No matter how Kenyans vote and handle the outcome, the August 4 constitution referendum will influence the country's economic growth.

Analysts fear the country will be thrown into yet another premature election fever, which has a negative impact of slowing the growth momentum.

Industrialisation Assistant Minister Ndiritu Muriithi, an economist, explained that the country is poised for 5-6 per cent growth in 2010 going by the current momentum but this could easily dip if “we go into a 2012 contest based on the outcome of the referendum vote.”

A senior analyst with the Kenya Institute of Public Policy and Analysis (Kippra), who requested not to be identified because the issue is highly emotive, said a “Yes” vote would unlock long-term progress, but if not handled well, it could achieve just the opposite, “especially if it sets the agenda for the next general elections.”

He added that a “No” vote would require the parties to move quickly to resolve the contentious issues and give the country a new constitution, which is required to propel the country forward.

“We need to be aware of the lurking danger either way and manage the results in such a way that the country does not go off the track of development,” he said adding, “We cannot afford another 2005 scenario where a divided government failed to deliver.”

Another analyst, Marubu Munyaka, also an economist, argued however that the outcome of the referendum would not affect the economic dynamics, considering that the two Principals are together.

“Whether they win or lose will have little impact; it is unlikely to take us back to the 2005 scenario when both were in different camps,” he said.

But an economist with the IMF, who also requested anonymity, said, “Our economy is highly correlated to confidence and 2008 and 2009 found confidence at rock bottom.

The market is apparently priced for a ‘Yes’ and would clearly kick on; whereas, going by what happened in 2005 and 2007, a ‘No’ would rattle the cage badly.”

According to the 2010 Economic Survey released last week, Kenya is regaining strength after a three-year period of virtual economic recession. Key indices show that the country is on the verge of registering between four and five per cent growth this year.

The government says the prospects for this year “look bright,” with a major recovery on the cards. The key drivers of this anticipated expansion are the ongoing rains across the country, which have so far lasted for four months, the rebound of global economic indicators as well as massive arrivals of tourists.

Upward trend

Last year, tourism sector earnings improved by over 19.5 per cent, from Ksh62.5 billion ($811 million) in 2008 to Ksh82.7 billion ($1 billion) while the number of inbound tourists rose by 23.9 per cent from 1.2 million in 2008 to 1.5 million in 2009.

The robust performance was attributed to the milder than expected effects of the global financial crisis, a stepped up marketing campaign and the expanded international route network by Kenya Airways.

According to Planning Minister Wycliffe Oparanya, the sector’s recovery played a critical role in the country’s economic recovery, which stood at 1.6 per cent in 2008. Last year, Kenya posted a real gross domestic product growth of 2.6 per cent.

“The prospects for 2010 look bright, with economic recovery projected to be more assertive this year not only for the Kenyan economy but also for most of the countries in the world.

The country is likely to gain through improved exports as well as the implementation of the government’s stimulus package especially on key infrastructural projects,” he said.

The hoped-for resurgence of agricultural sector — once Kenya’s economic backbone — could propel the anticipated growth even further as the government invests in irrigation projects.

This will be a departure from traditional farming where rainfall patterns determine farm production.

But what could drive the country’s economy to even greater heights is the recent shift by the government to social spending.

In 2009, the health and education sectors were allocated more than Ksh236,578.7 million ($3 billion) as compared with Ksh197,537.4 million ($2.56 billion) in 2008.

According to the just released economic survey, the highest share of the social sector expenditure budget was in the Ministries of Education and Health at 78 per cent and 16 per cent, respectively.

Even as Kenya celebrates its economic recovery, economists point out that the country needs to invest more in alternative energy sources to curb the rising costs of power.

It is these huge power overheads that have led to lacklustre performance in the manufacturing industry. It recorded a deceleration of two per cent in 2009 after registering a revised growth of 3.6 per cent in 2008, despite the sector being identified as a key propeller of the economy.

“High production costs, competition from cheap imports, high taxes and low levels of credit from financial institutions played a major role in hampering the sector’s growth.

However, with the imminent exploitation of alternative sources of power, we expect production costs to come down,” Mr Oparanya said.