Devolution crisis to slow economy, says report

By MACHARIA KAMAU

Kenya: The teething problems Kenya has been facing in implementing the devolved system of government may slow the country’s economic growth.

An oversight organ of Parliament – the Parliamentary Budget Office (PBO) – notes that the economy failed to hit growth target in 2013 and the trend might persist for the next one to two years.

In a report released yesterday, PBO notes that other than initial challenges facing devolution, depressed and poorly distributed rains during the October to December short rains season is likely to affect the economy, with food scarcity expected to drive up the cost of living in the coming months.

It notes that the economic outlook at end of 2013 appeared uncertain due to poor weather conditions and rising cost of living and this may affect growth in 2014

Other factors in play include increased security threats, high expenditure especially on non-essentials.

Kenya’s is also threatened by a weak global economic outlook and the risk associated with discovery of natural resources – like oil and minerals – especially in the absence of proper regulatory and policy frameworks.

The budget office estimates that the country’s economy grew 4.9 per cent last year and expects it to post modest growth in the coming two years of 5.4 per cent in 2014 and 5.5 per cent in 2015.

“We estimate the economy to have grown by 4.9 per cent in 2013. This is considerably lower than the economic growth of 5.6 per cent projected by the National Treasury for 2013,” said PBO in a report yesterday.

Another factor that might hamper economic growth is the amount of investments that the country is getting.

Kenya’s business environment has been cited as harsh, with its ranking in the World Bank Doing Business taking a nosedive in 2014 to position 129.

The picture is, however, not all gloomy, with certain factors playing to the advantage of the Kenyan economy.

PBO notes that some of the factors that appear as risks are double edged and could be huge opportunities for the country.

These include the counties that offer more investment opportunities and could rebalance growth and reduce poverty if well implemented.

While the resource curse is real, the oil, gas and minerals sectors, if nurtured properly, could also play a significant role in diversifying Kenya’s exports, which has traditionally been agricultural products.

“It is also expected that a stable political and macro-economic environment will persist and the stable interest rates will support credit access to the private sector thereby promoting private investment. Thus, there are better prospects for economic growth if the concerns of insecurity and corruption are addressed,” says the report.