Services to lead Kenya growth

January 18, 2010
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, NAIROBI, Kenya Jan 18 – As the effects of the global financial crisis begin to fade away, Kenya’s path towards economic recovery is expected to be led by gains in the services sector.

A quarterly economic and market outlook report released by CFC Stanbic Financial Services on Monday, showed that sectors such as banking, wholesale and retail trade, tourism and real estate are well poised to perform well in 2010.

Speaking during the presentation of the report, Head of Research Judd Murigi predicted that this would lead to between three and four percent growth of the economy in 2010.

“I expect GDP growth to exceed three percent and probably approach the four percent mark on the back of improved earnings from the service sector,” Mr Murigi said.

Kenya’s Gross Domestic Product (GDP) reduced to 1.7 percent in 2008 from the 7.1 percent achieved in 2007. In 2009 projections put the growth at between 2-3 percent.

Mr Murigi explained improved marketing of the tourism industry as well as government implementation of “friendly” tourism policies as a major factor for growth.

“We forecast double digit growth in tourism. We also expect an indirect boost from the World Cup in South Africa to boost tourism growth,” he said. The East African Common Markets Protocol, which comes into effect in July, is expected to boost wholesale and retail trade.

The local currency is expected to strengthen as it gets support from foreign investors as well as diaspora remittances. However, Mr Murigi was quick to add that the strengthening of the US dollar could test the shilling.

The report also indicated increased activity at the stock markets, with greater participation expected from retail investors, whose confidence was dented in 2009 owing to what they termed as poor performance.

Mr Murigi says there has been renewed interest in equities as foreign investors predict good prospects for the Kenyan economy.

“We expect the NSE 20 Share Index to approach 4,000 points this year and it may even exceed it if things go well and as a result, we also see that retailer investor participation could improve,” he said.

The researcher expects headline inflation to drop even further in 2010 mainly due to the re-composition of the basket of goods and services in the geometric calculation of inflation that takes effect in February.

On monetary and fiscal policy, Mr Murigi expects the Central Bank to continue with an expansionary policy in an attempt to boost the economy.

“While there is expectation of economic recovery, we do not expect CBK to pull back until those expectations have solidified to a significant extent.”

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