Economic Background

In 2003 the Kenyan Government developed and launched the Economic Recovery Strategy (ERS) for Wealth and Employment Creation, as the blue print for setting the country back on the growth path after year of economic stagnation.  The strategy was a shift from previous planning documents that sought to reduce poverty, instead of creating wealth and employment.   


The implementation of this strategy was viewed as very successful.  During this period the economy maintained a rapid growth between 2005-2007 of 5.9% and 7% compared to negative growth in 2002. However, the growth recorded a major decline in 2008 of 1.6% and in response, the government put up measures to stimulate growth including: Restoring investor confidence, Expansionary fiscal policy (e.g. economic stimulus package), Monetary policy focusing on achieving and maintaining price stability within a single digit inflation rate of 5.0%. 


The economy responded accordingly with an improved growth rate of 2.6 % in 2009 which was mainly attributed to: Resurgence of activities in the tourism sector, Resilience in the building and construction industry and Transport and Communication sector coupled by an enabling environment and the economic stimulus package. However, economic performance was constrained by: Unfavorable weather condition, The global economic recession, Sluggish internal and external demand. 


It is noteworthy to note that the ERS was a 5 year plan set out to expire in the financial year 2007/2008. Hence in early 2007 the Government started developing a new strategic long-term plan to take over from the ERS. In June 2008, the Government launched the Kenya Vision 2030 as the new long-term development blueprint for the country. The vision of this strategy is to transform the country into “the globally competitive and prosperous country with a high quality of life by 2030”.   


The vision is based on three "pillars" namely; the economic pillar, the social pillar and the political pillar.
The economic pillar aims at providing prosperity of all Kenyans through an economic development programme aimed at achieving an average GDP growth rate of 10% per annum over the next 25 years.  
The social pillar seeks to build “a just and cohesive society with social equity in a clean and secure environment.” 
The political pillar aims at realizing a democratic political system founded on issue-based politics that respects the rule of law, and protects the rights and freedoms of every individual in the Kenyan society

POST 2007/2008 ECONOMIC DEVELOPMENTS

The Kenyan economy saw a major recovery following two years of weak performance that saw growth decline from 7.1 percent in 2007 to  1.7 percent in 2008 with a subdued rebound of 2.6 percent in 2009. The depressed performance during the 2008-09 was due to a number of adverse shocks including the post election violence in early 2008, a severe drought that affected most parts of the country, high international commodity prices and spillover effects of the global financial crisis.


The economic growth has since then shown strong recovery from the year 2010 and beyond to about 5 percent in line with the objective of steering the economy towards the growth trajectory outlined in the Medium-Term Plan under Vision 2030. The real GDP growth picked to 4.4 percent in the first quarter of 2010, rising to 5.4 percent in the second quarter, and it is expected to be sustained at that level during the rest of the year. The medium-term improved dramatically after the promulgation of the new Constitution, which ushered in renewed investor confidence.


The Inflation fell from a high of 19.5 percent in November 2008 to 3.2 percent by August and September of 2010 and is expected to remain within the 5 percent monetary policy target over the medium term. The Interest rates have remained low and stable owing to ample liquidity in the market with the 91-day Treasury bill rate ranging between 2-5 percent since April 2010. However, lending rates have not declined in tandem. The exchange rate has also been stable though with a tendency to depreciate mainly due to the movement of the US dollar in the international markets. Recently, the shilling has remained in the range of KSh 80-82 to the US dollar. 


The external sector has improved with the overall balance of payments recording a surplus compared to a deficit in 2008 and part of 2009, following improvement in the current account occasioned by increased surplus in the services account and a stronger rebound in exports earnings. As a result, international reserves held at the Central Bank of Kenya increased to reach US $ 3.8 billion (equivalent to 3.8 months of imports) by end of June 2010 from US $ 3.2 billion (equivalent to 3.3 months of imports) a year ago.  Activity at the NSE has remained buoyant with increased investor confidence and improved corporate governance following the ongoing reforms by the Government.


The Government acknowledges the still need to do more to attract more capital and investment to the Country and  therefore strategies are in place to continue pursuing sound economic management and deepening of the reform agenda in order to make the economy stable and predictable, and to reduce the cost of doing business. The government is closely collaborating with various development partners including to benchmark the country’s business environment practices in line with international best practice.

RECENT ECONOMIC DEVELOPMENTS

The Government has implemented major structural reforms following the promulgation of the 2010 constitution. Some of these include judicial, electoral and land reforms coupled with improved fiscal and monetary policy management. The institutions of governance have paved way for the just concluded peaceful and credible elections on 4th March, 2013 with the 4th President H.E Hon Uhuru Kenyatta being sworn into office on April 9, 2013.

 

The new government Kenya ushers in a devolved government that is comprised of a National government and County government made up of 47 counties. This also sees entry of cabinet secretaries (ministers) who have no elective positions. The Parliament of Kenya now has two houses, the National assembly (lower house) with 349 seats and the Senate with 56 seats.

 

Kenya economic growth remains satisfactory with an expected growth rate of 4.7 percent in 2012. Macroeconomic stability has been maintained. For the last six months inflation rate has been below the target of 5 percent. Inflation has come down from a double digit of 10 percent in June 2012 to 4.11 percent in March 2013. The government has continued with a cautious gradual monetary policy easing since July 2012 which has seen the policy rate decline cumulatively by 850 basis points to current 9.5 percent. Lending rates have remained stick at high rates and this has seen a slowed down credit expansion. Financial sector remains vibrant and well capitalized while financial inclusion continues to deepen. Further steps have been taken to improve the anti-money laundering and combating the financing of terrorism regime. International reserves remain solid at about 3.4 months of import cover, and current account is projected to narrow to 8.9 percent of GDP in 2012/2013 from 9.1 percent in 2011/12.

 

ECONOMIC OUTLOOK- 2013 AND BEYOND

The economic growth prospects for Kenya continue to be impacted by uncertainties and intensified financial constraints and recession in the euro-zone as well as rising costs in the East.  However, as the country undergoes the transition to a devolved system of government in 2013, the expected financial decentralization is likely to offer significant gains which will support good economic and financial governance. However, African economies continue to grow as a young, educated and vibrant population makes its appearance on the economic stage. The financial and ICT sectors are strong, while agriculture, manufacturing and transport sectors, that drive the export led growth, are underperforming. 
However despite the possible external risks, the Government will continue building on the current improved macro economic environment to navigate through the challenges posed the global and domestic developments in order to sustain and improve the resilience of the country. The government has therefore identified key priorities under Vision 2030 which include investing in roads, energy, rails and ports. Other priorities include devolution, enhancing to key-social economic sectors such as agriculture and rural development, health and education.

 

In line with this, the President, H.E. Hon Uhuru Kenyatta in his first major address to Parliament has outlined the key agenda of the new Government whose goal is for Kenya to become a middle-income country within a generation. That will require sustaining double-digit growth that will be delivered through pursuance of the right combination of policies with a steady hand and determination.

 

In order to spark an industrial revolution in the country within the next few years, the government will pay special focus on value addition to local products, and as well as encouraging manufacturing of finished goods locally through undertaking a number of initiatives including the following;

 

- Establishing a first class logistics hub, covering transport, roads, railways, waterways, pipelines, ports, storage & energy.

  • - Investing in and modernizing agriculture and open up at least 1 million acres of new land through irrigation in order to end food insecurity.
  • - Driving growth by diversifying exports, adding value, creating new products and opening up new markets
  • sealing the leakages in revenue collection system and extending the tax base.
  • - Driving up value for money from public procurement so that the public get what they pay for.
  • creating a business climate that encourages innovation, investment and growth.
  • - Reducing the cost of the ordinary household's basket of goods, including food, housing, energy and transport.
  • - Deepening relationships with regional partners in order to expand markets, create jobs and boost growth.
  • - Investing people as the country’s greatest capital resource and as demanded by the constitution to ensure social protection for every Kenyan

The overarching goal of the new Government is the transformation of the economy, to enable exports compete across the world and drive the economic growth that is  necessary to create jobs for the youth and lift 10 million Kenyans out of poverty by 2017.


The government will focus on delivering on Vision 2030, and continue to build the country’s infrastructure including roads, railways, houses, ports, schools and hospitals. The LAPPSET project is expected to drive economic growth, job creation and deepen links with regional partners. On the other hand to meet the growing housing shortage, there will be need to construct 250,000 houses annually against the current 50,00 units being constructed annually.


On transport, there will be need for new mass transport and commuter networks in the urban centres and long distance connections to regional neighbours, as well as improvements to local roads to facilitate free movement of people across the region. However, in order to achieve the desire outcome, measures will be taken to increase the pool of domestic capital available for infrastructure development and attract even greater levels of foreign direct investment.


The Government will also ensure food security by investing in and modernizing the agricultural sector. This will be achieved through improved financing, irrigation, research & development, and the return of extension services which will enable farmers to move from subsistence to commercial farming. The Government is also keen to extend basic services such as water and electricity to every Kenyan. Other areas of focus will include health, security and food security.


Energy drives the economy and therefore the government will promote investment in new forms of energy generation such as solar, wind and geothermal plants as well as oil, gas and coal. The energy market will be liberalised and opened up to new sources of investment, in order to expand generating capacity, extend the transmission network, improve the consistency and quality of supply and lower the cost of energy for the Kenyan citizen.

 

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