Population 42.104 million
GDP 41.837 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
5.8 |
4.4 |
4.8 |
5.6 |
|
Inflation (yearly average) (%)
|
4.1 |
14 |
9.7 |
5.5 |
|
Budget balance (% GDP)
|
-7.2 |
-5.2 |
-6.1 |
-6.7 |
|
Current account balance (% GDP)
|
-7.8 |
-10.2 |
-9.5 |
-8.5 |
|
Public debt (% GDP)
|
49.9 |
50.8 |
50 |
50.4 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Strategic position between East and West Africa
- Key role in East African Community
- Diversified agriculture (maize, tea, coffee, horticulture)
- Good telecommunications and financial services
- Dynamic demographics and emergence of a middle class
- Adoption of a new constitution
WEAKNESSES
- Agricultural production heavily dependent on weather conditions
- Inadequate infrastructures for absorption of economic development
- Widespread poverty
- Governance improving but corruption persists
- Latent risks of political excesses, against background of ethnic conflicts
Risk assessment
Growth stimulated by private consumption
Global difficulties and a tighter monetary policy in the first half of the year curbed the dynamic pace of growth in 2012. Activity will rebound in 2013 due to the interest rate cuts, the effect of which has been felt since summer 2012 and which are expected to facilitate access to credit for households and businesses. Activity will also pick up thanks to the steady fall in inflation, stimulating private consumption (75% of GDP). Moreover, the growing size of the middle class fosters private spending.
The primary sector will remain robust and its activity will be lifted by the opening of a large titanium mine in late 2013. The recently discovered hydrocarbon reserves, expected to go into production in a few years, are likely to attract foreign investment. The services sector, one of the most attractive of the continent, is buoyed by the competitiveness of telecommunications and financial services. In contrast, difficulties in tourism are likely to last due to electoral uncertainties, terrorist fears and the ongoing crisis in Europe.
Finally, several factors will continue to limit private investment: political instability, governance shortcomings, erratic electricity supply and weak transport infrastructures. Inflation slowed sharply in 2012 thanks to a restrictive monetary policy and price moderation for raw materials. It will continue its decline in 2013, although it is not immune to pressures resulting from raw materials price movements.
High but stable fiscal deficit
The fiscal deficit is expected to be relatively stable in 2013 but is high due to ongoing difficulties with tax collection and rising public spending in the context of forthcoming elections. New taxes on money transfers and in the mining sector were introduced in late 2012, but above all it is the VAT harmonisation reform which is likely to increase revenues, The $755mn IMF disbursement under an arrangement due to last until 2014, as well as loans from the African Development Bank, will give the authorities greater scope for limiting the deficit. The main spending priorities will be infrastructure construction, like the deep-water port of Lamu, as well as education and health. The debt level remains sustainable, given the extra support from international partners.
Still high energy bill
Exports are lively, buoyed by the tea and horticulture sectors, which are benefiting from growing Asian demand and stronger regional integration within the East African Community. Nonetheless, the trade deficit is unlikely to fall in 2013, due to still high energy imports. This deficit is financed in part by substantial revenues and transfers from tourism, despite the difficulties observed in 2012, and by expatriate remittances. Foreign direct investments are expected to rise in 2013, thanks to important Chinese investments (telecoms, plants).
After the monetary policy tightening between late 2011 and mid 2012 (intended to stem rising inflation and the depreciation of the shilling), the Central Bank cut interest rates and these should stabilise in 2013. Stronger foreign exchange reserves and a reduction in the current account deficit are expected to relieve downward pressure on the shilling. Nonetheless, political uncertainty points to heightened volatility of the currency in the near term.
Strained political context
The holding of presidential elections in March 2013 will be the major issue of the year. Two coalitions should be competing: on one hand, the front runner, Raila Odinga, the current Prime Minister (Orange Democratic Movement), in close alliance with Vice-president Kolonzo Musyoka (Wiper Democratic Movement); on the other hand, Uhuru Kenyatta (The National Alliance) and William Ruto (United Republican Party) investigated by the International Criminal Court over their involvement in the violence of 2007-2008. The trial is expected to take place in mid-2013. It is therefore likely that the elections will be held in a context of heightened tensions and the risk of violence as during the 2007 presidential elections cannot be ruled out, against a background of ethnic conflicts. The implementation of a new Constitution, adopted in 2010, should continue, providing for more evident power sharing and greater devolution of power to the local counties. Finally, externally the continued presence of Kenyan troops in southern Somalia since 2011 increases the risk of terrorist attacks on Kenyan soil.
