Nairobi — The Kenya Economic Report 2009 just released exposes the challenges the country faces in fostering economic growth and also offers vital lessons for recovery.

In conclusion, the report by the Kenya Institute of Public Policy Research and Analysis (Kippra) says the country's economic growth looks promising but several fundamental reforms are needed for it to attain the Vision 2030 goals.

According to Kippra, the economy has survived the triple assault namely the 2008 post-election violence, prolonged drought and global recession and is now showing signs of recovery.

Gross Domestic Product is expected to grow by between two and 2.5 per cent in 2009 and improve further to 3.9 per cent in 2010.

The report, released on Wednesday, says economic recovery is "subject to effective implementation of the government's policy agenda, favourable weather conditions and a stable external environment".

While the first item is within the government's control, the other two might prove major challenges in attaining the desired growth.

The government has therefore been urged to improve investor climate to achieve full recovery.

Kippra observes that Kenya has one of the lowest investment rates among its peers largely due to insecurity, corruption, poor infrastructure and limited access to credit by small and medium enterprises.

The lowest foreign direct investment for Kenya was recorded in 2008 when only $96 million was attained down from $728 million the previous year according to economist Caleb Wegorro and Mr Samuel Gichere, the deputy secretary general in charge of projects at the Lake Victoria Basin Commission.

The two made the remarks at the recently concluded Second Lake Victoria Basin Stakeholders Forum in a joint paper titled Preview of the potentials and opportunities in Lake Victoria Basin.

During the year, other EAC partner states received FDI of varying amounts with the highest being Uganda ($787 million), Tanzania ($744 million), Rwanda ($103 million) and Burundi ($1 million).

"The key prerequisites to increasing productivity include improving investment climate, developing infrastructure, research and development and development of human skills," the report says.

Besides, the government will also have to battle with galloping food prices that went up from 9.8 in 2007 to 31.5 per cent in the first five months of 2008.

The report also calls for stimulation of the export market through diversification, improved value exports and initiating policies to improve investment climate.

Kippra's executive director Moses Ikiara notes that it will take about two years before the country regains its growth momentum recorded in 2007 when the GDP reached 7.1 per cent.

The institute found that more than three million Kenyans had joined the ranks of the poor between 1997 and 2006, even as the government claimed it was winning the war against poverty.

At the same time, the number of those living below the poverty line increased from 13.4 million in 1997 to 16.6 million in 2006.