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While drought troubles Kenya, newfound economic resilience means good news for growth

Severe drought in the Horn of Africa has hit Kenya hard. It has fuelled inflation, damaged key commodity crops, and has caused an influx of refugees

Severe drought in the Horn of Africa has hit Kenya hard. It has fuelled inflation, damaged key commodity crops, and has caused an influx of refugees

Intra-tribal tensions have also surfaced ahead of elections in 2012. However, a report published today by Standard & Poor's Ratings Services suggests that while present challenges are taking their toll, Kenya's outlook for growth remains quite robust. The report titled "One Year After Kenya's New Constitution, Is The Honeymoon Over?" can be found on RatingsDirect, on the Global Credit Portal.

"We believe the Kenyan economy is becoming increasingly resilient to external shocks," Standard & Poor's credit analyst Ravi Bhatia said. "The outlook is helped by growth momentum from improved regional trade, dynamic growth in services, and an expanding private sector. However, rising fiscal deficit estimates are concern."

The new constitution, passed last year by an overwhelming majority in a national referendum, is also a positive for Kenya.

 

Well-drafted constitution

"The new constitution is lucid and well-drafted and should help avoid a repeat of the violence of January 2008," Mr. Bhatia said. "It provides a host of checks and balances and attempts to address Kenya's tribal voting patterns by redrawing district boundaries."

Despite the problems, Standard & Poor's real GDP growth outlook for Kenya for 2011 is still about 5 per cent. Regional trade via the East African Community (EAC) has boosted manufacturing and exports, and the domestic-service sector has soared. Banking has been boosted via the innovative M-Pesa system, which enables the transfer of money via text message.

The report is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com.

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