Economic revival seen in 2010 as agriculture picks up

Economic growth is expected to pick up considerably next year to a high of 3.9 per cent on the back of improvements in the agriculture and tourism sectors.

Headline inflation is expected to average 16 per cent this year, but this will ease substantially to nine per cent next year.

It was an average of 27 per cent in 2008 and has eased to about 18 per cent currently.

According to the Kenya Institute of Public Policy Research and Analysis (KIPPRA), the recovery of the economy and reduction in inflation levels is dependent on risks relating to the global financial crisis, political stability, weather and implementation of reforms.

In recent months, the global crisis has eased while it has rained in most parts of the country.

However, critics have deplored the slow implementation of reforms.

“In the medium term, overall inflation rate is expected to ease. International oil prices are expected to stabilise and, locally, effective implementation of the government reform agenda coupled with prudent fiscal and monetary policy should help ease inflation,” said Kenya Economic Report 2009 released by KIPPRA on Wednesday.

The organisation’s executive director Moses Ikiara said that it would take at least of couple of years before the economy could reach the growth momentum of 2007 when the gross domestic product (GDP) reached 7.1 per cent.

Dr Ikiara, however, said that poverty remained a major obstacle to development in Kenya as the number of poor people had risen over the past decade by four million to 17 million.

The proportion of the poor to the total population had fallen to about 46 from 56 per cent in 1999.

Indeed, despite growth in 2003 to 2007 the report cautions against complacency noting that it was only in 2006 and 2007 that the country returned to the levels of per capita income above those of 1997.

“We have done poorly in tackling poverty. Therefore we need more development than recurrent expenditure in the annual budget,” said Planning and National Development minister Wycliffe Oparanya while launching the report at the Kenya School of Monetary Studies in Nairobi.

It was the first report that critically analyses economic data both locally and globally in relation to Kenya.

It will henceforth be released annually.

The report said that analysis of the recent growth in GDP showed that it was largely out of local demand for Kenyan products, even though there has been some increase in external demand.

The growth was mainly a result of private consumption and investment.

Food output

The government, for example, increased its investment by 31 per cent in 2008 and this is expected to generate growth in coming years.

The report calls for increased food output and agricultural productivity to support macroeconomic stability instead of relying on traditional monetary policy alone to manage inflation.

However, Kenya still has one of the lowest investment rates among its peers, having underperformed in attracting foreign direct investment (FDI).

Indeed, in terms of FDI, it has not regained its regional leadership, which it lost in the 1990s.

Key challenges to improving the investment climate, said the report, are insecurity, corruption, poor infrastructure, low investment confidence due to intermittent commitment to reforms, and limited access to credit by small and medium enterprises.

It noted that the flow of remittances has been increasing over time and official data showed it stood at about Sh42.5 billion (or $611 million) in 2008. It is, however, widely estimated that it was more than $1billion if informal remittance channels are taken into account.

The report says that there are several options to encourage remittances and exploit its potential, which include finding ways to redirect them through formal systems by enhancing affordability, improved reporting, cellphone transfers and even issuance of diaspora bonds.

The dependency ratio in Kenya is a key hindrance to growth and development as it stands above that of comparable countries like Ghana, meaning that there are many more people depending for their livelihoods on those with more income.

Another obstacle to development was the high birth rate at a time when economic growth is limited.

While the birth rate dropped from 8.1 children in the 1970s, it stood at 4.7 in the 1990s but rose to 4.8 by 2003.

This has led to a situation in which the number of young people joining the labour market rises by three per cent every year and yet there is no comparable growth in job opportunities.