Kenya’s economy is set to grow at a faster pace than previous years. The World Bank’s Kenya Economic Update (KEU) estimates that Kenya’s economy is poised to grow by 6% this year, 6.6% in 2016 and 7% in 2017, making it one of the fastest growing economies in sub-Saharan Africa. Similarly, in a review of Kenya’s economic performance, the International Monetary Finance (IMF) forecasts real GDP growth of around 6.5% this year, supported by rising infrastructure investments, lower energy prices and a dynamic private investment environment.
The country’s past growth has also had a strong showing, especially after rebasing its economy. Average annual growth for 2007 to 2013 was 5% in the new GDP series, up from 4.3% in the old series. This single event also increased its economic size by 25% to an estimated $55.2 billion making it the ninth largest in Africa (up from 12th, surpassing Ghana, Tunisia and Ethiopia) and fifth largest in sub-Saharan Africa (after Nigeria, South Africa, Angola and Sudan).
Relative growth comparisons also show an above average performance. Average growth between 2010 and 2013 stands at 6.2% compared to a 5.3% average for sub-Saharan Africa. The IMF’s latest Regional Economic Outlook: Sub-Saharan Africa projects regional growth at 4.5% this year, which is two percentage points lower than its Kenyan forecast. The World Banks’s Country Director for Kenya, Diarietou Gaye, cited the country’s expansive fiscal and monetary policies as having played a huge role in making Kenya the growth center of East Africa.
To add to the momentum, the recent renewal of the African Growth and Opportunity Act (AGOA) by United States President Barack Obama for a further 10 years further supports the growth story. Kenya, which is already a leading exporter of garments to the United States, expects to earn about $10 billion before the 10 years are over. With the new deal, Kenya also expects to offset sluggish demand from its traditional European export markets which have struggled in recent years. Through AGOA, Kenya can also hope to generate the much needed foreign exchange revenues to help narrow its widening current account deficit currently standing at about 10% of GDP.
However, risks exist. Security concerns have seriously affected the tourism sector, a key foreign exchange earner. Contraction in the sector is partly blamed for the slowed GDP growth. Data from the Economic Survey 2015 indicates that earnings from tourism were down 7.3% to 918 million. Agriculture, which accounts for around 25% of the economy, is another sector that has had mixed performance. Often vulnerable to bad weather and volatile world commodity prices, the sector frequently suffers from fluctuating production and revenue levels.
The manufacturing sector also had a less than optimal performance. Commenting on the KEU report, the World Bank’s Finance and Private Sector Development Specialist, and a co-author of the report, Maria Paulina Mogollon, cautioned Kenya on the need to increase competitiveness of its manufacturing sector so that the country can grow, export, and create much-needed jobs. In recent years, manufacturing’s contribution to Kenyan exports and growth has lagged.
Despite the challenges, Kenya still has a good chance to become Africa’s great success story. From its growing and youthful population, stable macro-economic environment, a dynamic private sector, a new constitution and its pivotal role in East Africa, Kenya is undoubtedly the new regional growth center.