Country Report Kenya February 2009

Summary

Kenya’s broad-based coalition government between the president, Mwai Kibaki, and his main rival, the prime minister, Raila Odinga, is likely to remain intact, although it will be vulnerable to in-fighting and competition for influence.
The unity government will focus increasingly on reforms to improve the business climate and investment in infrastructure. However, political feuding may hamper policy implementation, and corruption will remain a challenge.
After slowing sharply in 2008, GDP growth will weaken further in 2009, to 1.8%, owing to weak commodity prices and the global recession. Growth is expected to reach 2.7% in 2010 as the global economy improves.
Inflation is expected to subside from a high 26.2% in 2008 to 11.7% in 2009 and 6.5% in 2010, assuming no new oil- or food-price shocks and the maintenance of political normality.
The current-account deficit is expected to fall from 5.4% of GDP in 2008 to 5.1% of GDP in 2009, owing to lower imports. A recovery in exports and other capital inflows will help to cut the deficit to 4.4% of GDP in 2010.

The executive and the legislature are deadlocked over the formation of a Special Tribunal to prosecute post-election violence. The bill has failed to get through parliament as an insufficient number of MPs were in attendance.
Mr Kibaki reshuffled his cabinet, bringing back Amos Kimunya, a key ally, to the trade ministry, and handing the finance portfolio to Uhuru Kenyatta.
The Central Bank of Kenya (CBK) held the policy interest rate steady in January at 8.5%, but inflation remains high and real interest rates are negative.
The Treasury has launched an infrastructure bond to fund the development of a number of projects.
Amendments to the banking act require an increase in commercial banks’ minimum capital requirements to KSh1bn within four years.
Credit ratings agency Fitch revised Kenya’s outlook from “negative” to “stable” in January, reversing a downward adjustment made a year ago.
The shilling remains steady at near the KSh79:US$1 mark, but declining foreign reserves and persistent inflation point to further depreciation.
Public debt (domestic and foreign) remains relatively stable and, according to the CBK, continues to decline as a proportion of GDP.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52