Inside Politics

Farming to fuel growth of economy

Tuesday, October 20th, 2020 18:00 |

The economy is expected to recover on improved performance of the agricultural sector, according to new research by Scope Markets.

Real gross domestic product (GDP) growth is already projected to decelerate from an annual average of 5.7 per cent recorded in the period between 2015 and 2019 to 1.5 per cent this year.

However, economists say if it takes longer than expected to bring the Covid-19 pandemic under control, GDP could contract by one per cent in 2020, and see a delay in the projected recovery to 5.2 per cent growth in 2021.

But the new report by Scope projects an accelerated growth owing to an improved agricultural performance as export markets open up with the easing of Covid-19 restrictions.

The improvement is likely to have ripple effects on the entire value chain on the Kenyan economy.

The agricultural sector contributes 35 per cent of the GDP and constitutes 40 per cent of the export earnings and is also a market for industrial goods such as machinery, equipment and fertiliser used in the farming process.

“Covid-19 pandemic has had a negative impact on all businesses and sectors within the Kenyan economy, but with the easing of restrictions in key export markets, the agricultural sector was set for a rebound in 2021/22,” the report released yesterday reads.

Agricultural export

The country’s major agricultural exports are tea, coffee, cut-flowers, and vegetables. Kenya is the world’s leading exporter of black tea and cut-flowers.

Agriculture contributes another 27 per cent of GDP indirectly through linkages with other sectors.

The sector employs more than 40 per cent of the total population and more than 70 per cent of rural dwellers.

Scope Markets notes that the performance of East Africa’s biggest economy is expected to improve significantly with a 17 per cent increase in tea export earnings to $850 million (Sh9.1 billion) in the first eight months of 2020.

Flower exports are also recovering as European markets ease lockdowns, which is critical considering the market accounts for 70 per cent of cut flower exports.

The analysts indicate that the significant recovery of the agricultural sector is expected to catalyse accelerated economic recovery with the $750 million or Sh8 billion World Bank grant putting the sector on a firm recovery path.

Budget funding

While the positive signs of recovery are visible, the report cast is worried about the country’s budget funding, terming it, “a cause of concern for the Kenyan economy”.

Available figures show that the budget gap of East Africa’s biggest economy is seen at Sh840.6 billion in the current fiscal year or 7.5 per cent of the Gross Domestic Product.

Kenya, however, declined the G-20’s offer on debt relief because it would have a negative impact on existing commercial lending terms.

National Treasury Cabinet secretary Ukur Yatani said Kenya would not seek a suspension of debt payments under a G20 initiative aimed at helping poor countries weather the Covid-19 pandemic, saying the terms of the deal were too restrictive.

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