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Looking into the Economic Future for 2015

07 Feb

Economists in Kenya have predicted a mixed outlook in the country’s economic growth and whether the country will achieve higher economic growth rates. With security a major determinant in the country’s economic performance, tourism is the sector worst hit by insecurity. The World Bank lowered Kenya’s economic growth forecast for this year and next after a delay in seasonal rains reduced the outlook for agricultural production and amid worsening insecurity. East Africa’s largest economy will probably expand an annual 4.7 percent in 2014 and 2015, the lender said in a bi-annual economic report handed to reporters today in the capital, Nairobi. The lender in December forecast expansion of 5.1 percent this year and 5.2 percent next year. “The rains arrived late and the security situation has deteriorated, which is hurting the tourism sector and instilling fear in both existing and prospective investors,” the Washington-based bank said. “These developments caused the World Bank to revise its projection downward.”

Tourism, which is the second-biggest foreign-currency earner after tea shipments, has been damaged by a spate of attacks claimed by Islamist al-Shabaab militants, including a raid on a Nairobi mall in September that left at least 67 people dead. Al-Qaeda’s affiliate in Somalia claimed responsibility for attacks in Lamu county at the coast last week that killed at least 60 people, even though President Uhuru Kenyatta blamed “local political networks” for the murders. Foreign governments have issued warnings for their citizens considering traveling to the country amid heightened threats. Tourist arrivals declined to 1.4 million visitors last year from 1.7 million in 2012. This shows a critical need to address the security situation in the country as a matter of extreme importance.

However it is not all gloomy in the long run for the economy. Updated GDP figures have not led us to significantly revise outlook for the Kenyan economy. Achieving ‘middle income status’ may increase investor interest in the country over the longer term.Kenya’s fiscal health is improving, but disappointing real GDP growth and increased transfers to county-level governments will slow fiscal consolidation. The fiscal deficit will narrow from 5.3% in 2014/15 to4.5% in 2018/19.An improving food security situation and government cuts to fuel  and energy prices will keep Kenyan inflation contained. While a rate hike remains almost certain, the bank will wait until early 2015 before increasing interest rates from 8.5% to 9.0%. Chinese multi-national companies are active in Kenya in the sectors of food production, engineering and construction, communication, telecommunications, aviation and motor vehicle manufacturing. Statistics by the Kenya Investment Authority shows that at least 18 Chinese companies established business in Nairobi in the past two years targeting diverse markets such as footwear and electronics..




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