National elections, the establishment of a new system of devolved government and the possibility of deteriorating global economic conditions will make 2012 a challenging but potentially prosperous year for Kenya.
High food and fuel prices, the drought in the Horn of Africa, and the Euro crisis have weakened Kenya’s already fragile external position and will lower growth to an estimated 4.3 percent in 2011. For 2012, the World Bank projects growth to recover slightly and reach 5.0 percent, if Kenya succeeds in managing the risks.
Kenya’s constitutionally-mandated devolution is one of the most ambitious programs of its type in the world. The bulk of the decentralization reforms will be implemented in 2012 and will impact Kenya’s social stability, service delivery and fiscal health for years to come.
Kenya must maintain tight monetary policies and fiscal prudence to manage the economy over the short term.
The country will succeed economically and be less vulnerable to shocks only if it balances its economy through stronger exports.
To manage decentralization successfully, Kenya must ensure a fair distribution of national resources commensurate with county needs and capacity and balancing national interests; devise a simple and transparent transfer that promotes spatial redistribution without compromising growth and efficiency; build capacity in counties; get accountability; and ensure the transition does not interrupt service delivery.