A well-diversified economy
Kenya 's economy is already fairly well-diversified, with the largest contributors to GDP being agriculture (25 percent), transport and communications (11 percent) and manufacturing (10 percent). While the country does not benefit from the production of a significantly high-value resource, such as oil, the broad base of its economy reduces its vulnerability to commodity price shocks and augurs for resilient growth.
Infrastructure upgrades
The Kenyan authorities have indicated that they intend to press ahead with plans for significant infrastructure upgrades, boding well for the business environment. Kenya is set to strengthen its position as the hub of the East Africa region, with improvements to roads and railways in the pipeline, as well as a new port at Lamu. Several sectors of the economy will be promoted by the Kenyan authorities, as outlined in the blueprint for long-term development, Vision 2030. The government has selected the following as promising areas, and will channel resources and investment accordingly: tourism; agriculture; retail trade; manufacturing; business process outsourcing (BPO); and financial services.
Sanguine prospects
Following the success of the country's Economic Recovery Strategy (ERS) which ended in 2007, it is expected that Kenya will enjoy robust economic expansion. Business Monitor Online predicted a robust growth trajectory with real GDP growth in the 1 percent – 4 percent range is over 2009-2010, followed by annual economic expansion of around 4 percent – 6 percent over 2011-2018.
Kenya has, under the ERS, managed to achieve broad-based growth and enact business-friendly reforms, both of which should stand the country in good stead over the approaching decade. The nation's young population and favorable position in the East African Community will also be key growth drivers.
Economic fundamentals
The IMF and market analysts see economic expansion of just 1.1 percent – 1.8 percent in 2009, primarily because of a sharp contraction in private investment, slowdown in the growth of private consumption, dry weather, weak commodity prices and the global recession. Growth is expected to recover to 2.7 percent in 2010 as the global economy improves.
Inflation is forecast to remain high in 2009, at 21.3 percent (as dry weather keeps food prices high), before subsiding to 6.5 percent in 2010, assuming no exogenous shocks and the maintenance of political normality.
The IMF projects that the budget deficit will climb from 5.1 percent of GDP in 2008/09 to 5.4 percent of GDP in 2010, to be funded largely from domestic borrowing, although Kenya 's risk of debt distress is relatively low.
The current account will remain under pressure. The current-account deficit is expected to fall from 5.7 percent of GDP in 2008 to 4.5 percent of GDP in 2009, owing to lower imports. A recovery in exports and other capital inflows will help to cut the deficit to 3.3 percent of GDP in 2010. The Kenyan shilling is set to see further depreciation, KES90.00/US$ by end-09.
