March 3, 2017 / 3:07 PM / 5 months ago

UPDATE 1-Kenya private sector slowdown a new challenge to Kenyatta's re-election bid

(Adds election context, more comments)

By Duncan Miriri

NAIROBI, March 3 (Reuters) - Growth in Kenya's private sector plateaued last month, data released on Friday showed, adding to the challenges for President Uhuru Kenyatta as he seeks re-election in August by touting his strong economic performance.

The Markit Stanbic Bank Kenya Purchasing Managers' Index dropped to 50.1, a record low since the survey began in January 2014 and down from 52.0 in January. A reading above 50.0 marks growth.

Kenyatta is expected to run for re-election against his main rival Raila Odinga. But rising inflation and stagnating private sector growth have added to a list of problems that include corruption scandals and strikes by doctors and professors.

"Everybody is complaining. Everybody is hurting," said John Mbadi, an opposition legislator who chairs Odinga's party, blamimg the government's fiscal policies for the slowdown.

"The level of domestic borrowing is too high. The government is crowding out the private sector from local financing," Mbadi said.

Government officials were not immediately available for comment but have said the higher borrowing, which included a $2 billion Eurobond, will finance roads and a railway that will slash business costs and boost investment.

Kenyatta, the wealthy son of the country's first president, has staked his re-election bid on strong infrastructure development and economic growth. Kenya's GDP is forecast to be 5.9 percent last year, well above the average of 1.7 percent for sub-Saharan Africa.

Any slowdown could provide an opportunity for 72-year-old Odinga, a veteran of Kenyan politics, to attack Kenyatta's record as presidential and parliamentary polls approach.

Odinga has said he may lead street protests if elections are rigged. Any hint of violence would scare investors, after political protests and ethnic violence killed more than 1,250 people following a disputed presidential election in December 2007.

So far, firms blame the slowdown on slower credit growth and a regional drought, not politics, Markit Stanbic's survey found.

Private sector credit growth started weakening at the end of 2015 after the central bank toughened supervision. It plummeted to 4.3 percent in December 2016 from 17.8 percent the previous year, the central bank said. The government targets double-digit growth.

A government cap on banks' lending rates last September worsened the credit squeeze as banks shunned risky lending.

The drought has also hit consumers. Crops withered and livestock perished after the last rains failed, leaving 2.7 million needing food aid. Last month annual inflation jumped to 9.04, driven by soaring food costs. Now rising oil prices could drive it still higher.

Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence.

To subscribe to the full data, click on the link below: www.markit.com/Contact-Us

For further information, please phone Markit on +44 20 72602454 or email economics@markit.com (Editing by Katharine Houreld and Robin Pomeroy)

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