Rising Above the Waves TABLE OF CONTENTS ABBREVIATIONS AND ACRONYMS.............................................................................................................................................................................................................. i ACKNOWLEDGEMENTS.......................................................................................................................................................................................................................................... ii SUMMARY........................................................................................................................................................................................................................................................................ iii THE STATE OF KENYA’S ECONOMY 1. Recent Economic Developments................................................................................................................................................................................ 2 1.1. Global and regional economic growth impacts have been severe, but less than initially projected .................................................. 2 1.2. The COVID-19 pandemic has profoundly impacted Kenya............................................................................................................................................. 3 1.3. The pandemic abruptly weakened growth and increased poverty .......................................................................................................................... 3 1.4. The government’s fiscal response has been critical in managing the pandemic, but debt vulnerabilities have increased... 7 1.5. Inflation has been moderate and monetary policy remains accommodative ................................................................................................... 10 1.6. Kenya’s external position has been supported by import compression and remittances........................................................................... 13 2. Outlook and Risks.................................................................................................................................................................................................................................................... 16 2.1. The economy will continue to recover, but unevenly across sectors ....................................................................................................................... 16 2.2. Uncertainty as to the economic outlook remains elevated............................................................................................................................................. 19 3. Policies Towards A Resilient Recovery....................................................................................................................................................................................................... 21 SPECIAL FOCUS 4. Kenya’s Growing Labor Force and The Jobs Challenge ................................................................................................................................................................ 24 4.1. Kenya is at a key stage in its demographic transition with the largest age cohort about to enter working age ......................... 24 4.2. Kenya’s economy is changing, with services becoming more central, but there is still considerable scope to accelerate transformation..................................................................................................................................................................................................................... 25 4.3. Labor supply in Kenya is abundant, but certain demographic groups are more vulnerable to inactivity......................................... 26 4.4. Job creation slowed down even prior to the COVID-19 crisis........................................................................................................................................ 28 4.5. Meeting the challenge of producing more, and more productive, jobs................................................................................................................. 33 REFERENCES ...................................................................................................................................................................................................................................................................... 37 ANNEX TABLES ................................................................................................................................................................................................................................................................ 39 LIST OF FIGURES Figure 1: After contracting sharply in 2020, the global economy is staging a recovery.............................................................................. ����������������������� 2 Figure 2: EAC growth is recovering........................................................................................................................................................................................................................ 2 Figure 3: COVID-19 new cases (7-day moving average) and confirmed deaths (RHS, cumulative) in Kenya......................................................... 3 Figure 4: Mobility Trends: percent change from pre-COVID-19 baseline...................................................................................................................................... 3 Figure 5: Private consumption usually accounts for most growth, but was compressed in 2020 by the pandemic........................................ 4 Figure 6: The contribution of net exports to growth is expected to be marginally positive............................................................................................ 4 Figure 7: The pandemic battered the services sector (contributions to change in real GDP y/y, percentage points)..................................... 5 Figure 8: The services contraction was led by the education subsector (contributions to change in real GDP y/y, percentage points) 5 Figure 9: Activity in agriculture remains generally strong (Index of 12-month rolling sum of production, Feb-18=100) ����������������������������� 6 Figure 10: The PMI showed a sharp drop in activity in April, but rebounded in May............................................................................................................... 6 Figure 11: Electricity sales have recovered from their April 2020 low................................................................................................................................................ 6 Figure 12: Cement production accelerated through the end of 2020 ............................................................................................................................................. 6 Figure 13: Construction led a recovery in industry ....................................................................................................................................................................................... 6 Figure 14: Went hungry due to lack of food (past 30 days)...................................................................................................................................................................... 7 Figure 15: Poverty increased sharply in 2020 due to the pandemic (poverty headcount, percent)................................................................................ 7 Figure 16: Fiscal consolidation plans were interrupted by COVID-19.................................................................................................................................................. 8 Figure 17: The pandemic has further weakened revenue mobilization............................................................................................................................................ 8 Figure 18: Public debt rose, and related vulnerabilities increased......................................................................................................................................................... 9 Figure 19: The increase in debt is being driven mainly by large primary deficits........................................................................................................................ 9 Figure 20: Headline inflation remains within the CBK band, and core inflation is low............................................................................................................. 11 Figure 21: Energy prices, which have risen globally, have been the biggest recent contributor to inflation............................................................ 11 Figure 22: Private sector credit growth has remained subdued (change, percent y/y)........................................................................................................... 12 Figure 23: The average interbank rate has risen since 2020, but still indicates ample liquidity.......................................................................................... 12 Figure 24: Commercial banks’ credit to the central government is at a long-term high relative to GDP...................................................................... 12 Figure 25: NPLs are at a significant level and rising; provisioning is substantial........................................................................................................................... 12 Figure 26: Nairobi Securities Exchange listed stocks have not recovered from the COVID-19 shock............................................................................ 13 Figure 27: Domestic government securities yields have edged higher............................................................................................................................................. 13 Figure 28: Kenya’s Eurobond spreads have tightened back to pre-COVID levels, similar to the global trend .......................................................... 13 Figure 29: The current account narrowed due to a smaller goods trade deficit (import compression)....................................................................... 14 Figure 30: Contribution to reduction in trade deficit* (y/y change, US$ billion) ......................................................................................................................... 14 Figure 31: Remittances remained strong… (y/y change, percent)....................................................................................................................................................... 14 Figure 32: …due mainly to higher inflows from North America ........................................................................................................................................................... 14 Figure 33: Official borrowing helped finance the current deficit as portfolio flows turned negative............................................................................ 15 Figure 34: Foreign exchange reserves were boosted by an IMF disbursement in April 2021.............................................................................................. 15 Figure 35: In real effective terms, the shilling has only partly reversed a significant multi-year appreciation........................................................... 15 Figure 36: GDP growth is projected to recover and return to the pace projected pre-COVID-19 by 2023................................................................. 18 Figure 37: Even though growth will recover, COVID-19 will have caused a large permanent output loss.................................................................. 18 Figure 38: Contained expenditures and increased revenue are expected to moderate existing fiscal imbalances.............................................. 19 Figure 39: Kenya’s projected economic recovery in the baseline and a more adverse scenario ...................................................................................... 19 Figure 40: Population pyramid..................................................................................................................................................................................................................................... 24 Figure 41: Total fertility rate by county, 2014...................................................................................................................................................................................................... 24 Figure 42: Share of population in urban areas, 1960 to 2019................................................................................................................................................................... 25 Figure 43: Historical job creation and historical & projected new entrants into the work force ....................................................................................... 25 Figure 44: Sector value-added..................................................................................................................................................................................................................................... 26 Figure 45: Comparison of sector value-added in 2019................................................................................................................................................................................. 26 Figure 46: Value-added per worker ......................................................................................................................................................................................................................... 26 Figure 47: 2019 Population breakdown................................................................................................................................................................................................................. 26 Figure 48: Labor force participation, 2005, 2015/16, and 2019................................................................................................................................................................ 27 Figure 49: Female labor force participation......................................................................................................................................................................................................... 27 Figure 50: Reasons for not seeking work in the last four weeks among those outside the labor force ........................................................................ 28 Figure 51: Sector of employment 2005/06, 2015/16 and 2019............................................................................................................................................................... 28 Figure 52: International comparisons of sectoral employment.............................................................................................................................................................. 29 Figure 53: Changes in employment status ........................................................................................................................................................................................................ 29 Figure 54: Share of wage employment in the public sector..................................................................................................................................................................... 30 Figure 55: Unemployment.............................................................................................................................................................................................................................................. 31 Figure 56: Unemployment and underemployment....................................................................................................................................................................................... 31 Figure 57: Unemployment rate as percentage of the labor force (National estimates)........................................................................................................... 31 Figure 58: Earnings premium (difference from average earnings with no formal education, percent)......................................................................... 31 Figure 59: Labor force participation (18-64) ....................................................................................................................................................................................................... 32 Figure 60: Employment and unemployment (18-64).................................................................................................................................................................................... 32 Figure 61: Hours worked in the last 7 days........................................................................................................................................................................................................... 33 Figure 62: Earnings over the past 14 days............................................................................................................................................................................................................. 33 LIST OF TABLES Table 1: Kenya’s fiscal operations 2018/19—2020/21....................................................................................................................................................................... 10 Table 2: Banking sector indicators are generally adequate, but credit quality is under pressure.......................................................................... 13 Table 3: 12-month cumulative balance of payments....................................................................................................................................................................... 16 Table 4: Key economic indicators.................................................................................................................................................................................................................. 17 Table 5: Change in labor force activity (percent) ................................................................................................................................................................................ 27 Table 6: Changes in employment by sector........................................................................................................................................................................................... 29 Table 7: Breakdown of the working-aged population in 2019 by gender, location, and education (percent)............................................. 30 Table 8: Younger cohorts have more education compared to older workers (percent)............................................................................................. 32 LIST OF BOXES Box 1: COVID-19 and employment outcomes................................................................................................................................................................................................ 32 Box 2: Higher Education in Kenya........................................................................................................................................................................................................................... 35 ABBREVIATIONS AND ACRONYMS AVATT African Vaccine Acquisition Task Team LFP Labor Force Participation BPS Basis Points LMIC Lower-Middle Income Country CBK Central Bank of Kenya MSMEs Micro, Small and Medium Enterprises CIT Corporate Income Tax NEDI North and Northeastern Development Initiative COVAX Covid-19 Vaccines Global Access NEER Nominal Effective Exchange Rate COVID-19 Coronavirus Disease 2019 NPLs Non-Performing Loans CRR Cash Reserve Requirement NSE Nairobi Securities Exchange DSA Debt Sustainability Analysis PIT Personal Income Tax DSSI Debt Service Suspension Initiative PMI Purchasing Managers’ Index EAC East African Community Q1 First Quarter ECF Extended Credit Facility Q2 Second Quarter EFF Extended Fund Facility Q3 Third Quarter EU European Union Q4 Fourth Quarter FAO Food and Agriculture Organization REER Real Effective Exchange Rate FDI Foreign Direct Investment RHS Right-Hand Side FSI Financial Soundness Indicators ROA Return on Assets GDP Gross Domestic Product ROE Return on Equity GEP Global Economic Prospects RRPS Rapid Response Phone Surveys H1 First Half SSA Sub-Saharan Africa H2 Second Half UHC Universal Health Coverage ICT Information and Communication UK United Kingdom IDA International Development Association UN United Nations IMF International Monetary Fund UNHCR United Nations High Commissioner for Refugees JET Jobs and Economic Transformation UNTWO World Tourism Organization KCHS Kenya Continuous Household Survey US United States KEU Kenya Economic Update VAT Value-Added Tax KIHBS Kenya Integrated Household Budget Survey y/y Year-on-Year KNBS Kenya National Bureau of Statistics June 2021 | Edition No. 23 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. Part A (Recent Economic Developments and Outlook) was produced by Tasneem Alam Ghauri, Celina Mutie, Alex Sienaert and Angélique Umutesi (all MTI). Part B (Special Topic on the Labor Force and Jobs) was produced by Ramya Sundaram (HAES2) and Alastair Haynes (EAEPV) with contributions from Abla Safir (HAES2), Utz Pape (EAEPV), and Ruth Karimi Charo (HAEE2) - Box on higher education reforms. Anne Khatimba provided logistical support, Keziah Muthembwa and Vera Rosauer managed communication and dissemination, and Robert Waiharo designed the report. The report benefited from peer reviews by Aurélien Kruse (Lead Economist, ESAMU) and Victoria Strokova (Senior Economist, HAWS3). The report was prepared under the overall guidance of Vivek Suri (Practice Manager, EAEM1), Paolo Belli (Practice Manager, HAES2), Pierella Paci (Practice Manager, EAEPV), Philip Schuler (Lead Economist, EAEM1), Allen Dennis (Program Leader, EAEDR), Asad Alam (Regional Director, EAEDR), Keith Hansen (Country Director, AECE2) and Camille Lampart Nuamah (Manager, Operations, AECE2). The report benefited from valuable regular discussions with officials at the National Treasury, Central Bank of Kenya, and the Kenya National Bureau of Statistics. The team thanks Tobias Rasmussen (Resident Representative for Kenya), Mary Goodman (Mission Chief for Kenya) and the full International Monetary Fund staff team for Kenya for their excellent ongoing collaboration. 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 asienaert@worldbank.org. For information about the World Bank and its activities in Kenya, please visit: https://www.worldbank.org/en/country/kenya ii June 2021 | Edition No. 23 SUMMARY About a million Kenyans have received a first coronavirus vaccine dose, and the economy has shown resilience and is staging a partial recovery. Policymakers face a major challenge to steer towards a durable recovery whilst achieving the needed fiscal consolidation. A demographic dividend can contribute to growth and incomes, but only if Kenya can make more progress to generate jobs and accelerate economic transformation The pandemic has dealt a major blow to the economy, Kenya’s (CBK’s) emergency measures on the extension and but the government’s quick policy responses have restructuring of loans to mitigate the adverse economic helped to cushion the impact, and a partial recovery impact of the pandemic on bank borrowers ended on is underway. In 2020, the COVID-19 pandemic delivered March 2, 2021. Measures to encourage increased use of a triple shock to the economy embodying the health mobile money transactions instead of cash in the context impacts of the virus, the economic impact of the of the pandemic have also been gradually withdrawn, containment measures and behavior changes, and except for the waiver of charges between mobile money reverberations from a synchronized global recession. As a wallets and bank accounts. result, output suffered a large decline of 5.5 percent year- on-year (y/y) in the second quarter of 2020 as domestic The economy is expected to continue to recover and economic activity was impeded and global demand gradually return to growth of above 5 percent. Real GDP collapsed. Policymakers acted swiftly to help cushion the growth is projected to reach 4.5 percent in 2021 and to be impact on firms and households. Actions included easing over 5 percent on average in 2022-23. The growth outlook monetary policy, financial regulatory measures to prevent is predicated on (i) an upturn in industry supported by a credit crunch, and fiscal measures including more social reopening of the economy and strong capital spending, protection and health spending, and tax cuts. Helped (ii) a moderate recovery in services as vaccination rollout by these policy measures and easing of movement steadily progresses, and (iii) adequate agricultural harvests restrictions, a partial recovery got underway in Q3 2020, and sales, helped by rising external demand from the resulting in strong sequential growth which left output for recovering global economy. On the demand side, private the third quarter down by only 1.1 percent y/y, limiting consumption is expected to continue to recover, supported the real GDP contraction in the first nine months of 2020 by a pickup in wages and household incomes, and resilient to 0.4 percent y/y. Output in the services sector, which remittances. Consumer confidence and business activity was hit the hardest by the pandemic, rose by 11.9 percent should be supported by ongoing vaccination efforts and in Q3 2020 compared to the preceding quarter, whereas the return of mobility to pre-pandemic levels. Monetary industry recovered to growth of 2.9 percent. As 2020 drew accommodation is likely to continue in the near term, in to a close, and moving into 2021, high frequency data the absence of inflationary shocks, as is appropriate in the pointed to a significant rebound in economic activity, context of a negative output gap having opened up due albeit highly differentiated across sectors. to the pandemic, and low core inflationary pressures. As a percentage of GDP, the fiscal deficit is projected to decline In response to the improving conditions, many of the tax from 8.7 percent in FY2020/21 to 4.2 percent in FY2023/24 and regulatory relief measures extended at the onset due to fiscal consolidation efforts. of the crisis have been discontinued. The reduction in value-added tax (VAT) and corporate income tax (CIT) rates The near-term economic outlook for Kenya, as announced following the pandemic expired at the end of elsewhere, remains unusually uncertain and contingent December 2020, but the personal income tax (PIT) relief on the course of the pandemic. The baseline assumes a for the lowest-earning taxpayers (with monthly incomes continued, albeit uneven and for some sectors gradual, up to KSh 24,000) continues. The six-month suspension normalization in economic activity, supported by the on the requirement to list negative credit information government’s plan to vaccinate Kenya’s entire adult with the Credit Reference Bureau lapsed on September population by mid-2022. However, as demonstrated 30, 2020, following which the regular procedures for risk by the recent third wave of confirmed infections which classification of loans resumed. Similarly, the Central Bank of peaked at the end of March 2021, the risk remains that June 2021 | Edition No. 23 iii Summary controlling COVID-19 will require additional, economically weaknesses and highlighting the significance and costly measures. A slower deployment of vaccines due to urgency of transforming the country’s healthcare system, supply challenges, logistical impediments to domestic with an emphasis on increasing resilience and equitable distribution, and vaccine hesitancy, could weaken the access. In the near term, the focus should continue to be recovery. In terms of external factors, setbacks to the on strengthening the capacity of the system to suppress global economy due to a resurgence in infection rates the pandemic, including through achieving universal could adversely impact the projected recovery in Kenya’s access to vaccines. As the crisis abates and focus turns goods exports, tourism, and capital inflows. A slower than to a more equitable and sustainable healthcare provision anticipated vaccination rollout, fiscal slippages, adverse model, Kenya will need to make further gains to expand weather conditions, and a weaker global economic access to quality healthcare (as reflected in the Big 4 backdrop could all challenge the projected recovery. In an Agenda to advance towards universal health coverage, adverse scenario involving the realization of these downside UHC), and enhance its institutional setup for monitoring risks, average growth would be lower, at 3.7 percent and responding to communicable disease outbreaks. in 2021–22. On the upside, the pandemic’s economic impacts could fade faster than anticipated, including due There is scope for monetary policy to continue to accelerated vaccination. The economy could also benefit cushioning the economy, but enhanced bank from the realization of rapid and large economic dividends supervision is merited, considering increased loan from the adoption of digital technologies which have quality challenges. As inflation remains moderate, and accelerated during the pandemic, or a stronger agriculture given the slack in the economy due to the shock, the CBK’s performance helped by favorable weather conditions or current policy to continue supporting the recovery by stronger external demand. maintaining a historically low real policy rate in the near term appears appropriate. Maintaining accommodation, Policymakers face the challenge of supporting the with appropriate adjustments as economic conditions recovery and laying the foundation for green, resilient, evolve, would provide more liquidity support to banks and inclusive development, while reducing macro- that are likely to be affected by the deterioration of credit financial vulnerabilities. quality, while at the same time facing rising demand for credit from micro, small and medium enterprises (MSMEs) The pandemic has shone a spotlight on Kenya’s and other firms, including as the economy re-opens. healthcare sector and elevated the agenda to improve The COVID-19 crisis has exacerbated pre-existing asset access to and the quality of the system. The pandemic quality challenges, increasing non-performing loans has stretched the healthcare system, revealing its (NPLs). Almost 55 percent of bank-wide loans have been The economy has shown resilience and is staging a partial recovery Photo:© Photo: Dominic ©Festo | World Bank Bank Chavez/World Lang iv June 2021 | Edition No. 23 Summary restructured to support borrowers. With likely ongoing priorities. The next KEU will complement this analysis with pressure on the level of NPLs as the pandemic-related a special focus on the labor demand side and associated pressures linger, providing forward guidance regarding policy recommendations. continued supportive measures, including to banks’ loan portfolio restructuring efforts, may be merited. Kenya can reap a demographic dividend if the creation of higher productivity jobs can be accelerated but Critically, fiscal policy should aim to balance the achieving this will be challenging and has been made need to combat the pandemic with achieving fiscal more so by the pandemic. Kenya's population is young consolidation over the medium term. A very large fiscal and growing, but fertility has been declining and the size adjustment would likely be counterproductive if done of youth cohorts joining the workforce every year is set too quickly, as Kenya’s economy recovers from the large to peak within a few years. This creates the potential to and lengthy shock caused by the pandemic. However, the soon begin benefiting from a demographic dividend due government must also make progress to achieve fiscal to workers supporting fewer dependents on average, consolidation over the coming years, in order to restore increasing average incomes – if jobs can keep up. space for more social expenditures and development spending, ensure capacity to respond to future shocks, and Kenya experienced a period of major economic to stabilize the debt trajectory to ensure sustainability. This transformation between 2005/06-2015/16. A large places the focus on mobilizing more domestic revenues share of employment transitioned out of agriculture into through administrative improvements and policy industry and services in the decade to 2015. Labor force measures, and on increasing the efficiency of spending to participation (LFP) increased by 10 percentage points, sustain and ensure the quality of social and development from 63 percent in 2005/06 to 73 percent in 2015/16. expenditures. The proposed FY2021/22 budget makes an Unemployment decreased, from 10 percent to 3 percent; important start by targeting to reduce the fiscal deficit by and the quality of jobs improved with unpaid employment 1.2 percentage points of GDP. being practically eliminated. The special focus section of this KEU provides an This economic transformation has since slowed, even update on the labor market in Kenya, focusing on the prior to COVID-19. Even as large cohorts of youth joined labor supply side. This section shows how critical the the labor force from 2016 to 2019, averaging 800,000 per country’s jobs and economic transformation (JET) agenda year, the movement of employment from agriculture is, including to achieve a resilient recovery from the to other sectors stalled. LFP decreased by 4 percentage COVID-19 crisis, and concludes with a discussion of policy points, from 73 percent in 2015/16 to 69 percent in 2019. Kenya’s job creation rate will need to increase to reap the potential benefits from its demographic transition ©Festo Photo:© Photo: Dominic | World Bank Bank Chavez/World Lang June 2021 | Edition No. 23 v Summary Unemployment increased, from 3 to 5 percent; and other pillars of human capital development (e.g., health, employment shifted from wage employment into self- improved water and sanitation, social protection) should employment. These changes affected the most vulnerable remain a policy priority, building on the considerable groups – those living in NEDI countiesa; women; those successes achieved in recent years. Education pays off in with lower levels of education – more, potentially Kenya: labor force participation rates, employment rates worsening pre-existing inequalities. The vast majority of and, especially, earnings, are much higher among the workers entering the labor force were absorbed by low- better educated. Improving the relevance of the supply productivity agriculture or service sector jobs. of skills to better match the demand can be prioritized through greater collaboration between education Even larger cohorts will attain working age over the institutions and the private sector, and better tracking next decade, and it is imperative for Kenya’s economy to of employment outcomes among graduates of training create more quality jobs to absorb this bulge. Over the institutions. The current poor and vulnerable workers, decade from 2020 to 2029 the working age population especially the millions of youth who have left school will increase by an average of 1 million per year. It is with few qualifications and are in the labor market, need imperative to build on Kenya’s development progress to tailored programs to increase short-term productivity date, reinvigorate economic transformation, and shift the and earnings both in wage employment and among labor force progressively into more productive activities informal microbusinesses. These programs need to tackle to reap a demographic dividend. The COVID-19 pandemic socioemotional and technical skills for all workers and has added to this already considerable challenge by provide support in access to finance, business training, disrupting economic activity and causing job losses. and linking to markets for the self-employed and informal microbusinesses. From a supply-side perspective, investments and reforms to strengthen human capital and social protection are at The next KEU will complete the special topic treatment the center of enabling Kenya’s fast-growing workforce on jobs, by focusing on the demand side of the labor to participate in and drive JET. To boost productivity market, including how to accelerate the creation of and foster economic transformation, education and better-quality jobs. a North and Northeastern Development Initiative. NEDI covers 10 counties: Garissa, Isiolo, Lamu, Mandera, Marsabit, Samburu, Tana River, Turkana, Wajir, and West Pokot. vi June 2021 | Edition No. 23 The State of Kenya’s Economy Photo: © Davasha Photography The State of Kenya’s Economy 1. Recent Economic Developments 1.1. Global and regional economic growth subdued, as financial markets weigh the risks of differential impacts have been severe, but less than growth, inflation and policy normalization prospects. ally projected initi The global outlook remains highly uncertain and subject Global economic conditions have improved. Economic to substantial downside risks, including the possible activity rebounded in the second half of 2020 in emergence of vaccine-resistant variants of the coronavirus, most regions after lockdowns were eased amid an delays in vaccination procurement, distribution, and unprecedented monetary and fiscal stimulus, resulting inoculation, and financial stresses from high debt levels in a less severe global recession in 2020 than initially exacerbated by the pandemic. projected. However, new infection waves necessitated renewed restrictions in many countries. Further progress in Economic activity in sub-Saharan Africa is expected to rolling out vaccinations and continued policy support are strengthen, but the pandemic will continue to weigh expected to contribute to stronger global growth in 2021. on growth and exert fiscal pressure. The region’s output The World Bank’s latest (June) estimate is for world GDP contracted by an extraordinary 2.4 percent in 2020, to grow by 5.6 percent, 1.5 percentage points above the plunging the region into its first recession in over 25 previous forecast (Figure 1). 1 years and causing real per capita income to contract by nearly 5.0 percent. This contraction in 2020 was less severe But the recovery is uneven across countries. At present, than the 3.3 percent anticipated at the time of the last the most likely vaccination scenario appears to be a KEU, consistent with lower recorded COVID-19-related staggered and uneven rollout, with broader availability mortality than had been feared, as well as generally strong of vaccines in high-income countries and a few middle- agricultural growth, and a faster-than-expected recovery income countries by mid-2021, and for most other in commodity prices. The region’s output is expected to countries only by the second half of 2022. Consequently, expand by 2.6 percent in 2021, up 0.2 percentage points the anticipated progress in the world economy will relative to the October 2020 forecast, driven by increased likely be multispeed, with growth picking up earlier in commodity prices and exports, and a recovery in private advanced economies and China. Although global trade consumption and investment as confidence strengthens activity has firmed with improved economic conditions, on the back of improving global economic conditions and travel and tourism remain constrained by the still low a continuing, albeit gradual, vaccine rollout.2 The COVID-19 global vaccination rate, as this has contributed to ongoing pandemic has exacerbated fiscal pressures and public debt travel restrictions and widespread reluctance to travel vulnerabilities, however, with the region’s median debt internationally. The uneven global recovery has also kept level projected to peak in 2021 and interest costs relative private capital flows to low- and middle-income countries to tax revenues projected to exceed a high 20 percent on Figure 1: After contracting sharply in 2020, the global economy Figure 2: EAC growth is recovering is staging a recovery World USA EMDE SSA Tanzania Rwanda Kenya Uganda 8 12 6.8 6 6.0 10 5.6 4 8 GDP growth (%) GDP growth (y/y %) 6 4.9 2 2.8 4.5 4 0 4.5 2 2.0 -2 0 -4 -2 -6 -4 2016 2017 2018 2019 2020e 2021f 2016 2017 2018 2019 2020e 2021f Source: World Bank, Global Economic Prospects (June 2021) Source: World Bank, Macro-Poverty Outlook (April 2021) 1 World Bank, Global Economic Prospects, June 2021. 2 World Bank; Global Economic Prospects, June 2021, and Africa’s Pulse, October 2020 2 June 2021 | Edition No. 23 The State of Kenya’s Economy average. Financing fiscal deficits will remain challenging, totaled 179,293 while total deaths were 3,461. Although given limited market access and constrained ability to economic activities are gradually recovering, some sectors increase revenues (in order not to stifle fragile recoveries) continue to be under severe pressure, and the extent of in the near term. longer-term economic scarring from the pandemic and consequent potential drag on Kenya’s sustainable growth Growth in the East African Community (EAC) countries is is not yet clear. gradually recovering (Figure 2). The decline in economic activity in EAC countries – Burundi, Kenya, Rwanda, South The vaccination program is still in the initial stages. Sudan, Tanzania, and Uganda – has been pronounced, in Kenya received its first COVID-19 vaccines on March line with previous global and wider regional estimates, 3, 2021 (1.02 million doses of the AstraZeneca-Oxford although less severe than expected. Kenya suffered its vaccine via COVID-19 Vaccines Global Access [COVAX], and first recession in nearly two decades, but the output an additional 100,000 doses donated by the government contraction eased substantially in Q3 2020, helped by of India). By June 21, 995,570 people had received their strong agricultural growth. Similarly, Rwanda experienced first free dose (with higher-risk individuals and essential its first recession in a decade, but the economy then workers prioritized). However, the inoculation drive faces recovered significantly in Q4 2020, supported in part by a challenges due to delays in procuring more vaccines from rebound in manufacturing. In Tanzania, output as recorded India which halted vaccine shipments after a surge in in the official statistics continued to expand, driven by domestic infections. With only about four percent of the construction and agriculture. adult population having received a first dose as of this report, Kenya, like most countries, has a long way to go to 1.2. The COVID-19 pandemic has profoundly accelerate vaccination and still faces protracted health and impacted Kenya socioeconomic risks from the pandemic. Kenya has been severely affected by the COVID-19 pandemic. The domestic epidemic began in March 2020, 1.3. The pandemic abruptly weakened triggering stringent containment measures to slow the growth and increased poverty spread of the virus which, while necessary to minimize the The COVID-19 pandemic led to Kenya’s worst economic loss of life and lay the foundations for eventual recovery, growth performance since 1992. Kenya’s real GDP was resulted in widespread economic disruption, and losses in growing at an annual pace of above five percent prior to earnings and employment. These containment measures the pandemic. In 2020, the COVID-19 pandemic delivered a were progressively eased from July 2020 onward and triple shock to the economy embodying the health impact mobility returned to pre-pandemic levels by October of the pandemic, the economic impact of the containment 2020, only to be tightened again in November 2020 and measures and behavior changes, and reverberations from in March 2021 as Kenya faced second and third waves of a synchronized global recession. As a result, in 2020 the cases (Figure 3, Figure 4). As of June 21, 2021, the number economy suffered its first recession in nearly two decades of officially recorded cases since the onset of the outbreak and is estimated to have contracted by 0.3 percent. Figure 3: COVID-19 new cases (7-day moving average) and Figure 4: Mobility Trends: percent change from pre-COVID-19 confirmed deaths (RHS, cumulative) in Kenya baseline Total as of June 21, 2021 Retail and recreation Grocery and pharmacy Parks 1,600 Cases 179,293 Deaths 3,461 4,000 Transit stations Workplaces Residential Average New cases Total deaths (RHS) 1,400 3,500 60 Number of -Cases (7day rolling average) Number of Deaths (cumulative) 1,200 3,000 40 1,000 2,500 20 800 2,000 Percent 0 600 1,500 -20 400 1,000 Christmas holidays 200 500 -40 0 0 -60 3/2/2020 7/16/2020 11/29/2020 4/14/2021 6/21/2021 1/Feb/20 18/Jun/20 3/Nov/20 21/Mar/21 29/May/21 Sources: https://covid.ourworldindata.org/data/owid-covid-data.xlsx . Accessed on Notes: Figures reflect weekly average of percentage change compared to baseline; June 23, 2021 Sources: Google LLC Google COVID-19 Community Mobility Reports. https://www. google.com/covid19/mobility. Accessed on June 11, 2021 June 2021 | Edition No. 23 3 The State of Kenya’s Economy The pandemic dealt a major blow to the economy, but consumption over the year as a whole. The deceleration in the government’s quick policy response helped the private consumption was only partially offset by a higher economy stage a partial recovery. The economy grew contribution from government consumption, driven by by 5.2 percent y/y in Q1 2020. Following the COVID-19 increased spending to mitigate the impact of COVID-19 pandemic outbreak, output suffered a large decline shock. Private investment is estimated to have fallen of 5.5 percent y/y in the second quarter as trade and sharply in 2020, due to heightened uncertainty, disrupted travel disruptions and COVID-19 containment measures supply chains and the global slowdown. The contribution impeded domestic economic activity and global demand of net exports to domestic demand is also expected to collapsed. Policymakers acted swiftly to help cushion have shrunk to 0.5 percentage points in 2020, driven by the impact on firms and households. Actions included import compression (Figure 6). easing monetary policy, financial regulatory measures to prevent a credit crunch, and fiscal measures including Overall, GDP contracted by 0.4 percent y/y in the first more social protection and health spending, and tax cuts. three quarters of 2020, driven by the pandemic’s severe Helped by these policy measures and easing of movement impact on services. Real services sector (tertiary) output restrictions, a partial recovery got underway in Q3 2020, contributed 2.5 percentage points to year-on-year GDP resulting in strong sequential growth which left output for growth in Q1 2020 but subtracted 5.5 percentage points the third quarter down by only 1.1 percent y/y, limiting the from growth in Q2 as the full force of the pandemic was real GDP contraction in the first nine months of 2020 to felt (Figure 7). In Q3, services output rose from Q2 levels 0.4 percent y/y (compared to growth of 5.3 percent in the but remained lower than its level one year previously, same period of 2019). As 2020 drew to a close, and moving consequently reducing year-on-year GDP growth by 2.7 into 2021, high frequency data pointed to a significant percentage points. The main driver of the drag on the rebound in economic activity, albeit highly differentiated sector’s output growth was education (Figure 8), reflecting across sectors. the impact of most education institutions being shut down from March to December 2020. The long disruption of The pandemic dampened most drivers of demand. academic activities has caused significant learning losses, Private consumption—the usual driver of domestic particularly for students from disadvantaged backgrounds, demand in Kenya, accounting for roughly three-fourths endangering future productivity gains and potential of output growth in 2019—is estimated to have slowed benefits from a demographic transition (see Part B). Activity markedly in 2020 as households reduced spending amid in the accommodation and restaurant subsector was also job and earning losses (Figure 5). Buoyant remittance severely affected by the pandemic as international travel inflows, government support measures, favorable was suspended for much of 2020, hotels closed or scaled agricultural harvests, and a rebound in economic activities down their operations and movement restrictions were beginning in Q3 2020 cushioned the drop in disposable imposed in most countries. Receipts from services exports incomes, likely averting a strong contraction in private fell sharply, reflecting the collapse of international travel Figure 5: Private consumption usually accounts for most growth, Figure 6: The contribution of net exports to growth is expected to but was compressed in 2020 by the pandemic be marginally positive Private Consumption Government Consumption GDP Exports, GNFS Imports, GNFS Net exports Gross Fixed Investment Net exports 2 10 1 8 6 0 Percentage points 4 Percentage points -1 2 0 -2 -2 -3 -4 -4 -6 2016 2017 2018 2019 2020e 2016 2017 2018 2019 2020e Notes: 2020 figures are World Bank estimates. Notes: 2020 figures are World Bank estimates. Source: World Bank calculations Source: World Bank calculations 4 June 2021 | Edition No. 23 The State of Kenya’s Economy Figure 7: The pandemic battered the services sector (contributions Figure 8: The services contraction was led by the education subsector to change in real GDP y/y, percentage points) (contributions to change in real GDP y/y, percentage points) Primary Secondary Tertiary Taxes GDP Wholesale & retail trade Accommodation & food Transport & Storage 8.0 Education All other services Total of services 5.8 5.4 4.0 3.4 3.5 5.2 5.1 5.2 3.1 2.9 2.5 4.0 2.0 Percent Percent 0.0 0.0 -1.1 -2.0 -2.7 -4.0 -5.5 -4.0 -8.0 -5.5 -6.0 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Source: KNBS and World Bank staff calculations Source: KNBS and World Bank staff calculations and transport. Consequently, the subsector contracted by Agriculture performed well, helped by adequate rainfall 57.9 percent y/y in Q3, subtracting 0.8 percentage points and improved access to inputs, helping to buffer Kenya’s from overall GDP growth. A recent CBK Survey of hotels overall economic performance from the COVID-19 conducted in mid-March 2021 showed a slow and partial shock. Growth in agriculture increased to 6.3 percent y/y in recovery from the peak of the disruption in mid-2020. In Q3 2020—contributing 1.1 percentage points to Q3 GDP particular, while 98 percent of respondent hotels are now growth (from about 0.9 percent in the same period last open (compared to 35 percent in May 2020), average bed year)—following broad-based growth in key food and cash occupancy improved only to a still low 27 percent in March crops (Figure 9). The growth in agriculture was supported 2021 from a low of 6 percent in May 2020 and compared by favorable rains, enabling the sector to rebound from a to a pre-pandemic level of 65 percent in February 2020. As drought-affected level of output in 2019. Sugar production the economy staged a partial recovery in Q3, transport and increased by 36.9 percent y/y to 603,788 tons in 2020 as the storage activity increased sufficiently to increase compared total area harvested expanded by 26 percent during the to its level one year previously, by 2.9 percent y/y in Q3 year.4 Tea output also benefitted from a rapid expansion of 2020, contributing 0.2 percentage points to GDP growth. area under cultivation and favorable weather. Activity in the finance and insurance, information The industrial sector staged a recovery, but the third and communication (ICT), and real estate sectors wave again softened economic activity in the sector. picked up in the second half of 2020. Growth in the Manufacturing value-added contracted by 3.9 percent in finance and insurance, ICT, and real estate, renting and Q2 2020 and 3.2 percent in Q3 2020. High-frequency data business services sectors strengthened to 5.3 percent point to a sizeable sequential rebound since Q3 2020. The y/y, 7.3 percent y/y, and 5.3 percent y/y, in Q3 2020. The Purchasing Managers’ Index (PMI) showed a sequential financial sector’s performance has been supported by expansion in activity in July 2020 through March 2021 continued credit growth, supported by the CBK’s actions (Figure 10). Consistent with the movement in the PMI index, to ease monetary and liquidity conditions. The ICT sector electricity sales also rebounded from their low in April and has benefited from government measures to facilitate May 2020 (Figure 11). The recovery during H2 2020 and into digital money transactions, increased use of digital 2021 was supported by increased food production (wheat, services (with a switch to home-based working and maize flour, canned fruits, sugar and soft drinks) and also schooling), the increased demand for internet data and expansion in non-food manufacturing output such as more e-commerce.3 Combined with health and public cement (Figure 12). The PMI experienced a sharp decline administration services, these sub-sectors’ cumulative in April 2021, indicating a strong contraction in activity, contribution to year-on-year growth was a significant 1.6 likely due to the reintroduction of movement restrictions percentage points in Q3 2020. in the wake of the third wave of COVID-19 infections, but 3 For instance, increased adoption of online digital platforms linking farmers to markets and delivering fruits and vegetables to the consumers. 4 Source: https://www.kenyanews.go.ke/government-approves-new-sugarcane-pricing-formula/ June 2021 | Edition No. 23 5 The State of Kenya’s Economy Figure 9: Activity in agriculture remains generally strong (Index of Figure 10: The PMI showed a sharp drop in activity in April, but 12-month rolling sum of production, Feb-18=100) rebounded in May Co ee Tea Cane 70 160 Index of 12-month rolling sum -Feb-18=100 140 > 50 indicates an expansion 60 120 PMI Index 100 50 < 50 indicates contraction 80 40 60 40 18 18 18 -18 18 19 19 19 19 19 19 19 20 20 20 -20 20 20 21 30 b- r- n- g t- c- b- r- n- g- t- c- b- r- n- g t- c- b- Fe Ap Ju Au Oc De Fe Ap Ju Au Oc De Fe Ap Ju Au Oc De Fe May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 Source: Kenya National Bureau of Statistics Source: CFC Stanbic Bank Figure 11: Electricity sales have recovered from their April 2020 low Figure 12: Cement production accelerated through the end of 2020 800 60 760 40 y/y % change 720 kWh mn 20 680 640 0 600 Feb-21 Feb-19 Feb-20 Oct-19 Oct-20 Aug-19 Aug-20 Apr-19 Apr-20 Jun-19 Jun-20 Dec-19 Dec-20 -20 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Source: KNBS Source: KNBS recovered in May 2021 with the lifting of these restrictions. The labor market was hit hard but has staged a Growth in the construction sub-sector rose to 8.6 percent recovery. The COVID-19 crisis initially impacted the labor in Q3 2020 compared to 6.6 percent in the same period last market quickly and severely. Kenya’s unemployment rate year, supported by government spending on infrastructure increased sharply, approximately tripling to a high of projects (Figure 13). about 16 percent in Q3 2020. Many wage workers who managed to keep their jobs had to reduce working hours, Figure 13: Construction led a recovery in industry with average hours decreasing from 50 to 38 hours per Contribution to GDP growth week. In addition, many people, especially women, who Mining and quarrying Manufacturing Industry Electricity and water supply Construction lost their jobs stopped searching for work, as reflected in a 1.4 substantial rise in the number of people out of labor force 1.2 1.0 1.0 0.9 between Q4 2019 and May-June 2020. Between February Percentage points 0.8 0.7 0.7 0.8 0.8 and June 2020, almost a third of household-run businesses 0.6 0.4 ceased operating and average revenue from household- 0.2 run businesses decreased by almost 50 percent. However, 0.0 -0.2 -0.2 the employment rate recovered and had increased to 76 -0.4 percent in April–June 2021. The rate of unemployment is -0.6 Q1 Q2 Q3 Q4 Q1 Q2 Q3 also returning to pre-crisis levels, decreasing to 7 percent 2019 2020 in April–June 2021. Source: KNBS 6 June 2021 | Edition No. 23 The State of Kenya’s Economy However, as a new COVID-19 wave forced the labor market indicators, and expectation that economic reintroduction of containment measures in Q2 2021, growth will likely increase over time back to its pre-crisis renewed signs of economic strains emerged, such as rate (see Outlook section, below), mean that much of the rising food insecurity. At the onset of the pandemic estimated poverty increase will likely prove temporary. and during the first lockdown in March–June 2020, just However, while it is too soon to evaluate the extent and under half of households went hungry. Consistent with permanence of the crisis’ impact on the growth and the economy subsequently staging a partial recovery, distribution of household incomes in Kenya, it is already the proportion of households reporting hunger dropped evident that it has caused severe losses in income, and sharply to 28 percent in October–November 2020 (Figure hardship. There is a clear risk that this has a long-lasting 14). However, following the renewed containment negative impact on households, including by pushing measures in April 2021, levels of food insecurity rose those relying on hard-hit economic activity such as urban again. Lack of food is a major problem for 42 percent of services into poverty and weakening their ability to households, especially for rural households, where just withstand future shocks. This calls for policymakers to be under-half of households do not have sufficient food to ready to respond to the emerging evidence on the crisis’ eat. A lack of food evidently indicates extreme hardship, impacts, including with additional and adaptive social and can have permanent negative effects on the ability protection measures. of adults and children to lead healthy and productive lives through its association with malnutrition, stunting and 1.4. The government’s fi scal response has human capital losses. cal in managing the pandemic, been criti but debt vulnerabiliti es have increased COVID-19 has sharply increased poverty. While pre- The fiscal response to the COVID-19 shock in FY2019/20 COVID estimates projected a continuing decline in poverty, resulted in a larger than budgeted deficit, reversing the the pandemic instead pushed an estimated two million government’s pre-COVID fiscal consolidation efforts. Kenyans into poverty in 2020, raising the poverty rate by With the outbreak of the pandemic in Kenya in March four percentage points (Figure 15). The ‘new’ poor have a 2020, the government refocused from fiscal consolidation different profile from the existing poor. While the existing towards mitigating the impact of economic losses and poor are predominantly rural, working in agriculture and protecting the affected and vulnerable population. have low or no educational attainment, the new poor often The government’s fiscal response included revenue live in urban areas, are engaged in manufacturing and measures (tax relief amounting to 0.6 percent of GDP services, have higher levels of education, and are younger. for FY2019/20 and FY2020/21) and increased spending on strengthening the healthcare system and protecting While part of the increase in poverty is likely to be vulnerable households and businesses (0.4 percent of GDP transitory, there is a risk that some households are left in FY2019/20).5 The sharp slowdown in economic activity behind as the recovery takes place. The recovery in key due to the pandemic, together with the discretionary tax Figure 15: Poverty increased sharply in 2020 due to the pandemic Figure 14: Went hungry due to lack of food (past 30 days) (poverty headcount, percent) 60 All Rural Urban 50 45 Percent of households 40 40 30 20 35 Percent 10 30 0 Jan -Mar '21 Apr -May '21 Jul - Sep '20 Oct -Nov '20 Jan -Mar '21 Apr -May '21 Jan -Mar '21 Apr -May '21 Jul - Sep '20 Oct -Nov '20 May - Jun '20 Jul - Sep '20 Oct -Nov '20 Jan -Mar '21 Apr -May '21 May - Jun '20 Jul - Sep '20 Oct -Nov '20 Jan -Mar '21 Apr -May '21 May - Jun '20 Jul - Sep '20 Oct -Nov '20 May - Jun '20 May - Jun '20 25 All Women Men Rural Urban 20 Overall Gender of Household Head Location 2015 2016 2017 2018 2019 2020 Source: World Bank staff calculations Source: Kenya COVID-19 RRPS 5 See issues 21 and 22 of the Kenya Economic Update for more information on the government’s response. June 2021 | Edition No. 23 7 The State of Kenya’s Economy cuts, caused revenues to decline by 1.2 percentage points Revenue collection remains weak (Figure 17). Total to 17.1 percent of GDP in FY2019/20. Despite increased revenue (excluding grants) is budgeted to fall further spending on health and social safety nets to manage the in FY2020/21 as a share of GDP, to 16.5 percent (vs. 17.1 pandemic, total expenditure fell by one percentage point percent of GDP in FY2019/20). This is due to a combination of GDP to 25.2 percent of GDP in FY2019/20, due to the of the tax relief measures that were implemented up to fiscal consolidation efforts of the first three quarters of December 2020, and subdued economic activity. The FY2019/20 prior to the onset of the crisis (total expenditure decline in revenues has been broad-based, although had been reduced by 0.8 percentage points of GDP in the Kenya’s revenue performance had deteriorated even before fiscal year through March 2020 compared to same period the pandemic hit the economy. Income tax and value- a year earlier). As a result, the fiscal deficit remained at 7.8 added tax (VAT), currently accounting for a combined 75.3 percent of GDP in FY2019/20, the same as FY2018/19, but percent of tax revenue and 60.4 percent of total revenue much larger than the 6.0 percent of GDP budgeted before (excluding grants), were the hardest hit following the COVID-19 (Figure 16), while the public debt rose to 65.8 outbreak of COVID-19. As a share of GDP, in Q3 FY2020/21, percent of GDP in FY2019/20, up from 62.0 percent at the income tax decreased by 0.9 percentage points of GDP end of the previous fiscal year.6 compared to the same period in FY2019/20, while VAT was 0.3 percentage points lower than the previous year Although tax relief measures to support the economy (despite the reversal effective January 1, 2021 of the rate expired in December 2020, fiscal policy in FY2020/21 cuts applied in April 2020 as part of the fiscal response to has remained focused on managing the socioeconomic the crisis). Import duty and excise duty recovered to the impact of pandemic. Reflecting the government’s efforts previous year’s level in Q3 FY2020/21. to mitigate the pandemic’s health and economic toll, the government allocated KSh 55.2 billion (equivalent to 0.5 Expenditure has been curtailed amid shrinking fiscal percent of GDP) on an economic stimulus package to be space. Most recurrent expenditures are budgeted to spent in areas of creating jobs for unemployed youth in decline as a share of GDP, while development expenditure major cities and urban centers under the “Kazi Mtaani is expected to remain stable (Table 1). In the current fiscal programme”, enhancing liquidity for MSMEs, supporting year through Q3 FY2020/21, total expenditure declined to a tourism recovery, and improving health and education 16.3 percent of GDP, lower than 18.0 percent of GDP over outcomes. As a result, total expenditure is budgeted to the same period of the previous fiscal year. Wages and increase to 25.9 percent of GDP in FY2020/21, more than pension spending as a share of GDP remained the same as reversing its decline as a share of GDP in the previous the previous year, while lower operations and maintenance fiscal year. spending outweighed an increase in interest payments, resulting in a net decrease in recurrent expenditure as a Figure 16: Fiscal consolidation plans were interrupted Figure 17: The pandemic has further weakened by COVID-19 revenue mobilization Target balance Actual balance 20 0 16 -2 Percent of GDP Percent of GDP 12 -4 8 -6 -6.0 -6.9 -6.8 -7.2 -7.4 -7.5 4 -8 -7.5 -8.2 -8.7 -9.1 -10 0 2016/17 2017/18 2018/19 2019/20 2020/21e 2016/17 2017/18 2018/19 2019/20 2020/21e Source: The National Treasury Source: The National Treasury Note: the target for 2019/20 was before COVID-19 6 Government of Kenya’s fiscal year runs from July to June. 8 June 2021 | Edition No. 23 The State of Kenya’s Economy share of GDP. Interest payments rose by 0.2 percentage 1.4 percentage points, and exchange rate depreciation is points of GDP compared to the previous year, driven by expected to increase debt by 0.3 percentage points (Figure a rise in domestic interest payments. The rise would have 19). Conversely, the projected recovery in economic been bigger were it not for a decline in foreign interest growth in 2021 is expected to significantly reduce debt payments due to Kenya’s participation in the Group accumulation relative to GDP, an improvement on 2020 of 20 (G20) Debt Service Suspension Initiative (DSSI). when real growth stalled, worsening debt dynamics. Development expenditure in Q3 FY2020/21 contracted by 1.2 percentage points of GDP compared to FY2019/20, External debt has been increasing faster than domestic pointing to shrinking fiscal space for public investment debt, although most debt servicing is directed at the against the backdrop of the pandemic and high debt latter. The ratio of external and domestic debt in the total servicing costs. public debt stock is 52:48. As a share of GDP, external debt rose by 2.8 percentage points to 34.6 percent, while The fiscal deficit, public debt, and related vulnerabilities domestic debt went up by 1.5 percentage points to 31.2 have increased. The fiscal deficit is estimated at 8.7 percent, in FY2019/20. In FY20/21, by contrast, external percent of GDP in FY2020/21, an increase of 0.9 percentage debt is expected to increase less (0.8 percentage points of points from FY2019/20. Driven by larger fiscal deficits and GDP) than domestic debt (2.1 percentage points). Despite sharply lower economic growth, public debt rose from 62.0 the similar amounts of domestic and external debt, percent of GDP in FY2018/19 to 65.8 percent of GDP in domestic debt servicing is double that of external debt FY2019/20 and is estimated to reach 68.6 percent of GDP at due to higher domestic interest rates; however, while it is the end of FY2020/21 (Figure 18). The debt accumulation cheaper, external debt does carry foreign exchange risk.7 has been driven by the widening fiscal deficit due in part The maturity profile of domestic debt is also characterized to increased infrastructure spending. In addition, the by substantial refinancing risk, given the sizable share of negative economic growth impact of the pandemic has short-term debt (including T-bills). Kenya’s participation in led to an increased debt burden relative to GDP. In 2021 the G20 DSSI is estimated to yield fiscal savings (0.6 percent (calendar year) the primary deficit is expected to remain of GDP) in the first half of 2021. Additional temporary the largest contributor to Kenya’s debt stock accumulation, savings will be realized following the announcement that accounting for 3.7 percentage points of the increase as a the DSSI has been extended through the end of the year. share of GDP. The real interest rate is expected to contribute Figure 19: The increase in debt is being driven mainly by large Figure 18: Public debt rose, and related vulnerabilities increased primary deficits Domestic External Total public debt (Gross) Primary de cit Real interest rate Real GDP growth Real Exchange rate depreciation 80 Other debt creating ows Residual Change in debt 68.6 14 65.8 62.4 12 59.2 Debt-creating ows (percent of GDP) 57.4 60 10 8 Percent of GDP 6 40 4 2 20 0 -2 -4 0 -6 2016/17 2017/18 2018/19 2019/20* 2020/21e 2017 2018 2019 2020 2021 Source: The National Treasury and World Bank Source: World Bank-IMF DSA (April 2021) 7 National Treasury (2020), Annual debt report 2019/20. June 2021 | Edition No. 23 9 The State of Kenya’s Economy Table 1: Kenya’s fiscal operations 2018/19—2020/21 July-March July-March 2018/19 2019/20 2020/21 2019/20 2020/21 Supplementary Actual Prelim. Actual Actual budget Total revenue and grants 18.4 17.3 17.2 13.0 11.3 Total revenue 18.2 17.1 16.5 12.8 11.1 Revenue 16.0 15.5 14.3 11.7 9.9 Income tax 7.3 6.9 6.6 5.0 4.1 Value added tax 4.4 3.8 3.5 2.9 2.6 Import duty 1.1 1.0 0.9 0.7 0.7 Excise duty 2.1 1.9 1.9 1.5 1.5 Other revenues 3.3 3.5 3.7 2.6 2.3 Grants 0.2 0.2 0.7 0.1 0.2 Expenditure and net lending 26.0 25.2 25.9 18.0 16.3 Recurrent 16.3 16.2 16.4 11.4 11.1 Wages and salaries 4.5 4.4 4.5 3.2 3.2 Interest payments 4.0 4.3 4.1 2.9 3.1 Domestic interest 2.9 3.1 3.0 2.2 2.6 Foreign interest 1.1 1.2 1.1 0.9 0.7 Pensions 0.8 0.9 1.0 0.7 0.7 Operations and maintenance 6.7 6.2 6.4 4.4 3.9 Development and net lending 5.8 5.8 5.8 4.5 3.3 Transfer to counties 3.9 3.2 3.6 2.1 1.9 Deficit including grants (cash basis) -7.6 -7.8 -8.7 -4.9 -4.5 Primary Balance -3.6 -3.5 -4.6 -2.0 -1.4 Financing 7.7 7.8 8.7 4.5 4.4 Foreign financing 4.4 3.3 3.8 0.9 0.2 Domestic financing 3.3 4.4 4.9 3.6 4.2 Total Public Debt (gross) 62.0 65.8 68.6 External debt 32.3 34.6 35.3 Domestic Debt 29.7 31.2 33.3 Memo: Nominal GDP (KES billion) 9,367 10,175 11,169 Source: National Treasury, 2021, Quarterly Economic and Budgetary Review, Q3 2020/21; Budget Summary for 2021/22 1.5. Inflation has been moderate and in the VAT rate (from 16 percent to 14 percent) in April monetary policy remains accommodative 2020 as part of the government’s emergency response Inflation remained moderate. Headline consumer price to COVID-19 also contributed in moderating inflation. inflation averaged 5.2 percent in 2020, close to the However, inflation has increased since the fourth quarter middle of the Central Bank of Kenya’s (CBK’s) target of 2020, driven by rising food and international oil band of 5±2.5 percent. Kenya experienced an exceptional prices, reaching 5.9 percent in May 2021 (Figure 21). bout of disinflation in the middle of 2020, as the COVID-19 Core inflation that excludes food and energy prices to shock weakened domestic demand and global energy capture underlying inflation trends has remained low prices (Figure 20). Good agricultural harvests in 2020 also at 2.8 percent in May 2021, consistent with pandemic tempered food price pressures. The temporary reduction conditions weakening the usual upward pull on prices 10 June 2021 | Edition No. 23 The State of Kenya’s Economy Figure 20: Headline inflation remains within the CBK band, Figure 21: Energy prices, which have risen globally, have been the and core inflation is low biggest recent contributor to inflation Headline in ation Core in ation Core In ation Food In ation Energy In ation Headline in ation 10.0 7 6 Upper bound 7.5 5 y/y percent 4 Percent 5.0 3 Lower bound 2.5 2 1 0.0 0 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 May-21 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Source: KNBS Source: KNBS Note: Energy inflation includes transport, housing, utilities and fuels. from demand growth. Higher food inflation towards the borrowers ended on March 2, 2021. These measures had end of 2020 resulted from large increases in the prices of provided borrowers with various restructuring options certain food items, most notably wheat flour, cooking oil, including extension of repayment period, moratorium on and tomatoes. In January 2021 the government normalized principal or interest and waivers on interest or fees, helping the VAT rate back to 16 percent, resulting in a once-off households and businesses endure the pandemic and upward adjustment in some prices in that month. mitigate job losses. Measures to encourage increased use of mobile money transactions instead of cash in the context The CBK has maintained accommodative policies to of the pandemic have also been gradually withdrawn, support the recovery. With inflation at a moderate level except for the waiver of charges between mobile money and a negative output gap having opened up due to wallets and bank accounts. the sharp drop in aggregate demand, the CBK has kept the policy rate unchanged at 7 percent, after quickly Private sector credit has trended higher, but its pace reducing it by a cumulative 125 basis points (bps) at the remains well below that prior to the interest rate cap. start of the pandemic. The cash reserve requirement (CRR) Credit to the private sector rose 6.8 percent in the year to was also slashed by 100 bps to 4.25 percent in March April 2021, as demand recovered amid accommodative 2020, increasing liquidity at banks’ disposal to support monetary conditions (Figure 22). Private sector credit economic activity. This facilitated lending, especially to the growth has been broad-based, led by increases in agriculture, manufacturing, transport and communication, lending to companies in transport and communications and real estate sectors. The CBK also instituted measures to (13.3 percent), agriculture (10.0 percent), finance and support economic activity through a reduction in mobile insurance (7.6 percent), and consumer durables (19.3 transaction fees to enhance digital finance and by setting percent). Private sector credit growth remains low in real up a credit guarantee scheme that aims to enhance access terms, however, and well short of the high double-digit of credit to MSMEs through mitigating the default risk for annual increases in the private sector credit stock prior to the participating banks. the interest rate cap which was in place from 2016-19.8 The slow pace of private credit extension despite ample Responding to the improving outlook, the CBK has liquidity conditions is consistent with banks’ credit risk unwound most emergency measures announced at the appetite being suppressed by credit quality pressures start of the pandemic. The six-month suspension on the (see below), and the ongoing pandemic causing elevated requirement to list negative credit information with the uncertainty regarding the economic outlook on the part of Credit Reference Bureau expired on September 30, 2020, both lenders and borrowers. In addition, the government’s following which the regular procedures for risk classification high financing requirement has provided a large supply of of loans resumed. Similarly, the CBK’s emergency measures interest-earning securities, dampening banks’ incentives to on the extension and restructuring of loans to mitigate take on private credit risk (Figure 24). the adverse economic impact of the pandemic on bank 8 For a discussion of the interest rate cap, see Kenya Economic Update Edition Issue No. 16 of December 2017. June 2021 | Edition No. 23 11 The State of Kenya’s Economy Figure 22: Private sector credit growth has remained subdued Figure 23: The average interbank rate has risen since 2020, (change, percent y/y) but still indicates ample liquidity 24 Volume (RHS) CBR (LHS) Interbank rate (LHS) 10 40,000 9 35,000 8 16 30,000 7 Intebank volume y/y percent 6 25,000 Percent 5 20,000 4 8 15,000 3 10,000 2 1 5,000 0 0 0 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20 Oct-20 Apr-21 26 23 15 10 03 01 22 14 08 02 4- 7- 0- 1- 4- 7- 9- 2- 3- 6- -0 -0 -1 -0 -0 -0 -0 -1 -0 -0 19 19 19 20 20 20 20 20 21 21 20 20 20 20 20 20 20 20 20 20 Source: Central Bank of Kenya Source: Central Bank of Kenya The banking sector remains stable. The banking sector improved to pre-COVID-19 levels and stood at 22.0 percent was well capitalized and liquid entering the pandemic and 2.6 percent respectively in March 2021 (Table 2). and has remained sound at the aggregate level through the crisis. System-wide capital adequacy and liquidity The stock market has not recovered from its fall at the ratios stood at 18.8 percent and 56.3 percent at end-March onset of the COVID-19 crisis. As the COVID-19 outbreak 2021, well above the statutory requirements. Gross non- took hold, volatility in the equities market increased performing loans (NPLs), however, have increased to 14.2 and prices fell sharply. The NSE 20 share index stood at percent in April 2021 from 13.1 percent a year earlier, with 1,868 points at the end of December 2020, down by loan loss provisioning declining to 55.7 percent from a peak 29.6 percent, and remained essentially unchanged as of of 72.4 percent in October 2020 (Figure 25). The increase in the end of May 2021 (at 1872). This weakness is in sharp NPLs is attributable to the economic slowdown following contrast to the recovery of many global stock markets the pandemic and spans the agriculture, personal and which have benefited from surging global liquidity due to household, manufacturing, real estate, and transport and extraordinary policy support (Figure 26). communication sectors. Banking sector performance has been supported by the CBK’s emergency measures, Commercial borrowing costs for the government have including the temporary relaxation of loan restructuring risen in the domestic market, while Eurobond spreads and reclassification requirements, which saw a total of 54.2 have compressed. Domestic bond yields have drifted percent of loans benefiting from temporary debt relief slowly but consistently higher since mid-2020, consistent agreements by end-2020. The profitability of the banking with the strong supply of securities to finance the large sector appears to have recovered at the start of 2021, as budget deficit (Figure 27). In terms of external financing the return on equity (ROE) and return on assets (ROA) costs, the spreads of Kenya’s Eurobonds, as well as those of Figure 24: Commercial banks’ credit to the central government Figure 25: NPLs are at a significant level and rising; is at a long-term high relative to GDP provisioning is substantial Bank credit to government (% of nominal GDP) NPLs/Total Loans Provisions to NPLs (RHS) Bank credit to government (% of total domestic credit) 15 80 35 30 14 70 25 13 60 Percent 20 Percent Percent 15 12 50 10 5 11 40 0 10 30 Se -11 M -11 Se -12 M -12 Se -13 M -13 Se -14 M -14 Se -15 M -15 Se -16 M -16 Se -17 M -17 Se -18 Se -18 M 19 Se -20 M -20 1 -2 p- ar p ar p ar p ar p ar p ar p ar p ar p ar p ar Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 M Source: World Bank calculations based on Central Bank of Kenya data Source: Central Bank of Kenya 12 June 2021 | Edition No. 23 The State of Kenya’s Economy Table 2: Banking sector indicators are generally adequate, but credit quality is under pressure Statutory Direction to be Value (%) as at requirement stable March-21 Capital adequacy Total capital/RWA (CAR) 15 ≥ 18.8 Asset quality NPLs (gross)/Total loans 5 ≤ 14.6 NPLs net of specific provisions to total capital 25 ≤ 15.8 Profitability ROA (after-tax) 2 ≥ 2.6 ROE (after-tax) 20 ≥ 22.0 Liquidity Liquid assets/Total assets 30 ≥ 43.0 Liquid assets/Short-term liabilities 50 ≥ 56.3 Source: Central Bank of Kenya Figure 26: Nairobi Securities Exchange listed stocks have not Figure 27: Domestic government securities yields have recovered from the COVID-19 shock edged higher Indexed, 2 Jan 2020=100 3-month T-bills 1-year T-bills 10-year Bond 14 S&P Global 1200 Index NSE20 130 13 12 120 11 110 10 Percent 100 Percent 9 90 8 80 7 70 6 60 5 50 4 1 0 9 1 0 1 0 0 1 0 1 21 0 21 0 19 19 20 0 -2 20 -2 -2 0 -1 -2 0 -2 0 -2 -2 -2 -2 0 -2 -2 20 -2 -2 -2 -2 l-2 -2 ay n- ay n- ay eb n- n- n- ov n- ec ec ov ar ep eb ep pr ug n- ay pr eb -Ja -M -M -Ju -Ju -Ju -Ja -Ja -Ja -M -M -D -F -D -N -N -A -Ja -S -S -F -M -A -A -F 09 01 10 25 25 28 11 30 23 28 02 07 13 18 23 27 02 06 13 18 01 13 02 17 15 Source: Haver Source: Haver most other emerging markets, spiked during the nadir of on has been 1.6. Kenya’s external positi the crisis in 2020, but have since fallen, as global liquidity supported by import compression and conditions have recovered. As of June 18, Kenya’s Eurobond ances remitt spreads had tightened back to close to pre-COVID levels at The pandemic-induced import compression reduced about 450bp (Figure 28). the current account deficit to its smallest level since 2009. The current account deficit narrowed to an 11-year Figure 28: Kenya’s Eurobond spreads have tightened back to pre-COVID levels, similar to the global trend low of 4.7 percent of GDP in 2020 (versus 5.7 percent in EMBI Global Strip Spread (bps) Kenya Strip Spread (bps) 2019), helped by a smaller merchandise trade deficit and 1,000 robust remittance inflows (Figure 29). The pandemic- 900 800 induced slowdown, a sharp fall in international oil prices, 700 and disruption in supply chains led to a 12.9 percent 600 500 contraction in the US dollar value of imports in 2020, while 400 exports increased by 3.2 percent, mainly reflecting strong 300 agricultural performance. Remittances remained buoyant 200 100 and reached a record US$3.1 billion in 2020, up by 10.7 0 percent. However, receipts from services exports remained weak, due to depressed international travel and tourism. As of the latest data, the current account deficit stands at 4.6 Source: JP Morgan percent of GDP for the 12 months to February 2021. June 2021 | Edition No. 23 13 The State of Kenya’s Economy Figure 29: The current account narrowed due to a smaller goods Figure 30: Contribution to reduction in trade deficit* trade deficit (import compression) (y/y change, US$ billion) Services exports Services imports Goods exports Exports Oil imports Machinery imports Other imports Trade balance Goods imports Net primary income Net secondary income Current Account 1.2 25 abs. change in billion US Dollar, Y/Y 20 15 0.9 10 5 Percent of GDP 0.6 0 -7.2 -5.8 -5.7 -4.7 -4.7 -5 -10 0.3 -15 -20 0.0 -25 -30 2017 2018 2019 2020 Feb-2021* -0.3 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Note: *provisional Note: *Positive/negative values represent relative contribution to trade balance. Source: Central Bank of Kenya Source: World Bank calculations based on data from CBK Exports remained subdued in H1 2020 due to a collapse by the sharp import compression, the merchandise trade in global demand but staged a recovery subsequently. deficit shrank to 8.6 percent of GDP (US$8,349 million) The increase in exports earnings in 2020 was mainly driven in 2020 from a deficit of 11.1 percent of GDP (US$10,680 by 10.0 percent growth in tea exports, despite lower million) in 2019. Moving into 2021, the latest available average prices in 2020, as export volume surged by 21.1 data (February 2021) shows imports up by 9.7 percent percent on the back of higher tea production. Tourism- y/y, consistent with domestic economic activity gradually related activities (services exports) remained subdued recovering, as well as higher global fuel prices. following global lockdowns and suspension of air travel. Following the reopening of international air travel to and Remittances remained strong, benefiting from a surge from Kenya in August 2020, visitor arrivals returned to a from North America. With the pandemic paralyzing small positive number and stood at 35,052 in February economic activities across the globe from March 2020 2021 compared to 119,670 the year before. onwards, the Kenyan diaspora was expected to become financially constrained and forced to reduce remittances. Imports recorded a long slump following the pandemic, However, contrary to these concerns, remittances to but have recently increased on the back of economic Kenya surged by 18.1 percent in the year through April recovery. Imports decreased across most categories of 2021 to reach a record $3.3 billion (Figure 31). The sharp goods, recording an overall decline of 12.9 percent in rise in remittance inflows came primarily from North 2020. A significantly lower import bill for fuel products America (from which remittances increased by 40.6 (accounting for about one fifth of total imports by value), percent in the year to April 2021), likely benefiting from benefiting from low international crude prices, contributed the unprecedented monetary and fiscal stimulus in the US the most to the reduction in imports (Figure 30). Helped supporting workers’ incomes (Figure 32). Remittances from Figure 31: Remittances remained strong… (y/y change, percent) Figure 32: …due mainly to higher inflows from North America 50 North America Europe Rest of World 300 40 30 225 20 Million US$ Percent 10 150 0 75 -10 -20 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 0 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Source: Central Bank of Kenya Source: Central Bank of Kenya 14 June 2021 | Edition No. 23 The State of Kenya’s Economy Figure 33: Official borrowing helped finance the current deficit Figure 34: Foreign exchange reserves were boosted by as portfolio flows turned negative an IMF disbursement in April 2021 Foreign direct investment Portfolio investment Net errors and omissions Reserves (US$ million) Other investments: net Capital & nancial account Months of Import cover (Average of last 3 years) 12 7 9000 6 8000 Months of import cover 8 5 Reserves (US$ million) 7000 Percent of GDP 4 6000 4 5000 3 4000 2 0 3000 1 2000 0 -4 2017 2018 2019 2020 Feb-2021* Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Note: *provisional figures. Source: Central Bank of Kenya Source: Central Bank of Kenya Europe registered a modest 2.5 percent increase, while Reserve coverage conforms to the statutory minimum those from the rest of the world contracted by 8.5 percent. requirement. Foreign exchange reserves contracted by 8.9 percent to US$8,297 million in 2020 (equivalent to Uncertainty about the pandemic’s evolution and global 5.1 months of import cover). Foreign exchange reserves financial market risk aversion led to a decline in net continued to decline in Q1 2021, but were partly replenished private capital inflows. Consistent with global economic by the first disbursement of the new IMF program in April crisis conditions due to the pandemic and its negative 2021 and stood at US$7.5 billion (4.6 months of import impact on reinvested earnings and greenfield investments, cover) as of June 10, 2021. Reserves are above the statutory net foreign direct investment fell sharply in the year through minimum of four months of import cover (Figure 34). February 2021 to just US$242 million compared with about US$1.0 billion during the same period in 2020. Portfolio The shilling has depreciated against a trade-weighted investment recorded net outflows (mainly non-residents’ basket of currencies since the beginning of the crisis, sales of Kenyan equities), amounting to $1.3 billion in the but in real terms remains stronger than its multi-year review period against a net inflow of US$1.3 billion a year average. Considering the shilling against a basket of earlier (Figure 33), congruent with increased investor risk currencies weighted by their share in Kenya’s trade (i.e., aversion towards emerging and frontier market financial the nominal effective exchange rate, NEER), the shilling assets globally following the outbreak of the pandemic. depreciated by 9.6 percent between February 2020 (the onset of the pandemic) and May 2021 (Figure 35). Increased inflows from international financial Figure 35: In real effective terms, the shilling has only partly institutions and temporary bilateral debt service reversed a significant multi-year appreciation suspension helped to mitigate the negative impact of NEER REER 125 COVID-19 on other external financing. This has included 120 an African Development Bank loan (€188 million in May 115 2020), World Bank Development Policy Financing (US$1 110 billion in June 2020 and US$750m in June 2021), an IMF 105 Rapid Credit Facility (US$739m in April 2020), and a first 100 disbursement of $308 million under an IMF ECF/EFF program approved in April 2021. Through the G20 DSSI 95 Kenya is also benefiting from a suspension in debt service 90 payments to participating official bilateral creditors. 85 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Nov-16 Nov-17 Nov-18 Nov-19 Nov-20 May-16 May-17 May-18 May-19 May-20 May-21 Note: Both series indexed, May 2021=100. Higher numbers indicate appreciation. Source: World Bank calculations based on data from Bruegel9 9 https://www.bruegel.org/publications/datasets/real-effective-exchange-rates-for-178-countries-a-new-database/ June 2021 | Edition No. 23 15 The State of Kenya’s Economy Factoring in changes in domestic consumer price levels than that of its major trading partners. Consequently, the (i.e, the real effective exchange rate, REER), the shilling flexible exchange rate has allowed prices in Kenya to fall depreciated by less over the same period: 6.0 percent. This somewhat relative to those of its trading partners, helping partly reverses the significant real effective appreciation to absorb the COVID-19 shock by making domestically of the shilling over the past five years, which has been produced goods and services cheaper. due mainly to Kenya’s inflation rate tending to be higher Table 3: 12-month cumulative balance of payments (BPM6 presentation, in millions of U.S. dollars) 2016 2017 2018 2019 2020 Feb-2021 Actual Actual Actual Actual Actual Provisional A. Current account (4,036) (5,685) (5,048) (5,541) 4,564) (4,518) Goods (trade balance) (7,692) (10,186) 10,201) (10,679) (8,349) (8,411) Goods: exports, f.o.b. 5,746 5,801 6,088 5,872 6,061 6,036 Tea 1,226 1,424 1,370 1,115 1,226 1,214 Horticulture 817 829 1,055 991 981 1,022 Manufactured goods 429 393 377 403 381 394 Other 3,274 3,156 3,286 3,363 3,473 3,406 Goods: imports, f.o.b. 13,437 15,987 16,289 16,551 14,410 14,446 Oil products 2,086 2,728 3,386 3,310 2,218 2,199 Other 6,990 8,581 8,362 9,668 8,219 8,374 Machinery & transport equipment 4,361 4,679 4,540 3,574 3,974 3,873 Services balance 1,432 1,556 1,596 1,767 239 109 Net primary income (1,010) (1,509) (1,449) (1,914) (1,428) (1,294) Secondary income 3,233 4,454 5,006 5,285 4,975 5,078 B. Capital account 205 184 263 208 130 160 C. Financial account (5,186) (5,563) (6,547) (6,233) (2,774) (2,896) Foreign direct investment (net) (523) (1,010) (1,463) (1,132) (244) (242) Portfolio investment (net) 350 789 (627) (1,312) 1,389 1,290 Financial derivatives (net) 11 4 11 (5) Other investment (net) (5,012) (5,342) (4,457) (3,789) (3,920) (3,944) Other investment: assets (206) 180 920 573 1,012 1,108 Other investment: liabilities 4,806 5,523 D. Net errors and omissions (1,238) (166) (720) 154 866 545 E. Overall balance (106) 108 (1,030) (1,059) 784 917 Source: Central Bank of Kenya 2. Outlook and Risks 2.1. The economy will continue to recover, population); (ii) Phase two: all other eligible adults, (45.5 but unevenly across sectors percent of the population), with individuals aged 50+ and The government aims to vaccinate Kenya’s adult individuals in congregated settings, such as prisons and population by mid-2022. Kenya plans to vaccinate all 26 densely populated informal settlements, given priority. The million individuals aged 18 and above (54 percent of the COVAX facility will initially cover 9.8 million people, while total population) by June 2022, in two phases: (i) Phase one: doses for the remaining 16.2 million people are expected healthcare workers, and other critical services (community to be procured through a combination of the African health volunteers, teachers, defense forces, police and Vaccine Acquisition Task Team (AVATT), COVAX or direct prison officers) and people aged 58+ (8.5 percent of the purchase from manufacturers. 16 June 2021 | Edition No. 23 The State of Kenya’s Economy The base case is for Kenya’s economy to continue to decelerate in the medium term as recurrent expenditures recover and return to growth of above five percent. In in non-priority areas are contained to help deliver the the baseline scenario, real GDP is projected to grow at 4.5 planned fiscal consolidation. The baseline projection is for percent in 2021 and 5.3 percent on average in 2022–23 public investment to continue at a significant level (with (Table 4). The growth outlook is predicated on a recovery development spending projected at 5.0 percent of GDP), in private consumption spending, supported by a pickup as planned in the Post-COVID-19 Economic Recovery in wages and household incomes, adequate agricultural Strategy.10 Supported by the recently established credit harvests, and resilient remittances. Consumer confidence guarantee scheme to spur private investment by MSMEs, and business activity should be supported by ongoing the baseline also assumes a continued pickup in credit to vaccination efforts and the return of mobility to pre- private sector. pandemic levels. Compared to the KEU’s November 2020 projections, the baseline growth is revised downwards Strengthening external demand is expected to support by 2.4 percentage points in 2021 and by 1.0 percentage agriculture, while the re-opening of the economy points in 2022. This reflects a more moderate recovery in and strong capital spending will support a recovery in H1 2021 than previously expected, due to the third wave industrial activities. Growth in agriculture is projected at of the COVID-19 outbreak that brought about stringent 4.8 percent in 2021 and 5.1 percent in the medium term, restrictions and renewed school closures to contain the assuming normal weather conditions, helped by the crisis in Nairobi and surrounding counties (Kiambu, Nakuru, ongoing global economic recovery that will stimulate Machakos and Kajiado). increased production of exports commodities (notably tea, cut flowers and vegetables). A return to normal working Private consumption is expected to be the main driver hours in factories and increased domestic demand of the recovery in domestic demand. The expected for manufactured products, in line with a recovery in recovery in private consumption is underpinned by private consumption, are expected to support growth adequate agricultural harvests, strong remittance inflows, in manufacturing sector. Construction will continue to and a pickup in real earnings reflecting the resumption benefit from government’s investment expenditures. As a of most economic activities as social restrictions are result, industrial output is projected to rise to 3.9 percent increasingly scaled down and the vaccination rate rises. in 2021, and gradually return to its historical growth rate in In contrast, government consumption is expected to the medium term. Table 4: Key economic indicators 2018 2019 2020 e 2021 f 2022 f 2023 f Real GDP growth, at constant market prices 6.3 5.4 -0.3 4.5 4.7 5.8 Private Consumption 6.5 5 1.3 5.1 5.2 6.1 Government Consumption 5.6 4.9 5.2 4.8 4 3.1 Gross Fixed Capital Investment 1.3 2.4 -3.3 4.2 4.3 7.4 Exports, Goods and Services 3.9 -0.2 -0.1 3.2 6 6.3 Imports, Goods and Services 2.5 -2 -0.6 5.6 6.2 6.5 Real GDP growth, at constant factor prices 6.3 5.5 -0.3 4.5 4.7 5.8 Agriculture 6 3.6 6.4 4.8 4.9 5.2 Industry 5.5 4.6 3.6 3.9 4.5 5.4 Services 6.7 6.7 -4.4 4.6 4.7 6.2 Inflation (Consumer Price Index) 4.7 5.2 5.3 5.4 5.6 5.6 Current Account Balance (% of GDP) -5.7 -5.8 -4.8 -5.2 -5.3 -5.5 Net Foreign Direct Investment (% of GDP) 1.7 1.1 0.3 0.5 1.1 1.3 Fiscal Balance (% of GDP) -7.4  -7.6  -7.8  -8.7  -7.5  -5.8  Debt (% of GDP) 59.2  62.0  65.8  68.6  69.5  68.3  Primary Balance (% of GDP) -3.6  -3.6  -3.5  -4.6  -3.2  -0.9  Source: World Bank estimates based on KNBS, Central Bank of Kenya and National Treasury data 10 Source: The National Treasury, 2021 Budget Policy Statement. June 2021 | Edition No. 23 17 The State of Kenya’s Economy Services are expected to gradually recover, but with (approximately US$10.9 billion at the current exchange large differences across sub-sectors. First, services that rate), equivalent to 10.7% of the cumulative expected remained resilient even during the height of the pandemic output from 2020-22 that was projected before COVID-19 so far are expected to maintain their momentum. These (Figure 37). include ICT, financial services, public administration, and health. Second, a moderate recovery will characterize other The current account deficit is projected to gradually services that contracted due to containment restrictions widen as domestic demand picks up. Kenya’s key exports, in 2020, including trade, and transport and storage. namely tea, cut flowers and horticulture, are expected to The hotels and restaurants subsector is projected to accelerate in 2021, supported by rising global demand recover more gradually, with the outlook hinging on how and strong harvests, but tourism-related services exports vaccination rollout progresses, infections are contained are likely to recover only slowly.11 Diaspora remittances globally, and international transport availability and cost are also projected to remain elevated. Nevertheless, the improve. Overall, services are projected to recover at only a current account deficit is projected to widen over the moderate pace over the medium term, and this underlies medium-term, as imports bounce back as a result of the the base case projection of GDP growth still remaining domestic economic recovery, and as international oil somewhat below its pre-COVID-19 pace (of around 5 prices rise.12 The current account deficit is expected to percent) through 2023. be adequately financed through a mix of government borrowing (multilateral and other concessional borrowing, Although economic growth is set to increase and supplemented with commercial borrowing to meet the ultimately recover to rates achieved before the pandemic, residual financing need), private sector borrowing, and COVID-19 will have inflicted a large, permanent loss of portfolio and foreign direct investment (which have scope output on Kenya. By 2023, real GDP growth is projected to to recover and grow substantially, having been suppressed have recovered to the pace expected at that time before by the pandemic in 2020). the crisis (close to six percent). Nevertheless, the growth recovery is not expected to be sufficient to make up for Monetary policy is expected to remain accommodative all the output lost as a result of economic growth stalling in the near term, but the unwinding of crisis measures in 2020 due to the crisis, and growth in 2021-22 will likely will generate headwinds for the financial sector. The fall short of previously expected rates due to the lingering CBK is expected to maintain an expansionary monetary negative economic impacts of the pandemic (Figure 36). policy stance, as is appropriate in the context of a negative As a result, and as is the case for most countries, COVID-19 output gap having opened up due to the shock, and low will have imposed permanent output losses on the Kenyan core inflationary pressures. However, with the expiry of economy. These losses are large, provisionally estimated CBK’s emergency measures to mitigate the impact of the as being on the order of KES 1.2 trillion through 2022 pandemic on households and businesses, the quantum Figure 36: GDP growth is projected to recover and return to the Figure 37: Even though growth will recover, COVID-19 will have pace projected pre-COVID-19 by 2023 caused a large permanent output loss Real GDP change-Historical & projections before COVID-19 Nominal GDP-Projections before COVID-19 Real GDP change-Projections after COVID-19 Nominal GDP-Projections after COVID-19 7.0 15,000 6.0 14,000 Permanent loss in 5.0 13,000 annual output (di erence between pre- and 4.0 post-COVID-19 nominal GDP) KES billion 12,000 3.0 11,000 2.0 10,000 1.0 9,000 0.0 8,000 -1.0 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 Source: World Bank estimates based on KNBS data Source: World Bank estimates based on KNBS data 11 In the latest survey of UNTWO panel of tourism experts, 60 percent of the respondents expected a rebound in international tourism only in 2022 and nearly half of the experts did not see a return to 2019 international tourism levels before 2024 or later. 12 The World Bank. Commodity Markets Outlook, April 2021. 18 June 2021 | Edition No. 23 The State of Kenya’s Economy of NPLs is forecasted to increase. A rise in NPLs would collection, and exports, and delayed fiscal consolidation. necessitate further provisioning by banks, which could Kenya’s debt indicators are expected to gradually improve impact overall sector profitability, despite the banking supported by the planned fiscal consolidation and sector currently being well-capitalized in aggregate. economic growth – the primary deficit is projected to shrink from 3.7 percent of GDP in 2021 to a small surplus in The fiscal deficit is projected to gradually decline. The 2024, while revenue is expected to rise by 1.6 percentage return to pre-pandemic VAT and CIT rates, introduction of points during the same period – and a recovery in exports new tax measures (taxation of digital platforms) provided for as the global economy reopens. Under the baseline, public by the Finance Act 202013, a renewed focus on streamlining debt is projected to increase from 68.6 percent of GDP tax exemptions (VAT and CIT), and additional policy and in FY2020/21 to 69.5 percent of GDP in FY2021/22, and administrative measures, are expected to raise revenue decline marginally to 68.3 percent of GDP in FY2022/23. from 16.5 percent of GDP in FY2020/21 to 18.1 percent of GDP by FY2023/24. Expenditure is projected to decline 2.2. Uncertainty as to the economic outlook remains elevated from 25.9 percent of GDP in FY2020/21 to 22.7 percent of GDP in FY2023/24, driven mainly by tightly controlling The economic outlook is clouded by high uncertainties. recurrent expenditure, while protecting social and A slower than anticipated vaccination rollout, fiscal development spending. The baseline assumes a gradual slippages, adverse weather conditions, and a weaker unwinding of remaining fiscal relief measures adopted to global economic backdrop could challenge the projected support economic recovery, which include tax relief for the recovery. In an adverse scenario involving the realization of lowest-earning income taxpayers persons (with monthly these downside risks, average growth would be lower, at incomes up to KSh 24,000), and increased allocation to 3.7 percent in 2021–22 (Figure 39). health and social protection. Under the baseline, the fiscal deficit is expected to narrow from 8.7 percent of GDP in The outlook remains highly dependent on the course FY2020/21 to 4.2 percent in FY2023/24 (Figure 38). of the pandemic in Kenya and globally. The baseline assumes a continued, albeit uneven and for some sectors Public debt is assessed to remain sustainable under the gradual, normalization in economic activity, supported by baseline assumptions, including fiscal consolidation. The the government successfully inoculating Kenya’s entire latest IMF-World Bank Debt Sustainability Analysis (DSA) adult population by mid-2022. However, as demonstrated published in April 2021 finds that Kenya’s debt position is by the recent third wave of the infections which peaked sustainable under baseline projections including the multi- at the end of March 2021, the risk remains that controlling year fiscal consolidation effort described above. However, COVID-19 will require additional, economically costly the risk of debt distress remains high as the COVID-19 measures. For example, the emergence of new vaccine- pandemic has constrained economic growth, revenue resistant variants of the virus could trigger more protracted Figure 38: Contained expenditures and increased revenue are Figure 39: Kenya’s projected economic recovery in the baseline and expected to moderate existing fiscal imbalances a more adverse scenario Primary de cit Interest payments Fiscal de cit GDP growth baseline scenario GDP growth downside scenario 10 8 8.7 9 7.8 7.5 8 6 7 5.6 Percent 6 Percent of GDP 4 5 4.2 4 2 3 2 0 1 0 -1 -2 2019/20 2020/21e 2021/22f 2022/23f 2023/24f 2018 2019 2020e 2021f 2022f 2023f Source: The National Treasury Source: World Bank estimates based on KNBS 13 The National Treasury, Budget Summary for FY 2021/22 submitted to Parliament for approval in April 2021. June 2021 | Edition No. 23 19 The State of Kenya’s Economy and extensive lockdowns and stifle the fragile recovery. in private consumption and investment, partly driven by A slower deployment of the COVID-19 vaccine due to credit to the private sector which is being supported by supply challenges, logistical impediments and vaccine accommodative monetary policy measures. However, hesitancy could weaken the recovery. In terms of external policymakers face a considerable challenge to calibrate factors, setbacks to the global economy due to a resurgence the adjustment of monetary policy to the pace of the in infection rates could adversely impact the projected economic recovery. This task could be complicated by gradual recovery in Kenya’s goods exports, tourism, and inflationary shocks (e.g., drought-induced food price capital inflows. spikes) or external shocks (e.g., global risk aversion causing external liquidity to tighten sharply). Fiscal slippage, as Adverse weather conditions and more severe locust described above, could also crowd out private credit and infestations could reduce agricultural output. The undermine the growth in domestic demand. baseline assumes normal rains based on the Kenya Meteorological Service projection.14 If instead there is Key external risks include a delayed upturn in global a recurrence of adverse drought conditions, this would growth and an unexpected increase in oil prices, which negatively impact agricultural output and reduce output could place pressure on Kenya’s external balances. Lower and income growth. A worsening locust infestation than anticipated growth in Kenya’s major trading partners constitutes another downside risk, with Kenya having been (the EU, UK, and EAC) could result in low exports and affected since mid-2019 by desert locust swarms, which so increase external imbalances. There remain uncertainties far have been confined to northern areas (Nakuru, Kajiado, around the timing of monetary policy tightening in the and Samburu counties) away from the main breadbasket US that could increase volatility in global financial markets region.15 However, the risk of locusts affecting agricultural and reduce capital flows to emerging and frontier markets harvests appears low, given the recent success in reducing such as Kenya.16 Should this occur, Kenya could face a rise swarms by means of ongoing control operations. in interest rates, currency depreciation, and weaker FDI and portfolio inflows. An additional potential source of pressure There is a risk that fiscal slippages undermine the on the external balances is an unexpected rise in oil prices, economic recovery and weaken macroeconomic which would increase Kenya’s energy import bill (about a stability. Fiscal slippages could occur due to more fifth of total imports), leading to a rise in fuel prices and prolonged pandemic impacts, and the political cycle inflationary pressures. given national elections scheduled for August 2022. This could widen fiscal deficits and further increase borrowing Overall, in a downside scenario involving a slower and debt, reduce the resources available for private sector pandemic recovery and weaker agricultural output, investments by crimping credit to the private sector, growth could slip below 4 percent. In a downside scenario and increase debt servicing costs. Similarly, increased assuming a more gradual recovery from the pandemic in external borrowing beyond current projections due to 2021, with more stringent movement restrictions, activity fiscal slippage could elevate debt risks. Mitigating this risk, in the manufacturing and key services sectors would the government is committed to its fiscal consolidation be severely constrained in H2 2021, and then recover program and aims to maximize the use of concessional partially in 2022. Growth in manufacturing output would financing, including through the IMF program adopted consequently remain subdued at about 1 percent in 2021- in April, as well as ongoing fiscal and wider policy and 22, whilst the services sub-sectors of accommodation institutional reform efforts. and restaurants, transport, education, and wholesale and retail trade, would all remain under significant pressure. In Slower growth in credit to the private sector, for example addition, agriculture would underperform, reducing the due to policy adjustments necessitated by shocks, sector’s growth to about 1 percent in 2021-22, for example could weaken the recovery in private consumption due to a more severe locust impact, adverse weather and investment. The baseline assumes a steady pickup conditions, or a sharp reduction in external demand. 14 Kenya Meteorological Department. “The weather outlook for the “long rains” (March–April–May) 2021 season and review of the weather during the October–December 2020 “short rains” season.” February 19, 2021. https://meteo.go.ke/forecast/seasonal-forecast 15 FAO, “Desert Locust situation update,” May 27, 2021. http://www.fao.org/ag/locusts/en/info/info/index.html 16 World Bank (2021). Global Monthly (GEP) March 2021. 20 June 2021 | Edition No. 23 The State of Kenya’s Economy Overall, growth in such an adverse scenario would be on investment needs) to spur a stronger than expected the order of 3.7 percent in 2021, implying even greater upswing in Kenya’s economic output. permanent pandemic losses and adding headwinds to the needed fiscal consolidation. Kenya’s economy is expected to recover from COVID-19, but the pandemic may leave permanent economic Recent upside growth surprises suggest it is also scars. Although the rates of economic growth and poverty possible that near-term economic performance exceeds reduction are expected to recover to pre-pandemic levels that in the baseline projections. Domestically, the strong by 2023 or sooner, the costs of the COVID-19 shock have performance of the agriculture sector in 2020 could be been high, and longer-term negative productivity and extended, helped by favorable weather conditions or growth impacts cannot be ruled out. With prolonged spells stronger than expected export demand, causing output to of unemployment and loss of earnings, the pandemic surpass that projected in the base case. Large economic could force widespread early dropouts from schools, dividends could potentially be realized rapidly from the and also worsen health outcomes and food insecurity, adoption of digital technologies which accelerated due thereby impairing long-term learning abilities. The closure to the pandemic. If the pandemic were to end more of schools and other educational institutions in 2020 and quickly than anticipated, including due to a faster rollout again in April 2021 has disrupted learning continuity which of vaccinations, the global economic backdrop would also could lead to a permanent reduction in the educational likely be stronger than factored into the base case, which attainment of affected student cohorts, and therefore to would support a more robust recovery in Kenya. In such their lifetime earnings and the economy’s skills base. In a scenario there could also be a very large boost to the addition to human capital, other assets driving sustainable, services activities most affected by the pandemic, including inclusive growth could be permanently eroded as well, food and accommodation (encompassing tourism), such as physical capital (due to investments forgone), education and transport. Given the large negative output and technological change (e.g., due to the destruction gap that opened up in the Kenyan economy in 2020 due of firms and loss of their know-how). These risks of the to the scale of the negative demand shock wrought by the economy being permanently scarred and suffering from pandemic, there is the potential for a more rapid recovery a lower growth path only add to the challenges faced by in demand (including due to pent-up consumption and policymakers, in Kenya and globally. 3. Policies Towards A Resilient Recovery Navigating the continuing health crisis and its economic an emphasis on increasing resilience and equitable impact remains the foremost priority in the near term. access. In the near term, the government should focus Policymakers should continue with the immediate and on continuing to strengthen the capacity of the system most critical policy objective of combating the virus and to suppress the pandemic, including through achieving supporting the economy to the extent possible given universal access to COVID-19 vaccines. As the crisis abates Kenya’s already stretched public finances. In addition, an and focus turns to a more equitable and sustainable health increasing focus is merited on the recovery phase and provision model, Kenya will need to make further gains to warding off the pandemic’s potentially persistent negative expand access to quality healthcare (as reflected in the Big effects on human capital, the labor market and firms. 4 Agenda which seeks to advance towards universal health coverage, UHC), and enhance its existing institutional The COVID-19 pandemic has shone a spotlight on the setup for monitoring and responding to communicable healthcare sector and elevated the agenda to improve disease outbreaks. access to and the quality of the system. The pandemic has stretched the healthcare system, revealing its The current accommodative monetary policy stance weaknesses and highlighting the significance and urgency remains appropriate. As inflation remains moderate, and of transforming the country’s healthcare system, with given the presence of a negative output gap as economic June 2021 | Edition No. 23 21 The State of Kenya’s Economy activity remains well below sustainable levels, the CBK’s increasing the efficiency of spending to sustain and ensure current policy to continue supporting the recovery by the quality of social and development expenditures. maintaining a historically low real policy rate in the near term appears appropriate. At the onset of the pandemic, Implementation of the proposed budget for FY2021/22 the CBK adopted measures to support liquidity and credit and medium-term fiscal consolidation plan will conditions, including cuts in the policy rate (by 125bps to strengthen Kenya’s economic recovery and fiscal 7 percent), a reduction in the cash reserve ratio (by 100bps position. The proposed budget targets a sizable fiscal to 4.25 percent) and the tripling of the allowable tenor of adjustment of 1.2 percentage points of GDP in FY2021/22 liquidity-injecting reverse repo instruments. Maintaining to reduce the overall fiscal deficit to 7.5 percent of GDP. The accommodation, with adjustments as appropriate as planned fiscal consolidation is centered around boosting economic conditions evolve, would provide more liquidity tax revenues through measures to broaden the tax base, support to banks that are likely to be affected by the new tax measures and streamlining tax exemptions. deterioration of credit quality, while at the same time Recurrent expenditures are budgeted to be tightly facing increasing demand for credit from MSMEs and other controlled. The budget anchors spending priorities to the firms, including as the economy re-opens. government’s Big 4 Agenda and the Economic Recovery Strategy. Of the net financing requirement of 7.5 percent Enhanced bank supervision is merited, considering of GDP, 2.2 percentage points is to be financed by external increased loan quality challenges. At the aggregate borrowing and 5.3 percentage points by net domestic level, Kenya’s banking system is well-capitalized, liquid borrowing. An abrupt, larger fiscal adjustment would likely and relatively profitable. However, the COVID-19 crisis be counterproductive as this would throttle the fragile has exacerbated pre-existing asset quality challenges, economic recovery. Conversely, slippages relative to the increasing NPLs. Almost 55 percent of bank-wide loans consolidation plan would increase financing pressures have been restructured to support borrowers. With likely and risks, and could weaken private sector confidence, ongoing pressure on the level of NPLs as the pandemic- investment and growth. related pressures continue, providing forward guidance regarding continued supportive measures, including to Well-targeted investments and policy reforms can help banks’ loan portfolio restructuring efforts, may be merited. to resume progress in human capital development and job-creation, which have been severely disrupted Fiscal policy should aim to balance the need to combat by the pandemic. Even before the pandemic struck, the pandemic with achieving fiscal consolidation over Kenya faced a major challenge to equip its fast-growing the medium term. A sustained fiscal adjustment to youth population with the right skills and productive narrow the gap between expenditures and revenues is job opportunities, and this challenge has only been essential to restore space for more social expenditures exacerbated by the strain the pandemic has placed upon and development spending, ensure capacity to absorb the education system, learning and job creation. The next future shocks, and to stabilize the debt trajectory to ensure part of this KEU describes how making progress on the sustainability and reduce currently high risks associated jobs and economic transformation agenda will be critical with the significant public debt burden. This places the to achieving a resilient recovery from COVID-19 and focus on mobilizing more domestic revenues through discusses the attendant policy priorities. administrative improvements and policy measures, and on 22 June 2021 | Edition No. 23 SPECIAL FOCUS KENYA’S GROWING LABOR FORCE AND THE JOBS CHALLENGE Photo: © Gerardo Pesantez / World Bank Special Focus 4. KENYA’S GROWING LABOR FORCE AND THE JOBS CHALLENGE 4.1. Kenya is at a key stage in its demographic Kenya's population is young and growing, creating on with the largest age cohort transiti the potential for an incipient demographic dividend – about to enter working age if jobs can keep up. In 2019, Kenya had a population of This special focus section of the KEU provides an update 47.6 million, with an annual population growth rate of 2.2 on the labor market in Kenya. It focuses on labor supply percent.18 About 39 percent of the population is younger and productivity using data from the Kenya Integrated than 15 years of age and 4 percent of the population is over Household Budget Survey (KIHBS) in 2005/06 and 2015/16 65. The largest age cohort is between 10 and 14 and will be as well as the Kenya Continuous Household Survey (KCHS) joining the labor force over the next decade (Figure 40). in 2019.17 The section shows how the jobs and economic Between 2020 and 2029, the working age population (18- transformation (JET) agenda is critical in Kenya, including 64) will increase by 1 million individuals annually (Figure to achieve a resilient recovery from the COVID-19 crisis, 43). The demographic transition occurring as this “youth and concludes with a discussion of policy priorities. The bulge” cohort attains working age will result in a decline in next KEU will complement this analysis with a special the dependency ratio (the average number of non-working focus on the labor demand side and associated policy age people supported by a person of working age), while recommendations. labor supply will increase significantly. If this increase in labor supply can be matched by a corresponding increase Figure 40: Population pyramid in good quality jobs, then average household and per Female Male capita incomes will increase.19 However, unlocking this All first potential demographic dividend will depend on 90-94 sufficiently increasing good economic opportunities, 80-84 70-74 especially for youthful labor market entrants. Failure to do 60-64 so could increase the risk of social unrest as large incoming 50-54 40-44 youth cohorts are faced with limited opportunities. 30-34 20-24 Varying fertility rates across the country imply regional 10-14 0-4 differences in the demographic transition, which may -4 -3 -2 -1 0 1 2 3 4 exacerbate inequality. Fertility has declined from the Millions 1970s, when each woman had more than 8 children on Source: 2019 Kenya Population and Housing Census, Volume III Figure 41: Total fertility rate by county, 2014 9 8 7 6 5 4 3 2 1 0 Elgeyo Marakwet Nyandarua Homa Bay Samburu Taita Taveta Embu Siaya Nandi Makueni Marsabit Machakos Mombasa Kirinyaga Migori Murang'a Trans-Nzoia Mandera Bungoma Narok Meru Turkana Lamu Laikipia Nyamira Kakamega West Pokot Bomet Nyeri Nairobi Kiambu Kajiado Busia Isiolo Uasin Gishu Nakuru Baringo Vihiga All Tana River Kericho Wajir Kwale Kisumu Garissa Kitui Kisii Tharaka-Nithi Kili All NEDI Non-NEDI Source: DHS 2018 StatComplier (2014 data) 17 Household survey data are used in this note to better understand the characteristics of workers and barriers that specific groups may face. While there have been large gaps between surveys in the past, the Kenya National Bureau of Statistics (KNBS) has started implementation of the Kenya Continuous Household Survey (KCHS) since 2019. The KCHS provides quarterly labor statistics. Future analyses of the labor market will benefit from the availability of more frequent survey data. The KNBS also produces the Kenya Economic Survey annually which contains employment data based on a firm-level survey. This survey does not contain details on worker characteristics, hence the reliance on currently available household survey data in this note. 18 In the years between the previous census, 2009, and the latest census, 2019. 2009 Kenya Population and Housing Census 2009, Volume II, and 2019 Kenya Population and Housing Census, Volume III. 19 Over a 30-year period, countries experiencing a demographic dividend can increase per capita consumption by an additional 41 percentage points (Mason et al., 2016). 24 June 2021 | Edition No. 23 Special Focus average, to just over 3 children in 2019.20 However, fertility demographic transition, both formal quality job creation rates vary across counties and are much higher among and informal sector productivity need to be boosted to the NEDI counties (Figure 41; the data are from the 2014 generate sufficient quality jobs. If job creation instead were DHS and thus, whilst the latest available, are dated). Higher to stagnate, there would be a growing employment deficit fertility rates will slow the reduction in the dependency (Figure 43). Kenya thus faces a major challenge to produce ratio in these counties and increase the challenge of more jobs and productive opportunities. generating enough productive work and earnings. Women, who typically spend larger amounts of time than men in 4.2. Kenya’s economy is changing, with services becoming more central, but care activities, are likely to be disproportionately affected. ll considerable scope to there is sti Furthermore, since the NEDI counties already suffer from accelerate transformati on substantially higher poverty rates, this will tend to increase Kenya’s economy relies increasingly on the services geospatial inequalities. sector. The services sector has become the largest contributor to GDP and its growth, with the agriculture and About 68 percent of the population continues to live in industry sectors contributing smaller amounts (Figure 7 in rural areas, reflecting a relatively low level of urbanization Part A, above).21 The services sector contributed over half compared to other countries in sub-Saharan Africa. The of all value-added in 2019 (Figure 44). Nevertheless, the proportion of the Kenyan population living in urban areas agricultural share of value-added only stopped increasing is much lower than the sub-Saharan Africa (SSA) and lower- in 2017, and remains the highest among Kenya’s regional middle income country (LMIC) averages, although it is and SSA LMIC peers, which is more than double the similar to its east African peers (Figure 42). Although the average for SSA and LMIC countries (Figure 45). urbanization rate is rising, it is doing so relatively slowly, and even as late as 2050 most of the population is still Wide differences in labor productivity across sectors projected by the UN to remain in rural areas (just over 60 remain. Industry is the most productive sector in Kenya percent of the population). (i.e., the average value of output per worker is the highest of any sector) and has seen robust growth in productivity The pace of job creation will need to increase significantly over the last 15 years (Figure 46). However, this sector still to avoid increasing employment deficits. At present (and accounts for only a small share of jobs. Most Kenyans work even setting aside the recent COVID-19 shock), only a in agriculture or in low-productivity services jobs, where small proportion of new labor market entrants find formal productivity has stagnated (Figure 46). Consequently, jobs. The vast majority find work in the informal sector. As there is still a lot of scope for economic transformation the annual number of entrants increases, in line with the to occur and drive productivity and income growth. Figure 42: Share of population in urban areas, 1960 to 2019 Figure 43: Historical job creation and historical & projected new entrants into the work force22 Ethiopia Kenya Lower middle income Rwanda New Formal Jobs New Informal Jobs New Entrants Sub-Saharan Africa (excluding high income) Tanzania Uganda 1,400,000 50 1,200,000 40 1,000,000 30 800,000 Percent 600,000 20 400,000 10 200,000 0 0 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Source: United Nations Population Division Source: World Bank calculation based on the Kenya Economic Survey 2020 (for job Note: The share of the population in urban areas is 32 percent according to the 2019 creation) and Kenya Continuous Household Survey (KCHS) 2019 (for new workforce census, above the 28 percent in the United Nations Population Division data (used in entrants) Figure 42). 20 Data source: United Nations World Population Prospects. 21 This and other statements in this section on the growth characteristics of Kenya’s economy are based on the multi-year pattern prior to the COVID-19 shock. In 2020, agriculture exceptionally is expected to have contributed the most to growth, due to the unprecedented contraction in services activity due to the pandemic. 22 New entrants are defined as the number of individuals turning 18 minus the number of individuals turning 65. June 2021 | Edition No. 23 25 Special Focus Figure 44: Sector value-added Figure 45: Comparison of sector value-added in 2019 Agriculture Industry Services Agriculture Share (RHS) Agriculture Industry Services 5,000 40 100 4,500 35 80 Value Added (% of GDP) 4,000 30 3,500 Constant LCU (Billions) Value Added (% of GDP) 25 60 3,000 2,500 20 40 2,000 15 1,500 20 10 1,000 500 5 0 0 0 Kenya Ethiopia Rwanda Uganda Angola Ghana Zambia LMIC SSA 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Kenya East Africa LMIC Groups Source: World Bank, Kenya Economic Update 18 and 22, and the World Development Source: World Bank, Kenya Economic Update 18 and 22, and the World Development Indicators Indicators The still wide gap between average productivity across 4.3. Labor supply in Kenya is abundant, but sectors means that if such structural transformation can certain demographic groups are more be reinvigorated, large productivity and income gains vity vulnerable to inacti could be generated. For example, on average, a worker The labor force participation rate has increased in industry is approximately eight times as productive as significantly, by 6 percentage points between 2006 one in agriculture, and a worker in services is roughly three and 2019. Due to the demographic transition, the share times as productive as one in agriculture. New patterns of of Kenyans who are of working age has increased by 3 economic transformation are emerging in Africa, that differ percentage points between 2005/06 and 2019 (Figure from the manufacturing-led transformation of East Asia. A63 and Figure 47).25 Over the same period, the share of Several non-industrial sectors – such as food processing, working-age people who are working or looking for work, tourism and information communication technologies increased by nearly 6.8 million. As a result, the labor force (ICT), among others – share many of the positive growth participation rate (LFP) increase by 6 percentage points, characteristics of manufacturing.23 The main caveat is that from 63 percent in 2005/06 to 69 percent in 2019 (Figure those services with the capacity to act as productivity 48). This 6 percentage point increase is twice as large as escalators tend to require relatively high skills.24 the percentage point increase in working age population. Figure 46: Value-added per worker Figure 47: 2019 Population breakdown Agriculture Industry Services 9,000 8,000 7,000 6,000 2010 US$ 5,000 4,000 3,000 2,000 1,000 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: World Development Indicators Source: KCHS 2019 23 Newfarmer, R., Page, J. & Tarp, F. eds. (2019). Industries without Smokestacks: Industrialization in Africa Reconsidered, Oxford University Press and Kriticos, S. and Henderson, V. (2019). The prospects for manufacturing-led growth in Africa’s cities. IGC Growth Brief Series 020. London: International Growth Centre. 24 African Development Report 2015 Growth, Poverty and Inequality Nexus: Overcoming Barriers to Sustainable Development. Chapter 6: Structural transformation, agriculture and Africa’s development. 25 This is an increase from 54 percent in 2005/06 to 57 percent in 2019. 26 June 2021 | Edition No. 23 Special Focus Figure 48: Labor force participation, 2005, 2015/16, and 2019 Figure 49: Female labor force participation National Rural Urban 100 75 84 81 80 76 77 72 71 70 68 64 65 60 Percent Percent 65 40 60 20 0 55 KCHS WDI Ethiopia Rwanda Tanzania Uganda Angola Ghana Zambia 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Kenya East Africa LMIC Source: World Bank calculation based on KIHBS 2005/06 and 2015/16, and KCHS 2019 Source: World Development Indicators & KCHS 2019 Kenya’s female labor force participation rate, however, there is a steep gradation in the labor force participation falls below that of some regional peers. Kenya’s overall among those who are better educated, with 92 percent labor force participation is about average compared to of those with completed tertiary education participating countries with similar incomes. Considering female labor- in the labor force in 2015/16 compared to 79 percent of force participation, Kenya compares favorably with SSA those who have completed secondary education. At the and LMIC countries on average, but worse than most same time, LFP is much lower (a) among those living in neighboring east African countries (Figure 49). NEDI counties, with just 53 percent of the working age population participating in 2015/166; (b) among females Specific segments of the population have particularly (69 percent in 2015/16); and (c) among those with primary high labor force participation (LFP) rates, while certain education (68 percent). To realize a demographic dividend, vulnerable groups are more often inactive. About 93 and so that growth can be more equitably distributed, it percent of those aged 35-44 were in the labor force in 2015/16; is important to understand the barriers that these groups as were 91 percent of those aged 45-64 (Table 5). Likewise, face in the labor market and to address them. Table 5: Change in labor force activity (percent) 2015/16 2019 Percentage point Share of Share of Share of Share of Share of Share of decrease WAP total LF category WAP total LF category in LFP from in LF in LF 2015/16 to 2019 Male 49 52 77 49 52 74 3 Gender Female 51 48 69 51 48 64 5 15-24 36 22 43 34 19 38 6 25-34 27 32 87 26 31 82 5 Age 35-44 18 23 93 19 24 88 5 45-64 19 23 91 21 27 87 4 None 32 32 72 30 30 68 4 Primary 37 34 68 34 30 61 6 Education Secondary 28 30 79 32 35 75 3 Tertiary 3 4 92 4 5 89 2 Rural 66 66 73 68 68 68 5 Location Urban 34 34 73 32 32 71 2 Non-NEDI 90 93 75 90 94 71 4 Region NEDI 10 7 53 10 6 46 6 Source: World Bank calculation based on KIHBS 2015/16 and KCHS 2019 26 It is even lower among females in NEDI counties, with just 48 percent of those in the working age range participating in the labor force. June 2021 | Edition No. 23 27 Special Focus Inactivity rates in the most vulnerable groups increased on slowed down even prior to 4.4. Job creati between 2015/16 and 2019. Between 2015/16 and 2019, the COVID-19 crisis a lack of job opportunities among other factors (discussed Employment diversified from agriculture in the decade further below), reduced labor supply. For instance, 73 to 2015/16. Nearly 58 percent of the population was percent of the working age population was in the labor working in the agricultural sector in 2005/06, while the force in 2015/16, but this declined to 69 percent by 2019. services sector accounted for 34 percent, and industry for 7 The labor force participation rates among all groups fell percent of employment (Figure 51). Over the next decade, between 2015/16 and 2019 (Table 5), but the fall was there was a pronounced movement away from agriculture particularly steep for those already vulnerable, such as and into both industry and services. By 2015/16, the share those in NEDI counties (an 6 percentage point [pp] drop)27; of agricultural employment dropped to 46 percent, the for those with primary education (6 pp); and among share of employment in services increased to 41 percent, women (5 pp). Inactivity also grew among those aged 15- and in industry to 12 percent. Compared to its regional 24 (6 pp). While 79 percent of those aged 15-24 outside counterparts, Kenya now has a lower reliance on agricultural of the labor force were in education in 2015/16, only 76 sector employment, and a larger proportion of service percent are in education in 2019. This is concerning, since sector employment (Figure 52). While this is in line with improving education levels and skills in the incoming the sub-Saharan Africa average, Kenya has some distance cohorts is important to improve job match quality and to go to catch-up with the LMIC average, suggesting that productivity. there is scope for further diversification from agricultural employment and, again, for economic transformation.28 While most individuals outside the labor force are inactive due to family responsibilities, an increasing Over half a million more people were employed (3 share are discouraged workers, unable to find jobs. percent) in total between 2015/16 and 2019 (Table 6); Just under half of individuals outside the labor force cite however, employment transition to more productive family responsibilities as the reason for not looking for sectors has stalled in the last 5 years. Analysis using KIHBS work. This share remained constant between 2015/16 and 2015/16 and KCHS 2019 indicates a 3 percent increase in 2019 (Figure 50). However, the share who are discouraged, the total number of people employed over this four year or believe there are no jobs in the location, increased period (Table 6). However, the pace of diversification of significantly between the two years from 16 to 23 percent. employment from agriculture to more productive sectors The lack of jobs is more often a reason for not looking for stalled, even before the COVID-19 pandemic affected the work among men (being attributed to 41 percent of non- economy. The number of those employed in industry participation vs. 17 percent for women). declined by 9 percent; by contrast employment in both Figure 50: Reasons for not seeking work in the last four weeks Figure 51: Sector of employment 2005/06, 2015/16 and 2019 among those outside the labor force No jobs in location/suitable jobs/discouraged Disability/pregnancy/sickness Agriculture Industry Services Housewife/family resp Childcare/transport problems Retired/student 70 No need/other 100 60 90 50 80 70 40 Percent 60 Percent 50 30 40 30 20 20 10 10 0 2015/16 2019 2015/16 2019 2015/16 2019 2015/16 2019 2015/16 2019 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 All Male Female Rural Urban Source: World Bank Calculation based on the KCHS 2019 Note: Error bars represent the 95% confidence intervals. Source: World Bank calculation based on KIHBS 2005/06 and 2015/16, and KCHS 2019 27 And the fall was particularly sharp among women in NEDI counties, at 11.9 percentage points between 2015/16 and 2019. 28 See Figure 0.8 in Merotto, D., Weber, M, and Aterido, R. “Pathways to Better Jobs in IDA Countries.” 28 June 2021 | Edition No. 23 Special Focus Table 6: Changes in employment by sector 2015/16 2019 Change Number Percent Number Percent Number Percent Agriculture Total 7,999,243 46 8,429,616 47 430,373 5 Mining 156,175 1 99,799 1 -56,376 -36 Manufacturing 869,664 5 847,168 5 -22,496 -3 Industry Utilities and Construction 1,011,763 6 909,143 5 -102,620 -10 Total 2,037,601 12 1,856,110 10 -181,491 -9 Trade 2,720,854 16 2,708,038 15 -12,816 0 Transport 775,005 5 863,916 5 88,911 11 Accommodation 495,410 3 418,932 2 -76,478 -15 ICT 97,963 1 82,711 0 -15,252 -16 Services Finance and Real Estate 97,707 1 224,456 1 126,749 130 Professional and administrative 618,280 4 545,195 3 -73,085 -12 Education, health and social service 1,184,658 7 1,497,361 8 312,703 26 Other services 1,094,035 6 1,122,514 6 28,479 3 Total 7,083,912 41 7,463,122 42 379,210 5 Total 29 Total 17,205,598 17,767,418 561,820 3 Source: World Bank calculation based on KIHBS 2015/16 and KCHS 2019 agriculture and services increased, and by 5 percent wage employment were men. About 59 percent of all each. Agricultural employment equaled 47 percent of men in urban areas with secondary education who were total employment in 2019, essentially unchanged since employed were in wage employment at private firms; 2015/16, employing just under 8.5 million Kenyans (Table 6 and an additional 12 percent were in public wage and Figure 51). The second largest source of employment is employment (see Table 7). Likewise, 58 percent of men wholesale and retail trade (with 2.7 million employed) and in urban areas with primary education or less were in the third largest is education, health and social services (1.5 wage employment at private firms; but only 2 percent million – Table 6). of this group were in public wage employment. Wage employment is high among women in urban areas as Wage employment increased between 2005/2006 and well, but at least 10 percentage points lower than men 2015/2016, but then declined among all education with similar levels of education. levels (Figure 53). In 2019, two-thirds of individuals in Figure 52: International comparisons of sectoral employment Figure 53: Changes in employment status Wage Employment Self Employment Agriculture Industry Services Unpaid Family Work Apprentice & Other 100 70 90 80 60 70 50 60 Percent Percent 50 40 40 30 30 20 20 10 10 0 Kenya Ethiopia Rwanda Tanzania Uganda LMIC SSA 0 East Africa Groups 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: World Bank calculations based on KCHS 2019 and World Development Note: Error bars represent the 95% confidence intervals. Indicators Source: World Bank calculation based on KIHBS 2005/06 and 2015/16, and the KCHS 2019 29 The difference between the sum of workers in agriculture, industry, and services and the overall total is individuals who did not state their sector of work (84,842 in 2015/16 and 18,569 in 2019). June 2021 | Edition No. 23 29 Special Focus Table 7: Breakdown of the working-aged population in 2019 by gender, location, and education (percent) Share Share of Category that is… Share of Employed in… of… Labor Inactive Unem- Em- Public Private Non- Farm Unpaid Other Force ployed ployed wage wage farm family self work Male, Urban, Primary or less 6 29 4 67 2 58 32 5 1 1 Male, Urban, Secondary or more 13 14 7 79 12 59 24 2 1 1 Male, Rural, Primary or less 23 32 2 66 2 33 15 45 3 1 Male, Rural, Secondary or more 10 21 4 75 16 30 17 33 2 2 Female, Urban, Primary or less 5 48 4 48 1 37 48 10 3 1 Female, Urban, Secondary or more 8 32 9 59 13 47 33 4 2 2 Female, Rural, Primary or less 26 36 1 63 0 15 16 63 5 1 Female, Rural, Secondary or more 8 28 5 66 15 18 18 43 4 2 All - 31 4 65 6 31 20 38 3 1 Source: World Bank calculation based on the KCHS 2019 Unpaid family work has declined steadily as a share of Figure 54: Share of wage employment in the public sector work between 2005/06 and 2015/2016, and further 2005/06 2015/16 2019 60 until 2019; and self-employment has increased steadily over the same period. Unpaid family work declined from 50 28 percent of all employment in 2005/06 to 8 percent in 40 2015/16, to 3 percent in 2019. Overall self-employment Percent 30 (both in and outside of the agriculture sector) increased from 39 percent in 2005 to 43 percent in 2015/16, and 20 then 58 percent by 2019. Furthermore, the share of self- 10 employment has increased more among lower levels of education, suggesting a bifurcation of the labor market 0 All Male Female Rural Urban No Primary Secondary Tertiary Education – with greater reliance on self-employment among the less educated. Note: Error bars represent the 95% confidence intervals. Source: World Bank calculation based on KIHBS 2005/06 and 2015/16, and the KCHS 2019 A large and increasing share of university graduates The unemployment rate more than halved between are working in the public sector. Less than one-fifth of 2005/06 and 2015/16 from 10 to 3 percent before overall wage employment is in the public sector. However, increasing to 5 percent in 2019. Unemployment in urban in 2019 just under half of those with a university degree areas is more than double the rate in rural areas (Figure and in wage employment, were in the public sector. This 55). While the unemployment rate is lower than other increased from just over one-third in 2015/16 (Figure 54). African LMICs, it is around average compared to its regional Youth typically prefer public sector jobs due to greater peers (Figure 57). Underemployment is more often a job stability and benefits as well as perceived status.30 larger challenge for lower income countries than open Furthermore, individuals working in the public sector earn unemployment31, and indicates an insufficient use of a a premium of 17 percent on average over those with similar worker’s productive capacity.32 Combined unemployment characteristics and skills who work in the private sector. and underemployment rates are greater in youth (15-35), However, the increasing share of the more highly educated women, rural individuals, and those with little education working in the public sector may limit the availability of (Figure 56), indicating that these demographics in the high skilled workers to the private sector, which in turn labor force are underutilized.33 may limit private sector productivity and therefore growth. 30 World Bank, “Kenya. Jobs for Youth.” 31 Merotto, D., Weber, M, and Aterido, R. “Pathways to Better Jobs in IDA Countries.” 32 International Labour Organization, “Resolution Concerning the Measurement of Underemployment and Inadequate Employment Situations.” 33 Time-related underemployment is defined as individuals who work less than 28 hours per week but would work additional hours and are available to work additional hours if given the opportunity. See KNBS, “Economic Survey 2018.” 30 June 2021 | Edition No. 23 Special Focus Figure 55: Unemployment Figure 56: Unemployment and underemployment34 National Rural Urban 2015/16 2019 20 20 18 18 16 16 14 14 12 12 Percent Percent 10 10 8 8 6 6 4 4 2 2 0 All 15-35 36-64 Male Female Rural Urban No Primary Secondary University 0 Education 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Source: Earnings depend strongly on educational attainment. younger cohorts (Table 8). Some 38 percent of those aged The earnings premium increases with each level of 18-24 have completed primary education, compared with education. For instance, a worker with primary education 30 percent of those aged 25-34 and 28 percent of those can expect to earn the same as an individual who has not aged 35-64. An even higher share of those aged 18-24 have completed primary education. The premium in earnings completed secondary education (46 percent), compared compared to having no formal education begins at 27 to 42% of those aged 25-34 and 27 percent of those aged percent for individuals who have completed secondary 35-64. Even though access to education has increased education, 72 percent for those with completed college among the younger cohorts, improving the quality of education and 158 percent for those with completed education remains important. Workers often lack basic tertiary education (Figure 58).35 skills such as reading or writing, and computer skills. A skills survey from 201336 finds that most adults with secondary Kenya has made great strides in providing education, but education are functionally illiterate in English. Also, among both education and skills remain low among the current individuals with university education less than one quarter stock of workers. Despite little difference in completed are functionally literate in English. Employers furthermore tertiary education across age cohorts, the completion identify the inability to handle computers for work related of both primary and secondary education is higher for tasks as one of the most significant skills gaps among Figure 57: Unemployment rate as percentage of the labor force Figure 58: Earnings premium (difference from average earnings (National estimates) with no formal education, percent)37 18 180 16 157 160 14 140 Percent of LF 12 120 Percent 10 100 8 80 72 6 60 4 40 27 2 20 0 1 Kenya Ethiopia Rwanda Tanzania Uganda Angola Ghana Zambia 0 (2019) (2013) (2019) (2014) (2017) (2014) (2017) (2018) Primary Secondary College Tertiary East Africa LMICs Education Note: Error bars represent the 95% confidence intervals. Source: World Bank calculation based on KIHBS 2015/16 Source: World Bank calculation based on KIHBS 2005/06 and 2015/16, the KCHS 2019, and the World Development Indicators. 34 Hours worked is missing for subsistence farmers in the KCHS 2019 data due to the questionnaire design. Hours worked are therefore imputed using the KIHBS 2015/16 data. 35 Figures based on a Mincer regression model that includes individual and employment characteristics (2015/16 data). 36 Kenya STEP survey, 2013. 37 College refers to mid-level education below the university level such as diplomas, while tertiary refers to university education. June 2021 | Edition No. 23 31 Special Focus white-collar workers. Workers not formally employed often a path dependency between education and access to indicate not using basic skills like reading and writing in continued learning on the job. their occupation. About 40 percent of workers feel they are underqualified for their job, whilst 30 percent perceive Table 8: Younger cohorts have more education compared to older workers (percent) themselves to be overqualified.38 There is a need for No Second- Primary Tertiary tailored programs to increase short-term productivity and Education ary earnings both in wage employment and self-employment. 18-34 18 33 44 4 All And these programs need to tackle both socioemotional 35-64 41 28 27 4 and technical skills. 18-34 22 35 41 3 Informal 35-64 43 31 25 2 For those already working, training and retraining 18-34 1 5 69 25 Formal opportunities remain limited. Less than 30 percent of 35-64 7 9 59 26 urban individuals between 15 and 64 attended training 18-34 20 33 42 4 Private (certificate, traineeship or on-the-job training).39 Even 35-64 42 30 26 2 though the informal sector also provides on-the-job 18-34 2 7 68 23 Public training, access to training is higher among those formally 35-64 7 5 59 29 employed and among more educated individuals, creating Source: World Bank calculation based on KCHS 2019 Box 1: COVID-19 and employment outcomes Strict containment measures initially reduced mobility, but movement has increased over time. As described in Part A, the COVID-19 pandemic started in early 2020 in Kenya, with the first case reported on March 13, 2020. The government has adopted various measures to contain the outbreak, and people’s behaviour has also responded to the pandemic. These have impacted economic activity and therefore the labor market. Employment has slowly recovered in the early months of 2021. The pandemic initially resulted in huge losses of employment, dropping from 71 percent of the population at the end of 2019 to 50 percent in May–June 2020. However, once mobility restrictions were lifted, the situation began improving, with employment increasing to 66 percent in January–March 2021. Unemployment has halved from 18 percent in October–November 2020 to 9 percent in January–March 2021 (Figure 59). Urban unemployment has dropped strongly from 25 percent to 14 percent. Despite the improvement, however, employment remained 5 percentage points below pre-pandemic levels (Figure 60).40 Figure 59: Labor force participation (18-64) Figure 60: Employment and unemployment (18-64) Employed Unemployed Out of Labor Force Employed Unemployed 100 90 80 Percent of population 90 25 25 25 31 70 80 40 60 4 50 Percent of population 70 9 18 40 12 60 10 30 50 20 40 10 71% 66 0 30 Q4 '19 (KCHS) May- Jun '20 Jul- Sep '20 Oct-Nov '20 Jan- Mar '21 Q4 '19 (KCHS) May- Jun '20 Jul- Sep '20 Oct-Nov '20 Jan- Mar '21 Q4 '19 (KCHS) May- Jun '20 Jul- Sep '20 Oct-Nov '20 Jan- Mar '21 Q4 '19 (KCHS) May- Jun '20 Jul- Sep '20 Oct-Nov '20 Jan- Mar '21 Q4 '19 (KCHS) May- Jun '20 Jul- Sep '20 Oct-Nov '20 Jan- Mar '21 Q4 '19 (KCHS) May- Jun '20 Jul- Sep '20 Oct-Nov '20 Jan- Mar '21 58 57 50 20 10 Primary Secondary Women Men Rural Urban 0 or less or higher Q4 '19 (KCHS) May-Jun '20 Jul-Sep '20 Oct-Nov '20 Jan-Mar '21 Education Level Gender Location Note: Error bars represent the 95% confidence intervals. Note: Error bars represent the 95% confidence intervals. Source: World Bank calculation based on the Rapid Response Phone Survey (RRPS) Source: World Bank calculation based on the Rapid Response Phone Survey (RRPS) in Kenya in Kenya 38 The information in this paragraph is based on World Bank, “Kenya. Jobs for Youth.”, which uses the 2013 STEP data. 39 World Bank. Jobs for Youth. 40 While the labor force statistics in the phone survey were designed to be comparable with the quarterly labor indicators released by the KNBS, the mode of data collection (phones instead of face-to-face interviews), as well as the selection of the respondents can limit comparability. Furthermore, the KNBS does not include refugees in their labor force statistics. The presented statistics based on the KCHS data also differ from the official labor force statistics published by the KNBS, as the latter uses a different age group (15–64). 32 June 2021 | Edition No. 23 Special Focus Box 1: COVID-19 and employment outcomes (contd.) Wage earnings and hours worked have improved for wage workers after initially declining. The pandemic also affected hours worked and earnings. Despite an initial decline in 2020 towards the end of the year, hours worked, and earnings had almost recovered to their pre-pandemic level. However, the initial months of 2021 show a slight reversal of the recovery, with hours worked by women the only exception. Women in wage employment saw larger declines in both their hours worked and earnings (Figure 61 and Figure 62). Figure 61: Hours worked in the last 7 days Figure 62: Earnings over the past 14 days 60 14000 50 12000 40 10000 8000 30 KSh Hours 6000 20 4000 10 2000 0 0 Feb '20 May-June '20 July-Sept '20 Oct-Nov '20 Jan-Mar '21 Feb '20 May-June '20 July-Sept '20 Oct-Nov '20 Jan-Mar '21 Feb '20 May-June '20 July-Sept '20 Oct-Nov '20 Jan-Mar '21 May-June '20 May-June '20 May-June '20 July-Sept '20 July-Sept '20 July-Sept '20 Oct-Nov '20 Oct-Nov '20 Oct-Nov '20 Jan-Mar '21 Jan-Mar '21 Jan-Mar '21 Feb '20 Feb '20 Feb '20 All Men Women All Men Women Note: Error bars represent the 95% confidence intervals. Note: Error bars represent the 95% confidence intervals. Source: World Bank calculations based on the RRPS in Kenya Source: World Bank calculations based on the RRPS in Kenya ng the challenge of producing 4.5. Meeti income. Continued improvements in human capital will more, and more producti ve, jobs contribute to economic transformation and sustained Kenya’s job creation rate will need to increase to reap increased economic opportunities. Investment in early the potential benefits from its demographic transition. childhood development, increasing primary healthcare Kenya’s economy is not currently on track to produce a coverage (as in the government’s vision of universal sufficient number of jobs to benefit from its demographic healthcare), and increasing the quality of education dividend, since workers entering the labor force are likely can provide fundamental skills to be productive and to enter low-productivity agriculture or service sector adaptive to changing skill demands to future entrants jobs. To achieve a demographic dividend, the economy in the labor force. For those already in the labor force, needs to produce more quality jobs by accelerating active labor market programs should support worker economic transformation. The COVID-19 pandemic has employability by helping connect workers to relevant added to this challenge by disrupting economic activity opportunities and ensuring that the poorest households and causing job losses. This special focus section discusses progress from subsistence agriculture or very low- developments as they relate to the labor supply side of productivity jobs towards developing sustainable and jobs in Kenya. The recommendations below also relate higher sources of income.41 to improvements needed to labor supply to accelerate economic transformation. The next edition of the KEU will Current workers, especially youth and women, need complement this with a special focus on the labor demand multifaceted support, combining training to develop (firms) side; and will include recommendations on reforms different skills, financing, and support in connecting needed to ensure private sector driven creation of better- to better opportunities, to increase their employment quality jobs. and earnings. As workers face multiple constraints in finding employment, there is a need for integrated Continued investment in human capital and social interventions that address the multiple constraints they protection is required so that those entering the labor face to increase their productivity and find employment. force are productive and workers can progress from low- These include interventions that tackle both the lack of productivity activities to sustainable sources of higher skills of various dimensions (socioemotional, cognitive, 41 IDA, “Special Theme: Jobs and Economic Transformation” June 2021 | Edition No. 23 33 Special Focus technical, ICT 42), on-the-job training and job search support strong private sector involvement is key. The education for those seeking wage employment, and support to start system needs to ensure it provides its graduates with the businesses (including both financing, business training, skills that employers are looking for. In higher education, behavioral facets, and connecting to markets). Additional curricula need to be adjusted to encompass task-based measures can target young women to empower them activities to prepare youth for work after graduation. Box and provide support for their labor force participation, 2 provides a brief description of the role of the tertiary recognizing the additional challenges they frequently education sector and attendant reform challenges. In face due to having and caring for children. For short-term technical and vocational education and training (TVET), technical skills training, there is need to have a diverse set foundational skills must be reinforced to equip graduates of training providers with strong linkages to employers. for lifelong learning. The skills that are taught need to be up-to-date and suited to changes in technology and work For the self-employed, the major segment in Kenya, a methods. For both higher education and TVET, strong new wave of programs in addition to traditional business linkages with employers are key. Universities should offer training and provision of finance is important to lift and mediate apprenticeships or internships to enhance aspiration, encourage proactive behavior, and support their students’ work-based skills.45 In higher education, connecting to markets. While traditional interventions of this can be facilitated by more frequent interactions financing and training on business practices show impacts, between employers and educational institutes. In TVET, these are relatively small.43 Alternative interventions the private sector can help to shape training curricula, include behavioral interventions that encourage review training institutions, and collaborate closely on the entrepreneurialism, build networks, improve management content of internships and apprenticeships. Well-designed skills, and also support linking to markets.44 apprenticeship programs designed closely with private sector employees can help ease the transition from school- To increase success in the school-to-work transition, to-work.46 Private sector involvement in training could be technical skills, whether taught in general higher incentivized through targeted subsidies. education or TVET, need to be more relevant; and The education system needs to ensure it provides its graduates with the skills that employers are looking for Photo: © Photo: Festo Lang © Festo Lang,| World Bank 42 Jonas Hjort and Jonas Poulsen, “The arrival of fast internet and employment in Africa.” 43 McKenzie, David. 2020. Small Business Training to Improve Management Practices in Developing Countries : Reassessing the Evidence for ‘Training Doesn’t Work’. Policy Research Working Paper; No. 9408. World Bank 44 McKenzie, 2017a, Jayachandran, 2020. Note that there is still insufficient information on cost effectiveness of programs. 45 Arias, “The Skills Balancing Act in Sub-Saharan Africa.” 46 The Employment and Skills for Eastern Africa Initiative in Kenya (E4D/SOGA) is a good example of this, with competence-based courses for five occupations in coordination with the Technical University of Mombasa and the Technical University of Kenya. This involves collaboration with universities and business associations and offers internships and placements for graduates from vocational colleges and unskilled employees to improve employability. 34 June 2021 | Edition No. 23 Special Focus Box 2: Higher Education in Kenya Equipping Kenya’s fast-growing labor force with the increasingly advanced skills needed to meet the needs of a transforming middle-income economy will require continued investments in higher education. The performance of the higher education sector will also help determine further progress in the social sectors, especially education and health which are the cornerstones of overall human capital development, since this is conditional upon the availability of well-trained teachers, medical doctors and other health specialists, especially in the aftermath of the Covid-19 pandemic. The sector has grown rapidly in the past decade. Public universities increased from seven chartered public universities and 15 constituent colleges in 2012 to 31 chartered public universities and seven constituent colleges in 2019, whilst chartered private universities increased from 15 to 36. Enrolment has also grown strongly, from about 440,000 learners in FY2014/15 to about 520,000 in 2017/18. Expenditure on higher education has also grown and is now over one-fifth of total public spending on education. However, even as it has expanded, the higher education sector faces serious equity, quality, and financing challenges, many of which have been exacerbated by the pandemic. Access to higher education is highly unequal. The proportion of university students from the richest income quintile is 49 times larger than the proportion from the poorest quintile.47 Children from disadvantaged backgrounds find it more difficult to make it through basic education and are more likely to record poor performance in the end of secondary cycle examinations, and thus not qualified to transit to higher education. Rapid growth has also come at the expense of quality. Many Kenyan universities do not have sufficient numbers of qualified staff, resulting in soaring student-teacher ratios and undermining the quality of existing programs. Teaching and learning practices continue to be very traditional in most higher education institutions, with overreliance on rote learning and outdated curricula. In the present context of severely constrained fiscal space, there is little room to increase public resource allocations towards higher education. The financing situation for the sector is highly constrained, with many universities facing severe cashflow problems and declining financial resources for the university student loan scheme (HELB). Budget shortfalls and weak loan collection have limited loan availability for low-income students. Compounding the constraints to public funding, available resources are not allocated on the basis of an objective and transparent funding model. Rather, university budgets are negotiated directly with the National Treasury, reflecting historical transfers and the influence of each university’s leadership. As a result, the per-student allocation that each university receives varies significantly, which is both unequitable and inefficient. The Government is planning a number of reforms to address these challenges and lift the performance of universities. To support Kenyan universities during the post-pandemic recovery phase and build their resilience, the proposed policies will focus on investment in expertise and capacities for online course development and instructional design competencies, as well as the adoption of clear evaluation and accreditation regulations to ensure the quality of programs delivered through virtual education modalities. A second set of policies supports the design and implementation of a sustainable financing strategy and implementation of a stronger governance structure at the national level. This will entail a shift from input-based financing to a performance- based funding model that relies on objective and transparent allocation criteria and procedures. Using either a funding formula or a performance contract, the Government will link the amounts of resources allocated to each higher education institution to indicators of institutional performance. This will help boost the results of higher education institutions and align their mission better with the development priorities of Kenya. In addition, the revised University Act will streamline the overlapping mandates of the many existing governance and regulatory bodies in higher education, which will rationalize the use of public resources and make the governance set up of the higher education sub-sector more efficient. 47 Based on enrolment rates of 0.2 percent and 9.8 percent for school-leavers from households in the lowest and highest household income quintiles (Source: KIHBS 2015/16). June 2021 | Edition No. 23 35 Special Focus To accelerate economic transformation, providing Up-to-date labor market information can greatly inform solid cognitive and socioemotional foundational skills skills development and support current and future are key for future workers to acquire technical skills workers’ transitions to better jobs. Productivity gains also later in life and to adapting to changing skills demand. accrue as workers move into more productive sectors, Besides technical and job-specific skills, life-skills are also firms, and occupations. Better labor market information important for success in work.48 Many workers entering systems that contain information on occupations and skills TVET lack foundational skills, which have to be addressed in demand would help identify which skills to develop and both in programs, but also at earlier stages, for instance facilitate the movement of trained workers into growing in early childhood and basic education.49 The provision sectors and occupations. Using information on returns of additional digital skills may provide opportunities for to education in different occupations, complementary individuals to obtain white-collar jobs, as this is the most information campaigns can encourage women in particular significant skills gap listed by employers. Addressing these to move to occupations that have higher pay and that are supply-side constraints can allow more people to access traditionally male dominated.51 better jobs.50 48 Azevedo, “Testing what works in youth employment: Evaluating Kenya’s Ninaweza program 49 Arias, “The Skills Balancing Act in Sub-Saharan Africa.” 50 The World Bank, “Unleashing Private Sector Dynamism to Achieve Kenya’s Full Potential. Kenya Country Private Sector Diagnostic.” 51 Hicks, “Evaluating the impact of vocational education vouchers on out-of-school youth in Kenya.” 36 June 2021 | Edition No. 23 REFERENCES African Development Report 2015 Growth, Poverty and Inequality Nexus: Overcoming Barriers to Sustainable Development. Alvares de Azevedo, Thomaz, Jeff Davis, and Munene Charles. 2013. “Testing What Works in Youth Employment: Evaluating Kenya’s Ninaweza Program. Arias, Omar; Evans, David K.; Santos, Indhira. 2019. The Skills Balancing Act in Sub-Saharan Africa : Investing in Skills for Productivity, Inclusivity, and Adaptability. Africa Development Forum;. Washington, DC: World Bank and Agence française de développement. © World Bank. https://openknowledge.worldbank.org/ handle/10986/31723 License: CC BY 3.0 IGO Hicks, J., Kremer, M., Mbiti, I., & Miguel, E. (2016). Evaluating the impact of vocational education vouchers on out-of-school youth in Kenya. Impact Evaluation Report, 37. International Labour Organization, “Resolution Concerning the Measurement of Underemployment and Inadequate Employment Situations.” Kenya Meteorological Department. “The weather outlook for the “long rains” (March–April–May) 2021 season and review of the weather during the October–December 2020 “short rains” season.” February 19, 2021. Kriticos, S. and Henderson, V. (2019). The prospects for manufacturing-led growth in Africa’s cities. IGC Growth Brief Series 020. London: International Growth Centre. Mason, A., Lee, R. & Jiang, J.X. (2016). Demographic Dividends, Human Capital, and Saving, Journal of the Economics of Ageing. McKenzie, David. 2017. How Effective Are Active Labor Market Policies in Developing Countries? : A Critical Review of Recent Evidence. Policy Research Working Paper;No. 8011. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/26352 License: CC BY 3.0 IGO. McKenzie, David. 2020. Small Business Training to Improve Management Practices in Developing Countries : Reassessing the Evidence for ‘Training Doesn’t Work’. Policy Research Working Paper; No. 9408. World Bank. Merotto, D., Weber, M, and Aterido, R. “Pathways to Better Jobs in IDA Countries.” Newfarmer, R., Page, J. & Tarp, F. eds. (2019). Industries without Smokestacks: Industrialization in Africa Reconsidered, Oxford University Press. Seema Jayachandran, 2020. “Microentrepreneurship in Developing Countries,” CESifo Working Paper Series 8086, CESifo. The National Treasury and Planning. 2020. “Budget Review and Outlook Paper (BROP)”. September 2020. Nairobi. The National Treasury and Planning. 2020. “PUBLIC DEBT MANAGEMENT REPORT 2019/2020”. September 2020. Nairobi. The National Treasury and Planning. 2021. “Budget Statement. Theme: Building Back Better: Strategy for Resilient and Sustainable Economic Recovery and Inclusive Growth”. June 2021. Nairobi. The National Treasury and Planning. 2021. “Medium Term Budget Policy Statement”. February 2021. Nairobi. The National Treasury. Quarterly Budget and Economic Review, various issues. Nairobi. World Bank, “Unleashing Private Sector Dynamism to Achieve Kenya’s Full Potential. Kenya Country Private Sector Diagnostic.” World Bank. (2021). “Global Economic Prospects”, Washington, D.C., June 2021: https://www.worldbank.org/en/ publication/global-economic-prospects June 2021 | Edition No. 23 37 References World Bank. “Africa’s Pulse: Charting the Road to Recovery” Washington, D.C., October 2020: https:// openknowledge.worldbank.org/handle/10986/34587 World Bank. “Kenya Economic Update April 2020. Turbulent Times for Growth in Kenya. Policy Options during the COVID-19 Pandemic.” Washington, D.C., 2020. World Bank. “Kenya Economic Update December 2017. POISED TO BOUNCE BACK? Reviving Private Sector Credit Growth and Boosting Revenue Mobilization to Support Fiscal Consolidation.” Washington, D.C., 2017. World Bank. “Kenya Economic Update November 2020. Navigating the Pandemic.” Washington, D.C., 2020. 38 June 2021 | Edition No. 23 ANNEX Annex LABOR SUPPLY STATISTICS Figure A63: 2005/06 Population breakdown Figure A64: 2015/16 Population breakdown 40 June 2021 | Edition No. 23 Annex Figure A65: Labor force status 2005/06, 2015/16 and 2019 Employed Employed + Education Unemployed Education NILF 100 90 80 70 60 Percent 50 40 30 20 10 0 2005/06 2015/16 2019 2005/06 2015/16 2019 2005/06 2015/16 2019 2005/06 2015/16 2019 2005/06 2015/16 2019 2005/06 2015/16 2019 2005/06 2015/16 2019 2005/06 2015/16 2019 2005/06 2015/16 2019 2005/06 2015/16 2019 2005/06 2015/16 2019 All Men Women 15- 35 36- 64 Rural Urban No Primary Secondary University Education RRPS METHODOLOGY 1. Household Survey The Kenya COVID-19 RRPS for households, is structured as a five-wave bi-monthly panel survey that monitors the socioeconomic impacts of the pandemic and targets Kenyan nationals, refugees and stateless people. Households are interviewed every two months. Four rounds of the survey are already completed, with the first round having been implemented in May through June 2020, the second in July through September 2020, the third round in September through November 2020 and the fourth round in January through March 2021 (Table A9). Since the first week of data collection, an online dashboard displays weekly results on the impacts of COVID-19 on households in Kenya. Table A9: Sample size Wave 1 Wave 2 Wave 3 Wave 4 May 14 to July 16 to September 18 to January 25 to Data collection July 7, 2020 September 18, 2020 November 28, 2020 March 25, 2021 KNBS Sample 3,294 3, 664 3,982 4,021 RDD Sample 769 840 1,011 839 UNHCR Sample 1,326 1,687 1,469 1,350 Total Sample 5,389 6,191 6,462 6,210 Source: Kenya COVID-19 RRPS The survey sample was drawn from three different sampling frames. The first is a randomly drawn subset of the 2015/16 Kenya Integrated Household Budget Survey (KIHBS). The 2015/16 KIHBS is representative at the national level, stratified by county and place of residence (urban and rural areas). To select the sample, the Kenya COVID-19 RRPS firstly identified all households that were part of the KIHBS CAPI and provided a phone number and used the resulting list of 9,009 households as a sampling frame. The second sample comprises households selected using the Random Digit Dialing (RDD) method, whereby phone numbers potentially existing in Kenya are randomly generated. A list of random mobile phone numbers was created using a random number generator from the 2020 Numbering Frame produced by the Kenya Communications Authority. The initial sampling frame consisted of 92,999,970 randomly ordered phone numbers assigned to three networks: Safaricom, Airtel and Telkom. An introductory text message was sent to 5000 randomly selected numbers to determine if numbers were in operation. Out of these, 4,075 were found to be active and formed the final sampling frame. There was no stratification and individuals that were reached through the selected phone numbers were asked about the households they live in. These first two groups cover urban and rural areas and are designed to be representative of the population of Kenya using cell phones. The third RRPS sample consisted of urban and camp-based refugees as well as stateless people registered by the UNHCR. The sample aims to be representative of the refugee and stateless population in Kenya. It comprises five strata: Kakuma refugee camp, Kalobeyei settlement, Dadaab refugee camp, urban refugees, and Shona stateless, where sampling approaches differ across strata. 52 For access to further details on the survey, weekly results, and micro-data library, check here June 2021 | Edition No. 23 41 Annex STATISTICAL TABLES Table B1: Selected economic indicators, 2016- 2023 2017 2018 2019 2020 2021 2022 2023 Act. Act. Act. Act. Est. Proj. Proj. Output and prices (Annual percentage change, unless otherwise indicated) Real GDP 4.4 6.3 5.4 -0.3 4.5 4.7 5.8 Agriculture 1.6 6.0 3.6 6.4 4.8 4.9 5.2 Industry 3.9 5.5 4.6 3.6 3.9 4.5 5.4 Services 5.9 6.7 6.7 -4.4 4.6 4.7 6.2 Private consumption 7.4 6.5 5.0 1.3 5.1 5.2 6.1 Government consumption 3.9 5.6 4.9 5.2 4.8 4.0 3.1 Gross fixed capital investment 8.3 1.3 2.4 -3.3 4.2 4.3 7.4 Exports, goods and services -6.2 3.9 -0.2 -0.1 3.2 6.0 6.3 Imports, good and services 8.6 2.5 -2.0 -0.6 5.6 6.2 6.5 GDP deflator 10.9 2.4 4.0 9.2 6.1 6.4 CPI (period average) 8.0 4.7 5.2 5.3 5.4 5.6 5.6 Money and credit (Annual percentage change, unless otherwise indicated) Broad money (M3) 7.9 9.8 5.6 13.2 .. .. .. Credit to non-government sector 3.1 4.8 7.1 8.3 .. .. .. Policy rate (CBR) 10.0 9.0 8.9 7.2 .. .. .. NPLs (percent of total loans) 8.9 10.0 12.0 14.1 .. .. .. Central government (fiscal year i.e 2016 = 2016/17) (Percent of GDP, unless otherwise indicated) Total revenue & grants 18.2 18.4 17.3 17.2 16.8 17.6 18.5 Tax revenues 16.0 16.0 15.5 14.3 14.3 15.6 16.4 Non-tax revenues 3.1 2.2 1.6 2.2 2.1 1.7 1.8 Grants 0.3 0.2 0.2 0.7 0.4 0.3 0.3 Expenditure 25.2 26.0 25.2 25.9 24.3 23.3 22.7 Current 15.8 16.3 16.2 16.4 16.0 15.4 15.1 Capital 5.5 5.8 5.8 5.8 4.9 4.9 4.9 Primary balance -3.6 -3.6 -3.5 -4.6 -3.0 -0.9 0.3 Overall balance including grants -7.4 -7.6 -7.8 -8.7 -7.5 -5.6 -4.2 Financing 7.4 7.8 7.8 9.0 7.5 5.6 4.2 Net domestic borrowing 3.2 3.3 4.4 5.4 5.3 3.7 3.1 Foreign financing 4.2 4.5 3.3 3.6 2.2 1.9 1.1 Public debt stock (fiscal year i.e 2015 = 2016/17) (Percent of GDP, unless otherwise indicated) Public gross nominal debt 59.2 62.4 65.8 68.6 69.3 68.1 65.2 External debt 30.1 32.5 34.5 35.3 34.0 32.5 30.2 Domestic debt 29.1 29.9 31.2 30.7 35.3 35.6 34.9 Memo: GDP at current market prices (KSh billion) 8,166 8,892 9,741 10,536 11,956 13,439 Source: World Bank, based on data from Kenya National Bureau of Statistics, National Treasury and Central Bank of Kenya 42 June 2021 | Edition No. 23 Annex Table B2: GDP growth rates for Kenya and EAC (2015-2020) 2015 2016 2017 2018 2019 2020e Kenya 5.7 5.9 4.8 6.3 5.4 -0.3 Uganda 5.2 4.8 3.8 6.2 6.8 2.9 Tanzania 6.2 6.9 6.8 5.4 5.8 2.0 Rwanda 8.8 5.9 4.0 8.6 9.4 -3.3 Burundi -3.9 -0.6 0.5 1.6 1.8 0.3 EAC 5.8 5.9 5.1 6.1 6.0 0.9 Source: World Bank Note: “e” denotes an estimate EAC Average excludes South Sudan Table B3: Kenya annual GDP (2012-2019) GDP, GDP, 2009 GDP/capita, Years GDP growth current prices constant prices current prices KSh Millions KSh Millions US$ Percent 2008 2,483,058 2,772,019 917 0.2 2009 2,863,688 2,863,688 920 3.3 2010 3,169,301 3,104,303 967 8.4 2011 3,725,918 3,294,026 972 6.1 2012 4,261,370 3,444,339 1,137 4.6 2013 4,745,090 3,646,821 1,210 5.9 2014 5,402,647 3,842,186 1,316 5.4 2015 6,284,185 4,061,901 1,337 5.7 2016 7,022,963 4,300,699 1,411 5.9 2017 8,165,842 4,509,822 1,568 4.8 2018 8,892,111 4,792,174 1,711 6.3 2019 9,740,360 5,050,184 1,943 5.4 Source: Kenya National Bureau of Stastics and World Development Indicators June 2021 | Edition No. 23 43 44 Table B4: Contribution by Broad sub-sectors (percentage points) Industry by sub sector contribution Service by sub sector contribution Agriculture Year Quarterly contribution Industries Accommo- Information Services Mining and Electricity and Transport and Financial and to GDP Manufacturing Construction dation and Real estate and communi- Other quarrying water supply storage insurance restaurant cation Q1 2.0 0.1 0.3 0.2 0.6 1.2 -0.1 0.5 0.5 0.3 0.6 0.6 2.3 June 2021 | Edition No. 23 Q2 1.1 0.1 0.3 0.3 0.6 1.3 0.0 0.6 0.5 0.2 0.5 1.0 2.9 2015 Q3 0.8 0.2 0.5 0.2 0.8 1.7 0.0 0.7 0.6 0.2 0.7 1.1 3.4 Q4 0.8 0.1 0.4 0.1 0.7 1.3 0.1 0.4 0.7 0.3 0.4 0.8 2.7 Q1 1.0 0.1 0.2 0.2 0.4 0.9 0.1 0.5 0.7 0.4 0.5 0.8 3.0 Q2 1.8 0.1 0.5 0.3 0.4 1.3 0.1 0.4 0.7 0.2 0.4 1.0 2.9 2016 Q3 0.4 0.1 0.4 0.2 0.5 1.2 0.1 0.3 0.7 0.3 0.4 1.3 3.1 Q4 1.0 0.2 0.2 0.1 0.7 1.2 0.2 0.6 0.7 0.5 0.4 1.4 3.8 Q1 1.1 0.1 0.2 0.2 0.4 0.8 0.3 0.5 0.5 0.5 0.2 0.9 2.9 Q2 0.1 0.0 0.0 0.2 0.5 0.8 0.1 0.5 0.5 0.3 0.2 1.2 2.9 2017 Q3 0.4 0.0 0.0 0.2 0.3 0.5 0.1 0.4 0.5 0.4 0.1 1.3 2.9 Q4 -0.2 0.0 0.0 0.1 0.7 0.8 0.1 0.7 0.5 0.5 0.1 1.8 3.6 Q1 1.8 0.0 0.4 0.3 0.2 0.9 0.2 0.4 0.4 0.5 0.2 1.2 3.0 Q2 1.4 0.0 0.5 0.3 0.2 1.0 0.1 0.4 0.4 0.4 0.2 1.4 3.0 2018 Q3 1.2 0.0 0.5 0.4 0.2 1.2 0.2 0.6 0.3 0.4 0.3 1.6 3.4 Q4 0.6 0.0 0.4 0.5 0.2 1.1 0.3 0.9 0.3 0.6 0.5 1.5 4.1 Q2 0.5 0.0 0.4 0.2 0.4 1.0 0.1 0.5 0.5 0.3 0.3 1.5 3.1 2019 Q3 0.9 0.0 0.4 0.2 0.4 1.0 0.1 0.6 0.5 0.3 0.5 1.4 3.4 Q4 0.6 0.0 0.2 0.2 0.4 0.8 0.2 0.8 0.4 0.5 0.4 1.3 3.5 Q1 1.5 0.1 0.3 0.2 0.3 0.8 -0.1 0.4 0.4 0.4 0.4 1.1 2.5 2020 Q2 1.7 0.1 -0.4 0.0 0.2 -0.1 -0.9 -0.8 0.2 0.2 0.2 -4.4 -5.5 Q3 1.1 0.2 -0.3 0.1 0.9 0.9 -0.8 0.2 0.5 0.3 0.3 -3.2 -2.7 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 Annex Annex Table B5: National Fiscal position Actual (percent of GDP) 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20* 2020/21** Revenue and Grants 19.7 19.7 19.5 19.1 19.2 18.2 18.4 17.3 17.2 Total Revenue 19.2 19.2 19.0 18.7 18.8 17.9 18.2 17.1 16.5 Tax revenue 17.2 18.1 17.7 17.2 17.0 16.0 16.0 15.5 14.3 Income tax 8.3 8.9 8.7 8.4 8.1 7.5 7.3 6.9 6.6 VAT 4.1 4.6 4.5 4.3 4.4 4.2 4.4 3.8 3.5 Import Duty 1.3 1.3 1.3 1.2 1.2 1.1 1.1 1.0 0.9 Excise Duty 1.9 2.0 2.0 2.1 2.2 2.0 2.1 1.9 1.9 Other Revenues 1.7 1.3 1.3 1.2 1.1 1.2 3.3 3.5 3.7 Railway Levy 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Appropriation in Aid 2.0 1.1 1.3 1.5 1.7 1.9 2.2 1.6 2.3 Grants 0.5 0.5 0.5 0.4 0.4 0.3 0.2 0.2 0.7 Expenditure and Net Lending 25.1 25.6 28.1 26.9 27.5 25.2 26.0 25.2 25.9 Recurrent 18.1 14.8 15.4 15.4 15.2 15.8 16.3 16.2 16.4 Wages and salaries 6.1 5.5 5.1 4.6 4.4 4.6 4.5 4.4 4.5 Interest Payments 2.7 2.7 2.9 3.2 3.5 3.8 4.0 4.3 4.1 Other recurrent 9.3 6.6 7.3 7.7 7.3 7.5 7.8 7.5 7.8 Development and net lending 6.8 6.3 8.8 7.3 8.4 5.5 5.8 5.8 5.8 County allocation 0.2 3.8 3.9 4.1 4.0 3.8 3.9 3.2 3.6 Contingencies 0.0 0.0 0.1 0.1 0.1 0.0 0.0 0.0 0.0 Parliamentary Service 0.4 0.4 0.3 0.0 0.0 0.0 0.0 0.0 Judicial Service 0.3 0.2 0.2 0.0 0.0 0.0 0.0 0.0 Fiscal balance Deficit including grants (cash basis) -5.7 -6.1 -8.1 -7.1 -9.1 -7.4 -7.6 -7.8 -8.7 Financing 5.7 6.1 8.1 7.1 9.1 7.4 7.7 7.8 8.7 Foreign Financing 3.8 4.0 3.7 4.0 5.0 4.2 4.4 3.3 3.8 Domestic Financing 1.9 2.1 4.4 3.1 4.1 3.2 3.3 4.4 4.9 Total Public Debt (gross) 42.1 47.8 48.8 53.8 57.4 59.2 62.0 65.8 68.6 External Debt 18.7 22.4 24.4 26.8 29.9 30.1 32.3 34.6 35.3 Domestic Debt 23.3 25.3 24.4 27.1 27.5 29.1 29.7 31.2 33.3 Memo: GDP (Fiscal year current market prices, KSh bn) 4,503 5,074 5,832 6,710 7,675 8,518 9,367 10,175 11,169 Source: September 2020 Budget Review and Outlook Paper (BROP) and Quarterly Budgetary Economic Review (first quarter, Financial Year 2020/2021), National Treasury Note: *indicate Preliminary results June 2021 | Edition No. 23 45 46 Table B6: 12-months cumulative balance of payments BPM6 Concept (US$ million) 2013 2014 2015 2016 2017 2018 2019 2020 Feb-2021 A. Current Account, n.i.e. (5,427) (6,442) (4,303) (3,387) (5,685) (5,048) (5,541) (462) (385) Merchandise A/C (10,220) (10,775) (8,388) (7,666) (10,186) (10,201) (10,679) (8349) (8411) Goods: exports f.o.b. 5,870 6,155 5,970 5,745 5,801 6,088 5,872 6,061 6,036 Goods: imports f.o.b. 16,089 16,929 14,358 13,411 15,987 16,289 16,551 14,410 14,446 June 2021 | Edition No. 23 Oil 3,838 4,026 2,500 2,087 2,728 3,386 3,310 2,218 2,199 Services 2,318 1,676 1,317 1,432 1,556 1,596 1,767 239 109 Services: credit 5,130 5,023 4,636 4,164 4,648 5,477 5,621 3,834 3,634 Services: debit 2,813 3,347 3,319 2,732 3,092 3,881 3,854 3,595 3,525 Income 2,475 2,657 2,769 2,847 2,945 3,557 3,371 3,547 3,784 B. Capital Account, n.i.e. 158 275 262 206 184 263 208 130 160 C. Financial Account, n.i.e. (5,204) (7,398) (3,914) (4,424) (5,563) (6,547) (6,233) (2,774) (2,896) Direct investment: net (920) (746) (382) (523) (1,010) (1,463) (1,132) (244) (242) Portfolio investment: net (273) (3,716) 156 350 789 (627) (1,312) 1,389 1,290 Financial derivatives: net - - - 5 4 11 (5) Other investment: net (4,011) (2,936) (3,688) (4,255) (5,342) (4,457) (3,789) (3,920) -3944 D. Net Errors and Omissions 434 221 (128) (1,112) (166) (720) 154 866 545 E. Overall Balance (369) (1,453) 255 (131) 108 (1,030) (1,059) 784 917 F. Reserves and Related Items 369 1,453 (255) 131 (108) 1,030 1,059 (784.3) (916.9) Reserve assets 859 1,333 (361) 40 (228) 885 905 (818.5) (951.3) Credit and loans from the IMF 177 (119) (107) (91) (120) (145) (154) (34.2) (34.4) Exceptional financing 312 - - - - - - Gross Reserves (USD Million) 8,483 9,738 9,794 9,588 9,646 11,516 12,851 12,992 12,839 Official 6,560 7,895 7,534 7,573 7,332 8,231 9,116 8,297 7,802 Commercial Banks 1,923 1,843 2,259 2,015 2,314 3,286 3,735 4,695 5,037 Imports cover (36 months import) 4.5 5.1 4.8 5.0 5 5 6 5 5 Memo: Annual GDP at Current prices (USD Million) 54,978 59,735 41,372 42,370 43,587 47,306 49,536 97,055 96,898 Source: Central Bank of Kenya Annex Annex Table B7: Inflation Year Month Overall Inflation Food Inflation Energy Inflation Core Inflation January 4.8 4.7 6.1 4.0 February 4.5 3.8 6.2 4.2 March 4.2 2.2 8.2 4.1 April 3.7 0.3 10.2 4.1 May 4.0 0.3 11.4 3.9 June 4.3 0.9 11.9 4.0 2018 July 4.4 0.5 12.4 4.1 August 4.0 1.2 14.2 4.3 September 5.7 0.5 17.4 4.5 October 5.5 0.5 16.5 4.7 November 5.6 1.7 14.3 4.4 December 5.7 2.5 13.8 4.0 January 4.7 1.6 12.1 3.4 February 4.1 1.1 11.4 3.1 March 4.4 2.8 8.8 3.1 April 6.6 8.2 7.5 3.1 May 5.5 6.3 6.7 3.0 June 5.7 7.0 6.3 2.9 2019 July 6.3 8.5 6.2 2.7 August 5.0 7.1 4.0 2.3 September 3.8 6.3 1.3 2.1 October 5.0 8.7 1.5 1.9 November 5.6 9.6 2.3 1.9 December 5.8 10.0 2.5 1.8 January 5.8 14.9 4.7 2.2 February 6.4 9.6 5.5 2.3 March 5.5 11.9 4.5 1.9 April 5.6 11.6 4.9 2.0 May 5.3 10.6 5.0 1.8 June 4.6 8.2 5.4 1.6 2020 July 4.4 6.6 6.1 2.0 August 4.4 5.4 7.6 2.1 September 4.2 5.2 7.6 1.9 October 4.8 5.8 8.2 2.5 November 5.3 6.1 7.8 2.9 December 5.6 7.2 8.1 2.9 January 5.7 7.4 8.7 2.7 February 5.8 6.9 10.1 2.7 2021 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 Source: World Bank, based on data from Kenya National Bureau of Statistics June 2021 | Edition No. 23 47 48 Table B8: 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 1.9 -7.6 12.0 5.1 5.4 -10.9 -1.3 8.2 -6.7 -1.4 1.4 0.0 -10.6 February 2.2 -12.9 13.1 6.8 4.8 -13.9 4.9 8.4 -6.7 -2.7 2.3 -0.3 -2.2 March 2.1 -6.2 11.2 5.4 12.6 -18.4 11.6 4.5 -2.7 -0.7 4.7 -0.5 -6.3 April 2.9 -4.4 10.1 5.0 14.3 -17.8 10.1 3.6 -4.4 2.6 5.0 2.8 -2.2 May 3.9 -3.3 12.1 6.8 9.2 -14.9 2.6 3.7 -3.5 3.8 5.5 11.0 -7.5 June 4.3 -4.7 12.2 8.5 13.3 -12.7 3.8 3.8 -9.1 2.9 7.8 6.7 -7.9 June 2021 | Edition No. 23 2018 July 4.3 -6.5 11.5 6.5 13.5 -10.7 8.5 4.3 0.2 2.9 9.1 3.3 -5.8 August 4.3 -4.3 13.2 6.9 14.7 -11.0 3.5 0.9 -9.1 2.7 11.5 6.5 -4.6 September 3.8 -6.0 11.9 3.2 11.1 -9.1 6.6 1.7 -15.5 5.1 7.8 4.3 2.7 October 4.4 -5.6 14.8 4.0 7.1 -7.7 9.1 1.2 -11.6 5.1 7.6 12.1 -12.4 November 3.0 -0.1 10.6 3.2 8.9 -10.7 5.3 -1.1 -10.6 5.4 8.9 9.5 -23.4 December 2.4 -2.0 6.5 2.9 1.8 -9.4 17.5 -0.5 -10.7 6.8 11.0 8.0 -34.8 January 3.0 -0.2 6.5 6.6 1.4 -6.5 15.4 -2.6 -14.5 5.6 15.4 0.0 -27.2 February 3.4 -2.6 7.7 6.4 2.6 -0.7 13.1 -2.9 -13.4 6.6 16.1 0.3 -33.1 March 4.3 0.2 7.2 8.7 -7.0 5.7 10.2 -0.1 -11.4 8.0 13.9 -0.4 -31.7 April 4.9 2.5 7.9 8.4 -6.5 6.4 13.3 -0.7 -12.5 7.9 16.4 1.1 -29.6 May 4.4 2.7 6.5 7.6 -4.1 6.2 6.7 -0.5 -7.9 7.8 18.0 -1.2 -32.0 June 5.2 3.9 11.4 5.5 -6.3 5.8 4.7 1.0 -4.3 7.6 21.3 -3.2 -22.6 2019 July 6.1 7.6 10.3 8.0 -5.4 6.4 5.3 0.5 -13.5 7.1 23.6 1.6 -17.2 August 6.3 6.6 7.5 8.4 -6.0 5.8 8.2 2.4 -10.8 8.6 23.0 -0.1 -14.4 September 7.0 5.5 7.5 7.6 -5.3 5.0 14.5 2.2 -5.1 8.8 28.4 3.2 -13.6 October 6.6 -5.2 6.4 10.2 -5.5 4.8 15.1 0.4 0.1 5.3 28.6 -0.4 12.7 November 7.3 -6.1 7.5 8.8 -6.1 9.8 15.8 1.9 -3.2 6.1 25.9 -0.3 30.9 December 7.1 -2.4 9.2 8.9 1.6 8.1 0.4 1.5 -5.8 5.6 26.0 2.4 16.0 January 7.3 -4.8 12.7 6.0 4.0 9.9 -1.1 3.5 -9.4 5.6 21.4 1.5 24.4 February 7.7 0.2 10.4 9.5 -0.5 7.4 1.9 3.4 -14.6 5.9 20.6 2.4 33.4 March 8.9 1.4 15.3 9.4 9.5 7.1 6.6 2.2 3.9 3.4 24.1 3.3 36.8 April 9.0 2.8 20.1 10.3 7.7 9.1 3.1 4.8 11.0 2.2 19.6 1.2 14.3 May 8.2 2.6 18.2 8.0 5.7 5.7 8.4 4.4 5.8 3.2 16.7 2.7 16.9 June 7.7 2.2 11.1 9.4 4.6 14.9 3.2 4.9 10.0 3.6 15.2 5.3 -3.7 2020 July 7.9 1.1 10.0 9.1 5.5 20.7 3.5 5.0 11.3 5.4 13.8 3.2 -6.7 August 8.3 0.9 13.1 8.1 5.2 19.0 4.6 6.8 12.0 5.1 13.7 3.4 -7.6 September 7.6 1.7 12.6 6.6 4.1 20.6 -3.3 6.6 8.2 3.5 15.6 4.1 -5.8 October 7.7 17.0 7.8 2.5 8.2 21.1 -2.2 7.6 -14.2 7.3 15.7 5.9 -10.4 November 8.3 19.3 10.0 4.0 7.4 17.5 0.2 9.1 -15.4 6.2 18.8 2.7 -14.5 December 8.3 15.3 12.0 3.8 3.4 13.6 7.1 8.7 -12.9 4.3 18.1 4.0 14.0 January 9.2 15.6 12.6 5.5 2.5 14.4 14.0 8.8 -6.1 5.2 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 4.6 20.3 5.0 4.0 2021 March 7.6 April 6.6 Source: Central Bank of Kenya Annex Annex Table B9: Mobile payments Number of Number of Value of Year Month Number of Agents customers transactions transactions (Millions) (Millions) (Billions) January 188,029 37.8 136.7 323.0 February 192,117 38.4 132.3 300.9 March 196,002 39.3 147.5 337.1 April 201,795 40.3 142.1 313.0 May 202,387 41.7 141.0 329.0 June 197,286 42.6 137.4 317.7 2018 July 200,227 42.6 143.1 332.4 August 202,627 43.6 149.5 348.9 September 203,359 44.3 146.0 327.7 October 211,961 45.4 155.2 343.2 November 206,312 46.2 153.2 343.9 December 205,745 47.7 155.8 367.8 January 201,336 40.3 154.2 368.0 February 212,252 50.0 144.5 328.2 March 226,957 50.4 161.4 368.4 April 230,220 52.0 155.8 360.2 May 224,825 52.2 153.3 364.3 June 222,484 46.8 149.7 346.8 2019 July 222,087 53.9 153.0 366.4 August 222,479 54.8 151.8 368.5 September 224959 55.7 151.2 365.9 October 223176 56.3 156.1 366.9 November 222211 58.0 153.1 359.3 December 224108 58.4 155.0 382.9 January 231292 59.2 150.2 371.9 February 235543 58.7 148.5 350.5 March 240261 58.7 150.7 364.5 April 242275 59.4 125.0 308.0 May 243118 60.2 135.9 357.4 June 237637 61.7 143.1 392.2 2020 July 234747 62.1 157.8 451.0 August 252703 62.8 163.2 473.5 September 263200 64.0 163.3 483.2 October 273531 65.3 174.1 528.9 November 275960 65.8 170.0 526.8 December 282929 66.0 181.4 605.7 January 287410 66.6 173.9 590.4 February 294111 67.2 164.2 568.0 2021 March 293403 65.9 182.3 537.8 April 294706 67.1 173.4 502.2 May 298883 67.8 180.8 536.7 Source: Central Bank of Kenya June 2021 | Edition No. 23 49 Annex Table B10: Exchange rate Year Month USD UK Pound Euro January 102.9 141.9 125.4 February 101.4 141.7 125.3 March 101.2 141.2 124.7 April 100.6 141.9 123.7 May 100.7 135.7 119.0 June 101.0 134.2 118.0 2018 July 100.7 132.6 117.5 August 100.6 129.7 116.2 September 100.8 131.7 117.7 October 101.1 131.6 116.2 November 102.4 132.1 116.4 December 102.3 129.7 116.4 January 101.6 130.8 116.0 February 100.2 130.3 113.8 March 100.4 132.3 113.5 April 101.1 131.8 113.6 May 101.2 130.1 113.2 June 101.7 128.8 114.7 2019 July 103.2 128.8 115.8 August 103.3 125.6 115.0 September 103.8 128.2 114.4 October 103.7 133.7 114.4 November 102.4 132.0 113.2 December 101.0 132.9 112.7 January 101.1 132.1 112.3 February 100.8 130.8 109.9 March 103.7 128.5 114.7 April 106.4 131.9 115.6 May 106.7 131.3 116.1 June 106.4 133.4 119.8 2020 July 107.3 135.3 122.5 August 108.1 141.9 127.8 September 108.4 140.9 128.0 October 108.6 140.9 127.9 November 109.2 144.1 129.1 December 110.6 148.4 134.3 January 109.8 149.7 133.8 February 109.7 151.8 132.6 2021 March 109.7 152.2 130.9 April 107.9 149.3 129.1 May 107.4 151.1 130.4 Source: Central Bank of Kenya 50 June 2021 | Edition No. 23 Annex Table B11: Nairobi Securities Exchange (NSE 20 Share Index, Jan 1966=100, End - month) Year Month NSE 20 Share Index January 3,737 February 3,751 March 3,845 April 3,705 May 3,353 June 3,286 2018 July 3,297 August 3,203 September 2,876 October 2,810 November 2,797 December 2,834 January 2,958 February 2,894 March 2,846 April 2,797 May 2,677 June 2,633 2019 July 2,628 August 2,468 September 2,432 October 2,643 November 2,619 December 2,654 January 2,600 February 2,338 March 1,966 April 1,958 May 1,938 June 1,942 2020 July 1,804 August 1,795 September 1,852 October 1,784 November 1,760 December 1,868 January 1,882 February 1,916 2021 March 1,846 April 1,867 May 1,872 Source: Central Bank of Kenya June 2021 | Edition No. 23 51 Annex Table B12: Central Bank Rate and Treasury Bills Year Month Central Bank Rate 91-Treasury Bill 182-Treasury Bill 364-Treasury Bill January 10.0 8.0 10.6 11.2 February 10.0 8.0 10.4 11.2 March 9.5 8.0 10.4 11.1 April 9.5 8.0 10.3 11.1 May 9.5 8.0 10.3 11.1 June 9.5 7.8 9.9 10.8 2018 July 9.0 7.7 9.3 10.3 August 9.0 7.6 9.0 10.0 September 9.0 7.6 8.8 9.8 October 9.0 7.6 8.5 9.6 November 9.0 7.4 8.3 9.5 December 9.0 7.3 8.4 9.7 January 9.0 7.6 8.9 10.0 February 9.0 7.0 8.6 9.6 March 9.0 7.1 8.3 9.4 April 9.0 7.4 8.1 9.4 May 9.0 7.2 7.9 9.3 June 9.0 6.9 7.6 9.2 2019 July 9.0 6.6 7.4 8.8 August 9.0 6.4 7.1 9.2 September 9.0 6.4 7.1 9.6 October 9.0 6.4 7.2 9.8 November 8.5 6.6 7.6 9.8 December 8.5 7.2 8.2 9.8 January 8.3 7.2 8.2 9.8 February 8.3 7.3 8.2 9.9 March 7.3 7.3 8.1 9.2 April 7.0 7.2 8.1 9.1 May 7.0 7.3 8.2 9.2 June 7.0 7.1 7.9 8.9 2020 July 7.0 6.2 6.7 7.6 August 7.0 6.2 6.6 7.5 September 7.0 6.3 6.7 7.6 October 7.0 6.5 6.9 7.8 November 7.0 6.7 7.1 8.0 December 7.0 6.9 7.4 8.3 January 7.0 6.9 7.5 8.4 February 7.0 6.9 7.6 8.8 2021 March 7.0 7.0 7.8 9.1 April 7.0 7.1 7.9 9.4 May 7.0 7.1 8.0 9.3 Source: Central Bank of Kenya 52 June 2021 | Edition No. 23 Annex Table B13: Interest rates Short-term Long-term Year Month Overall Interbank 91-Treasury Central Average Savings weighted Interest Bill Bank Rate deposit rate lending rate Rate Spread January 6.2 8.0 10.0 8.3 7.0 13.7 5.4 February 5.1 8.0 10.0 8.3 7.0 13.7 5.4 March 4.9 8.0 9.5 8.2 6.8 13.5 5.3 April 5.4 8.0 9.5 8.2 6.7 13.2 5.1 May 4.9 8.0 9.5 8.1 6.6 13.2 5.2 June 5.0 7.8 9.5 8.0 6.6 13.2 5.2 2018 July 4.8 7.7 9.0 8.0 6.5 13.1 5.1 August 6.6 7.6 9.0 7.8 6.5 12.8 5.0 September 4.5 7.6 9.0 7.8 6.3 12.7 4.9 October 3.5 7.6 9.0 7.6 5.7 12.6 5.0 November 4.1 7.4 9.0 7.4 5.4 12.6 5.1 December 8.0 7.3 9.0 7.4 5.1 12.5 5.1 January 3.3 7.6 9.0 7.3 5.1 12.5 5.2 February 2.5 7.0 9.0 7.3 5.2 12.5 5.2 March 3.7 7.1 9.0 7.2 5.1 12.5 5.3 April 4.2 7.4 9.0 7.2 4.7 12.5 5.3 May 5.6 7.2 9.0 7.2 4.7 12.5 5.3 June 3.0 6.9 9.0 7.2 4.8 12.5 5.3 2019 July 2.3 6.6 9.0 7.0 4.8 12.4 5.4 August 3.7 6.4 9.0 6.9 4.5 12.5 5.6 September 6.9 6.4 9.0 7.0 4.6 12.5 5.5 October 6.9 6.4 9.0 7.0 4.4 12.4 5.5 November 4.2 6.6 8.5 6.6 4.5 12.4 5.8 December 6.0 7.2 8.5 7.1 4.0 12.2 5.1 January 4.4 7.2 8.3 7.1 4.3 12.3 5.2 February 4.3 7.3 8.3 7.1 4.2 12.2 5.1 March 4.4 7.3 7.3 7.1 4.2 12.1 5.0 April 5.1 7.2 7.0 7.0 4.2 11.9 4.9 May 3.9 7.3 7.0 7.0 4.2 11.9 5.0 June 3.3 7.1 7.0 6.9 4.2 11.9 5.0 2020 July 2.1 6.2 7.0 6.8 4.1 11.9 5.2 August 2.6 6.2 7.0 6.6 4.1 12.0 5.3 September 2.9 6.3 7.0 6.4 3.8 11.8 5.3 October 2.7 6.5 7.0 6.3 3.4 12.0 5.7 November 3.3 6.7 7.0 6.3 3.4 12.0 5.7 December 5.3 6.9 7.0 6.3 2.7 12.0 5.7 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 2021 March 5.2 7.0 7.0 6.5 3.5 12.1 5.6 April 5.1 7.1 7.0 6.3 2.7 12.1 5.8 May 4.6 7.1 7.0 Source: Central Bank of Kenya June 2021 | Edition No. 23 53 Annex Table B14: Money aggregate (Growth rate y-o-y) Year Growth rates (yoy) Money supply, M1 Money supply, M2 Money supply, M3 Reserve money January 7.2 8.9 8.8 8.3 February 7.6 9.0 7.9 6.3 March 3.5 6.2 5.9 0.8 April 3.2 6.0 5.5 2.7 May 3.1 6.5 7.5 5.5 June 2.5 8.1 10.4 7.4 2018 July 3.9 8.4 10.1 2.1 August 3.0 7.2 9.1 6.6 September 0.6 6.2 8.5 6.0 October 3.8 7.6 9.1 7.4 November 2.4 6.5 8.4 9.0 December 6.6 8.0 10.1 12.1 January 7.4 8.4 10.5 5.4 February 5.6 7.3 10.3 4.7 March 11.7 10.8 12.5 9.1 April 6.8 8.7 10.7 8.3 May 6.7 8.3 8.7 12.1 June 10.5 9.8 9.2 2.5 2019 July 5.3 6.9 7.0 -1.2 August 6.0 6.1 6.3 -6.5 September 5.8 6.7 6.5 -9.4 October 3.0 6.3 7.5 -7.8 November 3.6 5.6 5.9 -6.1 December 3.2 5.4 5.6 -6.3 January 4.1 5.7 5.5 -3.6 February 7.3 8.1 7.9 2.3 March 4.9 6.4 7.2 -2.4 April 6.2 7.5 8.6 -4.0 May 7.2 8.5 9.9 -11.0 June 5.8 9.6 9.1 -2.9 2020 July 11.4 11.9 11.3 9.1 August 12.1 11.1 10.8 13.2 September 14.1 11.0 10.7 10.9 October 17.8 11.5 11.5 7.8 November 20.5 13.6 14.2 8.0 December 12.8 11.9 13.2 1.9 January 12.6 11.0 13.2 0.2 February 10.6 9.9 12.4 -1.1 2021 March 7.6 7.7 10.1 1.2 April 13.3 Source: Central Bank of Kenya and World Bank 54 June 2021 | Edition No. 23 Annex Table B15: Coffee production and exports Exports value Year Month Production MT Price KSh/Kg Exports MT KSh Million January 5,112 527 2,509 1,286 February 5,832 577 2,834 1,612 March 4,913 478 3,936 2,237 April 4,194 305 4,550 2,822 May 4,620 217 5,573 3,209 June - - 4,649 2,664 2018 July 1,221 357 4,683 2,457 August 2,235 337 2,973 1,547 September 2,299 289 2,520 1,141 October 2,493 321 3,521 1,467 November 2,334 368 4,619 1,730 December 1,577 404 2,312 921 January 4,167 453 3,469 1,499 February 5,724 449 4,567 1,903 March 4,057 298 4,351 2,256 April 5,307 203 4,552 2,501 May 4,084 201 5,490 2,700 June 2,021 192 4,549 1,964 2019 July 672 197 5,115 1,713 August 1,647 217 3,932 1,462 September 1,522 233 3,145 1,113 October 2,541 260 3,986 1,390 November 1,117 332 3,664 1,176 December 771 435 1,906 634 January 3,049 439 2,639 985 February 4,410 427 3,169 1,687 March 4,845 422 4,604 2,410 April 2,242 295 4,396 2,590 May 1,125 276 4,313 2,279 June - - 5,414 2,956 2020 July 1,310 358 3,546 1,799 August 1,209 525 3,182 1,484 September 1,913 484 3,391 1,607 October 1,329 527 2,732 1,322 November 1,318 568 3,594 1,837 December 1,667 660 2,405 1,285 January 3,824 697 2,129 1,342 2021 February 5,325 664 3,481 2,161 Source: Kenya National Bureau of Statistics June 2021 | Edition No. 23 55 Annex Table B16: Tea production and exports Exports value Year Month Production MT Price KSh/Kg Exports MT KSh Million January 40,834 304 48,447 14,964 February 27,939 302 47,357 14,657 March 30,987 284 34,488 10,471 April 44,580 268 33,565 9,830 May 43,356 263 42,533 11,703 June 43,299 257 45,182 12,463 2018 July 35,278 251 45,242 12,226 August 37,433 241 38,023 9,919 September 42,531 243 40,268 10,479 October 49,284 244 43,894 11,327 November 45,649 242 44,108 11,015 December 51,830 236 38,681 9,781 January 48,386 234 48,623 11,831 February 31,445 216 41,027 9,638 March 26,462 214 42,457 9,910 April 26,131 228 36,884 8,631 May 37,759 242 36,994 9,293 June 42,425 219 29,355 7,154 2019 July 31,458 205 33,657 7,788 August 37,200 218 41,276 9,458 September 35,533 229 36,325 8,463 October 46,305 242 45,374 11,065 November 45,087 235 43,650 10,735 December 50,660 225 39,312 9,484 January 53,636 232 48,770 11,452 February 49,201 214 47,570 11,022 March 55,733 207 51,441 11,665 April 49,656 225 57,722 13,193 May 47,004 210 48,594 11,289 June 46,378 198 46,399 10,293 2020 July 36,554 194 46,851 10,014 August 38,525 217 47,035 10,269 September 43,413 220 44,725 10,200 October 48,275 215 43,656 9,937 November 47,680 218 46,353 10,611 December 54,412 215 46,167 10,301 January 48,896 223 48,812 11,379 2021 February 43,399 230 50,390 11,726 Source: Kenya National Bureau of Statistics 56 June 2021 | Edition No. 23 Annex Table B17: Local Electricity Generation by Source Hydro KWh Geo-thermal Thermal KWh Wind KWh Total KWh Year Month Million KWh Million Million Million Million January 223 430 242 3 900 February 193 387 249 7 837 March 248 448 202 4 903 April 317 428 139 3 887 May 386 447 83 2 918 June 401 430 82 1 914 2018 July 420 438 87 2 947 August 417 427 117 3 964 September 392 440 85 7 925 October 365 432 87 77 962 November 340 398 80 133 957 December 283 423 92 133 939 January 279 417 114 148 966 February 254 374 99 146 880 March 283 445 99 144 979 April 192 398 181 142 921 May 243 427 110 164 952 June 272 413 146 92 932 2019 July 269 440 133 125 975 August 251 425 132 151 968 September 234 454 105 153 953 October 268 494 70 137 977 November 299 482 62 114 965 December 361 464 62 46 940 January 358 477 55 90 986 February 342 431 54 100 934 March 359 460 56 86 969 April 298 412 36 88 841 May 319 392 56 106 881 June 334 421 62 88 913 2020 July 358 433 61 110 969 August 358 424 71 119 977 September 356 381 89 140 973 October 373 440 80 122 1023 November 385 397 60 148 997 December 400 393 77 135 1012 January 330 465 75 138 1015 2021 February 281 422 106 110 926 Source: Kenya National Bureau of Statistics June 2021 | Edition No. 23 57 Annex Table B18: Soft drinks, Sugar, Galvanized sheets and Cement production Soft drinks litres Galvanized sheets Year Month Sugar MT Cement MT (thousands) MT January 52,062 62,819 23,919 494,709 February 49,685 53,833 21,890 490,020 March 52,580 49,148 22,048 476,730 April 45,690 36,682 21,434 474,740 May 41,482 28,933 22,271 452,034 June 44,827 28,320 21,434 454,322 2018 July 43,725 30,105 23,252 465,575 August 48,795 35,646 22,630 473,861 September 45,956 37,652 23,509 460,546 October 46,546 45,324 23,906 470,524 November 50,201 38,768 22,877 460,967 December 54,021 38,268 21,266 461,922 January 53,585 53,060 20,124 485,178 February 55,218 46,139 22,749 470,146 March 61,413 45,463 26,313 507,037 April 58,230 35,312 23,214 501,921 May 53,086 36,307 22,501 486,301 June 46,074 28,545 24,667 477,432 2019 July 47,149 25,097 23,260 527,115 August 49,248 32,835 21,918 512,470 September 53,234 33,356 22,641 519,370 October 47,586 35,259 22,619 504,615 November 50,715 30,898 21,871 479,085 December 55,398 38,325 22,547 496,517 January 52,654 53,155 23,397 530,404 February 49,406 51,083 21,989 548,818 March 49,494 52,699 18,527 559,424 April 46,015 45,468 12,469 509,197 May 34,129 46,350 18,042 511,961 June 44,829 49,681 23,730 594,421 2020 July 44,394 53,131 24,493 666,341 August 39,290 53,532 23,226 712,701 September 52,436 54,873 20,801 707,033 October 47,215 54,830 22,868 731,253 November 42,916 50,227 23,268 668,507 December 64,707 38,834 20,854 666,855 January 58,044 17,788 652,883 2021 February 61,508 612,900 March 721,444 Source: Kenya National Bureau of Statistics 58 June 2021 | Edition No. 23 Annex Table B19: Tourism arrivals Year Month JKIA MIA TOTAL January 105,262 14,533 119,795 February 98,532 12,792 111,324 March 100,441 11,024 111,465 April 94,236 5,205 99,441 May 93,730 4,735 98,465 June 114,097 5,157 119,254 2018 July 141,763 9,025 150,788 August 145,231 9,589 154,820 September 114,539 9,916 124,455 October 115,597 9,343 124,940 November 103,229 8,391 111,620 December 115,856 18,403 134,259 January 113,362 15,727 129,089 February 107,058 12,864 119,922 March 106,001 9,732 115,733 April 104,418 5,096 109,514 May 98,788 3,689 102,477 June 126,822 2,454 129,276 2019 July 150,286 8,663 158,949 August 150,723 11,000 161,723 September 124,001 9,208 133,209 October 115,828 10,940 126,768 November 111,548 12,339 123,887 December 121,912 12,391 134,303 January 114,873 12,214 127,087 February 108,578 11,092 119,670 March 43,346 3,950 47,296 April 12 - 12 May 1,229 - 1,229 June 534 2 536 2020 July 617 1 618 August 13,371 548 13,919 September 19,403 761 20,164 October 28,451 1,184 29,635 November 30,719 1,156 31,875 December 44,279 3,127 47,406 January 43,988 3,050 47,038 2021 February 32,047 3,005 35,052 Source: Kenya National Bureau of Statistics Note: JKIA (Jomo Kenyatta International Airport, MIA (Moi International Airport) June 2021 | Edition No. 23 59 World Bank Group Delta Center Join the conversation: Menengai Road, Upper Hill Facebook and Twitter P. 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