World Bank Raises Kenya 2013 Growth Outlook on Higher Investment

The World Bank raised its 2013 economic-growth forecast for Kenya, citing lower interest rates and growing investment, while warning that “external shocks” threaten to undermine East Africa’s largest economy.

The outlook has been raised to 5.7 percent, from a previous estimate of 5 percent announced in December, and growth in the economy may accelerate to 6 percent next year, the Washington-based bank said in a semi-annual economic update.

“Kenya entered 2013 on a strong economic footing and peaceful elections are giving it an additional boost,” the World Bank said in the report distributed today in the capital, Nairobi. “The economy is still vulnerable to external shocks, which can erode significant gains it has achieved.”

Kenya’s central bank cut its key lending rate by 1 percentage point to 8.5 percent in May to help lift the economy, a month after President Uhuru Kenyatta was sworn into office with a pledge to double growth to 10 percent a year.

Growth has never returned to the 7 percent level reached in 2007, when a disputed presidential election at the end of that year sparked two months of ethnic clashes in which more than 1,100 people were killed. Kenyatta and his deputy, William Ruto, are facing trial at The Hague-based International Criminal Court on crimes-against-humanity charges for organizing the clashes. They both deny the allegations.

A reduction in interest rates from a record 18 percent since the middle of last year has boosted investor sentiment and helped the country attract capital inflows.

Stocks, Currency

The Nairobi All-Share Index has gained 28 percent so far this year, while the currency has strengthened 0.5 percent against the dollar. The shilling traded less than 0.1 percent weaker at 85.70 per dollar by 1:35 p.m. in Nairobi, according to data compiled by Bloomberg.

The economy grew an average of 3.8 percent in the past decade, “below its potential, its ambition and its peers,” which can be reversed through measures including improving the business environment and driving export growth, the bank said.

Kenya is the world’s biggest exporter of black tea and it supplies a third of all flowers traded in Europe.

The poverty level has declined to as low as 34 percent today from 47 percent in 2005, while its gross domestic product per capita of about $820 is half the average of all 48 sub-Saharan Africa nations, according to the report.

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