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OVERVIEW OF KENYA'S ECONOMY

Introduction

For those seeking to invest and do business in Kenya, this section of our Website will provide a general overview of Kenya’s economy, while at the same time placing the country within the context of the East African Community (EAC) as well as the Common Market for Eastern and Southern African (COMESA).

Kenya’s economic overview

Despite fears over La Nina weather phenomenon, Kenya’s growth prospects for 2011/12 were more positive than they have been in recent years. Key factors that affected the country’s economy with drought reducing farm sector output and energy supplies.

Indeed, while the World Bank assessment on Kenya’s economic outlook projects a gross domestic growth of 5.3 % and even 6.0 % if no shocks occur; the Government anticipates the economy to grow by at least 5.7 % in 2011-12. However, according to the World Bank’s Global Economic Prospects 2011 report, prolonged drought among other factors – notably political– could derail this year’s projected growth rate. The Bank is of the view that severe famine of the proportion experienced in 2009 could knock off “two percentage points’ from the predicted economic expansion rate in 2011-12.

Economists have indicated that due to the delay of onset of the long rains in 2011, the exports from both the tea and horticulture sectors, two of the country’s most important sources of hard currency also fell. They, however, noted that a fall in production would probably be compensated by a slight increase in prices, as it happened in 2009 when Kenya’s tea revenues hit Ksh. 69 billion compared to Ksh. 62 billion a year earlier due to a global deficit that was caused by the dry weather. In the first quarter of 2012, Kenya also suffered from a severe frost that affected production of tea and other horticultural crops. 

The Central Bank of Kenya is upbeat about the economy's growth in 2012 forecasting that it will most likely expand by 6 %, helped by increased private sector lending and confidence in the economy. The Bank is of the view that the economy will overcome inflation threats and the looming drought, supported by high levels of cheap credit expansion to the sector and households. Kenya's GPD during the 1st Quarter of 2012 grew at a slower rate of 3.5% due to three main under-lying factors:
  • Increase in inflation due to an increase in oil prices
  • A rise in interest rates due to the tightening of monetary policy by the Central Bank of Kenya
  • Prolonged drought as a result of the delay of the onset of long rains

 


Data from the Kenya National Bureau of Statistics indicates that inflation increased to 5.42% in January 2012 from 4.51 % in December 2011, despite the government’s target of keeping the cost of living measures at below five percent. Economic analysts have cited the key risks facing the Kenya economy in 2011 as being the pace of global recovery, which could cut demand for Kenyan exports, and the drought which will reduce farm sector output and energy supplies. The fact that Kenya’s economic growth is closely tied to seasonal rainfall cannot be overemphasized.

A prolonged dry spell therefore means reduced water supply, which will in turn increase the cost of doing business by diminishing hydro-power generation and raising generation and raising the proportion of the relatively more expensive diesel-generated power on the national grid. Kenya’s economy is also expected to get a boost from the ongoing global recovery that should change the fortunes of key sectors such as tourism and the global agricultural commodities market where Kenya sells its tea, coffee and cut flowers.

It is worth noting that since 2008, policymakers have been putting in to place a monetary easing cycle and a fiscal stimulus that will help pull the economy out of a rut, following drought, effect of the global financial crisis and the bloody post-election crisis at home.

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