Inflation eased from 6.9% in 2014 to 6.6% in 2015 due to lower energy and transport prices.  Interest rates recorded mixed performance with spikes and dips for most nominal rates in 2015.

The Central Bank Rate (CBR) increased from 8.5% in December 2014 to 10.0% and 11.5% in June and December 2015, respectively. The weighted average interest rates on commercial banks loans and advances rose by 1.4% points to 17.5% in December 2015 compared to a rise of 15.9% in December 2014.

Generally, the Kenya Shilling depreciated against the major trading international currencies. TheKenya Shilling weakened against the US Dollar, Chinese Yuan, Indian Rupee and Pound Sterling by 11.7%, 9.5%, 6.3% and 3.7%, respectively, in 2015. However, the Kenya Shilling gained against the Euro, South African Rand and 100 Japanese Yen by 6.7%, 4.7% and 2.6%, respectively, in 2015.

Within the EAC region, the Kenya Shilling displayed mixed performance, strengthening against the Ugandan Shilling and Tanzanian Shilling by 11.5% and 9.5%, respectively but weakening against the Rwandese Franc by 9.0%. The depreciation of the currency was mainly due to the global strengthening of the US Dollar on the international market, and high dollar demand by importers in the domestic market.

Total debt as at end of 2014/15 stood at Shs 2,601.4 billion, of which external debt stock accounted for 54.7%. Debt servicing charges net of repayments from on lending are expected to stand at Shs 399.0 billion. During the period under review, Shs 259.8 billion will be transferred to county Governments. The total budgeted expenditure for county Governments is estimated at Shs 361.1 billion against an estimated revenue of Shs 343.7 billion.

Terms of trade of all items improved from 73.1% in 2014 to 84.9% in 2015, mainly due to improved unit prices of the export commodities coupled with a decline in import prices of mineral fuels.  The current account deficit narrowed from 14.5% as a percentage of GDP in 2014 to 11.4% in 2015 due to a substantial growth in export of goods and services; a reduction in the import bill; and due to low oil prices.

Total exports rose by 8.2% to Shs 581 billion in 2015, while total imports declined by 2.5% to Shs 1,578 billion. This resulted to the balance of trade improving from a deficit of Shs 1,081 billion in 2014 to a deficit of Shs 997 billion. The volume of trade increased marginally from Shs 2,156 billion in 2014 to Shs 2,158 billion in 2015. The rise in the total export earnings compared to the decline in the total import bill led to the improvement of export-import ratio from 33.2% in 2014 to 36.8% in 2015.

Agriculture, Forestry and Fishing Performance of the agricultural sector in 2015 improved against a backdrop of good weather and abundant rainfall, hence Gross Value Added improved from 3.5% in 2014 to 6.2% in 2015.

Attributed to this improvement was improved crop and livestock production.  Total value of marketed production at current prices increased by 11.3% from Shs 333.2 billion in 2014 to Shs 371.0 billion in 2015. Overall, the value of marketed crops increased by 15.5% from Shs 235.3 billion in 2014 to Shs 271.8 billion in 2015.

Marketed crops continued to account for over 70% of total marketed production in 2015, largely due to improved earnings from tea and horticulture exports.  During the year under review, international coffee prices deteriorated significantly.

The decline in marketed production coupled with a reduction in international coffee prices, resulted in a 27.4% decrease in domestic coffee earnings to Shs 12.1 billion in 2015. Manufacturing Sector  The sector’s real output grew by 3.5% in 2015 compared to a slower growth of 3.2% in 2014 attributed to reduced production costs arising from lower cost of petroleum and electricity inputs.  The value of manufacturing projects approved by industrial financial institutions also increased to Shs 1,092.0 million in 2015 from Shs 569.1 million in 2014.

The sector was negatively affected by cheap imports, high cost of capital and disincentives to export because of delayed Value Added Tax refunds. 8 | P a g e Tourism Sector  Tourism earnings went down to Shs 84.6 billion in 2015 compared to Shs 87.1 billion in 2014.

Similarly, international visitor arrivals declined by 12.6% from 1.35 million in 2014 to 1.18 million in 2015. The suppressed performance was on account of security concerns, particularly in the coastal region and restrictive travel advisories from some European source markets.  In 2015/16, the Government increased budgetary allocation to the State Department of Tourism from Shs 5.6 billion to Shs 10.7 billion, to among others, market Kenya as a preferred tourism destination.

The sector is expected to improve following the scrapping of landing fees at Mombasa and Malindi international airports for chartered planes from January 2016 till June 2018 and a subsidy of US$ 30 for each passenger who disembarks in Kenya during the period.

 The country witnessed a thriving building and construction sector in 2015 registering a growth of 13.6% in value added. This growth was on account of the on-going public infrastructure projects and private sector development in the real estate sector and is mirrored in the increased cement consumption.  Cement production went up by 8.0% from 5.88 million tonnes in 2014 to 6.35 million tonnes in 2015.

Cement consumption and stocks rose to 5.71 million tonnes in 2015 from 5.20 million tonnes in 2014 as a result of increased demand in the construction sector. However, total exports of cement declined by 5.7% to 0.68 million tonnes in 2015.

Total installed electricity capacity increased by 6.3% to 2,333.6 MW, while total electricity generation expanded by 4.1% to 9,514.6 GWh in 2015. Demand for electricity increased from 7,415.4 million KWh to 7,826.4 million KWh during the same period. The number of customers connected under the Rural Electrification Programme (REP) rose by 33% to stand at 703,190 customers as at July 2015, up from 528,552 as at July 2014.

The Kenyan economy continues to gain momentum. The Budget for 2016/2017 aims to consolidate the significant gains already made in priority areas such as, healthcare, business environment, investing in security, infrastructure, food security, employment, reducing poverty and implementing economic, financial and other ongoing reforms to boost productivity and competitiveness. The Cabinet Secretary to the National Treasury announced the following key measures to facilitate a more enabling business environment for continued economic growth.

The National Treasury has allocated Shs 2.8 billion to the Ethics and Anti-Corruption Commission (EACC), Shs 2.1 billion to the Department of Public Prosecutions (DPP), and Shs 300 million to the Financial Reporting Centre (FRC) to continue strengthening the various institutions that are mandated to fight corruption. Other initiatives include repatriation of proceeds used to purchase property and assets using the proceeds of corruption.

Use of ICT to Enhance Efficiency Information Communication and Technology (ICT) is critical for the country’s productivity and competitiveness in a knowledge based economy.  Over 1.7 million Kenyans have registered on the e-Citizen payment platform, where they are able to access 115 services from different government agencies including some from County Governments.

The platform has processed over 2.4 million applications and collected Shs 4.2 billion in revenue.  In addition, Shs 13.4 billion has been allocated for the Digital Literacy Programme (School Laptop Project), development of digital content, building capacity of teachers and rolling out computer laboratories for primary schools throughout the country.

Security and Tourism  Given the current insecurity climate in the country, this remains the top priority of the Government.In 2015, the Government rolled out security cameras that provide real time footage from strategic points and roads in Nairobi and Mombasa to the National Police Operations Centre.

In order to counter the on-going threat of terrorism and insecurity which is affecting the business environment, Shs 124.04 billion has been allocated to Defence and National Intelligence Service (NIS), and Shs 140.6 billion to the State Departments of Interior and Coordination of National Government.  To counter the effects of adverse travel advisories experienced by the tourism sector, Shs 4.5 billion has been allocated for tourism promotion activities.

Financial Sector Stability and Development Various measures are being put in place to further regulate the banking sector including the Central Bank Bill which will be presented to Parliament and investment in human capital to strengthen Central Bank of Kenya’s technical capacity;  In order facilitate access of credit in the economy, the Government has developed a Movable Property Security Rights Bill, 2016 which provides for borrowing using movable assets as collateral.

In addition, an electronic collateral registry is being developed where lenders will be able to lodge their security rights on specific collateral.  The Cabinet Secretary (National Treasury) is seeking to table the Financial Services Authority (FSA) Bill which proposes to merge the Capital Markets Authority (CMA), the Retirements Benefits Authority (RBA), the Insurance Regulatory Authority (IRA) and Sacco Societies Regulatory Agency (Sasra).

 M-Akiba, an initiative announced in 2015 is going to be rolled out in the new financial year having been previously discontinued on the basis of volatile interest rates. Infrastructure Development The construction of the Standard Gauge Railway (SGR) from Mombasa to Nairobi, has also is now over 80% complete and expected to be launched by June 2017. An additional allocation of Shs 154.4 billion has been made for the SGR (Shs 118.2 billion is external financing from China and Shs 36.2 billion is the GOK’s contribution). Construction of Phase II that will run from Nairobi to Naivasha is expected to start in the FY 2016/17.

Commission the new terminal 1E and commencement of work on the second runway at the JKIAexpected to be completed by the end of 2018. In addition, expansion of Eldoret International Airport will enable large cargo planes to land and position it as a transport hub.  Shs 0.5 billion has been allocated for the acquisition of two ferries for the Likoni Channel; Shs 5.5 billion for Mombasa Port Development Project and Shs 10 billion for the LAPSSET project.  With respect to the energy sector, Shs 120.2 billion has been allocated to cater various energy  development initiatives i.e. Geothermal Development, Rural Electrification Programme; Exploration and Distribution of Oil and Gas.

 The Government has completed the pilot phase of 10,000 acres in Galana-Kulalu and is thereforeseeking to embark on covering at least 100,000 acres as its commitment to reducing dependence on rain fed agriculture.

To this extent, Shs 20.8 billion has been allocated to the above initiatives.  In order to improve yield and output for our farmers, Shs 4.9 billion to subsidize fertilizer and seeds.

In addition, Shs 8.4 billion has been allocated for the acquisition of the Offshore Patrol Vessel for the fisheries sub sector; the modernization of the Kenya Meat Commission; the revival of the pyrethrum sector; Livestock & Crop Insurance Scheme; Livestock value chain support; and the mechanization of Agriculture.