Consulting

Kenya’s economic trajectory appears to be on an upward trend

January 28, 2025 Comments Off on Kenya’s economic trajectory appears to be on an upward trend

Kenya’s economic trajectory appears to be on an upward trend, with projected GDP growth rates around 5% for 2025, despite facing challenges such as increased unemployment, business closures, and rising auctions.

Moody’s has upgraded the country’s economic outlook and the growth is projected at 5% in 2025. The GOK attributes the positive growth to The Bottom Up Economic Agenda (BETA), which has redefined the country’s approach to inclusive growth and resilience.

Who is Moody’s?

 Moody’s provides data, intelligence and analytical tools to help business and financial leaders make confident decisions. Moody’s has highly skilled analysts, rich data, robust tools supported by groundbreaking technologies, and a view of the future informed by more than 115 years of expertise.

What does it mean for Kenya when Moody’s upgrades the country’s economic outlook?

It signifies a positive shift in the country’s financial health and creditworthiness. This upgrade can have several implications for Kenya, including:

  • Increased Investor Confidence
  • Lower Borrowing Costs
  • Enhanced Economic Stability
  • Boost to Local businesses
  • Positive impact on currency valuation
  • Long term growth prospects

What is BETA?

The Bottom-Up Economic Transformation Agenda (BETA) is a strategic initiative launched by the Government of Kenya (GOK) aimed at fostering inclusive growth and enhancing economic resilience from 2022 to 2027.

BETA is designed to address the pressing economic challenges facing Kenya, focusing on improving the livelihoods and welfare of Kenyans through targeted interventions. The agenda emphasizes a people-centered, results-oriented approach that aligns with the broader goals of Kenya Vision 2030.

Key Components of BETA:

  1. Agricultural Transformation and Inclusive Growth
  2. Supporting MSMEs through access to financing, training and market opportunities
  3. Improving Healthcare
  4. Housing Settlement – promoting affordable housing initiatives

 

Explaining the paradox of economic growth despite increased unemployment, business closures, and rising auctions.

  1. Economic Growth vs. Structural Issue

 GDP Growth: The economy is projected to grow at approximately 5% in 2025, supported by sectors like agriculture, services, and manufacturing, which have shown resilience despite global economic pressures. However, this growth does not necessarily translate into widespread job creation or support for all businesses.

Structural Imbalances: Kenya faces structural issues that hinder inclusive growth. These include governance problems, revenue underperformance, and a lack of diversification in the economy. As a result, while the overall economy may be expanding, certain sectors may struggle.

  1. High Unemployment Rates

Job Creation Lag: The growth in GDP does not automatically lead to job creation. Many sectors may be growing but not at a pace that absorbs the increasing labor force or addresses existing unemployment levels. For instance, the shift towards automation and digitalization in various industries can lead to job losses even as companies grow.

Youth Unemployment: Kenya has a significant youth population that is increasingly struggling to find employment opportunities, exacerbating social challenges despite economic growth.

  1. Business Closures and Economic Pressures

Economic Pressures: High inflation rates and interest rates have increased operational costs for businesses, leading to closures and reduced profitability. Small and medium enterprises (SMEs), which are vital for job creation, are particularly vulnerable to these pressures.

Market Confidence: Political instability and public unrest related to fiscal policies can deter investment and consumer spending, leading to a decline in business activity and closures.

  1. Increased Auctions and Financial Distress

 Financial Strain: The rise in auctions indicates that many businesses are unable to meet their financial obligations due to cash flow issues exacerbated by high debt levels and operational costs. This situation reflects broader economic distress despite overall growth figures.

 Debt Levels: High levels of public and private debt can constrain economic growth by limiting available capital for investment in growth initiatives.

Conclusion

In summary, while Kenya’s GDP is projected to grow at around 5% in 2025, the benefits of this growth are not evenly distributed across the economy. Structural challenges, high unemployment rates, business closures, and financial distress contribute to a complex economic landscape where growth does not equate to improved living standards or business viability for all sectors. Addressing these underlying issues is crucial for ensuring that economic growth translates into sustainable development and improved livelihoods for the Kenyan population.