Uncertainties cut back Kenya’s growth prospects

Growth rates in Kenya are expected to rise from five per cent this year to 5.5 per cent in 2013, but external factors including falling tourist numbers from Europe and a decline in foreign investment could hit prospects.

The World Bank’s Global Economic Prospects report for 2012 expects growth rates in Kenya to be lower than that of her East African neighbours Uganda (at 6.2 and 7 per cent), Tanzania (at 6.7 and 6.9 per cent) and Ethiopia at 7.2 and 7.8 per cent.

It said that overall growth in Sub-Saharan Africa remained “robust” in 2011 at 4.9 per cent. Excluding South Africa, growth in the rest of the region was even stronger at 5.9 per cent in 2011, making it one of the fastest growing developing regions.

Growth for the region is projected to stabilise at around 5.3 per cent in 2012 and 5.6 per cent in 2013.

Increasing rates of foreign investment across the region, coupled with high commodity rates have fuelled the growth.

However, the Bank warns that merchandise exports, tourism receipts, commodity prices, foreign direct investment and remittances are all susceptible to a recession because of the economic crisis in the European Union.

It adds that the countries with better chances of continuing to receive high levels of foreign direct investment are those where “infrastructure investment is a robust determinant.”

The Bank’s report does however have some encouraging news for sub Saharan Africa’s exporters in that they are becoming less dependent on Europe as a market for their goods.

In 2002, the EU accounted for some 40 per cent of all exports from Sub-Saharan Africa, but by 2010 that share had fallen to about 25 per cent – while China‘s share has increased from about 5 per cent to 19 per cent over the same period.

For the first seven months of 2011, growth in exports destined for China from Sub-Saharan Africa was 10 per centage points higher than those destined for high-income countries such as the EU and US.

Furthermore, the report says that even though intra-regional trade in Sub-Saharan Africa remains well below potential due to weak infra-structure, lack of harmonisation of trade policies and cumbersome border procedures, recent efforts to address these deficiencies are beginning to bear fruit.

It says that in East Africa “where trade integration is more advanced, intra-regional trade has been expanding relatively rapidly.”

In Kenya’s case, exports to other East African Community members (Uganda, Tanzania and Rwanda), during the first seven months of 2011, exceeded its combined exports to traditional trading partners such as the UK, Netherlands, Germany and France.

Tourism prospects remain uncertain. In 2011 international tourist arrivals were up 7 per cent in Sub-Saharan Africa for the first eight months, compared with the same period in 2010. Slower growth in Europe does not appear to have limited tourism arrivals, in part because tourist arrivals to competing destinations in North Africa were hurt by the Arab Spring uprisings. But prospects for 2012 remain uncertain.

Another cause for concern over the growth prospects remains inflation which rose from 4.3 per cent by the end of 2010 to 7.0 per cent within the first five months of 2011, and after a few months of slow down in inflationary pressures picked up again in September to 7.2 per cent.