Kenya's economy seen growing 4.1p.c. in 2009

Growth in east Africa's biggest economy is forecast to come in at 3.5-4.0 percent in 2008 after 7 percent in 2007. Photo/FILE

Kenya's economy is expected to grow by just over 4 percent in 2009 as it continues its recovery from post-election violence early last year that stalled activity, a Reuters poll of analysts showed on Thursday.

Growth in east Africa's biggest economy is forecast to come in at 3.5-4.0 percent in 2008 after 7 percent in 2007.

The risks in 2009 are that prolonged dry weather and a global slowdown may hurt key agricultural export sectors and tourism.

"We have got to brace for hard times," said Margaret Chemengich, chief executive of Kenya's Institute of Economic Affairs. "What is going to create all these problems is the persistent drought, the famine."

President Mwai Kibaki has warned recessionary global trends were bound to hurt tourism, horticulture and floriculture.

Last week, he said Kenya would declare a national emergency because poor rains had left 10 million people in need of food aid.

Chemengich said this would put a squeeze on government finances by forcing it to divert development funds into food imports.

The drought could also curtail electricity generation, leading to power rationing and factory shutdowns, she said.

While low rainfall is mainly negative for Kenya's economy, some analysts said the global slowdown may have a positive impact as the cost of commodity imports declines.

"While the global slowdown brings challenges of its own, Kenya will also benefit from some aspects, such as weaker oil prices," said Razia Khan, Head of Africa Research at Standard
Chartered Bank in London.

Last year's spike in the price of crude and commodities such as fertiliser drove up Kenya's import bill a factor blamed for the shilling's weakness in the second half of 2008.

Shilling under pressure

Still, half of the respondents thought the shilling may weaken from its current range of Sh77.50-78.50 against the dollar, as a slowdown in agricultural exports, tourism and foreign investment hurts the balance of payments.

"We expect the exchange rate to remain in the same 76-80/$ range which has persisted since last October for the next six months," said Richard Segal, Africa strategist at UBA Capital.

"The shilling is then expected to gradually respond to a further weakening of the balance of payments and lose another 2-4 percent by year end," he said.

Kenya's balance of payments surplus fell 84 percent to $74 million in the year to October.

Four respondents saw interest rates on benchmark 91-Day Treasury bills slipping below last week's 8.488 percent, despite government borrowing plans for infrastructure development. The
median forecast was 9.0 percent at the end of December.

"The challenge is going to be sustaining ambitious government spending plans, despite the drying up of external financing," said Khan at Standard Chartered.

Like neighbours Tanzania and Uganda, the financial crisis forced Kenya to shelve plans to issue a debut $500 million Eurobond. It is now planning to raise 18 billion shillings ($230 million) locally through infrastructure bonds.

The experts forecast the Nairobi Stock Exchange's main 20-share index would rise to 4,000 points by the end of the year, lifted by a rally in financial sector stocks, after a 35 percent slump in 2008.

The index closed Wednesday's session at 3,455.88.

"The share prices will see recoveries in the banking sector this year," said Aly Khan Satchu, an independent analyst. "The agricultural side will be very strong, people need to eat before
they can drive."

The survey showed headline inflation slowing to 13 percent by December from 27.7 percent at the end of 2008, thanks to improved food supply, a change in the method of calculating the
index and base effects.