Bad politics risky for Kenyan economy

February 26, 2010
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, NAIROBI, Kenya Feb 26 – Political tension and uncertainty in the country is likely to reverse economic growth realised in the last two years according to an economic survey released by investment bank Renaissance Capital.

The survey shows entrepreneurs less optimistic with investing locally as they wait to see whether the political climate will change.

Renaissance Capital Head of Research Erick Musau said that while their projections put growth at 4.3percent, economic shockwaves are hard to rectify which could stagnate economic growth.

“Economic shocks are hard to recover from and we feel that if the economy was to take a fall, it may take a toll on any projections we come up with,” Mr Musau said.

The Outlook shows it will take much longer to get back to the 2007 growth levels of 7percent indicating that if all things remain constant it could be attained by 2012.

Mr Musau however said the run up to the 2012 elections adds another twist to predictions as political temperatures will be at a high.

“Since 2007 when we had growth levels of 7.1percent it is very clear to us that it it’s taking much longer to get back to those levels,” he said.

Mr Musau however said growth is likely to be supported by the lagged effect of the loose fiscal and monetary policies implemented in 2009.

He also expects factors in resilience by private sector players to grow business in 2010 as a likely driver of economic recovery.

The outlook also advises investors to look away from the capital markets and put their money in key economic sectors such as agriculture, consumer and service industry, which do not have sufficient listing at the stock market.

Sectors likely to drive growth in 2010 are hospitality, financials, agriculture and telecoms

“We estimate a 25 percent return with 30 percent probability in the bull scenario assuming that economic performance remains above 5percent supported by a higher than expected corporate earnings growth,” he said.

The firm estimates inflation will fall to 4.5percent in 2010 and that there could potentially be some room for lower interest rates and improved liquidity in the money market.

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