Kenyan economy poised for robust growth in the next 10 years

Kenya's economy is expected to have stable and robust growth over the next decade, driven by increasing productivity and favorable demographics, according to a recent report by BMI research. The positive outlook for Kenya's economy will be supported by a growing labor force and improving productivity, largely due to the government's infrastructure development plan. David Earnshaw, a Country Risk Analyst for Sub-Saharan Africa at BMI, shared insights on the country's economic landscape in a recent interview with CNBC Africa. Earnshaw highlighted some key points regarding interest rate caps, fiscal deficit risks, demographic trends, and infrastructure investments. Despite facing some challenges, Kenya's economy is poised for growth in the coming years. One of the major factors affecting Kenya's growth forecast in 2017 is the interest rate cap, which has led to tighter lending conditions in the banking sector, particularly impacting small and medium enterprises. However, BMI expects the government to eventually loosen the cap to stimulate credit growth, which will help boost real GDP growth in the long term. Another key risk facing Kenya is the high fiscal deficit, with close to 40% of the national debt being domestic. The rapid growth in domestic debt, especially during election years, has raised concerns among international investors and institutions like the IMF. To maintain fiscal sustainability, the government will need to curb its spending and address the rising debt burden in the post-election period. On the demographic front, Kenya's growing population presents both opportunities and challenges. While the country benefits from a diverse economy that offers employment opportunities across various sectors, ensuring job creation for the expanding labor force remains crucial to avoiding potential political risks in the future. Despite a slowdown in population growth, the proportion of working-age individuals is expected to increase, providing a potential growth boost for the economy in the years to come. Additionally, Kenya has seen a significant increase in capital spending on infrastructure projects, with a notable rise from 16% to 29% between 2000 and 2016. Although these investments have primarily been financed through debt, the country's strong project pipeline, including initiatives like the standard gauge railway, is likely to generate positive returns and attract private sector investment. However, there is a risk that rising interest rates could hamper the returns on infrastructure investments over time, underscoring the need for prudent debt management. In terms of logistics and foreign direct investment, Kenya has positioned itself as a regional gateway due to its strategic infrastructure projects such as the railway, roads, and ports. With a strong logistics performance index compared to neighboring countries like Uganda and Tanzania, Kenya is well-placed to attract continued foreign investment and drive economic growth. Despite facing challenges like fiscal deficits and infrastructure financing risks, Kenya's economy remains on a positive trajectory for robust growth in the next decade, fueled by demographic trends, infrastructure development, and a diversifying economy.