Kenya achieved lower middle income status in 2012, according to revised national statistics released on September 30, 2014. The economy is 25% larger than earlier estimated, and Kenya is now the ninth largest African country with a Gross Domestic Product (GDP) of $55.2 billion.
The Kenya National Bureau of Statistics revised the economy’s growth rate for 2013 to 5.7% and the government projects it will be the same in 2014. The World Bank Group (WBG), the International Monetary Fund (IMF) and the African Development Bank (ADB) provided technical support for the “rebasing” of the national accounts.
The WBG’s latest analysis attributes the growth to aggregate demand, fueled by strong consumption and investment. Growth is also broad-based, with all sectors making a contribution to GDP, according to the most recent Kenya Economic Update, released in June 2014. The economy remains resilient and sentiments positive following a successful Eurobond issue in June which raised $2 billion. Moreover, the government on September 22, 2014 concluded its Article IV consultation with the IMF, whose overall assessment on debt sustainability and other indicators is positive. The FY15 budget finalized in June targets a deficit of 4% of GDP, and inflation remains largely on check, but rose to 8.36% in August 2014, from 6.9% in May, due to higher food and energy costs.
Medium-term prospects will depend on macroeconomic stability with credible policies, increased investments in infrastructure and human capital. A stronger global economy will revive demand for Kenya’s exports and investment flows. The government needs to deal with emerging pressures on GDP growth from drought, insecurity, fiscal expansion, inflationary pressure, high electricity costs, and implementation of devolution.
The WBG’s new Kenya Country Partnership Strategy (CPS), endorsed by the Board in June 2014, envisages an investment of $4 billion over the next four years to support Kenya’s potential for growth, create jobs for the youth, build vital infrastructure and devolve power to regional communities to end extreme poverty and share prosperity among all Kenyans.
President Uhuru Kenyatta’s Jubilee government is facing challenges from a proposed referendum by the opposition Coalition for Reform and Democracy (CORD) over cost of living, insecurity, corruption and nepotism in public service jobs. CORD also wants the Independent Electoral and Boundaries Commission (IEBC) disbanded, withdrawal of Kenyan troops from Somalia and increased revenue allocation to county governments.
Devolution of power and accountability to the 47 counties promises to transform Kenya through inclusive growth and equity in public service delivery, but persistent push by county authorities for a larger share of the national revenue is increasing pressure on public expenditure. Agitation for higher pay by legislators, medical staff and teachers is increasing the burden.
The Somalia-based Al Shabaab and from local militias at the coast and in major towns also pose a serious security problem. The administration has stepped up security and is tackling high youth unemployment, regional imbalances and land reforms, which pose political risk and insecurity in areas with high poverty levels.
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.
According to the CPS, Kenya has great potential from its growing and youthful population, a dynamic private sector, a new constitution, and its pivotal role in East Africa, to be one of Africa’s success stories. However, the country is facing 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.
Last Updated: Oct 10, 2014