Elim Monthly Outlook Paper(Sectorial Analysis) – Jan/Feb 2025

Contribution to GDP: (7.6%)

Sustained Growth:PMI at 50.5 marks the fourth month of

Key Challenges: High taxes,inflation, and regulatory Unpredictability hinders growth.

Subdued Demand: Slower output and reduced new orders weaken,momentum

Hiring Freeze: Firms paused hiring to stabilize costs amid pressures

Contribution to GDP: Agriculture (21.6% of GDP)is vital for stability and employment.

Drought disrupted production,worsening food insecurity.

Inflation in food rose by 6.1% year-On-year.

Government policy focuses on investment plans and seed innovations.

Climate-smart mitigation and better irrigation are urgently needed.

The agriculture sector’s, drought,induced disruptions highlight risks  to GDP stability (21.6%) and inflationary pressures on food prices (6.1% rise)

Policy should focus on boosting  productivity through irrigation and seed innovations while reducing reliance on costly imports to improve trade balances and  economic resilience.

Contribution to GDP: Contributes about 10.4% to GDP. Employing about 1.55m people

Number of Tourist in 2024: 2.5 million. Festive season saw a 90% occupancy rate.

Tourism recovery is key to GDP growth and foreign exchange stabilty.

• In line with the National Tourism Strategy 2025-2030, tourism numbers are expected to grow.

Crude oil: increased by 5 dollars in January

Fuel Prices: EPRA adjustments raised costs as follows: Super Petrol: Increased by KShs0.29 per litre Diesel: Increased by KShs. 2.00 per  litre

Oil Imports: Gulf (G to G) deal stabilizes forex but highlights market interference risks.

Price expected to reflect in electricty bills

US Energy Information Agency predicts a stable crude oil prices averaging USD 74 per barrel in 2025, with significant  increase in 2026.  we anticipate  a similar stability locally . We anticipate a similar stabilty locally.

Reducing oil import reliance through renewable energy investments like geothermal can stabilize costs, curb inflation risks, and boost productivity.

There’s need to review over-taxation in the sector to economic growth locally.

GDP Contribution: Finance and Insurance Contributes 7.8% to  Kenyan GDP

Monetary Policy: the MPC meeting in Feb cut the base rate to 10.75% and cash reserve ratio to 3.25% to address sluggish 4% credit growth.

Fintech: Mobile banking expanded inclusion but raised over-indebtedness concerns.

Challenges: High NPLs, manufacturing credit down by -0.6%, and weak SME lending.

External Pressures: Reduced U.S. aid, but $9 billion forex reservesstabilized the shilling at KSh 129.25–  129.75/USD.

(Source: CBK)

To boost credit growth and economic recovery, Kenya should strengthen SME lending strengthen SME lending frameworks and address high NPL ratios.

Possibly the best performing sector in the country. Government lending has contributed to the sector’s sterling performance

Insurance penetration still low. Will require friendly regulation to encourage uptake.

Fintech is growing. Will require policy support and adequate regulation to protect small scale users .

Contribution to GDP: Services sectorcontributes 55.42 to GDP.

Exports: Tea and horticulture  thrived in key markets but faced high costs and low diversification.

Imports: $89/barrel oil and a weak shilling drove a $11.4 billion trade deficit

Reserves: $9 billion reserves covered four months of imports.

(Kenya-UK Trade Deal (EPA)- Active since 2020, ensuring duty-free Kenyan exports; the first Partnership Council met in March 2023 to boost trade .

Kenya-US Trade Deal (STIP) – Still under negotiation; the third round was in Nairobi, January 2024, targeting a deal by year-end. Not finalised during the Biden Administration.

(Source: KNBS)

Bilateral trade agreements ensure access to foreign markets.Additional trade agreements with countries in the middle east and Asia have contribute to expansion  of trade to these areas.

Digital trade and e-commerce hold Significant potential. Government is keen on getting tax revenues with  cleat plan on supporting, growing the  sector

Growth: The sector is on track to reach $773 billion in 2025, driven by strong political goodwill as regards  the affordable housing programme by the Kenya Kwanza Government.

Trends: Sustainable practices and pre-cast housing technologies are shaping market preferences

Biggest hurled to the sector remains  Biggest hurled to the sector remains  the high cost of construction, and by extension, the housing product. 

Addressing the cost issue through tax incentives on materials and  equipment will drive growth  upwards.