Kenya Business Forecast Report Q1 2009

Facing The Fallout In 2009

Kenya faces a difficult time over the coming quarters, with the ramifications of the global financial crisis of late 2008 set to feed through. Although the nation has suffered relatively mildly in the midst of the crisis, thanks to the low exposure of the banking sector to US sub-prime mortgages, the effects will certainly be felt over the longer term. In particular, the onset of a recession in many developed states including the US and UK augurs for subdued tourism inflows for Kenya and falling prices for key commodity exports such as tea and horticulture. At the same time, the global shortage of capital will prevail over the coming year at least, meaning lower investment inflows and subdued private consumption. Against this backdrop, the growing trend for regional integration among the East African Community is especially promising, potentially providing a timely boost to growth.

We believe political risk has diminished somewhat in recent months. While low-level infighting will continue to blight the coalition government, we are cautiously optimistic that it will remain in place until the 2012 elections. In our view, there is a strong degree of mutual interest in keeping the coalition together, given the considerable number of people who directly or indirectly benefit from its continuation. Reform momentum seems to have been broadly sustained, as exemplified by the governments push to modernise the strategic port of Mombasa. An impending overhaul of the electoral commission is good news, and should help boost political stability and investor confidence.

Kenya in 2009 is set to see real GDP growth of 5.0% as it bounces back from the 3.7% estimated for 2008. Although an improvement on the annus horribilis of 2008, this will hardly be a stellar rate of growth, considering the 7.0% witnessed as recently as 2007. We believe that a combination of subdued demand for exports, high inflation, reduced capital inflows and waning remittances will weigh on economic expansion over the year, and indeed, over the coming years. Emerging market risk aversion is likely to weigh on appetite for the US$500mn sovereign bond issue, if it goes ahead as planned in H109. This quarter, we provide our outlook on the banking sector. Although we see scope for an increase in non-performing loans amid current macroeconomic headwinds, our outlook is relatively upbeat for the medium to long term.

Kenya has moved up in the World Economic Forums annual Global Competitiveness Report, underscoring its positive momentum for business-friendly reforms. In the 2008/2009 report, Kenya was ranked 93rd out of 131 countries in terms of its economic competitiveness - which is fairly low globally, but represents a move up by six places, compared with the previous year. The relative calming of political risk over 2008, in the aftermath of January-February 2008 election-related unrest, should help to undo the damage done to Kenyas reputation as a safe and friendly place to do business.

• Executive Summary
• Facing The Fallout In 2009
• Chapter 1: Political Outlook
  • SWOT Analysis
  • BMI Political Risk Ratings
  • Domestic Politics
  • Coalition: Surprising On The Upside
  • While low-level infighting will continue to blight Kenyas coalition government, we are cautiously optimistic that it will hold together until the 2012 elections.
  • Regional Politics
  • Africom Launched Despite Frosty Reception
  • The fact that the new unified United States military command for Africa has failed to establish headquarters in
  • Africa, is emblematic of the scepticism surrounding its aims.
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Economic Activity
  • Growth of 5.0% Following Financial Crisis
  • Kenya looks set to suffer weaker exports, waning remittances and reduced capital inflows following the global financial crisis. We are forecasting real GDP growth of 5.0% in 2009.
  • Balance Of Payments
  • Precarious Current Account Position Ahead
  • Kenyas current account is set to remain under pressure over the medium term owing to slowing global growth, which will likely impact on export values and tourism receipts - although a reduced oil import bill should provide some respite.
  • External Debt
  • Manifold Headwinds For Sovereign Issue
  • We believe EM risk aversion is likely to weigh on appetite for Kenyas planned US$500mn sovereign bond issue, if it goes ahead as planned in H109.
  • Banking Sector
  • Banking Sector To Survive Ongoing Headwinds
  • Kenyas banking sector is set to suffer somewhat amid current macroeconomic headwinds, and we see scope for an increase in non-performing loans.
• Chapter 3: 10-Year Forecast
  • The Kenya Economy To 2018
  • Robust Growth Trajectory Over 2009-2018
  • We are fairly upbeat on Kenyas growth prospects over 2009-2018, forecasting annual real GDP growth of 4.2% by 2013 and 3.3% by 2018.
• Chapter 4: Special Report
  • Why The US Can Remain World Superpower
  • Wealth Is Shifting East...
  • The USs current financial woes will not necessarily undermine its position as a global superpower.
• Chapter 5: Business Environment
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Business Environment Outlook
  • Institutions
  • Infrastructure
  • Market Orientation
  • Operational Risk
• Chapter 6: BMI Global Assumptions
  • Global
  • United States
  • Eurozone
  • Japan
  • China
  • Commodities
• Tables
  • Table: Armenia Political Overview
  • Table: Economic Activity
  • Table: Balance Of Payments
  • Table: Foreign Debt
  • Table: Kenya Long-Term Macroeconomic Forecasts
  • Table: Geopolitical Power Index
  • Table: Bmi Business And Operational Risk Ratings
  • Table: Bmi Legal Framework Ratings
  • Table: Middle East & Africa Annual Fdi Inflows
  • Table: Bmi Trade Ratings
  • Table: Top Export Destinations
  • Table: Global Assumptions