CONTENTS | ANB-BIA HOMEPAGE | WEEKLY NEWS
|
Kenya |
ECONOMY
Hopes of economic recovery to help the country deal with urgent socio-economic
problems failed to materialize,
as the economic gloom that has bedeviled
Kenya
in the past few years persisted throughout 2001
While the country’s economic growth for 2001 is expected to be slightly better than the minus 0.3 per cent achieved the previous year, the latest data shows that the year’s Gross Domestic Product (GDP) growth rate is unlikely to be more than 0.5 per cent. This will be less than the low growth rates of 1.8 per cent and 1.4 per cent recorded in 1998 and 1999, respectively.
The central Bank of Kenya’s November 2001 Monthly Economic Review, records that the country’s GDP growth between January and August 2001, was 0.6 per cent. This was before the September 11 terrorist attacks in New York and Washington, which has had immense adverse effects on the global economy.
Some of the key economic activities in Kenya adversely affected by the aftermath of the September 11 terrorist attack, include tourism, key agricultural exports, especially tea, and the overall inflow of the country’s GDP growth rate for the year 2001 is about 0.4 per cent.
According to Dr. Gerrishon Ikiara, a lecturer in economics at the Institute of Diplomacy and International Studies at the University of Nairobi, the limited recovery of the country’s leading tourism sector after more than two years of a major slump, moderate improvements in agricultural production and improved power supply to productive sectors were not strong enough to stimulate the economy into a full recovery.
Cement, electricity and the Stock Exchange
In his analysis, Dr. Ikiara reveals that the trends in demand for cement and electricity -– two reliable barometers of a country’s economy activity -– show that the economy is still in deep water. «For instance, the current demand for industrial power supply stands at the level it was five years ago in 1996», adds Dr. Ikiara in the analysis paper published in the Sunday Nation 30 December 2001.
Cement consumption levels give more of less the same signals. In the year 2000, both the production and consumption of cement in the country has declined by more than 16 per cent each.
The Nairobi Stock Exchange 20-share index further reinforces the view that the economy had continued largely on a downward trend during the year. The index, regarded as a fairly sensitive measure of the state of the economy, has declined sharply in the past two years, from 2,303 points in 1999 to 1,913 points at the end of 2000, and a further low of 1,401 points by the end of September, this year. Also, wide ranges of other economic indicators show that the economy continued to exhibit weaknesses in key areas.
Fiscal pressure
The Government continued to be under increasing fiscal pressure during the year as a result of declining revenue collection due to poor economic performance, as well as continued suspension of some donor credit facilities. By the end of September 2001, there was a deficit of Sh 3.7 billion in the Government’s fiscal operations, equivalent to 0.4 per cent GDP. In addition, the overall public debt had risen to 626.6 billion, equivalent to 70 per cent of the country’s GDP, having risen by about Sh6 billion between June and September.
The controversial Donde Bill also affected the banking sector. The legislation which introduced controls on deposit and lending rates in an essentially liberalized economy, was expected to have major implications on the operations and profitability of banking activities.
In addition to their spirited efforts to challenge the Donde Act (an Act initiated by the Ford-Kenya Member of Parliament for Gem, Mr Joe Donde), banking institutions have been highly cautious in their lending until the pending legal dispute over the new banking law is settled. Indeed, the uncertainty surrounding the country’s banking industry in the wake of the Donde Act, has adversely affected banking activities.
Poverty reduction
Poverty reduction is hardly evident, with close to 60 per cent of the population now estimated to be living below the poverty line of less than $370 per person per year. Two factors help to explain the failure to make a significant impact on poverty reduction during the year. First, lack of effective support for poverty reducing programmes at the local levels. These are clearly exemplified by the politically instigated rent crisis at Nairobi’s Kibera slums, in which a number of people were killed, many others injured and property worth thousands of shillings destroyed; and the demolition of small-scale jua kali enterprises in Mombasa.
Secondly, the expected flow of external resources to finance Poverty Reduction Strategy Paper (PRSP) activities did not materialize, following the government’s failure to demonstrate its commitment to the establishment of an effective anti-corruption institutional framework, and its full support for economic reforms. These are a result of the partial collapse of former Head of the Public Service and Secretary to the cabinet, Dr Richard Leakey’s Economic Recovery (or the Dream Team), and the stalling of the privatization of Telkom Kenya.
Once again, Kenya’s population has waited in vain for eagerly anticipated economic recovery, which is increasingly turning out to be a mirage. While a number of domestic and external factors have contributed to this economic misery, inadequate focus on the economy and lack of political will continue to be the main culprits.
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PeaceLink 2002 - Reproduction authorised, with usual acknowledgement