How is the Status of the Kenyan Economy?

Agriculture remains the backbone of Kenya’s economy, contributing an average of about 25.4 percent of GDP every year. But manufacturing, Information and Communication Technology (ICT), and real estate are expanding.

The country’s GDP growth was projected to decelerate to 5.5 percent, a 0.5 percentage point markdown from the 2016 forecast by the World Bank’s Kenya Economic Update (KEU) released early this year.

According to the report, consistent with its robust performance in recent years the economic growth in Kenya was solid in 2016, coming in at an estimated 5.9 percent, a five-year high, said to have been supported by a stable macroeconomic environment, low oil prices, earlier favorable harvest, rebound in tourism, strong remittance inflows, and an ambitious public investment drive.

“Nonetheless, Kenya is currently facing headwinds that are likely to dampen GDP growth in 2017,” noted Diarietou Gaye, World Bank Country Director for Kenya.

After a prolonged economic stagnation because of corruption and strict regulations, the country is now showing robust economic growth. The economy grew by an average of 6.3 percent from 2010 to 2013.

In September 2014, Kenya effectively joined the ranks of middle-income countries. This was mainly due to the ‘rebasing’ of the economy, which resulted in a 25.3 percent upward revision of Kenya’s GDP in 2013 from a previous estimate of US$42.6 billion to about US$55.2 billion, according to Kenya National Bureau of Statistics (KNBS).

The statistical reassessment makes it the 9th largest economy in Africa, surpassing Ghana, Tunisia, and Ethiopia. The country’s real GDP growth rate in 2014 was also revised upwards to a robust 5.7 percent, from an earlier estimate of 4.7 percent. In addition, Kenya’s GDP per capita was also increased to US$1,246, from just US$994 in 2013. In 2015, GDP per capita stood at US$1,388.

But while the medium- to long-term outlook appears favorable, Kenya’s economy remains vulnerable to downside risks. These include the potential for fiscal slippages, a more prolonged drought in 2017, and external risks from a weaker than expected growth amongst Kenya’s trading partners, as well as uncertainties related to US interest rate hikes and the resultant stronger dollar.

Kenya’s poverty index remains high and the country has still the highest number of slums in Africa. In fact, almost 20 million Kenyans, about 42 percent of the population, live on less than a dollar in a day.

According to a World Bank report, Kenya has been let down by stagnating agriculture and manufacturing industries, falling exports, and a low household savings rate that can be tapped for investment in local industries and infrastructure. Worse, government corruption persists.

High youth unemployment remains a serious problem. Kenya’s youth unemployment now stands at 17.3 percent, almost three times higher than neighboring Uganda and Tanzania. Moreover, around 80 percent of jobs in the country are in the low-paying, less productive informal sector.

For Kenya to remain stable and the economic sustainable, agricultural productivity needs to be improved by increasing the competitiveness of agricultural input and output markets. New engines for economic growth need to be supported, such as unlocking the affordable housing market.