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Kenya Business Forecast Report Q1 2015

  • October 2014
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views
The assassination of al-Shabaab leader Ahmed Abdi Godane will weaken the militant group but not eliminate the threat that it poses to Somalia, Kenya and the wider region.
The politicization of sharp ethnic divisions remains the key threat to Kenya’s long-term political stability. Terrorism linked to Kenya’s military involvement in Somalia is likely to remain a risk, but it does not pose a systemic threat to political stability. Economic growth in Kenya fell far below expectations in 2014, but the country’s gradual economic recovery will pick up steam in 2015 and 2016. Real GDP growth will average 6.4% between 2015 and 2018.

Updated GDP figures have not led us to significantly revise our 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 to 4.5% 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%. Weak export growth and the implosion of the tourism sector will keep Kenya’s current account deficit wide in 2014 and 2015. Lower oil prices will cause the shortfall to narrow slightly between 2016 and 2018.

Real GDP growth in Kenya will gradually accelerate over the coming next 10 years, averaging 6.5% between 2015 and 2023. Kenya’s economy is relatively diversified, and growth will be broad-based and comparatively sustainable.

Major Forecast Changes
The release of rebased GDP figures has let to substantial revisions to our estimates of Kenya’s current account and fiscal deficits when presented as a fraction of GDP. Our general view on economic growth and the development of the Kenyan economy remains largely unchanged.

Table Of Contents

Kenya Business Forecast Report Q1 2015
Executive Summary 5
Core Views..5
Major Forecast Changes.5
Chapter 1: Political Outlook 7
SWOT Analysis. 7
BMI Political Risk Index.. 7
Domestic Politics .. 8
Godane's Death Does Not Remove al-Shabaab Threat8
The assassination of al-Shabaab leader Ahmed Abdi Godane will weaken the militant group but not eliminate the threat that it poses to
Somalia, Kenya and the wider region.
Table: Political Overview8
Long-Term Political Outlook. 10
Ethnic Polarisation Remains Key Challenge..10
The politicization of sharp ethnic divisions remains the key threat to Kenya's long-term political stability. Although the 2013 elections
were peaceful, voting patterns show that the electorate continues to cast ballots according to ethnicity. Terrorism linked to Kenya's
military involvement in Somalia is likely to remain a risk, but it does not pose a systemic threat to political stability.
Chapter 2: Economic Outlook. 13
SWOT Analysis.. 13
BMI Economic Risk Index 13
Economic Activity I. 14
Economy Will Gradually Accelerate.14
Economic growth in Kenya will pick up steam in 2015 and 2016 due to higher investment spending and the recovery of the agricultural
and tourism sectors. Real GDP growth will average 6.4% between 2015 and 2018.
Table: GDP By Expenditure14
Economic Activity II .. 16
Latest GDP Figures Leave Key Forecasts Unchanged..16
Updated GDP figures have not led us to significantly revise our outlook for the Kenyan economy. Achieving 'middle income status' may
increase investor interest in the country over the longer term.
Fiscal Policy 18
Slow Growth, County Transfers Slow Fiscal Consolidation..18
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 to 4.5% in 2018/19.
Table: Fiscal Policy.18
Monetary Policy 19
Moderate Food, Energy Prices Will Slow Inflation19
An improving food security situation and government cuts to fuel and energy prices will keep Kenyan inflation within the government's
2.5%-7.5% target band for the duration of 2014. While a rate hike remains almost certain, the bank will wait until early 2015 before
increasing interest rates from 8.5% to 9.0%.
Balance Of Payments 21
Current Account Deficit Will Remain Wide In 2015..21
Weak export growth and the implosion of the tourism sector will keep Kenya's current account deficit wide in 2014 and 2015. Lower oil
prices will cause the shortfall to narrow slightly between 2016 and 2018.
Table: Current Account.21
Chapter 3: 10-Year Forecast. 25
The Kenyan Economy To 2023 25
Solid Headline Growth, Rapid Economic Diversification.25
Real GDP growth in Kenya will gradually accelerate over the next 10 years, averaging 6.5 % between 2015 and 2023. While headline
growth will be slower than in many African countries, Kenya's economy is relatively diversified, and growth will be broad-based and
comparatively sustainable.
Table: Long-Term Macroeconomic Forecasts25
Chapter 4: Operational Risk. 29
SWOT Analysis.. 29
Operational Risk Index. 29
Operational Risk .. 30
Transport Network 31
Table: Operational Risk..31
Table: Sub Saharan Africa - Transport Network Risk32
Economic Openness.. 36
Table: Sub-Saharan Africa - Economic Openness Risk.37
Table: Top 5 Trade Partners Product Imports..38
Table: Top 5 Products Exported (USDmn).39
Chapter 5: BMI Global Assumptions.. 41
Global Outlook 41
Big Emerging Market Revisions.41
Table: Global Assumptions.41
Table: Developed States, Real GDP GrowtH, %..42
Table: BMI VERSUS BLOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 42
Table: Emerging Markets, Real GDP Growth, %.43

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