Boston, MA -- (ReleaseWire) -- 02/12/2014 -- An accelerating domestic economy and rising demand in key export markets will cause Kenya's current account deficit to gradually narrow over the coming years. We predict that the country's current account shortfall will shrink from the 8.3% of GDP in 2014 to 5.6% in 2018. The key driver of Kenya's current account shortfall is the country's gaping trade deficit, which is driven by high demand for oil, manufactured goods and consumer products. This will provide some comfort for the Kenyan freight industry.
This wide trade deficit is partially offset by surpluses in the service and transfer accounts. Kenya's service exports are among the largest in the region, and reflect the earnings of the country's large travel and tourism sector. Despite a series of set-backs in 2013 (including an airport fire and the September Westgate attack), BMI holds a positive long-term view of the industry, and believes that it will continue to bring in needed foreign exchange.
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There are three key reasons why BMI believes that Kenya's current account deficit will narrow over the coming years: strong export growth, lower energy prices, and increased economic diversification. These factors will all reduce the trade deficit, addressing the key cause of a current account shortfall. Kenya's position as the economic hub of East Africa means that the economy is highly exposed to increased demand in its fast-growing region. BMI expects that real GDP growth in Uganda and Tanzania will remain highly elevated over the coming years due to surging investment and the expansion of the resource sector. This will boost demand for Kenyan goods and services.
Air freight is set to be the outperformer in terms of the Kenyan freight mix in 2014 with healthy year-onyear (y-o-y) gains expected (8.78%). While the fire at Jomo Kenyatta International did present some risk, in large part due to the cause of the blaze being unknown at first (with terrorist attack not ruled out), the BBC reported in October that the FBI confirmed the fire was a result of an electrical fault. Kenyan President Uhuru Kenyatta said: 'Kenya will work closely with international partners on all security matters for the common good of the country, the region and the world.' We remain confident that Kenyan air freight volumes will grow strongly over the medium term also.
Headline Industry Data
- 2014 Port of Mombasa tonnage throughput forecast to grow by 5.18%.
- 2014 air freight tonnage throughput predicted to rise by 8.78%.
- 2014 rail freight tonnage throughput forecast to increase 1.96%.
- 2014 total trade set for year-on-year (y-o-y) real-term growth of 5.60%.
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