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Running on One Engine

Wolfgang Fengler's picture

This week, the World Bank launched its second Kenya Economic Update. We have been positively surprised to see such a strong uptake of our previous report and were pleased to have a full house at the launch and informal briefings we have in the run-up of the launch. These Economic Updates aim to replicate a model of shorter, crisper and more frequent country economic reports, which have become a trademark of the World Bank’s analytical presence in other countries, in particular China and Russia.

Kenya has a large number of strengths on which such an analytical program can built, including a strong private sector, a vibrant civil society, an open media, and a rise in new communication tools which are taking root very quickly.Our experience thus far confirms the value of embracing 21st century communication methods for the World Bank’s analysis. I thank Shanta for having taken the lead to establish a vibrant platform for knowledge exchange on Africa’s development on this site.

This Kenya Economic Update has three main messages.  First, after two years of low growth, Kenya is back. The economy is now on its path of full recovery. We have upgraded our growth projection for 2010 from 3.5 to of 4.0 percent, and believe that in 2011, Kenya can grow at 4.9 percent. In both years, Kenya would grow in line with the average of Sub-Saharan Africa. This outlook is contingent on the absence of domestic shocks which in the past have often disappointed Kenya’s high hopes for strong economic performance (figure 1).

Figure 1 – Kenya’s economy is recovering, slowly but surely

Second, Kenya is running on one engine. Kenya’s weak engine remains its exports which have been declining sharply in relative importance. At independence, exports represented 40 percent of GDP. By the mid-1980s, the export share had dropped to 20 percent, before it recovered to 27 percent today. The manufacturing sector illustrates Kenya’s economic challenges. Stagnating at around 11 percent of the economy, the sector has dropped from second to fourth place in economic importance over the last decade. While tradable sectors, such as agriculture and manufacturing, have performed poorly, non-tradable sectors, such as services and construction, have been doing very well. In 2004, Transport & telecommunication became Kenya’s second largest sector; in 2007, wholesale and retail trade surpassed manufacturing as a percentage of GDP (figure 2).

Figure 2 – Manufacturing falls behind service sectors

Third, the Infrastructure deficit constrains exports. The port of Mombasa is the special focus of our report. It is probably East Africa’s the most important infrastructure asset, and a prime example for Kenya’s infrastructure deficit. Despite some improvements, port reforms have not kept up with the momentum in other African countries. It still takes 20 days to bring a container from Mombasa to Nairobi. This is longer than to ship the same container from Singapore to Mombasa (figure 3).  However, the overall vol­umes handled in Mombasa are low by internation­al standards, only representing 2 percent of the volumes handled by Singapore. However, the port in Singapore is not 50m times larger as in Mombasa but it has much more Throughput per infrastructure unit.  It is in these “soft areas” where the port of Mombasa could make the biggest gains. These include the establishment of a “landlord port” and the enabling of full 24-hour port operations. 

Figure 3 – it still takes 20 days to bring a container from Mombasa to Nairobi
 

We look forward to your feedback on our recent report and to suggestions on how to use World Bank analysis to support all Kenyans who want to improve the economic management of their country.

Comments

Submitted by ejaz ghani on
Is Keny growing on one engine or many engines? How does one explain the size of telecom and transport exceeding manufacturig as a worrying sign for Kenya? Or why is manufacturing better than services?

The report is spot on and raises useful points. I am also reminded that export led strategies have revealed their weaknesses during the financial crisis and Kenya might be an example. I am wondering however why South Africa experienced negative economic growth in 2009. What was the distinguishing factor between Kenya et al and South Africa?

Submitted by Wolfgang on
This is a very good question and my colleague Sandeep is in a better position to respond to the specifics of South Africa's performance. Broadly speaking, African countries which have been less integrated into the global economy and less dependent on natural resources have done better in 2009. By contrast South Africa with a strong and internationally integrated financial sector as well as an important mining sector has been hit harder by the global crisis.

It still debatable if Kenyas cut flower industry has that hyped impact otowards poverty alleviation because this is an industry owed and benefiting FOREIGNERS and the environmental damages caused by this industry will cost so much to mitigate more than benefits the country will reap

Submitted by Janet Karanja on
Good for Kenya. The Government should be encouraged by the increasing growth rates to create more viable policies and solve the current stagflation haunting the nation. High prices of raw materials seem to be a contributing factor to the declining manufacturing industry. It is necessary to follow in the footsteps of the Asian "tigers", increasing exports while protecting the domestic industry.

Submitted by Anonymous on
To restart the export engine Kenya need to look into sources of cheap electricity as this is what resulted in gradual closedown of factories in our industrial areas,export production cannot thrive here when cost of power is so high i have been there and i know this to be true.

Submitted by Fredrick Njehu on
The comparison on the impact of the global financial crisis between South Africa and Kenya is basically based on how each country treats its financial flows. South Africa tend to allow more of the Denovo investments because its trade and investments policies are more open and liberalised to the global market. In contrast, the Kenyan capital market is a bit stringent in terms of foreign capital injection which in turn limits the amount of money repartriated. So, in essence, portfolio investments are common in South Africa as opposed to Kenya.

Submitted by Robert on
Finally, a sober forum that discusses fact. It's unfortunate that Kenya's economy (like those of many others) is held hostage by the electoral cycle and its associated shenanigans. I however still hold a more optimistic view on the growth potential and resilience of the Kenyan economy, especially given the fact that the large informal economy is not captured in these computations ... and that sector is thriving.

Pretty good post. I just stumbled upon your blog and wanted to say that I have really enjoyed reading your blog posts. Any way I’ll be subscribing to your feed and I hope you post again soon.

Submitted by Hitcliff J. on
Very encouraging article about Kenya. As for my view, I believe a country that cannot feed itself cannot have a sustained economic growth. With the natural resources we have (I got interested and made a small research on this topic http://bytesland.com/view/Kenya/3 ): land (140,000,000 acres), water (a couple or lakes and major rivers) and labour (20% unemployment) and mordern farming tecnology it is hard to believe we cannot feed ourself. This is the only sector that will lift the whole country out of poverty. If everybody could have a balanced diet this is achivable. To produce food to feed 40,000,000 people is sufficient market. With mordern machinery we can do a lot. A good example is Malawi, but you will never hear of it. The president vowed never to borrow food again, to change the country from food importing to food exporting, but what has come of it? Real estate sepeculation is good casino economics model, but that's all. And as usual in casino some lose and some will gain, but production of consumable goods is a never ending market and food is one. When it comes to getting profit, no one thinks of poor people and their needs. That's my to cents about the economy. If the Kenyan economy has grown by 4.0% it;s only good news I figure, but to those in power. The simple man on the ground is yet to see any improvements.

It is pleasing to see that the Kenyan economy has grown over recent years. I have lived in Kenya for 2 years and I have many inroads into the country. I believe that coca production will rise over the next three years and that tourism will continue to flourish. It is good to see clear KPIs for third world countries like Kenya.

Submitted by dissertations on
It’s good to hear the World Bank launched its second Kenya Economic Update. Kenya is in large number of strengths on which such an analytical program can built including an open media, a strong private sector and a vibrant civil society. This article is very useful. Thanks for sharing.

Submitted by Anonymous on
I want to thank you for this informative read, I really appreciate sharing this great post. Keep up your work.

Kenya is in the verge of being a financial giant in 10 years. It is one of those African nations who is showing signs of consistent growth. I do that with this financial growth, health problems will be finally and fully addressed by the government.

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