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Is Kenya’s economy on the mend?

January 7, 2010

hipposThis past holiday season in Kenya was quite a contrast to the preceding year.

While in 2008 December was dry and dusty, last month was marked by heavy rains across the country, making for soggy barbecues and muddy cars for the many urban Kenyans who usually like to spend Christmas with their families in the rural areas.

The rains have killed 20 people and displaced many more through flooding. But they are vital, given the country’s reliance on agriculture, which accounts for nearly a quarter of the country’s GDP and employs about two thirds of the entire population.

A prolonged drought had cut agricultural output, forced the government to appeal for funds to
feed about 10 million starving people and to liberalise imports of the staple maize crop.
Together with the emerging recovery of the global economy, the rains are giving rise to
optimism that the economy could grow by 3-4 percent in 2010 from an expected 2-2.5 percent in 2009.

The optimists also point to various government projects aimed at stimulating the economy, a
resurgent tourism sector and sustained monetary easing by the central bank as proof of a
possible rise in growth this year.

They also point to the feel-good factor surrounding the first ever football world cup final to
be staged on the African continent in South Africa in June as further evidence.

But risks still abound.

Apart from the fact that Kenya’s growth economic prospects are tied to the fortunes of the
global economic recovery, the country is on the threshold of a new constitution this year.

A final draft of the document is expected to be unveiled and a referendum held on its adoption
by the country. The last time a yes or no vote was held on a proposed new constitution in
2005, the exercise was a highly divisive affair that set off a chain of political events,
which ultimately led to the violence that erupted after the disputed elections in December
2007.

The post-election violence, combined by the global financial crisis and the drought, set back
growth in a big way. The economy grew by just 1.7 percent in 2008 compared with 7 percent in
the previous year.

Another consequence of the post-poll chaos is that possible prosecutions at the International
Criminal Court of suspected masterminds of the violence, including some cabinet ministers,
hang over the nation’s political class.

The president’s New Year party held in the coastal city of Mombasa had a tinge of a
self-congratulation as the politicians and bureaucrats looked back at 2009, a year of
unprecedented economic difficulties for the country

President Mwai Kibaki told guests the country had fared much better than had been expected and it had emerged as a stronger nation.

But is the Kenyan economy really recovering? Is such optimism justified?

Comments

The Economy as You quite properly pointed out was soaring in the Final Quarter of 2007 where GDP expanded by 7.1% and one sensed that the Country was on the runway and set for lift off. 2008 and 2009 were serious Body Blows and a little like Muhammed Ali and the first few Rounds with George Foreman. The Corner was ready to throw in the Towel and data as recent as the 3rd Quarter 2009 where Quarter on Quarter we shrank 0.8% signal we are still on the Floor. The 3rd Quarter was the Apogee of the Drought and as you correctly mention, the Rains have finally come and this Economy has a unique dependency on Hydrology [Energy and Framing refer]. The recent World Bank report was titled Kenya ‘Still Standing’ and that captures it well. Growth rates for 2008 and 2009 [versus the rate of Growth in the Population] mean we have been rowing backwards rather than forwards. Thats a Fact.

The Political Dimension is still weighing over the Country. I do feel a Surgical strike by the ICC and a decapitation of some of the Prime Movers in that 2007/2008 debacle will be a very positive and a plain cathartic thing.

On the Plus side. Kenya has many advantages. It has been practically a Laboratory experiment when it comes to Communications and the Information Century. There were 15,000 Mobile Phones 10 years ago, there are 17.4m now and that is no small thing. The Population is very young as well and history shows that Catch up happens when Your People are Young.

Recent indications that China might be keen on developing a second Port at Lamu is also potentially a Game Changer. Kenya has a serious Geopolitical Advantage in the Region. It is the route to the Sea for near enough 160m Folk in the adjacent Countries and needs to leverage that.

A lot of the Bounce back will be driven by Mood and Optimism. It has an outsize influence on an economy such as kenya’s and given that is as close to rock bottom as I can measure it seems it can only go higher.

We are already seeing optimism seep into the NSE and given that we were deep in a Fat tail, Optimism might well create a positive Feed Back Loop.

So on balance, I would argue Yes, we have reason for cautious optimism but the Government needs to boost it a lot harder and quickly. They have raised a great deal of money in the Bond Market and they now need to ensure those Monies hit the ground and they also need to address the price of Maize which is 100% higher than International Prices and choking the spending power of the Wananchi at the bottom of the Pyramid.

Aly-Khan Satchu
http://www.rich.co.ke
nairobi

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