Kenya to Outperform Rest of SSA Economies, Says WB and BMI

With global uncertainty, fuelled by Brexit’s potential ripple effect to the European Union, major elections in the Eurozone – France and Germany-, the election of America’s President-elect Donald Trump, stability in oil prices and global trade slowdown, Kenya is projected to outperform the rest of Sub-Saharan Africa over 2017-2018.

BMI Research cites the country’s infrastructure as ‘Riding the Wave of East Africa Growth’.

“While growth will be aided by continued structural reforms to health, education and agriculture, we expect infrastructure investment to act as the main growth driver,” reads part of the executive summary.

“More specifically, continued expansion of the transport network, improvements to power generation capacity and the growing real estate sector in Nairobi underpin our very positive outlook on the Kenyan construction sector. We forecast annual average real industry value growth of 6.5 percent  over our forecast period to 2025.

The primary growth driver will be developments under the Lamu Port South Sudan Ethiopia Transport (LAPSSET) Corridor project, which aims to integrate Kenya’s transport and energy networks with those of its neighbours including landlocked Ethiopia and South Sudan. By helping cement Nairobi as the commercial hub of East Africa, the project will also bolster growth in the city’s vibrant real estate sector.”

Subsequently, the World Bank (WB) holds similar sentiments in its latest update.

World Bank says country’s GDP will likely end up at 6 percent above the sub-Saharan Africa’s 2.9 per cent behind Ethiopia’s 8.9 per cent and Tanzania 7.1 per cent until 2019.

“Sub-Saharan African growth is expected to pick up modestly to 2.9 per cent in 2017 as the region continues to adjust to low commodity prices,” said the World Bank in its Global Economic Prospects report for 2017.

In contrast, the International Monetary Fund (IMF projects 3.0 percent in 2017 compared to the expected 1.4 percent in 2016.

BMI Research however states, “Kenya’s real GDP growth will decelerate over the coming quarters as credit growth remains weak following the government’s cap on lending rates. Even so, the outlook for economic activity remains largely positive, and an election in August and relatively low short-term borrowing costs open the door to some fiscal stimulus to offset slower credit growth.

Further, a study by Stanbic Bank released this week, outlook for the private sector credit growth will impact on the GDP despite the infrastructural developments. The study notes that “The fact that government continues to accept high yields in the primary auction makes it attractive for commercial banks to lend to the government as opposed to the private sector.”

BMI was also concerned over the soaring debt burden, but ‘will remain in a largely sustainable position, despite growing at a rapid rate’.

“Concerns over real GDP and credit growth will keep Kenya’s central bank from hiking rates in 2017, despite a modest uptick in inflation.”

On the Kenyan shilling the research firm says though it will depreciate, “it will remain a strong performer in terms of total returns thanks to high interest rates. While a large fiscal deficit will continue to drain the country’s savings, productive public and private investment will support growth and keep the shilling relatively stable over the next two years.”

Read: Shilling to Weaken More Against a Strengthening Dollar in 2017

BMI further allayed fears that the 2017 General elections will be insufficient to derail the country’s largely positive growth story.

But, the greatest risk to the economy would result from the volatility in external financial markets.

“A substantial downturn in China, which is a major financier of Kenyan infrastructure projects, could weigh on investment into the country. Additionally, rising political tensions surrounding the 2017 general elections could result in delayed investment decisions.”

Related: Elections That Will Shape Africa in 2017