Kenya Can … End Poverty

UPDATE: Watch an interview on the report I gave to CNBC

Today the World Bank launched its first “Kenya Economic Update” and we want to use this opportunity to launch the  blog “Kenya Can … End Poverty” as part of Shanta’s “Africa Can ...” blog. After leaving Indonesia in July 2009, this also brings me back to the community of bloggers.

The title of this first Kenya Economic Update is “Still standing – Kenya’s slow recovery from a quadruple shock with a special focus on the food crisis”.

This title has two meanings.  First, the economy seems to stand still as economic growth barely matches population growth. Kenya continues to operate below its potential. Second, Kenya’s economy has weathered four crises – post-election violence, global food crisis, global financial turmoil, and drought – and is “still standing”.

Kenya has proven particularly resilient to the global financial crisis:  Its fiscal position is strong, the financial sector robust, the external sector in balance, and inflation below 10 percent.

The World Bank projects a GDP growth rate of 3.5 percent in Kenya for 2010.

In 2009, growth has been driven by services and construction (figure 1). Kenya’s service sector has been traditionally very strong and accounts for 55 percent of the economy. This year, growth in the service sector (+4.5%) was supported by a rebound in tourism (+28 percent) which experienced a record decline in 2008 (-36 percent). IT-based industries have also shown strong growth in phone connectivity (+35%) and internet access (+28 percent). Industry, which accounts for 17 percent of the economy, will grow by an estimated 3 percent, owing mostly to the booming construction sector (+13%).

Figure  1 – 2009 growth: Services perform strongly but agriculture contracts again

Source: KNBS and Bank Staff estimates (growth at factor costs)

Agriculture remains the Achilles’ heel of Kenya’s economy, both in terms of productivity and wealth distribution. In 2009, the sector is projected to contract again by 2.4 % after declining by 5 percent in 2008, despite record high commodity prices. The agriculture sector has not only been hit by domestic and external shocks but it is also the sector with some of the most difficult policy challenges.

At the end of 2009, the price of maize, Kenya’s main staple, was double the international price (figure 2), and for most of the year it was also substantially higher than in Uganda and Tanzania. Kenya’s high maize price policy benefits only a very small group – less than 2 percent of maize farmers, most of whom are large and influential producers. The rest of the population, particularly the urban and rural poor, pays a high price.

Figure 2 – Kenya’s maize prices increased while global prices declined

Source: World Bank commodity price data-stream; Regional Agricultural Trade Intelligence Network