NAIROBI, Kenya, Oct 22 – Kenya’s economy could record a four percent growth next year, financial analysts have predicted.
AIG Investments Managing Director Jonathan Stichbury said although they have downgraded their projections for growth rate this year to between 1.5 to 2 percent, the improvement of the agricultural sector and that of the global financial crisis are likely to boost economic recovery.
“We are cautiously optimistic that a four percent growth rate could be achieved in 2010 provided the fiscal stimulus is implemented in a timely manner, the country receives adequate rains and credit to the private sector becomes more readily available,” he said.
The Kenya National Bureau of Statistics estimates that the economy grew by 2.1 percent in the second quarter of 2009 which is attributed to the adverse impact of drought, power rationing and high inflation.
However, experts concur that the local economy is resilient having withstood the shocks of post election violence, drought and global recession.
Mr Stichbury said the onset of the short rains was expected to aid the agricultural sector which would in turn help ease inflation which is believed to be fuelled by supply side constraints from food shortages and high energy costs.
“Inflation is still heavily influenced by food prices which represent about 50 percent of inflation basket. Going into next year, we expect to see some signs of improvement,” he added.
On the equities market front, AIG’s Senior Investment Manager Edward Gitahi said the prospects of this market were challenging particularly due to the decline of the corporate earnings in 2009 and the increased focus on the bond market.
For instance, the banking sector has on average recorded a growth of nine percent for the half year earnings compared to 45 percent posted the same period last year while the earnings of other firms that have announced their full year results up to June are down by 15 percent.
“That has impaired confidence in the stock market investment. We have also seen many investors opting for higher guaranteed returns from the debt market,” Mr Gitahi said.
However, the investment manager said foreign investors were coming into the stock market in droves to take advantage of the attractively priced equities.
Currently, he said the investors account for more than 40 percent of the traded volume and value at the Nairobi Stock Exchange and they are likely to benefit once the economy picks up.
Mr Gitahi also forecasted that the demand for corporate bond issues would fall in the fourth quarter of this year as well as the first quarter of next year as many big issuers had already come into the market.
“We could possibly see maybe Sh10 billion coming in over the two quarters which is a far cry from the Sh30 billion in the third quarter of the year,” he said.