Barclays Bank today launched the Macro Economic Report at an event attended by IMF/WB/AFDB senior representatives, treasury and CBK representatives, and Barclays Kenya Managing Director Jeremy Awori among others. This is a report that is produced every year by the Barclays Africa Group Limited to look at issues and factors affecting our economy, the regional economy, as well as the global economy as a whole. The report which was presented by BAGL Chief Economist Jeff Gable is a key reference point for policy makers and the business community as they shape their economic activities since it covers risks, realities and predictions. The predictions act as a guide though and one must remember that different political environments in different countries as well as globally may throw a spanner in the works and shift the scales.
Just about every country in the world faced some sort of upheaval or other last year and it is good to note from the 2017/2018 Macro Economic report that despite all that, the global economy still gets into 2018 from a position of strength. Locally for example, Kenya faced prolonged drought that had adverse effects on whole regions, Government spending, the population, the workforce and ultimately the economy. We were also in an electioneering period for quite a long time and this caused many companies and investors to adopt a wait and see policy, denying the economy a robust and continuous injection of investment both local and foreign.
All is not doom and gloom however for us as a country because one of the projections is an increase in the number of investors coming in this year and next year. The report also noted that other than infrastructure, a gradually improving tourism sector and agricultural exports are all working together with other positives to build the economy. There is also an appetite for infrastructure not just in Kenya but in Africa as a whole and as we all know, infrastructure is a key pillar in economic growth. Already we have phase 1 of the SGR up and running, with phase 2 in the works, we have road rehabilitation projects going on and in the energy sector, we continue to invest in wind, solar and geothermal energy. This is just to name a few.
— Shiko-Msa (@Shiko_Msa) January 16, 2018
This is not to say that there are no risks to be mindful of. As mentioned above, and as per the Macro Economic report, political uncertainty does affect the economy a good one as people hold onto spending till times are clearer. Global warming also is not to be ignored. As an example, a one degree Celsius shift in temperatures will affect energy costs for manufacturers, and cost of production will spiral from there. The effect of this is felt directly in the economy and we have known factories to suffer losses due to high energy costs as many have low adaptation capacity. The effects are more dramatic in hotter climates and unfortunately Africa gets to feel the effects of activities that are largely not their own.
Another risk factor to economies that the report highlighted is heavy borrowing, which again is not unique to Kenya but to all of Sub Saharan Africa. Countries are spending much more than they’re collecting in taxes and therefore resorting to debt. The Kenyan scenario for example is such that for every 3 shillings, 1 shilling goes to servicing interests on debts! This is a lot of money which could be getting injected into the economy, and go into other projects to fuel further economic growth.
Globally there were some interesting politics whose immediate effects were, and are still being felt in countries of origin, and the ripple effect are being felt globally. Examples are the German coalition, the much publicized Catalonian secession from Spain, the Italian elections and the Trump factor. These all translate to policy risks and certainly have an effect on economies.
We’ll look at more from the report in another article but you can also get more highlights on the hashtag #BBKEcon2018.