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Kenya Country Risk Reports Q2 2015

Kenya Country Risk Reports Q2 2015

Core Views

The long-expected collapse of President Uhuru Kenyatta's trial at the International Criminal Court will ease tensions between Kenya and its Western allies, but could strain relations within the ruling party.

The politicisation of sharp ethnic divisions remains the key threat to Kenya's long-term political stability. Terrorism linked to Kenya's military involvement in Somalia is likely to remain a risk, but it does not pose a systemic threat to political stability.

Kenya's tense security situation will not prevent economic growth from accelerating in 2015 and 2016. Consumer spending and capital investment will drive economic expansion, which will average 6.5% per year between 2015 and 2019.

A combination of accelerating economic growth and systemic under spending by government agencies will cut Kenya's fiscal deficit from 5.4% of GDP in 2014/15 to 4.8% in 2017/18. Development spending will rise, but remain far below the government's targets.

A sharp fall in oil prices will cut Kenya's current account deficit in 2015, which had been widened by weak tourism receipts. Low energy prices and accelerating economic diversification should help to narrow the shortfall over the medium term.

Lower fuel and energy prices will limit Kenyan headline inflation in 2015. The country remains vulnerable to weather fluctuations; a serious drought would cut food production and send prices spiralling.

The LAPSSET project will provide an economic boost for many communities across Kenya, with few benefiting as much as Isiolo.

Hopes that the scheme will turn the impoverished backwater into a national hub are, however, unrealistically optimistic.

Real GDP growth in Kenya will gradually accelerate over the coming next 10 years, averaging 6.5% between 2015 and 2024. While headline growth will be slower than in many African countries, Kenya's economy is relatively diversified and growth will be broad-based and comparatively sustainable.

Major Forecast Changes

Falling oil prices have led us to revise our forecasts for Kenya's balance of payments position.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Nation Faces Deepening Security Malaise
Controversial new security legislation could end up contributing to, rather than alleviating, the threat posed by al-Shabaab. Tensions are
high due to Kenya's decision to maintain its military presence in Somalia.
Table : Politic al Over vie w
Long-Term Political Outlook
Ethnic Polarisation Remains Key Challenge
The politicisation of sharp ethnic divisions remains the key threat to Kenya's long-term political stability.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Growth Shifting Up A Gear
Kenya's tense security situation will not prevent economic growth from accelerating in 2015 and 2016. Consumer spending and capital
investment will drive economic expansion, which will average 6.5% per year between 2015 and 2019.
Table : GDP By Expe nditure
Fiscal Policy
Budget Deficit Will Gradually Narrow
A combination of accelerating economic growth and systemic under spending by government agencies will cut Kenya's fiscal deficit from
5.4% of GDP in 2014/15 to 4.8% in 2017/18. Development spending will rise, but remain far below the government's targets.
Table : Fiscal Policy
Balance Of Payments
Low Oil Prices Bolster Current Account
A sharp fall in oil prices will cut Kenya's current account deficit in 2015, which had been widened by weak tourism receipts. Low energy
prices and accelerating economic diversification should help to narrow the shortfall over the medium term.
Table : Cure nt Ac ount
Monetary Policy
Inflation Contained In 2015
Lower fuel and energy prices will limit Kenyan headline inflation in 2015.
Key Sector Outlook
Isiolo: LAPSSET Offers Significant Opportunities
The LAPSSET project will provide an economic boost for many communities across Kenya, with few set to benefit as much as Isiolo.
Hopes that the scheme will turn the impoverished backwater into a national hub are, however, unrealistically optimistic.
Chapter 3: 10-Year Forecast
The Kenyan Economy To 2024
Solid Headline Growth, Rapid Economic Diversification
Real GDP growth in Kenya will gradually accelerate over the next 10 years, averaging 6.5% between 2015 and 2024.
Table : Long-Ter m Macr oec onomic Forec asts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
Table : Oper ati onal Risk
Availability Of Labour
Table : Sub Saharan Afric a – Avail abilit y of Labour Risk
Table : Labour Force Empl oyment By Sector
Crime Risk
Table : Top Ten Source Countries For Migr ant Workers
Table : Sub Saharan Afric a – Cri me Risk
table : Cri me Statistics
Chapter 5: BMI Global Assumptions
Global Outlook
New Era For Oil
Table : Global Asu mpti ons
Table : Devel oped States , Real GDP GrowtH, %
Table : BMI VERSUS BLOOM BERG CON SENSUS REAL GDP GROW TH FORECASTS, %
Table : Emergi ng Markets , Real GDP Growth , %

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