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Kenya at a Tipping Point for Robust Growth Driven by the Telecommunications Revolution

Kenyans may experience a new wave of robust economic growth driven by several factors including the telecommunications revolution, according to the latest economic forecast by the World Bank in Kenya.

The economy is likely to expand at 4.9 percent in 2010 and 5.3 percent in 2011, says the Kenya Economic Update for December 2010. The economic report, Kenya at the Tipping Point, finds that growth of 6 percent is possible next year if no shocks occur.

“Several key factors are stimulating economic growth, including the new constitution, telecommunications, East African community integration, strong macroeconomic management and investment in public infrastructure,” says Johannes Zutt, World Bank Country Director for Kenya. “Timely implementation of constitutional reforms and sustained investment in public infrastructure, especially in transport and energy, will continue to bolster business confidence.”

The economic report, the third in a series, captures the emerging momentum for growth with a special focus on the Information and Communications Technology (ICT) revolution and mobile money.

“Kenya may be at a tipping point for robust economic growth and for the first time in three years, growth is balanced across all sectors and all quarters of the year,”

says Wolfgang Fengler, Lead Economist for Kenya and co-author of the report.

The growth in ICT is significant and has out-performed all other sectors over the last decade.  Without ICT, Kenya’s growth rate would have been only 2.8 percent since 2000, barely exceeding population growth. The report attributes the “explosive” growth in ICT to the liberalization of the telecommunications sector, which induced competition and innovation, resulting in considerable investment and job creation.

The report argues that Kenya could develop into a regional hub of IT innovations and IT-enabled services due to its cost advantages, investment in enabling infrastructure including fiber optic cables and a well educated and urbanized labor force.

The ICT platform enabled innovation in mobile money, which has expanded exponentially since it was introduced five years ago. More than 70 percent of all adult Kenyans have access to financial services, compared to less than five percent in 2006. Moreover, 15 million Kenyans are expected to transfer US$7 billion, equivalent to 20 percent of Kenya’s GDP, through mobile money in 2010.

“Mobile money is one of the greatest success stories of Kenya’s ICT revolution,” says Jane Kiringai, Senior Economist for Kenya and co-author of the report. “One key reason for this success is that regulation followed innovation.”

An optimal regulatory regime, says the report, should be tight enough to protect users and discourage fraud, but sufficiently loose and open to encourage innovation and development of new services.

The Kenya Economic Updates are produced twice a year (June and December), and aim to inform and stimulate debate on topical policy issues to improve Kenya’s economic management. The first Economic Update, Still Standing: Kenya’s slow recovery from a quadruple shock was issued in December 2009, with a special focus on the food crisis.  The second edition published in June 2010, Running on One Engine, focused on the port of Mombasa as an important infrastructure asset for Kenya and regional trade.

The reports are prepared in close partnership with Kenyan stakeholders including  the Office of the Prime Minister, the Ministry of Finance, the Central Bank of Kenya, the Ministry of Planning and National Development, the Ministry of Information and Communications,  the Kenya National Bureau of Statistics and the Kenya Institute for Public Policy Research and Analysis.