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Kenya Country Risk Report Q2 2016

Kenya Country Risk Report Q2 2016

Core Views

Economic conditions in Kenya are set to improve on the whole overthe next 12 months, with real GDP growth quickening slightly in 2016to 6.1% from an estimated 5.6% in 2015.

The politicisation of sharp ethnic divisions remains the key threatto Kenya's long-term political stability. Terrorism linked to Kenya'smilitary involvement in Somalia is likely to remain a risk, but it doesnot pose a systemic threat to political stability.

Despite a tense security situation, we believe that a booming consumerstory, a robust outlook for investment and lower oil prices willsee real GDP growth in Kenya expand at around 6.2% annually overthe next few years.

The Kenyan economy will continue to benefit from lower global oilprices over the coming quarters given its status as a net fuel importer.

Concerns about public spending will remain to the fore over the comingquarters. While we predict that the country will see its fiscal deficitnarrow modestly over the coming years, we believe that its publicfinances are in less rude health than the headline indicators suggest.

Major Forecast Changes

The release of rebased GDP figures has led to substantial revisionsto our estimates of Kenya's current account and fiscal deficits whenpresented as a fraction of GDP. Our general view on economicgrowth and the development of the Kenyan economy remainslargely unchanged.


Executive Summary
Core Views
Major Forecast Changes
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Growth Still On The Up, But Headwinds To Linger
Economic conditions in Kenya are set to improve on the whole over the next 12 months, with real GDP growth quickening slightly in
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
Monetary Policy
Hiking Cycle Over, But FX Concerns Will See Cuts Come in H216
We believe the hiking cycle in Kenya has come to an end and the country's monetary authorities will embark on a series of cuts in 2016,
amounting to 150 basis points. .
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Monetary Policy Framework
Fiscal And Debt Outlook
Fiscal Risks To Remain Salient
Election-related spending pressures, deep-seated corruption and a lack of political will undermine fiscal consolidation efforts in Kenya
over the next two years. We forecast only a modest narrowing of the country's gaping budget deficit between 2016 and 2020.
Structural Fiscal Position
TABLE: MAIN REVENUE & EXPENDITURE CATEGORIES
Chapter 2: 10-Year Forecast
The Kenyan Economy To 2025
Solid Headline Growth, Rapid Economic Diversification
Real GDP growth in Kenya will gradually accelerate over the next 10 years, averaging 6.1% between 2016 and 2025. While headline
growth will be slower than in many African countries, Kenya's economy is relatively diversified; growth will be broad-based and relatively
sustainable.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
'Missing Eurobond' Will Tarnish Reputation
The case of Kenya's 'missing eurobond' is proving particularly damaging for the government amid growing signs that the patience of
investors and ordinary Kenyans is running thin.
TABLE: POLITICAL OVERVIEW
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. Although the 2013 elections
were peaceful, voting patterns show that the electorate continues to cast ballots according to ethnicity.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: KENYA – OPERATIONAL RISK INDEX SCORES AND RANKINGS
Trade Procedures and
Governance
TABLE: EXPORT AND IMPORT DOCUMENTS
TABLE: TRADE PROCEDURES BREAKDOWN
TABLE: SUB-SAHARAN AFRICA – TRADE PROCEDURES AND GOVERNANCE RISK
Vulnerability To Crime
Chapter 5:BMI Global Macro Outlook
Global Macro Outlook
Unfinished Business In 2016
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
MACROECONOMIC FORECAST

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