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Kenya’s 2017 GDP expected to grow by 5.7% driven by Government expenditure on infrastructure per Cytonn Investments Annual Outlook

January 9, 2017

Cytonn Investments has today released their Business and Market Outlook 2017 Report, which projects Kenya’s 2017 GDP growth to be between 5.4% - 5.7%, supported by government expenditure on infrastructure, recovery of the tourism sector and the continued growth of the construction sector. However, GDP growth in 2017 is expected to be slower than 2016 given the expectation of slow growth in the agricultural sector due to the continued drought, which is expected to persist until mid-2017, the heightened political pressure and the low private sector growth which was at 4.6% in October 2016 from a high of 21.0% in August 2015.  

 

“We expect strong levels of GDP growth at between 5.4% and 5.7% in 2017, driven by government expenditure and the growth of key sectors such as construction, as Kenya benefits from its diversity in growth sectors. This is despite the challenges we face as an economy with the interest rate cap and slowdown in the agricultural sector”, said Elizabeth Nkukuu, CFA, Cytonn’s Chief Investment Officer. “On other macroeconomic factors, we expect higher inflation in 2017 to be higher than the 2016 figures averaging bewtwwen 6.7% and 7.2% driven by: (i) prolonged dry weather, which will persist until mid-2017 driving food prices up, (ii) higher oil prices, (iii) depreciation of the currency, and (iv) increased money supply due to the campaign money.  “ added Elizabeth.

 

Sub-Saharan Africa is projected to grow by 3.0% in 2017, higher than the expected 1.4% in 2016. The higher growth will be brought about by a recovery of global commodity prices in 2017 that will benefit some the largest economies in the region like Nigeria and Angola that rely on commodities. The report notes that economic diversification and improved governance are key to the sustenance of the regions’ long term growth.

 

“We expect initial upward pressure on interest rates in 2017 as the government may look to increase borrowing locally to cater for the deficit that is likely to arise from lower revenue collection and foreign borrowing,” said Maurice Oduor, Investment Manager. “However, improved liquidity and liquidity distribution by Central Bank of Kenya is set to mitigate the upward pressure exerted on interest rates,” added Maurice.

 

The Kenya equities market is expected to be flat in 2017, following two consecutive of negative NASI performance of 8.5% and 11.0% in 2016 and 2015, respectively. As per the report, the market decline so far has made valuations attractive, providing an attractive entry point for long term investors seeking return in the markets.

 

“In private equity, Kenya remains an attractive destination for investors, especially in the following key sectors: financial services, renewable energy, education and technology. Consolidation in the banking sector will be the key focus in the financial services sector, with a lot of expected activity as small banks consolidate or get bought out, in a move that will attract global investors. In addition, the renewable energy sector offers a high potential for wind, solar and geothermal energy generation in the country,” added Maurice.

 

In 2016, real estate delivered high returns averaging 25.8% across all themes, with the best performing themes being retail and offices with average yields of 10.0% and 9.4%, respectively. In 2017, the sector is expected to continue with its good performance across all real estate themes compared to traditional asset classes. The key drivers of real estate in 2017 will be the large housing deficit, demographic trends such the growing middle class, continued improvement in infrastructure and better operating and legal environment.

The report is available online: (link here)


© 2017 Cytonn Investments Management Ltd