Running on one Engine Kenya s uneven economic performance

Running on one Engine Kenya’s uneven economic performance with a special focus on the port of Mombasa World Bank Economic Team Presentation by Dr. Wolfgang Fengler Press Briefing Norfolk Hotel Nairobi, June 3, 2010

Main messages • Kenya is recovering - slowly but surely. For 2010, the World Bank is revising its growth forecast upwards to 4. 0 percent. For 2011, we project 4. 9 percent, if no shocks occur. • However, Kenya is running on one engine. Over the last decade growth has been imbalanced, predominantly driven by domestic consumption fuelled by imports. Exports have been weak and non-tradable sectors, such as services and construction have performed strongly. • The Infrastructure deficit constrains exports and the port of Mombasa is still under-performing. Despite some improvements, port reforms have not kept up with the momentum in other African countries. It still takes 20 days to bring a container from Mombasa to Nairobi. This is longer than to ship the same container from Singapore to Mombasa.

Recent Economic Developments and Outlook for 2010

Kenya’s economy is recovering – slowly but surely… Economic Outlook 8 7 6 Percent 5 4 3 2 1 0 -1 -2 2007 2008 GDP Kenya 2009 GDP SSA 2010 Percapita Kenya 2011 Percapita SSA

…but lags behind growth in East Africa 8 Economic Growth 2009 6 GDP growth % 4 2 0 -2 -4 Ethopia Uganda Tanzania Rwanda Ghana Kenya SSA average South Africa

Services have been the drivers of growth in 2009, agriculture contracted again 10. 0 Sectoral Growth Rate 8. 0 6. 0 Percent 4. 0 2. 0 (2. 0) (4. 0) (6. 0) 2007 agriculture (25. 5) 2008 industry (18. 8) 2009 services (55. 7)

… and Kenya’s ICT revolution continues: 20 mn phone connections; 4 mn internet connections Telephone and Internet Connections 21 Internet users ('000) 4, 000 20 3, 800 19 3, 600 18 17 3, 400 16 3, 200 15 3, 000 14 2, 800 13 Q 2 Q 3 2008 Internet users ('000) Q 4 Q 1 Q 2 Q 3 2009 Telephone connections (millions) Q 4 Telephone connections (millions) 4, 200

Macroeconomic management has been strong: Inflation and interest rates declined sharply since 2008 Inflation 25 9. 0 91 day T. bills rate 8. 5 8. 0 20 7. 5 7. 0 15 6. 0 10 5. 5 5. 0 5 4. 5 Jan March May July Sept. Nov. Jan March May 2008 2009 2010 Jan March May July Sept. Nov. Jan March 4. 0 0 2008 2009 2010

Fiscal deficits have been low For FY 2009/2010, the deficit only reached 4. 9% by April 2010… Fiscal balance as % of GDP 2 1 0 % of GDP -1 -2 -3 -4 -5 Primary balance Overall balance -6 -7 FY 06/07 FY 07/08 FY 08/09 FY 09/10 budget April-2010 estimates

… and the fiscal stimulus will not be fully implemented: 57% disbursement after nine months Education Public health Agric. irrigation, Youth affairs, regional dvpt Disbursed Public works Allocated other Fisheries Industrialization 0 2000 4000 6000 Kshs million 8000 10000

Kenya Running on one Engine

Kenya’s share in world trade has been declining sharply since 1970 percent Kenya's share in World Exports of Goods and Services. 1970 -2008 0. 30 0. 25 0. 20 0. 15 services 0. 10 total 0. 05 goods 0. 00 1975 1980 1985 1990 1995 2000 2005

The pattern of consumption-led growth and weak exports has been building up for a decade

Consumption has led Kenya out of the crisis in 2009 - net exports remain negative 7. 0 Contribution to GDP growth 6. 0 Consumption 5. 0 Investment 4. 0 Net exports Percent 3. 0 2. 0 1. 0 0. 0 -1. 0 -2. 0 -3. 0 -4. 0 2007 2008 2009

The current account deficit remains large and is financed by a strong capital account… Balance of payments % of GDP 8. 0% 6. 0% 4. 0% % of GDP 2. 0% 0. 0% -2. 0% -4. 0% -6. 0% -8. 0% 2007 2008 Curent account capital account 2009 overall balance

. . . which is driven by short term flows 8. 0% Capital account composition as % of GDP 7. 0% 6. 0% % of GDP 5. 0% 4. 0% 3. 0% 2. 0% 1. 0% 0. 0% 2007 2008 2009 -1. 0% capital account-project grants Official, medium- & long-term Private, medium- & long-term Commercial Banks (net) Short Term and Net Errors & Omissions (NEO)

Over the last decade, non-tradable sectors have performed best Share of GDP, 2009(%) Ave. 14. 4 2. 6 4. 2 11. 7 1. 6 0. 5 11. 5 10. 9 25. 5 17. 1 0. 0 Percent 10. 0 20. 0 30. 0

Manufacturing has been overtaken by transport & communication and wholesale & retail trade

The Port of Mombasa

Singapore ships 50 times more goods than Mombasa 30 Port Throughput , Twenty Foot equivalent units (TEUs) Millions 20 TEUs 25 15 10 5 0 Singapore Hong Kong Rotterdam Durban Lagos Mombasa Dar es Salaam

94 percent of Mombasa goods go to Kenya and Uganda

At the port, dwell time has been reduced, however, . . .

. . it still takes 20 days to bring a container from Mombasa to Nairobi 3. 7 days 18. 3 days

… and Kenya is lagging behind in the implementation of reforms

Key reform issues • Easy wins – Improve management. The Mombasa port can be substantially upgraded, even with the current infrastructure, including through (i) full and effective 24 hr port operations; (ii) the implementation of a state of the art IT system (Port Community-Based System); (iii) the concessioning of berths 11 -14 through a competitive and transparent process; (iv) the establishment of a landlord port. • Infrastructure upgrading – Focus on transport connections. Transfer of goods through Mombasa and other parts of Kenya has become a major hindrance to the economy. Key improvements include the (i) Mombasa by-pass along with the link road from the port; (ii) upgrading of rail capacity; (iii) building of new container terminal by 2015

Thank You http: //www. worldbank. org/ke For more information on this report and the World Bank’s Economic program in Kenya, please contact Wolfgang Fengler (wfengler@worldbank. org), Jane Kiringai (jkiringai@worldbank. org) or Andrew Roberts (aroberts@worldbank. org)