NAIROBI, Kenya, Dec 1 – Kenya\’s growth prospects in 2011 are more positive than they have been in years, despite fears over the approaching La Niña weather phenomenon, a market analyst has said.
Standard Chartered Head of Regional Research for Africa, Razia Khan said the economy should continue to recover from the lows seen after the 2008 political crisis.
“While progress since then has been halting, tempered by bouts of adverse weather which impacted agriculture, hydroelectricity supply and manufacturing, most factors are supportive of a full-blown economic recovery,” she said in a report.
Increased business and consumer confidence following the successful constitution referendum process, a well established middle class and the growing services sectors are some of the factors that are likely to support a full-scale economic recovery, the report further said.
“Confidence, perhaps the most important of positive influences, is back. The success of the constitutional referendum in August 2010 was an important step in the country’s efforts to leave its political difficulties behind,” she said adding that the benefits to be accrued from this would be seen in 2011.
The country also stands to gain from regional integration particularly following the start of the implementation of the East African Common Market Protocol in July 2010.
The discovery of mineral resources such as oil and natural gases in the neighbouring countries is further expected to boost not only trade in the region but infrastructure development.
Ms Khan praised the Central Bank of Kenya (CBK) for successfully introducing extensive measures aimed at increasing liquidity in the banking system in order to accommodate a higher domestic borrowing requirement.
Reserve ratios and the policy rate were eased, she pointed out, while the threshold for investment in government securities was lowered. Allowing microfinance institutions to mobilise deposits under the close supervision of the CBK also helped to boost investible funds in the economy.
“The schedules for T-Bill and Bond auctions were modified to ensure a sustainable low-interest-rate environment. Horizontal repos, allowing for more effective inter-bank borrowing between financial institutions were introduced,” the reported indicated.
Ms Khan however cautioned that although the country was able to lengthen its domestic yield curve and raise over Sh80 billion in infrastructure bonds without pressuring interest rates, the economic recovery was likely to pose some risk to bond yields.
This she said was likely to force Kenya to switch to external borrowing provided that market conditions are conducive.
And following the recent long term credit upgrade by Standards and Poor’s, the analyst predicted that the government was likely to issue the sovereign bond, which has been delayed severally, in the first quarter of the 2011/2012 financial year.
However, politics still remain a key driver of Kenya’s economic outlook and the analyst stressed the need for more legislative reforms as the country embarks on the implementation the new constitution.
“While passage of the constitution is broadly positive, signaling widespread support for a devolution of power from the centre to more powerful regions, many of the tenets of the new constitution still require legislative changes to become operational. The process is not devoid of political risk,” she warned.