Agricultural sector’s recovery to boost Kenya’s economy

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Kenya’s economy is expected to bounce back with an improved performance by the agricultural sector, a new report says.

According to the report released in London by Scope Markets, a non-dealing online foreign exchange broker by the Capital Markets Authority (CMA), Kenya’s economy is expected to grow by almost two per cent in 2020, driven by improved agricultural performance as export markets open up with the easing of the Covid-19 restrictions.

This is expected to affect the entire value chain positively, considering the dominance of agriculture in the economy.

The report contrasts an earlier forecast of a decline in the last quarter of the year, after the pandemic hit key industries and sectors.

Analysts noted that Covid-19 had a negative impact on all businesses and sectors, but with the easing of restrictions in key export markets, the agricultural sector would rebound in 2021/2022. The major agricultural exports are tea, coffee, cut flowers, and vegetables. Kenya is the world’s leading exporter of black tea and cut flowers.

Agriculture  contributes between 27 per cent and 33 per cent of the Gross Domestic Product (GDP) and another 27 per cent indirectly through linkages with other sectors. The sector employs more than 40 per cent of the total population and over 70 per cent of the rural folks.

Scope Markets notes that East Africa’s biggest economy improved by 17 per cent in tea export earnings, to $850 million (Ksh9.1 billion) in the first eight months of 2020, when compared to the same period last year. Flower exports are also recovering, as European markets ease lockdowns. This is critical as the European market accounts for 70 per cent of Kenya’s cut flower exports.The demand for flowers had decreased and the horticultural industry was losing at least Ksh106 million per day as a direct impact of the pandemic.

The analysts indicate that the significant recovery of the agricultural sector is expected to catalyse accelerated economic recovery with the $750 million (Ksh8 billion) World Bank grant putting the sector on a firm recovery path.

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However, while the positive signs of recovery are visible, the budget funding is a cause for concern. The budget gap of East Africa’s biggest economy is seen at Ksh840.6 billion ($7.8 billion) in the current fiscal year or 7.5 per cent of the GDP. However, Kenya declined the G-20 offer on debt relief because it would have a negative impact on existing commercial lending terms.

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