Risk consultancy predicts bittersweet year ahead for Kenya

According to new research from London-based risk consultancy Control Risks, this year is poised to be promising for Kenya in economic terms. However, the country’s existing mountain of debt will not only weigh on this growth, but will also increase in size due to administrative needs.

Kenya is among the few economies on the African continent that appears to have diversified beyond dependence on the trade of a single commodity such as oil or precious metals. With a GDP of $53.4 billion, the country places 7th in the list of the richest countries in Africa, primarily due to its role as a trade hub for Central and Eastern Africa.

The country exports a range of goods such as coffee, tea, fish, and other essentials, which has cemented its position as a major economic centre. However, much like the rest of Africa, the country suffers from a major deficit in infrastructure funding, which significantly hinders the growth of its economy.

As a result, the country has had to resort to borrowing on behalf of the public treasury to finance infrastructural development. The issue with borrowing for development projects is that the financial returns on such projects often manifest themselves after years or even decades; necessitating either the alternative arrangement of funds or a mountain of public debt.

Kenya, unfortunately, finds itself immersed in the latter. Based out of London, Control Risks is a specialist consulting firm that emphasises the use of analytical tools to identify risks and predict outcomes, thereby providing clients with a holistic picture. The ethos of the firm revolves around the importance of taking risks in the development of a business.

In recent months, the firm has been providing a market overview of Africa, and has identified public debt as the most risky factor to consider when entering the African market. Public debt in Africa currently exceeds $40 billion, which represents an increase of 125% over the last decade itself.

Now, the firm has released analysis specific to the Kenyan market, and the prospects are mixed. Despite a turbulent 2017, which resulted mainly from political unrest, the firm predicts steady GDP performance for the country over the next year. The country is under debt, as is the rest of the continent, but the levels in Kenya have been classified as ‘sustainable’ by the firm.

However, while the country is not threatened by a crisis, the levels of debt do act as a significant deterrent against investment into the market, which puts shackles on economic growth. Specifically in terms of Eurobond, the country is currently under debt of just under $775 million.

Moreover, the government is currently working on implementing its Big Four agenda, which includes increasing the manufacturing share in the GDP to 15% by 2022, attaining greater levels of food security, offering universal healthcare, and developing a minimum of 500,000 new affordable houses by 2022. Such efforts will no doubt involve more substantial borrowing.

The situation is summarised by Patrick Matu, Associate Director at Control Risks, when he says “The reality is that debt at the moment is sustainable based on what we see going on in the economy but there isn’t room to do much more. One of the concerns is that we are borrowing to pay debts. That is not sustainable in the long term and it will be interesting to see how government deals with fiscal management.”