Kenya’s economy to grow 6.6pc next year on back of low oil prices, investments

NAIROBI: The economy is poised to grow by seven per cent by 2017 buoyed by falling crude oil prices and sustained investment in infrastructure.

According to the World Bank, Kenya’s economy is larger and growing faster than previously estimated following a re-basing of growth figures, further elevating the country as an economic powerhouse in sub-Saharan Africa.

“In the baseline scenario, Kenya’s GDP is projected to grow six per cent in 2015 and 6.6 per cent in 2016, thanks mainly to increased aggregate demand as a result of the ongoing infrastructural projects and the fall in oil prices,” stated John Randa, World Bank senior economist during the launch of the bank’s report titled “Anchoring High Growth Can Manufacturing Contribute More?”

“In the high-growth scenario, GDP will grow 6.5 per cent in 2015 and seven per cent in 2016 buoyed by lower inflation as a result of falling oil prices and investment in the Standard Gauge Railway that is expected to to the economy,” explained Randa.

The bank further states the decline in the price of oil will reduce the current account deficit, easing pressure on the shilling. “Simulations suggest that a 30 per cent decline in the price of oil from the baseline—that is, a price of $45 a barrel—could increase GDP growth by up to 1.2 percentage points in 2015,” said Randa.

The report further indicates that even in the low-growth scenario, the economy will still grow in the next two years, giving GDP forecast of 5.6 per cent in 2015 and 2016, and 5.7 per cent in 2017. “The Kenyan economy has grown in resilience and even if we suffered shocks like terrorism and droughts into 2015 and 2016, our growth rate would still remain strong,” said Randa.

But even as the country continues on its growth path towards becoming a middle income country with double digit growth rates in the next 15 years, the World Bank cautions that several structural and policy issues need to be addressed.

Growth in the country’s service industry, which anchored the country’s growth in the past, was lower than previous years, a condition that has been attributed to insecurity. The terrorism activities in the coast of Mombasa dealt a crippling blow to the country’s tourism industry leading to massive closures and job cuts in many establishments.

Kenya’s manufacturing industry has also been challenged to increase its competitiveness to create more jobs. “Kenya exports about 40 per cent of it’s manufactured goods to the East African region but we have been seeing China and India making inroads into this region and this jeopardises the country’s position,” explained Ms Paulina Mogollon, World Bank private sector development specialist.

The bank further states that the widening of the country’s foreign account deficit is a cause of concern that the Government needs to address. The sluggish growth of the country’s exports was attributed to low demand from the Euro zone and emerging economies, contributing to the widening of the current account deficit.

The country has also been warned on its expansionary fiscal position with the World Bank raising a red flag on the growing public debt. “The Government’s commitment to fiscal discipline is proving to be a challenge,” reads the report in part.

“These episodes raise the question of whether the growth Kenya has experienced is organic (and therefore sustainable) or fiscally propelled (and therefore unsustainable).”