Effect of Selected Macroeconomic Variables on Growth of the Tea Sub-sector in Kenya

Abstract

Kenya's subsector of tea was confronted with a difficult macroeconomic climate, including interest-rate capping in August 2016 and reversed in 2019. Other macroeconomic issues affecting the industry include: rising price levels, unpredictability in interest rates, and fluctuation in exchange rates. The Kenyan currency has been on a consistent decline over the last decade and this might have an impact on the performance of the tea sub-sector. In addition, the country inflation levels have also fluctuated significantly. These adverse macroeconomic trends may lead to serious difficulties with the expansion of the tea subsector. The objective of this study was to determine the impact that selected macro-economic variables have on the growth of the tea sub-sector in Kenya. Exchange rates, interest rates, the unemployment rate, and inflation were all considered independent factors in this study. The response variable that the researchers attempted to explain was the growth of the tea subsector.The data was collected on a quarterly basis over a period of ten years (from January 2011 to December 2020). A descriptive research approach was employed in the study, with a multiple linear regression model used to examine the connection between the study variables. The data were analyzed using Statistical Packages version 24. The study's findings yielded an R-square value of 0.526, indicating that the chosen independent variables could explain 52.6 percent of the variance in the teasub-sector's growth in Kenya, while the remaining 47.4 percent was due to other factors not investigated in this study. The independent factors exhibited a significant relationship with tea sub-sector growth (R=0.725), according to the research. The F statistic was noteworthy at a 5% level with a p=0.000, according to the findings of the ANOVA. This suggests that the model was adequate for explaining tea sub-sector growth. Further, the findings revealed that exchange rate and unemployment rate were significant determiners of the tea sub-sector growth and they had a negative influence. Interest rates and inflation had a negative, although statistically insignificant, impact on tea sector growth. The study recommends that there is need to manage the current levels of unemployment since they have a major impact on tea sub-sector growth. Policy makers should also stabilize the existing levels of exchange rates as a depreciation of the currency adversely affects tea subsector growth.