Reinvigorating Kenya’s Growth With a Dynamic Banking Sector

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December 10, 2013

Nairobi, December 10, 2013—Kenya’s economy is estimated to grow at 5 percent in 2013, says the latest World Bank economic analysis. The growth rate, supported by consumption and investment, is higher than the 4.6 percent recorded in 2012.

Although Kenya has a history of low growth during election years, the economy remained stable after the March 2013 general election.

“Maintaining a stable growth rate is encouraging as Kenyans celebrate their 50th independence anniversary,” says Diarietou Gaye, World Bank Country Director for Kenya. “One key message of this report is that Kenya has many achievements worth celebrating but there is ample room for improving the policy environment to amplify these achievements and ultimately, to end extreme poverty and boost shared prosperity in Kenya.”

The growth momentum is expected to be sustained into 2014, with the growth rate projected to improve modestly to 5.1%, according to the Kenya Economic Update for December 2013, the ninth in a series published by the World Bank half yearly. A strong macroeconomic foundation and structural reforms will be some of the key drivers of performance. 

“Low inflation, fiscal discipline and a stable exchange rate are good indicators of favorable macroeconomic performance,” says Apurva Sanghi, the World Bank Lead Economist for Kenya. “Better investment spending and budget execution rates will ensure that these macroeconomic gains are translated into microeconomic ones on the ground.”

The analysis shows that Kenya has made considerable progress in the past half century in many fronts, including in raising people’s average incomes and diversifying sources of growth from agriculture. Social indicators such as infant mortality and women fertility have also improved. But poverty and maternal deaths remain high, while secondary school enrolment and learning outcomes are below the potential that is needed to drive a modern market economy.

The report also highlights the infrastructure and other bottlenecks that impact on the cost of doing business, constraining private sector’s contribution to growth and job creation.

“Strengthening structural reforms in the transport sector and public financial management will improve opportunities for higher output and productivity,” says John Randa, the Bank’s Senior Country Economist for Kenya and one of two lead authors of the report.

The cost of credit, especially to the small and medium-size enterprises—a special theme of the report—also remains an issue, even though Kenya has considerably improved access to credit.

“Several critical areas need to be addressed to reduce the cost of credit, including the factors that influence the pricing of bank loans, better credit information sharing, and diversifying sources of finance for SMEs,” says Smita Wagh, Senior Financial Sector Specialist for Kenya, and the other lead author of the report.

The Kenya Economic Update is produced by the Bank in collaboration with Economic Round Table members, including the National Treasury, the Ministry of Devolution and Planning, the Central Bank of Kenya, the Kenya National Bureau of Statistics, the Kenya Revenue Authority, the National Economic and Social Council, the Kenya Institute for Public Policy Research and Analysis, and the International Monetary Fund. 

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