Kenya is on course to post a more significant economic recovery in 2011-barring exogenous and political shocks-with real GDP growth accelerating from 4.5% in 2010 to 5.4%, underpinned by higher infrastructure development and rising confidence among local households and firms. Financing constraints will ease, encouraging investment, while deregulation and privatisation will facilitate business activity. The spread of banking, especially telebanking, to the unbanked will help to underpin household spending. However, infrastructure bottlenecks, skills shortages, corruption and political uncertainty will persist. We expect growth to accelerate to 5.8% in 2012 as the global recovery gains traction (led by strong commodity demand in fast-growing Asian economies) and Kenya's middle class expands, although this will exacerbate domestic structural deficiencies (especially in the transport and power networks). 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, the agricultural sector 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, and from better supplies of agro-inputs and electricity, but the lingering impact of persistent structural constraints will act as a brake. 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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