Kenya Emerging as One of East Africa’s Growth Centers

NAIROBI, March 5, 2015 — With solid growth continuing in infrastructure, agricultural production, manufacturing and other industries, Kenya is poised to be among the fastest-growing economies in East Africa, according to the latest World Bank Group’s (WBG) economic analysis for the country.

The update, Anchoring High Growth: Can Manufacturing Contribute More?, forecasts a growth rate of 6% in 2015, and predicts that the positive trend will continue with the growth rate rising to 6.6% in 2016 and 7% in 2017

“To sustain momentum, Kenya needs to continue investing in infrastructure and jobs, improve its business climate, and boost it exports,” said Diarietou Gaye, the World Bank’s Country Director for Kenya. 

According to the report, Kenya’s expansive fiscal policy allowed the country to finance infrastructure projects without putting excessive pressure on domestic financial markets while at the same time, keeping public debt within the 50% threshold.

“Kenya’s accommodative monetary policy stance has supported economic activities without triggering inflation or putting pressure on the exchange rate” said John Randa, WBG senior economist for Kenya and lead author of the report.

This overall positive outlook is not without risks. Tourism has been hobbled because of concerns about security which has hit economic activities hard, especially in the country’s coastal region. Also, sluggish external demand for exports and declining production for export is widening the current account deficit.

As a share of gross domestic product (GDP), Kenya’s manufacturing sector has been stagnant in recent years. Low overall productivity and large productivity differences in firms across subsectors point to lack of competition.

“Kenya needs to increase the competitiveness of the manufacturing sector so that it can grow, export, and create much-needed jobs,” said Maria Paulina Mogollon, WBG private sector development specialist and a co-author of the report.      

To sustain growth and increase the contribution of the manufacturing sector to growth, the report makes the following recommendations:

• Boost firm-level productivity to help the sector regain its competitiveness
• Address the risks associated with fiscal expansion, and rebuild policy buffers in the short to medium term, to address fiscal sustainability
• Adopt cross-sectoral policies, such as removing market distortions and implementing industry-wide productivity policies, to complement sector-specific approaches
• Support the manufacturing sector by helping raise firm productivity growth by facilitating the stock and flow of skills, technology, and information among firms
• Level the playing field between formal and informal firms by reducing and streamlining regulation, and ensuring their even and fair application, and  
• Decrease the cost of doing business by addressing critical issues related to energy, access to finance, and cross-border trade, as well as devolution and counties’ revenue-raising business levies.

The Kenya Economic Update is prepared by the WBG in collaboration with government stakeholders, including the members of the Economic Roundtable such as the Ministry of Devolution and Planning, Ministry of Industrialization and Enterprise Development, Central Bank of Kenya, Kenya School of Monetary Studies, Kenya Vision 20130 Secretariat, Kenya Institute for Public Policy Research and Analysis, Kenya National Bureau of Statistics and the International Monetary Fund.