Kenya GB 2015

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KENYA2015

Walter O. ODERO / [email protected]

Senior Macroeconomist, East Africa Resource Center, AfDB

Wilmot A. REEES / wilmot.ree!es@und".org

Economic Ad!isor, #$D% &en'a

$ic(olas &)%*E+O / nic(olas.i"'ego@und".org

Researc( Associate, #$D% &en'a

www.africaneconomicoutlook.org

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KENYA

• GDP GROWTH AMOUNTED TO 6.9% AND 5.7% IN 2012 AND 2013, RESPECTIVEL, WHILE

THE201! ESTIMATE AND THE 2015 PRO"ECTION SHOW ECONOMIC E#PANSION O$ 5.3% AND 6.5%,RESPECTIVEL.

• IN 2013 AND 201!, THE ECONOM E#PERIENCED A STALE MACROECONOMIC ENVIRONM

ENT

WITH SINGLE&DIGIT IN'ATION, WHEREAS THE POLITICAL SCENE WAS DOMINATED IN 201! CALLS

TO AMEND THE CONSTITUTION.

• RE$ORMS HAVE EEN INTRODUCED IN (ENA SINCE 1990 TO ADDRESS CRITICAL DI$$ERENCES I

N

ACCESS TO ECONOMIC, POLITICAL AND SOCIAL SERVICES, CULMINATING IN THE INTRODUCTION O

$!7 COUNT GOVERNMENTS IN 2010.

Overview

GDP growth remained robust in 2013 at 5!" based on rebased statisti#s and stood at $$"%

5&" and 55" in the 'rst three (uarters o) 201$ #om*ared with +$"% !2" and +2" in #om*arab,

(uarters o) 2013 A##ording to the #entra, ban-.s e#onomi# month,/ review o) November 201$

growth was main,/ su**orted b/ e*ansion in #onstru#tion% manu)a#turing% 'nan#e and

insuran#e% in)ormation% #ommuni#ations and te#hno,og/% and who,esa,e and retai, trade he

e#onom/ s,owed in the third (uarter o) 201$% *art,/ due to a shar* dro* in tourism )o,,owing

terrorist atta#-s in the #ountr/ Overa,, GDP growth is e*e#ted to amount to ++" and +3" in

2015

and

201+%

res*e#tive,/

onsumer

*ri#e

inde

P4

in6ation

is

e*e#ted

to

remain

in

thsing,e digits% at around 5"% during the same *eriod

he short7 to medium7term *ositive growth *ro8e#tions are based on assum*tions o)9 in#reased

rain)a,, )or enhan#ed agri#u,tura, *rodu#tion: a stab,e ma#roe#onomi# environment: #ontinued

,ow internationa, oi, *ri#es: stabi,it/ o) the Ken/a shi,,ing: im*rovement in the se#urit/ situation

)or a *ositive in6uen#e on the tourism se#tor: and re)orms in the areas o) governan#e and 8usti#e

Po,iti#a, a#tivit/ in 201$ #entred most,/ on the #a,, b/ both the o**osition *art/% oa,ition

)or ;e)orms and Demo#ra#/ O;D% and #ount/ governments

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2

AfricanEco nomicOutlook

© AfDB,O ECD,UNDP2015

%

igure 1 REAL GDP GROWTH

RealGDPgrowth(%) EastAfrica Africa(%)

Source9 A)DB% >tatisti#s De*artment AEO Estimates e: *ro8e#tions *

ab,e 1

MACROECONOMIC DEVELOPMENT2013 2014(e) 2015(p) 2016(p)

RealGDPgrowth 5.7 5.3 6.5 6.3

RealGDPpercapitagrowth 3.0 2.6 3.9 3.7

CPIinflation 7.9 7.0 5.5 5.3

Budgetbalance% GDP -5.6 -8.0 -8.8 -8.3

Currentaccount% GDP -2.9 -7.5 -7.9 -11.2

Source9 Data )rom domesti# authorities: estimates e and *ro8e#tions * based on authorsC #a,#u,ations

;e#ent deve,o*ments and *ros*e#ts

Ken/a rebased its GDP in >e*tember 201$% resu,ting in the #ountr/.s moving to ,ower m

dd,e7

in#ome status he rebasing raised Ken/a.s nomina, GDP )or 2013 )rom >D $$1 b

,,ion to

>D 552 bi,,ion and *er #a*ita GDP )rom >D @@$ to >D 1 2$+ he #ountr/ ,ea*ed )rom th

e 12th

to the @th ,argest e#onom/ in A)ri#a

he government has im*,emented re,ative,/ sound ma#roe#onomi# *o,i#ies in re#ent /

ears%

resu,ting in stab,e ma#roe#onomi# )undamenta,s A *rudent 's#a, stan#e -e*t the budget

e'#it

at an average o) 5" o) GDP in the 've /ears ,eading to 2013 h e de'#it is *ro8e#ted to be

higherthan &" in the short term% main,/ on a##ount o) #ontinued e*ansionar/ 's#a, *o,i#/ due to

,arge

in)rastru#ture investments and #onsum*tion e*enditure

K e n y a

10

9

8

7

6

5

4

3

2

1

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014(e) 2015(p) 2016(p)

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he or,d Ban-F4 Debt >ustainabi,it/ Ana,/sis D>A #om*,eted in >e*tembe

201$

indi#ates that Ken/a.s ris- o) eterna,7debt distress #ontinues to be ,ow A,, eter

a,7debt

indi#ators remain we,, be,ow the debt7burden thresho,ds under the base,ine s#enario% a

nd no

thresho,ds are brea#hed under an/ o) the standard stress tests

As a share o) GDP% the #urrent a##ount in#reased between 2013 and 201$% main,/ due

o the

widening

o)

the

mer#handise

a##ount

b/

>D

@&0

mi,,ion

to

stand

at

>D

122!2

bi,,ion

in the

/ear to O#tober 201$% whi#h more than o?set the @+" im*rovement in the va,ue o) the se

rvi#es

a##ount he widening o) the mer#handise a##ount was a resu,t o) in#reasing im*ort

whi,e

© AfDB,OECD,UNDP2015 AfricanEconomicOutlook 3

e*orts remained )air,/ stab,e Des*ite the )a,,ing *ri#e o) oi, e*e#ted to #ontinue through

201+% the #urrent7a##ount de'#it is e*e#ted to grow to 112" in 201+ due to ,arge e(ui*ment and

hardware im*orts *,anned )or in)rastru#ture investments

4n a drive to im*rove the business environment in Ken/a% the government% in #o,,aboration

with its deve,o*ment *artners% the *rivate se#tor and #ivi,7so#iet/ organisations% he,d a themati#

Deve,o*ment Partners orum DP at the end o) >e*tember 201$ on the theme o) HEase o) Doing

BusinessI

his

was

)o,,owed

b/

the

third

Presidentia,

;ound

ab,e

meeting

in

De#ember

201$%

#haired b/ the *resident% whi#h too- sto#- o) the *rogress that had been made 4t was #on#,uded

that the #ountr/ shou,d #ontinue to address the in)rastru#ture% energ/ and se#urit/ #ha,,enges

that have been a?e#ting the business environment adverse,/ i) it was to be#ome an attra#tiv

investment destination

he government and deve,o*ment *artners he,d a se#ond DP in ebruar/ 2015 o

n

HDevo,utionI he )orum was main,/ )o#used on the 's#a, de#entra,isation #ha,,enges )a#ed b/

the #ount/ governments% re(uisite #a*a#it/ bui,ding% and intergovernmenta, and #o7ordination

re,ated issues 4t was agreed that revenue mobi,isation shou,d be enhan#ed at #ount/ ,eve,s% where

e*enditure shou,d a,so be rationa,ised Adheren#e to #onstitutiona, and other ,ega, *rovisions

was a,so em*hasised

4n 2013% agri#u,ture #ontributed about 30" to GDP% )o,,owed b/ 'nan#e% rea, estate an

business servi#es at 15&" ab,e 2 anu)a#turing remained stagnant and #ontributed 11!" to

GDP% down )rom 13$" in 200@

o,,owing the dro* in internationa, oi, *ri#es% the domesti# *ri#es o) su*er and regu,ar *etro,%

diese, and *ara=n have a,so dro**ed sin#e 201$ b/ an average 23" between 1 ar#h 201$ and

1 ar#h 2015% #om*ared to a 3" dro* in the same *eriod between 2013 and 201$ h e dro* i

n

)ue, *ri#es% however% has not resu,ted in a simi,ar dro* in *ri#es o) goods and servi#es os

traders% main,/ in the *ub,i#7trans*ort se#tor% have #om*,ained that other #osts% )or eam*,e

maintenan#e #osts% have either risen or remained the same% hen#e the ,a#- o) dro* in *ri#es

ab,e 2 GDP SECTOR )PERCENTAGE O$ GDP AT CURRENT PRICES*

2009 2013

Agriculture,forestry,fishing&hunting 26.1 29.5

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ofwhichfishing … …

Miningandquarrying 0.7 0.9

ofwhichoil … …

Manufacturing 13.4 11.7

Electricity,gasandwater 2.5 2.2

Construction 4.4 5.0

Wholesale&retailtrade;repairofvehicleshouseholdgoods; 10.2

ofwhichhotelsandrestaurants 2.0 1.4

Transport,storageandcommunication 10.9 9.9

Finance,realestateandbusinessservices 16.2 15.8

Publicadministrationanddefence 5.0 5.4Otherservices 10.9 9.3

Grossdomesticproductatbasicprices/factorcost 100.0 100.0

Source9 Data )rom domesti# authorities

4 AfricanEconomicOutlook © AfDB,OECD,UNDP 2015

a#roe#onomi# *o,i#/

$ISCAL POLIC

Ken/a.s ta7revenue7to7GDP ratio o) about 20" sin#e 2010 has been high b/ regiona,

standards%

e#eeding the ta7to7GDP ratios in anJania 1!$" in AY 2013F1$ and ganda 13" in AY

2013F1$

h e 's#a, de'#it in#,uding grants remained around 5" o) GDP between 's#a, /ears 2011F

2 and

2012F13% rising )rom $0" to 5+"% res*e#tive,/ hi s trend was maintained des*ite9 i)

severa,

new institutions estab,ished to im*,ement the 2010 #onstitution% both at the nationa, ,eve

and

within the $! #ounties% whi#h has *ut *ressure on the government )or in#reased s*ending

and

ii) *ressure )rom *ub,i# servants to have their remuneration and other *ub,i# bene'ts in#rea

sed

he share o) )unds )or e#onomi# deve,o*ment in the tota, government budget #on

inued

to rise )rom 2!!" in 's#a, /ear 200@F10 to 302" in 's#a, /ear 2011F12 and s,ight,/

down to

2!$" in 2013F1$ 4n addition% the government earmar-ed deve,o*ment7'nan#ing a,,o

ations

to the $! #ounties in the 2012F13% 2013F1$ and 201$F15 's#a, /ears his is #onsistent

with the

government.s ob8e#tive o) a,,o#ating more resour#es to in)rastru#ture deve,o*ment and to #

rowdin *rivate investment in order to ,a/ the )oundations )or high e#onomi# growth as unders#o

ed in

ision 2030% Ken/a.s ,ong7term deve,o*ment b,ue*rint

Restaurantsandhotels @&

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he government has #ontinued to e*and borrowing )or in)rastru#ture *ro8e#ts b/ is

suing

in)rastru#ture bonds and through the su##ess)u, issuan#e o) the eurobond in 201$

whi#h

generated >D 2 bi,,ion )or the government and was oversubs#ribed )our)o,d As observed b

/ the

4 >e*tember 201$ re*ort% the )avourab,e terms o) Ken/a.s 'rst7ever eurobond% the ,argest

so )ar

in sub7>aharan A)ri#a% re6e#ts the )avourab,e *osition o) Ken/a re,ative to other )rontier ma

-ets he

201$F15

budget

in#or*orates

im*ortant

revenue

measures

hese

measures

i

n#,ude9

i) a revision o) the E#ise and 4n#ome a A#ts% ii) higher duties on iron and stee, *r

du#ts%

iii) im*roved ta administration% es*e#ia,,/ in the #ase o) A and iv) amendments to the 4n#o

me

a A#t to address ta avoidan#e b/ mu,tinationa,s E*e#ted higher revenue wi,, a,so re6e

#t the

)u,,7/ear e?e#ts o) A re)orms introdu#ed in >e*tember 2013% as we,, as the im*a#t o)

measures

ado*ted to in#or*orate ,and,ords into the ta base he authorities e*e#t these meas

ures

to/ie,d about 13" o) GDP in 201$F15

ota, revenue as a *er#entage o) the GDP is there)ore e*e#ted to average 22" in th

e net

two /ears whi,e tota, e*enditure and net ,ending wi,, remain above 30"% and the overa,, b

udget

de'#it wi,, remain above &" o) the GDP

ab,e 3 PULIC +NANCES )PERCENTAGE O$ GDP AT CURRENT PRICES*

2005/2006 2010/2011 2011/2012 2012/2013 2013/2014(e) 2014/2015(p) 2015/2016(p)

Totalrevenueandgrants 20.2 20.3 21.6 20.4 21.6 22.5 22.2

Taxrevenue 17.3 16.5 16.9 16.2 20.1 20.9 20.7

Grants 1.2 0.6 1.1 0.9 1.5 1.6 1.5

Totalexpenditureandnetlending(a) 23.4 24.0 25.6 26.0 29.6 31.3 30.5

Currentexpenditure 19.0 17.5 17.1 19.3 22.5 24.4 26.2

Excludinginterest 16.5 15.2 14.9 16.5 19.8 19.8 18.8

Wagesandsalaries 6.9 5.9 5.7 6.6 7.6 7.0 6.8

Interest 2.5 2.3 2.2 2.7 2.7 4.6 7.4

Capitalexpenditure 4.1 6.4 8.4 6.7 7.0 6.9 4.3

Primarybalance -0.6 -1.5 -1.8 -2.9 -5.3 -4.2 -0.9

Overallbalance -3.1 -3.7 -4.0 -5.6 -8.0 -8.8 -8.3

Note 9 a On,/ ma8or items are re*orted



MONETAR POLIC

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Annua, head,ine in6ation is *ro8e#ted to ease to 55" in 2015 )rom !0" in 201$ he governmen

t.s

target is to -ee* in6ation at around 5" he entra, Ban- o) Ken/a BK has *ursued a *rudent

monetar/ *o,i#/ stan#e overa,, o #ontro, in6ation% the BK retained the #entra, ban- rate a

&5" between a/ 2013 and ar#h 2015 he Ken/a Ban- ;e)eren#e ;ate KB;;% a uni)orm base

rate that is used to in)orm #ommer#ia, ban- ,ending rates% was redu#ed )rom @1" in Lu,/ 201$ to

&5$ in Lanuar/ 2015 hese measures have mitigated interna, and eterna, sho#-s and ,ed to a

re,ative stabi,it/ o) domesti# *ri#es and o) the e#hange rate sin#e 2012 A,though introdu#tion o)

the KB;; was e*e#ted to #ontribute to redu#ing ,ending rates% the average ,ending rate had on,/

)a,,en b/ one *er#entage *oint to 15@" in Lanuar/ 2015 4t is however e*e#ted that the s*read

)rom the base rate wi,, dro* to 5&" b/ Lu,/ 2015 )rom the end7201$ 'gure o) !&"

As #on'rmed b/ the 4 >e*tember 201$ re*ort% the BK has -e*t net domesti# assets we,,

be,ow the *rogramme7sti*u,ated #ei,ing and net internationa, reserves above the 6oor% than-s

in *art to *rivate #a*ita, in6ows% *arti#u,ar,/ to the e(uit/ mar-et Ken/an #ommer#ia, ban-s

are e*anding b/ raising domesti# #redit% *roviding new borrowers with a##ess to )unds and

in#reasing o*erations be/ond Ken/a.s borders Ban-s remain sound and *ro'tab,e des*ite a

moderate 5+" in#rease in the ratio o) non7*er)orming ,oans NPMs to tota, ,oans in a/ 201$

u* )rom $+" one /ear ear,ier redit growth has been in#reasing,/ )unded eterna,,/% main,/

owing to a more intensive use o) medium7term% most,/ #on#essiona, )oreign7#urren#/ ,ines )or

sma,, and medium7siJed enter*rise >E *ro8e#t 'nan#ing and in#reased #redit ,imits *,a#ed

b/ internationa, ban-s on their subsidiaries inan#ia, in#,usion #ontinues to *rogress with mobi,e

ban-ing ,oans and de*osits driven b/ 7>hwari% a new mobi,e mone/ ban-ing servi#e ! mi,,ion#ustomers in its 'rst /ear o) o*erations and higher >E a##ess to #redit ;egiona,,/% the BK is

a,so a#tive,/ negotiating an East A)ri#an ommunit/ EA monetar/ union% s,ated to #ome into

e?e#t in 2022

he e#hange rate remained stab,e &+@ Ken/a shi,,ings to KE> &@5 *

r

>D )rom Lanuar/ to November 201$ e#urities E#hange N>E% and an im*roved ma#roe#onomi# stabi,it/

boosting investor #on'den#e he e#hange rate is e*e#ted to remain stab,e in the medium term

des*ite #ontinued *ressure )rom the widening #urrent a##ount in addition to the in6ationar/ ris-

asso#iated with the monetar/ easing to stimu,ate growth

4n ebruar/ 2015% the 4 a**roved Ken/a.s re(uest )or a >D +&&3 mi,,ion standb/ ,oan that

wi, , on,/ be drawn u*on i) needed he mone/ wou,d be avai,ab,e to the BK in the 's#a, /ear

2015F1+ to #ushion interna, and eterna, sho#-s to the ,o#a, #urren#/ in #ase the/ shou,d o##ur%

su#h as adverse weather #onditions or ma8or im*orts )or in)rastru#ture *ro8e#ts

ECONOMIC CO&OPERATION, REGIONAL INTEGRATION AND TRADE

Ken/a is one o) the -e/ drivers o) e#onomi# #o7o*eration within eastern A)ri#a b/ *romoting

trade )a#i,itation through enhan#ements at the Port o) ombasa now o*erating 2$F!% investing

in the im*rovement o) the northern #orridor road networ- and in 201$% ,aun#hing #onstru#tion o)

the >tandard Gauge ;ai,wa/ to ,in- ombasa to Kam*a,a with a >D 5 bi,,ion ,oan )rom hina

Ken/a a,so ,aun#hed the Mamu Port and >outh >udan7Ethio*ia rans*ort road and rai, networ-

with

the

#onstru#tion

o)

berths

at

Mamu%

in

*rogress

he

Lomo

Ken/atta

4nternationa,

Air*ortremains the gatewa/ to East A)ri#a and its e*ansion is underwa/ to enab,e the air*ort to hand,e

more #argo and *assengers Ken/a there)ore a#tive,/ *romotes and #ondu#ts trade with a, , its

neighbours% in#,uding war7torn >oma,ia

Ken/a is one o) the most *roa#tive and ,eading eam*,es in the im*,ementation o) a

#onventions and agreements inside the EA he ado*tion o) a uni(ue e,e#troni# identit/ #ard%


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soon to be a#tive% has seen #ountries ,i-e Ken/a and ;wanda at the )ore)ront o) this initiatve 4n

ebruar/ 201$% the >ing,e East A)ri#a ourist isa was o=#ia,,/ ,aun#hed b/ the eads o) >

ate o)

Ken/a% ;wanda and ganda in Kam*a,a% #om*,eting one o) the ma8or integration *ro8e#ts 8

int,/

underta-en b/ the three #ountries

he trade ba,an#es as *er#entages o) GDP% shown in ab,e $ be,ow% de*i#t genera, vo,

ti,it/

sin#e 200+ or eam*,e% the #urrent7a##ount ba,an#e worsened )rom a de'#it o) 1@" in

200+ to

one o) @$" in 2011 be)ore im*roving to a de'#it o) 2@" in 2013 he #urrent7a##ount d

e'#it is

*ro8e#ted to worsen to 112" in 201+ 4n terms o) va,ue% the overa,, ba,an#e7o)7*a/ments

sur*,us

im*roved to >D 150! bi,,ion in the /ear to O#tober 201$ )rom >D +0! mi,,ion in the

/ear to

O#tober 2013 he #urrent7a##ount ba,an#e worsened b/ !5" to a >D 5$22 bi,,ion de'#it

in the

/ear to O#tober 201$ )rom >D 50$1 bi,,ion de'#it in the /ear to O#tober 2013 his deterio

ration

re6e#ts an &!" worsening o) the mer#handise7a##ount de'#it% whi#h more than o?set the

@+"

im*rovement in the servi#es7a##ount sur*,us

As shown in ab,e $% the trade ba,an#e is *ro8e#ted to remain at an 117to712" de'#it in

2015

and 201+% owing to in#reasing im*orts o) e(ui*ment and in)rastru#ture7re,ated materia

s he

#urrent7a##ount ba,an#e is e*e#ted to #ontinue to worsen% rising to above 11" in 20

1+ he

government wi,, need to *ut measures in *,a#e aimed at in#reasing e*ort earnings% )rom

bothgoods and servi#es% in order to im*rove the eterna, *osition in the medium term

;emittan#e in6ows remained resi,ient in 201$% with an 11" in#rease o) the #umu,ative 6

ow to

>D 1$2 bi,,ion )rom >D 12@ bi,,ion remitted in 2013 O=#ia, reserves he,d b/ the BK in#

eased

to >D !&3@ bi,,ion 51 months o) im*ort #over at the end o) O#tober 201$ )rom >D +2+3

bi,,ion

$3 months o) im*ort #over at the end o) O#tober 2013

ab,e $ CURRENT ACCOUNT )PERCENTAGE O$ GDP AT CURRENT PRICES*

2006 2011 2012 2013 2014(e) 2015(p) 2016(p)

Tradebalance -12.6 -20.6 -18.9 -13.0 -14.1 -11.1 -12.1

Exportsofgoods(f.o.b.) 13.6 14.2 12.5 13.4 12.5 10.7 9.5

Importsofgoods(f.o.b.) 26.2 34.8 31.3 26.3 26.6 21.8 21.6

Services 4.1 4.8 5.0 4.9 4.1 5.1 4.4

Factorincome -0.3 -0.1 -0.3 -0.6 -1.1 -2.1 -3.8

Currenttransfers 6.9 6.5 5.7 5.8 3.5 0.2 0.2

Currentaccountbalance -1.9 -9.4 -8.6 -2.9 -7.5 -7.9 -11.2


DET POLIC

Ken/a su##ess)u,,/ ta**ed internationa, #a*ita, mar-ets with a debut >D 2 bi,,ion euro

bond

issuan#e O) the *ro#eeds% >D +00 mi,,ion were used to re*a/ a s/ndi#ated ,oan #ontra#

ed in

K e n y a

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2012 and the remaining wi,, serve to 'nan#e energ/ and in)rastru#ture *ro8e#ts h e is

suan#e

#om*rises a 've7/ear bond tota,,ing >D 500 mi,,ion and a ten7/ear bond tota,,ing >D 15 b

,,ion

h e government a,so signed a ,oan with hina in a/ 201$ )or the #onstru#tion o) the om

asa7

Nairobi >tandard Gauge ;ai,wa/ >D 5 bi,,ion% to be im*,emented in about 've /ears

Ken/a

has not sought debt re,ie) under either the eavi,/ 4ndebted Poor ountries initiative

or the

u,ti,atera, Debt ;e,ie) 4nitiative he share o) debt )rom *rivate #reditors #ontinued to in#ease

in 201$% re6e#ting Ken/a.s su##ess)u, inaugura, sovereign bond issuan#e in Lune 201$

A##ording to a the D>A #ondu#ted b/ the nationa, treasur/ 8oint,/ with the or,d Ban- a

d the

4 in >e*tember 201$% Ken/a.s debt burden in re,ation to thresho,ds )or a Hmedium *er)o

merI

#ountr/ shou,d de#,ine substantia,,/ b/ 202$ here is there)ore s*a#e )or the u*ta-e

) more

debt he ana,/sis in#or*orated as a -e/ assum*tion that the 2013F1$ >D 2 bi,,ion so

vereign

debt wou,d #ontra#t% whi#h it did he 'ndings noted that the *ub,i# debt shou,d *ea-

n

2015


and subse(uent,/ remain on a downward trend in the base,ine s#enario 4n 201$% overa,, *ub,i#

debt is estimated to have risen to $5" o) GDP he sovereign7bond issuan#e and rai,wa/7,oan

disbursements shou,d ,i)t *ub,i# debt to around $+" o) GDP in 2015 4n subse(uent /ears% based on

the assum*tion that the *rimar/ de'#it is -e*t to 3" o) GDP in 201+ and gradua,,/ brought down

therea)ter% *ub,i# debt shou,d ease to be,ow $+" o) GDP b/ 201& 4n *resent va,ue P term

%

the *ub,i# debt7to7GDP ratio wou,d remain stab,e around $17$2" through to end7201&% )a,,ing

therea)ter he P o) the *ub,i# debt7to7revenue ratio wou,d gradua,,/ de#,ine )rom around 200"

in 201$715 to 1@1" in 201&

igure 2 STOC( O$ TOTAL E#TERNAL DET )PERCENTAGE O$ GDP* AND DET SERVICE

)PERCENTAGE O$ E#PORTS O$ GOODS AND SERVICES*

%

35

30

25

20

15

10

5

0

K e n y a

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Outstandingdebt(publicandprivate)/GDP

Debtservice/E

xports

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source 9 4 EO Arti#,e 4

E#onomi# and *o,iti#a, governan#e

PRIVATE SECTOR

he Government o) Ken/a #ontinues to ma-e signi'#ant strides in im*roving the #ountr/.s

business environment% *rimari,/ through signi'#ant investments in *h/si#a, in)rastru#ture 4n

)urtheran#e o) its agenda to *romote an e?e#tive *ub,i#7*rivate dia,ogue% the government% in

#o,,aboration with the Ken/a Private >e#tor A,,ian#e KEP>A% estab,ished the Presidentia, ;ound

ab,e P; dis#ussion series aimed at eamining the ro,e ea#h *artner shou,d *,a/ in im*roving

the business #,imate in Ken/a h ree P; meetings were he,d in 201$ at whi#h the #riti#a, issues

dis#ussed in#,uded9 in)rastru#ture deve,o*ment energ/% roads% rai,% tra=# #ongestion% s*eed/

*ort servi#es and e*ansion o) the *ort: taes *o,i#/ stabi,isation in the taation regim

%

*arti#u,ar,/ the A and e#ise and #ustom duties: ,and in#reasing a##ess and removin

g

#onstraints that *revent eas/ registration o) *ro*erties b/ businesses: trading a#ross borders

e,iminating

)ragmentation

o)

do#umentation%

#om*,i#ated

border

*ro#esses

and

bureau#rati#bott,ene#-s: and en)or#ing #ontra#ts and reso,ving #ommer#ia, dis*utes

he or,d Ban- re*ort Doing Business 2015 showed that the #ountr/.s ran-ing had de#,ined

to 13+th out o) 1&@ #ountries in 201$ )rom 12@th in 2013 he )a,, was attributed to high tae

s

s*e#i'#a,,/% an in#rease in em*,o/ers. so#ia,7se#urit/ #ontribution rate and the high #ost o)

getting


#onstru#tion *ermits One area where it was re*orted to have made signi'#ant im*roement

was the in the ease o) getting #redit b/ investors he #ountr/.s G,oba, om*etitivenes

s 4nde

ran-ing im*roved margina,,/ to @0th out o) 1$$ #ountries )or 201$F15% #om*ared to @+th

out

o) 1$& #ountries )or 2013F201$

Overa,,% Ken/a has a re,ative,/ mar-et7)riend,/ business environment in whi#h >Es ar

ver/

d/nami#% due main,/ to strong 'nan#ia, in#,usion and sma,,7business a##ess to #redit%

whi#h is

a,so one o) the re)orms #ited in the or,d Ban- re*ort Doing Business 2015 where Ken/a has show

n

substantia, im*rovement

$INANCIAL SECTOR

Ken/a.s 'nan#ia, se#tor #ontinues to demonstrate strong growth than-s ,arge,/ to in)orm

ation

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and #ommuni#ation te#hno,ogies and innovations% ma#roe#onomi# stabi,it/% and domest

# and

regiona, e*ansion in e#onomi# a#tivities at the devo,ved ,eve, o) government he

an-ing

se#tor% whi#h is ,arge,/ *rivate7se#tor driven% sti,, #om*rises $3 ,i#ensed #ommer#ia,

ban-s and

1 mortgage 'nan#e #om*an/% @ de*osit7ta-ing mi#ro'nan#e institutions% ! re*resentative

o=#es

o) )oreign ban-s% 101 )oreign7e#hange bureaus% 1 remittan#e *rovider and 2 #redit re

eren#e

bureausPersons a##essing 'nan#ia, servi#es in#reased )rom 2!" o) the adu,t *o*u,ation in 2

00+ to

+!" in 2013 4n addition% a )ree,/ avai,ab,e do#ument ma**ing a, , 'nan#ia, tou#h *oints% th

e 201$

inA##ess G4> a**ing% shows that !!" o) the adu,t *o*u,ation ,ives within 5 -m o) a 'na

n#ia,

servi#e *rovider% #om*ared to 35" in anJania% $!" in Nigeria and $3" in ganda

Domesti# #redit )rom the ban-ing se#tor in#reased b/ KE> 3&0+ bi,,ion 211" in

the 12

months to August 201$% versus KE> 20&5 bi,,ion 130" in the same *eriod in 2013 his in

#reasewas ,arge,/ re6e#ted in growth o) #redit to the *rivate se#tor% whi#h a##e,erated to

$5" in

the /ear to August 201$ )rom 1+2" in the same *eriod in 2013 he *rivate se#tor #ontin

ued to

dominate ban-ing7s/stem ,ending% a##ounting )or &12" o) tota, ,ending in August 201$ #om

*ared

with a 1!0" share o) ,ending to the government

he N>E is the ,argest se#urities e#hange in both East and entra, A)ri#a 4t a##ounts

)or 5@

o) the @3 #om*anies in the who,e o) East A)ri#a and it is the )ourth ,argest mar-et in A)ri

a 4tsannua,ised returns stand at 3+"% ma-ing it the se#ond7best *er)orming mar-et on the A

)ri#an

#ontinent 4n terms o) va,ue% whi#h #om*rises both debt and e(uit/% it stood at KE> 1! tri,

on in

Lanuar/ 2015

redit growth has a##e,eratedshar*,/ in ,ending to manu)a#tur ing %rea, estate%

te,e#ommuni#ations% business servi#es and individua,s his is e*,ained to a ,arge e

ent b/

an u*ward shi)t in #redit demand #onsistent with the initiation o) new *ro8e#ts On th

other

hand% the ,atest BK data shows that NPMs in#reased b/ 30@" in 2013 to KE> 10!1

bi,,ion

inDe#ember 201$% main,/ due to *oor *er)orman#e in the tourism se#tor a)ter it was hit b/ th

wave

o) inse#urit/ #on#erns in 2013% a s,owdown in agri#u,tura, e*orts and the government.s de

a/ in

*a/ing #ontra#tors he Ban-ing >u*ervision De*artment o) the BK monitors these ris-s #

ose,/%

and regards the im*a#t o) rising NPMs on ban-s. 'nan#ia, statements as ,arge,/ manageab

e

PULIC SECTOR MANAGEMENT, INSTITUTIONS AND RE$ORM

A##ording to the Ken/a >a,aries and ;emuneration ommission >;% over 55"

o)

the

government.s domesti# revenue was being s*ent on sa,aries to *ub,i# servants in De#embe

201$

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h e >; )ears that the wage bi,, wi,, attain unsustainab,e ,eve,s he >; has #omm

en#ed a

#om*rehensive 8ob eva,uation o) a, , state o=#ers as we,, as a series o) #onsu,tations and dia

,ogue

at both the nationa, and #ount/ ,eve,s in order to raise awareness about the unsustainab,e

wage

bi,, his is being done in #o,,aboration with re,evant government ministries su#h as the Na

iona,

reasur/ and the inistr/ o) Devo,ution and P,anning


4n August 201$% the government ,aun#hed biometri# registration o) *ub,i# servants as *art o)

the 4nter7Governmenta, >teering ommittee )or the a*a#it/ Assessment and ;ationa,iJation o)

the Pub,i# >ervi#e Programme h e eer#ise estab,ished the wor-)or#e at 1@0 000 with about 12 00

non7eistent wor-ers i,,ega,,/ ,isted in the government.s *a/ro,, An ear,ier audit underta-en in

ear,/ 201$ )ound that Ken/an ta*a/ers were ,osing more than KE> 1& bi,,ion annua,,/ on sa,ar/

*a/ments to HghostI wor-ers and other 'nan#ia, ma,*ra#ti#es in the #ivi, servi#e

B/ Lanuar/ 2015% the harmonisation o) a,,owan#es in the *ub,i# servi#e nonethe,ess ,ed to a

*ro*osed additiona, *a/ment o) KE> 1@! bi,,ion >D 21&& mi,,ion to be made in 2015F1+ his

does not in#,ude the demands )or a more than 200" *a/ rise% an a,most additiona, KE> 255 bi,,ion

>D 2& bi,,ion )or the more than 2!0 000 tea#hers #urrent,/ undergoing a dis*ute reso,ution b/

the 8udi#iar/ 4) a, , these *a/ments are brought into e?e#t% the #ountr/.s wage bi,, #ou,d rise to

KE> &23 bi,,ion >D @0$ bi,,ion% or @0" o) domesti# revenues be)ore )urther harmonisation to

a,ign the rest o) #ivi,7servi#e wages with those o) tea#hers

4n

the

orru*tion

Per#e*tions

4nde

P4

o)

201$

*re*ared

b/

rans*aren#/

4nternationa,%Ken/a is ran-ed 1$5th out o) 1!5 assessed #ountries with a s#ore o) 25 out o) a *ossib,e 10

0

he #ountr/ has a #onsistent,/ *oor *er)orman#e in rans*aren#/ 4nternationa,.s P4% ran-ing

at the bottom o) the inde% amongst the #ountries *er#eived as most a?e#ted b/ *ub,i#7se#tor

#orru*tion A ,arge ma8orit/% !0"% o) res*ondents to rans*aren#/ 4nternationa,.s G,oba

orru*tion Barometer 2013 indi#ated that the/ had *aid a bribe to at ,east one o) eight *ub,i#

servi#es in the twe,ve months *re#eding the surve/

NATURAL RESOURCE MANAGEMENT AND ENVIRONMENT

Over !5" o) Ken/a.s *o*u,ation is dire#t,/ de*endent on ,and and natura, resour#es )or

,ive,ihood% whi#h is ver/ mu#h vu,nerab,e to the e?e#ts o) #,imate #hange% su#h as a,ternating

droughts and 6oods Ken/a has however ta-en #ommendab,e ste*s to *rote#t its environment asarti#u,ated in the 2010 onstitution o) Ken/a A##ording to the Ken/a E#onomi# >urve/ 201$% $2"

o) the #ountr/.s GDP is derived )rom natura, resour#es his is one o) the reasons the government

has *rioritised a #,ean% se#ure and sustainab,e environment as a )undamenta, goa, to be a#hieved

b/ 2030 he government% through the Nationa, Environment and anagement Authorit/ is

a,so im*,ementing *rogrammes aimed at a#hieving sound environmenta, management whi,e

at the same time redu#ing the #ountr/.s vu,nerabi,it/ to the adverse e?e#ts o) #,imate #hange

hese measures have in#,uded the deve,o*ment and ,aun#hing o) the Nationa, ,imate hange

;es*onse >trateg/ in 2010 and the Nationa, ,imate hange A#tion P,an 201371! in ear,/ 2013

4n terms o) )orest #over% the target o) ision 2030 is to meet a 10" minimum o) )orest #over

and to *,ant about seven bi,,ion trees to address )ood% water and energ/ se#urit/ 4n 2011% Ken/a.s

tota, area o) )orest #over amounted to ++" and b/ 2013 had in#reased b/ 03@"% so good *rogress

was made towards a#hieving the 10" target with a view to #om*,/ with i,,ennium Deve,o*mentGoa, DG ! ensure environmenta, sustainabi,it/ as we,, as DG 1 eradi#ate etreme *overt/

and hunger

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POLITICAL CONTE#T

he *o,iti#a, s#ene was dominated in 201$ b/ a *ush )or a re)erendum b/ both the o**osition

*art/% the O;D% and the oun#i, o) Governors% whi#h was mat#hed b/ the government.s ,aun#h

o) a #ounter7re)erendum initiative

4 #ases in he ague against the *resident% the de*ut/ *resident and a radio 8ourna,i st

were a,so *rominent,/ )eatured in the *o,iti#a, dis#ourse On 3 De#ember 201$% the #ase against

the *resident was dismissed )or ,a#- o) substantia, eviden#e% but the #ases against hi s de*ut/ and

the 8ourna,i st were #ontinuing in ear,/ 2015


he se#urit/ situation in the #ountr/ #ontinues to remain )ragi,e% ea#erbated b/ ,ong% *orous

borders% the *resen#e o) more than +00 000 re)ugees in the north7eastern *art o) the

ountr/

and regiona, instabi,ities% es*e#ia,,/ in >oma,ia% >outh >udan and the Great Ma-es ;egion

n the

months o) a/% Lune and November 201$% the #ountr/ e*erien#ed devastating vio,en#e

in the

andera% a8ir% ana De,ta and Mamu distri#ts ,eading to the deaths o) more than 125 *e

sons

A##ording to o=#ia, 'gures% the number o) interna,,/ dis*,a#ed *ersons a#ross the #ountr/

was

estimated to be higher than 215 000 at end7201$

o address and ade(uate,/ res*ond to the man/ se#urit/ #ha,,enges )a#ed b/ the #ountr

/% the

government submitted a >e#urit/ Maws Amendment Bi,, to Par,iament% whi#h was to am

nd at

,east 22 ,aws in the #ountr/ aimed at giving the ee#utive bran#h more *ower in dea,ing wi

h these

#ha,,enges he bi,, was *assed on 1& De#ember 201$ in Par,iament a)ter a #haoti# *ar,iam

entar/

session and *rotest b/ a#tivists outside Par,iament% with the o**osition members o) Par,ia

ment

warning that Ken/a was be#oming a *o,i#e state 4n ebruar/ 2015% the onstitutiona, ourtthrew

out a number o) #,auses in the new ,aw as un#onstitutiona,% and the government was #onsi

ering

an a**ea,

>o#ia, #ontet and human deve,o*ment

UILDING HUMAN RESOURCES

Ken/a has made signi'#ant strides in a#hieving universa, *rimar/ edu#ation

he net

enro,ment ratio in#reased )rom +!&" in 2000 to @5@" in 2013% whi,e the gross enro,menratio

in 2013 amounted to 11!3" in#,uding *ersons over 1$ /ears o,d who are enro,,ed in

rimar/

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s#hoo,s he *ro*ortion o) *u*i,s starting Grade 1 who were ab,e to rea#h the ,ast grade o) *

rimar/

s#hoo, in#reased )rom 5!!" in 2000 to &03" in 2013 hese a#hievements #an be attri

uted to

the government.s )ree *rimar/ edu#ation *rogramme introdu#ed in 2003 and its sub

tantia,

investment in edu#ation at a, , ,eve,s Ken/a is we,, on tra#- to a#hieve DG 2 a#hieve un

versa,

*rimar/ edu#ation b/ 2015

About 52" o) Ken/a.s *o*u,ation has a##ess to basi# hea,th#are servi#es within 5 -m A

##ess

to basi# *rimar/ hea,th#are and re)erra, servi#es remains% however% a #ha,,enge B/ 2

013% the

in)ant morta,it/ rate in Ken/a had )a,,en to $& *er one thousand ,ive births )rom +!

n 2000

h e under7've morta,it/ rate stood at !1 *er one thousand ,ive births in 2013 versu

110 in

2000 Amongst the main )a#tors #ontributing to #hi,d and in)ant morta,it/ in Ken/a ar

a#ute

res*irator/ in)e#tionsF*neumonia% diarrhoea% ma,aria and 4FA4D>

aterna, morta,it/ #ontinues to be a serious deve,o*ment #ha,,enge in Ken/a at both na

ona,and #ount/ ,eve,s Ken/a.s materna, morta,it/ rate is *,a#ed at $00 *er one hundred thousa

nd ,ive

births in 2013 i)teen o) Ken/a.s $! #ounties have been )ound to a##ount )or @&!" o) the na

tiona,

tota, o) materna, deaths 4n 201$% the governors o) these #ounties signed a #ommitment t

o end

*reventab,e materna, and new7born.s deaths in their #ounties

he 4FA4D> *reva,en#e rate de#,ined )rom over 10" in 1@@@ to 5+" in 2012 whi,e 4

A4D>

*reva,en#e amongst the 1572$ age grou* de#,ined to 21" in 2013 )rom 3+" in 2003 ith

nitedNations

su**ort%

Ken/a

*re*ared

in

201$

the

DG

A##e,eration

ramewor-%

whi#h

)o#us

ed on

the rea,isation o) DGs $ redu#e #hi,d morta,it/ and 5 im*rove materna, hea,th 4n add

tion%

Ken/a.s 'rst ,ad/ ,aun#hed the Be/ond ero am*aign to )o#us on materna, and #hi,d hea,t

h% and

4 4n addition% Ken/a is now ran-ed 1+th amongst #ountries with the highest B burden

h e

B in#iden#e rose )rom 112 *er one hundred thousand in 1@@0 to 3$1 *er one hundred thou

sand

in 2013 Otherwise% the *ro*ortion o) #hi,dren ,ess than 5 /ears o,d s,ee*ing under inse#t

#ide7

treated bed nets in#reased )rom 2@" in 2000 to $22" in 2011% ,eading to a redu#tion in m

a,aria7

re,ated deaths


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urthermore% the *ervasive *er#e*tion o) e#onomi# and *o,iti#a, margina,isation emerged

)rom the #on#entration o) *ower in the hands o) a )ew e,ite grou*s sin#e inde*enden#e A##o

rding

to an 4n#,usive Growth >tud/ b/ >A4D 2013% issues o) *o,iti#a, governan#e have been am

ongstthe

most

*rominent

)eatures

o)

the

Ken/an

,ands#a*e

over

the

*ast

)ew

de#ades

stori#a,

under,/ing *o,iti#a, tensions% re#urrent,/ de'ned a,ong ethni# ,ines and e*ressed t

hrough

#orru*t a#tivities )avouring members o) the sitting ,eadershi*.s ethni# grou*% #reat

ed and

#ontinue to #reate a strong *er#e*tion o) a higherQris- environment 4n addition% there has

been a

#,ear #orre,ation between ma8or *o,iti#a,,/ re,ated events and signi'#ant disru*tion o) e#on

omi#

growth

he

>A4D

stud/

a,so

estab,ished

signi'#ant

de'#ien#ies

in

nonQurban

in)rastr

u#ture%

*arti#u,ar,/ with regard to the su**,/ o) e,e#tri#it/% *reventing the e*ansion o) e#onomi# a

#tivit/

outside o) the #a*ita, Ken/a *er)ormed *oor,/ in su**,/ing e,e#tri#it/ outside o) ,arge

urban

#entres or eam*,e% at 3@ Fmi,,ion *ersons in 2011% e,e#tri#it/ #onne#tion was high w

ithin

Nairobi +@" in 2011% whi,e a ,ow nationwide #onne#tivit/ rate 1+" in 200@ suggested a ve

r/ ,ow

rura, #onne#tivit/ rate estimated at rough,/ $" hi,e su#h a ,ow nonQurban #onne#tivit

rate

ea#ts a ,eve, o) hardshi* on househo,ds% more im*ortant,/ it re*resents a severe geogra*hi#a,

restri#tion o) e#onomi# a#tivit/ to a ver/ sma,, hand)u, o) #ities

argina,isation a,so emerges )rom investib,e resour#es A,though there is good eviden

e o)

'nan#ia,7se#tor dee*ening in Ken/a% the deve,o*ment o) the 'nan#ia, se#tor in the #ountr/

does

not seem to have s*read a#ross a, , e#onomi# se#tors hi,e the agri#u,ture se#tor #ontribut

es 2@"

to GDP and em*,o/s over &0" o) the rura, *o*u,ation% #ommer#ia, #redit to agri#u,ture re

mains

,ow% with #ommer#ia,7ban- #redit to this se#tor averaging a**roimate,/ 5" in the 'v

e

/ears

,eading to 2013

Deve,o*ment in Ken/a has ,arge,/ been #on#entrated in the west7east #orridor stra

dd,ing

the northern #orridor ,in-ing the *ort #it/ o) ombasa to the western *art o) Ken/a About

two7

thirds o) the #ountr/% #overing northern and eastern *arts% and to some etent the s

uthern

*arts% remain underdeve,o*ed% ,arge,/ o##u*ied b/ nomadi# *astora,ists

>*atia, tensions or #on6i#ts have% sin#e 1@@0% ,arge,/ resu,ted )rom the *er#e*tion o) e#o

nomi#and *o,iti#a, dominan#e% and ,and ownershi* he 'rst ma8or #on6i#t resu,ting )rom *o,iti#a

and

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ethni# tensions o##urred in the *eriod *re#eding the De#ember 1@@2 genera, e,e#tions%

eading

to dis*,a#ement o) *o*u,ations )rom severa, distri#ts in the ;i)t a,,e/ A ,arger #on6i#t o##

urred

a)ter the 200! genera, e,e#tions ,eading to the deaths o) over 1 200 *ersons and the dis*,a#

ement

o) more than +00 000 *ersons% *rin#i*a,,/ )rom the ;i)t a,,e/ and #oasta, regions Betwee

2012

and 201$% #on6i#t has been #on'ned to the northern% north7eastern and #oasta, regions%

main,/

asso#iated with #on6i#t over ,and% *asture% water% as we,, as terrorist a#tivities ,ed b/ A,7>habaab

Mimited #on6i#t has been witnessed in the ,arge #ities o) Nairobi and ombasa% and

these

have been ,arge,/ asso#iated with the i,,ega, o##u*ation o) *rivate ,and b/ s(uatters and *e

#eived

#orru*t a#(uisition o) ,and >imi,ar,/% the re#ent dis#over/ o) oi,% gas% a(ui)er and #oa,

has ,ed

to tensions and a#tive debate on how the revenue generated )rom the new dis#overies

wi,, be

shared

>in#e 1@@0% Ken/a has gone through *o,iti#a, and e#onomi# reorganisation intended to address

*er#eived histori#a, in8usti#es asso#iated with sharing o) resour#es 4n 1@@2% the administ

ative

boundaries were organised around $1 distri#ts and & *rovin#es Ea#h o) the distri#

s were

em*owered to *re*are and im*,ement their own Distri#t Deve,o*ment P,ans% with res

our#es

*,anned and a,,o#ated b/ the nationa, government A,though most distri#ts were de,i

neated

a,ong ethni# ,ines% the ,o#a, *,anning and *o,iti#a, mobi,isation ,ed to some )ee,ing o) in#,us

on in

the management o) nationa, deve,o*mentBetween 1@@2 and 2010% the re)orm drive #ontinued to the ado*tion and *romu,gation o)

a new

#onstitution in August 2010% ,arge,/ meant to address e#onomi# and *o,iti#a, margina,i

ation


he #onstitution estab,ished two ,a/ers o) government% nationa, and $! semi7autonomous

#ount/ governments #harged with *,anning% ,egis,ation and the im*,ementation o) autonomous

budgets he nationa, government is ob,iged to a,,o#ate the e(uiva,ent o) at ,east 15" o) the ,atest

audited a##ounts to the annua, budgets o) the #ount/ governments he #onstitution addresses

margina,isation through a=rmative a#tion *rogrammes and *o,i#ies that are designed to redress

an/ histori#a, disadvantages he 2010 onstitution de'nes margina,ised #ommunities as one or

more o) the )o,,owing9 i) a #ommunit/ that

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traditiona, ,i)est/,e and ,ive,ihood based on a hunter or gatherer e#onom/% or *astora, *ersons

and #ommunities% whether the/ are nomadi# or a sett,ed #ommunit/% that

Kenya GB 2015

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