The economic performance of Kenya has steadily weakened over the last 10-years due to incompetent government management and abuse of power in the confines of corruption. Today, Kenya is poorer today then it was in the 1980's. Since 1995, the Kenyan 'shilling' has depreciated by approximately 50 percent to the US-dollar ('USD'), 20 percent depreciation alone in the shilling in late 1998 - early 1999 due to lower interest rates, weak foreign investor confidence, slower GDP growth figures and the cost associated with a major bank bailout. Since mid 1999, interest rates have moved up to help support the currency and to help bring down inflation to very attractive current low levels. With a new government taking power in the last few months, the shilling is currently trading at 2-year highs in relation to the USD on the hopes of a stronger economy fuelled by a crackdown on corruption.
POLITICS: Kenya's new President Mwai Kibaki of the Democratic Party of Kenya won the recent election in December 2002 on a platform of anti-corruption and the promise of creating new jobs. Finally, a rebirth of political stability has taken hold in Kenya. Former government leadership of President Moi 'Big Man' of the Kanu party where he led Kenya for 24 years since independence from the United Kindom in 1963 stepped down from power in December 2002. Former President Moi's government has been accused of corruption that has stripped Kenya to the bone financially. In addition, President Moi has alleged to have accumulated a massive personal fortune while serving in office including several large homes throughout Kenya. Elections have been marred by ethnic violence, police brutality and political loyalties. Government corruption is the key factor that was driving foreign investors away. On the legislative front, the Kenyan government has implemented positive reforms designed to attract foreign investment through tax incentives and removal of exchange controls which will help rejeuvinate life into the Nairobi Stock Exchange. With a new government now in power, the IMF and World Bank are now positively looking forward to assisting Kenya reach its economic potential.
ECONOMY: free market economy and developing nation. High corruption, red-tape and a bloated bureaucracy and the overall high cost of doing business over the years have hampered economic growth and have held back Kenya significantly. Economic reforms since 1993 included the removal of import licensing and price controls. The economy has suffered including the suspension of IMF and World Bank support in 1997 and foreign aid due to the former government's inability to contain corruption which has resulted in low foreign investor confidence. Time will be the answer to see if Kenya's new determination to tackle and overcome corruption thus allowing economic reforms including policies to attract foreign investment to work its magic.
Year 1999 and 2000, drought caused severe economc distress with power and agricultural crop shortages resulting in a recession. Several Western major multinational corporations presently maintain operations in Kenya although several have left under the former governments tenure due to corruption and the difficult business environment. Major industries within Kenya include consumer goods within a large manufacturing sector, tourism, oil refining, chemical & lubricants, cement, agriculture. Kenya is the world's number three exporter of tea. Resumption of foreign aid and multilateral financial support wil help capital inflows and to provide stability to the shilling. Hard currency earning include foreign aid, coffee, tea, tourism and remittances from Kenyans working abroad. Anti-corrution measures will help spur economic growth, liberalize trade and investment monies channelled towards improving the nation's infrastructure ie. sewers in cities, roads. Ethnic violence has damaged Kenya's once vibrant tourism industry although tourism is rebounding again. Nairobi is considered one of the world's most dangerous cities.
Economic Statistics
GDP using purchasing power parity is at $31 billion USD (2001) and GDP/Capita at $1,000 USD (2001). GDP as measured by market prices is at $10.5 billion USD. GDP growth of 2.2 percent since 1991 is below population growth of 2.7 percent. GDP growth for 2000 fell 0.3 percent, 2001 at plus 1 percent, 2002 at 0.9 percent. Inflation for 1993 at 46 percent, 1994 at 29 percent, 1998 at 6.6 percent, year 2000 at 10 percent, 2001 at 5.8 percent, 2002 at 1.9 percent, March 2003 inflation at 3.7 percent and is expected to decline with the arrival of the rainy season. Year 2000 budget balanced, however fiscal deficit for 2002 grew to 2.5 percent of GDP. The current account is now in modest surplus as is the overall balance of payments. The trade deficit is declining and is in the $1 billion USD/year range, figures for year 2001 have exports at $1.8 billion USD and imports at $3.1 billion USD. Positive capital inflows are offsetting this trade shortfall position. Public debt is at 64.2 percent of GDP (domestic & external public debt) as of February 2003. External debt for year 2001 is at $8 billion USD. Low savings rate at 3.4 percent. Unemployment is at 40 percent, agriculture employs 75 percent and represents 25 percent of GDP. Major export markets include the United Kingdom, Tanzania and Uganda.
POSITIVE: improving macroeconomic figures including inflation numbers, fairly well educated population, effective revenue collection, Kenyan Highlands are rich in agricultural production, English is an official language along with Swahili, mining and oil exploration potential with Kenya also rich in hi-tech metal titanium resources. CONCERN: development of electrical power and infrastructure improvement is required to advance economy, 25 percent of the children are malnourished, telecommunications are still lagging with only1 million phones, safe drinking water is in short supply, high infant mortality rate.
BANKING SYSTEM: effective and well-designed banking system with supervisory authority & deposit insurance. The banking system is vulnerable due to its high level of non-performing loans which are at 30 percent (February 2003). Financial stability risk is prevalent. Interbank interest rates as of April 25, 2003 at 5.85 percent, average commercial lending rate is at 15 percent. As of March 2003, net international reserves held at the Central Bank of Kenya are valued at $1.186 billion USD equivalent to 3.8 months of import coverage and is steadily growing. Gross official reserves when including the banking system is measured at $1.591 billion USD as of February 2003.
REGIONAL ANALYSIS: Somalia, Ethiopia, Tanzania, Uganda
Kenya is a regional trade centre for East Africa. Mombassa, Kenya is a major sea and trade port. Next door, Somalia is a very unstable country where no formal government during the 1990's led to lawlessness, crime, famine, guns and warfare. Trade has been suspended between Kenya and Somalia. Smuggling of counterfeit goods within the region is a problem resulting in tax evasion. Regional concerns include instablity with unstable governments, weather difficulties leading to famine, disease as the area is home to low GDP/Capita nations and marginal health care systems.
KNOWLEDGE: Kenya can do much better particularly after a dismal economic performance during the 1990's. For the most part, Kenya's existence relies on rain and foreign aid. Rainfall provides for electrical energy production which in turns keeps Kenya's fairly large manufacturing sector afloat. Power shortages can cause serious economic difficulties. In addition to power, rainfall for crops is vitally important as Kenya is prone to famine most recently in the Horn of Africa region including Ethiopia. Kenya's economy is also vulnerable due to its reliance on imported crude oil which eats up 40 percent of foreign exchange earnings.
AIDS is now a serious threat to future Kenyan society with many social difficulties arising now with 14 percent of Kenya's 31 million now infected. Future prosperity for Kenya is now in jeopardy with the onslaught of AIDS. Kenyan life expectancy is now below 50 years, over 1 million Kenyans have died from AIDS. The devestating consequence of AIDS is that it costs the Kenyan economy 1 percent GDP growth per year.
CURRENCY: ISO Symbol 'KES', Kenyan shilling. At time of review on May 7, 2003, the shilling had an exchange value of 73.14 KES to the USD. Floating exchange rate regime is in place and the shilling has surprisingly held its own with relative stability over the last 5 years.
CURRENCY HISTORY: currency crisis dates include March 1993, August 1997 due to political violence from a disputed election. Historical valuations include year 1993 at 58 KES to the USD, 1994 at 56, 1995 at 51.4, 1996 at 57.11, 1997 at 58.7, 1998 at 60.36, 1999 at 70.32, 2000 at 70.16, 2001 at 78.56, January 2002 at 78.6.
CURRENCY FORECAST: steady coupled with modest appreciation versus a falling USD. A new Kenyan government is positive as a return of favorable business conditions slowly returns along with foreign aid and investment. Over the long term, the Kenyan shilling remains vulnerable to the full impact of AIDS and the currency remains hostage to the risk of periodic low rainfall which may cause short term large currency fluctuations.
UPDATED: May 7, 2003.
