Kenya says new roads, rail links will help spur economic growth to 7%

Monday, March 2, 2015

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Kenya's drive to improve rail, roads and power plants will help spur economic growth to 6.9 per cent in 2015 and 7 per cent in coming years, its finance minister said.

Henry Rotich also told the Reuters Africa Investment Summit that the government would remain "active" in international capital markets after its oversubscribed Eurobond debut last year, but did not give details of new issues.

As well as infrastructure development, Kenya's economy would benefit from the drop in global oil prices, which would spur the manufacturing sector and lift consumption, he said.

"There is a lot of economic activity and potential growth in almost all sectors is tangible," Rotich said in response to questions emailed by Reuters.

However, he said the outlook still remained susceptible to security concerns. A number of militant attacks in East Africa's biggest economy over the past two years, blamed on Somali’s al Shabaab insurgents, has dented earnings from the country's tourism sector, a key source of foreign exchange.

Hiccups in agriculture could also affect the economy, he said. Farming contributes a quarter to annual economic output.

"The perceived insecurity risk dampens the tourism sector and depressed rainfall could affect exports and agriculture," Rotich said.

Kenya's economic growth, which peaked at 7.1 per cent in 2007, has fallen to an estimated 5.3 per cent last year.

Government officials are racing to improve transport networks and build new power plants to boost growth, after decades of underinvestment. China is financing a new 327 billion shilling ($3.58 billion) railway from the port of Mombasa to the Ugandan border to boost links to regional trading partners. Uganda is looking to extend the line to Rwanda.

Improved transport links could also see the country import more, meaning the current account deficit would likely persist even as a weaker oil price cuts the cost of oil imports, the minister said.

The current account deficit is expected to widen to 8 per cent of GDP in the fiscal year ending June 2015, from 7.6 per cent a year earlier, ratings agency Fitch said in January.

On government borrowing, Rotich said Kenya planned to return to international debt markets after issuing a debut sovereign bond last June that raised an initial $2 billion and a further $750 million in a tap sale in November.

"We will continue to be active in international capital markets," Rotich said.

He has previously said Kenya was considering an Islamic law-compliant bond, known as a sukuk.

Rotich also said a capital gains tax re-introduced in January, after it was scrapped in the 1980s, would contribute "a small, but not trivial source of revenue for the government."

The tax, set at 5 per cent of an investor's gains from trading shares, depressed activity on the Nairobi stock exchange at the start of the year when it took effect, but the market has since recovered, scaling six-year highs.

"We will continue to refine the legal framework of capital gains tax to ensure that there is clarity and certainty for investors," he said without elaborating.

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