Kenya Business Forecast Report 2011

T he economic and political prospects of Kenya have been bolstered
by the peaceful acceptance of a new constitution by 67% of voters in
the August 2010 referendum. From a political standpoint, the passing
of the new charter will help to diminish perceptions of political risk
brought about by post election violence in early 2008. This will be
reassuring for investors, both foreign and domestic, who are looking
to harness the economic opportunities offered by the ongoing East
African Community integration process. Signs of political stability
will also be positive for the government’s ability to tap both domestic
and international capital markets – something that will be necessary
as the authorities undertake ambitious spending on infrastructure.
I n the political section of this report, we caution that while the
peaceful passing of the constitution is major positive development,
it does not mean that political risk has been eradicated entirely.
The country faces several significant challenges over the coming
24 months which could yet threaten the political environment. Chief
among these will be actually implementing the new laws, which will
not be automatic given there is some parliamentary opposition to
the charter. Additionally, the ongoing process to try ringleaders of
the political violence risks raising tensions once again.
Political instability was one third of a triple whammy which caused
real economic growth to slow to 1.6% and 2.6% in 2008 and 2009
respectively – the others being a severe drought and the global financial
crisis. With the worst of all of these factors seemingly behind
us, we maintain our view that the economy will return to robust rates
of expansion over coming years with real growth forecast at 4.2% in
2010 and a more impressive 5.4% in 2011. Annual growth is then
expected to average 5.5% in the period between 2011 and 2015
with Kenya set to benefit as the East African Community takes root.
T he strong economic outlook is likely to bring significant opportunities
for Kenya’s financial sector. In addition to an expectation for
increased bank lending to finance investment and consumption, we
expect Kenya’s capital markets to develop over the coming years,
presenting opportunities for corporate financing and investment
banking activities. A recent example of this is Housing Finance’s
acceptance of KES 7bn (US $86.7mn) from investors for its KES 5bn
(US $62mn) bond issuance on the Nairobi Stock Exchange – a 41%
over-subscription.