Country Report Kenya September 2008

Outlook for 2008-09

• Kenya's new broad-based coalition government is now in place, with Mwai Kibaki as president and his main rival, Raila Odinga, as prime minister, but a new bout of in-fighting cannot be discounted.
• The new government will refocus on structural reforms, including privatisation and deregulation. However, political feuding could hamper policy implementation, and corruption will remain a challenge.
• Real GDP growth is expected to subside to 4.1% in 2008, owing to post-election disruption in the early part of the year and a sharp fall in tourism, before rebounding slightly to 4.5% in 2009.
• Inflation is expected to soar to 25.1% in 2008 owing to the sustained rise in food and energy prices, but will subside to 7% in 2009 assuming no new oil- or food-price shocks and the maintenance of political normality.
• The current-account deficit is forecast to widen to 5.3% of GDP in 2008, owing to disruption to trade and a sharp fall in tourism receipts, before easing to 4.5% of GDP in 2009.

Monthly review

• Mr Kibaki's Party of National Unity (PNU) is being restructured to allow for individual membership and grassroots elections, but the process is causing tension among some member parties that fear losing their distinct identity.
• The Central Bank of Kenya's Monetary Policy Committee held the Central Bank Rate at 9% in August, while the key 91-day Treasury-bill rate retreated as liquidity tightness caused by the Safaricom flotation dissipated.
• The National Bank of Kenya is the next privatisation target. A strategic investor will be offered a 25% share, followed by a flotation of 40% on the stock exchange. However, opposition from the NSSF could cause delay.
• The government has given manufacturers and importers until March 1st 2009 to comply with new certification requirements being administered by the Kenya Bureau of Standards in the interests of consumer protection.
• Inflation climbed to 27.6% year on year in August, spurred by a rise in electricity tariffs. Underlying inflation rose to 8.2% year on year, confronting the authorities with the prospect of negative real rates.
• Rift Valley Railways, the private railway operator, has restructured ownership and management in an attempt to keep their concession, after failing to meet conditions.

Source: Country Report