Markets & Finance

Economy to grow by 5.6pc, shilling seen at 89 -report

KE

The Economist Intelligence Unit report says President Uhuru is best placed to deliver on his promises to Kenya due to his large number of MPs and senators to push his agenda on pro-market reforms.

Kenya's economy is forecast to grow by 5.6 per cent with the local currency tanking to 89 in 2014 against the US dollar, the research arm of the globally renowned business magazine The Economist said in a report.

The Economist Intelligence Unit report blames external market forces to a decline in the exchange rate adding that will be worse if global financial disruption leads to a faster decline. The currency is expected to trade at 102 to the dollar by 2018.

"Real Gross Domestic Product growth is expected to quicken to 5.6 per cent this year 2014 and 5.7 per cent in 2015, helped by cheaper credit and an improvement in global conditions with the GDP growth trend continuing in a strong path in 2016-18,” it said.

Real GDP growth edged up to 4.4 per cent year on year in the third quarter of 2013 but remained relatively sluggish, held back by constraints in agriculture and tourism.

The shilling which had found its short term stability at 85 in the last few months has recently yielded to pressure to trade at 86.50 on Tuesday, making the 89 range feasible.

READ: Treasury upbeat on strong growth in 2014

Kenya’s current-account deficit narrowed to about 8 per cent of GDP in the first three quarters of 2013 from 10.8 per cent of GDP a year earlier.

Inflation edged down to 7.2 per cent year on year in December, while average annual inflation for 2013 amounted to 5.7 per cent.

Emerging turf wars

The report says President Uhuru is best placed to deliver on his promises to Kenya due to his large number of MPs and senators to push his agenda on pro-market reforms, it warned that emerging turf wars among its political member parties could jeopardize his development agenda.

Among his flagship projects is the Sh425 billion Standard Gauge Railway which has come under severe criticism after the government single-sourced the main implementer of the project, China Bridge and Road Construction Limited on advice of the Chinese government.

The magazine added that the International Criminal Court (ICC) case against President Uhuru may collapse entirely after the chief prosecutor Fatou Bensouda revealed that she had insufficient evidence to proceed.

In its 33-page 'Country Report for Kenya 2014’, the EIU also raised its concern over the stringent media laws recently assented to by President Uhuru saying they were restrictive.

The Economist, gave Kenya a thumb’s up prospect of impending growth buoyed by growing interest by multi-national firms keen on getting a share of the emerging oil and gas opportunities.

The IMF completed the sixth and final review of Kenya’s three-year extended credit facility (ECF) and released the final tranche of the $750m loan.

A new Nairobi Centre for International Arbitration, geared towards settling commercial disputes, is scheduled to open in January 2014.

Kenya’s first-ever export of titanium dioxide is scheduled to start in January 2014 after Australia’s Base Resources initiated production in December.

While this is good news to exporters, servicing regional trade, tourism and remittances importers will bear the blunt as they will be required to pay more for goods and services sources from abroad.