Election jitters to slow down Kenya’s growth - World Bank

 

The high cost of living forces the poor go without basic necessities. Photo/FILE 

By CORRESPONDENT The EastAfrican

In Summary

• The bank estimates Kenya’s economy will grow at five per cent next year, if it has a peaceful General Election, well behind the predicted growth rate for the East African Community of 6.1 per cent.
• The global lender further says that for Kenya to boost its growth rate, it needs to bridge the deficit between its imports and exports — the biggest in sub Saharan Africa.

The World Bank projects that Kenya’s growth will slow down next year amid growing concerns on whether the elections will be peaceful.

The bank estimates Kenya’s economy will grow at five per cent next year, if it has a peaceful General Election, well behind the predicted growth rate for the East African Community of 6.1 per cent. Should there be violence, the Bank warns, the country’s growth would drop to between three and four per cent.

“If violence accompanies the 2013 elections, Kenya’s image as a maturing democracy would be tarnished for a long time. Investors and tourists may take their business to other African countries instead of Kenya,” says World Bank in a report titled Kenya at work.

Since 2008, Kenya’s average growth rate has been 4 per cent, lower than Uganda, Tanzania, and Rwanda’s average of 6.8 per cent. A successful March 2013 election followed by a smooth transfer of power could see the country register better growth.

In 2008, Kenya recorded growth of only 1.5 per cent compared with 7.1 per cent the previous year, on account of the violence that followed the country’s disputed election in 2007. It is this threat that already has business players concerned.

“Among the Kenyan business community, there is serious concern about what is happening in the country,” Vimal Shah, the chairman of the Kenya Association of Manufacturers, said.

According to Patrick Obath, the chair of the Kenya Private Sector Alliance, the country’s image as a business destination of choice is being hurt internationally, so much so that it might delay foreign direct investment in the country.

“Kenya is a very stable country but due to these security challenges we are, in the short term, bound to see investments delayed,” Mr Obath said.

The World Bank says that the country’s capacity to mitigate political and economic shocks is the most important determinant of its bid to achieve sustained high growth for the remainder of the decade. Through Vision 2030, Kenya aims to achieve an ambitious 10 per cent annual growth rate.

But addressing security is becoming a headache for the government, especially as the country’s decision to pursue Al Shabaab into Somalia has made it a target for terrorists.

Police Commissioner Mathew Iteere said Kenya has witnessed a total of 58 grenade attacks carried out by suspected Al Shabaab sympathisers this year, which caused the deaths of 67 people and injured a further 308.

The attacks have already prompted travel advisories from nations such as the United Kingdom and the United States.

“The continuing episodes of disorder are hurting sectors like tourism directly, as visitors are keeping away. But it is also having an impact on retail trade, as we have seen in many towns,” he added.

The World Bank notes that despite Kenya’s huge potential and its estimated average per capita income of $800, which is higher than that of Tanzania, Uganda and Rwanda, Kenya is still playing catch up in Africa’s development due to mistakes of yester years.

“Despite Kenya’s good location, strong human resources and a vibrant private sector, its level of income is only half of Africa’s average,” reads the report.
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The global lender further says that for Kenya to boost its growth rate, it needs to bridge the deficit between its imports and exports — the biggest in sub Saharan Africa.

“Compared with other countries in SSA, as well as emerging and newly industrialised economies, Kenya’s current account is significantly out of balance and needs urgent attention,” reads the World Bank report.

The country has in the past relied on inflows from the service sector to mitigate the unfavourable balance of payment but with election jitters and insecurity keeping tourists and capital investors out, the country remains vulnerable.