Why Kenya's growth target is ambitious

National Treasury Cabinet Secretary Henry Rotich projects that the economy will grow by 5.8 per cent this year. [PHOTO: FILE/STANDARD]

NAIROBI, KENYA: The fragility of Kenya's economy is increasingly becoming a matter of public concern, with economists poking holes in the Government's ambitious growth forecast.

They cite insecurity, erratic weather patterns, high cost of living and the inability of Kenya Revenue Authority (KRA) to meet its revenue collection targets as key stumbling blocks to growth.

Several economists say that the National Treasury's growth forecast of 5.8 per cent this year is unrealistic because of the prevailing macroeconomic environment, characterised by growing inflation, high interest rates, a volatile shilling exchange rate, low foreign direct investments (FDI) and falling exports.

This comes as the country's growth as measured by the Gross Domestic Product (GDP), expanded by 4.1 per cent in the first quarter of 2014, compared to 5.2 per cent during the same quarter of 2013 owing to insecurity and erratic weather patterns. This is according to the latest figures from the Kenya National Bureau of Statistics (KNBS).

Similarly, the cost of living has risen significantly with the general prices of goods and services rising to a seven-month high in June to 7.39 per cent from 7.30 per cent in May fueled by rising food, electricity and transport expenditures.

The World Bank has since revised downwards its growth projections for Kenya this year from 5.2 per cent to 4.7 per cent even as the Jubilee administration maintained that the economy healthy.

The bank said the economy risks under-performing owing to insecurity and severe drought that has hit the bread basket areas of the Rift Valley.

"Government figures are a bit exaggerated, but the World Bank figures are more realistic in the context of our current scenario and the general macroeconomic environment prevailing in the country," said Dr Samuel Nyandemo, lecturer at the University of Nairobi's School of Economics.

"We are not able to meet our targets in terms of revenue collections and the issuance of the Eurobond just helped save the situation."

According to Nyandemo, key economic sectors such as tourism and agriculture are in danger of nearly grinding to a halt due to insecurity and poor rains.

"This idea of the Saba Saba rally is also creating a lot of uncertainty in the country. These are not good signals. These challenges will overall negatively impact on the projected growth rates," he said.

According to Scholastica Odhiambo, a lecturer at Maseno University's Department of Economics, Kenya will miss projected growth unless the fundamentals are addressed.

"The tourism sector has not yet recovered yet it is one of the major contributors to the gross domestic product (GDP)," said Odhiambo, adding that security is still a big problem, which will have an impact of reducing FDI into the country in addition to stifling the growth of the tourism sector.

According to the World Bank, the escalating security concerns and the perceived lack of an effective Government response may deter foreign investors from doing business not only in certain counties perceived as dangerous but also in Kenya as a whole.

The bank raised concerns over the pace at which Kenya's economy is growing saying the country stands a risk of missing out on its cherished dream of attaining a middle income status by the year 2030.