The cost of living went up across the world last year and this had a ripple effect on Kenya, according to the latest data from the Economic Survey 2023.

Last year, inflation globally stood at a high of 8.7 per cent, largely driven by high energy prices and trade disruptions caused by the Russia-Ukraine war.

This was a significant jump, considering that in 2021, the inflation rate globally stood at 4.7 per cent. The economic outlook was made all the worse by a depreciation of most currencies, the shilling included, against the dollar.

Despite these shocks, Kenya’s national cake expanded by 4.8 per cent, although this was much lower that the 7.6 per cent recorded in 2021. Generally, however, Kenya’s economy takes a beating every election year.

Whereas there was a general growth in nearly all sectors of the economy, agriculture, forestry and fishing contracted — meaning that they performed worse compared to 2021. When other sectors were expanding, these three shrank, slowing down the pace of economic growth.

Services sector

The decline was in large part blamed on the prolonged drought, which affected at least 23 counties and left at least five million Kenyans at risk of starvation. In turn, this necessitated the government to divert money to mitigate against starvation in the most vulnerable regions.

And in what could mark a shift in economic growth trend going forward, the services sector emerged as the biggest contributor to the creation of new national wealth — also known as the Gross Domestic Product (GDP).

This is a measure of whether the national cake is expanding or shrinking. The sector contributed 61.1 per cent of GDP in 2022, making out an outlier in terms of driving economic growth. For every Sh100 that Kenyans generated as wealth, the sector contributed Sh61.

Per capita income

It was followed at a distant second by agriculture — which remains the biggest creator of jobs per head. Agriculture contributed 21.1 per cent of GDP. Rounding off the top three creators of wealth were industry-related activities, which accounted for another 17.7 per cent of GDP in the period under review. This was a marked growth considering that in 2021, the sector accounted for 7.2 per cent of GDP.

Another important measure of growth is what is known as the GDP per capita. This is a measure of the total national wealth divided by the number of citizens. In 2021, each Kenyan, on average, had a GDP per capita of Sh237,861. Last year, this increased to Sh260,024, a modest increase but the graph is pointing in the right direction.

If one were to discount the number of Kenyans employed through small-scale agriculture and pastoral activities, there was a total of 19.1 million people who had jobs, an increase from 18.3 million the previous year (see separate story). Incomes — also known as nominal wage bill — also increased by about Sh2 billion in 2022 compared to the preceding year. Growth was more evident in the private sector — recording an increase of 10 per cent — and slower in the public sector at four per cent. Interestingly, for every Sh100 that the two levels of government spent to pay wages, Sh23 went to employees in counties.

“Real average earnings per employee decreased by 3.0 per cent,” says the report, highlighting some of the negative aspects of decline in the period under review. “Annual inflation rate as measured by the Consumer Price index increased from 6.1 per cent in 2021 to 7.7 per cent in 2022.”

Bank loans

Inflation — also known as cost of living — has been one of the hot political potatoes that sparked demonstrations by opposition leaders and their supporters. The last of such protests aborted on Tuesday and one called for today was called off last evening after a truce by politicians (see separate story).

One other negative trend that impacted incomes and financial wellbeing of Kenyans was the decision by the Central Bank of Kenya to increase the Central Bank Rate from 7.0 per cent in December 2021 to 7.50, 8.25 and 8.75 per cent in June, October and December last year.

The cumulative effect of this decision was to make bank loans more expensive, meaning that for every Sh100 that a Kenyan borrowed, they were paying more as interest compared to the previous year.

On the positive side, savings deposit rate increased, which means Kenyans were saving slightly more — 3.56 per cent— compared to 2021.

Worth noting is that Kenya’s economic growth was slightly better than the average in Sub-Saharan Africa, which recorded a growth of 3.9 per cent compared to 4.8 per cent for Kenya.

This growth could have been higher but was slowed down by reduced capacities of families to spend on household consumption and a decrease in private investment due to global inflation. This was made even more complicated by policies such as those adopted by the Central Bank, which led to a tightening of monetary policy and the subsequent slow down in the flow of money.

“The slowdown was attributed to tightened policies, which led to a decline in private demand in most of the countries,” the survey reveals.  “In addition, contraction in agricultural and manufacturing activities; and rising public debt contributed to the slowdown in the region’s real GDP.”