Kenya’s economy is a fifth larger than previously estimated, the government has told foreign investors looking to buy into the country’s debut sovereign bond.
Nairobi is revising the way it calculates its gross domestic product, following in the steps of Nigeria which earlier this year became Africa’s largest economy after saying its GDP was 89 per cent larger than previously thought.
As a result of the statistical revision, “the Kenya National Bureau of Statistics’ initial estimates for the revised GDP estimate for 2009 is 486.6bn shillings ($5.54bn) higher than previous estimates . . . a 20.6 per cent increase in the level of GDP previously reported”, states the prospectus for the sovereign bond, seen by the Financial Times.
The increase puts Kenya’s GDP for 2009 at about $37bn, rather than the previous estimate of $31bn. Scaling up the 2013 figure by the same factor would mean the size of Kenya’s economy reached $50bn last year, propelling it for the first time into the middle-income category, based on the World Bank’s definition.
Until now, Nairobi had said that it would release its new GDP estimates in September, adding that it had not yet finished the complex calculations needed.
These accounting revisions are a fillip for a country seeking to raise $1.5bn-$2bn on the international market and increase the inflow of foreign direct investment. Kenya is already the largest economy in east Africa.
The statistical boost is the result of bringing forward the base year for calculations from 2001 to 2009. Better data collection also means that all the agriculture, manufacturing and communication sectors grew faster than previously thought.
In other African countries, the inclusion of booming sectors such as telecoms, the film industry and banking have led to sizeable GDP revisions. When Guinea-Bissau, a tiny west African nation, recalculated the size of its economy a few years ago, it discovered it was more than double what had been previously assumed. In 2010, Ghana increased the size of its GDP by 60 per cent.
Kenyan officials are trumpeting the country’s prospects in a roadshow touring the US and Europe ahead of selling the bond next week. The prospectus says Kenya’s economy would grow by 5.8 per cent this year, up from 4.7 per cent in 2013. It also anticipates growth of 6.4 per cent in 2015.
Investors have so far indicated great appetite for the note. Analysts think Kenya is likely to pay an interest rate of around 7-7.5 per cent – or even lower – if it raises $1.5bn, and 7.5-8 per cent for $2bn.
African countries raised a record $11bn through foreign-denominated sovereign bonds last year, up from $1bn in 2000. Kenya had first planned its market debut in 2007 but a series of political, economic and legal shocks have forced it to delay the sale several times.
The prospectus states that many of these risks still haunt the country, however.
The list includes high crime and terror threats, economic risks associated with “chronic” electricity shortages, a rising public sector wage bill, stark economic inequalities, political “volatility and violence” and corruption.
“Failure to address actual and perceived risks of corruption and money laundering may adversely affect Kenya’s economy and ability to attract foreign direct investment,” it says.
Continent’s GDP could be worth $2tn
Africa’s economy could be a third larger than assumed as more countries on the continent revise the size of their gross domestic product to take into account booming sectors such as banking and the mobile phone industry, writes Javier Blas.
At a recent regional meeting, Mthuli Ncube, chief economist at the African Development Bank (AfDB), told delegates that the new statistical estimates were producing, on average, a 30 per cent increase on the size of the GDP. “From the work we are doing in rebasing [the GDP], we think the final figure [for Africa’s economic size] will be closer to $2tn, if not higher,” he said.
Official figures put the current size of Africa’s economy at $1.5tn.
Although upward revisions of the size of Africa’s GDP will not put more money in the pockets of consumers, it could generate a “feel-good” factor in perceptions of the continent and boost inward investment. .
Stuart Culverhouse, chief economist at Exotix, a frontier markets specialist in London, said the revisions would have a positive impact in the psychology of foreign investors. “If countries are bigger, investors are more likely to look at them,” he said.
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