rose in FY2023/24 driven by the bullet payment of the 2014 Eurobond. Rising debt servicing County governments are faced with increasing wage in FY2023/24 has been driven by tight monetary policy on bill amid weak own source revenue (OSR) collection. PFM regulations require that the wage bill for national and County governments county governments does not exceed 35 percent of total have been experiencing weak revenues. Expenditure on wages by county governments own source revenue in the last three years has averaged 42 percent of total revenue; partly attributable to low growth in OSR (averaging 2 percent) compared to growth in wages (averaging 4 percent) driven by faster increases in the head count of employees at the counties, and inability to properly integrate or write off from the payroll staff inherited from pre-devolution local governments23. Growing wage bill amid weak OSR has forced county government to rely on equitable share, therefore limiting expansion of service delivery (Box 1). Photo: ©Georgina Goodwin / World Bank 21 IMF. 2014 and 2019. Kenya Fiscal Transparency Evaluation Update. 22 World Bank. 2022. KEU 27. 23 World Bank. 2019. Kenya Public Expenditure Analysis: Creating fiscal Space to deliver the Big 4 while undertaking a needed fiscal consolidation.; Economic Survey 2023, and World Bank.2020. Kenya PER: Options for fiscal consolidation after the COVID-19. 10 June 2024 | Edition No. 29 The State of Kenya’s Economy Figure 13: There has been change in external debt in favor of Figure 14: Rising expenditure on interest payments leaves limited multilateral creditors room for spending on priority areas (US$ billion) (Interest payments (% of revenues) and government gross debt (% of GDP), 2021) T-bonds T-bills Multilateral Commercial Bilateral 80 8.6 70 10.0 9.5 10.3 60 10.0 10.2 50 20.1 16.3 18.9 40 4.1 30 5.2 4.4 20 29.3 33.3 28.6 10 0 June 2022 June 2023 March 2024 Source: World Bank calculations based on National Treasury Source: World Development Indicators and World Economic Outlook. Note: Global sample of 96 countries with available data for 2021. the domestic side while currency depreciation and high cost of SOEs external guaranteed debt adds pressure to global interest rates affected new contracted external debt the already rising national government debt service. The and amortization of the existing one. The government government serviced debt for Kenya Airways in FY2022/23 has been implementing mitigating factors to reduce the amounting to KSh 12.3 billion (0.1 percent of GDP). cost of borrowing, including prioritizing treasury bonds Mitigating measures in place to reduce vulnerability to with longer term maturities for domestic financing and contingent liabilities include increased oversight of SOEs concessional borrowing for external financing. −the annual public debt reports have expanded coverage of public debt to include guaranteed and non-guaranteed Contingent liabilities of state-owned enterprises (SOEs) SOEs debt which stood at KSh 111.8 billion (1.0 percent remain a risk to fiscal consolidation. Public guaranteed of GDP) in FY2022/23−and privatization some of the debt increased remained stable in FY2022/23 (at 1.2 financially ailing SOEs.24 percent of GDP), however, failure to meet debt service Box 1: Performance of own source revenue by county governments County government continues to experience low own-source revenue collection. Since the onset of devolution, county governments have persistently collected lower revenue than targeted, which impedes their autonomy and expansion of service delivery (Figure 15). The highest OSR level was achieved in FY2018/19, with a 74.8 percent performance rate, while the average OSR collection rate is 63.7 percent during FY2013/14 – FY2022/23. However, studies25 have shown that county governments have the potential to collect more. Enhanced own source revenue mobilization at the county level could reduce dependency on transfers from the national government and stimulate expansion of service delivery. Figure 15: OSR collection continues to fall below target Performance for H1 of FY2023/24 Overall average county governments performance Target for H1 80 70 60 50 Percent 40 30 20 10 0 Kisii Kitui Siaya Wajir Nyeri Isiolo Meru Busia Lamu Embu Nandi Kwale Vihiga Migori Narok Bomet Garissa Nakuru Laikipia Nairobi Kajiado Kisumu Baringo Kiambu Kericho Turkana Nyamira Marsabit Makueni Mandera Samburu Kirinyaga Murang’a Mombasa Bungoma Tana River Homa Bay Machakos Kakamega Nyandarua West Pokot Trans Nzoia Uasin Gishu Taita-Taveta Tharaka-Nithi Elgeyo-Marakwet Kili Source: World Bank calculations based on Office of the Controller of Budget 24 The government published the new Privatization Act in October 2023. 25 Commission on Revenue Allocation.2022. Comprehensive Own Source Revenue (OSR) Potential and Tax Gap Study ( https://cra.go.ke/download/comprehensive-own-source- revenue-osr-potential-and-tax-gap-study/?wpdmdl=3057&refresh=660d30aee5b6b1712140462) and Smith, Adam; Spyropoulos, Nick; Keay, Graeme Alexander; Granger, Hazel Mary; Boi, Desmond; Wolff, Johannes Norman; Nelson, Iain. Own-Source Revenue Potential and Tax Gap Study of Kenya’s County Governments: Final Report (English). Washington, D.C. : World Bank Group. (http://documents.worldbank.org/curated/en/280021585886703203/Own-Source-Revenue-Potential-and-Tax-Gap-Study-of-Kenya-s- County-Governments-Final-Report) June 2024 | Edition No. 29 11 The State of Kenya’s Economy Table 2: Kenya fiscal operations (FY2021/22 – FY2023/24) First nine First nine 2022/23 2023/24 months of months of 2022/23 FY2023/24 % of GDP Preliminary Estimate Actual Preliminary Total revenue and grants 16.7 19.2 11.9 12.0 Tax revenue 13.2 15.0 9.4 9.3 Income tax 6.6 7.4 4.5 4.4 VAT 3.9 4.4 2.8 3.0 Import duty 0.9 1.1 0.7 0.6 Excise duty 1.9 2.2 1.4 1.3 Non-tax revenue 3.3 3.8 2.4 2.7 Grants 0.2 0.3 0.1 0.1 Expenditure and net lending 22.6 24.7 15.5 16.4 Recurrent 16.2 17.3 0.0 12.1 Wages and salaries 3.8 3.7 2.9 2.6 Interest Payments 4.8 5.7 3.4 3.8 Domestic Interest 3.7 4.0 2.6 2.7 Foreign Interest 1.1 1.7 0.8 1.1 Pensions 0.8 1.0 0.6 0.7 Operations, maintenance, and others 6.8 6.6 4.6 4.9 Development 3.5 4.7 2.2 2.8 Transfer to counties 2.9 2.6 1.5 1.5 Overall balance commitment basis -5.9 -5.5 -3.5 -4.4 Adjustment to cash basis 0.3 0.0 0.8 1.0 Overall balance including grants -5.6 -5.5 -2.7 -3.4 Discrepancy -0.2 0.0 0.1 -0.3 Primary balance -0.8 0.7 0.7 0.4 Financing 5.4 5.5 2.6 3.1 Domestic financing 3.2 2.9 2.0 2.4 Foreign financing 2.2 2.6 0.6 0.7 Debt gross 72.0 68.0 66.4 64.6 External 38.2 35.5 34.0 32.0 Domestic 33.9 32.6 32.4 32.6 Source: The National Treasury 2. Outlook and Risks The February 2024 partial buyback of the Eurobond, Kenya’s immediate liquidity constraints for 2024, calming improved fundamentals, and a strong policy framework the markets. The issuance provided confidence to markets, enabled Kenya to revert macroeconomic volatility. reflected in a drop in the yield of the outstanding ’24 An improving global credit environment and a stronger Eurobond and slight improvement in other outstanding macroeconomic framework enabled Kenya to access Eurobonds. It also triggered a reversal of the persistent global credit markets in February 2024, issuing a US$1.5 depreciation of the Kenyan shilling−partly supported by billion Eurobond for an early partial buy back of a US$2 foreign inflows into a large local-currency infrastructure billion Eurobond that was set to mature in June 2024. The bond issued in the same month. US$1.5 billion bond issued at 10.375 percent yield eased 12 June 2024 | Edition No. 29 The State of Kenya’s Economy 2.1 Baseline forecast outlook assumes adequate rainfall, authorities’ staying GDP growth is projected at 5.2 percent on average on course on the planned fiscal consolidation strategy, and the continuous implementation of the government’s during 2024-26. In the near term, ongoing fiscal structural reform agenda26. consolidation efforts, tight monetary policy, and fading tailwinds from the agricultural rebound are expected The private sector will play a stronger role in Kenya’s to slow down GDP growth to 5.0 percent in 2024. The medium-term recovery. Favorable agricultural harvests, stronger outlook compared to the December 2023 edition moderate inflation, a recovery in employment, and modest reflects improved macroeconomic conditions following growth of credit to private sector will support growth in the resolution of the immediate liquidity constraints private consumption.27 Moreover, despite a slowdown in with the issuance of the February Eurobond. A stronger global economic growth, remittance inflows to Kenya are macroeconomic framework, the recent re-access to projected to remain resilient, providing further support to international financial markets, and the materialization of household incomes28. Diaspora remittances already grew government’s structural reforms - such as the removal of by 24% in Q1:2024 and showed greater diversification of foreign ownership restrictions in ICT - are expected to spur sources. Private consumption is expected to complement investor confidence and private investment in the medium moderate government consumption in the context of term, supporting capital inflows, including FDI, and freeing fiscal consolidation. With positive business sentiment, more credit to the private sector through reduced domestic access to the international market and projected FDI government borrowing. Efficiency seeking FDI into Kenya inflows, the baseline scenario assumes a gradual pick- is expected to materialize taking advantage of the African up in exports and private investment over the medium Continental Free Trade Area (AfCFTA) opportunities and term. Fiscal consolidation is expected to continue, which recent bilateral negotiations. A more stable currency, would reduce government domestic borrowing and lower moderating global and local inflation pressures, and, yields on government securities, thereby incentivizing eventually, a more accommodative monetary policy would commercial banks to lend to the private sector. increase credit growth to the private sector. The growth Table 3: Key economic indicators and forecasts, 2021 to 2026 (percent, unless otherwise stated) 2021 2022 2023 2024 f 2025 f 2026 f Real GDP growth, at constant market prices 7.6 4.9 5.6 5.0 5.3 5.3 Private consumption 6.2 3.1 6.1 4.9 5.3 5.4 Government consumption 6.0 8.1 3.5 1.6 0.8 1.1 Gross fixed capital investment 10.8 -0.8 1.9 5.3 7.8 7.8 Exports, goods, and services 15.3 11.9 -4.5 8.7 9.6 9.9 Imports, goods, and services 22.2 4.6 -3.1 3.0 5.5 6.4 Real GDP growth, at constant factor prices 7.2 4.7 5.9 5.0 5.3 5.3 Agriculture -0.4 -1.5 6.5 4.1 4.4 4.5 Industry 7.5 3.9 1.9 4.0 4.1 4.3 Services 9.6 6.6 6.8 5.6 5.9 5.9 Inflation (consumer price index) 6.1 7.7 7.7 7.0 5.0 5.0 Current account balance (% of GDP) -5.1 -5.1 -4.0 -3.9 -4.0 -4.1 Foreign direct investment inflow (% of GDP) 0.4 0.7 0.7 0.6 0.7 0.8 Fiscal balance (% of GDP) * -8.2 -6.2 -5.6 -5.5 -3.9 -3.3 Revenues (% of GDP) 16.1 17.5 16.7 19.2 19.3 19.4 Debt (% of GDP) 67.7 67.8 72.0 68.0 64.8 61.7 Primary balance (% of GDP) -3.8 -1.6 -0.8 0.2 1.7 1.8 Source: World Bank staff calculations based on KNBS; The National Treasury Note*: Fiscal year runs from July 1 to June 30; 2021 = FY2020/21 26 The flooding experienced in May 2024, which coincides with the long rain season, is not expected to have a significant impact on agriculture as the flooding was mainly concentrated in urban areas and not the major food basket regions. 27 Preliminary PMI data shows a recovery in employment in January and February 2024. 28 World Bank.2024. Africa's Pulse, No.29, April 2024: Tackling Inequality to Revitalize Growth and Reduce Poverty in Africa. Washington, D.C : World Bank Group. June 2024 | Edition No. 29 13 The State of Kenya’s Economy On the supply side, projected GDP growth is untapped trade potential that, with the adequate policy underpinned by favorable weather conditions for mix, could leverage to further boost exports, and increase the agricultural sector, a recovery of industry, and the its integration to global and regional value chains, as resilience of services. In addition to ongoing reforms in outlined in the special focus of this report. the agricultural sector to raise productivity of key food value chains and increase access to affordable credit,29 A more accommodative monetary policy underpinned favorable rainfall will sustain agricultural growth in the by easing inflationary pressures is projected to support medium term. 30 While the long rain season (March – May) growth in the medium term. The baseline assumes low has been characterized by heavy rains causing flooding inflationary pressures in the medium term following in several parts of the country, the baseline assumes that adequate harvest, projected decline in global commodity agricultural output will be better than the drought years. prices32 including fuel, and a more accommodative Adequate harvests are expected to provide inputs for the monetary policy favorable for private consumption and industrial sector, particularly for food processing industries, investment. In the near term, tight monetary policy, while the projected public spending on affordable the impact of previous monetary policy tightening and housing will support growth in the construction sector. ongoing government fiscal policy measures (reduced The services sector is projected to remain resilient over deficit and borrowing) are expected to stabilize volatility in the medium term while reforms in ICT such as enhancing the exchange rate market. connectivity in public institutions are expected to continue to catalyze growth in financial services, health, and public The government envisages continued fiscal administration.31 consolidation through enhanced revenue mobilization and rationalization of expenditure in the medium Kenya’s external position is expected to remain term.33 Fiscal consolidation is underpinned by revenue supportive of macroeconomic stability. Overall, the reforms in the Finance Act 2023 that has been in effect current account deficit is expected to reach 4.0 percent of since FY2023/24.34 The government plans to continue GDP on average in the medium term, and to be adequately streamlining exemptions and zero-rated goods and funded by continued access to international financial services, reviewing the VAT rate and excise taxation of markets (both official and non-official debt), increasing tobacco, alcoholic and non-alcoholic beverages, as well FDI, and portfolio inflows. Exports are expected to recover, as introduce carbon tax to promote use of green energy both from improvements in the global and regional trade in the medium term.35 Expenditure measures in the outlook, and domestic conditions. A projected pickup medium term are expected to reduce spending by 1.4 in imports of raw materials and intermediate goods percentage points, cumulatively. These include, among consistent with investment growth as well as increased others, rolling out of e-Government procurement at fuel imports following strengthening of the shilling are national and county level to improve efficiency of expected to drive growth in imports. The implementation spending and ensure value for money; privatization of of trade agreements (EU-EPA and AfCFTA), adequate some SOEs; continued commitment to meet the PFMA harvest of agricultural crops for exports (i.e., tea, fruits), target on wage bill (35 percent of revenue), subsidies, and a recovery of demand from Kenya’s trading partners, and non-priority spending, and settling accumulated including East African Community (EAC), are expected to pending bills. These measures will translate into a support this recovery. Increased remittance inflows and sustained primary surplus (Figure 16) and reduction in tourism receipts are expected to further provide foreign debt stock. The National Treasury is expected to carry out exchange. Imports are expected to grow as domestic liability management operations (including leveraging demand recovers, particularly of raw materials, fuels, and on sustainability-linked bonds) to reduce the average intermediate goods, consistent with investment growth cost of debt and improve the maturity profile. and the strengthening of the shilling. Kenya has immense 29 National Treasury. (2024). Medium Term Budget Policy Statement (February 2024). 30 The Kenyan Meteorological department forecast rains above the long term mean for the period February-April 2024; Kenya Meteorological Department. (2024). The forecast for February 2024 and review for January 2024. 31 Government reforms include single account payment for all government services. 32 Confirm proper citation World Bank projections (source: Andrew Burns’ email on revised DEC global assumptions). 33 National Treasury. (2024). Medium Term Budget Policy Statement (February 2024). 34 World Bank.2023. Kenya Economic Update: A Balancing Act - Opportunities for Making Growth More Inclusive During Challenging Times . Washington, D.C.: World Bank Group. 14 June 2024 | Edition No. 29 The State of Kenya’s Economy The projected decline in government spending will be The baseline assumes the government’s planned climate driven by recurrent expenditure, while the government actions to support growth and fiscal consolidation. projects a marginal pick up in development spending Government actions towards climate change adaptation in the medium term. In contrast with the last three and mitigation in the near term are focused on emergency years marked by a slowdown in development spending response to floods caused by the recent heavy rains. following spending rationalization, the projected In the medium term, climate actions planned include development expenditure is set above 30 percent PFMA constructions of dams for water catchment and irrigation, threshold in the medium term (averaging 36.9 percent rehabilitation of wetlands, and reforestation. In addition, of ministerial expenditure budget during FY2024/25 – the government plans to introduce carbon pricing as part FY2025/26). Recurrent expenditure as a share of GDP is of revenue measures. Kenya is working toward issuing expected to decline driven by a slowdown in debt service Africa’s first sovereign sustainability-linked bond (SLB) in costs consistent with a gradual reduction in debt stock, late 2024/early 2025, consistent with its 2024 Medium-Term contained wage bill, as well as steady transfers to county Debt Management Strategy. The SLB has pre-determined governments and pensions. The composition of sectoral sustainability performance goals, including on climate. allocations is projected to remain somewhat unchanged; education, infrastructure, public administration, and 2.2 Risks to the outlook governance are projected to continue accounting for the Extreme weather (drought or floods) could weaken largest share (about 70 percent) of total ministerial budget. agricultural output, lead to destruction of capital, and increase food insecurity. Kenya is becoming more prone The projected GDP growth is expected to support to extreme weather conditions, which have increased in poverty reduction in the medium term. Real per capita intensity and frequency. After two years of consecutive incomes are expected to grow, and the poverty incidence droughts (2021 and 2022), the current long rain season is expected to resume its pre-pandemic downward trend. (March – April) has been characterized by heavy rainfall With the projected growth trajectory, GDP per capita is and flooding that has since led to loss of infrastructure, expected to expand by 3.1 percent on average over the lives and livestock. As of April 2024, over 960 livestock had medium term. This is also expected to result in a projected been killed and about 24,010 acres of croplands destroyed, reduction of poverty by nearly a percentage point each while more than 234,000 people had been displaced in the year toward pre-pandemic levels. The US$2.15 poverty rate country, including in northeastern counties. Intensification is projected to fall from 35.1 percent in 2023 to 34.4 percent of such occurrences could negatively impact agricultural in 2024, contingent to continued support for pro-poor and output, aggravate food security problems and lead to a inclusive growth policies over the medium term (Table 3). surge in cases of water-borne diseases. Climate change mitigation and adaptation policies are increasingly being Figure 16: Contained spending pressures will reduce pursued and remain at the top of the policy agenda. government borrowing (percent) Primary balance Net foreign nancing Moreover, Kenya remains vulnerable to fiscal slippages. Net domestic nancing Total nancing 6 5.4 5.5 The medium-term growth projects government achieving 5 fiscal targets for both revenue and expenditure, which 3.9 would reduce debt accumulation and debt vulnerabilities. 4 3.3 Failure to achieve projected revenue target, reoccurrence 3 of spending pressures on recurrent expenditures 1.8 2 1.7 (including subsidies), vulnerability to weather shocks, 1 inability to contain the wage bill, and realization of 0.2 0 contingent liabilities, constitute a significant risk to macro -1 -0.8 stability and the projected growth. Additionally, slower FY2022/23 FY2023/24 FY2024/25 FY2025/26 implementation of structural and fiscal reforms could Source: The National Treasury crowd out private investments and hamper the projected growth in employment. 35 These measures are part of the medium-term revenue strategy (MTRS) which will be implemented within a three-year period beginning from FY 2024/25 to FY 2026/27. June 2024 | Edition No. 29 15 The State of Kenya’s Economy Uncertainties in the global economic outlook including to fiscal consolidation and prioritizing concessional higher for longer interest rates, and subdued trade and borrowing is expected to mitigate this risk. investment remain key risks. Lower than anticipated global economic growth and particularly in major exports On the upside, several factors could add to the projected destination could reduce Kenya’s exports, tourism receipts, outlook. These include fast-tracked structural reforms in and remittances growth; increase in global fuel prices support of BETA, the government’s Medium-Term Plan could increase Kenya’s imports bill, while tight global (MTP) IV which was launched in March 2024,38 faster than financial conditions arising from lower-than-expected expected normalization in global financing conditions and return of global inflation to target levels could aggravate lower international fuel and food prices. If any of these Kenya’s vulnerabilities towards meeting external financing were to occur, Kenya’s growth in the medium term could requirements37. However, the government’s commitment be higher than projected.  37 World Bank.2024. Africa’s Pulse: Tackling inequality to revitalize growth and reduce poverty in Africa. Volume 29. Washington, DC. 38 The National Treasury and Economic Planning. 2024. Fourth Medium Term Plan 2023 – 2027: “Bottom-Up Economic Transformation Agenda for Inclusive Growth”. Nairobi, Kenya. 16 June 2024 | Edition No. 29 Special Focus SPECIAL FOCUS Photo: ©Arne Hoel / World Bank June 2024 | Edition No. 29 17 Special Focus 3. The Role of Trade Integration in Promoting Economic Growth and Job Creation Kenya's efforts in trade integration could significantly 3.1 Kenya’s recent trade patterns and contribute to substantial economic growth and job performance creation. However, as shown in the previous section, Agriculture is the largest contributor to Kenya’s exports the share of total trade has been consistently falling over (59 percent) followed by minerals (9.4 percent) and the last decade. This decline is despite a comparatively chemicals (9.3 percent). Tea, the top export commodity, significant Revealed Competitive Advantage (RCA) index in accounted for 16.6 percent of total exports in 2021. Other key exports, i.e., tea, cut flowers, and titanium ore. Exports major agricultural exports are cut flowers (10.8 percent) have seen a fast-declining trend, with exports of goods and coffee (3.6 percent). Exports of chemicals, textiles, and services as a share of GDP falling from 21.5 percent in vehicles, electronics, and machinery represented 22.8 2011 to a low of 9.6 percent in 2020. Compared with other percent in 2021. At the same time, exports minerals, countries of similar economic size, the gap in the export- metals, and stones 16.9 percent in 2021, as Kenya started to-GDP ratio is significant and increasing, with Kenya's ratio exporting new ores. being about a third of the average ratio for a country of similar size (Figure 17). However, the potential for export Merchandised exports have grown little, and Kenya expansion remains significant, including addressing areas has introduced few new products with additional value where Kenya's RCA indicates underperformance of existing to its export basket. Kenya’s exports have significantly key exports, e.g., coffee. The country is engaged in several underperformed, both in nominal and in real terms.40 A trade integration initiatives with significant opportunities proximate cause for this is that the country has diversified for driving improved and inclusive growth through little during the last few years. As of 2021, Kenya ranked 46th international trade. This chapter explores opportunities out of 133 countries in terms of the diversity of its export for Kenya to boost trade, mainly through leveraging trade basket, moving down its place in the ranking by 9 positions integration as a growth driver, drawing insights from the in the past 15 year (Harvard Atlas of Economic Complexity, Kenya Country Economic Memorandum (CEM), recent 2023). The country added 14 new products to its export World Bank analytics, and advisory work on trade integration. basket,41 less than neighboring countries like Uganda (20), Figure 17: A declining share of exports by economic size Tanzania (22), and Ethiopia (25). Moreover, the country has (percent) lost competitiveness in markets that it already exported 100 to. For example, Kenya has steadily lost market share in 90 the EU—its main market for agricultural exports (Figure Share of exports to GDP (%) 80 70 19A). Exports to the EU rely on the same products (flowers, 60 coffee, tea, avocados, green beans) than two decades ago 50 (18B). This marked decline contrasts sharply with other 40 comparator countries−like Peru and Morocco−which have 30 considerably increased their export product ranges in the 20 10 EU during the same period. Peru, for instance, tripled the KEN 0 number of exports to the EU above US$10 million from 11 17 22 27 32 to 37, while Morocco almost doubled them from 25 to 48 Log GDP (constant 2015 $) during the same period. Source: World Bank 2023.39 39 World Bank, 2023. Using trade integration to reduce trade costs and increase competitiveness of Kenyan exports. Kenya Trade Integration. 40 Section 1 illustrated the real exports expenditures underperformance since 2011, while IMF IFS Balance of Payments statistics show that the export value in 2019 was similar to the one in 2011 in current US$ (US$5,870 million in 2019 vs. US$5,834 million in 2011). 41 According to the Harvard Atlas of Economic Complexity, a product is considered ‘new’ if 15 years ago the product had a Revealed Comparative Advantage (RCA) less than 0.5 but its RCA has been greater than one for the last three years. 18 June 2024 | Edition No. 29 Special Focus Figure 18: Lack of new agricultural export products and a declining market share in the E.U. A. Share of EU agricultural imports B. The number of agricultural products exported to the EU is over US$ 10 million MAR PER ZAF ECU KEN 2021 2022 3.0 MAR 48 25 2.5 ZAF 36 2.0 24 Percent PER 37 1.5 11 1.0 ECU 16 10 0.5 KEN 16 12 0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 0 10 20 30 40 50 60 Number of agricultural goods Source: COMTRADE Note: MAR: Morocco, ZAF: South Africa, PER: Peru, ECU: Ecuador, KEN: Kenya Kenya’s manufacturing exports have made inroads in all exporters (44.7 percent) are new on an average year, not East Africa but still struggle to compete outside those having exported in the previous year. These new exporters, markets. More than three quarters of manufacturing although plentiful, have a minimal share in total exports, exports are destined to the East Africa Community (EAC) and their longevity is limited, with only 42 percent surviving members or landlocked neighboring countries for which beyond their first year. Moreover, their progression into Kenya serves as a transit point. Manufacturing exports to medium or large-sized firms is rare. Established exporters, the EAC consist mainly of final products − such as steel, with average exports of US$5.4 million, have driven over pharmaceuticals, processed food − that attract the highest three-quarters of Kenya's export growth since 2012, common external tariff (CET) rate of 25 percent, for which highlighting the minimal contribution of new exporters to Kenya is exempt and that result in significant preference the sector's expansion. margin. However, as the African Continental Free Trade Area (AfCFTA) progressively reduces tariffs, Kenya will need Services export also offer considerable potential to boost the sector’s trade integration and competitiveness that is yet to be exploded. Kenya’s services sector has to rely less on the CET. considerably contributed to economic growth and jobs and has potential to become a driver of export’s growth. Overall, the degree of sophistication of the country’s Relative to merchandised goods, services exports have goods exports has changed little during the last 10 considerably grown over time (Figure 19). For example, years. Kenya’s export basket is primarily composed of low the expanding ICT sector has transformed Kenya into complexity products, and given it has not expanded much a hub for technology services, including software its level of diversification and sophistication through the development and customer support. Kenya imposes years, the country has fallen six positions during this period no restriction on computer-based services. Additionally, in the economic complexity index (ECI), currently ranking tourism remains an essential component of the service 80 out of 133 countries. 42 Exports are not particularly exports, with the country's natural and cultural attractions unique, and thus the fact that Kenya’s export products 43 appealing to international visitors. The nation has also are produced by many other countries reduces firms’ profit capitalized on its innovative mobile banking and fintech margins, making it harder for them to compete. sector, establishing itself as a regional leader in improving usability of digital services and financial inclusion. Overall, Kenya's export sector exhibits an unstable pattern at the modern manufacturing competitiveness relies on access firm level, with a high rate of firms entering and exiting to state-of-the-art business support services such as the export market annually. Post-2012, the landscape logistics, warehousing, banking, and professional services, has seen a significant reduction in long-term exporters, which the country needs to further develop to expand its coupled with a rise in single-year exporters. Nearly half of merchandised goods’ capacity. 42 The economic complexity index is measure of the diversification and sophistication of a country’s export basket, approximating the degree of productive knowhow an economy has. The ECI is strongly associated with GDP per capita. 43 This means that Kenya’s exports are relatively ubiquitous and are exported by many other countries, which is a component of the degree of sophistication (economic complexity) of exports. June 2024 | Edition No. 29 19 Special Focus Figure 19: Net services exports have increased significantly expanding Kenya's market reach, increasing trade volumes, compared with goods and attracting foreign investment. More than 20 percent of Net goods exports Net service exports Net exports Kenya's exports are directed to other EAC partner States. 4 Given its industrial base, Kenya could play an even bigger 2 Net exports of goods and services (US$ bns) role in facilitating this integration at the sub regional level, 0 by expanding exports and consolidating regional value -2 chains, especially given the country’s commitment to -4 “move the economy up the value chain”, as portrayed in its -6 Vision 2030 agenda. -8 -10 Notably, Kenya has been a critical driver of the AfCFTA. -12 1990 1994 1998 2002 2006 2010 2014 2018 The country was an early signatory and one of the first eight countries participating in the AfCFTA-guided trade Source: Kenya Country Economic Memorandum, from WDI. initiative. The AfCFTA is poised to become the world's 3.2 Kenya’s trade integration journey largest free trade areas by number of countries and Kenya is proactively utilizing all channels on the global, population, with a potential market of 1.3 billion people continental, and regional level to enhance its role in the and a combined GDP of US$3 trillion as of 2022. Kenya global economy and increase regional and international is projected to be one of the top beneficiaries from the trade integration. It is one of the six African countries AfCFTA, with its real income estimated to increase by 12.8 participating in the WTO Joint Statement Initiative percent by 2035 compared to the baseline without the on e-commerce digital trade rules that will facilitate AfCFTA. Wages are expected to grow significantly, reaching electronic transactions and foster an open and trusted 24.6 percent for female workers and 24.7 percent for male digital economy. Regionally, Kenya has taken advantage of workers. The agriculture sector is expected to be one of the opportunities participating in the EAC and the Horn the top job creating sectors, accounting for 2.2 percent of Africa Initiative (HoAI). The HoAI, established in 2019, employment growth out of the total 2.6 percent sectoral promotes regional integration among Djibouti, Somalia, employment reallocation anticipated in Kenya. Most of Kenya, Ethiopia, Eritrea, South Sudan, and Sudan. All these gains are expected to come from increased intra- member countries' ministers of finance have endorsed regional trade, and this expansion into new African markets the Trade Facilitation Roadmap 44 and the Private Sector is not only to increase trade volumes but also to diversify Engagement Roadmap 45 to support this goal. These export destinations and reduce dependence on traditional regional blocs and platforms have been instrumental in markets (Figure 21).46 Figure 20: Kenya’s percent change in income with respect to Figure 21: Kenya’s change in trade by value US$B with respect to baseline 2035 baseline 2035 Exports Imports 12.8 34.6 23.8 11.7 17.8 15.2 15.7 11.4 13.2 9.5 8.4 2.7 2.4 Africa China Europe Rest of United AfCFTA trade AfCFTA FDI broad AfCFTA FDI deep the world States Source: World Bank (2020) and Echandi, et. al. (2022) Source: World Bank (2020) and Echandi, et. al. (2022) 44 https://www.hoainitiative.org/wp-content/uploads/2022/06/HoAI-Trade-Facilitation-Roadmap-English.pdf 45 https://www.hoainitiative.org/wp-content/uploads/HoAI_PSE_Roadmap_FINAL.pdf 46 Echandi, Roberto; Maliszewska, Maryla; Steenbergen, Victor. 2022. Making the Most of the African Continental Free Trade Area: Leveraging Trade and Foreign Direct Investment to Boost Growth and Reduce Poverty. Washington, DC: World Bank. 20 June 2024 | Edition No. 29 Special Focus Kenya’s significant strides in its bilateral relations signal 3.3 Challenges to trade integration its openness to trade as a driver of growth. For example, Trade costs in Kenya are high and double or triple the it has concluded an Economic Partnership Agreement price of internationally traded goods over domestic (EPA) with the EU, which enhances trade and investment ones. Trade costs with main partners are equivalent to a while supporting economic growth and job creation 100-200 percent tariff and, hence, they double or triple through duty-free access for Kenyan goods to the EU market. the costs of internationally traded goods over domestic Additionally, Kenya is actively negotiating with the United goods. For example, trade with neighboring Ethiopia States a bilateral agreement known as a strategic trade and is more costly than with the U.S. despite the significant investment partnership (STIP), which, differently from a trade geographical distance (Figure 22A), and these have agreement, does not contain a traditional market access considerably increased over time, especially agricultural agenda (involving, for example, reciprocal tariff reductions or products (Figure 22B). High trade costs raise the price of removal, rules of origin) being focused more on several other exports and imports, hinder competitiveness, and erode disciplines such as promotion of investment and inclusive consumer welfare by reducing the availability of goods for growth, to benefit workers and businesses. This engagement consumption. with the U.S. builds on the benefits already received as the second-largest non-oil beneficiary of the African Growth and Kenya’s increased tariffs by virtue of the CET bands under Opportunity Act (AGOA). Realizing the agreement's benefits the EAC are a barrier to exports and reduce access to is estimated to increase income and address poverty levels by imported goods. The average tariff in Kenya−around 13.5 2035 due to export-related wage increases. Another example percent in 2022−is significantly higher than for the average is the Kenya-UAE Comprehensive Economic Partnership upper-middle income country and the world, higher than Agreement (CEPA) of February 2024, which seeks to simplify countries that have successfully integrated to the world trade procedures and advance digital trade, among other economy like Vietnam (5.6 percent) or Thailand (8 percent), parameters. Kenya is also anchoring several bilateral joint and higher than regional benchmarks like South Africa committees e.g., with Tanzania, Somalia, Ethiopia and Egypt (7.1 percent) (Figure 23). The difference between tariffs on in efforts to deepen trade. inputs and outputs has increased, leading to a high degree of protection mostly to domestically produced consumer While trade integration offers a pathway to economic goods. High effective protection rates to sectors like fruits growth and job creation, Kenya's experience illustrates and vegetables (35.5 percent), beverages and tobacco that realizing these benefits is not automatic. Despite (52.9 percent), fish and fish products (25 percent), sugar active engagement in trade integration efforts, the country (10.2 percent). cereals (11.7 percent) and textiles (18.7 still needs to capitalize on the potential of these initiatives percent) provide incentives for import substitution over fully. The following subsection identifies key challenges exports, creating anti-export bias. that Kenya faces that hinder its degree of trade integration and affect its export potential. Figure 22: High bilateral trade costs affect major trade partners A. Trade costs with main partners (ad-valorem, percent) B. Agricultural trade costs with main partners (2005=100) Agriculture All goods CHN GBR TZA UGA USA 150 ETH 140 USA 130 CHN 120 GBR 110 100 TZA 90 UGA 80 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 0 50 100 150 200 250 300 350 Source: World Bank-UNCTAD Trade Cost database. June 2024 | Edition No. 29 21 Special Focus Figure 23: High and increasing tariffs are in opposition to trends in the rest of the world A. Applied tariffs: Kenya vs. world B. Applied tariffs: Kenya vs. world Kenya Upper middle income World 25 KEN 13.7 20 UGA 13.2 TZA 12.2 15 Percent THA 8.0 10 ZAF 7.1 5 VNM 5.6 0 0 2 4 6 8 10 12 14 16 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Percent Source: World Bank 2023. In the same way, perversive non-tariff measures (NTMs) In recent years, the ICT sector has attracted the most FDI, are costly for consumers and firms, and limit regional due to fiber optics. FDI in high-productivity sectors can trade. NTMs adopt several forms and affect a significant stimulate productivity enhancements in the economy, as share of regional trade, especially within the EAC; the ad- technologies and knowledge can spill over to domestic valorem equivalent of NTMs in Kenya is significantly high firms. An influx of FDI is seen as vital for enhancing trade and close to 40 percent on average for those products and competitiveness,47 acting as a conduit for technology affected by them and with higher incidence in processed transfer, and as a source of financing for the country’s food (46 percent), energy-intensive manufacturing (46 balance of payments. percent), chemical and plastics (46 percent), and textiles (39 percent) (Source: World Bank). NTM include barriers The low predictability of tax rates, affecting the import such as bans and quotas, import permits and levies, export and export sector, seems to be challenging FDI inflows.48 taxes, rules of origin, among others. Frequent and unanticipated tax policy shifts create a volatile business climate, erode investor trust and hinder Kenya has not been able to attract significant foreign strategic planning. Such unpredictability, exemplified direct investment, which would foster trade integration. by abrupt tax rate changes or the introduction of new FDI inflows have been underperforming in the country. FDI taxes, directly impacts the cost structures of businesses, reached 0.3 percent of GDP in 2022, which is far below the especially those in the import-export sector. This country’s potential; for example, neighboring Tanzania and instability not only discourages investment but also Uganda have attracted FDI of around 1.7 and 6.5 percent of complicates tax compliance, which could lead to GDP respectively in 2022. Although some manufacturing decreased government revenue. sectors have received FDI, including beverages, chemicals, and electronic components, overall investment levels 3.4 Trade integration as a means to boost jobs, productivity, and innovation remain negligible relative to the market size and Kenya’s strategic geographic location as hub and gateway to the Trade integration for Jobs wider region. The services sector has played a significant Kenya's trade integration aspirations extend beyond role in attracting FDI to Kenya, outperforming industrial export growth: they aim to convert this growth into sectors in greenfield FDI attraction between 2018 and 2022. job opportunities. The Bottom-up Economic Transformation The majority of FDI stock is concentrated in finance and Agenda (BETA) reflects these aspirations, emphasizing job insurance (one-third of the total), followed by information creation, particularly for underrepresented and low-income and communication (16.1 percent), wholesale and retail groups, to mitigate inequality and bolster economic resilience. (15.4 percent), and manufacturing activities (14.8 percent). 47 Government of Kenya (2023). 48 Government of Kenya (2022). 22 June 2024 | Edition No. 29 Special Focus While Kenya has exhibited resilience in its economic On the other hand, countries like Bangladesh and India performance, characterized by robust GDP growth, wage have seen substantial economic growth driven by notable employment growth has not been enough to absorb the gains in TFP (Figure 24B), highlighting the potential benefits majority of the working age population. According to the of engaging more deeply with global markets. United Nations World Population Prospects, the labor force (i.e., prime working-age adults aged 20-64 years) will soon Rising productivity due to trade integration in Kenya exceed for the first-time children and youth aged 0-19 seems particularly evident in sectors where the country years.49 This shift in population demographics presents an has comparative advantages, such as in agriculture and urgent case for optimizing the benefits of trade integration agro-processing. For example, Kenyan flower exporters for creating better jobs. Recent evidence suggests that have adopted world-class conservation and irrigation a 10 percent increase in exports is associated with a 3.1 technologies to meet the stringent standards of the EU percent increase in employment and a 3.9 percent gain market, significantly enhancing their productivity. Similar in labor incomes in low- and middle-income countries. 50 advancements are observed in the tea processing industry, Additionally, AfCFTA projections indicate the creation of where automation has increased output and better quality, up to 17.9 million new jobs in Africa (up to 1.5 million in bolstering Kenya's position in global markets. Kenya) and a 2.5 percent labor shift to expanding sectors Trade integration for Innovation across the continent.51 Trade integration has proven to be a fertile ground Trade integration for productivity for innovation within Kenya's economy. For instance, Trade integration is instrumental to enhance productivity Kenyan farmers and agricultural businesses have had to within Kenyan industries. As firms gain access to larger continue to adopt improving technologies and practices markets, they face increased competition that typically in irrigation and crop management to meet international drives firm’s efficiency and innovation. The World Bank standards, especially in order to export to the E.U. market. notes that exposure to international markets compels Moreover, Kenya’s participation in global value chains firms to adopt new technologies and improve their has allowed local firms to learn from and collaborate business processes to remain competitive. Additionally, 52 with international partners. This interaction encourages trade agreements often require adherence to international the adoption of innovative production techniques and standards and quality norms, incentivizing firms to upgrade processes, which further embeds innovation into the fabric their production processes and invest in technology and of the local economy. innovation. Consequently, productivity gains have been observed across various sectors, including agriculture, As the fastest-growing segment of international trade, manufacturing, and services. digital trade offers a valuable tool for boosting exports and strengthening Kenya's competitiveness. Kenya, Kenya's recent economic growth has primarily relied on often referred to as "Silicon Savannah," has become a focal increased labor and capital accumulation, while total point for technology-driven economic development. This factor productivity (TFP) improved little (Figure 24A). nickname underscores the country's burgeoning tech In contrast, similar economies demonstrate how opening industry, which has thrived due to robust international to international markets can significantly enhance TFP. For partnerships that facilitate knowledge exchange and instance, in the case of Vietnam, which has experienced spur innovation. The tech industry in Nairobi has become robust TFP growth supported by policies that have a hub for startups, drawing substantial venture capital fostered competitive industries and attracted foreign investments with technological advancements opening direct investments. These investments have introduced new avenues that transcend traditional trade barriers, new technologies and management practices, significantly enabling Kenyan businesses to reach a broader domestic boosting productivity across Vietnam's economic sectors. and international market. 49 U.N. (2022). 50 World Bank. 2023. Linking Trade to Jobs, Incomes, and Activities: New Stylized Facts for Low- and Middle-Income Countries. 51 Enchandi et al (2022). 52 World Bank, (2022). June 2024 | Edition No. 29 23 Special Focus Government policies have been instrumental its agricultural sector. Tea, coffee, and tourism, Kenya’s main in improving the digital trade environment. The export products are, therefore, highly sensitive to climate government has prioritized enhancing digital connectivity change. Integrating environmental sustainability into trade through its Kenya National E-Commerce Strategy, which policies is crucial to address these challenges effectively. is pivotal in aligning with global trends where digital trade is increasingly prevalent. Government initiatives like Moreover, Kenya must reduce their carbon intensity to maintain and increase its market access. For example, the developing a National ICT Masterplan and constructing European Union, is implementing more stringent import the Konza Technopolis have been critical drivers of this restrictions on high-carbon products. These provisions development. This strategic focus has led to a rapid aim to mitigate deforestation and preserve forest habitats, expansion in internet use nationwide, fueling the growth of promoting decarbonization. Moreover, they aim to support digital services and e-commerce. Further, the technology national climate strategies by making environmentally sector's expansion is closely linked to liberalized trade and friendly products more attainable. Such policy changes investment flows, allowing for the rapid development of reflect a broader trend in developing countries, sectors like agriculture, finance and telecommunications. acknowledging the critical role of accessible environmental These sectors benefit directly from digital payment and goods in sustainable development. The tourism sector mobile banking innovations, setting a precedent for is also evolving, as long-distance travelers opt for closer integrating modern technology into everyday business destinations to minimize their carbon footprints, impacting and financial transactions. To fully capitalize on digital nature-based tourism. Although Kenya is committed to opportunities, it is crucial to further harmonize data reduce its greenhouse gas emissions under its Nationally governance and e-commerce regulations at the regional Determined Contribution (NDC), changing global trends level. Such harmonization would strengthen Kenya's require quick adaptation to maintain market positions and role as a leader in digital trade across Africa, creating an continue to boost the trade sector. environment that supports technological innovation and economic growth. Environmental considerations offer new opportunities 3.5 Expanding horizons: trade integration for Kenya. Trade integration, mainly through collaborations and environmental considerations like the AfCFTA and bilateral agreements, provides further Kenya, a major exporter of climate-sensitive products opportunities for sustainable growth. For example, Kenya is faces significant risks from climate shocks. Kenya is highly noted for having the largest e-mobility startup ecosystem in exposed to climate change, mostly because of its economic Africa, with the government actively developing EV standards, structure. Precipitation fluctuates significantly on an including charging infrastructure and battery management. annual basis, and it seems that Kenya will get wetter over The strategic development of this sector can significantly the next few years (World Bank, 2023), affecting primarily enhance Kenya's economic growth and create jobs. Figure 24: Productivity lever untapped in Kenya’s growth performance trend A. Productivity lever untapped in Kenya’s growth performance trend B. Looking at aspirational peers Capital stock Labor Total factor productivity Real GDP Capital stock Labor Total factor productivity Real GDP 7 12 6 10 5 8 Percentage points 4 Percentage points 6 3 4 2 2 1 0 0 -2 -1 -4 Kenya Bangladesh Ethiopia Ghana Indonesia India Malaysia Nigeria South Africa Tanzania -2 -3 2000-2022 2010-2014 2015-2022 Source: World Bank 2023. 24 June 2024 | Edition No. 29 Special Focus 3.6 Conclusions: key actions for economic services. Additionally, supporting innovation through growth and job creation accelerators and incubators, as well as fostering Kenya's pursuit of enhanced trade integration aims innovation in vulnerable sectors like agriculture to to drive significant economic growth and robust job enhance their resilience and competitiveness, will creation, steering the country toward becoming an further empower workers and businesses. By adopting upper-middle-income nation. To fully capitalize on these this comprehensive strategy, Kenya can prepare its initiatives and ensure sustained economic growth as well workforce for current and future trade challenges. as job creation, several policy areas need to be addressed: d. Drawing in more FDI as a lever for optimizing the a. Revising trade and investment policies to foster role of trade integration. This will require a focus export orientation. Leveraging existing integration on improving the business enabling environment efforts to build further policy consensus on addressing (including addressing trade facilitation issues) potential anti-export bias imposed by tariff measures. and strengthening Kenya’s investment policy and Current and future trade agreements such as AfCFTA promotion efforts. It will mean drawing on risk- will reduce tariffs over the next decade, but efforts based approaches to improve the policy, legal and should be made to fast-track tariffs reductions for key regulatory frameworks. It will also require streamlining imported inputs (chemicals, food additives, packing procedures to reduce bureaucratic red tape that acts as materials) used by domestic producers and exporters. an impediment. To realize this, coordinated and linked- In terms of non-tariff measures, it would be key to up action will be required at the national, sectoral, and resolve them and curtail the development of new ones. county levels. For example, working at both levels b. Cementing policy coherence and predictability of government and in the prioritized value chains, as well as strengthening institutions. While trade Kenya could incrementally review the regulatory integration can significantly contribute to economic frameworks to address business entry, establishment growth and job creation, its success largely depends and operation complexities, redundancies, and on the coherence of trade policies with other unpredictability. Further, reviewing the investment economic policies and the strength of institutions that promotion and facilitation regime to update existing implement and regulate these policies. Thus, as Kenya statutes accompanied by institutional strengthening strategically harnesses trade integration measures, is vital. Building on gains already made, more auditing as well as maintaining policy coherence and targeted investor outreach, and enhancing ICT linkages will be essential. Additionally, enhancing tax (enhanced interoperability) to ensure a seamless predictability should become a priority to provide investor journey are key regarding the procedures a stable economic environment conducive to trade and processes. and investment. Finally, strengthening institutions e. To mitigate trade and climate-related vulnerabilities. responsible for trade regulations, such as those In the agricultural sector, producers can adopt overseeing sanitary and phytosanitary measures, will sustainable agricultural practices and diversify their be crucial for effective policy implementation. production to include less climate-sensitive products. c. Enhance strategic skills development and multi- Government policies can support these efforts by faceted support to export orientation. This involves providing technical assistance, climate-resilient investing in workforce skills development to stay seeds, and financial incentives for sustainable competitive in the global market, expanding access practices. These strategies not only help in adapting to finance for businesses and entrepreneurs, and to the immediate impacts of climate variability but tailoring vocational training programs to meet the also contribute to the long-term sustainability and needs of high-growth industries like textiles and resilience of Kenya's economy. June 2024 | Edition No. 29 25 REFERENCES Brenton, P., & Chemutai, V., 2021. The Trade and Climate Change Nexus: The Urgency and Opportunities for Developing Countries. Washington, DC: World Bank. Central Bank of Kenya. 2023. Credit Survey Report for the period ended December 2023. Commission on Revenue Allocation. 2022. Comprehensive Own Source Revenue (OSR) Potential and Tax Gap Study. Coulibaly, S., Kassa, W., & Zeufack, A. G. 2022. Africa In the New Trade Environment: Market Access in Troubled Times. Washington, D.C.: World Bank Group. Echandi, R., Maliszewska, M., & Steenbergen, V. 2022. Making the most of the African Continental Free Trade Area: Leveraging trade and foreign direct investment to boost growth and reduce poverty. Washington, DC: World Bank. Government of Kenya. 2022. National Taxation Policy (draft), National Treasury and Planning, Government of Kenya, Nairobi. Government of Kenya. 2022. Fourth Medium Term Plan 2023-2027, National Treasury and Planning, Government of Kenya, Nairobi. Government of Kenya 2023. Kenya National E-Commerce Strategy, Nairobi, Kenya. Government of Kenya. 2024. Medium Term Budget Policy Statement (February 2024), National Treasury and Planning, Government of Kenya, Nairobi. International Monetary Fund. 2021. Kenya: Staff Report for the 2021 Article IV Consultation. Washington, DC: International Monetary Fund. International Monetary Fund. 2024. Kenya: Staff Report for the 2024 Article IV Consultation. Washington, DC: International Monetary Fund. International Monetary Fund. 2023. Trade Integration in Africa: Unleashing the Continent’s Potential in A Changing World. Washington, DC: International Monetary Fund. World Bank Group. 2022. Kenya Economic Update: Securing the Recovery and Laying the Foundations for Inclusive Growth. World Bank Group. World Bank Group. 2023. A Balancing Act: Opportunities for Making Growth More Inclusive During Challenging Times. Kenya Economic Update edition 28; Washington, DC. World Bank Group. 2024. Tackling Inequality to Revitalize Growth and Reduce Poverty in Africa . Washington, D.C. Africa's Pulse, No.29, April 2024 : World Bank Group. World Bank Group. 2019. Kenya Public Expenditure Analysis 2019 Creating fiscal Space to deliver the Big 4 while undertaking a needed fiscal consolidation. Washington DC. World Bank Group. 2023a. Kenya Country Economic Memorandum 2023: Seizing Kenya’s Services Momentum. Washington, D.C.: World Bank Group. World Bank Group. 2023b. Using Trade Integration to Reduce Trade Costs and Increase Competitiveness of Kenyan Exports. World Bank. World Bank Group. 2023c. Country Climate and Development Report: Kenya. World Bank. World Bank Group. 2023d. Digital Trade for Development Washington, D.C.: World Bank Group. United Nations Conference on Trade and Development. 2020. Economic Development in Africa: Trade and Economic Cooperation Among African Countries. UNCTAD. United Nations Economic Commission for Africa. 2024. Report on Assessment of Progress on Regional Integration by the Economic Commission for Africa, Presented at the 4-5 March Conference of Ministers of Finance, Planning and Economic Development (COM024). 26 June 2024 | Edition No. 29 ANNEX TABLES Table A1: Selected economic indicators, 2019-2023 2019 2020 2021 2022 2023 Act. Act. Act. Act. Act. Output and prices (Annual percentage change, unless otherwise indicated) Real GDP 5.1 -0.3 7.6 4.9 5.6 Agriculture 2.7 4.6 -0.4 -1.5 6.5 Industry 4.0 3.3 7.5 3.9 1.9 Services 6.7 -1.8 9.6 6.6 6.8 Private consumption 5.0 -1.5 6.2 3.1 6.1 Government consumption 5.6 3.1 6.0 8.1 3.5 Gross fixed capital investment 4.5 2.3 10.8 -0.8 1.9 Exports, goods and services -3.2 -14.9 15.3 11.9 -4.5 Imports, good and services 1.8 -9.4 22.2 4.6 -3.1 GDP deflator 4.3 4.9 4.3 7.0 6.1 CPI (period average) 5.2 5.3 6.1 7.7 7.7 Money and credit (Annual percentage change, unless otherwise indicated) Broad money (M3) 5.6 13.3 6.2 7.5 19.9 Credit to non-government sector 7.1 8.5 8.5 12.5 13.9 Policy rate (CBR) 8.5 7.0 7.0 8.8 12.5 NPLs (percent of total loans) 10.0 12.2 11.1 11.4 13.0 Central government (fiscal year i.e 2019 = 2019/20) (Percent of GDP, unless otherwise indicated) Total revenue & grants 17.1 16.1 17.5 16.7 19.2 Tax revenues 13.0 12.6 13.9 13.3 15.1 Non-tax revenues 3.9 3.3 3.4 3.3 3.8 Grants 0.2 0.3 0.2 0.2 0.3 Expenditure 24.8 24.4 23.8 22.6 24.7 Current 15.5 15.8 16.8 16.2 17.3 Capital 5.7 4.9 4.2 3.5 4.7 Primary balance -2.8 -3.8 -1.6 -0.8 -1.7 Overall balance including grants -7.0 -8.2 -6.2 -5.6 -5.5 Financing 7.4 8.4 5.9 5.4 5.5 Net domestic borrowing 4.2 5.5 4.8 3.2 2.9 Foreign financing 3.2 2.8 1.1 2.2 2.6 Public debt stock (fiscal year i.e 2019 = 2019/20) (Percent of GDP, unless otherwise indicated) Public gross nominal debt 63.0 67.7 67.8 72.0 68.0 External debt 33.1 35.2 33.8 38.2 35.5 Domestic debt 29.9 32.5 34.0 33.9 32.6 Memo: GDP at current market prices (KES billion) 10,238 10,715 12,028 13,490 15,109 Source: World Bank, National Treasury, Central Bank of Kenya, Kenya National Bureau of Statistics 28 June 2024 | Edition No. 29 Table A2: GDP growth rates for Kenya and EAC (2019-2023) 2019 2020 2021 2022 2023 Kenya 5.1 -0.3 7.6 4.9 5.6 Uganda 6.4 -1.2 5.7 6.4 4.6 Tanzania 5.8 4.8 4.9 4.7 5.2 Rwanda 9.5 -3.4 10.9 8.2 6.2 Burundi 1.8 0.3 3.1 1.8 3.3 Congo (DR) 4.4 1.7 6.2 8.9 6.7 South Sudan 3.2 -6.5 5.3 0.5 3.5 Source: World Bank Table A3: Kenya annual GDP (2010-2023) GDP, GDP, 2016 GDP/capita, GDP Years current prices constant prices current prices growth KSh Millions KSh Millions US$ Percent 2010 3,598,000 5,794,000 930 8.1 2011 4,163,000 6,090,000 1,010 5.1 2012 4,767,000 6,368,000 1,060 4.6 2013 5,311,000 6,610,000 1,130 3.8 2014 6,004,000 6,942,000 1,260 5.0 2015 6,884,318 7,287,024 1,330 5.0 2016 7,594,064 7,594,064 1,500 4.2 2017 8,483,396 7,883,816 1,550 3.8 2018 9,340,307 8,330,891 1,730 5.6 2019 10,237,727 8,756,946 1,890 5.1 2020 10,715,070 8,733,060 1,900 (0.3) 2021 12,027,662 9,395,942 2,080 7.6 2022 13,368,340 9,852,583 2,170 4.8 2023 15,108,806 10,399,980 5.6 Source: Kenya National Bureau of Statistics and World Development Indicators June 2024 | Edition No. 29 29 30 Table A4: Contribution by sub-sectors (percentage points) Industry by sub sector contribution Services by subsector contribution Year Quarterly Agriculture Industries Accommo- Information Other Services Mining and Electricity and Transport and Financial and Manufacturing Construction dation and Real estate and communi- Education quarrying water supply storage insurance restaurant cation June 2024 | Edition No. 29 Q1 0.98 -0.01 0.24 0.08 0.32 0.63 0.37 0.16 0.68 0.24 0.52 0.39 1.30 3.67 Q2 0.69 0.07 0.38 0.04 0.38 0.86 0.49 0.12 0.87 0.18 0.67 0.51 1.34 4.18 2019 Q3 0.16 0.05 0.24 0.04 0.43 0.76 0.46 0.12 0.49 0.20 0.81 0.47 1.36 3.92 Q4 0.22 0.06 0.08 0.02 0.39 0.55 0.44 0.21 0.53 0.18 0.44 0.47 1.33 3.61 Q1 0.97 0.07 0.15 0.04 0.54 0.79 0.43 -0.13 0.19 0.24 0.47 0.25 0.79 2.24 Q2 1.68 0.04 -0.43 -0.11 0.36 -0.14 -0.30 -0.64 -1.73 0.14 0.26 0.26 -1.76 -3.77 2020 Q3 -0.76 0.05 -0.17 0.02 0.57 0.47 -0.43 -0.70 -1.10 0.14 0.25 0.48 -1.23 -2.58 Q4 1.51 0.06 0.36 0.12 0.70 1.23 0.16 -0.74 -0.66 0.18 0.84 0.60 -0.48 -0.10 Q1 -0.13 0.11 0.17 0.09 0.35 0.72 0.73 -0.28 -0.79 0.15 0.75 0.39 0.78 1.72 Q2 -0.43 0.11 0.92 0.18 0.41 1.63 0.80 0.31 1.63 0.34 1.04 0.52 3.19 7.83 2021 Q3 -0.11 0.16 0.91 0.19 0.43 1.69 0.56 0.59 1.43 0.05 0.91 0.34 2.99 6.88 Q4 0.37 0.35 0.56 0.10 0.41 1.42 0.59 0.68 0.66 0.23 1.08 0.23 2.35 5.83 Q1 -0.18 0.20 0.31 0.08 0.35 0.93 0.39 0.25 0.60 0.25 1.30 0.37 1.32 4.48 Q2 -0.44 0.17 0.30 0.14 0.25 0.86 0.29 0.27 0.61 0.30 1.24 0.27 1.08 4.05 2022 Q3 -0.16 0.17 0.16 0.17 0.22 0.72 0.27 0.15 0.55 0.34 0.76 0.26 1.11 3.44 Q4 -0.27 -0.12 0.13 0.15 0.14 0.30 0.23 0.25 0.45 0.24 0.83 0.34 1.16 3.49 Q1 1.19 -0.13 0.17 0.09 0.17 0.30 0.26 0.42 0.59 0.30 0.52 0.43 1.24 3.75 Q2 1.50 -0.10 0.13 0.07 0.15 0.25 0.16 0.39 0.44 0.23 1.17 0.20 1.28 3.87 2023 Q3 0.74 0.01 0.23 0.09 0.25 0.57 0.25 0.35 0.53 0.29 1.40 0.28 1.52 4.63 Q4 0.95 -0.07 0.15 0.03 0.13 0.23 0.24 0.24 0.79 0.37 0.62 0.21 1.35 3.82 Source: World Bank, based on data from Kenya National Bureau of Statistics Note: Other = Wholesale and retail trade + Public admistration + Proffessional, admistration and support services + Education + Health +Other services + FISIM Table A5: National fiscal position Actual (percent of GDP) 2019/20 2020/21 2021/22 2022/23 2023/24* Revenue and grants 17.1 16.1 17.5 16.7 19.2 Total revenue 16.9 15.9 17.3 16.5 18.9 Tax revenue 13.0 12.6 13.9 13.2 15.1 Income tax 6.7 6.1 6.9 6.6 7.4 VAT 3.6 3.6 4.1 3.9 4.4 Import duty 0.9 1.0 0.9 0.9 1.1 Excise duty 1.8 1.9 2.0 1.9 2.2 Other revenues 1.8 1.2 1.2 1.1 0.9 Railway levy Appropriation in aid 2.1 2.1 2.2 2.2 2.9 Grants 0.2 0.3 0.2 0.2 0.3 Expenditure and net lending 24.8 24.4 23.8 22.6 24.7 Recurrent 16.0 15.9 16.8 16.2 17.3 Wages and salaries 4.2 4.3 4.1 3.8 3.7 Interest payments 4.1 4.4 4.5 4.8 5.7 Other recurrent 7.6 7.3 8.1 7.5 8.0 Development and net lending 5.7 4.9 4.2 3.5 4.7 County allocation 3.1 3.5 2.8 2.9 2.6 Parliamentary service 0.3 0.3 0.3 0.3 0.2 Judicial service 0.1 0.1 0.1 0.1 0.1 Equalization of funds 0.0 0.0 0.0 0.0 0.1 Fiscal balance Deficit including grants (cash basis) -7.5 -8.2 -6.2 -5.6 -5.5 Financing 7.4 8.4 5.9 5.4 5.5 Foreign financing 3.2 2.8 1.1 2.2 2.6 Domestic financing 4.2 5.5 4.8 3.2 2.9 Total public debt (gross) 63.0 67.7 67.8 72.0 68.0 External debt 33.1 35.2 33.8 38.2 35.5 Domestic debt 29.9 32.5 34.0 33.9 32.6 Memo: GDP (Fiscal year current market prices, Ksh bn) 10,621 11,370 12,736 14,274 16,132 Source: National Treasury, Quarterly Budgetary Economic Review (Q3, 2023/24) and Budget Policy Statement 2024 Note: *indicate Preliminary results June 2024 | Edition No. 29 31 Table A6: 12-months cumulative balance of payments BPM6 Concept (US$ million) 2019 2020 2021 2022 2023 A. Current Account, n.i.e. (5,258) (3,730) (5,596) (5,889) (4,317) Merchandise A/C (10,683) (8,336) (11,151) (11,923) (10,022) Goods: exports f.o.b. 5,871 6,051 6,788 7,419 7,220 Goods: imports f.o.b. 16,554 14,387 17,939 19,342 17,242 Oil 3,310 2,185 3,480 5,548 4,802 Services 1,746 332 966 1,271 602 Services: credit 5,601 3,653 5,025 6,534 5,405 Services: debit 3,855 3,321 4,059 5,263 4,803 Income 5,284 4,951 6,118 6,522 6,990 B. Capital Account, n.i.e. 207 132 196 140 123 C. Financial Account, n.i.e. (4,824) (1,873) (5,513) (4,144) (2,751) Direct investment: net (433) 387 384 (250) (228) Portfolio investment: net (458) 1,313 199 707 645 Financial derivatives: net (7) (12) 23 (21) 86 Other investment: net (3,925) (3,561) (6,118) (4,579) (3,254) D. Net Errors and Omissions 1,320 293 710 (528) 479 E. Overall Balance (1,092) 1,432 (822) 2,134 964 F. Reserves and Related Items 1,092 (1,432) 822 (2,134) (964) Reserve assets 938 (822) 1,161 (1,495) 575 Credit and loans from the IMF 154 (611) (843) (639) 389 Exceptional financing - - 504 Gross Reserves (US$ million) 12,782 13,194 14,493 12,085 13,246 Official 9,048 8,500 9,784 7,969 6,875 Commercial Banks 3,735 4,695 4,708 4,115 6,371 Imports cover (36 months import) 5.5 5.1 5.6 4.5 4.1 Memo: Annual GDP at Current prices (US$ million) 100,380 100,639 109,691 114,445 108,036 Source: Kenya National Bureau of Statistics (Economic Survey 2024) 32 June 2024 | Edition No. 29 Table A7: Inflation Year Month Overall Inflation Food Inflation Energy Inflation Core Inflation January 5.7 7.4 8.7 2.7 February 5.8 6.9 10.1 2.7 March 5.9 6.7 11.1 2.7 April 5.8 6.4 10.5 2.7 May 5.9 7.0 10.0 2.8 June 6.3 8.5 9.5 2.8 2021 July 6.4 8.8 8.2 3.0 August 6.6 10.7 6.5 2.7 September 6.9 10.6 7.6 2.9 October 6.5 10.6 7.0 2.4 November 5.8 9.9 7.2 2.0 December 5.7 9.1 7.2 1.9 January 5.4 8.9 6.0 1.9 February 5.1 8.7 4.7 2.0 March 5.6 9.9 4.3 2.2 April 6.5 12.2 6.2 2.4 May 7.1 12.4 6.2 2.6 June 7.9 13.8 7.0 3.0 2022 July 8.3 15.3 6.3 3.1 August 8.5 15.3 6.6 3.4 September 9.2 15.5 8.8 3.6 October 9.6 15.8 9.4 4.0 November 9.5 15.4 8.9 4.3 December 9.1 13.8 9.6 4.3 January 9.0 12.8 10.2 4.7 February 9.2 13.3 10.3 4.8 March 9.2 13.4 10.1 4.7 April 7.9 10.1 9.7 4.8 May 8.0 10.2 9.9 4.3 June 7.9 10.3 9.4 4.1 2023 July 7.3 8.6 10.4 3.8 August 6.7 7.5 10.3 3.7 September 6.8 7.9 9.7 3.7 October 6.9 7.8 10.7 3.8 November 6.8 7.6 11.1 3.7 December 6.6 7.7 10.2 3.4 January 6.9 7.9 10.0 3.6 February 6.3 6.9 9.6 3.6 2024 March 5.7 5.8 12.1 3.6 April 5.0 5.6 6.5 3.5 Source: World Bank, based on data from Kenya National Bureau of Statistics June 2024 | Edition No. 29 33 34 Table A8: Credit to private sector growth (%) Total Private Building and Transport and Finance and Mining and Private house- Consumer Business Other Year Month sector annual Agriculture Manufacturing Trade Real estate construction communication insurance quarrying holds durables services activities growth rates January 9.3 15.6 12.6 5.5 2.5 14.4 14.0 8.8 -6.1 4.7 18.7 6.5 5.8 February 9.6 13.4 15.8 3.9 5.2 19.0 9.0 8.8 21.6 4.2 20.3 5.0 3.8 March 7.7 12.3 10.7 2.1 2.9 17.4 7.5 7.7 -3.6 2.9 17.6 5.7 5.2 April 6.7 10.0 4.0 0.9 3.4 13.3 7.6 5.8 -8.8 4.5 19.3 7.2 24.3 May 7.1 4.3 1.5 3.8 4.5 16.3 6.7 5.7 -18.1 3.1 22.0 6.9 39.8 June 2024 | Edition No. 29 June 7.7 3.7 8.1 1.9 2.0 11.8 11.5 4.0 -13.0 3.2 23.4 5.2 65.2 2021 July 6.1 2.8 9.4 1.3 0.4 0.2 8.9 3.2 -22.1 2.4 21.7 4.9 58.0 August 7.0 1.4 9.3 2.7 1.7 11.8 7.7 2.8 -23.1 2.0 20.1 5.8 56.0 September 7.7 3.3 9.8 4.7 0.5 10.9 11.7 2.9 -8.4 2.6 17.6 7.6 59.5 October 7.8 2.7 10.9 5.5 -0.5 9.6 8.9 2.4 6.2 2.7 16.5 8.2 64.1 November 7.7 1.3 11.5 6.1 2.8 8.3 7.1 1.1 8.3 3.3 15.3 10.8 55.2 December 8.6 0.5 13.1 8.5 1.9 14.3 5.8 0.6 42.9 3.7 15.0 9.5 38.9 January 8.8 1.3 9.7 9.6 2.9 20.7 3.5 0.5 24.9 4.3 14.6 8.4 46.8 February 9.1 3.0 7.6 8.9 7.9 24.1 3.6 0.7 -10.7 5.0 14.0 11.6 49.7 March 10.9 7.7 9.9 10.4 6.4 25.0 3.6 0.5 -4.9 7.5 15.6 14.7 60.5 April 11.5 6.4 12.0 10.7 8.2 28.9 5.8 0.8 28.3 6.7 16.1 12.2 53.6 May 11.9 11.6 15.5 9.1 9.0 26.5 5.3 0.8 47.9 7.5 15.1 11.3 57.5 June 12.3 12.5 15.2 11.6 13.9 22.2 6.5 0.5 28.5 6.1 14.7 15.2 57.2 2022 July 14.2 10.8 16.1 15.2 14.1 27.0 2.8 1.7 78.6 7.6 14.8 16.9 69.8 August 12.5 19.2 15.2 13.3 11.5 13.5 1.2 1.0 97.2 7.8 14.3 16.1 60.8 September 12.9 17.0 14.2 16.4 12.5 21.6 0.2 0.1 57.4 7.8 14.4 12.5 53.8 October 13.3 21.7 17.5 15.3 8.0 22.8 5.4 1.6 53.5 5.9 14.0 13.2 49.8 November 12.5 20.3 14.9 14.3 6.0 21.8 4.4 2.8 58.3 6.0 12.6 14.5 44.8 December 12.5 22.3 13.8 11.4 8.2 23.5 7.6 3.2 31.3 8.2 12.9 13.7 41.8 January 11.5 20.7 13.8 11.1 5.8 16.6 6.7 3.3 54.2 7.8 12.5 13.7 33.3 February 11.7 18.0 15.2 11.8 3.0 16.5 21.1 2.9 97.7 7.8 12.4 13.5 15.3 March 11.6 14.9 15.8 11.9 5.8 17.4 28.4 2.3 83.2 7.2 12.7 9.3 11.9 April 13.2 16.9 21.7 13.7 4.2 18.0 32.3 2.4 55.6 5.0 13.3 12.5 20.6 May 13.2 18.3 19.3 15.4 5.1 22.0 32.7 1.9 41.3 7.0 11.9 13.5 6.8 June 12.2 18.6 18.0 10.2 4.9 19.8 29.7 3.7 24.0 8.4 12.0 12.1 8.7 2023 July 10.3 19.0 14.7 7.4 1.9 16.4 35.4 3.0 16.7 7.0 12.9 10.7 0.5 August 12.6 14.9 19.6 9.4 2.7 24.9 38.7 3.7 23.7 7.8 12.7 8.1 10.8 September 12.2 15.3 22.0 7.1 7.9 18.5 40.8 7.6 20.7 7.0 10.5 11.7 -0.8 October 12.5 18.5 18.4 9.9 13.0 16.2 41.6 6.5 5.9 8.3 10.8 8.3 7.1 November 13.2 23.7 20.0 10.2 3.6 22.9 38.9 6.5 11.8 7.8 11.1 7.2 12.8 December 13.9 23.4 20.9 13.1 8.6 20.8 60.2 7.1 15.1 2.5 9.9 7.7 16.4 January 13.8 32.5 23.1 12.9 3.1 16.6 32.8 8.0 8.0 7.3 9.3 9.5 15.8 2024 February 10.3 28.2 13.6 10.7 4.1 7.5 16.9 6.1 4.3 8.9 7.4 3.3 29.6 Source: Central Bank of Kenya Table A9: Mobile payments Number of Number of Value of Year Month Number of agents customers transactions transactions (Millions) (Millions) (Billions) January 287,410 66.6 173.9 590.4 February 294,111 67.2 164.2 568.0 March 293,403 65.9 182.3 537.8 April 294,706 67.1 173.4 502.2 May 298,883 67.8 180.8 536.7 June 301,457 67.8 175.8 532.6 2021 July 303,718 68.5 184.0 588.0 August 304,822 68.1 184.5 586.5 September 305,831 67.7 180.9 585.4 October 295,105 66.9 190.1 618.1 November 299,053 67.2 186.0 601.0 December 298,272 68.0 189.8 622.1 January 299,860 68.3 181.9 585.8 February 301,108 67.9 171.4 568.7 March 302,837 68.6 195.8 664.3 April 295,237 68.7 188.2 663.5 May 305,830 70.0 193.0 692.6 June 304,693 70.3 186.2 665.1 2022 July 309,856 71.6 194.8 722.5 August 310,450 70.1 184.8 677.4 September 308,799 71.7 189.7 674.5 October 311,957 73.2 196.9 646.5 November 315,240 73.2 190.5 639.8 December 317,983 73.1 207.0 708.1 January 319,079 74.4 198.3 589.3 February 323,613 74.0 184.8 578.1 March 321,149 73.7 204.8 645.8 April 329,968 76.0 195.0 615.3 May 334,726 77.3 205.9 670.4 2023 June 328,543 77.0 197.4 643.8 July 330,912 77.2 202.9 684.6 August 333,428 77.6 208.6 666.6 September 336,033 77.1 201.6 660.8 November 327,928 77.1 201.3 707.6 December 322,404 77.3 213.3 788.4 January 321,340 76.8 211.6 784.0 2024 February 320,182 77.3 213.3 790.8 Source: Central Bank of Kenya June 2024 | Edition No. 29 35 Table A10: Exchange rate Year Month USD UK Pound Euro January 109.8 149.7 133.8 February 109.7 151.8 132.6 March 109.7 152.2 130.9 April 107.9 149.3 129.1 May 107.4 151.1 130.4 June 107.8 151.4 130.1 2021 July 108.1 149.4 127.9 August 109.2 150.9 128.6 September 110.2 151.5 129.8 October 110.9 151.6 128.6 November 111.9 151.0 127.9 December 112.9 150.2 127.6 January 113.4 153.6 128.4 February 113.7 153.7 128.8 March 114.3 151.0 126.2 April 115.4 150.1 125.5 May 116.3 145.1 123.0 June 117.3 144.8 124.1 2022 July 118.3 141.8 120.7 August 119.4 143.5 121.0 September 120.4 136.7 119.3 October 121.0 136.6 119.0 November 121.9 143.0 124.2 December 122.9 149.8 130.8 January 123.9 151.3 133.4 February 125.4 151.9 134.5 March 129.7 157.4 138.8 April 134.4 167.3 147.4 May 137.3 171.3 149.2 June 139.7 176.3 151.4 2023 July 141.4 182.1 156.3 August 143.9 182.9 157.1 September 146.8 182.3 156.9 October 149.4 181.9 157.8 November 152.0 188.6 164.2 December 154.1 195.0 168.0 January 159.7 202.9 174.3 February 151.8 191.7 163.8 2024 March 137.4 174.6 149.3 April 131.5 164.7 141.1 Source: Central Bank of Kenya 36 June 2024 | Edition No. 29 Table A11: Nairobi securities exchange (NSE 20 Share Index, Jan 1966=100, End - month) Year Month NSE 20 share index January 1,882 February 1,916 March 1,846 April 1,867 May 1,872 June 1,928 2021 July 1,974 August 2,021 September 2,031 October 1,961 November 1,871 December 1,903 January 1,889 February 1,887 March 1,847 April 1,801 May 1,682 June 1,613 2022 July 1,701 August 1,751 September 1,718 October 1,678 November 1,638 December 1,676 January 1,657 February 1,647 March 1,622 April 1,579 May 1,546 June 1,575 2023 July 1,577 August 1,540 September 1,508 October 1,461 November 1,496 December 1,501 January 1,509 February 1,536 2024 March 1,752 April 1,667 Source: Central Bank of Kenya June 2024 | Edition No. 29 37 Table A12: Central bank rate and Treasury bills Year Month Central Bank Rate 91-Treasury Bill 182-Treasury Bill 364-Treasury Bill January 7.0 6.9 7.5 8.4 February 7.0 6.9 7.6 8.8 March 7.0 7.0 7.8 9.1 April 7.0 7.1 7.9 9.4 May 7.0 7.2 8.0 9.4 June 7.0 7.0 7.6 8.4 2021 July 7.0 6.6 7.1 7.5 August 7.0 6.6 7.1 7.4 September 7.0 6.8 7.3 7.8 October 7.0 7.0 7.4 8.1 November 7.0 7.1 7.7 8.7 December 7.0 7.3 7.9 9.1 January 7.0 7.3 8.1 9.5 February 7.0 7.3 8.1 9.7 March 7.0 7.3 8.1 9.8 April 7.0 7.4 8.3 9.7 May 7.5 7.7 8.7 9.9 June 7.5 7.9 9.1 10.0 2022 July 7.5 8.2 9.3 10.0 August 7.5 8.6 9.4 9.9 September 8.3 8.9 9.6 9.9 October 8.3 9.1 9.7 9.9 November 8.8 9.2 9.7 10.2 December 8.8 9.4 9.8 10.3 January 8.8 9.4 9.9 10.4 February 8.8 9.6 10.1 10.6 March 9.5 9.8 10.3 10.8 April 9.5 10.0 10.5 10.9 May 9.5 10.5 10.8 11.3 June 10.5 11.5 11.5 11.7 2023 July 10.5 12.1 12.2 12.5 August 10.5 13.9 13.2 13.6 September 10.5 14.6 14.4 14.6 October 10.5 15.0 15.0 15.3 November 10.5 15.3 15.4 15.6 December 12.5 15.7 15.6 15.8 January 12.5 16.1 16.1 16.3 2024 February 13.0 16.5 16.7 16.8 March 13.0 16.7 16.9 17.0 Source: Central Bank of Kenya 38 June 2024 | Edition No. 29 Table A13: Interest rates Short-term Long-term Year Month Overall 91-Treasury Central Average Interest Interbank Savings weighted Bill Bank Rate deposit rate Rate Spread lending rate January 5.1 6.9 7.0 6.3 2.7 12.0 5.7 February 4.5 6.9 7.0 6.5 3.4 12.0 5.6 March 5.2 7.0 7.0 6.5 3.5 12.0 5.6 April 5.1 7.1 7.0 6.3 2.7 12.1 5.8 May 4.6 7.1 7.0 6.3 2.5 12.1 5.8 June 4.6 7.0 7.0 6.4 2.5 12.0 5.6 2021 July 4.2 6.6 7.0 6.3 2.5 12.1 5.8 August 3.1 6.6 7.0 6.3 2.6 12.1 5.8 September 4.7 6.8 7.0 6.3 2.6 12.1 5.8 October 5.3 7.0 7.0 6.4 2.6 12.1 5.7 November 5.0 7.1 7.0 6.4 2.6 12.1 5.7 December 5.2 7.3 7.0 6.5 2.6 12.2 5.7 January 4.3 7.3 7.0 6.5 2.5 12.1 5.6 February 4.7 7.3 7.0 6.6 2.6 12.2 5.6 March 4.8 7.3 7.0 6.5 2.5 12.2 5.7 April 4.7 7.4 7.0 6.6 2.6 12.2 5.6 May 4.6 7.7 7.5 6.6 2.5 12.2 5.6 June 5.0 7.9 7.5 6.6 2.5 12.3 5.7 2022 July 5.5 8.2 7.5 6.7 2.9 12.3 5.6 August 5.4 8.6 7.5 6.9 3.5 12.4 5.5 September 4.4 8.9 8.3 6.8 3.4 12.4 5.6 October 5.1 9.1 8.3 7.0 3.5 12.4 5.4 November 4.5 9.2 8.8 7.1 3.5 12.6 5.5 December 5.3 9.4 8.8 7.2 3.6 12.7 5.5 January 5.9 9.4 8.8 7.5 3.6 12.8 5.3 February 6.4 9.6 8.8 7.5 3.6 13.1 5.5 March 7.1 9.8 9.5 7.6 3.5 13.1 5.5 April 8.5 10.0 9.5 7.7 3.6 13.1 5.4 May 9.4 10.5 9.5 7.7 3.5 13.2 5.5 June 9.5 11.5 10.5 7.8 3.9 13.3 5.5 2023 July 10.0 12.1 10.5 8.1 4.0 13.5 5.4 August 12.5 13.9 10.5 8.4 4.1 13.8 5.4 September 12.3 14.6 10.5 8.6 4.0 14.0 5.3 October 12.3 15.0 10.5 9.1 4.0 14.2 5.0 November 11.3 15.3 10.5 9.5 4.0 14.4 4.9 December 11.5 15.7 12.5 10.1 4.2 14.6 4.5 January 13.6 16.1 12.5 10.2 3.7 15.2 5.0 2024 February 13.6 16.5 13.0 10.3 3.3 15.5 5.2 March 13.5 16.7 13.0 Source: Central Bank of Kenya June 2024 | Edition No. 29 39 Table A14: Money aggregate (Growth rate y-o-y) Year Growth rates (yoy) Money supply, M1 Money supply, M2 Money supply, M3 January 12.6 11.0 13.2 February 10.6 9.9 12.4 March 7.6 7.7 10.1 April 7.7 7.9 9.3 May 7.8 6.9 7.6 June 5.1 4.6 6.4 2021 July 6.3 5.6 6.9 August 10.0 8.8 10.0 September 6.3 7.2 8.7 October 4.9 6.6 7.3 November 3.5 6.1 7.1 December 7.4 5.6 6.1 January 4.5 4.6 4.7 February 5.6 4.7 4.4 March 4.6 4.9 4.7 April 8.6 6.3 6.9 May 7.8 5.8 6.8 June 7.2 5.2 7.4 2022 July 12.4 5.0 7.6 August 4.9 2.6 5.1 September 8.2 4.3 6.1 October 4.7 2.7 5.2 November 4.4 3.0 5.3 December 6.4 5.3 7.1 January 8.6 6.9 9.2 February 4.9 5.5 8.8 March 5.0 5.9 10.6 April 3.1 4.7 9.4 May 2.4 5.3 10.4 June 10.0 8.5 13.4 2023 July 5.8 8.4 14.3 August 10.1 9.8 17.5 September 5.3 9.7 19.5 October 5.4 10.1 20.4 November 5.8 10.4 21.1 December 3.7 9.3 21.2 January 5.1 9.1 21.6 2024 February 9.0 18.3 Source: Central Bank of Kenya and World Bank 40 June 2024 | Edition No. 29 Table A15: Coffee production and exports Exports value Year Month Production MT Price KSh/Kg Exports MT KSh Million January 3,824 697 2,129 1,342 February 5,325 664 3,481 2,161 March 4,318 544 6,065 4,557 April 2,196 436 3,337 2,307 May 4,430 3,010 June 502 551 3,437 2,272 2021 July 1,278 674 2,696 1,764 August 1,479 684 2,504 1,658 September 1,889 664 2,480 1,735 October 999 671 2,432 1,674 November 3,539 775 2,170 1,740 December 2,816 789 2,314 1,919 January 5,990 762 3,239 2,634 February 6,271 730 4,618 3,546 March 6,646 571 4,067 3,416 April 1,846 519 5,749 4,468 May 491 424 5,903 4,877 June 304 627 4,945 3,818 2022 July 2,111 664 5,179 3,824 August 4,380 637 3,213 2,482 September 3,409 589 3,172 2,365 October 3,015 494 3,224 2,412 November 1,775 433 3,654 2,388 December 1,613 463 2,224 1,416 January 4,440 603 1,921 1,217 February 5,598 680 3,878 2,569 March 5,073 622 5,486 3,851 April 4,407 566 5,428 3,896 May 1,374 604 6,359 4,745 June ** ** 7,078 5,001 2023 July ** ** 6,175 4,192 August 154 656 4,652 3,264 September 340 685 2,967 2,024 October 1,419 595 1,705 1,269 November 1,677 560 1,695 1,358 December 3,039 589 1,478 1,226 January 4,553 684 2,686 2,112 2024 February 4,824 775 2,745 2,134 March 5,070 665 4,291 3,350 Source: Kenya National Bureau of Statistics June 2024 | Edition No. 29 41 Table A16: Tea production and exports Exports value Year Month Production MT Price KSh/Kg Exports MT KSh Million January 48,896 223 48,812 11,379 February 43,399 230 50,390 11,726 March 48,693 219 53,432 12,673 April 44,299 207 51,899 11,576 May 45,322 205 50,042 11,071 June 43,469 196 43,993 9,548 2021 July 34,732 189 43,844 9,204 August 33,635 230 44,421 9,874 September 43,185 244 36,308 8,566 October 48,957 268 40,078 10,316 November 50,719 278 45,318 12,181 December 52,526 296 47,922 12,725 January 48,683 294 45,585 12,629 February 40,826 311 44,093 13,303 March 46,321 301 46,044 13,559 April 41,171 304 43,446 12,769 May 50,093 280 47,380 13,777 June 43,268 286 46,795 13,693 2022 July 33,854 280 45,584 13,465 August 35,895 286 42,940 12,604 September 38,196 284 48,312 14,168 October 50,466 298 41,077 12,253 November 49,220 304 51,641 16,035 December 55,323 294 47,848 14,892 January 54,919 289 44,556 13,520 February 32,730 291 44,329 13,511 March 30,489 311 50,831 16,191 April 49,491 321 37,025 12,180 May 57,886 300 48,229 16,176 June 48,128 292 45,318 15,446 2023 July 44,697 291 39,944 12,910 August 45,578 324 58,591 20,193 September 48,497 329 47,807 16,980 October 52,793 323 45,360 16,112 November 50,906 330 49,507 17,768 December 54,336 337 46,525 17,284 January 58,967 349 51,188 18,268 2024 February 55,447 339 59,044 20,430 March 59,599 19,070 Source: Kenya National Bureau of Statistics 42 June 2024 | Edition No. 29 Table A17: Local electricity generation by source Geo- Co- Year Month Hydro Thermal Wind Solar Total thermal generation January 330 465 75 138 7 0 1015 February 281 422 106 110 7 0 926 March 305 461 63 200 8 0 1037 April 308 425 60 165 7 0 964 May 369 385 116 130 8 0 1008 June 318 409 84 185 7 0 1003 2021 July 286 463 123 153 13 0 1037 August 274 453 109 190 17 0 1043 September 262 440 107 187 18 0 1014 October 309 388 118 201 23 0 1039 November 293 378 135 196 23 0 1025 December 339 349 167 131 28 0 1014 January 320 311 206 156 32 0 1026 February 244 305 224 123 30 0 926 March 243 410 170 202 35 0 1061 April 229 441 126 179 31 0 1006 May 284 521 80 153 33 0 1071 June 265 494 83 181 28 0 1051 2022 July 252 521 104 208 25 0 1111 August 257 513 121 186 22 0 1099 September 244 488 118 201 26 0 1077 October 247 478 97 237 39 0 1098 November 233 494 124 177 39 0 1067 December 221 541 133 139 42 0 1076 January 185 525 107 203 47 0 1067 February 113 472 142 191 43 - 961 March 126 509 167 152 41 - 995 April 191 476 120 157 39 - 983 May 238 511 95 182 44 - 1070 June 258 505 68 168 37 - 1035 2023 July 279 495 108 198 38 0 1119 August 259 523 90 187 41 0 1099 September 247 512 130 141 39 0 1070 October 205 510 141 183 43 0 1082 November 288 495 68 160 36 - 1046 December 274 498 70 86 44 - 971 January 255 507 91 136 38 - 1026 2024 February 262 447 75 156 40 - 979 March 291 443 79 199 40 - 1052 Source: Kenya National Bureau of Statistics June 2024 | Edition No. 29 43 Table A18: Soft drinks, sugar, galvanized sheets and cement production Soft drinks litres Galvanized sheets Year Month Sugar MT Cement MT (thousands) MT January 50,153 58,368 18,631 669,530 February 42,749 61,508 20,762 612,980 March 53,157 66,326 21,781 721,444 April 43,742 58,444 21,572 695,953 May 38,327 57,651 21,165 717,669 June 46,518 59,226 22,365 698,424 2021 July 33,864 57,276 20,432 876,998 August 42,744 64,244 19,744 896,825 September 53,923 45,348 17,581 866,344 October 52,394 49,869 20,111 892,975 November 55,226 59,467 25,926 807,553 December 57,993 62,514 20,348 791,050 January 46,537 64,839 21,546 855,883 February 44,407 64,191 21,671 818,496 March 61,898 79,438 19,616 911,250 April 45,868 68,483 19,479 842,239 May 44,289 63,209 23,383 752,698 June 45,640 70,376 22,073 773,153 2022 July 35,855 70,278 20,895 804,401 August 38,842 46,460 17,064 745,559 September 50,841 61,477 21,833 829,930 October 50,393 76,533 19,951 824,474 November 52,363 67,990 20,589 821,765 December 62,536 63,279 17,686 774,124 January 52,601 81,648 17,350 785,773 February 47,725 67,486 22,457 724,164 March 56,068 49,761 22,373 820,772 April 40,314 31,971 21,404 745,106 May 36,206 31,495 23,555 786,702 June 41,653 34,072 21,100 794,700 2023 July 32,393 33,246 24,337 844,237 August 36,511 27,680 23,943 872,135 September 56,434 16,760 23,443 834,651 October 48,602 24,597 24,178 836,384 November 53,069 25,179 23,847 813,372 December 78,974 48,877 24,555 758,055 January 60,680 2024 February 63,075 March 69,520 Source: Kenya National Bureau of Statistics 44 June 2024 | Edition No. 29 Table A19: Tourism arrivals Year Month JKIA MIA TOTAL January 43,234 3,045 46,279 February 32,047 3,005 35,052 March 37,214 3,194 40,408 April 27,850 3,037 30,887 May 32,153 1,735 33,888 June 46,494 2,038 48,532 2021 July 64,493 4,532 69,025 August 72,291 6,257 78,548 September 66,667 3,633 70,300 October 67,608 5,201 72,809 November 71,271 5,435 76,706 December 82,867 7,637 90,504 January 63,277 6,655 69,932 February 67,560 6,390 73,950 March 76,336 5,073 81,409 April 77,379 3,949 81,328 May 87,058 3,429 90,487 June 103,332 4,834 108,166 2022 July 118,347 6,580 124,927 August 103,163 7,892 111,055 September 100,682 6,240 106,922 October 105,318 8,663 113,981 November 96,533 11,321 107,854 December 113,630 15,086 128,716 January 112,927 15,845 128,772 February 107,998 15,062 123,060 March 104,799 13,939 118,738 April 92,492 7,571 100,063 May 101,105 5,760 106,865 June 133,509 8,081 141,590 2023 July 155,758 12,607 168,365 August 155,359 16,701 172,060 September 133,400 12,277 145,677 October 128,399 13,843 142,242 November 118,424 15,182 133,606 December 134,226 20,057 154,283 2024 January 110,186 24,479 134,665 Source: Kenya National Bureau of Statistics Note: JKIA (Jomo Kenyatta International Airport, MIA (Moi International Airport) June 2024 | Edition No. 29 45