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Kenya Economic Update: Economic Growth Continues Despite Challenging Global Environment
Latest Issue: 
  • October 2016

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STORY HIGHLIGHTS
  • The new Kenya Economic Update shows the country’s strong economic growth is expected to continue, with forecasts of 5.9% in 2016 and 6.1% by 2018
  • Despite global economic weaknesses, the report notes Kenya’s growth has remained consistently solid, driven by investment and private consumption
  • The report the country ready itself for potential downside risks that could derail growth, and recommends improving the productivity of public investment to further accelerate growth potential

NAIROBI, October 31, 2016 — Kenya’s overall economic performance has remained robust over the past eight years, and it is expected to continue into the medium term at a rate of 6% 2017, according to the latest economic update for the country.

The Kenya Economic Update (KEU): Beyond Resilience – Increasing Public Investment Efficiency, says the country’s positive forecast is driven by a vibrant services sector, enhanced construction, currency stability and low inflation, low fuel prices, a surge in remittances and a growing middle class characterized by rising incomes.

“I am happy to see Kenya’s economy demonstrate resilience in the face of regional and global economic slow-down,” said Diarietou Gaye, World Bank Country Director.

Overall, Kenya’s performance has outpaced the regional average for eight consecutive years, and the country remains a bright spot across Sub-Saharan Africa. Kenya experienced strong economic performance in 2015, and has exceeded the average growth for Sub-Saharan Africa countries consistently since 2009, the report notes.

This positive trend was reinforced by the latest World Bank Group’s Ease of Doing Business report where Kenya moved up to the 92nd spot compared to 113 in the previous year. Kenya is now among the top five economies in Sub-Saharan Africa where it is easiest to do business. This improvement in the country’s business climate is largely due to the implementation of reforms to ease the process of doing business.

Nonetheless, the KEU notes that the country remains vulnerable to both external and domestic risks ranging from adverse weather that could curtail agricultural growth, uncertainties around the 2017 elections that could unduly dampen investor confidence, to weaker than expected global demand which could subdue the country’s exports.


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© Kenya Ports Authority

While Kenya is set for further medium-term growth, the report recommends reforming the systemic weaknesses of the country’s Public Investment Management (PIM) system, to see stronger growth. PIM is currently characterized by low execution and cost escalation of infrastructure projects.  “There is also urgent need to streamline the process of land acquisition, compensation and resettlement which lead to significant delays and cost escalation in the design and execution of public infrastructure projects,” said Sheila Kamunyori, World Bank urban specialist one of the co-authors of the report.

In addition to complex, long-term PIM reform recommendations, the report recommends several quick, high-priority actions that can help achieve higher levels of growth, such as:

  • Establishing a minimum criteria for project preparation, appraisal and inclusion of a project in the budget
  • Gradually strengthening the National Treasury role to include providing an independent review of project proposals, and enhancing capacity to undertake this role
  • Improving transparency and accountability for management of the portfolio of public investment projects

Quick win recommendations related to land acquisition include:

  • Providing payment assurance for financing land acquisition and resettlement to ensure immediate availability of funds for compensation when needed
  • Evaluating the current proposal to amend the legislation on compensation in land acquisition against international good practice to balance fairness, timeliness and the public interest
  • Developing a policy on involuntary resettlement with supporting legislation which reflects the principles of international good practice