Kenya’s Economy is Showing Resilience as Output Rises Above Pre-Pandemic Levels Driven by a Rebound in the Services Sector

NAIROBI  — Kenya’s economy has demonstrated resilience to the COVID-19 shock, with output in the first half of the year rising above pre-pandemic levels. In 2021 as a whole, gross domestic product (GDP) is expected to grow by 5%, one of the faster recoveries among Sub-Saharan African countries.

Overall economic performance is expected to be robust at 4.9% per year in 2022-23, similar to the pre-pandemic pace (5% average annual growth from 2010 to 2019). According to the 24th edition of the Kenya Economic Update, “From Recovery to Better Jobs,” growth has been supported by rebounds in industry and, especially, services. Agricultural output, however, fell by 0.5% year on year in the first half of 2021 following a particularly strong performance in 2020, partly due to below-average rains. Demand-side recovery has been supported by a revival in private consumption, against a backdrop of improving employment conditions and household incomes.

“Kenya’s economy has shown considerable resilience to the enormous shock of the pandemic, and this year is expected to post one of the stronger growth rebounds in the region thanks to diversified sources of growth and sound economic policies and management,” said Keith Hansen, World Bank Country Director for Kenya. “However, poverty has increased, and the buffers and coping mechanisms of households, firms, and the public finances have been depleted.”

Economic activity in Kenya has continued to adapt to the pandemic and associated restrictions. A mix of containment measures, such as a nightly curfew, were in effect through most of 2021, while more economically disruptive measures such as lockdowns and travel restrictions were phased, limiting the impact on economic activities. The vaccine rollout, which had a slow start due to supply constraints, has picked up as new shipments of vaccines have arrived, particularly since September. This has supported economic recovery and growth through the third quarter of 2021.

As of December 5, 2021, Kenya had received a total of 16,201,670 vaccines, with 7,583,134 administered. While vaccine acceptance is reportedly high there is still a long way to go towards the government’s target of fully inoculating the adult population of about 30 million by the end of 2022.As of December 6, 2021, about 10% of adults (2.9 million people) had been fully vaccinated while another 16% (4.9 million people) had received their first dose.

The report also projects robust growth in the medium-term. This outlook takes into account that some sub-sectors, such as education, have bounced back strongly, but others such as international tourism, have only partially and face a much more protracted recovery. The anticipated further recovery of hotels and restaurants, trade, transport, and other services, depends on substantial vaccination progress to help prevent new waves of infections and associated containment measures.

“Recent economic performance has been strong and the outlook is positive, but in Kenya, as everywhere, the future course of the pandemic remains a major source of uncertainty, said Alex Sienaert, Senior Economist for Kenya. “To support further recovery, reduce debt distress risks, and rebuild space for social and development spending, it is critical that Kenya continues to implement medium-term fiscal consolidation plans.”

In addition to pandemic-related risks to the outlook, a second key domestic risk factor stems from the drought conditions which are affecting parts of the country and already causing severe hardship. Should the drought intensify or spread, this would weigh on the near-term economic outlook. Weaker global growth, higher-than-anticipated energy prices, and tighter external financing conditions are the primary external risks.

As Kenya pursues an inclusive and resilient economic recovery, accelerating job creation will be essential. The special topic of this report complements the labor market analysis in the previous Kenya Economic Update (KEU23), turning the spotlight on firm dynamics and job creation. The earlier analysis showed how critical the country’s jobs and economic transformation (JET) agenda is to achieving a resilient recovery from the COVID-19 crisis and to providing good jobs for Kenya’s burgeoning youth population. Continued investment in human capital and social protection is at the center of enabling Kenya’s fast-growing workforce to participate in and drive JET.

 

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