Nairobi to rebase economy, gain mid-income status

Saturday September 27 2014

By ALLAN OLINGO, The EastAfrican

Kenya will rebase its gross domestic product this week, becoming the third African country after Nigeria and Angola to do so, in a move that is likely to raise its GDP which currently stands at about $37 billion a year.

The country wants to have better coverage of certain sectors of the economy, including mobile money transfer services and information technology in order to reflect changes in output.

In April this year, Nigeria rebased its GDP, which almost doubled to more than $500 billion and the country bypassed South Africa to become Africa’s largest economy.

Kenya’s base year will move from 2001 to 2009 and the revised series will cover annual and quarterly data starting from 2006.

The country’s economy is mainly driven by agriculture, tourism, manufacturing, banking, insurance and mobile telephony, but the recent discovery of oil, gas and mining will have a significant impact on the economy.

In 2013, World Bank estimated Kenya’s GDP to be $44 billion and the rebasing of the economy by more than a fifth will push the country into middle income status with a GDP of $52.8 billion and a per capita income of $1,190. The country has a population of about 44.35 million people.

The World Bank’s threshold for middle income status is a per capita income of about $1,032. The current per capita income for Kenya is $996.

According to the Kenya National Bureau of Statistics (KNBS), the revision process involved the use of a wide range of information from surveys, censuses and administrative records to determine the actual size of the country’s economy.

KNBS’s acting director-general Zachary Mwangi said that the revision will take into account the fast growing sectors of the economy like the information and communication technology (ICT), financial services industry and the telecoms.

The growth of mobile money transfer business which was launched by Safaricom in 2007 is one of the biggest contributors to the economy, and was worth $292 million as at December 2013.

International best practice

The international best practice stipulates that countries’ GDP should be revised after every five years to factor in new developments in their economies.

Other African countries including Ghana, Zambia and South Africa have been overhauling their GDP data by using more accurate statistical methods and factoring in new economic sectors.

Citibank head of markets, Ignatius Chicha said that Kenya’s new status as a middle class economy will give the government more room for borrowing for infrastructure spending given a larger economy with a capacity to absorb more funds.

“Increased infrastructure spending will stimulate productive sectors of the economy and this will result in a trickledown effect that will help improve the living status of the poor. With a growth in the GDP, the government will have room for more borrowing as the GDP to debt ratio will decline,” Mr Chicha told Daily Nation.

During its rebasing, Nigeria recalculated the value of GDP based on production patterns in 2010, increasing the number of industries it measures to 46, up from 33 and giving greater weighting to sectors such as telecommunications and financial services that have seen a tremendous growth in the last four years.

The new calculations also saw a 12.7 per cent growth of the African economy power house between 2012 and 2013.