Kenya Business Projection Industry Update Quarter 2 2012

  • January 2014
  • -
  • Business Monitor International
  • -
  • 39 pages

Although the Kenyan economy faces a great deal of uncertainty in 2012, we projection real Gross Domestic Product growth will register 5.0%, up from an estimated 4.1% in 2011. Improving domestic economic conditions and the robust economic outlooks among regional trade partners underpin this expectation.
Our call for improving domestic economic conditions is based on our belief that, thanks to tight monetary policy, inflation will head lower over the course of 2012 and the Kenyan shilling will not experience weakness as it did in 2011. One downside of tight monetary policy is that the cost of borrowing will be high for both the private and public segments, especially in the first half of the year.
While the High Court's ruling that elections will take place in March 2013, rather than August 2012, provides clarity on the timing of the vote, we note that there is still a great deal of uncertainty surrounding the election. It is unclear whether two prominent politicians will be eligible to run because of ongoing proceedings at the International Criminal Court in The Hague. There is also likely to be a great deal of horse-trading, with alliances likely to be made and broken in the run-up to the election.

Major Projection Changes
No

Major Projection Changes.

Key Risk To Outlook
The weather poses risks to our views on growth, inflation, the currency and the balance of payments position. Another season of inadequate rain would undoubtedly have negative ramifications for all of these.
Another major risk stems from elections. Although by no means our core scenario, we cannot rule out the possibility of a repeat of the unrest which followed the last poll in 2007.
Our core scenario for Kenyan growth assumes a mild recession in Europe. If the situation ends up being far worse (eg, a breakup of the eurozone), Kenya would be negatively affected through its trade and financial links – not only to Europe but also to the rest of the world.

Table Of Contents

Executive Summary 5
Core Views
Major Projection Changes
Key Risks To Outlook.5
Chapter 1: Political Outlook. 7
Industry SWOT Analysis . 7
BMI Political Risk Ratings. 7
Domestic Politics. 8
Vote Delayed To 2013; Uncertainties Persist.8
Kenya's High Court has ruled that elections will take place in March 2013 instead of August 2012 unless the coalition government
collapses before then. Although the ruling gives more clarity about when the vote will happen, the latter point means the proponents of
the August date still have a chance of engineering an earlier vote.
TABLE: Political Overview8
Long-Term Political Outlook. 9
Elections Loom Large.9
Kenya faces many obstacles on the road towards a mature post-ethnic democracy, as evidenced by the violence following the disputed
2007 election. Domestic developments in the run-up to the 2013 elections will continue to dominate the agenda at the expense of
regional and international issues, and will be fundamental to setting the country's future direction.
Chapter 2: Economic Outlook 13
Industry SWOT Analysis . 13
BMI Economic Risk Ratings 13
Economic Activity 14
Economy To Remain Resilient Amid The Risks.14
Although the Kenyan economy faces a great deal of uncertainty in 2012, we projection that growth will be higher at 5.0%, compared
with an estimated 4.1% in 2011. Improving domestic economic conditions and the robustness of regional trade partners underpin this
expectation. The most salient threat to our outlook comes from the weather, although elections and a worse-than-expected fallout from
the eurozone debt crisis also present risks.
TABLE: ECONOMIC ACTIVITY14
Balance Of Payments 16
Current Account Deficit To Widen Further In 201216
Kenya's current account deficit ballooned to an estimated USD 3.8bn (10.0% of Gross Domestic Product ) in 2011 from USD 2.5bn (7.8%) a year earlier. We
believe that a combination of subdued demand from Europe (an important export partner) and strong demand for consumer imports will
see the shortfall grow further to USD 3.9bn (8.5% of Gross Domestic Product ). However, we believe that the growing attraction of Kenyan financial assets,
combined with increased multilateral support, will forestall a balance of payments crisis. The major risk to this view comes from political
risk.
TABLE: CURRENT ACCOUNT.17
Monetary Policy 18
Hiking Cycle At End, Easing To Begin Mid-Year18
The Central Bank of Kenya's decision to hold rates at 18.00% on January 11 reinforces our view that the rate-hiking cycle is at an
end. We believe that the authorities will begin reducing rates around the middle of 2012 and that 150 basis points worth of cuts will be
enacted by the end of the year. A weakening currency or stubbornly high inflation pose the biggest risks to this view and would likely see
authorities hold rates for longer.
TABLE: MONETARY POLICY19
Fiscal Policy 20
Revenue And Borrowing Shortfalls To Impact Capital Expenditure20
A combination of higher debt service costs, elevated inflation, tight domestic liquidity and sticky spending commitments will put pressure
on Kenya's fiscal accounts in 2012. Although we believe these issues will lead to a widening of the fiscal deficit, we expect lower
government spending will see the shortfall come in below the government's expectations. Our projection for the 2011/12 fiscal year
budget deficit is KES204.3bn (US$2.3bn), lower than the government's estimate of KES238.1bn (US$2.6bn).
TABLE: FISCAL POLICY20
Business Monitor International Ltd www.businessmonitor.com 3
Contents
Chapter 3: 10-Year Projection . 23
The Kenyan Economy To 2021. 23
Robust Growth Trajectory23
Although Kenya has undoubtedly suffered in the aftermath of the global financial crisis, a severe drought and political instability,
we remain fairly upbeat on the nation's long-term growth prospects and projection annual average real Gross Domestic Product growth of 5.1% over
2012-2021. Key supporting factors will be its broad-based economy, youthful population and strategic location in the East African
Community.
TABLE: LONG-TERM MACROECONOMIC FORECASTS23
Chapter 4: Business Environment. 25
Industry SWOT Analysis . 25
BMI Business Environment Risk Ratings 25

Environment Overview Outlook 26
Institutions . 26
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS.26
TABLE: BMI LEGAL FRAMEWORK RATING27
TABLE: LABOUR FORCE QUALITY28
Infrastructure . 29
Market Orientation . 30
TABLE: MIDDLE EAST and AFRICA, ANNUAL FDI INFLOWS.30
TABLE: TRADE AND INVESTMENT RATINGS.31
TABLE: TOP EXPORT DESTINATIONS32
Operational Risk 33
Chapter 5: Key Segments . 35
Food and Drink 35
TABLE: FOOD CONSUMPTION INDICATORS - HISTORICAL DATA and FORECASTS. 37
TABLE: MASS GROCERY RETAIL INDICATORS - HISTORICAL DATA and FORECASTS. 38
Chapter 6: BMI World Assumptions. 39
World Outlook 39
Growth Prospects Dim As 2012 Begins39
TABLE: GLOBAL ASSUMPTIONS.39
TABLE: DEVELOPED STATES REAL Gross Domestic Product GROWTH FORECAST40
TABLE: REAL Gross Domestic Product GROWTH CONSENSUS FORECASTS40
TABLE: EMERGING MARKETS REAL Gross Domestic Product GROWTH FORECAST.

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