Africa > East Africa > Kenya > Kenya Outlook for 2015-17

Kenya: Kenya Outlook for 2015-17

2015/10/04

The country (Kenya) is situated in Eastern Africa, bordering the Indian Ocean, between Somalia and Tanzania.
It has borders with Ethiopia for 861km, Sudan for 232km, Somalia for 682km, Tanzania for 769km and Uganda for 933km.
Land in Kenya is low plains rise to central highlands bisected by Great Rift Valley; fertile plateau in west.
The Climate is different from tropical along coast to arid in interior.

 

OVERVIEW

GDP increase remained robust in 2013 at 5.7% based on rebased statistics, and stood at 4.4%, 5.8% and 5.5% in the initial three quarters of 2014 compared with 6.4%, 7.2% and 6.2% in comparable quarters of 2013. According to the central bank’s economic monthly review of November 2014, increase was mainly supported by expansion in construction, manufacturing, finance and insurance, data, communications and technology, and wholesale and retail trade. The economy slowed in the third quarter of 2014, half due to a sharp drop in tourism following terrorist attacks in the country. In general GDP increase is expected to all to 6.5% and 6.3% in 2015 and 2016, respectively. Consumer price index (CPI) inflation is expected to remain in the single digits, at around 5%, during the same period.

The short to medium-term positive increase projections are based on assumptions of increased rainfall for enhanced agricultural production, a stable macroeconomic environment, continued low international oil prices, stability of the Kenya shilling, development in the security situation for a positive influence on the tourism sector; and reforms in the areas of governance and justice.

Political activity in 2014 centred mostly on the call by both the opposition party, Coalition for Reforms and Democracy (CORD), and county governments – the latter mainly seeking amendments of the constitution – to raise national government financial transfers to county governments from 15% to 45%, inclunding on the trials at the International Criminal Court (ICC) of the President of the Republic of Kenya, his deputy and a journalist. In December 2014, the trial of the president was dismissed because of insufficient evidence. The trial of his deputy and the journalist are continuing in 2015.

Spatial inclusion has remained a challenge in Kenya since independence because of major differences in access to economic, political and social services, leading to political and ethnic conflicts with critical cases of fighting and displacement of persons in 1992, 1997 and 2007-08. The 2010 constitution attempted to address these differences by introducing 47 county governments and putting political, economic and social structures in place aimed at introducing equity in resource distribution. The national government is to allocate at least 15% of the new audited accounts to the annual budgets of the county governments. The constitution as well addresses marginalisation through affirmative action programmes and policies designed to redress any historical disadvantages.

Political outlook

A long-awaited statement by the Truth, Justice and Reconciliation Commission into completed human rights abuses lists numerous violations and notes that land seizures have been the primary cause of tension. The statement recommends new probes, prosecutions and reparations.

The government continues to campaign against the pending trials of the president, Uhuru Kenyatta, and his deputy at the ICC, but will continue co-operating with the process in order to avoid the risk of diplomatic isolation.

Economic policy outlook

The Central Bank of Kenya cut the benchmark interest rate by 100 basis points, to 8.5% in May, next inflation remained steady at 4.1% in April.

Economic forecast

The current-account deficit will edge down from an estimated 10.2% of GDP in 2012 to 9.7% of GDP in 2013. The gap will continue to narrow in 2014-17, helped by steady increase in earnings from exports, tourism and remittances.

Outlook for 2013-17

  • Uhuru Kenyatta, who was sworn in as Kenya's fourth president on April 9th, will serve a five-year term. His Jubilee coalition will be the major group in parliament.
  • The new government will remain committed to pro-market reforms, but ongoing institutional restructuring and possible turf wars may lead to some delays.
  • We expect real GDP increase to quicken from an estimated 4.6% in 2012 to 4.8% in 2013, helped by lower interest rates but held back by world fragility. Increase will accelerate in 2014-17, although structural constraints will persist.
  • Inflation is estimate to retreat to 5.6% in 2013 and to move within a 4.8-6% range in 2014-17, helped by prudent monetary policy and additional stable prices.
  • Barring a euro zone deficit crisis sparking an emerging-market sell-off, we expect the shilling to average KSh86.41:US$1 in 2013, before weakening gradually to KSh105.5:US$1 in 2017.
  • The current-account deficit will edge down from an estimated 10.2% of GDP in 2012 to 9.7% of GDP in 2013. The gap will continue to narrow in 2014-17, helped by steady increase in earnings from exports, tourism and remittances.

Review

  • A long-awaited statement by the Truth, Justice and Reconciliation Commission into completed human rights abuses lists numerous violations and notes that land seizures have been the primary cause of tension. The statement recommends new probes, prosecutions and reparations.
  • The government continues to campaign against the pending trials of Mr Kenyatta and his deputy at the ICC, but will continue co-operating with the process in order to avoid the risk of diplomatic isolation.
  • The Central Bank of Kenya cut the benchmark interest rate by 100 basis points to 8.5% in May, next inflation remained steady at 4.1% in April.
  • Banking sector profits rose by 14.2% year on year in the initial quarter, although the non-performing loan ratio climbed to 5% because of high borrowing costs and late payments by the government to private suppliers.
  • The economy grew by 4.6% in 2012, according to the new official data, ex‑ceeding expectations, helped by a solid performance in agriculture, retailing, banking and construction, although manufacturing increase was sluggish, at 3%.
  • The shilling strengthened moderately from KSh84.19:US$1 in April to KSh84.14:US$1 in May, but dipped to KSh85.12 at month-end as rising import request put pressure on the currency.

Macroeconomic indicators

Macroeconomic indicators kenya -globserver

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