STAGNATION HITS KENYAN PRIVATE SPENDING.

PositionUnemployment is approximately 40% and consumer confidence is depressed, putting downward pressure on sales high-end services and goods through 2003

As the trade hub for Eastern Africa, Kenya should be in a position to capitalize on globalization, yet there is little likelihood that the trade panorama will improve in 2003. Slack internal demand for goods and services will undermine orders for imported goods and services, with the exception of basic foods needed to offset shortfalls in agricultural production.

With unemployment running about 40 percent and the citizenry having little faith in the government's ability to improve their living standards, consumer confidence remains depressed. That will put downward pressure on sales of high-end goods and services through 2003 and year-on-year growth is unlikely to exceed 2 percent.

High-end spending will also be limited by weak channels of formal distribution and sales of household goods. The great majority of high-end sales are made in urban areas, which are home to about 20 percent of Kenya's population. Residents in rural areas tend to be isolated from formal consumption channels by poor infrastructure and a lack of stable income.

About 50 percent of the populace lives in poverty. Their purchasing power probably will gradually improve, but fundamental agricultural reforms are needed and those will take a matter of years to implement. Real income in the agricultural sector must rise in the range of 4 to 6 percent per annum in order to bring about any significant improvement in the purchasing power of the 80 percent of Kenyans living in rural areas. Economic growth in that range is achievable, but is not likely in 2003 or 2004.

The macroeconomic climate is more conducive to gradual improvement in private sector demand than in most other nations of Eastern Africa. Kenya has enjoyed relative currency stability over the past year...

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