World Bank projects five per cent growth for Kenya's economy

Nairobi KenyaA new report entitled 'Kenya Economic Update' projects that the country's economy has the potential to achieve a five per cent growth rate next year. (Image source: ollipitkanen)Kenya’s economy will grow at an average of four per cent and attain a strength of five per cent subject to the outcome of the March 2013 election, the World Bank has stated in a new report

According to the report, Kenya Economic Update, peaceful polls and the transfer of power to new administration would be key to the recovery of the local economy.

“The economy has the potential to achieve a five per cent growth rate next year if elections are credible and power transfer to the new administration peaceful,” read part of the report.

The World Bank economist, John Randa, lauded the adoption of a strong monetary policy by the Central Bank of Kenya, however, he noted that the government would need to diversify its exports and adopt tax and expenditure policies that would encourage saving and investment to support the expansion of the economy.

“The current account deficit could undermine Kenya’s long-term stability and growth prospects. The country will need to undertake structural reforms to correct external imbalances and build a stronger foundation for growth,” observed Randa.

In December 2011, the Nairobi Stock Exchange (NSE) hit a two-year low as concerns over inflation and high interest rates affected investors.

The banking sector, however, has been riding the turbulence, having reported huge profits in their year-end reports.

Economists have noted that Kenya’s recovery would also depend on the mobile growth and the internet.

Today, the country has more than 30mn of active cell phone numbers compared to 29,000 in 2000.

“Almost everyone can now afford to buy a phone, which sell for as little as US$5 on the flourishing second hand market. People are also spending more on communication,” observed Wolfgang Fengler, World Bank’s Lead Economist in the Nairobi office.

This year alone, Kenyans are expected to spend on average US$65mn on communication, compared to US$45mn a year ago.

The country now has more than 20mn users of mobile money transfer services and 15mn internet users, largely due to the increasing use of smart phones.

Huge investments in the power sector are also expected to spur the local economy.

Kenya has already signed a US$50mn electricity deal with the World Bank that would see the country connected to the Southern Africa Power Pool (SAPP) by early 2015.

The country has also signed a 400MW electricity supply deal with Ethiopia for the construction of a 1,045 km high voltage electricity transmission line at a cost of US$1.2bn.

Analysts also noted that the government would need to boost security in the key coastal region, which in the last year has witnessed a drop in tourists by 22 per cent.

Data from the Kenya Tourism Board has indicated that holidaymakers visiting Mombasa dropped to 121,472 between January and August this year compared with 156,521 in the same period last year.

Kenya has recorded the slowest growth in the East African Community (EAC), averaging 3.5 per cent in the last four years, ranking poorly against Rwanda’s 7.9 per cent, Uganda’s 7.2 per cent and Tanzania's 6.7 per cent.

Mwangi Mumero

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