Justus Ondari
7 August 2010
Nairobi — Contrary to popular belief, the country's business leaders were not worried about the outcome of the referendum on the proposed -- now endorsed -- constitution, a Central Bank of Kenya survey conducted before Wednesday's vote shows.
According to the Central Bank of Kenya market perceptions survey, carried out a month before the August 4 referendum, 83 per cent of private sector and commercial bank chief executives said they expected the economy to grow by 4.5 per cent and above, even as various political analysts warned of a possible negative impact of the vote on the economy.
"There is increased optimism in (economic) growth outlook," said the survey, which was conducted by CBK's top decision making organ, the Monetary Policy Committee.
The forecast of the private sector executives was based on expectations for stable macroeconomic conditions such low inflation, increased government spending on infrastructure, increased consumer demand, lower borrowing rates, entry of more small and medium enterprises and political stability.
The bankers attributed their projection to the launch of the East African Community Common Market Protocol -- which is expected to boost trade -- improved agricultural performance due to good rains and lower lending rates to stimulate borrowing to finance investment.
They also cited lower hydro- energy costs, increased government investment in infrastructure and more foreign investor confidence after referendum.
The CEOs' positive outlook reflects a projection by analysts at Pine Bridge Investments, formerly AIG Investments (EA) Ltd, who revised upwards the country's economic growth rate mid last month. They cited better agricultural production and stabilisation of the global economy as the main anchor.
"On account of the good rains, enhanced food production, improving business confidence and political stability post-referendum, we upgrade our GDP growth forecast to 5 per cent in 2010," Peter Wachira, the firm's senior investment manager, said July 15 in reference to their initial 4.5 per cent projection.
The optimism has risen with the passage of the constitution, and when contacted on Friday, NIC Bank group managing director, James Macharia, said as much.
"The banking sector and the financial markets in general certainly welcome the referendum outcome, and the outlook is evidently positive. ... subject to the implementation process and the efficacy of transitional milestones, we are likely to see a period of sustained growth and prosperity," Mr Macharia told the Sunday Nation.
And this optimism is sweeping across the economy.
"The outcome of the referendum paves the way for a great new future for Kenyans and creates the right conditions for the expansion of the tourism industry," said Jake Grieves-Cook, chairman of the Kenya Tourist Board, which is charged with marketing the country as a tourist destination.
The Central Bank of Kenya survey also shows that there is increased expectation of demand for credit by private sector firms with up to 60 per cent of the CEOs expecting their demand for credit to rise in the remainder of this year relative to May 2010.
"Firms indicated that additional credit is required to finance planned expansion and refinancing of existing loans due to expectations for lower borrowing rates," said Central Bank of Kenya.
On the other hand, commercial bank CEOs expect to increase credit to the private sector in the remainder of 2010 by more than 10 per cent with 41 per cent of them expecting to do it by more than 10 per cent.
The survey's findings come a few days after Central Bank of Kenya slashed its indicative lending rate, Central Bank Rate (CBR), by 75 basis points to 6 per cent, hoping to encourage banks to further cut the cost of credit.
Statistics from the industry regulator show that banking sector lending to the domestic economy grew by 23.2 per cent in the year to April 2010, compared with 11.2 per cent for a similar period in 2009.
Credit extended to the private sector rose from 14.5 per cent in the year to April 2009 to 17.4 per cent in the year to April 2010.
At the same time credit to government increased by 45.0 per cent in the year to April 2010 compared with a growth of 7.4 per cent in a corresponding period in 2009.