Kenya is now in full-blown economic recovery, says a new study, with most factors supportive of consistent growth in the next three years, despite some fears of the approaching La Niña weather phenomenon.

Meanwhile, newly oil-rich Uganda’s economic prospects remain the brightest in the region, with growth reaching a high of 9.0 per cent in four years. Tanzania too is expected to enjoy steady growth in coming years.

Much of the economic recovery of Kenya — which was battered by a political crisis after the 2007 general election and the global financial crisis thereafter — is credited to Central Bank measures that increased liquidity in the banking system, which in turn led to higher domestic borrowing, while continuing to support private-sector credit growth.

More so than any other frontier African economy, Kenya has been commended for its successful handling of its borrowing requirements during the global financial crisis.

The move by Central Bank of Kenya eased reserve ratios and the policy rate, consequently lowering the threshold for investment in government securities.

This at the same time enabled microfinance institutions that mobilise deposits to be brought under the regulatory ambit of the CBK, pumping funds into the economy.

The CBK modified the schedules for T-bill and -bond auctions to ensure a sustainable low-interest-rate environment.

The study by Standard Chartered Bank, entitled, “Global Focus – 2011 – The Year Ahead,” and authored by Razia Khan, assesses the response to the crisis of the East African majors Kenya, Uganda and Tanzania.

The report, whose findings have been seen by The EastAfrican, says that the country’s economic target for 2010 will be achieved going by current trends.

It cites one of the key drivers as power consumption, which went up by 20 per cent in the 12 months to September 2010.

Improved tax collections and an upswing in agriculture are identified as ensuring good outcomes. “Tax collections on consumer goods and income tax have all expanded well above the inflation rate,” said a statement by the CBK, adding that Kenya was now on track to achieve Vision 2030.

The CBK moved in to allow for more effective inter-bank borrowing between financial institutions, so the country was able to lengthen its domestic yield curve significantly (to 25Y) and raise more than $1 billion through infrastructure bonds, without forcing interest rates higher.

While Kenya’s progress since then has been halting, tempered by bouts of adverse weather that impacted agriculture, hydroelectricity supply and manufacturing, most factors are supportive of a full-blown economic recovery.

Despite the persistence of weather-related risks, Kenya should make progress, with a return to trend growth.

The report says: “The success of Kenya’s approach to financial-market development has benefited the real economy, and will remain a key growth driver in 2011.

Thanks to a regulatory environment that favours innovation like the one seen, for instance, in the widespread growth of mobile-phone banking, Kenya has had greater success with financial inclusion than many peer economies.”

The proportion of the country’s population with access to formal banking rose to 40.5 per cent in 2009 from 26.4 per cent in 2006.

Kenya’s banking sector was not left out. CBK says 85 per cent of the banks are expected to grow by at least five per cent, a rise from slightly less than 70 per cent of the banks expecting at most three per cent growth during the same period last year.

Kenya’s growth will possibly hit 6.5 per cent in 2013 if the predictions come true. But even before then, the country will still enjoy a steady rise from 4.1 per cent this year through the next four years.

Uganda
Uganda’s economy will remain the strongest in the region reaching a high of 9.0 per cent growth in four years, from 6.4 per cent this year. Tanzania, on the other hand, will grow but at a slower pace than Uganda.

Though its projected growth will be higher than Kenya’s in 2013, the pace will be slower because by then it would have grown by 1.2 percentage points while Kenya would have grown by 2.4 points. Uganda will outgrow its neighbours but by a slight margin of 0.2 points more than Kenya.

One of the key pillars of Uganda’s economic superiority is the expected commencement of oil production before the end of next year.

The exploration is expected to generate $2 billion annually — a huge relief for the country that has for many years been dependent on agriculture and donor financial grants to spur economic growth.

The report says that Uganda, which is cutting down on donor dependency to 25 per cent of the budget in the current financial year ending June 2011 has maintained unwavering growth in the recent past.

It praises the country, set to hold parliamentary and presidential elections early next year, for “its high level of economic liberalisation and ongoing improvement in regional integration,” but warns of imminent inflation as election money finds its way into the markets.

Tanzania
Though it was hard hit by the economic crisis last year, Tanzania has picked up and is now enjoying steady growth.

The country’s GDP rose from an unprecedented low of 5 per cent during the crisis to 6.5 per cent this year. The country was recording a trend of 6-7 per cent growth in the years before the crisis.

This level will be achieved sometime in 2012, as growth is expect to further improve to 6.7 per cent in 2011.

The country, which recently held elections that returned the incumbent President Jakaya Kikwete to power, may not find the going all that easy, though.

Donor assistance will be rolled back this year by $220 million for the financial year ending March 2011 with donors citing dissatisfaction with “domestic revenue collection and governance and business reforms.”

The cut back is expected to play a major role in holding back growth, which will however be powered by mining, agriculture, construction and tourism.
Donors had over the years been providing 40 per cent of the country’s budget, but this year the support is down to 25 per cent.