Last year was an economically dynamic year for Kenya with both positive and negative elements that provided key lessons for the country. The first lesson for Kenya in 2018 is that strong GDP growth does not necessarily translate to robust business activity. It is true GDP growth in 2018 was stronger than in 2017; Q1 was at 5.7 percent compared to 4.8 percent in 2017, and 6.3 percent in Q2 compared to 4.7 percent in 2017. This was however juxtaposed with poor business performance felt by both large companies and SMEs. Several large companies have already issued profit warnings, and non-performing loans rose to KES 326 billion from KES 260 billion in 2017 driven by significant defaults from small businesses. Thus 2018 was a year of mixed fortune; some sectors were able to thrive but fundamental structural issues continued to dampen business growth and development.
A second lesson for 2018 was the effect of fiscal policy, particularly public debt accrual, on the lived reality of Kenyans. Kenya’s public debt stands at over KES 5 trillion with no reduction in debt appetite on the horizon. Treasury introduced new taxes targeting Kenyan’s across the board to raise revenue undoubtedly informed by the need to service debt obligations. Thus a new tax on fuel was implemented and later in the year government announced that it seeks to implement presumptive tax on informal businesses. Thus the link between growing debt and taxation became a lived reality and painful lesson for Kenyans.
Third, on a positive note, and ironically, 2018 signaled a new recognition of the importance of small business or Micro, Small and Medium Enterprise (MSMEs). Government held an inaugural SME conference attended by both the President and Deputy President and other senior officials. Further, senior government officials attended MSMEs fairs and exhibitions in Kenya and the region. The irony however, is that while one segment of government has become more alive to the importance of and need to support MSMEs, it was met by insensitivity in other arms of government in the form of presumptive tax on the very same sector. It is hoped that government will better coordinate itself going forward and focus on the development and strengthening of the MSMEs rather than extracting revenue from a neglected sector surviving through subsistence business activity.
Finally, the year revealed renewed global interest in Africa, particularly private sector development. China unveiled a USD 60 billion plan for economic engagement with Africa including a Special Loan facility for the development of African SMEs. The USA created the USD 60 billion International Development Finance Corporation mandated to spearhead private sector investment through both debt and equity; and the European Union (EU) proposed the € 40 billion Africa-Europe Alliance for Sustainable Investment and Jobs. This is not to say African governments were ignored, but there is fresh interest in partnering on the development of private sector in Africa.
In short 2018 was a mixed bag. On one hand there were painful lessons that will hopefully inform economic strategy going forward, but there were important positive elements that Kenya and Africa can leverage to build a more prosperous 2019.
Anzetse Were is a development economist