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Recent Topicals

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Kenya Macroeconomic Review

Jun 30, 2019

During the first half of 2019, we tracked Kenya GDP growth projections for 2019 released by 16 organizations, that comprised of research houses, global agencies, and government organizations. The average GDP growth, including Cytonn’s 2019 growth estimate of 5.8%, came in at 5.8%, unchanged from average projections released in Q1’2019. The common view is that GDP growth will remain stable in 2019, from a growth of 6.3% in 2018, the fastest economic growth since the 8.4% recorded in 2010. Economic growth is expected to be driven by: Stable growth in the agriculture sector on the back of favorable weather conditions despite delayed onset of the long rains in most parts of the country, Implementation of the Big 4 Agenda projects by the Kenyan Government, and, Recovery in the business environment as evidenced by the Stanbic Bank Monthly Purchasing Manager’s Index (PMI), which rose to 51.3 i...

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Sub-Saharan Africa Regional Review

Jun 30, 2019

Regional Economic Growth In April, the World Bank Group released a report titled ‘An Analysis of Issues Shaping Africa’s Economic Future’, projecting Sub-Saharan Africa (SSA) GDP to grow by 2.9% and 3.3% in 2019 and 2020, respectively, from a growth of 2.5% in 2018. This upturn is to be supported by oil exporting countries, with the demand side being supported by exports and private consumption, and the supply side being supported by a rebound in agriculture, increase in mining production, and stable growth in the services sector in some countries. Overall growth is expected to be affected by the external environment as global growth continues to decelerate and global uncertainty abounds due to trade disputes between the United States and China, SSA’s major trading partners. Consequently, the outlook on commodity prices and the oil market is highly uncertain because of expected spill-over effects, especially towards commodity-driven e...

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Global Markets Review

Jun 30, 2019

Introduction According to the World Bank, the global economy experienced a slower growth, downgrading its 2019 economic growth forecast by 0.3% points to 2.6%, from the projected 2.9% as at January 2019. This is as a result of increased policy uncertainty, a recent re-escalation of trade tensions between major economies such as US and China, and increased geopolitical tensions, such as that between the US and Iran. This has led to reduced confidence, and consequently a deceleration in global investment. The International Monetary Fund (IMF) also downgraded its 2019 growth projections by 0.2% points to 3.3%, from the estimated 2019 growth of 3.5% as at January 2019, weighed down by the weakening financial market sentiments owing to (i) the current uncertainty on the direction of trade policy between the US and China, (ii) country-specific uncertainty such as Britain’s exit (“Brexit”) from the European Union, (iii) heightened geopolitical ten...

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Review of the Interest Rate Cap

Jun 23, 2019

This week, we revisit the interest rate cap topic following the proposal by the National Treasury Cabinet Secretary, Mr. Henry Rotich, in the Budget reading for 2019/20 fiscal year, to repeal Section 33B of the Banking Act, which capped interest chargeable on loans at 4.0% above the CBR rate. As highlighted in the Finance Bill 2019, the proposition to repeal the interest rate cap stems from the adverse effects the law has had on credit access, especially by the Micro, Small and Medium Enterprises (MSMEs), which consequently has detrimental effects on economic growth.  In 2018, the Parliament rejected a similar repeal proposition made by the Cabinet in the Finance Bill 2018, electing to retain the lending rate cap ceiling but scrapping off the deposits rate floor, which was set at 70.0% of the Central Bank Rate. According to the Treasury, in order to spur business activity and improve access to credit to the private sector that is largely made of MSMEs, there is a need t...

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Effects of the Issuance of the New Generation Banknotes

Jun 19, 2019

Introduction Demonetization refers to the process by which a currency is withdrawn from circulation losing its status as legal tender and is replaced with new currency. A number of countries have gone through demonetization of their currencies, either replacing the old currency with a new generation currency that has additional favourable features, or replacing the old currency with an entirely new currency. Some of the reasons for demonetization include: Facilitation of regional trade, where countries adopt a single currency, as was the case with the Euro in 2002. Control of inflation, where a country’s currency with a diminishing value is demonetized and replaced with a more stable currency, as was the case with the Zimbabwean dollar in 2015. Combating illicit financial flows such as counterfeit currency, money laundering and tax evasion. Demonetization makes the currency valueless and forces perpetrators to return...

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