KEY MILESTONE IN KENYA S ECONOMY. Short takes, vol 1

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1 KEY MILESTONE IN KENYA S ECONOMY S Short takes, vol 1

2 Kenya joins the league of middle income nations Tuesday 29 th September 2014, marked a milestone in the Kenyan economy following the unveiling of the revised national accounts statistics. Rebasing involved changing the base year from the year 2001 to the year 2009 in working out the GDP and reclassifying the economic sectors to achieve greater data accuracy. Figure 1: GDP (USD millions) The new rating pushed Kenya to the top 10 richest African states to be ranked as the 9 th richest economy in Africa and continued expanding its leading margin as the largest economy in East Africa. Kenya went up four places to overtake countries such as Ethiopia, Tunisia and Ghana to claim ninth position from position twelve. Kenya s GDP per capita has now risen to KES 116,037 (USD 1,246), which surpassed the threshold set by the world bank (USD 1,045). Kenya s GNI per capita stood at USD 1,160 (KES 103,600 against the World Bank s cap of USD 1,215 (KES 108,500) which is above the lower-middle income threshold. The rebased economic growth rate for the year 2013 garnered 100 basis points to stand at 5.7 percent from 4.7 percent. The statistical revision of the economy increased by 25.3 percent pushing it to the middle income category. This is the sixth time the country has revised its Gross Domestic Product (GDP). According to the UN Statistical Commission (UNSC), rebasing should take place every five years. Source: World Bank

3 Real estate and Transport and Communication, record a rise in their GDP contribution The stellar growth of the economy over the 10 years was as a result of growth on major sectors of the economy such as transport and communication and real estate industries. The real estate took the fourth position dislodging the retail and wholesale sector. Growth in the level of middle class citizens has resulted to a housing boom in the country. Figure 2 : Sectoral GDP Contribution These revised real estate figures are being conceived as good news in the country with many companies diversifying into this sector such as UAP and CIC to join Centum, Actis, Housing Finance, Britam and Home Afrika which already have a footprint in this sector. Going forward we anticipate that banks will lower their interest rates on mortgages to attract more investors into the real estate as the upward reweighting looks very favorable. More developments have been seen with the ICT sector being treated as a standalone sector taking into account the vibrant telecoms industry which pioneered mobile payments technology and exportation of innovation across Africa and around the world. This is a great milestone as it sets Kenya as an attractive investment destination given that global firms prefer setting up in large economies that offer more opportunities. Moreover, we believe that this move will increase foreign investors confidence in the Kenyan market. We shall still be entitled to receive the concessional loans and grants despite the change in status. The change in status may not have an impact to the common mwananchi immediately until the government sets up structures that will encourage equality in sharing out the country s resources. Source: Economic Survey 2014

4 Inflation records a decline amidst rise in food prices The consumer price index increased by 0.15 percent from points in August to points in September 2014 The overall inflation rate declined by 1.76 percent to settle at 6.60 percent in the month of September 2014 from 8.36 percent in the month of August 2014.This is the first time in five straight months since April that inflation recorded a steady drop. Figure 3 : CPI and Inflation Rate This decline is attributed to a 0.52 percent drop in housing, water, electricity, gas and other fuel indices. This is despite an increase in the cost of food and non alcoholic drinks by 0.58 percent between August and September During the same review period, the transport index decreased by 0.41 percent as a result of a reduction in the pump prices of both petrol and diesel in the month of September. Going forward, we foresee the inflation rate remaining within the margin. We expect the food prices and electricity prices to decline as a result of improved weather conditions and revision of the electricity tariffs. Source: KNBS website

5 Appendix 1:Abbreviations GDP-Gross Domestic Product GNI-Gross National Income ICT-Information and Communication Technology

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