NAIROBI (Xinhua) — Kenya’s capital markets registered a decline in performance in 2011, compared with the previous year, characterised by decreased activity in the secondary markets, a stock market official said on Friday.
Nairobi Securities Exchange (NSE) Chairman Eddy Njoroge said in Nairobi that the reduced economic growth resulted to lower turnover in the equity market caused by the rising inflation in the second half of 2011, higher and volatile interest rates. Mr Njoroge said the reduction in the activity of the financial markets was also caused by the depreciation (and volatility) of the shilling against major currencies and Kenya’s incursion in Somalia.
“We also witnessed a shift of investors from equities to fixed deposits, treasury bills and bonds which are considered lower risk assets,” he said in a statement released in Nairobi. During the year, the NSE 20 Share Index reported a 27.7 percent decline, closing at 3,205.02 points at the end of 2011, down from 4, 433 points reported at the end of December 2010.
The All Share Index (NASI) reported a 30.6 percent decline closing at 68.03 points at the end of 2011 down from 98 points at the end of December 2010. “We however maintain a positive outlook for the medium term. According to the World Bank, the real GDP growth is expected to rebound to 5.9 percent in 2012, as the economy recovers from the drought in 2011,” he said.
The World Bank forecasts that growth will be in the 5-5.6 percent range in 2013-16. After surging to a high of 19.72 percent in 2011, inflation is forecast to retreat to 6.7 percent in 2012 and to remain in the 5-6 percent range in 2013-16, helped by prudent monetary policies and more stable global commodity prices.
“Additionally, after rising to 8.1 percent of GDP in 2011, underpinned by costlier oil, the current account deficit is expected to narrow gradually, helped by steady growth in earnings from exports, tourism and remittances,” Mr Njoroge said. Although the 2012 elections may distract policymakers, he said they are unlikely to trigger any major policy shifts, as all key parties support a free market system which supports the Economic pillar of Kenya’s Vision 2030.
The East African nation is due to hold its national polls either by the end of this year on early next year. Already various candidates who have expressed their intentions to contest various political seats have hit the campaign trail to sell their ideas to the electorates, a move that has sent panic among investors who argue that it’s too early to put the country in the election mood.
The East African nation’s economy has undergone turbulent times in the recent past, but the recent International Monetary Fund ( IMF) assessment said policies used by the government have so far prevented adverse effects and there are signs that even inflation that averaged 19 per cent in November last year is coming down.
The economy has also experienced strain from drought that led to higher food prices and import of food as well as high oil price. These economic shocks are, for example, attributed to the volatility of the shilling in the third and fourth quarter of 2011 that saw the shilling lose 28 per cent of its value against the dollar in just three months.
But Mr Njoroge said foreign policy will continue to be driven by economic interests, including the maintenance of close relations with key donors and the advance of regional integration, especially within the East African Community (EAC). “In the medium term, the expectations about Kenya’s economic projections continue to be optimistic, with economic recovery projected to accelerate largely due to improved performance of key sectors and domestic demand,” he said.
“Indeed, in anticipation of an improved economic environment going forward, and in order to improve our reach, we continue to innovate and benchmark against best practices.”
The government further has announced plans to quicken the pace of structural reforms in 2011-12, including deregulation and trade liberalization especially within the EAC). It also plans to dispose of full or partial stakes in some state enterprises in a range of sectors, either by selling shares to strategic partners or through flotations on the Nairobi Securities Exchange. (Xinhua)
