Weather, security woes choke economic growth prospects

World Bank Senior Economist John Randa making a presentation during the launch of Kenya Economic Update Report at the Intercontinental Hotel in Nairobi on June 26, 2014. SALATON NJAU (NAIROBI)  

In Summary

• According to the World Bank, late 2013 drought cost the economy at least Sh23 billion. Inadequate rainfall in 2014 could further harm economic stability as electricity and food prices shoot up.

By MUTHOKI MUMO
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The World Bank is projecting a flat growth for Kenya in 2014 and 2015 in the face of weather and security shocks.

The global lender estimates that economic growth for the next two years will stagnate at 4.7 per cent. This is contained in the bank’s Kenya Economic Update released yesterday,

 

At that rate the growth level will be the same as 2013. The World Bank has shaved 50 basis points from earlier predictions of 2014 economic growth.
Compared to its neighbours, Kenya is also under-performing. It had the second slowest average growth between 2003 and 2013 in the East African Community after Burundi.

“As much as Kenya’s growth is robust, compared to our regional peers we are not doing very well. If you look at the potential, Kenya can grow much faster,” said Mr John Randa, the bank’s country economist for Kenya. The institution estimates that in the first quarter of 2014, growth fell sharply to 2.7 per cent in comparison to the 5.7 per cent during a similar period in 2013.

This outlook contradicts a far rosier image painted by figures released by the National Treasury as well as market signals from the 500 per cent oversubscription of Kenya’s debut Eurobond.

In his 2014/2015 Budget speech earlier this month, National Treasury Cabinet Secretary Henry Rotich, projected that Kenya’s economy would grow by 5.8 per cent and 6.4 per cent in 2014 and 2015. Key to the projection were major infrastructure projects by the government.

According to the World Bank, late 2013 drought cost the economy at least Sh23 billion. Inadequate rainfall in 2014 could further harm economic stability as electricity and food prices shoot up.

“The Central Bank’s response to higher inflation will determine the impact of the drought on growth.

A sharp increase in the Central Bank rate to double digits would choke growth; a modest increase would have only minimal effect on growth,” reads the report.

Security concerns have already eroded performance in tourism and this might deter investors in the long term.

The World Bank and the National Treasury agree that Kenya’s economic growth will hinge on the implementation of the budget.

However, there are questions about its ability to deliver on large infrastructure projects given trends of low absorption of development funds.

“Improved data quality can alter our perceptions of the region dramatically,” said Standard Chartered head of Africa research Razia Khan.

The bank is launching tools for better data collection in Kenya, Nigeria and Ghana. The indicators are expected to “shed light on the business, investment and economic outlook” of these markets.