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Kenya Country Risk Report Q4 2016

  • July 2016
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

Political instability will weigh on growth over the coming quarters,causing real GDP growth to dip below 6.0% in 2017 as levels oftourism and inward investment see mild decline. However, a morestable shilling and low inflation will boost production incentivesamongst businesses as input costs are controlled in a climate ofrobust demand.The general election scheduled for August 2017 will see the reductionin Kenya’s fiscal deficit stall over the coming quarters, as the governmentlooks to increase recurrent expenditure in an effort to buy votesand security. However, this will not deter from a general trend of fiscalconsolidation over our longer-term outlook as the government peelsback large-scale infrastructure spending.Kenya’s balance of payments will remain in good health over 2016 and2017, as robust inward flows of foreign investment offer a sustainablemeans of financing the country’s large trade deficit. While political riskwill weigh on tourist revenues in the build up to the 2017 presidentialelection, strong central bank reserves mean this will not be sufficientto derail the country’s external account dynamics.The Central Bank of Kenya will cut rates by another 50 basis points in2016, taking advantage of subdued inflationary pressures to continueto monetary easing cycle begun in May. Rising food and fuel prices,coupled with increased government spending ahead of the 2017presidential election will bolster price growth and instigate the startof a tightening cycle in H217.Electoral violence will continue to feature in Kenya’s political outlookover the next 12 months, as the opposition look to stir public protestagainst the corruption and failings of the Kenyatta government viameans other than the ballot box. Economic growth will suffer asthe vital tourism industry contracts in response to further outbreaksof violence.

Table Of Contents

Kenya Country Risk Report Q4 2016
Executive Summary. 5
Core Views5
Key Risk.5
Chapter 1: Economic Outlook 7
SWOT Analysis.. 7
BMI Economic Risk Index 7
Economic Growth Outlook. 8
Strong Growth Will Be Sustained Despite Political Headwinds.8
Political instability will weigh on growth over the coming quarters, causing real GDP growth to dip below 6.0% in 2017 as levels of
tourism and inward investment see mild decline. However, a more stable shilling and low inflation will boost production incentives
amongst businesses as input costs are controlled in a climate of robust demand.
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS.9
TABLE: PRIVATE CONSUMPTION FORECASTS..10
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS.10
TABLE: NET EXPORTS FORECASTS..10
Fiscal Policy And Public Debt Outlook 11
Fiscal Deficit Will Increase As Election Approaches..11
The general election scheduled for August 2017 will see the reduction in Kenya's fiscal deficit stall over the coming quarters, as the
government looks to increase recurrent expenditure in an effort to buy votes and security. However, this will not deter from a general
trend of fiscal consolidation over our longer-term outlook as the government peels back large-scale infrastructure spending.
Structural Fiscal Position. 12
TABLE: MAIN REVENUE and EXPENDITURE CATEGORIES.12
TABLE: FISCAL AND PUBLIC DEBT FORECASTS..13
External Trade And Investment Outlook. 14
Foreign Investment Will Sustain Strong BoP Dynamics..14
Kenya's balance of payments will remain in good health over 2016 and 2017, as robust inward flows of foreign investment offer a
sustainable means of financing the country's large trade deficit. While political risk will weigh on tourist revenues in the build up to
the 2017 presidential election, strong central bank reserves mean this will not be sufficient to derail the country's external account
dynamics.
Outlook On External Position. 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE..15
TABLE: TOP 5 GOODS IMPORTS..16
TABLE: TOP 5 GOODS EXPORTS.16
TABLE: CURRENT ACCOUNT BALANCE FORECASTS17
Monetary Policy.. 18
Limited Room For Further Easing..18
The Central Bank of Kenya will cut rates by another 50 basis points in 2016, taking advantage of subdued inflationary pressures to
continue to monetary easing cycle begun in May. Rising food and fuel prices, coupled with increased government spending ahead of the
2017 presidential election will bolster price growth and instigate the start of a tightening cycle in H217.
Monetary Policy Framework 19
TABLE: MONETARY POLICY FORECASTS.19
Chapter 2: 10-Year Forecast. 21
The Kenyan Economy To 2025. 21
Improving Infrastructure And Strengthening Services Will Drive Steady Growth21
The Kenyan economy will expand robustly in the coming decade, driven by infrastructure investment and a strengthening services
sector. A growing and increasingly well-connected population will ensure Kenya remains among Sub-Saharan Africa's most dynamic
and innovative economies.
TABLE: LONG-TERM MACROECONOMIC FORECASTS 21
Chapter 3: Political Outlook. 25
SWOT Analysis 25
BMI Political Risk Index. 25
Domestic Politics.. 26
Continued Protests Will Weigh On Economy As Tourism Wanes..26
Electoral violence will continue to feature in Kenya's political outlook over the next 12 months, as the opposition look to stir public protest
against the corruption and failings of the Kenyatta government via means other than the ballot box. Economic growth will suffer as the
vital tourism industry contracts in response to further outbreaks of violence.
TABLE: POLITICAL OVERVIEW..26
Long-Term Political Outlook.. 27
Long-Term Political Outlook - Ethnic Polarisation Remains Key Challenge27
The politicisation 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 4: Operational Risk. 29
SWOT Analysis 29
Operational Risk Index.. 29
Operational Risk. 30
TABLE: OPERATIONAL RISK30
Market Size And Utilities 31
TABLE: SUB-SAHARAN AFRICA-MARKET SIZE AND UTILITIES RISK..32
Labour Costs 35
TABLE: REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE37
Chapter 5: BMI Global Macro Outlook 39
Global Macro Outlook. 39
Brexit Risk Casts A Long Shadow..39
TABLE: GLOBAL ASSUMPTIONS..39
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %40
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %..41
TABLE: MACROECONOMIC DATA and FORECASTS.43

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