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Kenyan manufacturing sector growth seen slowing in first half of 2017

By George Obulutsa

NAIROBI (Reuters) - Growth in Kenya's manufacturing sector is seen slowing in the first quarter of 2017 due to drought, and in the second quarter as companies adopt a more hesitant attitude ahead of elections in August, the head of their association said on Friday.

The Kenya Association of Manufacturers (KAM) says on any given year the sector contributes between 10 and 11 percent to Kenya's gross domestic product, which stands at more than $62 billion.

Kenya is suffering from a drought that has led to some 1.5 million needing food aid and hit hydroelectricity production, with the energy ministry saying this could lead to higher electricity prices as more electricity has to come from diesel-powered generators.

"The year has started with a drought. That is also going to have an impact in terms of raw materials in sectors that rely on agricultural products," Phyllis Wakiaga, KAM's chief executive officer, told Reuters.

"Eventually if the water levels in dams continue to drop you will also see it continue to have an impact on the cost of power because of the fuel price adjustment levy. If you put that together, it will have an impact on manufacturing growth."

Data from the Kenya National Bureau of Statistics shows the manufacturing sector grew 3.6 percent in the first quarter of 2016, down from 4.1 percent growth in the first quarter of 2015.

In the third quarter to last year the sector's growth rate was 1.9 percent compared with 3.3 percent in the same quarter in 2015.

Wakiaga said already some dairy companies had been affected by the drought.

The sector spans a wide range of businesses, including food and beverage production, metal products fabrication, pharmaceuticals and cement production.

President Uhuru Kenyatta will run for a second and final term of office in an election on Aug. 8, with his main rival expected to be long-time opponent Raila Odinga.

A disputed election result in 2007 led to violence that killed around 1,250 people. Odinga challenged the outcome of the 2013 election but the result was upheld by the country's Supreme Court.

Wakiaga said as the elections approach, there will be slower activity in the manufacturing sector.

"Towards the election, there is that wait and see. You don't want to stock too much raw materials, you want to be sure of the direction everything is going," she said.

Nevertheless, the government sees the economy growing at 6 percent this year, helped by a strong performance in construction and tourism. The International Monetary Fund sees a slightly lower rate of growth but within the 5-6 percent range of the past five years.

Kenya's economy grew 5.6 percent in 2015.

(Reporting by George Obulutsa; Editing by Greg Mahlich)

 

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