Monday, 20 January 2014

Kenya enters middle income class

THE KENYAN ECONOMY has entered the middle income range we can report. According to various sources, the economy last year grew by 5.0 per cent. Consequently Per capita income has risen to US$1040.55 from US$991 last year.

The entry level into the group according to World Bank is $1025 and Kenya’s GDP per capita has reached $1041, above the cut-off level, catapulting the country to lower middle income country.

Kenya’s entry into middle income level has been long in coming. The country has enjoyed relative robust growth for much of the 2003-2013 decade. According to the World Bank’s data, Kenya ‘s GDP per capita grew 248 per cent between  2000 and 2012 rising from US$399 in 2000 to $991 in 2012.

   The growth of Kenya's  GDP per capita was also ahead of her neighbours in east Africa in the eight years for which  data was available. Her posted a  207 per cent  growth between 2004 and 2012. This was way higher than Tanzania and Uganda where GDP capita has grown by 160 and 165 per cent respectively.  

In 2014 experts say, Kenya joined the middle income countries.  Both Tanzania and Uganda have crossed the US$600  mark. Tanzania’s per capita is expected to have reached $625 last year while Uganda is following closely at $615.

According to World Bank Atlas, countries are stratified into: low income, $1,035 or less; lower middle income, $1,036 - $4,085; upper middle income, $4,086 - $12,615; and high income,$12,616 or more.

For Kenya, the entry into middle income level means a bigger market for local manufacturers and even regional manufacturers. In a recent unrelated survey by the Central Bank of Kenya, the manufacturing sector was upbeat about the prospects for 2014 and beyond.

But  for some, the party  has already began. According to analysts, some companies listed at the Nairobi Securities exchange will report a double digit growth in profits this year. That is why, activity in the exchange, which is generally a barometer for an economy’s well-being, is bullish. The bourse was rated the best performer in Africa in 2013 by MSCI index with a 43.7 rate of return on US$ dollar terms. 
On a regional outlook, the good news on the Kenyan economy is also good news for the region.  Kenya is the largest market for regional manufacturers. This means that high demand for local manufactures spread to the region. The recent expansion of local super market chains into the regional markets will be an added advantaged for Tanzanian and Ugandan Manufactures to compete
in the Kenyan Market.

 Since January 2013, NSE 20 share index has risen 23 per cent to 5027 points at the close of business last week.  In effect, save for a major economic shock, the large consumer base will feed further economic growth. In fact, a survey by Ernst and Young projects that by 2018, Kenya’s GDP per capita will surpass  US$1200  mark at a projected real growth rate of 5.8 per cent.

The Kenyan economy is relatively diversified and resilient. It has weathered a lot of storms. These include the Post- election violence that hit the country in 2007/08 that left the economy on its knees.  The violence was by followed a string of external shocks that slowed Kenya’s economic performance. These include the Oil shock of 2008 which at one point rose to $150 per barrel followed by the financial crisis in the West and a severe drought in 2010/11. 

Despite this unholy alliance, the economy has trudged along posting a 2.7 per cent growth in 2009, which peaked at 5.8 at 2010 before retreating to 4.4 per cent in 2011.  It edged up to 4.6 per cent in 2012 as fears of the political violence due to elections in 2012 held back economic activity.

However, since the peaceful election and the transition  of power in March-April 2013, confidence is back and world bank economists  say the economy grew  by 5.6 per cent in 2013  and will cross the 6 per cent mark in 2014. Given renewed confidence after the elections, the country’s growth momentum is expected to pick up and could catapult the country to well past 7 per cent in 2015 and beyond.

Another factor that could influence economic activity in Kenya is the discovery of oil. So far an estimated 1 billion barrels of commercially viable crude have been discovered in the Turkana County.  Already, the government is said to be discussing the infrastructure to transport crude oil with Tullow Oil, the company that has made the discoveries.  Tullow has also made similar discoveries in Uganda and could be looking at exporting the crude through Kenya.

The discovery of oil in Kenya is a game changer and is expected to significantly contribute to economic growth in the next decade.  Discovery of fossil fuels has catapulted economic growth in Angola, Mozambique and other African countries.


For the time being the drivers of economic growth are transport and communications, tourism, agriculture, manufacturing , retail trade and hotels. 

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