Overview

Economy

Kenya’s economy is estimated to have grown by 5.4% in 2014 and is projected to grow by 6% in 2015. The resilience is likely to continue with the economy expanding at 6.6% in 2016 and 6.5% in 2017, according to the latest World Bank Group’s economic analysis. The Kenya Economic Update for March 2015 says Kenya is emerging as one of Africa’s key growth centers and is also poised to become one of the fastest growing economies in East Africa, supported by lower energy costs, investment in infrastructure, agriculture, manufacturing and other industries.

The momentum for growth is expected to be sustained by a stable macroeconomic environment, continued investment in infrastructure, improved business environment, exports and regional integration. The government has also maintained discipline in fiscal and monetary policy, despite increasing pressure from devolution and rising public sector wage bill. Total public debt in 2013/14 fiscal year was 43% of gross domestic production (GDP) and is expected to remain below the 50% of GDP threshold. Average annual inflation was estimated at 6.9% end of 2014, and is projected to fall further to 6.4% in February 2015, according to Kenya National Bureau of Statistics. Interest rates have also declined in recent months.

While the overall medium term outlook remains favorable, risks exist from the continued downturn of the tourism sector arising from security concerns. External demand for exports is also sluggish and low growth of production for exports is widening the current account deficit. Also, the share of the manufacturing sector to GDP has remained stagnant in recent years, with low overall productivity and large productivity differences in firms across subsectors due to lack of competition. Increased competitiveness of the manufacturing sector will be a key driver of growth, exports, and job creation.

Kenya became a lower middle income country, with its economy 25% larger than earlier estimated, following the rebasing of its GDP in September 2014.

Political Developments

The government under President Uhuru Kenyatta completed two years in office in April 2015 since it was installed in office on April 9, 2013, following national elections earlier in March. Kenyatta’s Jubilee administration has focused on implementation of the August 2010 constitution, which established 47 county administrations under a transformative devolution program. Deepening implementation of devolution and strengthening of governance institutions to improve accountability and public service delivery at national and local levels are some of the key agenda of the government. It is also addressing key challenges such as security and land reforms, which have an impact on economic and social outcomes including growth, poverty, youth employment and equity in the distribution of resources.

Social Developments

Kenya has met a few of the Millennium Development Goals (MDG) targets, including reduced child mortality, near universal primary school enrolment and narrower gender gaps in educated. Interventions and increased spending on health and education are paying dividends, and HIV/AIDs prevalence has reduced. Devolved health care and free maternal health care at all public health facilities has the potential to improve health care outcomes and develop a more equitable health care system.

The population is estimated at 44.4 million and poverty has declined from 47% in 2005 to 34-42% recently. Inequalities remain high and the national revenue sharing formula includes a weight of 20% to poverty incidence. A new survey is needed to update the last 2005-6 household survey to inform the government’s poverty reduction strategies.

Development Challenges

Kenya has great potential to be one of Africa’s great success stories from its growing and youthful population, a dynamic private sector, a new constitution, and its pivotal role in East Africa. This can be realized if the country addresses challenges of poverty, inequality, governance, low investment and low firm productivity to achieve rapid, sustained growth rates that will transform the lives of ordinary citizens. Devolution is a challenge, but also an opportunity for greater distribution of economic opportunities across income groups and regions. 

Last Updated: Apr 28, 2015

The World Bank Group’s (WBG) strategy for Kenya is to support the government’s strategy of ending extreme poverty and increasing shared prosperity. The WBG’s new Country Partnership Strategy for Kenya (CPS) focuses on three core domains of engagement; improving the economy’s competitiveness and sustainability, protecting the vulnerable and helping them to develop their potential, and building consistency and equity through devolution. During the CPS period (FY14-FY18) the WBG plans to invest over $1 billion a year in Kenya, mainly through the International Development Association (IDA), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA).

The current IDA portfolio amounts to $4.7 billion in 25 national projects ($3.8 billion) and seven regional projects ($900 million). This includes new commitments of $262 million delivered in FY15 (July-June)—$200 million for the Coastal Region Water Security and Climate Resilience Project, which was approved by the Board of Executive Directors in December 2014, $11.84 million for the Kenya Urban Water and Sanitation OBA Fund for Low Income Areas approved in November 2014 and the Kenya Petroleum Technical Assistance Project, amounting to $50 million, approved in July 2014.

The largest commitments are in infrastructure (transport, energy, water, and telecommunications), which are the foundations for reducing the cost of doing business and improving Kenya’s competitiveness in the East African region, and globally. Other priority themes include public administration, law and justice, which focus on reform and governance, and investing in people through health and social protection programs. Knowledge and analytic work in key areas are also an integral component of the strategy.

IFC

The IFC supports Kenya’s private enterprises through direct investments, advisory services and mobilizing capital from global financiers.  To date, IFC has invested $870 million in agribusiness, infrastructure, financial markets, health and education in Kenya.  IFC’s private sector clients and partners are tackling pressing development challenges, such as access to power, healthcare and food.  It has invested in a wide range of companies, including Kenya Airways, Bridge International Academies, National Cement, AAR Healthcare, Faulu Kenya and Vegpro. 

Small businesses are an engine for growth in Kenya, as they create jobs and provide essential goods and services.  Yet, entrepreneurs are often unable to access the finance they need to grow.  IFC’s Africa Micro, Small, and Medium Enterprise Finance Program helps banks increase business with the SME sector.  IFC invests directly in banks to increase lending to entrepreneurs, and advises them on how to tailor their financial services for SMEs.  IFC’s work with 21 banks across Africa has provided over $1 billion in loans to entrepreneurs.  In Kenya, IFC’s partners include Equity Bank, Bank of Africa, Diamond Trust Bank and Kenya Commercial Bank.

Drawing on support from the World Bank, IFC works with the government of Kenya to enact reforms to improve business regulation.  Reforms have been made in areas such as registering businesses and getting credit.  IFC’s investments and technical support have also helped Kenyan companies expand their operations across East Africa. 

Multilateral Investment Guarantee Agency (MIGA)

MIGA is providing investment guarantees of $281 million in support of projects in Kenya’s infrastructure, power, agribusiness and service sectors. It is working closely with the Bank and IFC to help leverage financing for the construction of privately operated power plants to 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 28, 2015

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

Energy

The WBG has supported the Kenya government to rapidly scale up electricity from geothermal to increase the supply of clean and reliable energy and expand electricity access, which is critical for economic growth and reducing the cost of doing business. In February 2015, the government commissioned the final phase of a 280 megawatts geothermal development in Olkaria, which reduced electricity bills to consumers by over 30 percent. The expanded green energy growth program was part of the Kenya Electricity Expansion Project (KEEP), in which the government, the WBG and other development partners have invested $1.3 billion on geothermal power and associated infrastructure. The investment also increased electricity access to industrial and domestic consumers. The WBG has invested over $650 million in the energy sector through KEEP, Energy Sector Recovery and Private Sector Power Generation. The WBG’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. 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. Also, an innovative combination of WBG, IFC and the MIGA credits and guarantees is supporting thermal, geothermal and wind generation capacity of 600 megawatts.

Transportation

Rehabilitation of the Northern Corridor Transport system, the country’s most important trade artery, has 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 the eastern Democratic Republic of Congo. The WBG 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. The project 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, and promoted private sector participation in the management, financing, and maintenance of road assets. These benefits will further be consolidated with the implementation of the Transport Sector Support Project, to upgrade over 220 km of roads on the northern and western corridors, improve air transport and support growth of key economic sectors. This project will also improve business climate in the western region and strengthen regional integration in the East Africa Community (EAC) by reducing transport bottlenecks on the Tanzania-Kenya-Sudan road corridor. With additional financing in March 2014, WBG funding for the project increased to $503.5 million.

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 WBG 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 EAC countries.

Water

WBG support through the Water and Sanitation Service Improvement Project has 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 $450 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 WBG 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, and the Coastal Region Water Security and Climate Resilience Project, a $200 million operation that is helping to increase access to clean water supply, sanitation and income generating activities through sustainable agriculture among communities at the Kenyan coastal region.

ICT

Kenya has also emerged a leader in the transformative use of information and communication technologies in East Africa and worldwide. Supported by the WBG 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. By December 2014, mobile subscriptions reached an estimated 33.6 million, equivalent to a penetration of 82.6%, while internet users were 26.1 million or 64.3 per 100 people, according to the latest data from the Communications Authority of Kenya. The WBG also actively supported Kenya to deploy one of the first major government open data portals among developing countries. In July 2011, former President Mwai Kibaki launched the Kenya Open Data portal, providing free public access to large digital datasets. The WBG 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 WBG 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 28, 2015

The World Bank Group (WBG) 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 WBG 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 WBG 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.

 

Last Updated: Apr 28, 2015


LENDING

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

*Amounts include IBRD and IDA commitments