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.
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.
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.
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