Country Office Contacts
Main Office Contact:
+254-20-293-6000

In Nairobi:
Peter Warutere
+254-20-293-6444

Delta Center
Menengai Road, Upper Hill
PO Box 30577-00100
Nairobi, Kenya
pwarutere@worldbank.org

In Washington:
Thomas O'Brien
Country Program Coordinator

1818 H Street NW, Washington DC 20433
Kenyacmu@worldbank.org

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Kenya Overview

Economy

A year since a new government was elected in March 2013, Kenya has maintained a stable macroeconomic environment despite challenges of financing the new devolved system of governance. The economy is projected to have grown by 5% in 2013, and it is expected to grow by 5.1% in 2014. Medium term prospects are stronger, with the growth in Gross Domestic Product (GDP) projected to improve to around 6%.

Good performance of industry and agriculture, which expanded at 6.7% and 5.6% respectively, contributed to the growth. Inflation remained low due to strong monetary policy, the exchange rate was stable in line with Central Bank targets, and the external account balance improved due to increased remittances. Private sector credit expanded to a record 17.4% in 2013, from 7.7% in 2012, and the equity market also remained resilient last year through the first quarter of 2014. Moreover, Kenya successfully concluded a three-year International Monetary Fund (IMF) extended credit facility program, which disbursed $750 million, helping the government to boost international reserves and to gradually reduce fiscal deficits to lower the public debt burden.

The 2013 economic performance was remarkable as growth dips in election years due to political risk and uncertainty.  A stable political environment enabled Kenyans to celebrate 50 years of independence in December 2013 with renewed expectations of better prospects. “There is much for Kenya to celebrate,” says the December 2013 Kenya Economic Update published by the World Bank, which highlights some of the extraordinary economic and social achievements Kenya has recorded since 1963.

However, Kenya remains vulnerable to external and domestic risks, and continues to underperform relative to its potential. Growth remains significantly below the Vision 2030 target rate of 10% and is also short of the 6% average of Kenya’s peers in the East African Community and sub-Saharan Africa. Emerging fiscal pressure from implementation of devolution, financing of programs promised by the Jubilee government during elections and rising public sector wage bill further constrain prospects for growth. Rising interest payments and slow revenue growth compound the situation, though private sector growth, supported by expansion of bank credit to the sector, is expected to underpin growth prospects.  The external position is weak, with risks of deteriorating terms of trade, due to high import demand, driven by oil and gas exploration and infrastructure projects. Exports remain stagnant mainly as a result of subdued demand from Kenya’s trading partners and increased vulnerabilities of emerging markets. Furthermore, the external position may continue to weaken due to high petroleum prices and renewed security threats in the region, which have a negative impact on tourism.

The government will need to maintain its commitment to macroeconomic stability to increase the economy’s resilience to external and domestic shocks. It will need to preserve low inflation, rebuild fiscal and foreign exchange buffers and deepen the agenda for structural reforms. Addressing infrastructure bottlenecks, including energy deficit, and improving the business regulatory framework are key to private sector led growth and attracting Foreign Direct Investment. Besides, devolution should enable the government to address regional poverty and inequality challenges.

So much has been achieved in the past half century. Kenyans are living two decades longer, fertility and infant mortality have been cut into half, and school enrolment at primary and secondary level has more than doubled, says the Bank’s Economic Update. GDP per capita has increased eightfold and Kenya’s financial sector is now the third largest, after South Africa’s and Nigeria’s, in sub-Saharan Africa. But so much reflection is needed on how to transform the lives of the majority of Kenyans. Nearly four in 10 Kenyans still live in poverty, maternal mortality is among the highest in Africa, secondary school enrolment is low and learning achievement levels are well below their potential. GDP growth, while solid, has yet to reach the takeoff level necessary to transform Kenya into a modern market economy and change the lives of ordinary Kenyans.

Political Developments

The Jubilee government led by President Uhuru Kenyatta marks one year in office with a commitment to resolve the challenges emerging especially on devolution, security and public expenditure. The government has attempted to fulfil its election promises to Kenyans, including free maternity services at all public health facilities, increasing opportunities for youth and women, and devolving power and resources to reduce regional inequalities.

“Devolution is at the heart of the new constitution and a key vehicle for addressing spatial inequalities,” says the Bank’s Devolution Without Disruption. It promises to transform Kenya through accountable and transparent institutions, inclusive growth and equitable delivery of public services. But sharing of power and resources between the national government and 47 counties continues to be a major challenge, with county governors wielding more power and persistently pushing to raise their share of the national revenue from 15% to 40%.  But, the government’s budget office shows the counties are unable to use funds allocated to them, raising issues about their budget and financial management capacity. Audit reports have also questioned the use of funds in some counties on non-priority projects, including travel, vehicles, offices and houses and for the governors.

The government is also experiencing security challenges, which constrain the pace of democracy, reforms and accountability. On September 21, 2013 terrorists attacked an upmarket mall in Nairobi, leaving 67 people dead and 175 injured. The administration has beefed up security following new security threats in recent weeks, and also promised to tackle fundamental issues such as youth unemployment, regional imbalances and land reforms, which pose political risk and insecurity particularly in areas with high poverty levels.

Recent political reforms have strengthened Kenya’s governance record, though it remains mixed. The Bank’s CPIA for Kenya improved from 3.8 in FY11 to 3.9 (the highest in Africa) in FY12 due to significant progress in policies and institutions for growth and poverty reduction. Positive indicators include strong macroeconomic environment, but concerns remain in climate reforms, which are essential for private-sector led growth and job creation.

Social Developments

Kenya’s poverty level is estimated to have declined from 47% in 2005 to between 34% and 42%; however, the last household survey was conducted in 2005-06. A new survey is necessary to update the poverty estimates and inform the government’s poverty reduction strategies.

Poverty and inequalities remain high, but Kenya has the opportunity to eliminate extreme poverty by 2030 in line with the Bank’s global poverty target, if it reduces poverty by two percentage points each year. Such a high rate of poverty reduction is only possible if growth is accompanied by reduction in inequality, to enable the poor benefit, to a disproportionate extent, through new economic opportunities and also by ensuring that safety nets adequately buffer them from vulnerability to shocks.

Kenya’s population increases by an estimated one million a year and is now estimated at 43.2 million. Based on the 2009 population census, demographic trends show that more people are moving to urban areas and the Bank estimates that half of Kenya’s population will live in cities by 2050. Better macro-economic conditions in the past decade helped improve the welfare of Kenyans, but the poor remain vulnerable to drought and climate induced vulnerability. Rural and urban poverty remain a challenge.

The Kenyan poverty profile also reveals strong regional disparities in the distribution of poverty, with the lowest incidence being in the central region and the highest in the northern and eastern arid and semi-arid areas. Inequality remains high, with the distribution of income, measured by the Gini coefficient (a measure of inequality of income distribution, the higher the percentage the higher the level of inequality) estimated at 39% in rural areas and 49% for urban areas. The Commission on Revenue Allocation has adopted a revenue sharing formula with five criteria, including a weight of 20% to poverty incidence.

Progress in other dimensions of social development includes school attendance and enrollment ratio between boys and girls. The transition from primary to secondary and later to tertiary and university education has improved due to increased public and private investment in the education sector. Infant mortality and under five mortality have also improved and immunization coverage increased. Access to household services such as electricity, improved drinking water source and better sanitation, steadily increased, but coverage remains low.

Development Challenges

The most pressing challenge for Kenya is to implement its new devolved system of governance, while strengthening its capacity to cope with domestic and external shocks. Youth unemployment, poverty and vulnerability to climate change also remain critical. Recent political and economic developments have stimulated development opportunities but concerns remain in key areas, including food security, governance and corruption.

The economy’s vulnerability to international oil prices, weak exports due to underperforming manufacturing sector, lower agricultural output resulting from drought and declining forex earnings and remittances, frequently exert pressure on the exchange rate and current account. Imported inflation from high fuel and food prices affects investments. A combination of output and employment losses has a direct impact on poverty. Business confidence has improved, after the recent peaceful elections and transfer of power, but recovery will take some time.

The quality of social services, infrastructure and governance remain bottlenecks to Kenya’s ability to achieve shared prosperity. Rising public expenditure demands from the national and devolved governance structures continue to exert pressure on the current account and shortfalls will need to be financed by net domestic borrowing.

Last Updated: Apr 10, 2014

The Bank’s strategy for Kenya is to help the government to identify long term solutions to national development problems to end extreme poverty and improve shared prosperity by exploiting new opportunities for growth and reducing vulnerability. Devolved governance, which creates a more equitable development model and creates opportunities for new regional growth centers, will be a key aspect of the Bank’s new Country Partnership Strategy (CPS) for Kenya.

The CPS will focus on emerging challenges and opportunities for Kenya and consultations with key stakeholders across the country have mainly focused on growth, shared prosperity and equity. The last CPS for Kenya (FY10-13) was endorsed by the World Bank Board of Executive Directors in April 2010 and was updated by a CPS Progress Report discussed by the Board in May 2012.

The Bank’s commitment to Kenya presently amounts to over $4.7 billion, including US$3.73 billion in 23 national projects and $988.6 million in nine regional projects. The largest commitments are in infrastructure (transport, energy, water, and telecommunications), which are foundations for reducing the cost of doing business and improving Kenya’s competitiveness in the East African region and globally. Other priority themes include strengthening public sector management and accountability, reducing vulnerability and strengthening communities through investments in agriculture and environment, and investing in people in areas such as, health, youth empowerment and social protection.

The Bank focuses on transparency initiatives, including open data and strengthening the judiciary;  broadening stakeholder involvement, including private participation in infrastructure services (e.g. transport corridors and ports); accelerating public financial management reforms; and improving governance in high-priority sectors (e.g. education, HIV/AIDS, health, and roads). Analytic work in areas such as parliamentary and judicial capacity, will help lay the foundation for the development and governance agenda. Also, measures have been introduced to protect Bank-financed projects against corruption risks, while strengthening country systems.

The IFC

The IFC in Kenya has a net commitment of $739.5 million, supporting activities including investment and advisory services to help small and medium enterprises, mobilize funding for high-impact sectors of the economy, and improve investment climate. IFC helps develop projects in financial markets, agriculture, infrastructure and telecommunications. Its key investments are in manufacturing, power, transport, education, and banking. IFC’s clients and partners include Kenya Power, Kenya Airways, Diamond Trust Bank, Equity Bank, Bank of Africa, Faulu Kenya, and Nairobi Women’s Hospital.

IFC also supports entrepreneurship in Kenya through its advisory programs, such as the Small and Medium Enterprise (SME) Solutions Center, SME Development Initiatives, a program to help women entrepreneurs gain access to finance, a credit bureau program, and a program to increase finance for private schools in Kenya. It also manages the Grassroots Business Initiative, a trust fund that works with social enterprises targeting disadvantaged youth and rural and urban poor. Its other activities include supporting curriculum development in business schools on issues such as governance and ethics, through its Global Business School Network program. In 2011, IFC and the World Bank released a report on “Healthy Partnerships”; which studied the relationship between the public and private health sectors in 45 countries in Africa, including Kenya. The report found that if governments actively engage with the private sector in health, the pace of meeting health goals in Sub-Saharan Africa could be accelerated.

As part of joint World Bank/IFC outreach and dialogue with the private sector, IFC will explore additional opportunities for investment in the Kenya’s private sector, to provide training and build awareness and help create governance reform champions.

Multilateral Investment Guarantee Agency (MIGA)

MIGA is providing investment guarantees of $252 million in support of projects in Kenya’s power, agribusiness and service sectors. It is working closely with the Bank’s International Development Association (IDA) and IFC to help leverage financing for the construction of privately operated power plants and diversify Kenya’s energy mix in line with the government’s least cost power development plan. These projects insured by MIGA include an 84 megawatt private geothermal plant and an 87 megawatt heavy fuel oil plant supported by partial risk guarantees of $166 million. MIGA is also receiving increasing interest from other investors and sectors in the country.

Last Updated: Apr 10, 2014

The World Bank’s finance and knowledge partnership with Kenya has made significant contributions to all major economic and social sectors.

Transportation

Rehabilitation of the Northern Corridor Transport system, the most important trade artery, has since 2004 reduced travel times from the port of Mombasa to Timboroa from 14.5 hours to nine hours. The increased efficiency has greatly facilitated trade and regional integration in the Eastern Africa region, easing the cost of doing business in Kenya and also with its western neighbors—Uganda, Rwanda, South Sudan and eastern Democratic Republic of Congo. The Bank has invested $460 million in the Northern Corridor Transport Improvement Project since its implementation in June 2004, contributing half of the $960 million that the government is investing in the project. It has also enhanced aviation safety at Kenya’s international airports and enabled Kenya to rehabilitate and replace infrastructure and public assets damaged during the 2008 post-election crisis. Moreover, it has promoted private sector participation in the management, financing, and maintenance of road assets. Further benefits in the ease of doing business in the region have been achieved through the link of the Northern Corridor project to the East African Trade and Transport Facilitation Project, a $150.6 million Bank intervention that has helped improve customs clearance and eased traffic congestion at the Kenya-Uganda border. The transport facilitation project will also expedite rail transport from Mombasa port to Uganda and other East African Community (EAC) countries.

These benefits will further be consolidated with the implementation of the Transport Sector Support Project, which was approved by the Bank Board in April 2011 to upgrade over 220 km of roads on the northern and western corridors, improve air transport and support growth of key economic sectors. It will also improve business climate in the western region and strengthen regional integration in the EAC by reducing transport bottlenecks on the Tanzania-Kenya-Sudan road corridor. With additional financing in March  2014, Bank funding for the project increased to $503.5 million.   

Energy

In the energy sector, the Bank’s contribution connected an estimated 1.75 million additional Kenyans in 350,000 households to electricity between 2009 and 2011. Over 1,200 km of new transmission and distribution lines were constructed during the period. The Bank has invested over $650 million in the energy sector through three projects – Electricity Expansion, Energy Sector Recovery and Private Sector Power Generation - to scale up energy access, which is critical to growth and reducing the cost of doing business. These programs focus on increasing electricity access from 25% to over 40% of the population in the next decade by scaling up reliable, green energy development to reduce vulnerability to weather dependent hydro and high cost fossil fuels. The Bank was the catalytic donor in the Kenya Electricity Expansion Project, which mobilized a total of $1.3 billion to develop 280 megawatts of geothermal power and associated infrastructure in the next four years. Also, an innovative combination of Bank, International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) credits and guarantees is supporting thermal, geothermal and wind generation capacity of 600 megawatts.

Water

Bank support through the Water and Sanitation Service Improvement Project has also enabled Kenya to scale up access to improved water and sewerage services. From 2007 through 2011, access to improved water services in Bank-financed project areas increased from 27% to 50%, and access to improved sewerage services from 10% to 20%. The $150 million project has supported Athi Water Services, Coast Water Services and Lake Victoria North Services boards to provide reliable, affordable and sustainable water supply and sanitation services. It is also providing technical assistance, goods and works to the Water Sector Regulatory Board and the Water Appeals Board. The Bank is also helping Kenya to address water and climate issues through a $155 million Water Security and Climate Resilience Project, which is supporting development of water resources and expanding capacity for irrigation.

ICT

Kenya has also emerged a leader in the transformative use of information and communication technologies in East Africa and worldwide. Supported by the Bank through the Kenya Transparency and Communications Infrastructure Project (KTCIP), Kenya’s information and communications technology (ICT) sector has become the main driver of economic growth, expanding by 20% on average annually and adding one percentage points annually to GDP growth over the past decade. By December 2011, 26.8 million Kenyans or nearly every adult Kenyan, were using mobile phones, and those with internet access nearly doubled to 14.3 million (37% of the population) from 7.8 million (20% of the population) in only one year from December 2010 to December 2011.

World famous M-pesa and other mobile money applications transacted an estimated $7 billion (20% of GDP) by end of 2010. The Bank also actively supported Kenya to deploy one of the first major government open data portals among developing countries. In July 2011, President Kibaki launched the Kenya Open Data portal, providing free public access to large digital datasets. The Bank approved additional funding of $55.1 million in March 2012 and another $30 million in March 2014, scaling up KTCIP to $199.5 million, to consolidate transformative ICT applications and deepen gains from innovation.

Health

In the health sector, 25.3 million people, half of them women directly benefited from activities supported by the Bank and other development partners under the Health Sector Support Program and half a million children were immunized in the first year, between 2010 and 2011. The government also, with Bank support, intensified the fight against malaria and HIV infections. Distribution of anti-malarial bed-nets contributed to a sharp fall in child and infant mortality, down from 115 to 74 and 77 to 52 per 1,000 respectively between 2003 and 2008-2009.

The Bank has also substantially assisted Kenya to address social challenges through investments in social protection, as well as address the vulnerability of communities in arid and semi-arid areas through investment in disaster preparedness and alternative livelihood opportunities. A new regional pastoralism development program, with an allocation of $77 million for Kenya, will help to improve the livelihoods of pastoral communities and support the Inter-Governmental Authority on Development to promote sustainable pastoralism development.

Last Updated: Apr 10, 2014

The Bank has established strong partnerships for knowledge and resources with other development partners, researchers and agencies that contribute to Kenya’s development. Through the Development Partners Group (DPG), it plays a key role in government-donor partner coordination. The DPG, co-chaired by the Bank with a bilateral ambassador, meets regularly  to discuss and build consensus on emerging political, economic and social issues. In addition, over a dozen sector coordination groups meet regularly to discuss support for specific areas of the government’s development program. These issues are also discussed in a high level Development Partnership Forum hosted by the government to discuss Kenya’s development priorities. The Forum, initiated by the Bank in 2009, brings together ambassadors and heads of development agencies with cabinet officials.

Partnerships with other development partners in public sector investments cut across key projects and sectors. Such agencies include the European Union and European Investment Bank (EIB), the African Development Bank (AfDB), France’s Agence Française de Développement (AFD), United Kingdom’s Department for International Development (DFID), German Development Bank (Kfw), Japan International Cooperation Agency (JICA) and China.

The Bank also partners with the private sector in promoting cutting-edge global technology for development. The Bank’s Open Data and Knowledge resources generate wealth of findings and good practices from its vast research and operations at a global level, which is then shared with client countries and partners. Its partnership with the Kenya government and the private sector in open data has enabled software and content developers to develop innovative information and communications technology (ICT) applications. InfoDev’s incubation program hosted by ICT firms and universities has facilitated numerous innovations, including technology platforms that enable farmers to share current information on weather patterns and market prices of agricultural produce. The Bank’s satellite public information centers  share development information on a continuous basis with a multitude of stakeholders including the government, researchers, media, private sector, civil society, youth and faith based organizations. It also partners with think tanks and universities to produce regular economic updates, including the Kenya Economic Update.

Regular dialogue and consultations on emerging issues with other stakeholders help to build consensus on important development issues, hence, strengthening development effectiveness. Partnership on governance and social accountability with these groups, including the youth, academia and the civil society, is critical to improving the outcome of development projects.

Last Updated: Apr 10, 2014

LENDING

Kenya: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments

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