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Good prospects as new year approaches

Analysts are predicting a bright 2005 following the economy’s substantial growth and a generally good performance this year.
23 December 2004 - Deremo Maiko

For the economic planners, end of 2004 represents a welcome relief. Indeed, Kenya’s economy can rightly be said to have escaped lightly—growing at a reasonable 2.4 per cent despite the oil crisis and a severe drought that threatened to scuttle all the achievements of the National Rainbow Coalition [NARC] government in its second year.
As they celebrate though, they would have to bear in mind that up to three per cent growth was anticipated. Yet, even the most current figures used here only represent three quarters of the year. There are a number of reasons why even the President of the country expects better growth in 2005. Central Bank of Kenya is in concurrence: "Real GDP growth is forecast to accelerate further in the last quarter of 2004 and into 2005"
Real economic growth in the country actually peaked in 1996, on the back of economic liberalisation and substantial return of repatriated capital and growth in trade. In that year, 4.6 per cent growth was achieved. In 1997, the International Monetary Fund cut aid to Kenya citing corruption and would virtually maintain its stance until a new government was in place in 2003.
In 1997, Kenya grew at a less brisk 2.4 per cent before sliding again to 1.8 per cent the next year, and then to 1.4 per cent. In 2000, a historical low of minus 0.2 was achieved. Clearly, from here there has been a gradual recovery –to 1.2 for 2001/2, then 1.8 in 2003 and a forecast 2.4 per cent this year.
Historical numbers are thus pointing to continued recovery. So do facts. One, Kenya is not forecasting any major food shortage this year unlike in June to September of 2004. Before talking about food, this in addition means that power production is mainly going to be hydro-based and cheaper compared to thermal power anchored on petrol prices. Again, oil prices have been going down –as a major factor of production.
Needless to say that oil prices are predicted to stabilize in the year. Of course food is critical. In the past year, inflation reached 18.6 per cent, a record since the mid 1990s, due to food shortages. Hit hard was maize (a local staple) production which slid 14.3 per cent to 24 million bags, thus prompting huge importation of food which was partly responsible for slide of the shilling from Sh78 to the dollar to nearly 82. Beans, another staple, fell 26 per cent with only 3.3 million bags produced.
Agriculture production, accounting for 24 per cent of GDP, is expected to fare better in the year with better rains. Not that all of it has had a bad year. Tea, the main exchange earner was 14 per cent up in production, raking in $1,587 million compared to the first nine months of 2003 at $1,517 million. Horticulture rose 12. 3 per cent in production while sugar went up 12.3 per cent.
The effect especially of the increase in tea and horticulture exports was bulwarking against speculative pressure, and shooting down of predictions by so-called experts (including Standard Chartered of London and local fund managers who were betting on Sh85 to the dollar) of drastic value fall by the floating currency. Statistics in Kenya have been a bit controversial. That is why 8.5 per cent increase in power consumption by industry and a reported 19 per cent increase in the numbers of tourists visiting the country (Central Bank Economic Review, October) might appear fudged to some people. So what is the anecdotal situation on the ground as observed by well-placed journalists?
First, it is correct to say that tourism has defied US travel advisories against visiting Kenya and the numbers have soared. Hotels and tour operators have all of a sudden stopped complaining. They are full and sale of tour vans is one factor that has boosted the booming vehicles sales in the country. (All assemblers and franchise-holders are smiling all the way to the bank, particularly because new transport rules are pushing jalopies out of business.
Tire makers and resellers are reporting improved sales). The government expects tourism boom to continue in the next year, with Kenya Tourist Board forecasting a rather fancy 100 per cent climb. Building construction despite material inflation has officially grown by 10 per cent, a figure that after a long time coincides with the official statistics by cement manufacturers. Residential houses are sprouting up.
In the coming year though, growth is not expected to be just organic. Somalia and Sudan, now heading for peace are set to provide a much-needed impetus for growth. Sudan, where an oil pipeline and a railway line to the port of Mombasa in Kenya are slated for construction, could provide the missing spark for the economy. Continued healthy growth in main trading partners of Tanzania and Uganda is an added plus.
What the economy is not looking forward to is continued rise in interest rates, where the benchmark 91-day Treasury bill has hit about 9 per cent under IMF tutelage. But on the whole, Kenyans though yet to experience brisk enough growth to absorb the runaway unemployment and poverty levels affecting more than half the population, are optimistic of a better future. Especially if IMF releases the $35 million in aid this December and opens the door again for external financing of the deficit.

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