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February 07, 2011

Drought threatens return of good times in Kenya

by Duncan Miriri

“Trying to forecast the macro-economic fundamentals of the Kenyan economy requires a good dose of meteorological skills,” a Kenyan economic analyst once said.

He was referring to the agriculture sector’s outsized influence on east Africa’s largest economy. Farming, including coffee and tea growing, accounts for a quarter of output and employs nearly two-thirds of the population.

Over a third of electricity is generated from dams which are fed by rainfall, with drought leading to outages, which affect manufacturers and other firms.

While any slack in agriculture usually results in a reduction in the overall growth rate, shortfalls in food items usually drive inflation higher. Inflation rose to 4.5 percent in December from 3.8 percent in November.

And so officials, investors and pundits have been fixated with the outlook for rains this year to determine whether a celebration of third quarter economic growth data and an optimistic forecast for 2011 were a bit premature.

The economy grew by 6.1 percent during the period from 0.5 percent in the same quarter of 2009, surpassing analysts’ expectations of about 5 percent and driving up shares of firms that are closely linked to economic performance like banks.

Officials forecast the country could return to a growth trajectory interrupted by a bloody post-election crisis in early 2008.

But a very dry spell in the country this year has made that outlook more uncertain.

Millions face famine in parts of the country. Executives in the energy sector have vowed to ensure electricity supplies are not interrupted by drought.

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