Kenya Business Forecast Report Q4 2009

Political Challenges, Economic Opportunities Kenya will not be immune to the global recession, but we expect the nation to weather the economic storm relatively well. The pain is being felt on some fronts, with horticulture exports suffering and consumer demand waning. However, Kenya stands in good stead to see positive growth going forward. Key supporting factors will be base effects from 2008 - a bad year for Kenya, both economically and politically - as well as robust export demand from neighbouring nations. The political backdrop remains worrying though, with serious structural reforms needing to be undertaken over the coming months and years. The shaky coalition government will be repeatedly put to the test.

Two major issues are set to dominate the Kenyan political agenda over the coming months: the setting up of a special court to try the alleged perpetrators of post-election violence, and the drafting of a new constitution. These, in combination with other reforms, will need to be handled carefully, in order to avoid a repeat of the violent civil unrest witnessed in early 2008, at the 2012 polls.

Meanwhile, the integration of the East African Community (EAC) regional bloc continues apace.

We believe Kenya is well-placed to capitalise on the opportunities this offers, given its superior manufacturing sector and strategic location.

On the economic front, Kenya is set to experience relatively favourable growth in a global context, with our real GDP growth forecasts for 2009 and 2010 standing at 2.5% and 3.9% respectively.

Latest data suggest that the East African nation is surviving the global recession relatively well, auguring for robust economic activity over the coming quarters. Ongoing monetary easing should help: we are forecasting 100 basis points of interest rate cuts over July-December 2009. The 2009/2010 budget reveals the government's ambitious plans to upgrade infrastructure - these plans should provide a boost to Kenya's long-term growth prospects.

Kenya's business environment is gradually improving, especially with regard to infrastructure. The EAC is becoming increasingly integrated and this development is clearly reflected in forthcoming infrastructural upgrades, with Kenya set to see improved transport links with neighbouring countries.

For example, a 240km road will be built between Kenya and Tanzania, and a one-stop border point will be established to make crossing more rapid. On a separate note, the ongoing rolling-back of the state's role in the economy is good news; the government intends to privatise its stake in over 26 enterprises.