Kenya set for June review of economic growth indicators

Plans to change the way Kenya’s economy is measured will improve decision making while marginally improving key indicators, analysts say.

Kenya is set to revise calculations of the size and composition of the economy in a ‘rebasing’ exercise to be completed in May. Gross Domestic Product (GDP) rebasing typically involves changing the year from which values are compared.

Nigeria rebased its economy last Sunday, moving its base year from 2010 to 1990. This has provided a truer picture of emerging sectors and allowed the West African nation to overtake South Africa as the continent’s largest economy.

While Kenya's bureau of statistics is changing the base year from 2001 to 2009, much of the 20 per cent increase in GDP expected after the change comes from the use of new data sources. These include a 2010 Census of Industrial Production and VAT returns data from Kenya Revenue Authority.

Experts say the actual value of the action lies in providing accurate data that can inform policies and resource allocation.

“The most important advantage would be more accurate statistics,” said Standard Chartered Bank head of research on Africa Razia Khan. “Without actually knowing what is happening in any economy, policymaking is likely to be sub-optimal.”

She added that the marginal boost in public debt, fiscal and current deficit ratios would still leave bureaucrats looking for solutions to pressing economic problems.

“A boost to GDP would, of course, result in a slight improvement in all of these metrics. It will not mean that Kenyan policymakers do not have to seek longer-term solutions to some of the economy’s challenges,” said Ms Khan.

Other experts said the recalculation should be seen in the same light as the 2009 rebasing of the inflation data, where the methodology was changed with the effect of reduced figures.

Kenya is rebasing its GDP for the first time in almost two decades, against the international practice of every five years. The move is expected to increase the value of the economy by a fifth. In contrast, Nigeria’s GDP rose by almost 90 per cent to $510 billion (Sh44.1 trillion) from $276 billion (Sh23.9 trillion) after the rebasing.

READ: Data revision to increase Kenya’s economy by a fifth

Ms Khan said that the bigger change in Nigeria was because Africa’s most populous economy had taken long to improve its data capture methods.

“Kenya has always measured things better. But in Nigeria, it has taken a long time (to improve data capture) before the rebasing. That is why the figures are much higher,” said Ms Khan.

Among the steadily growing sectors in Nigeria that had not been captured was telecoms and film making, which has seen its productions dominate the Africa entertainment scene.

“Thanks to the Nollywood and telecommunication the birth of intellectual property enterprise is making headway in the emerging Nigerian economy,” said Emeka Chiakwelu, principal policy strategist at Africa Political & Economic Strategic Centre in a commentary published in the Harvard Business Review.

The rebasing saw oil and gas -- which had long been assumed to constitute 32 per cent of Nigeria’s economy -- shrink by more than half to just 14 per cent. The review now provides a basis for foreign financiers and talent managers to invest more in the rising sectors.

Ms Khan said that Kenya would not have the latitude to borrow more after rebasing just because its debt sustainability would improve and should focus on prudent public finance management.

“Should Kenya borrow a lot more near-term? No, because even with a rebasing of GDP, its debt ratios are relatively high compared with sub-Saharan African peers,” she said. “Better to focus on fiscal consolidation and a better mix of spending (more investment, less recurrent) instead.|”

Ms Khan said the change would give Kenya more room for revenue mobilization, which should be accompanied by increased public savings.

UPDATE: KNBS has announced that the outcome of the rebasing will become known in September.