1. Economic performance
The improved economic performance was despite the period being characterized by poor rains and high energy prices which to a certain extent restrained economic growth. Agricultural output, particularly coffee and tea had their production substantially depressed as a result of the poor rains. The quarter also experienced shortage and high prices of fertilizer and seeds for key food crops.
At the start of the quarter inflation was almost contained at the Central Bank's target of 5.0 per cent. However, inflation rose to 9.19 per cent by March 2011 and has since been rising.
Services contributed almost half (48.7 per cent) of the GDP while primary industries was second with a share 21.0 per cent. Secondary industries and taxes (less subsidies) on products contributed 15.8 and 14.5 per cent, respectively. Primary industries comprise of agriculture, forestry and fishing while secondary industries include manufacturing, mining, quarrying, construction, electricity as well as water sector. The rest of the activities are categorized as services.
2. Sectoral analysis
2.1 Agricultural Sector
The sector recorded a slowed growth of 2.2 per cent in the first quarter of 2011 compared to a growth of 5.7 per cent over the same quarter in 2010. Subdued rainfall during the quarter led to the deceleration in growth as a result of decreased production of a number of marketed products, notably the volume of tea and coffee. Tea deliveries to marketing boards declined by 23.8 per cent in the first quarter from 111.7 thousand metric tonnes in 2010 to 85.2 thousand metric tonnes in 2011 while deliveries of coffee declined by 28.0 per cent in the first quarter of 2011 to 11.3 thousand metric tonnes.
However, there was an increase in the export of horticultural produce supported by improved external demand which consequently boosted production in the agriculture sector during the quarter. Exports of cut flowers increased to 21,887 metric tonnes in 2011 compared to 18,639 metric tonnes in 2010. Vegetable exports increased by 23.4 per cent to 16,184 metric tonnes in the first quarter of 2011. Over the same period, the quantity of exported fruits grew by 37.9 per cent to 6,499 metric tonnes from 4,712 metric tonnes in the first quarter of 2010.
2.2 Financial Intermediation
The sector recorded a growth of 10.9 per cent in first quarter of 2011 compared to a growth of 5.0 per cent in the same quarter of 2010. Notably, total domestic credit increased by 26.9 per cent during the review period to stand at KSh 3.9 billion compared to an expansion of 3.1 per cent in the same period of 2010. Similarly, total credit extended to the private sector increased by 22.8 per cent during the quarter against an increase of 16.7 per cent in the same quarter of 2010.
2.3 Manufacturing
The value added of the manufacturing sector is estimated to have expanded by 3.2 per cent during the review period which was significantly lower than the 6.0 per cent attained during the same period in 2010. The slower growth was partly a consequence of a slowdown in some economic activities among them processing of coffee, manufacture of motor vehicles tyres, soap, beer, and assembly of motor vehicles during the quarter.
2.4 Electricity and Water
The sector recorded a growth of 3.5 per cent compared to a negative growth of 2.5 per cent recorded in the same quarter of 2010. The turnaround was largely attributed to increased production of hydro electricity whose generation is comparatively cheaper than that of thermal electricity. The increase in generation of hydro electricity was boosted by the good rains experienced in 2010. Generation of thermal electricity declined over the same period.
2.5 Hotels and Restaurants
The sector recorded an impressive performance during the period under review by posting 8.3 per cent growth compared to a contraction of 2.7 per cent over the same period in 2010. The expansion was realized through increased arrivals of visitors at the Jomo Kenyatta and Moi International Airports.
2.6 Transport and Communication
Transport and communication sector expanded by 6.5 per cent in first quarter of 2011 compared to a growth of 6.0 per cent in the same quarter of 2010. The growth was well spread with road and air transport recording modest growths while telecommunication expanded substantially mainly due to reduced call charges. The growth in the road transport was partly explained by the rise in consumption of light diesel, which increased to 318.4 thousand metric tonnes during this period from 301.5 thousand metric tonnes in first quarter of 2010.
2.7 Construction
Activities of the construction sector expanded substantially mainly supported by increased bank credit for real estate development to the private sector. Consequently, the sector recorded an impressive growth of 10.7 per cent in first quarter of 2011, compared to the dismal performance of 0.3 per cent in 2010. The sector’s growth was also supported by the massive road infrastructure projects being undertaken in various parts of the country. The growth in the sector was also mirrored in cement consumption which significantly increased to 779.3 million tonnes during this period from 667.1 million tonnes consumed in the first quarter of 2010, representing a growth of 16.8 per cent.
3. External Sector
3.1 Balance of Payments
The Kenya Shilling on average depreciated against the US Dollar in the first quarter
2011 to an average of KSh 82.24 compared to an average of KSh 76.49 during the first quarter of 2010. The official foreign exchange reserves stood at KSh 343.0 billion by end March 2011 compared to 289.1 billion by end of March 2010. This was equivalent to about 3.9 months imports cover.
Export earnings increased by 19.8 per cent to KSh 118.1 billion in first quarter 2011 from KSh 98.7 billion over same period 2010. On the other hand, value of imports increased to KSh 285.8 billion over the same period, mainly on account of increased value of imports of oil, manufactured goods, machinery and transport equipment and chemicals. Consequently, the merchandise account deficit worsened from KSh 107.8 billion in the first quarter of 2010 to KSh 167.7 billion in the first quarter of 2011 due to increased value of imports.
The services account recorded a surplus of KSh 40.3 billion in the first quarter of 2011 compared to a surplus of KSh 42.7 billion in a same quarter of 2011. This was despite an increase of KSh 1.8 billion in tourism earnings during the period.
In order to measure changes from one quarter to the subsequent one, the estimates need to be seasonally adjusted. This is done at the aggregate level of the GDP rather than at the activity (sectors) level. Compared to the fourth quarter 2010, the economy managed a paltry 0.5 per cent during the first quarter of 2011.The movement of the unadjusted GDP index is more uneven compared to the adjusted series because the former has the seasonal component which has been removed in the adjusted GDP series and therefore it only reflects the trend component.
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