Kenya: The Private Sector Still Has Faith in the system

The Kenyan economy is expected to grow by 4.3% this year. That is a downgrade from 6%, as had been projected by the treasury. Erratic rains, high cost of fuel (Kiraitu Murungi should resign), and general inflation are to blame.

The Shilling has also had a beating in the last few months. While a weak shilling is generally good for exports, it is is terrible for the fuel bill (oil is priced in USD). The Central Bank tried to mop up the excess Shillings in the economy with no avail. Last Saturday when I visited the local Western Union the Shilling was trading at KSHS 80 to the US dollar. Not so long ago the rate was in the low 70s.

The shaky macro-economy aside, the Kenyan private sector is doing OK.

Just the other day mortgage companies announced plans for 100% financing. House prices will definitely go up, at least in the short-run (a.k.a before the bubble bursts due to oversupply). The long-run benefits won’t be trivial. More construction means more jobs, the benefits of the multiplier effects of property, and (crucially and obviously) more houses. The current housing deficit runs in the hundreds of thousands of units per year.

Private sector confidence is also reflected in private sector leveraging. The private sector debt as a fraction of the economy has grown to about 50%. This is the best measure of confidence (in my view). Finance is fickle and thrives on stability. The bosses of Equity (and other banks) will not let the loudmouth tyrants and thieves who parade as democrats adversely affect their bottom line.

Because of its big service sector, future growth in Kenya will be predicated on confidence in the country’s political economy. Remember that Kenya is Africa’s biggest non-mineral economy. South of the Sahara and north of the Limpopo only the oil giants Nigeria and Angola have bigger economies.

For some reason (thereby dis-confirming my fears) the incendiary nature of Kenyan siasa za ukabila (ethnic politics) is not doing that much damage. Two cheers to Kenyan biashara.

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