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August-2017

SNAPSHOT:

KENYA’SECONOMY:

• International trade:Volume of trade improved from 173.9 billion in April 2017 to 2014.1billion in May 2017. The value of total exports increased to 52.7 billion while the value ofimportrosefrom129.1billioninApril2017to151.4billioninMay2017.

• Consumer price index (CPI): The Consumer Price Index on the broad commodity groupdecreasedby0.96percentfrom185.39inJune2017to183.60inJuly2017

• Inflation:TheoverallyearonyearinflationinAugust2017was8.04percent.Itrosemarkedlyfrom 7.47 in July to 8.04 in August, over and above the upper bound of the Central Bank’sinflationtargetrange(7.5).

• ForeignExchangerate:TheKenyaShillingappreciatedby1.0%totheUSDduringthemonthofAugusttocloseatKshs102.9,fromKshs103.9inJuly.

• InterestRate:ThemonetaryPolicyCommittee(MPC)retainedtheCentralBanksRate(CBR)at 10.0 percent at its July 17, 2017 meeting. The retention of the benchmark lending ratemeansbankswillcontinuelendingatmaximumof14percent.

• CostofPower(cents)perkilowatt:Theaveragechargeforpowerusageformanufacturingsectorrecordedanincreaseof13.1percenttois21.72perkilowatt

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GlobalEconomy

• GlobalOilPrices:Globaloilpricesincreasedby4%inJuly2017toUSD46.93perbarrelonmonth-on-monthbasis, after two consecutivemonths of sharpdeclines.At the latter part ofAugust,oilpricesincreasedfurtherby9%onmonth-on-monthbasis.

• Global Trade:As per theWorld Trade Outlook Indicator of theWorld Trade Organization,globalmerchandisetradewillcontinuetostrengtheninthethirdquarterof2017.

• China:IMFwarns thatChina’sdebtboomcould lead to financial crisis.Growth inChinahasbeenpropelledupbyrapidincreasesindebtinrecentyearsandthenominalcredittothenon-financialsectormorethandoubledinthelast fiveyears.AccordingtoIMF,thismayincreasetheriskofdisruptiveadjustmentsandmarketgrowthslowdown.

• US:UShomepriceskeepclimbingasinventoriessitathistoric lowsduetoconstructionlags.Housingpricesroseby5.8%in12monthstoJuneandstandat4.3%higherthanthepre-crisispeak,accordingtoanationalHomePriceIndexofUS.

1. KEYINDICATORS

1.1. Inflation

Month of Augustwitnessed increased inflation from7.47 per cent (July) to 8.04 per cent over andabove themarket expectation of 7.6 percent. The rise in annual inflation ismainly attributed tohigherpricesoffood,asaconsequenceofreducedsupplyespeciallyinthesecondweekofthemonth.

FoodandNon-AlcoholicDrinks’ Index increasedby1.04per centdue tonotable rise in the cost ofsome food items. The increasewasmainly attributed to depressed supply especially in the secondweekofthemonth.Asaresult,theyearonyearfoodinflationroseto13.57percentinAugust2017comparedto12.19percentinJuly2017.

Source:KenyaNationalBureauofStatistics

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Duringthesamereviewperiod,Housing,Water,Electricity,GasandOtherFuels’Indexincreasedby0.54 per cent. Thiswasmainly due tomarginal increase in the cost of electricity and kerosene asshowninTable3.

The Transport Index rosemarginally by 0.03 per cent over the same period,mainly on account ofincreaseinpumppricesofdieseldespitethedecreaserecordedinrespectofpetrolprices.

Keychangesontheconsumerpriceindex(CPI)duringthemonthofAugust

Broad commodityGroup

Pricechange(M/M)

Pricechange(Y/Y)

Reason

Food& NonAlcoholicbeverages

1.04% 13.6% Rise in food prices, attributable to limited foodsupply in Nairobi and other urban centers in themonth, following depressed rainfall witnessedduring the long rains period and disruption ofsupplyovertheelectionperiod

Housing, Water,Electricity,GasandotherFuels

0.5% 3.5% Increasedcostofelectricityandkerosene,duetoariseinthepumppricesoffuel

NationalAverageRetailPricesofSelectedCommodities Commodity

NameUnit ofMeasures

AveragepriceJuly'17 Average PriceAugust'17

% change on lastMonth

Electricity 50Kwh 576.07 651.47 13.1 Electricity 200Kwh 3642.66 3944.26 8.3 Petrol 1litre 98 96.98 -1.0 Diesel 1litre 85.45 86.84 1.6Source:KenyaNationalBureauofStatistics

Thecostofelectricityincreasedsubstantiallyby13.1%and8.3forconsumerof50Kwhand200kwhrespectively.

NextquarterExpectation:

In next fewmonths we expect reduced inflationary pressures, supported by: Stabilization in foodprices,withimprovedweatherconditionsinsomepartsofthecountry,andadeclineinfuelprices,asaresultofrisingUSoilproduction,whichhassuppressedtheglobalrecoveryofoilprices,counteringOPECs decision to extend the deal to cut down on oil production. However,we expect inflation toaverage8.0%overthecourseoftheyear,whichisabovetheupperboundofthegovernmenttargetrangeof2.5%-7.5%.

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1.2. ExchangeRate

TheKenyaShillingappreciatedby1.0%totheUSDduringthemonthofAugusttocloseatKshs102.9,fromKshs103.9inJuly.Thestrengtheningoftheshillingduringthemonthwasprimarilydrivenbydollar inflows from investors abroad into the local debt and equity markets, amid cheap marketvaluationsandarelativelystablebusinessenvironment,broughtaboutbyanon-violentelection.Onayear to date basis, the shilling has depreciated against the dollar by 0.4%, while according to theInternationalMonetaryFund(IMF),thedollarisovervaluedbybetween10.0%and20.0%,basedonnear-termeconomic fundamentals. It isexpected that theshillingshouldremainrelativelystable tothedollarintheshortterm,supportedbyCBK’sactivityastheyhavesufficientsupportthroughforexreserves,currentlyatUSD7.5bn(equivalentto5.0monthsofimportcover).

1.3. InterestRateThemonetaryPolicyCommittee(MPC)retainedtheCentralBanksRate(CBR)at10.0percentatits July 17, 2017 meeting saying the currentmonetary policy stance had reduced the threatofmoneydriveninflation.ThelasttimetheMPCchanged the CBR was in September last year,when it brought it down from10.5per cent to10 per cent. The retention of the benchmarklendingratemeansbankswillcontinuelendingat maximum of 14 per cent. The average

commercialbanks’lendingratedecreasedto13.65percentinJune2017from18.18percentinJune2016 reflecting theeffectof the interest rate capping implemented inSeptember2016.Meanwhile,theaveragedepositrateincreasedto5.66percentinJune2017from1.68percentinAugust2016.

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2. TRADE:

2.1. U.STRADEINGOODSWITHKENYA

Month Export(MillionU.SDollars) Import (Million U.SDollars)

Balance(Million U.SDollars)

January2017 64.0 53.2 10.8

February2017 62.6 38.9 23.6

March2017 42.1 38.2 3.9

April2017 16.8 42.1 -25.3

May2017 31.5 46.4 -14.9

June2017 64.7 44.7 20.0

July2017 27.0 53.8 26.8

TOTAL 308.6 317.4 -8.8

2.2. KENYATEAINDUSTRYHIGHLIGHTS

TheteaindustryinKenyaisfullyliberalizedwiththemarketingofteaindependentlycarriedoutbyteatraders.Over84%ofKenyateaissoldthroughtheMombasaauction,whichisthesecondlargesttea auction centre in the world. Producers also sell some of their tea directly through privatearrangementswithteaimportersacrosstheworld.Thisformsonlyabout10%ofthetotalproduction.Thelocalteamarketabsorbsonly5%ofthetotalproductionandtherestisexported.

(i) Production:Teaproduction for themonthof July2017was31.56MillionKgs,against29.50MillionKgsrecordedduringthecorrespondingmonthof2016.Theincrease in productionwas largely attributed to scattered precipitationwhichwas experienced in theWest of Rift following which the region’s output rosefrom23.48MillionKgsto24.56MillionKgs

(ii) Export:The total exportvolume for themonthof July2017was36.23MillionKgs compared to 42.62 Million Kgs recorded same period of last year,representinga15%decrease

(iii) Localconsumption:Local teaconsumptionfor July2017stoodat3.31MillionKgs against 2.51 Million Kgs for the corresponding period of 2016 whilecumulativeteaconsumptionforthesevenmonthsperioduptoJuly2017stoodat21.24 Million Kgs against 16.31 Million Kgs for the corresponding period of2016.

3. TRANSPORTANDMOMBASAPORTPERFORMANCE:

ApriltoJune,2017statussummary:

Category Indicator Target Status (April to June2017

April May June

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MaritimeIndicators Vesselturnaroundtime(Hrs) 72 68.5 101.6 102.9

Shipwaitingtimebeforeberth(hrs) 24 11.61 33.95 38.27

Portindicators Containerizedcargodwelltime(hrs) 72 85.84 108.14 90.70

OnestopCentretime(Hrs) 24 39.82 56.39 45.10

Aftercustomsrelease(Hrs) 36 44 50 41

Document processing centre time(hrs)

2 2.45. 2.17 2.35

Source:PortCharter,NorthernCorridor

Source:KenyaNationalBureauofStatistics

Thetotalnumberofvehiclesregisteredincreasedto24,582inMay2017from23,059inApril2017.Motorcyclesandstationwagonsaccountedfor66.2percentand20.3percent,oftotalmotorvehiclesregisteredinMay2017,respectively.4. SECURITIESMARKET:GeneralElectionimpact:DuringthemonthofAugust,theequitiesmarketwasonanupwardtrendwithNSE20,NASIandNSE25gaining6.0%,4.8%and3.8%,respectively,takingtheirYTDperformanceasattheendofAugustto26.9%,26.4%and25.6%forNASI,NSE20andNSE25,respectively.

Gain overAugust

YTB Performance end ofAugust

YTB After presidential election petitionruling

NSE20 6.0% 26.9% 22.2%

NASI 4.8% 26.4% 22.6%

NSE25 3.8% 25.6% 22.0%

Source:CapitalMarketAuthority

TheafterPresidential electionpetition rulingweek, the equitiesmarketwasonadownward trendwith NASI, NSE 25 and NSE 20 losing 5.5%, 4.6% and 4.5%, respectively, taking their YTDperformance to 22.2%, 22.6% and 22.0%, respectively. The downward trend is attributed touncertaintyduetonullificationofthepresidentialresultsresultingtolossesbystocksonFridaywith

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NASI,NSE20andNSE25losing3.6%,3.4%and2.4%,respectively.Over50billionisreportedhavebeenlostinlessthan10minutes,withKenyaPowerandKengenamongthebiggestlosers.Safaricomshares, fellby4.9%totradeat$0.2328pershare.Theshillingalsoweakenedby0.44%against thedollar

The equitiesmarket performance during themonthwas driven by gains in large caps, led by KCBGroup, Coop Bank and Equity Group, which gained 10.4%, 8.9% and 7.4%, respectively. Since theFebruary2015peak,themarkethaslost4.7%and26.8%forNASIandNSE20,respectively.

5. GLOBALECONOMICUPDATE:

5.1. GlobalTradeGrowthwillContinuetoStrengtheninQ3of20171) TheWorldTradeOutlookIndicator(WTOI)oftheWorldTradeOrganization(WTO)suggests

thatglobalmerchandisetradewillcontinuetostrengtheninthethirdquarterof2017.

2) Thelatestreadingof102.6isthehighestleveloftheindicatorsinceApril2011,suggestingthattradevolumegrowthwillcontinuetobeabovetrendinthethirdquarterof2017.

3) Stronggrowthinexportorders,airfreightandcontainershippingisleadingtheupwardtrendintheindicatorastheeconomicactivitypicksuparoundtheworld.

4) Weak growth in automobile production and sales is a cause for concern as it may signalweakeningconsumerconfidence.

5.2. GlobalOilPricesUpinJulyandLikelytoContinueinnextfewmonths:

1) AccordingtotheOPECmonthlyoilmarketreport,theglobaloilpricesincreasedby4%toUSD46.93perbarrelinJulycomparedtoJune2017aftertwoconsecutivemonthsofsharpdeclines.

2) Oil prices rose nearly 10% after the last meeting of OPEC andmajor non-OPEC producers,whenthegroupdiscussedpotentialmeasurertobalancetheoilmarket.

3) As at 29th August 2017, oil prices registered a further increase by 9% onmonth-on-monthbasis,toUSD51.87perbarrelandthiscouldbeduetotheHurricaneHarveyinTexas.

4) As a result of the Hurricane Harvey, the flooding in Texas is causing havoc in the energymarkets.ThreemajorrefinerieswereshutdownandallportfacilitiesinHoustonandCorpuswerestop.Theimplicationsoftherefineryoutagesandportclosuresmayresultindisruptionofproductionofrefinedproducts,whichcouldhavesubstantialeffectsontheUSfuelsupply.

5.3. 9THBRICSSUMMIT:The9thsummitoftheBrazil,Russia,India,ChinaandSouthAfrica(BRICS)regionalgroupingwasheldin Xiamen, China, under the theme of ‘Stronger Partnership for Brighter Future’. The membercountriesdiscussedinternationalandregionalissuesofcommonconcern,andexpressedtheirresolvetobuildontheirachievementsalreadymadewithasharedvision for futuredevelopmentofBRICS.TheXiamenDeclarationadoptedbytheconsensusfurtherstatedthatBRICS,since2006,hasfostereda spirit of mutual respect and understanding, equality, solidarity, openness, inclusiveness andmutually beneficial cooperation. The BRICS member countries also signed some importantagreements,includingMutualCooperationActionAgendaonEconomicandTradeCooperation,ActionPlanforInnovationCooperation,StrategicFrameworkofBRICSCustomsCooperation,MemorandumofUnderstandingbetweentheBRICSBusinessCouncilandtheNewDevelopmentBankonstrategiccooperation.

5.4. CHINA:

IMFWarnsChinaonDebtBoomChina’s economy is reliant verymuchondebt and the IMFwarnsChinaon this enormousboom in credit risks leading to anew financial crisis.Growth inChinahas

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beenpropelledupbyrapidincreasesindebtinrecentyears.AspertheIMFfindings,nominalcredittothenonfinancialsectormorethandoubledinthelastfiveyears,andthetotaldomesticnonfinancialcredit –to-GDP ratio increased by 60 percentage points. IMF iswarning that China’s current credittrajectoryisdangerouswithincreasingrisksofdisruptiveadjustmentsandmarketgrowthslowdown.

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