Kenya Business Forecast Report Q3 2008

Publication Date	May 2008
Publisher	Business Monitor
Product Type	Report
Pages	53
ISBN Number	1756-7955
Product Code	BMI02086

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Summary

2008 Blighted By Post-election Unrest Kenya is a regional heavyweight in East Africa, benefiting from the strong macroeconomic growth of recent years and, until recently, relative political stability. The economy has a strong agricultural base as well as a burgeoning manufacturing sector. In recent times, tourism and foreign investment have driven growth forward - although the violent unrest that took place over Q108 in the wake of presidential elections has interrupted what was otherwise a robust trajectory. This quarter, we examine the damage incurred due to heightened political risk and disruption to the economy; we are forecasting a deterioration in 2008 of Kenya's current account balance, fiscal position and overall macroeconomic stability.

In a positive development, a new coalition government was formed on April 13, following significant concession making from both President Mwai Kibaki and erstwhile presidential challenger (now prime minister) Raila Odinga. The swearing in of the new cabinet - which took place on April 17 - was delayed for over a week due to disagreement between Kibaki and Odinga, illustrating the tensions that exist between the two and corroborating BMI's view of slow policy-making going forward. We are concerned that dissent could be fuelled by the Party of National Unity's continued control of the majority of powerful ministries in the putative power-sharing government. Furthermore, the issues that are to be addressed while drafting the new constitution over the coming year are contentious, comprising the redistribution of land, wealth and power.

Kenya's growth prospects for 2008 have been significantly compromised by the unrest and we have revised down our real GDP growth forecast to .1% (from a previous 6.1%). The disruption to trade and decimation of the tourism industry suffered over Q108 will weigh on Kenya's balance of payments position in 2008. With the current account already in deficit, we expect the shortfall to widen on the back of slowing export growth and costly oil imports. Inflation is surging, and is set to head higher over the coming months due to the elevation of oil prices as well as agflation, as supply shortfalls owing to the displacement of farmers begin to feed through. Going forward, however, we believe these worrying trends will become more benign as economic disruption lessens and the tourism industry recovers; real GDP growth of .8% is penciled in for 009.

Kenya's role as regional leader and strategic location in East Africa have been complemented by business-friendly reforms to make it an investment magnet. The potential quelling of political instability - thanks to the formation of the coalition government - should help to undo the damage done to Kenya's reputation as a safe and friendly place to do business. The country's infrastructure is set to benefit from a portion of the US$1.5bn granted by the african development Bank to five countries in east Africa. The partial privatisation of Kenya's leading mobile telephone company, safaricom, has served as a confidence boost for the economy, drawing in foreign investors eager to gain a share of the 0- % stake (of the total IPO stake) on offer.

Content

Executive Summary
- 2008 Blighted by Post-Election Unrest
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Cabinet Delay: Setting The Political Pace
- Although IT Is Encouraging That Kenya's New Coalition Government Has Been Agreed upon, We Harbour Concerns
- regarding The Dominance of The Party of National Unity and The System of Power Sharing, with Each Minister Having
- An Assistant from The Opposing Political Party. We Continue to Expect Slow Policy-Making
List of Tables
- Table: Kenya Political Overview
- Regional Politics
- Global Food Inflation: Ssa Implications
- Elevated Global Food Prices Are Likely to Affect Sub-Saharan Africa More Severely than The Wider Developing World
List of Tables
- Table: Countries in Food Crisis Requiring External Assistance
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Collateral Damage: 3.1% Growth in 2008
- The Political Unrest and Economic Disruption Suffered over January-February 2008 Look Set to Rein in Economic
- Expansion in Kenya in 2008. Factoring in Dampened Consumer Spending and Private Investment, We Are
- Forecasting Real Gdp Growth of 3.1%
List of Tables
- Table: Economic Activity
- Monetary Policy
- Price Pressures Mounting in 2008
- Headline Inflation in Kenya Looks Set to Inch toward 25% Y-O-Y over The Coming Months, as Price Pressures from
- Food and Fuel Increase. We Maintain Our Expectation for The Central Bank of Kenya to Hike The Central Bank Rate
- by 50bps over 2008
List of Tables
- Table: Monetary Policy
- Balance of Payments
- Political Unrest to Deepen C/A Deficit
List of Tables
- Table: Balance of Payments
- Regional Debt Outlook
List of Tables
- Table: Foreign Debt
- Table: Sub-Saharan Africa Sovereign Ratings - Evolutiuon of Ability to Pay
Chapter 3: Special Report
- Business Outlook for Global Frontier Markets
- Growing Fast on The New Frontier
- The 41 States That Bmi Examines in A New Report on Our Online Service May Make up Only A Small Slice of The World
- Economy, but They Possess Characteristics That Will See Them Gain Importance in The Eyes of Investors and Global
- Businesses over The Coming Years. with High Gdp Growth Rates, Rapidly Rising Consumer Incomes and Burgeoning
- Commodity Resources, These 'Frontier Markets' Merit Attention
List of Tables
- Table: Frontier Markets - Key Data and Projections for Top 10 Countries
- Frontier Investment
- Potential and Pitfalls
- The Spectacular Macroeconomic Performance of Frontier Markets in Recent Years Has Been Matched by Mildly
- Successful Efforts to Deepen Capital Markets
List of Tables
- Table: Gdp per Capita, US$ (in Order of % Increase)
- Table: Diversify through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices
- Regional Overview
- Laos
- Neighbouring Economies The Key to Growth
- Laos's Gdp Growth Has Been Boosted in Recent Years as Neighbours China, Thailand and Vietnam Compete for
- Its Natural Resources. Gdp Expansion in 2007 Has Been Estimated at 7.6% and We See Annual Growth Remaining
- above 7% for Our Five-Year Forecast Period
- Yemen
- Huge Potential, but Don't Bank on Gcc Membership
- Markets Do Not Come Much More Frontier than Yemen, and, as Would Be Expected, There Is Huge Potential for
- Development, with The Prospect of Eventual Gcc Membership Likely to Act A Key Investment Pull
List of Tables
- Table: Yemen - Economic Activity
- Democratic Republic of The Congo
- Mining Industry to Drive Growth
- The Democratic Republic of The Congo's Mining Industry Will Be A Key Driver of Growth and Is Likely to Attract
- Significant Levels of Fdi, with Our Real Gdp Forecasts Standing at 8.3% and 7.9% in 2008 and 2009, Respectively
List of Tables
- Table: Democratic Republic of The Congo - Economic Activity
- Cuba
- Investment Prospects after Fidel
- The Accession of A New Leadership Structure in Cuba Has Sparked Excitement That The 45-Year-Old Trade Embargo
- with The US May Be Lifted and Cuba May Move toward Market Liberalisation
List of Tables
- Table: Cuba Macroeconomic Data and Forecasts
- Mongolia
- Minerals to Drive Economic Boom
- Mongolia Is in The Midst of A Massive Resource-LED Economic Boom That Should Lift Gdp Growth into The Double
- Digits and Underpin Robust Increases in Exports and Inflows of Foreign Investment Capital over The Long Term
List of Tables
- Table: Mongolia - Economic Activity
Chapter 4: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
List of Tables
- Table: Bmi Business and Operational Risk Ratings
- Institutions
List of Tables
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Orientation
List of Tables
- Table: Middle East & Africa Annual Fdi Inflows
- Table: Bmi Trade Ratings
- Operational Risk