By James anyanzwa and Protus Onyango
The World Bank has projected Kenya’s economy will grow by 5.7 per cent this year, buoyed by low interest rates and higher investments.
But the Bretton Woods institution warns that East Africa’s biggest economy is still operating below its potential and remains highly vulnerable to external shocks that undermine its growth prospects and poverty reduction endeavours.
External vulnerability
According to the bank’s latest Economic Update Report for Kenya, the country’s external vulnerability can be reduced by increasing both domestic and foreign savings through improvement of the business environment.
The report notes that for Kenya to grow beyond the five per cent it had forecast in January, it needs to enhance the contribution of exports as an engine of growth.
“Today, net exports are a drag on growth, having reduced overall growth by 4.1 per cent in 2012,” says report dated June 2013.
It adds that Kenya needs to continue investing in infrastructure and human capital, improve the business and regulatory environment and diversify exports to maintain high growth rates.
“Since domestic savings are low, attracting foreign direct investments (FDI) would supplement domestic savings in financing Kenya’s growth agenda,” the bank notes.
World Bank Country Director for Kenya Diarietou Gaye said the Bank forecasts a growth rate of 5.7 percent in 2013, higher than the 4.6 per cent recorded in 2012, and 6 per cent in 2014.
“Kenyans are reaping gains from a smooth election process and sound macroeconomic conditions, but much more remains to be done to achieve the target growth rate of 10 per cent envisaged in Vision 2030,” said Gaye, speaking during the launch of the report in Nairobi yesterday.
“The Government needs to create an enabling environment for private sector-led growth by continuing to invest in infrastructure, increasing domestic energy production, removing bottlenecks to doing business and sustaining sound monetary and fiscal policies,” she added.
“The economy needs structural reforms to improve the business environment and for more foreign direct investment flow to Kenya,” said John Randa, the Bank’s Country Economist for Kenya. “Such reforms will include tax and expenditure measures that will increase savings and investment to expand manufacturing exports, taking advantage of Kenya’s low labour costs and its coastal location.”
Job opportunities
According to the report, a higher growth rate will enable the economy to increase job opportunities for the burgeoning youth population and continue to reduce poverty, which is estimated to have declined from 47 per cent in 2005 to between 34 per cent and 42 per cent.
The report also highlights Kenya’s contrasts and widespread inequalities, noting that while the average Kenyan is healthier, more educated and receives better infrastructure services than a decade ago, a large fraction of the population continues to live in fragile conditions with sub-standard access to water, sanitation and energy.
