Rédaction Africa Links 24 with Daily Nation
Published on 2024-01-30 21:00:00
The onset of the new year, 2024, was anticipated to bring about a fresh beginning. However, the economy has been struggling under the weight of an increased cost of living. With the US Dollar trading at over Sh160, and the economy teetering on the brink of being a net importer, the average citizen (mwananchi) continues to bear the brunt of the economic impact on their wallets.
According to various analysts, growth is expected to gain momentum from 2024 to 2028, driven by structural reforms. However, Kenya’s current account deficit and substantial external debt could leave the country vulnerable to balance-of-payments strain, particularly if access to external funding deteriorates.
The environment for manufacturers remains challenging, with the Purchasing Managers Index numbers facing pressure. Imposition of taxes on certain manufacturing inputs has rendered Kenya less competitive compared to neighboring countries, prompting the need for policy amendments to create a more favorable environment for manufacturers.
The gradual increases in taxes have proven to be counter-productive, with the Laffer curve in economics demonstrating that excessively high tax rates lead to a decline in total tax revenue. Despite the increased taxes, tax collection has not seen a commensurate rise. For example, a sharp reduction in fuel consumption occurred as fuel prices rose, indicating that the increased VAT rate did not result in higher tax collection despite the sharp reduction in fuel consumption.
Taxes constitute approximately 50% of the fuel prices in Kenya, and therefore, the adjustments in global fuel prices have not been effectively transmitted into the economy. This has in turn contributed to the high cost of living slowing down consumption.
Kenya’s potential for tourism remains significant, with untouched game reserves, abundant wildlife, pristine beaches, and other attractions, coupled with favorable weather and genuine hospitality. The agricultural sector is expected to underpin the economy in the coming 24 months, with an emphasis on increasing agricultural production to lower the cost of living and ensure food accessibility in urban areas.
Addressing the impact of changing weather patterns on food production and implementing measures to mitigate these effects will also be crucial. Additionally, focus on solid water storage facilities across the continent will help mitigate the risks of the boom-bust cycle in food production.
Investors are keenly observing the potential for a revival of the Securities Exchange, which has struggled in recent years, as it serves as an indicator of the economy’s health. Urgent work is needed to steer the year towards a more positive trajectory.
