Economy expands by 25pc placing Kenya in the club of Africa’s top 10

Money Markets

Treasury secretary Henry Rotich (left) and his Planning counterpart, Anne Waiguru, during the launch of the revised national accounts at KICC September 30, 2014. PHOTO | SALATON NJAU |  NATION MEDIA GROUP

By DAVID HERBLING, hdavid@ke.nationmedia.com

In Summary

• Fresh national statistics unveiled Tuesday show that Kenya’s gross domestic product (GDP) was last year underestimated by a quarter.
• The higher GDP figures, according to analysts, will make Kenya an attractive investment destination.
• The rebasing involved changing the base year used in working out GDP from 2001 to 2009 and reclassifying economic sectors for greater data accuracy.

Kenya has climbed up the wealth rankings to become Africa’s ninth-largest economy following a review of national output figures that also saw the country join the world’s league of middle-income nations.

Fresh national statistics unveiled Tuesday show that Kenya’s gross domestic product (GDP) was last year underestimated by a quarter.

But the latest update of national accounts, technically known as rebasing, has put the GDP figure for 2013 at Sh4.75 trillion ($53.2 billion), some 25 per cent higher than the earlier estimate of Sh3.8 trillion.

READ: Size of Kenya's economy revised upwards by 25 per cent

The rebasing involved changing the base year used in working out GDP from 2001 to 2009 and reclassifying economic sectors for greater data accuracy.

This has helped Kenya go up four places on comparative GDP tables to overtake countries such as Ethiopia, Tunisia and Ghana and claim position nine from the previous rank of 12th in Africa. The country also jumped about ten spots globally from position 87, overtaking nations such as Guatemala, Bulgaria, Costa Rica and Lebanon.

“We are now the ninth-largest economy in Africa,” said Zachary Mwangi, acting director-general of the Kenya National Bureau of Statistics (KNBS). “We were previously number 13 (sic) in the continent.”

Nigeria, which also rebased its GDP in April, overtook South Africa to be the continent’s largest economy, while Egypt is placed third. Algeria is ranked fourth followed by oil-rich Angola, Morocco, Libya and Sudan.

Kenya has, since independence, been classified as a low-income economy in the ranks of peers such as Somalia, Central African Republic, Haiti and Bangladesh.

The new rankings, incorporating Kenya’s revised figures, place Tanzania’s economy at position 13 in size, Uganda (18th), Rwanda (34th) and Burundi as having the region’s tiniest GDP ranked at number 43 in Africa. 

Tanzania is expected to complete its own rebasing this year and see its GDP ($32 billion) restated as about 20 per cent larger once the mining and natural gas sectors are properly accounted for. Its ranking is not expected to change.

Kenya’s GDP per capita has now risen to Sh116,037 ($1,246), surpassing the $1,045 threshold set by the World Bank for a country to join the lower middle-income bracket.

The Washington-based global lender groups countries in four classes: low income for those with GDP per capita of $1,045 or less, lower middle income from $1,045 to $4,125, upper middle income at between $4,126 to $12,745 and high income economies at $12,746 or more.

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Devolution and Planning secretary Anne Waiguru said the higher GDP per capita does not mean Kenya has attained the Vision 2030 goals ahead of time, noting that there remains the challenge of equitable access and sharing of resources.

“We are on the lower end of the middle income band. Wealth is also not equitably spread in Kenya,” said Ms Waiguru.

Treasury secretary Henry Rotich said that accurate GDP figures provide necessary information for government planning and shows the private sector where to put their investments.

The higher GDP figures, according to analysts, will make Kenya an attractive investment destination given that global firms prefer to set up in large economies that offer more opportunities. This is set to cement Nairobi’s position as the regional hub for businesses. 

“The increase in GDP will be broadly positive for perceptions of the Kenyan economy,” said John Ngumi, director of investment banking at CfC Stanbic Bank. He added that the revised GDP will give Kenya more headroom to chalk up debt and reduce the government’s current account deficit.

READ: KISERO: Let’s use rebased GDP figures to plan well

“It will make the twin deficits — current account and fiscal deficit to GDP — ratios look much better on a comparative basis, as it will for the debt to GDP ratio,” Mr Ngumi said.

Kenya’s total public debt hit Sh2.3 trillion as at June, which is equivalent to 57 per cent of the previous GDP. This ratio will now drop to 49.8 per cent, according to calculations by the Business Daily.

The World Bank said the updated statistics are expected to give a clearer picture of the Kenyan economy and raise the country’s debt profile.

“Improvements in data quality, accessibility and dissemination standards have been linked to better governance, higher levels of private investment and reduced borrowing costs in international capital markets,” said Johan Mistiaen, a senior economist/statistician at the World Bank.

However, Razia Khan, Standard Chartered’s regional research head for Africa, said Kenya should not expect the cost of borrowing to go down soon.

“Ratings agencies have anticipated the rebasing. The impact on Kenya’s sovereign rating is likely to be limited,” said Ms Khan.

This is the sixth time that Kenya is rebasing and reviewing its domestic accounts, the last one having been done in 2005. The first update was carried out in colonial Kenya in 1947.