Kenyan economy running on one engine

June 3, 2010

, NAIROBI, Kenya, June 3- The Kenyan economy is currently being solely supported by domestic consumption that is largely driven by increased imports, a World Bank report has indicated.

World Bank Lead Economist for Kenya Wolfgang Fengler said the country’s exports have been declining in the last three decades due to the poor performance of the agriculture and manufacturing sectors which have left the economy to depend heavily “on one engine” which accounts for 75 percent of the Gross Domestic Product (GDP).

“Kenya is running on one engine and this is domestic consumption. Other emerging economies tend to export manufacturing but in Kenya this sector, which has unexploited potential, has been underperforming as so is agriculture,” he said.

The findings were contained in the Kenya Economic Update (download it here) which indicated that Kenya is one of the few developing countries that has seen its export sector shrink rather than register growth. Her exports as a share of the GDP declined from 40 percent in 1960 to 26 percent in 2009.

The manufacturing industry which has performed below par has been dislodged as the second largest economic sector slipping to fourth place after agriculture, wholesale and retail and transport and communication industries.

The robust horticulture sub- sector, communication and tourism industries and the impressive earnings from tea and coffee have not been enough to counter the disappointing performance of the overall agricultural sector

The report added that the country’s import bill for goods such as fuel, machinery and even food stuff such as maize has led to the widening trade deficit.

But to jumpstart its exports engines, the economist proposed that the government should provide a conducive business climate for the private sector.

This would include ensuring that the port operations were efficient, road and railway networks were operational and that the country implemented reforms that would put it on a growth path.

However, despite this reliance on domestic consumption, World Bank Country Director Johannes Zutt said the economy is projected to grow at four percent this year up from their 3.5 percent forecast which will most likely translate into improved living standards for most Kenyans.

“The good news is that Kenya is recovering from the shocks experienced in 2008 and 2009. We project that it will grow by four percent in 2010 and 4.1 percent by 2011. That means that many Kenyans will experience a real increase in their incomes,” Mr Zutt added.

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