Paul Redfern
3 July 2009
Nairobi — There is little chance that the Kenyan economy will improve much in the near future, according to a new international economic report.
Business Monitor's latest 2009 report, indicates that three key sectors of the economy - tourism, horticulture and foreign investment - which remain heavily dependent on international factors, are likely to fail to hit projected targets.
"We are not optimistic about the short term economic position," the report says. "Our outlook has yet again been downgraded, amid a worsening picture for global growth. "Although the nation has so far emerged relatively unscathed from the global financial crisis, the effects will certainly be felt over the medium term. Transmission mechanisms will be manifold. For sure, commodity earnings will suffer during the global recession, given Kenya's orientation toward luxury exports such as tea and horticulture."
The report says that the Kenyan tourism industry in particular has yet to face the impact of the global financial crisis even before fully recovering from the damage done to it by the outbreak of violence that followed the elections at the end of 2007.
Tourist numbers fell by 90 per cent in January, 2008. However, by year end, tourist numbers was down 15 per cent. But they are unlikely now to hit the three million government target for 2012.
Business Monitor also says that the international economic recession will mean that investment, too, will decline, owing to the global capital shortage.
It adds that private consumption "will be affected more insidiously.
"The effects may well be lagged, but several factors will ultimately take their toll on consumer spending, including waning remittances, a contraction of the manufacturing sector, and a possible bursting of the real estate bubble.
"Unemployment is already a pressing political problem in Kenya, and it is set to get worse over the course of 2009. Amid a sharp slowdown in economic activity, we believe the manufacturing industry will see the most job losses, while the telecommunications sector is also of key concern.
"Rising unemployment will increase the risk of short-term political instability and we believe public protests could occur with increasing frequency over the coming months. None of this is good news for the tourism sector."
The Kenyan government has taken action to try and boost tourism in particular, cutting visa fees by 50 per cent, and waiving them entirely for children under 16, but Kenya remains an expensive country to visit.
The declining number of travellers - both business and tourists - to Kenya has also led two international airlines (British Airways and Virgin Atlantic) who regularly service the vital Nairobi to London air corridor to consider cutting the number of daily flights from this autumn.
Central Bank data shows 729,000 tourists visited Kenya last year, down from 1,048,372 visitors in 2007, leading to a USD158 million drop in income.
Kenya had set itself the goal of attracting three million tourists to the country by 2012.
In 2007, it achieved an important milestone when it received two million arrivals. However, this fell to just 1.1 million in 2008.
Kenya Tourist Board chairman, Jake Grieves Cook has said that he expects the sector to record 10 - 15 per cent growth this year. 'A 113 per cent increase over February 2008 and an overall rise of 54 per cent over March 2008 were posted,' he said, adding that forward bookings from July onwards are also said to be positive and he feels the year should close with international arrivals of 1.4 million to 1.6 million.
UK experts however doubt his optimism will prove accurate.
Business Monitor also says that political factors are hindering economic improvement in Kenya saying that it "remains concerned over political risk in Kenya, following the failure to establish a local tribunal to try the alleged perpetrators of the post-election violence.
"Unemployment is already a pressing political problem in Kenya, and it is set to get worse over the course of 2009. Unemployment, especially among the young, can place pressure on social stability, potentially leading to public unrest. This threat is captured in our proprietary political risk ratings.
"In our short-term ratings, Kenya already receives a score of 1 out of 10 in the unemployment sub-category, indicating that joblessness is both high and rising.
When combined with high inflation (headline inflation stood at 25.1 per cent year-on-year in February 2009) and fairly frequent unrest, it delivers a score of just 35.0 out of 100.0 for social stability in Kenya, indicating that further protests are relatively likely to occur."
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