Key alignments that could improve Kenya’s economy in 2025

Loss of jobs and the general reduction in disposable income caused by the recent economic shocks (Covid, wars, et al) are some of the reasons.

But more concerning stats were reported in the same report: Only 18.3 percent of Kenyans are considered financially healthy compared to 17.1 percent in 2021.

Population of savers has declined to 68.1 percent for the first time since 2009. About 16.6 percent of borrowers completely defaulted on their loans compared to 10.7 percent in 2021, a situation contributing to the high gross non-performing loans (NPLs) to gross loans - NPLs stood at 16.5 percent in October 2024.

The Monetary Policy Committee (MPC) recently confirmed this gloomy backdrop noting economic growth in the first half of 2024 had decelerated, with real global domestic product (GDP) growth averaging 4.8 percent compared to 5.5 percent in the first half of 2023. Tough times.

Nevertheless, 2025 may offer some relief going by the recent dovish MPC statement. To quote, “there was scope for a further easing of the monetary policy stance to support economic activity, while ensuring exchange rate stability.”

The MPC cut the Central Bank Rate (CBR) from 12 percent to 11.25 percent in their December 5, meeting. I think the apex bank sees the economic pain and desires a better economic landscape. I also believe they understand that communicating their view of a complex economic picture is key.

Serving dovish sounding statements, for instance, hints at a collective bias towards lower rates. More importantly, they allow the market to lead by betting on an easy monetary policy.

If the (global/country) metrics keep improving and MPC pushes lower, two things highlighted in the FinAccess report may need to align for a broader effect.

One, with 51 percent respondents ceasing investing due to affordability, underscoring the significant impact of economic contraction, industry players may need to make their products more affordable.

Respondents cited shares and treasuries as still the main investment options. This preference indicates that traditional financial instruments remain a core focus for most investors.

Stocks have experienced a great resurgence already at 18 percent year to September 2024. Investor wealth increased by Sh237 billion in this period. Yields on treasuries, although trekking lower in past few weeks, still remain attractively high.

Two, with 9.2 percent of the respondents stating that they don’t trust their investment providers (partly explaining why friends and family are relied upon as a significant source of financial advice second to self-reliance - 37.3 percent of respondents relying on themselves), investment providers need to do more to bridge this trust gap.

No doubt, the central bank’s key to a strong performance. This month’s cut already brought a touch of Christmas cheer. Investors will be keeping their eyes and ears open for more good news starting with the next scheduled MPC meeting in February 2025.

Mwanyasi is MD, Canaan Capital