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Kenya Business Forecast Report Q1 2010

Published by: Business Monitor International

Published: Oct. 30, 2009 - 50 Pages


Table of Contents


Executive Summary
Drought Compounds Political Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics I
Trial Edges Towards The Hague
Kofi Annan elicited from Kenya’s leaders their ongoing commitment to institutional reform during a visit in early October.
Table: Political Overview
Domestic Politics II
Corruption Concerns At The Forefront
The response to President Mwai Kibaki’s unilateral decision to re-appoint the head of the Kenya Anti-Corruption
Commission - against the wishes of parliament - underscores the discord felt within the coalition government.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Strong Growth Of 4.3% Expected in 2010
In light of an improving external picture and beneficial base effects, we are forecasting real GDP growth of 4.3% in
2010, following a relatively sluggish 3.3% estimate for 2009.
Table: ECONOMIC ACTIVITY
Monetary Policy
Rates On Hold Into 2010
With the Central Bank of Kenya having kept rates on hold at 7.75% at the September 2009 meeting, we expect them to
remain at this level going into 2010.
Table: MONETARY POLICY
Balance of Payments
Pressure To Ease Off C/A Deficit
After a difficult 2008, when Kenya’s current account deficit widened to US$2.46bn, we have an estimate of US$1.72bn
for 2009 (equivalent to 4.8% of GDP) on the back of lower import prices and relatively robust exports.
Table: CURRENT ACCOUNT
SSA Regional Economic Outlook
Assessing The Real Effects Of The Growth Trajectory
An examination of real GDP per capita - as opposed to nominal GDP per capita - reveals interesting trends in real
wealth and living standards in sub-Saharan Africa.
Chapter 3: 10-Year Forecast
The Kenyan Economy To 2019
Robust Growth Trajectory Over 2010-2019
Although Kenya will undoubtedly suffer in the aftermath of the global financial crisis, we remain fairly upbeat on the
nation’s long-term growth prospects, forecasting annual average real GDP growth of 5.0% over 2010-2019.
Table: Lo ng-Term Macro economic Forecasts
Chapter 4: Special Report
The World’s Fiscal Conundrum
Table: WORLD GOVERNMENT EXPENDITURE INDICATORS
Table: WORLD GOVERNMENT REVENUE INDICATORS
Table: WORLD FISCAL BALANCE INDICATORS
Chapter 5: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Introduction
Table: BMI Business And Operational Risk Ratings
Institutions
Table: BMI Legal Framework Ratings
Infrastructure
Market Orientation
table: MIDDLE EAST & AFRICA, ANNUAL FDI INFLOWS
Table: BMI Trade Ratings
Operational Risk
Table: TOP EXPORT DESTINATIONS
Chapter 6: BMI Global Assumptions
Global Assumptions
TABLE: GLOBAL ASSUMPTIONS
TABLE: GLOBAL & REGIONAL REAL GDP GROWTH
Table: COMMODITY PRICES

Abstract

The global economic recession has had only a muted affect on Kenyan growth. Certainly, a collapsein the export market for cut flowers and tourism, Kenya’s largest forex earners, has had animpact, as has the severe drought affecting the country, but this has been counterbalanced bylower imports and robust global prices of tea and coffee. Growth is expected to accelerate in 2010,but the effects of the drought and political developments present key downside risks.

Progress on political reform has been hampered by the continued fighting between President MwaiKibaki’s Paty of National Unity and Prime Minister Raila Odinga’s Orange Democratic Movement.Failure to reform the judiciary and security services, and to draw up a new constitution for theelections scheduled for 2012, risk stoking tensions that could unleash further rounds of ethnicbasedpolitical violence. Indeed, if a constitution is not ready in time, then we would not discountthe possibility of elections being postponed in order to forestall unrest.

Kenya should see growth quicken in 2010 and beyond, in part on the back of a tentative globalrecovery, in part supported by the government’s ambitious infrastructure spending programme.

Also, favourable late rains in 2009 should be supportive of agricultural production and domestichydropower generation, which have suffered due to drought. Indeed, we see the current accountdeficit continuing to narrow over the medium term, eventually boosted by the coming online of oilexports from neighbouring Uganda. Concerns about food security and price growth should alsorecede.

Large-scale investment in infrastructure will support an improvement in Kenya’s business environment,as well as its productive capacity. Nevertheless, corruption will remain a key concern ofboth domestic and international investors. The government’s privatisation programme may reducethe state’s influence in business and generate much-needed revenues, but the political backdropwill remain crucial in order to give investors confidence. Indeed, political distractions are alreadyhampering drought relief efforts.

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