Kenya expects 4-5% economic growth this year

Kenya expects economic growth to accelerate to between four and five percent this year, helped by the likely recovery of the global and as favourable weather conditions boost agriculture, its planning minister says.

East Africa's biggest economy expanded by 2.6 percent in 2009, up from a revised 1.6 percent in 2008, the government said, supported by growth in tourism, construction and communications, and fiscal and monetary stimulus measures.

Last year's growth, however, was still well below the seven percent expansion recorded in 2007 before a bloody post-election crisis, drought and the fallout from the global financial crisis cut output sharply.

“The domestic economy is expected to continue on a recovery path in 2010 with real GDP projected to grow by a rate at between four and five percent,” Planning Minister Wycliffe Oparanya said.

The government would continue to focus on infrastructure and agriculture to sustain growth. The authorities would also seek to cut energy costs and curb dumping of cheap imports to help the manufacturing sector, he said.

Last year's growth and the projection for this year were in line with analysts' forecasts.

“The 2.6 percent growth outcome for 2009 is in line with leading indicators … with better rains around the turn of the year, the outlook for staple crops is far brighter and on this basis we think the 2010 projection of four to five percent growth is realistic,” said Richard Segal, director of emerging market research at Knight Libertas.

“Moreover, with elections looming on the horizon again, we expect public to pick up later this year.”

Referendum due
Kenya is due to hold a referendum on August 4 on a proposed new constitution, which is seen as an important step towards ensuring that political instability associated with elections does not recur.

“We are all looking forward to a new constitution. This will renew investor confidence and we are very optimistic that the economy will grow,” Oparanya told reporters.

An expanded regional market after Kenya joined neighbours Burundi, Rwanda, Uganda and Tanzania in a common market last year would also help drive economic growth, he said.

One economist said Kenya's growth rate, though better than some of its peers, still fell short in certain measures, and the debt crisis in the eurozone could cloud the outlook if it spread further.

“We are doing better than most African countries with a big GDP but the sad thing is the growth rate is still below that of population growth, it means people will get poorer,” said Prof. Michael Chege, a Nairobi economist.

The population grew by 2.9 percent last year, above economic growth of 2.6 percent, he said.

“If you look at what is happening in Europe now – this is our largest international market for both tourism and agricultural goods – there is cause for worry.”

Most analysts, however, believe that domestic demand is strong enough to offset external risk.

“Concerns over the global economy and the EU in particular may cloud growth forecasts, but domestic demand has been a strong driver of growth, which should provide some insulation to the international environment,” said Stuart Culverhouse, head of research at Exotix, a London-based frontier market specialist.

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