The theme for the 2018/19 Budget Speech is “Creating jobs, transforming lives and sharing prosperity.” This is in line with the Big 4 Agenda of growing the contribution of manufacturing to GDP from 9% to 15%, providing affordable housing, universal healthcare coverage and ensuring food and nutrition security for all by 2022.
The global economy recorded a broad-based recovery in 2017 to register a GDP growth of 3.8% compared to 3.1% in 2016. It is expected that the growth rate will improve to 3.9% in 2018. The improved performance is attributed to a rebound in private and public investments, growth in international trade, accommodative financial conditions, improved business and consumer confidence and the rise of oil and commodity prices.
African economies were resilient and gained momentum in 2017. Real output growth is estimated to have increased by 3.6% in 2017 and is expected to accelerate to 4.1% in 2018 backed by stable commodity prices and business reforms to address macroeconomic imbalances and boost investment. The World Bank has raised concerns on the increasing debt levels across the continent, with the composition of debt changing as the countries shift from traditional concessional financing to market-based debt with the attendant exposure to market risks. Regional highlights East Africa remains the fastest-growing sub-region in Africa, with estimated growth of 5.6% in 2017, up from 4.9% in 2016. The growth is expected to remain buoyant, reaching 5.9% in 2018 and 6.1% in 2019.
Below are the 2017 macroeconomic indicators for the East Africa region:
The investments in manufacturing aim to grow the contribution of manufacturing to the GDP to create over 800,000 new jobs. The government plans for modern industrial parks in Naivasha, Athi River and Dongo Kundu, coupled with the launch of SGR phase II passenger and cargo services to achieve this goal. Tax incentives include lower tax rates for Special Economic Zones and favourable investment allowances. Further, in his speech, the CS proposed to cut the cost of electricity during off peak hours and provided for a corporation tax deduction equivalent to 130% of total electricity costs.
The government also plans to work with other East Africa states to review the Common External Tariff rates
to protect local industries.
Incentives and regulatory updates on affordable housing are expected to result in the construction of 500,000
reasonably priced and equipped houses. In April 2018, the government in partnership with the private sector incorporated the Kenya Mortgage Refinance Company to mobilise capital for affordable housing. The CS proposes a lower corporation tax rate of 15% for developers constructing a minimum of 100 units per year.
The Employment Act will also be amended to require employers to contribute 0.5% of employee gross monthly pay capped to KES 5,000 to the National Housing Development Fund. Employees will make a matching contribution of 0.5%. The contributions will be used to finance the provision of affordable housing.
Community health programs such as Linda Mama will be scaled up through the provision of specialised medical equipment to county hospitals and increasing community health facilities. The government will also pilot a universal health coverage program in Kisumu, Nyeri, Isiolo and Machakos counties in preparation for nationwide launch. Other initiatives include the launch of a comprehensive NHIF medical scheme for secondary schools students.
The government is keen on improving the country’s infrastructure
and has allocated KES 273.8 Billion to key infrastructure projects
– Phase 2A of the SGR Project;
– Mombasa Port Development Project;
– Expansion of several airports and airstrips;
– Exploration of geothermal, wind and solar resources;
– Rural electrification; and
– The Eastern Electricity Highway Project connecting Ethiopia and
The government has allocated KES 2.045 Billion towards the promotion of Kenya as a tourist destination. The funds will be used for advertising, lending to hoteliers and the restoration of Fort Jesus.
The government has extended cash transfers to vulnerable groups, less fortunate families, youth and persons with disabilities. The Presidential Secondary School Bursary Scheme and the Kenya Hunger Safety Net Programme are among the funds that will benefit from the allocation of KES 33 Billion.
Tax collections from winnings and bettings will also be channelled towards the construction of a Sports Academy and the completion of the Ultra–Modern National Library.
County governments are set to receive 40% of audited national government revenues (KES 314 Billion) which is above the constitutional threshold of 15%. This is a boost to devolution and grassroots development. There is commitment to have the Commission on Revenue Allocation develop a second policy on Marginalized areas to ensure they benefit from the Equalisation Fund.
As Kenya joins the league of oil producing countries, the government has completed the Sovereign Wealth Fund Legislation to protect the country from the infamous “Dutch Disease”. The government has committed to allocate resources to facilitate the construction of the crude oil pipeline from Lokichar to Lamu and the completion of export facilities at Lamu on a project finance basis.
Reforms to the Public Procurement and Asset Disposal Act (PPADA) have been proposed to increase transparency in
government procurement procedures. The PPADA Regulations, set to be tabled before Parliament are to improve public trust in light of recent misappropriation of public funds.
Ethics and Anti-Corruption Commission, Department of Public Prosecution, Asset Recovery Agency and Financial Reporting Centre will receive government finance to aid in fighting corruption.