The Report: Kenya 2016
New system devolving power to county governments. Strengthening ties with Western and Asian partners. A key role in an effort to create stability in the region. Closer East African integration to enhance growth.
Kenya has undergone a significant political and governance transformation over the last five years. New measures to encourage a more stable and democratic system have been ushered in, changing the way Kenyans are governed and how the different layers of administration interact. These structural alterations are good news for the country, although there are still challenges as it looks to maintain its growth and stability moving forward. As the country reaches the middle of President Uhuru Kenyatta’s first term, his administration faces a number of hurdles. Building faith in the political system, improving the security situation and dealing with corruption will occupy much of its time. These are difficult, long-standing issues, but the country is beginning to face them. If they can be overcome, Kenya will be well placed to ensure sustained economic growth and stability.
This chapter contains interviews with President Uhuru Kenyatta, Commander-in-Chief of the Kenya Defence Forces; and Richard Sezibera, Secretary General, East African Community; and a viewpoint from Barack Obama, President of the US.Explore chapter
Kenya’s economic outlook for the years ahead looks robust, despite recent challenges such as a trade deficit and rising debt. Following 2014’s GDP rebasing, the country is now East Africa’s largest economy and boasts a prominent profile in the EAC. According to official forecasts, growth is expected to be around 6.5-7% in 2015 and to continue at a similar level for the coming years. This follows on from growth of 5.3% in 2014 and 5.7% in 2013. Agriculture was the biggest sector, at 27.3% of GDP by activity, in 2014 and it also accounts for roughly two-thirds of all exports and supports as much as 80% of the rural population directly or indirectly. The second-largest contributor to GDP in 2014 was manufacturing, at 11%.
This chapter contains interviews with Henry Rotich, Cabinet Secretary, National Treasury; Cecilia Malmström, EU Trade Commissioner; Moses Ikiara, Managing Director, Kenya Investment Authority; and Carole Kariuki, CEO, Kenya Private Sector Alliance.Explore chapter
The banking sector is growing and profitable, although expenses are climbing faster than revenues and non-performing loans have also increased. The overall balance sheet reached KSh3.6trn ($39.6bn) in June 2015, up 21.4% from KSh3trn ($33bn) a year earlier. A number of factors also stand to benefit the sector going forward. Kenya’s banks are gearing up to participate in financing huge infrastructure projects, including power plants, port expansions, 10,000 km of roads, and the Lamu Port-Southern Sudan-Ethiopia Transport Corridor that includes a northern oil pipeline to Uganda. Meanwhile, Kenya’s growing middle class is boosting retail banking and products such as mortgages and personal loans and is likely to continue to drive the adoption of credit cards.
This chapter contains an interview with Patrick Njoroge, Governor, Central Bank of Kenya; and a roundtable with: Gideon Muriuki, Group Managing Director and CEO, Co-operative Bank of Kenya; James Mwangi, Group Managing Director and CEO, Equity Bank; and Joshua Oigara, Group CEO, Kenya Commercial Bank.Explore chapter
The country’s capital markets have seen some bright spots in 2015 amid the broader turbulence affecting emerging markets around the world. The NSE had a total of 64 listings as of late 2015. They were split into 11 categories: agricultural; automobile and accessories; banking; commercial and services; construction and allied; energy and petroleum; insurance; investment; investment services; manufacturing and allied; and telecommunication and technology. Of these, banking had the most listings, with 11. Total market capitalisation stood at KSh1.955trn ($21.5bn) in October 2015. Strong volumes of equity market trading were seen over the first half of 2015, with equity turnover worth KSh107bn ($1.18bn). Full-year equity trading volumes climbed from KSh86bn ($946m) in 2012 to KSh155bn ($1.7bn) in 2013 and KSh215bn ($2.4bn) in 2014.
This chapter contains an interview with Geoffrey Odundo, CEO, Nairobi Securities Exchange.Explore chapter
In recent years, insurance penetration and accessibility have been improving steadily in Kenya. The middle class is growing, more Kenyans have disposable income and there is potential for new demand for insurance. There is rapid urbanisation, giant infrastructure projects, new energy schemes and growing industry. In 2013 life insurance penetration stood at 1.2% of GDP and general insurance was about twice that, bringing the total to 3.44%. However, this measure of insurance penetration dropped to 2.93% in 2014 after GDP was rebased with a 25% increase. Life assurance gross premium income was KSh56.5bn ($621.5m) in 2014, up from KSh44.3bn ($487.3m) the previous year, and this growth trend continued into the first quarter of 2015.
This chapter contains an interview with Sammy M Makove, Commissioner of Insurance and CEO, Insurance Regulatory Authority.Explore chapter
An anticipated recovery in the upstream segment in 2017 could spur a new round of investment, and downstream demand is expected to continue rising, particularly as vehicle sales accelerate. While the forecast for 2015 is mixed, the industry’s long-term prospects remain bright, and the sector is likely to be a major economic engine over the next five years. The total volume of petroleum products imported in 2014 rose by 11.7% to 4.46m tonnes, with the petroleum import bill simultaneously increasing by 5.6% to reach KSh333.15bn ($3.7bn), while total domestic demand for petroleum products grew by 5.3% to hit 3.94m tonnes. Building on its sizeable reserves of soda ash, fluorspar and titanium oxide, among other resources, Kenya’s burgeoning mining sector is poised for significant long-term growth. The industry’s potential is thus helping to attract major investments in critical infrastructure.
This chapter contains interviews with Donald Mahaga, Chairman, Kenya Oil and Gas Association; and Tim Carstens, Managing Director, Base Resources.Explore chapter
By 2017 the country has an ambitious target of adding 5000 MW to the national grid. Of this, the government plans to include 1600 MW from geothermal sources, 1920 MW from coal-powered plants, 420 MW from hydro and 650 MW from wind. The government has outlined a significant role for the private sector in these projects, and recent legislative reforms should see the number of independent power plants in the country continue to increase. Investors are expected to move to capitalise on the huge potential for future expansion despite the high initial input costs and an infrastructure deficit that could delay projects.
This chapter contains interviews with: Albert Mugo, Managing Director and CEO, Kenya Electricity Generating Company; and Andrew Herscowitz, US Coordinator, Power AfricaExplore chapter
Kenya has been making considerable headway over the past two years on a development agenda designed to strengthen the country’s position as a leading regional transport and logistics centre for the East Africa region. Despite a hefty infrastructure deficit, transport investment is seen as vital. A key component of Kenya’s infrastructure plan is the Lamu Port-Southern Sudan-Ethiopia Transport Corridor project, a $24.5bn development stretching across East Africa and northern Kenya. Equally significant is the Mombasa-Malaba standard-gauge railway. Transport activity is expanding in tandem with infrastructure spending. The country saw a 5% growth in the transport and storage sector in 2014, up from 1.22% the previous year. Meanwhile, the total amount of freight traffic by rail grew by 24.3%, from 1.2m tonnes in 2013 to 1.5m tonnes in 2014, and container traffic at the Port of Mombasa rose from 894,000 twenty-foot equivalent units (TEUs) to 1.01m TEUs over the same period.
This chapter contains interviews with Atanas Maina, Managing Director, Kenya Railways; and Gichiri Ndua, Managing Director, Kenya Ports Authority.Explore chapter
Construction & Real Estate
Following on from decades of positive gains, Kenya’s construction sector continues to see robust growth and remains a central component of the country’s immediate and longer-term economic growth agenda. The industry’s GDP contribution in 2014 totalled KSh259.6bn ($2.86bn), up 13.1% on 2013. This growth pushed the construction sector’s share of the economy up by a third of a percentage point to reach 4.8% of GDP. The construction industry’s substantial jump in 2014 made it the best-performing sector that year, owing primarily to an injection of funds for major road works, railway projects and road rehabilitation. Commercial credit extended to the construction sector rose from KSh70.8bn ($778.8m) in 2013 to KSh80.4bn ($884.4m) in 2014, an increase of 13.6%. Similarly, the value of approved building plans in the private sector rose by 7.8%, from KSh190.6bn ($2.1bn) in 2013 to KSh205bn ($2.26bn) in 2014.
This chapter contains an interview with Michael Turner, Managing Director, East Africa, Actis.Explore chapter
Telecoms & IT
The telecoms sector continues to be a critical element of the economy, laying the groundwork for greater investment and performing well in terms of mobile money and ICT infrastructure growth. As smartphone penetration and 4G coverage increase, new regulations are lowering barriers for tech imports and facilitating the expansion of e-governance. The country saw mobile penetration at 83.9% as of June 2015. This followed healthy growth throughout 2014, with mobile phone penetration rising by 2.9% from January to March 2015. The government continues efforts to incorporate ICT into its service delivery, and is implementing the Connected Kenya 2017 master plan to guide the country’s ICT and broadband development. The plan aims to see the sector create up to 180,000 jobs and contribute up to 8% of the value of goods and services produced in the country.
This chapter contains a roundtable discussion with Bob Collymore, CEO, Safaricom; Adil El Youseffi, CEO, Airtel; Vincent Lobry; and CEO, Orange Telkom; as well as an interview with Jambu Palaniappan, Regional General Manager for Middle East and Africa, Uber.Explore chapter
Industry & Retail
The ongoing push for industrial expansion, as highlighted by the government’s overarching Vision 2030 strategy, has resulted in a number of positive developments over the past year, particularly in the textiles, construction materials and food processing segments. Electricity availability and reliability have improved steadily over the past year as new renewable power plants have come on-line. SMEs contribute around 33% of value-added goods and create 80% of all new jobs, and their promotion ranks high on Vision 2030’s industrialisation agenda. As part of these efforts the government is increasingly moving to protect domestic industry, while regional and bilateral agreements have benefitted Kenyan exporters.
This chapter contains interviews with Adan Mohamed, Cabinet Secretary, Ministry of Industrialisation and Enterprise Development; and Darshan Chandaria, Group CEO, Chandaria Group of Companies.Explore chapter
Kenya’s largest contributor to GDP faced significant hurdles in 2015. Exports were hit by a slowdown abroad, and the continued depreciation of the shilling led to a jump in production costs. However, rising demand both at home and regionally and increased production levels are contributing to greater foreign investment, enabling the sector to maintain its economic importance. Plummeting global commodity prices have had a serious impact on tea export revenues; imports of critical crops like sugar and maize have risen as a result of inefficiencies in these subsectors; economic slowdowns in Europe and Asia have weakened global demand for horticulture exports; and the shilling’s ongoing depreciation has exacerbated the sector’s rising production costs. However, the government and private industry are aware of the challenges and have been working to address them.
This chapter contains an interview with Mohammad Abu-Ghazaleh, Chairman and CEO, Fresh Del Monte Produce.Explore chapter
The tourism industry is going through a challenging period, as security concerns have taken a toll on the leisure segment. The government and private investors are working to improve security and, in the meantime, the sector is diversifying and focusing on areas such as business tourism and the domestic segment.
Kenya has one of the biggest and most diverse tourism industries in East Africa, with offerings in a range of niches including the meetings, incentives, conferences and events (MICE) segment and safari ecotourism. Following two high-profile terrorist attacks, there was some pressure placed on visitor numbers and hospitality revenues. In response, the government and a number of private investors are taking steps to improve security and re-establish Kenya as a safe, attractive destination for visitors.
This chapter contains interviews with Mahmud Janmohamed, Managing Director, Serena Hotels Africa; and Robert Muriithi Ndegwa, Managing Director, Kenya Tourism Board.Explore chapter
Education & Health
Kenya has a young and growing population, which has the potential to transform the country’s economic fortunes. To achieve this transformation the government will have to improve the quality and relevance of the skills young people possess. The country’s basic indicators have been moving in the right direction and compare well with the region. The state of health care in Kenya presents both challenges and opportunities. The public health system has grappled with underfunding and low staffing ratios, but there is hope that the ongoing devolution of services will improve the equitable delivery of quality health care, alongside the roll out of more private sector services. The government has committed KSh38bn ($418m) to the sector under the Healthcare Transformation Programme as part of its wider Vision 2030 plan.
This chapter contains an interview with Noah O Midamba, Vice-Chancellor and CEO, KCA University; and Professor of Defence and Foreign Policy.Explore chapter
This chapter contains an overview of the tax framework within which local and international investors operate in Kenya, including an examination of the free trade agreements in place and how they are enabling more foreign investments. A rundown of the proposed changes to tax laws currently under examination is also included.
This chapter contains a viewpoint by Gitahi Gachahi, CEO, EY Eastern Africa.Explore chapter
This chapter contains an overview of the legal framework within which local and international investors operate in Kenya, including a look at the business environment for foreign investors, the different types of corporate entity recognised in Kenya and a rundown of the various incentives available for inward investment.
This chapter contains a viewpoint by Karim S Anjarwalla, Managing Partner, Anjarwalla & Khanna.Explore chapter
The guide contains listings of some of the leading hotels and resorts in Kenya and contacts for important government offices and services. It also contains useful tips and information for first-time or regular business and leisure visitors alike.Explore chapter
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