Kenya’s Uncertain Future
Thanks to a revision in economic measurement, Kenya’s GDP swelled by 25% this past week. The Kenya National Bureau of Statistics revised its methods to take into account emerging industries such as mobile phone money transfers and informal businesses. As a result, the East African nation’s GDP per capita has jumped from $994 to $1,246 overnight and propelled the country from low to middle income status, based on World Bank indicators. Kenya now stands as Sub-Saharan Africa’s third-largest economy, jumping ahead of Ghana and Ethiopia.
But what does this actually mean for Kenya’s outlook? Dubbed by business commentators as one of Africa’s “lion” economies, the country has been viewed as one of the continent’s leaders in innovation. Nevertheless, Kenya continues to face massive social and political issues. In spite of the huge strides made in boosting life expectancy, 40% of Kenyans live below the poverty line, even higher than twenty years ago. The young democracy’s politics are also fragile: sitting President Uhuru Kenyatta has been called by the International Criminal Court to answer for the riots following the 2007 election that left 1,200 people dead. On top of this, over the past year, Kenya has been racked with terrorist attacks reportedly organized by the al-Shabab Islamist group. Until Kenya can translate economic growth into true social and political change, it would be premature to call the nation a role model for others.
Recent developments give hope that Kenya is ready to lead. Its 5% GDP growth over the past four years has been built on a variety of industries, rather than on a few key commodities, as is the common trend in many African economies. In terms of agriculture, Kenya is one of Sub-Saharan Africa’s major producers, and tops worldwide black tea production. Nairobi, the major commercial hub of East Africa, boasts one of the continent's biggest stock exchanges and a booming IT sector. Additionally, Kenya has the potential to cash in on its vast, untapped oil and natural gas reserves. An IMF report released this past week claims that the country is on a steady path to move up the global economic ladder, citing its dynamic business environment and surge in investment as some of the key drivers of growth.
Yet, the picture is not entirely rosy for the Kenyan economy. The current account deficit stands at 8.2% (compared to 5.6% four years ago), and a slumping Kenyan shilling has contributed to inflation that is expected to hit 10% this year. Contributing to this instability is the ongoing threat of terrorism that has put a dent in Kenya’s highly important tourism industry. Like many middle and low-income countries, Kenya is highly vulnerable to external shocks, making future growth prospects shaky.
More importantly, there still remains the challenge of ensuring that growth is inclusive. Despite the sudden change in the size of its economy, Kenya’s GDP per capita is still only the 25th highest in Africa, which still places Kenya in the middle of the pack. While one would expect to see an improvement of living standards from the recent growth, the reality is that Kenya is currently not expected to meet the fourth and fifth Millennium Development Goals of reducing infant and maternal deaths by two-thirds. Meanwhile, its neighbors Ethiopia and Rwanda are predicted to fulfill this target, despite their lower levels of economic development. A seemingly higher level of economic output means little if poverty, corruption and health issues persist.
Although Kenya’s recent economic surge may be more symbolic than actual, it does give Kenyans hope that their development prospects could turn for the better. The biggest benefit of the revision is that a higher GDP will improve some of the government’s financial ratios, which will give more confidence to international investors. However, this is not enough to stabilize Kenya’s economy in the long run. The most challenging problems will continue to be rampant corruption, high business transaction costs, and underdeveloped infrastructure.
Kenya also has an inherent advantage over many other African countries due to its size and diversity of industries, yet it shares the same obstacles to stable, inclusive growth. With a sensitive economy, fear of terrorism in some areas and some political infighting, Kenya’s government faces a decisive year ahead.