New Market Report: Kenya Business Forecast Report Q2 2013

New Country Reports market report from Business Monitor International: "Kenya Business Forecast Report Q2 2013"

by Bill Thompson

(WireNews+Co) - Boston, MA - 22 February 2013

Core Views - Although we think that the forthcoming Kenyan elections will proceed relatively peacefully, we highlight several security problems, including rising Islamic extremism, inter-religious tensions, ethnic cleavages and the authorities' response to rising secessionist tendencies, which could provide the basis for instability before, during or after the vote. We believe that Nairobi, Coast Province and Northeastern Province are particularly significant risk areas over the next quarter or so.

Raila Odinga is the favourite to win the presidency but it will be a tight race and could very well go to a second round. A victory for the coalition, which includes Uhuru Kenyatta and William Ruto, will make relations with foreign powers extremely complicated given their upcoming trials at the International Criminal Court.

We maintain our view that Kenyan economic growth will accelerate over the course of 2013 as improving macroeconomic conditions and the passage of elections bolster investor and consumer confidence.

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Following the Kenyan central bank's decision to reduce the benchmark lending rate by 150 basis points to 9.50% on January 10, we maintain our view that there will be 300bps of total reductions over the course of 2013 - implying a year-end rate of 8.00%. The authorities will be keen to nurture a nascent economic recovery and relatively muted inflationary pressures will allow them to do so.

Major Forecast Changes

We have increased our forecasts for Kenya's fiscal deficit in the 2012/13 fiscal year and, for the years thereafter, following the approval by parliament of a supplementary budget. We maintain our view that the authorities will be able to cover these shortfalls over the medium term. However, we highlight that there is a risk that the public sector debt load will become unsustainable and that the private sector will be crowded out of bank borrowing if there are not concerted efforts to increase revenues and contain spending.

Key Risks To Outlook

The weather poses risks to our views on growth, inflation, the currency and the balance of payments position. Another season of inadequate rain would undoubtedly have negative ramifications for all of these.

Another major risk stems from political stability. Although by no means our core scenario, we cannot rule out the possibility of a repeat of the unrest that followed the last election in 2007 at the vote scheduled for March 2013. Other political risks stem from simmering religious and ethnic tensions mainly in the Coast Province and from International Criminal Court trials scheduled to take place in April 2013, shortly after the election, for the men accused of fomenting the 2007 election violence. An escalation of any one of these issues could have negative implications for the economy.

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