Stimulus to spur Kenya growth

January 27, 2010

, NAIROBI, Kenya Jan 27- Implementation of the government’s economic stimulus package in the first half of the year is likely to spur four to 4.5 percent economic growth in 2010, according to economic experts.

Fund managing company AIG Investments says increased government spending especially in the manufacturing and construction sector could boost the business environment.

Addressing journalists on Wednesday, AIG Senior Investment Manager Peter Wachira said easing inflation, low interest rates, and improved rains is putting high expectations on increased economic activity in 2010 as different sectors exhibit signs of recovery.

“We are likely to see a resurgence in key economic sectors as the impact of the stimulus package supports economic activity and spurs employment,” Mr Wachira said.

He added that the ripple effects are likely to be felt in the construction, agricultural and tourism sectors. Last week CfC Stanbic Financial Services predicted the service sector would be at the forefront of driving economic growth to between 3.5 to four percent.

World Bank projects a GDP growth of 3.5 percent.

The Sh55 billion stimulus package is mainly targeting infrastructure, health, education and agriculture sectors. The implementation however experienced some delay in 2009 with majority of the projects expected to kick off from January. 

The stimulus package was put in place in an effort to revive the economy, which had slumped to 1.8 percent in 2008 following effects of the post election violence.

The International Monetary Fund (IMF) has also lobbied countries not to cut down on their stimulus packages as they continue to face numerous challenges. Kenya’s example could be the recent drought, which saw the government direct money towards purchase of food.

The Kenya Bureau of Statistics’ recent adoption of the geometric calculation of inflation is also expected to play a major role in the recovery. The reconstitution of the Consumer Price Index (CPI) basket from February is likely to give a clearer indication of the economy attracting more foreign investments.

“The outlook is for stable intrest rates supported by prevailing high money market liquidity, sustained investor appetite for fixed income securities and lower inflation expectations,” AIG Investment Manager Edward Gitahi said.

On the other hand Mr Wachira however cautioned lack of political consensus especially on the Constitution making process could deter growth projections, as investors become increasingly cagey.

“To us approval of the draft constitution is going to remove a lot of uncertainty and if that is removed businesses and investors will have increased confidence and they are likely to take more risks by investing here,” he said.

He said evidence from the election period in 2007 showed that the economy was still highly determined by the political direction taken by leaders.

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