11 April 2008
Nairobi — Kenya's economic growth will slow down to 3 per cent this year, and could get worse, if the current political stalemate persists, a local fund manager warned Thursday.
That projection is less than a half of the initial government forecast of a growth rate of 8 per cent, based on the 2007 economic momentum that pushed the rate to a high of 7 per cent by December 2007.
However, the chaos and political uncertainty that followed the hotly contested December 27 General Election have derailed the economy. "Our forecast for this year is 3 per cent, but that could get worse if the current political situation does not get better," said Mr Peter Wachira, a senior investment manager at AIG East Africa.
In its projections, AIG says things could get worse if a new Cabinet is not unveiled soon.
"We are now seeing a closer link between politics and the economy," said Mr Vincent Ntalami, an investment manager at AIG East Africa, adding that political risk will now be the main concern and key driver for investors.
The AIG's growth projection almost averages the government's own projection of 4 per cent, and the International Monetary Fund's (IMF's) 2.5 per cent.
All the three projections are far behind comparative growth estimates in the region, with sub-Saharan Africa expected to return a 7 per cent growth rate. Emerging markets are estimated to experience a growth rate of 6.9 per cent. Uganda and Tanzania are expected to record economic growth rates of 6.5 per cent and 7.5 per cent respectively.
If AIG and IMF projections hold true, Kenya will end up trailing the average global growth rate, estimated at 3.9 per cent, although the latter has been largely slowed down by America, which is expected to grow by modest 1.5 per cent.
On inflation, AIG says it is likely to increase further. "Overall inflation may peak at 25 per cent by mid year, and remain above 20 per cent up to the end of the year," said Mr Edward Gitahi, another investment manager with AIG East Africa.
The fund manager also expects the stock market to remain volatile due to political risks, as well as the Safaricom initial public offering (IPO).
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