No respite for battered Kenyan economy

Whereas the ministry of planning has been bullish on a 3 per cent rate of growth, analysts believe the forecast is largely fantastic.

However, the official projection has been replicated earlier on by the Economist magazine. "Kenya needs to play catch-up in order to converge with other regional power houses but with key contributors to the production equation such as infrastructure, telecommunications, and productive human capital not yet in place, it is unlikely that we

will experience the endogenous growth (increased rate of growth and not just level of growth) required to achieve this in 2004," said Stanbic Asset Management.

Their views are widely shared by other analysts. The main problem is that the support infrastructure remains in a shamble despite unmistakable commitment by the government, and residue goodwill from the citizenry and the investor community.

The power infrastructure has particularly been an issue. Last year, a report probing happenings in the sector resulted in a damning indictment of the Kanu-days

Kenya Power & Lighting Company managing director Mr Samuel Gichuru. It showed that government had shelled out billions for lopsided deals with independent power producers (IPPs) brought in as a stop-gap measure beginning 1997.

This combined with endemic corruption in power contracts to give Kenyan industrial and domestic consumers some of the highest power tariffs in the region. No legal action has been taken on culprits and some remain in employment.

This aside, Kenyan manufactures remain threatened by those of Egypt and Zimbabwe all grouped together under the Common Markets for Eastern and Southern Africa

free trade area. Investors, despite the preferential African Growth and Opportunity Act (Agoa), are giving Kenya a wide berth.

Telecommunications infrastructure remains hobbled by the Telkom Kenya monopoly while the road network is in tatters. The railway is just starting to recover from

years of lethargy and disuse. And the security situation while much improved is less than appealing.

Tourism, Kenya s third best exchange earner after tea and horticulture respectively, will at best remain in a fluid state due to exogenous factors like terrorism targeting Western interests. Last year, it was estimated that 500,000 visitors came to Kenya compared

to the heyday 800,000. Improvements were registered in cruise ship tourism and tourist arrival last year.

To the private sector now enjoying the lowest interest rates, though mainly short-term, the finger can only point in one direction. "The 3 per cent growth target though achievable in the right environment, will probably be sabotaged by the Government itself," the fund manager says.

"It is instructive that in an economy where the public sector contributes 15 per cent to GDP, the Government has perhaps got to lead by example. However, everywhere we look we see that Government economic activity is conspicuously absent."

Despite the seemingly low rate of projected growth, this will be the highest achieved in the new decade. In 2000, the country for the first time achieved a negative 0.2 per cent. This was in the midst of misrule by the Kanu government and a debilitating power crisis following years of mismanagement in the sector. Last year, the economy expanded at an

officially estimated figure of 1.4 per cent. However, some private agencies have claimed the actual rate was just under this percentage.

In 2002, the change was poorer, however, at about one per cent. With an adult unemployment rate of over one-half, this growth is not reassuring. Worse still, the neighbouring economies of Tanzania and Uganda grouped with Kenya under the East African Community are proving quite a magnet for investors. Both have been averaging about 5 per cent for over half-a-decade.

Another issue of concern has been the instability of the National Rainbow Coalition. There are some in the international community who feel that implementing crucial reforms might be affected by lack of unity in the government.

Pessimism apart, there are reasons for hoping. First, the donor community has resumed lending the government and in the next three years, a maximum of Sh319 billion ($4.2 billion) is expected. This is a big breakthrough considering that Kenya was largely eluded by the foreign resources for most of the Nineties and the resumption is a great stamp of confidence an important cue to investors to put their monies here.

It has helped matters a lot that high-level corruption has been minimised. Optimism also lies in the continued improvement in the agriculture sector which last year grew by 1.3 per cent; an improvement from the previous year s 1 per cent. Tea, horticulture and coffee all improved and with the continued reforms in the agriculture sector, it is expected the trend will continue.

All the same, the Nairobi Stock Exchange has kept optimism alive, chalking up a five-year high of 3100 points. Last year alone, it went up 100 per cent.