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Kenyan economy diversifies

NAIROBI, Kenya, Nov 25 – Kenya’s economy has recently shown signs of diversification with agriculture being dislodged as the largest contributor to Gross Domestic Product (GDP), according to financial experts.

CfC Stanbic Financial Services Head of Research Judd Murigi said on Wednesday that wholesale, retail, transport and communication sectors had in the past few years significantly contributed to the growth of the economy.

In 2006, agriculture contributed 26 percent to the economy but this figure fell to 23 percent in 2008. In the first half of 2009, although affected by the drought, the sector has only recorded a two percent growth compared to 10 percent (wholesale and retail) and 12 percent (transport and communication).

“We’ve seen less reliance on agriculture and this means that the economy is slowly rebalancing. If the Vision 2030 recommendations are implemented we could see further diversification of the economy,” he forecasted.

The researcher said this trend was likely to continue although agriculture’s role in the economy could not be disregarded, as it shows signs of recovery following the short rains.

At the media briefing, Mr Murigi also estimated that with measures such as infrastructure development, the Kenyan economy was well on its way to being an investment-driven one.

The economy is currently defined as factor-driven, which means that it is susceptible to external shocks and heavily dependent on primary sectors.

“The next stage of development as envisaged by Vision 2030 is an investment-driven economy with various economic sectors moving up the production value chain and more into reliance on infrastructure development,” he added.

Industries expected to have a positive impact on the GDP include brewing and banking which had grown by four percent by July 2009 and are expected to maintain the same growth rate in the final quarter of this year.

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He observed that the NSE 20 Share Index had not fared well – down 11 percent since the beginning of the year – but anticipated it to recover pending unexpected disruptions.

“Foreign investors may now see the Kenyan market as being undervalued and start taking positions in perceived undervalued stocks,” he said adding he expects foreign investor participation to be significant.

On monetary and fiscal policy, the investment bank anticipates headline inflation to ease by year-end, as the Central Bank’s open market operations prevent interest rates from surging.

“In the meantime, the shilling should hold out against the dollar and the pound sterling although it could dip slightly against other currencies.”

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