Kenya's future bright, says WB

The World Bank has said Kenya’s economic prospects are “quite good” despite the various challenges it is facing.

Noting that the current drought and the global financial crisis pose a great challenge to the economy, the bank’s country director Johannes Zutt said favourable foundation blocks for economic growth are in place.

Amongst these, he cited, are the country’s geographical location on the continent and a fairly well established manufacturing and services industry.

“The micro economic management and business environment are good for economic growth,” he said, “and ongoing investment in roads, power and water will pay off.”

Start improving

Mr Zutt’s comments come a day after Central Bank of Kenya governor Njuguna Ndung’u told Reuters that the country’s economy is likely to start improving at the beginning of the next quarter after government spending for this fiscal year commences.

Prof Ndung’u on Monday said a slow approval process for the national spending plans presented by the Finance minister in June was compounding the effects of the global downturn coupled with a severe drought at home.

“We expect the uptake and even the growth to start showing ... maybe at the start of next quarter,” he said.

The government projects the economy to grow by 3 per cent this year up from 1.7 per cent last year.

Some analysts have, however, raised concerns that the effects of drought, which have led to power, food and water shortages, will slow down the growth.

Mr Zutt called on the government to maintain its focus on macro-economic management, regulatory reforms and the fight against corruption.

Speaking to the press during a breakfast meeting held at a Nairobi hotel, the World Bank official cited the port of Mombasa as one of the key areas that need serious attention.

Very efficient

“The port of Rotterdam is enormous but its operations are very efficient. There is no reason why the port of Mombasa cannot improve its service,” he said.

Although the director praised the good management of the economy, there are challenges in holding price stability in terms of containing overall inflation, which rose to 18.4 per cent in August after a decline in recent months.

At the same time, Mr Zutt urged the government not to re-introduce price controls saying they will end up hurting the consumers.

He said the controls will distort the market, have a fiscal implication on the economy and discourage consumers from seeking substitutes of the commodities, a process that will create unnecessary shortages.

“Price controls can often exacerbate the underlying problem,” Mr Zutt said as a Bill by Mathira MP Ephraim Maina, which seeks to introduce control of prices of essential commodities, enters the committee stage after passing through the first reading.

If passed, the Bill will see the government fix the prices of petrol, diesel, kerosene, sugar, rice, cooking oil, wheat and wheat flour as well as maize and maize flour.

However, manufacturers, through their industry lobby, Kenya Association of Manufacturers, described the proposal as “ill-advised, retrogressive and impractical”.