A New Frontier for Kenya and Africa

IMF Blog, January 8, 2014

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Author: Christine Lagarde
Date: January 8, 2014
Context: Third consecutive New Year visit to Sub-Saharan Africa by the IMF Managing Director, focusing on Kenya as a regional "frontier economy" moving toward middle-income status.
Key message: Sub-Saharan Africa has quietly forged ahead with strong growth led by a vibrant private sector and surging foreign investment; Kenya exemplifies this dynamism and offers promise for inclusive, sustainable growth.

Sub-Saharan Africa growth averaged 5.6 percent a year over the past decade.
Kenya is one of the top five destinations for foreign direct investment in Africa.
Kenya is a regional hub with a dynamic business community led by a service sector.
Kenya’s development of mobile communications has spurred rapid expansion of online banking.
Kenya has the highest share of the population with access to financial services in all of Sub-Saharan Africa: more than 70 percent.
Kenya is now the second-largest investor in the East African region.

Completing fiscal devolution
- Kenya is transitioning to a new form of devolved government under the new constitution.
- Careful implementation is crucial to enable all parts of Kenya to gain access to fiscal resources and ensure benefits of growth are spread more equitably.
Closing infrastructure gaps
- Kenya still has large infrastructure needs: roads, railways, power generation, and other components of a modern economy.
- New-found natural resources wealth—if properly and transparently used—offers an opportunity to invest for growth and job creation.
Continuing regional integration
- Regional integration can offer East Africa new markets and opportunities.
- Last November, the heads of state of the East African Community (Burundi, Kenya, Rwanda, Tanzania, and Uganda) signed the Monetary Union Protocol, which sets in motion the process toward a common currency.
- The Monetary Union is described as an opportunity but also a major challenge that can benefit from lessons learned in other regions.

Recent shocks and difficulties:
- Impact of the global crisis.
- Drought in the Horn of Africa.
- The Westgate Mall attack in September.
Fiscal devolution process carries significant risks if not carefully implemented.
Infrastructure shortfalls risk constraining Kenya’s take-off unless addressed.
Regional monetary integration poses major challenges in design and implementation.

The IMF has stood with Kenya—providing financial backing and policy advice.
Recommended policy directions implied by the visit and remarks:
- Continue economic reforms that have delivered low inflation, strengthened buffers, and increased capital flows.
- Strengthen implementation of reforms to make growth more sustainable and inclusive, especially for job creation for Kenya’s young population.
- Ensure transparent and proper use of natural resource revenues to finance infrastructure and inclusive growth.
- Draw on international experience to manage the Monetary Union process effectively.

Sub-Saharan Africa growth: 5.6 percent (average per year over the past decade).
Kenya financial access: more than 70 percent of the population with access to financial services.
Kenya’s regional investment rank: second-largest investor in the East African region.
East African Community members named: Burundi, Kenya, Rwanda, Tanzania, and Uganda.

Source: A New Frontier for Kenya and Africa — Christine Lagarde, January 8, 2014.