Metropol Corporation revises Kenya’s economic growth in the wake of interest rates capping
Increased lending due to capping of interest rates will have a positive effect on the economy. Metropol Corporation projects that the economy will grow by 6 per cent in their latest revised 2016 Kenya economic outlook up from 5.5 per cent.
Since September 14 2016, interest rates have been capped at 4 percent points above Central Bank Rate. Deposits will earn interest at 70 per cent of CBR. Owing to high liquidity level of tier 1 banks who control 60 per cent of total lending, the control of the spread is expected to lead to increased competition for customers leading to more lending over 2016-2017.
A growth in the economy will also be occasioned by FDI inflows that have been growing strongly since 2010. This is driven by the hub characteristics of Nairobi, operations of a fully liberalized economy, good weather, a positive investment climate and developments in the oil and gas sector.
Evidence of these higher flows is to be found in the locating of Africa headquarters by many major multinationals in Nairobi, the entry into the market of North American food chains, increased presence of private equity and venture capital in Nairobi, and robust activity in the oil and gas, real estate and ICT sectors. The Overseas Private Investment Corporation (OPIC) of USA has recently opened its 3rd African office in Nairobi after Lagos and Johannesburg.
The country’s energy projects have gained sustained traction. Last mile connectivity project financed through AfDB and World Bank at $600 million expects to complete 2 million connections by 2017, to achieve 70 per cent onnectivity. The President announced, September 9th, a new target of 100 per cent connectivity by 2020
The current drop in global prices is not expected to impact on the oil and gas activity for the reason that the commercial production is at least three years away, by which time a new global equilibrium currently estimated at US$80 per barrel will have been established
“Our expectations are that the current trade gap will narrow over 2016-2017 owing to the continuing low oil prices. In addition, COMESA, which account for 20 per cent of exports is expected to support increased exports due to strong growth, over 6 per cent prospects of the East and Southern Africa region. New exports from the mining sector (titanium, niobium and coal) will also contribute to narrowing this deficit. Tourism has rebounded strongly in the 1st half of 2016, contributing to increased export earnings. This recovery is expected to continue over 2017,” said Mr. Ndiritu Muriithi the principal economist at Metropol Corporation.