The East African nation of Kenya has a population estimated at 46.1 million, which increases by an estimated one million a year. With support of the World Bank Group (WBG), International Monetary Fund (IMF) and other development partners, Kenya has made significant structural and economic reforms that have contributed to sustained economic growth in the past decade. Development challenges include poverty, inequality, and vulnerability of the economy to internal and external shocks.
Devolution is rated the biggest gain from the August 2010 constitution, which ushered in a new political and economic governance system. It is transformative and has strengthened accountability and public service delivery at local levels. The government’s agenda is to deepen implementation of devolution and strengthen governance institutions, while addressing other challenges including land reforms and security to improve economic and social outcomes, accelerate growth and equity in distribution of resources, reduce extreme poverty, and youth employment.
The World Bank’s most recent Kenya Economic Update (KEU) March 2016 projected a 5.9% growth in 2016, rising to 6% in 2017. The report attributed the positive outlook to low oil prices, good agriculture performance, supportive monetary policy, and ongoing infrastructure investments.
According to the latest Kenya National Bureau of Statistics (KNBS) quarterly report, Kenya’s economy expanded by 6.2% in the second quarter compared to 5.9% in the same period in 2015. This growth was mainly supported by agriculture, forestry and fishing; transportation and storage; real estate; and wholesale and retail trade. Manufacturing, construction, financial and insurance sectors slowed down during this quarter while accommodation and food services, mining and quarrying; electricity and water supply; and information and communication sectors recorded improvements.
In August of 2016, the President of Kenya signed into law, an amendment to the 2015 Banking Bill which capped lending interest rates. The law caps the maximum lending interest rate at 4% above the base rate set by the Central Bank of Kenya. Interest rate spreads in Kenya in the past have been considered to be generally higher than that of its peers. The effects of the rate regulation remains to be seen and could vary from the intended affordable loans to the low income households and small businesses, to reduced profitability for the banking sector and increased charges on commercial bank products.
Inflation in 2016 has remained within the government target rate, largely driven by food inflation. Kenya continues to benefit from low fuel prices and good rains, a stable macroeconomic environment, and good monetary policy action, which has ensured inflation remained contained in the first half of 2016.
Kenya has met a few of the Millennium Development Goals (MDGs) targets, including reduced child mortality, near universal primary school enrolment and narrower gender gaps in education. Interventions and increased spending on health and education are paying dividends. Devolved health care and free maternal health care at all public health facilities will improve health care outcomes and develop a more equitable health care system.
Kenya has the potential to be one of Africa’s great success stories from its growing youthful population, a dynamic private sector, a new constitution, and its pivotal role in East Africa. Addressing challenges of poverty, inequality, governance, low investment and low firm productivity to achieve rapid, sustained growth rates that will transform lives of ordinary citizens, will be a major goal for Kenya.
Last Updated: Oct 17, 2016