Monday, 7 July 2014

Kenya's GDP to shoot to $53bn on rebase


THE KENYAN GDP is 20.6 per cent above the current level, Economists estimate. This calls for a rebasing of the national wealth accounts from 2001 to a more recent year.  The government will consequently rebase the GDP to 2009 from 2001. The exercise, that began last month will end in September

 According to the central Bank of Kenya, at the end of 2013, the GDP stood at US$43 billion. 20.6 per cent of that would be US$8.9 billion. This means Kenya’s GDP is unofficially US$52 billion.  This level or higher will be confirmed at the end of the rebasing exercise later this year.

Rebasing of the national account series (which includes the GDP) is the process of replacing an old base year with a new and more recent base year. The base year provides the reference point to which future values of the GDP are compared.

Rebasing is meant to reflect recent developments in the economy and expand the basket of consumer goods to reflect changing tastes and preferences. Consequently, countries rebase their economy once in a decade although the UN recommends that rebasing be done every five years.

In the Kenyan case recent developments since 2001 can be discerned at the telecommunications and transport sector for instance. In 2001 there hardly 500,000 telephone lines in this country. Now, there are 31 million telephone lines with such additional services as Mobile Money transfer and data communication. In 2001 internet communication was through cyber cafes and was expensive. To date internet is available on the majority of handsets.

Bottled water was a preserve of tourists in Kenya in 2001. Now it is available even at the village shops. The financial sector has witnessed massive growth over the past nine years. Many other products have also entered the market justifying a rebasing the GDP.

Concomitant with the elevation of GDP will be the rise in per Capita income which will see the country move deeper into the middle economy level. Even before the rebasing, Kenya’s GDP per capita has already entered the lower rungs of the middle income level. It now stands at US$1034.

 According to the World Bank, the entry level to the middle income class is $1025. The rebase will catapult GDP per capita to US$1244.

Another benefit of the rebasing is the decline in Kenya’s debt to GDP ratio from nearly 50 per cent of GDP to 42 per cent. This could assuage critics’ fear that the country faces the risk of defaulting on its debts.

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. In 2014, the economy has crossed the middle income threshold, say experts.

 In east Africa, GDP per capita in Kenya grew 207 per cent in the eight years to 2012. This was way higher than Tanzania and Uganda where GDP capita has grown by 160 and 165 per cent respectively.  

Even then Tanzania’s GDP per capita is still higher than Uganda’s although the latter posted a larger increase than the former. Tanzania’s per capita is expected to have reached $625 last year while Uganda is following closely at $615.

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  followed by 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 and 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. 

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