Country Report Kenya October 2009

Outlook for 2010-11

• Kenya's coalition government between the president, Mwai Kibaki, and his main rival, the prime minister, Raila Odinga, is likely to remain intact but will continue to face serious strains because of in-fighting and competition.
• Economic policymaking will remain challenging in the aftermath of the global recession. The government will provide fiscal and monetary stimuli, and push ahead with reforms, but feuding may hamper implementation.
• Real GDP growth, after stagnating at 1.8% in 2009 owing to drought and global recession, is expected to rebound to 2.9% in 2010, helped by global recovery, before accelerating to 5.2% in 2011 as conditions improve.
• Inflation is expected to slide from an estimated 20.5% in 2009 to 6.5% in 2010 and 5.5% in 2011—assuming no new exogenous shocks—helped by the introduction a new, re-weighted consumer price index.
• The current-account deficit is expected to fall from 4.8% of GDP in 2009 to 2.6% of GDP in 2010, helped by stronger inflows, before rising to 3.2% of GDP in 2011 as imports regain momentum.

Monthly review

• Kofi Annan, Kenya's chief external mediator, called for faster reforms before a "window of opportunity" closes. The International Criminal Court is moving closer to laying charges against the key instigators of post-election violence.
• The Central Bank of Kenya has introduced revamped Treasury-bill auctions in October by introducing "cut-off" rates to make the bidding process more transparent and predictable.
• Doing business is easier in some Kenyan locations than others, according to a new World Bank report into local-level regulations. Narok and Malaba score the best out of 11 centres, and Nairobi and Isiolo score the worst.
• The economy remained sluggish in the second quarter of 2009, growing by 2.1%, held back by a 2.7% contraction in the key agricultural sector because of drought. Manufacturing fell by 0.7%, the first decline since 2002.
• The market for corporate bonds remains buoyant. Investors oversubscribed KenGen's KSh15bn (US$200m) offering in September and Safaricom launched a first, KSh5bn, phase of a KSh12bn, five-year bond in October.
• Foreign direct investment (FDI) dipped sharply to US$96m in 2008, according to UNCTAD, as relatively few deals were concluded after a buoyant 2007.
• Prospects for FDI in 2009 are poor, although two deals, by South African and US investors, totalling about US$65m, were recently agreed in the telecoms sector.