Kenya: Violence after the disputed December 2007 presidential election left around 1,500 people dead and some 300,000 displaced. Picture: AFP
High food and fuel prices, the Horn of Africa drought and the euro crisis will dampen Kenya's economic growth in 2011, and possibly into 2012, the World Bank said in a report on Thursday.
"High food and fuel prices, the drought in the Horn of Africa and the euro crisis have weakened Kenya's external position, which was already fragile given the large current account deficit," said the semi-annual report.
"These economic challenges will lower growth to an estimated 4.3% in 2011. For 2012 the World Bank predicts growth to recover slightly and reach 5.0%, if Kenya succeeds in managing the risks," it went on.
The Bank had previously predicted 2011 growth of 4.8%. The Kenyan economy will grow 5.5% in 2013, almost back up to the 2010 level of 5.6%, it said.
Growth will be driven largely by ongoing public investment in roads and energy.
"Growth could even approach 5.5% in 2012, if a number of favorable factors materialize," the World Bank said, noting that for this to happen Kenya's economic and political situation would need to stabilize, and world markets would need to grow more rapidly than currently forecasted.
"With moderate inflation, an improved current account and a small decline in interest rates, private investment would pick up. However a smooth run up to the elections will be essential for this scenario to materialize.
"The government has managed past economic challenges well and can do so again. The key challenge for 2012 will be managing the political transition well to avoid a repeat of the post-election violence seen in 2008 and to ensure continued growth in investment and job creation," World Bank Country Director Johannes Zutt said in a statement.
Violence after the disputed December 2007 presidential election left around 1,500 people dead and some 300,000 displaced.
Inflation has been rising since the start of 2011 and peaked at 19.72% year-on-year in November.
This inflationary pressure, together with a weakening in the Kenyan shilling and a deterioration in the current account situation led to a series of spectacular rate hikes, with the central bank's key lending rate jumping from 7% to 11% in early october to 16.5% in early November and 18% at the beginning of December.
"On the external front the most challenging development would be full-blown recession in the euro zone. Europe remains Kenya's main market for horticultural exports and tourism," the report said.
Any crisis in the euro area would affect the demand for these products and further weaken Kenya's foreign exchange position.
Kenya needs to diversify its exports away from flowers and tea and to develop manufacturing for export, Lead Economist Wolfgang Fengler said Thursday.
"An economy cannot just succeed on tea and flowers alone," he said. -AFP