1. Running on one Engine Kenyas uneven economic performance with a special focus on the port of Mombasa Press BriefingWorld Bank Economic Team Norfolk HotelPresentation by Dr. Wolfgang Fengler Nairobi, June 3, 2010

2. Main messages Kenya is recovering - slowly but surely. For 2010, the World Bank isrevising its growth forecast upwards to 4.0 percent. For 2011, we project4.9 percent, if no shocks occur. However, Kenya is running on one engine. Over the last decadegrowth has been imbalanced, predominantly driven by domesticconsumption fuelled by imports. Exports have been weak and non-tradablesectors, such as services and construction have performed strongly. The Infrastructure deficit constrains exports and the port ofMombasa is still under-performing. Despite some improvements, portreforms have not kept up with the momentum in other African countries. Itstill takes 20 days to bring a container from Mombasa to Nairobi. This islonger than to ship the same container from Singapore to Mombasa.

3. Recent Economic Developments and Outlook for 2010

4. Kenyas economy is recovering slowly but surely

5. but lags behind growth in East Africa

6. Services have been the drivers of growth in 2009, agriculture contracted again

7. and Kenyas ICT revolution continues:20 mn phone connections; 4 mn internet connections

8. Macroeconomic management has been strong:Inflation and interest rates declined sharply since 2008

9. Fiscal deficits have been lowFor FY 2009/2010, the deficit only reached 4.9% by April 2010

10. and the fiscal stimulus will not be fullyimplemented: 57% disbursement after nine months

11. Kenya Running on one Engine

12. Kenyas share in world trade has been declining sharply since 1970

13. The pattern of consumption-led growth and weak exports has been building up for a decade

14. Consumption has led Kenya out of the crisis in 2009 - net exports remain negative

15. The current account deficit remains large and is financed by a strong capital account

16. ...which is driven by short term flows

17. Over the last decade, non-tradable sectors have performed best Ave. Percent

18. Manufacturing has been overtaken by transport & communication and wholesale & retail trade

19. The Port of Mombasa

20. Singapore ships 50 times more goods than Mombasa

21. 94 percent of Mombasa goods go to Kenya and Uganda

22. At the port, dwell time has been reduced, however, ... 20,000 11.33 12 10.67 18,000 10 16,000 9.13volum e of goods (000D WT ) 14,000 8 12,000 10,000 6 5.93 8,000 4 6,000 4,000 2 2,000 0 0 4th Qtr 2007 2nd Qtr 08 4th Qtr 08 2nd Qtr 09 CFS DW TIME

23. .. it still takes 20 days to bring a container from Mombasa to Nairobi 3.7 days18.3 days

24. and Kenya is lagging behind in the implementation of reforms

25. Key reform issues Easy wins Improve management. The Mombasa port can besubstantially upgraded, even with the current infrastructure, includingthrough (i) full and effective 24hr port operations; (ii) the implementation of a stateof the art IT system (Port Community-Based System); (iii) the concessioning ofberths 11-14 through a competitive and transparent process; (iv) theestablishment of a landlord port. Infrastructure upgrading Focus on transport connections. Transfer ofgoods through Mombasa and other parts of Kenya has become a majorhindrance to the economy. Key improvements include the (i) Mombasa by-passalong with the link road from the port; (ii) upgrading of rail capacity; (iii) building ofnew container terminal by 2015

26. Thank You http://www.worldbank.org/keFor more information on this report and the World Banks Economic program in Kenya, please contact Wolfgang Fengler (wfengler@worldbank.org), Jane Kiringai (jkiringai@worldbank.org) or Andrew Roberts (aroberts@worldbank.org)