Tuesday, 7 October 2014

Kenya is Officially a middle income country

KENYA is now a middle income country.  Its GDP is US$55.2 billion, 25 per cent higher than the previous estimate of US$44.1 billion, says the national statistics office. The Office carried out a rebasing of the GDP accounting period from 2001 to 2009. The exercise established that the Kenya economy was larger than office data since 2006.

Further, the rebase established, the economy more than doubled in the eight year period to December 2013, rising from US$25 billion in 2006 to $55.2 billion in 2013- a 214 per cent increase.  The previous estimates indicated that the economy grew by 196 per cent over the same period from US$22.5 billion to US$44.1 billion.

 Consequently, the rebasing found that GDP per capita has risen to US$1246, catapulting the country into a middle income economy. The World’s bank entry into middle income economy is US$1035, meaning that Kenya has just passed the threshold.

  Although the findings of the rebasing vary from this publications' earlier  findings which stated that Kenya's per capita income has risen to US$1040.55 from US$991 last year. Go to  http://eaers.blogspot.com/2014/01/kenya-enters-middle-income-class.html, they are generally in tandem with the thrust of our reports. The rebase established that Kenya entered the middle income level in 2012. Our report had found that the rebase happened in 2013.

 The rebase also improved on another of our earlier reports which stated that Kenya’s GDP would be US$53 billion. That level was reached in 2012 and by December 31, 2013, the economy’s size was $55.2 billion. http://eaers.blogspot.com/2014/07/kenyas-gdp-to-shoot-to-53bn-on-rebase.html.

Following the rebase Kenya is now the 9th largest economy in Africa. Previously, it was number 13 in the continent while it’s GDP per capita has catapulted her to position 7 in the developing world. Previously it was in position 15.

 There were no spectacular changes in the structure of the economy. However, it established that some sectors were grossly under estimated. Among these is the real estate sector, which is a new entrant into GDP calculations. The sector now contributes 8.2 per cent of GDP. It was a sector, that was previously grossly underestimated the review established.

 Previously its gross value added estimates were just below a third of its real value. By 2013 for instance its GVA was estimated at US$941 million while the sector is nearly five times larger. The new data found that the sector’s GVA was US$4.2 billion, the fast growing ICT sector was also in this category. While it’s gross Value Added was estimated at just below one billion dollars, it is worth US$2 billion. Other sectors that were significantly under estimated included agriculture and financial service.

Due to the previous undervaluation even GDP growth rates were not accurate. For instance GDP is 2008 was estimated to have grown by 1.3 per cent. The rebased data shows that growth rate was 0.2 per cent.

But revised after rebasing, the GDP growth rate was higher than estimated in all the years between 2007 and 2013. In 2013 the new base shows, the GDP grew by 5.7 per cent compared to the old system which estimated the growth to have been 4.7 per cent. Consequently all quarterly estimates this year are inaccurate and will need to be revised.

The Kenyan economy is relatively diversified and resilient, even more robust than previously estimated. 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 3.7 per cent growth in 2009, which peaked at 8.4 in 2010 before retreating to 6.1 per cent in 2011.  It edged up to 4.5 per cent in 2012 as fears of the political violence due to elections in 2012 held back economic activity. With elections out of the way, the economy grew by 5.7 per cent last year. And according to World Bank officials last week, poverty has declined to 25 per cent down from 43 per cent in 2009.

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