According to the research by Quantum Global, Kenya’s rate of economic growth is on track to exceed the average for sub-Saharan Africa for the eighth year in a row. This growth performance has been driven by strong domestic demand and public infrastructure investment in a context of low oil prices and domestic macroeconomic stability. Domestic consumption has been growing rapidly on the back of a growing middle class, rising incomes and rapid expansion of credit.
Commenting on the Kenyan economy, Prof. Mthuli Ncube, head of Quantum Global Research Lab stated: “Supported by a stable macroeconomic environment, Kenya presents investors with relatively high exchange rate risk, low levels of liquidity and very low import cover. However, going forward, the government policy of capping domestic interest rates is limiting growth on domestic credit to the private sector. This has the potential of being a drag on future economic growth, in an otherwise dynamic economy.”
Public investment and fiscal transfers to counties has ensured that the growth has been geographically broad-based. Low oil prices and a surge in remittances have allowed a contraction in the current account deficit recently, although the gap between imports and exports is still wide and presents a risk, especially if oil prices rise. Economic growth has been reasonably well diversified, especially in services sectors, although manufacturing has underperformed. Low inflation and currency stability over the past two years have been conducive for investment.
The research also highlights that Kenya faces a number of external and internal risks that could dampen the economy in 2017 including global financial volatility (especially following the election of Donald Trump in the United States), and a risk of capital flight from frontier economies. Oil prices are expected to lift modestly next year, but the impact on the balance of payments could be offset by recovery in tourism and FDI. The major internal risks relate to possible political instability in the run-up to the 2017 elections, associated delays in fiscal consolidation, and the recent capping of interest rates, which could restrict access to credit and impair bank performance.
Mthuli concluded: “Overall, the outlook for Kenya’s economy over the coming years looks bright. Both the World Bank and International Monetary Fund (IMF) are forecasting growth rates of around 6% for the next three to four years. Growth will continue to be supported by robust domestic consumption, public infrastructure investments in transport, energy and information and communications technology (ICT), and remittances from abroad.”
According to the report, the top five African investment destinations attracted an overall FDI of US$13.6bn. Botswana was ranked the most attractive economy for investments flowing into the African continent followed by Morocco, Egypt, South Africa and Zambia.
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