State downgrades 2011 economic growth to 4.5pc due to high prices

By James Anyanzwa and Morris Aron

The Government gave cautious economic growth projections for 2011/2012 fiscal year despite registering an impressive growth of 5.6 per cent in 2010/11.

Statistics released Tuesday indicate rising cost of food, fuel, drought and heightened political climate have forced the downgrading of projected economic growth rate.

But even as the Government remains cautious, the country’s economy weathered political storm over the constitutional referendum and The Hague process to register an impressive 5.6 per cent growth, which saw the creation of an additional half a million jobs last year.

The Government projects an economic growth of between 3.5 and 4.5 per cent next year. "Last year, there was stability in the fluctuations of exchange rates. We had adequate rainfall and we had a stable political environment. When we look at the main sectors of the economy, agriculture, which had contracted by 2.6 per cent in 2009 recovered to 6.3 per cent," Planning Minister Wycliffe Oparanya said while releasing the Economic Survey Report of 2011.

The growth, which doubled from the previous figure of 2.6 per cent recorded in 2009, was boosted by positive progress from all key economic sectors, because of stable macroeconomic environment, increased credit to the private sector, low inflationary pressures and improved weather conditions.

Remittances

The country also benefited from improved prices of its main exports (tea and coffee) and increased remittances after the global economic recovery.

This impetus, the minister predicted, is likely to be slowed down this year by high commodity prices and an unpredictable political environment as the country enters the 2012 electioneering period.

Oparanya said while all sectors of the economy recorded positive growth during the year under review, which comes to close in June 2011, he projected tough times in the coming financial year weighed down by drought, inflationary pressures and election fever that is on the radar.

"Because of what is happening to oil and food prices, the domestic economy is likely to maintain a positive growth rate, but at a decelerated rate of between 3.5 and 4.5 per cent," Oparanya told a gathering of senior Government officials, members of the business community and the civil society groups in Nairobi yesterday.

The global economy is also expected to continue on a recovery path, but at a slower GDP growth of 4.2 per cent compared to 4.6 per cent last year.

Oparanya, who was accompanied by Finance Assistant Minister Dr Oburu Odinga, proposed a series of stringent interventions to help avert the looming economic slump by calling upon the Government to urgently maintain recent reduction in taxes on diesel and kerosene and removal of tariffs on imported grain for a limited time. In addition, he called for improved business environment, control of the population growth, currently at 2.9 per cent per annum, and fast-tracking of the implementation of the new Constitution by prioritising critical Constitutional Bills, which are still pending before Parliament.

The minister also petitioned the Government to actualise the eight million Strategic Grain Reserves, strengthen policies on youth employment and the Medium-Sized Enterprise (MSE) sector, step up infrastructure development, increase funding for research and development and speed up reforms in the railway sector and at Mombasa Port.

Drought, rising inflation, soaring fuel prices, a weakening shilling and civil unrest in North Africa and the Middle East, he said, have sparked the fears over this year’s economic outlook. Analysts, investment bankers, fund managers and international development partners have all downgraded the country’s growth forecast for this year. According to the 2011 Economic Survey, the document which often shows the overall performance of the country’s economic performance in a particular year, electricity and water supply registered the most significant growth at 9.9 per cent in 2010 while mining, quarrying and financial intermediation were ranked second and third, with growth rates of 9.8 and 8.8 per cent.

Key sectors of the economy also performed well with agriculture and forestry posting a significant growth of 6.3 per cent in 2010 after two consecutive declines of 4.1 per cent and 2.6 per cent in 2008 and 2009.

KEY SECTORS

DRIVING THE ECONOMY IN 2010

Sector 2009 2010

Financial intermediation 4.6% 8.8%

Agriculture and Forestry -2.6% 6.3%

Transport and

Communication 4% 6.9%

Manufacturing 1.3% 4.4%

Wholesale and Retail Trade 3.9% 7.8%

Building and Construction 12.4% 4.5%