Analysts see no quick fix in Kenya’s economic recovery

It will take Kenya at least another two years to reach the record economic growth levels witnessed in 2007 despite signs of robust recovery in key sectors of the economy

Research analysts at Renaissance Capital are forecasting an average economic growth rate of 1.4 per cent annually until 2012.

The firm also expects economic growth to slow down by 0.2 per cent in the run up to the general election expected the same year.

The forecast points to the cautious economic growth outlook foreign investors are likely to adopt towards Kenya in the next few years as political risks hold sway in investment decisions despite strong economic growth prospects starting in 2010.

“We think that volatility [in the markets] will remain and that event driven trading will be a key component of 2010,” says Eric Musau, head of research at Renaissance Capital.

Renaissance Capital is among a growing number of investment banks that are seeking opportunities in emerging and frontier markets and whose recommendations influence the investment decisions of foreign investors.

In 2007, steady strides in the Kenyan economy saw the country record a 7.1 per cent growth in economic output, a level last seen 30 years ago.

But after a disputed election that was followed by a spate of disruptive protests and violence in early 2008, the Kenyan economy hit the skids to chalk up a 1.7 per cent in economic growth.

However, since mid last year the Kenyan economy has displayed a resurgence driven by the recovery of the tourism sector, competitive global prices for tea and coffee and renewed demand for the country’s horticulture imports.

Economic growth this year is expected to hover around 4.3 per cent as the low levels of inflation hold and credit expansion to the private sector and households picks up.

Nascent sectors such as information and communication technology, the growing number of energy initiatives and aggressive infrastructure development are cited as the new avenues for economic growth.

Economists at Citi Investment Research and Analysis say the economy should however continue to pick up in 2010-11 despite the political uncertainty, driven by the private sector and flourishing trade with the region.

New pockets of growth and expanded markets for Kenyan goods and services within the region will be crucial for the country to grow its gross domestic product.

This will move to slow down Kenya’s worrying position where the country continues to import much more than it exports.

This widening current deficit position is unsustainable and will move to pile more pressure on the local currency.