The Kenyan economy, after growing by an estimated 5% in 2010, will maintain a brisk rate of expansion in 2011, with real GDP growth quickening to 5.4%-barring exogenous and political shocks. Growth in 2011 will be supported by rising household and business confidence, the spread of banking, especially telebanking, to the unbanked, investment in infrastructure, increased regional trade and regulatory reforms. However, infrastructure bottlenecks, skills shortages, corruption and political uncertainty will persist-while the return of drought in the first quarter poses a threat to farm and hydroelectric output. If the drought persists into the second quarter, the main rainy season, the impact will be more severe and growth will be lower than expected. We expect growth to accelerate to 5.9% in 2012 as the global recovery gains traction (led by strong commodity demand in Asia) and as Kenya's middle class expands, although this will exacerbate domestic structural deficiencies (especially in transport and power). Moreover, key reforms could fall victim to election-related in-fighting, while corruption and weak governance will continue to inhibit private investment. Growth is likely to edge down to within the 5-5.3% range in 2013-15, as there is little prospect of Kenya eliminating infrastructural constraints or dependence on rain-fed agriculture during the forecast period, although the rate of expansion will remain relatively buoyant, barring shocks.

On the supply side, agriculture will remain at the centre of the economy, although its relative importance will continue to fall over time. Industry will continue to benefit from higher regional and global demand, but high costs, associated with structural constraints, will act as a brake, while supplies of agro-inputs and electricity will remain weather dependent. The services sector accounts for 63% of GDP and will continue to be the main engine of economic growth, driven by telecommunications, banking, retail and tourism.

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