2010-09-08 12:44:07 -
Kenya Business Forecast Report Q4 2010 - a new market research report on companiesandmarkets.com
Kenya has shown resilience compared with the economic lethargy of developed economies in 2010. Although certainly not immune to the global downturn in 2008 when year-on-year real GDP growth dropped to 1.7%, from 7.1% in 2007 Kenya´s economy has since rebounded amid the lacklustre global economic climate. We expect that real GDP growth reached 2.5% in 2009 and we forecast that it will hit 4.2% in 2010 and 5.4% in 2011. Compared with the rest of Sub-Saharan Africa, these figures do not seem all that impressive.
However, considering that Kenya is not launching from the same low base as many of its neighbours, that demand in developed markets is extremely low and that Europe, Kenya´s largest trade partner,
is in a deep fiscal crisis, 4.2% growth is quite a promising performance.
A new draft constitution will be put to referendum in August 2010. The document is intended to prevent political violence like that which rocked Kenya in early 2008. To this end, the draft constitution dilutes the power of Kenya´s executive, spreading fiscal and administrative duties more evenly between provincial and federal authorities. Yet, despite major governance reforms, the ´Yes´ and ´No´ campaigns for the referendum have so far focused on more parochial issues, namely abortion, Muslim khadi courts and land reforms. If campaign efforts on either side push deeper into the domain of ethnicity and religion, we caution that Kenya could be in for a turbulent pre- and post-referendum period.
Kenya´s rise as the regional hub for East Africa is accelerating the diversification of its economy. Unlike many of its Sub-Saharan African neighbours, Kenya does not rely on resource extraction for economic growth. Instead, it produces and processes a range of agricultural, industrial and finished goods, which then head for other markets in the region. Kenya´s growing trade surpluses with East Africa Community (EAC ) countries over the last decade signal its ability benefit from the economic growth of its regional partners. As Kenya urbanises and further develops these industries, this process of diversification should be self-reinforcing.
An important part of Kenya´s recent growth story is the government´s commitment to improving the business environment, a pledge exhibited by its willingness to run fiscal deficits to finance development projects. For fiscal year 2010/2011, the budget deficit is expected by the government to be 6.8% of GDP, although we believe it will be closer to 5.2%. About a third of this spending (KES 321.23bn) will go to improving transportation links, energy generation and infrastructure. The Kenyan government´s commitment to improving the business environment and facilitating trade will complement the dismantling of trade barriers within the EAC .
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