Kenyan economy to grow by 4.5 p.c.

Asset management firm AIG Investments projects the economy to grow by at least four per cent this year, due to improved agricultural output and increased government spending. The company predicts a growth rate of between four and 4.5 per cent this year mainly as a result of high crop yield due to improved rainfall.

AIG Investments vice-president and senior investment manager Peter Wachira on Wednesday said that his company’s projection should be looked at from the perspective that the economy is coming from a low base, having slumped from seven per cent in 2007 to less than 1.7 per cent in 2008.

Given the significant contribution agricultural production has to the economy, accounting for 25 per cent of the country’s gross domestic product (GDP), increased production would extensively increase growth.

“Now with some rains having been received in agricultural areas and we are hoping it will continue when we expect long rains in April-May, then we expect to see a turnaround in agriculture,” Mr Wachira told a media briefing in Nairobi.

The effect of the Sh22 billion economic stimulus package announced by the government last year would also be felt, as construction projects start, he said. The package is tailored around labour-intensive infrastructure projects.

Not much work was done last year, but based on advertisements put in newspapers by the government recently, Mr Wachira said, the country was set for massive rollout of infrastructure projects this year.

“A lot of money not spent last year is expected to be spent this year,” he said. “These projects will create employment, increase consumption and kick off production, thus driving the economy.”

However, Mr Wachira said that a Yes-vote for the new constitution during the referendum expected later in the year would boost or damage business confidence. “The vote will remove uncertainty thus businesses and investors are likely to take more actions in sense of business,” he said.

Interest rates

AIG senior investment manager Edward Gitahi said monetary authorities managed to keep interest rates low. Central Bank lowered both the Bank’s rate and the cash reserve ratio. Interest rates are likely to remain low and stable in the first three months of the year creating conducive environment for issuance of corporate bonds debt and credit expansion.

AIG projects that overall inflation could fall below five per cent in the first three months of 2010. The change in inflation measure is likely to strengthen macroeconomic environment with a possible decline in interest rates.