Kenya is set to become one of the top five fastest-growing economies in Sub-Saharan Africa, with growth rates rising to between six and seven per cent over the next three years, according to the World Bank.
The latest Kenya Economic Update (KEU) projects the country’s growth to rise from 5.4 per cent in 2014 to up to seven per cent between 2015 and 2017.
The report also says that external and internal balances are expected to improve significantly, thanks to falling oil prices.
In addition, public investment in infrastructure, mainly in energy and the standard gauge railway, will strengthen growth in the medium term.
“Kenya is emerging as one of Africa’s key growth centres with sound economic policies in place for future improvement” said Diarietou Gaye, the World Bank’s Country Director for Kenya. “To sustain momentum, Kenya needs to continue investing in infrastructure and jobs, improve its business climate, and boost it exports.”
The report says that the country’s expansive fiscal policy allowed it to finance major infrastructure projects without putting excessive pressure on domestic financing.
“Kenya’s accommodative monetary policy stance has supported economic activities without triggering inflation or putting pressure on the exchange rate,” said John Randa, the World Bank Group’s senior economist for Kenya and lead author of the report.
However, some challenges remain. In particular, sluggish demand for exports and their declining production is widening the country’s current account deficit.
The report suggests that in order to anchor and sustain growth, Kenya needs to boost productivity and improve the business environment to regain and increase its competitiveness.
In recent years manufacturing’s contribution to Kenyan exports and growth has fallen behind and performance has been less than optimal.
“Kenya needs to increase the competitiveness of its manufacturing sector so that the country can grow, export, and create much needed jobs,” said Maria Paulina Mogollon, the World Bank Group’s private sector development specialist and a co-author of the report.
A strong manufacturing sector would create more employment, especially for young people in Kenya. The report suggests that this would also increase exports and reduce the country’s external vulnerability from a widening account deficit.
The report highlights key steps for Kenya to take, including implementing the business reform agenda, completing reforms at the port of Mombasa, improving the efficiency of its massive infrastructural projects, strengthening governance, improving productivity and continuing to maintain macroeconomic stability.