The Report: Kenya 2017
Even amid a broader downturn in many African markets, Kenya has consistently been one of sub-Saharan Africa’s most reliable performers.
With approximately 44.2m inhabitants and an annual growth rate of 2.6%, Kenya is the seventh-most populated country in Africa. Demographically, it is also very young, with the average age around 18 years and more than 50% of the population under 25. The country’s politics have changed markedly since the introduction of a new constitution in 2010, devolving a significant amount of power to counties, strengthening political accountability and improving the delivery of public services at the local level. There are challenges, however, and while Kenya’s fast-growing population is seen as a boon by many, the economy has struggled to create enough well-paying jobs to keep up with this growth. Poverty and inequality remain persistent, and recent security concerns have lowered tourism numbers, putting a considerable dent in foreign currency reserves. Yet while these issues are serious, the country has managed to avoid much of the turmoil that has hit other major African economies over the past two years, such as recessions, rising debt and slowdowns in growth. While uncertainty over the outcome of the general elections scheduled for August 2017 may temporarily dampen business confidence, the country has made significant progress and the outlook appears relatively positive.
This chapter contains interviews with President Uhuru Kenyatta; Shinzo Abe, Prime Minister of Japan; and Brigitte Zypries, Federal Minister of Economic Affairs and Energy of Germany.Explore chapter
Kenya was the sub-Saharan Africa’s fifth-largest economy in 2015 behind Nigeria, South Africa, Angola and Sudan, ranked 11th in inward foreign direct investment and is one of the few countries in Africa that is not primarily dependent on extractive revenues. This performance is not necessarily surprising given the country’s comparative advantages. The East African market has one of the highest financial inclusion rates in the developing world, and a strong and diversified private sector. Kenya is also seen as a safe haven for assets in the region, with significant inflows from countries such as Somalia and South Sudan a contributing factor to the country’s overall balance sheet. The highlight of 2017 will be the general elections, with hopes for a result that is clear and accepted, and a peaceful transition of power if the incumbent loses. Kenya’s fundamental economic performance continues to be strong, with GDP growth expected to grow by 6%. Key sectors such as tourism continue to rebound, however, important structural reforms are still needed to ensure sustained growth.
This chapter contains interviews with Carole Kariuki, CEO, Kenya Private Sector Alliance; Moses Ikiara, Managing Director, Kenya Investment Authority; and Akinwumi Adesina, President, African Development Bank.Explore chapter
Kenya’s banking sector benefits from healthy fundamentals, which in turn has ensured steady growth in lending and assets, and strong performances for listed creditors. However, 2016 provided the sector with its fair share of challenges to navigate. Nevertheless, the outlook for the country’s lenders is positive. A key driver of growth among Kenyan banks remains their ability to tailor products that meet Kenyans’ needs, which has helped the country attain one of the highest financial inclusion rates in the developing world, at 75%. Sector challenges may have slowed growth temporarily, but the underlying fundamentals for Kenyan banks look strong and stable for the medium term. The country’s banks are fast-growing, responsive, innovative and increasingly well-regulated.
This chapter contains interview with Patrick Njoroge, Governor, Central Bank of Kenya; Lamin Manjang, Managing Director and CEO, Standard Chartered Bank Kenya; Joyce-Ann Wainaina, CEO, Citibank; and Jeremy Awori, Managing Director, Barclays Bank Kenya.Explore chapter
The capital markets in Kenya have witnessed many years of sustained and rapid growth. This performance, phrased as one investor as “Africa in fifth gear”, reflects the broader macroeconomic fundamentals of the country’s economy, which is set to strengthen further in 2017 as a result of ongoing government spending on infrastructure and the recovery in tourism. However, short-term hurdles have dampened enthusiasm, such as the global uncertainty resulting from Brexit and the unexpected outcome of the US presidential elections in 2016, and domestic concerns over the national elections in August 2017. Still, while investors at the Nairobi Securities Exchange (NSE) may have been holding back investments to take account of short-term moves, excitement in Kenya’s long-term growth trend has not dimmed, as demonstrated by the ongoing activity in private equity and mergers and acquisitions. Despite the market’s relative sophistication, new initiatives are likely to require years of support by NSE and other market participants before they achieve a meaningful level of liquidity, particularly when spot equities and bonds are slowing down.
This chapter contains an interview with Paul Muthaura, CEO, Capital Markets Authority; and Geoffrey Gangla, CEO, Genghis Capital.Explore chapter
In 2016 Kenya was ranked as one of Africa’s most mature insurance markets, with growth forecast at 6% a year, according to EY. While this is slower than some other large African markets, annual premium income was still expected to increase significantly, from $1.8bn in 2014 to $2.2bn by 2018, driven by urbanisation and a strong economy. Though the potential for growth is strong, the market has encountered some problems common to insurance sectors in the emerging world. The sector saw lacklustre performance in 2015 and 2016, which was the result of slow growth amid issues with fraudulent claims, particularly in the medical and motor segments. Insurers are also struggling to expand coverage among a large informal economy and income-sensitive population. However, with a wide array of innovative, local insurance market leaders, the Kenyan insurance landscape has the potential for a sizable expansion of domestic market penetration. The country also presents a solid base for reaching other African markets, which bodes well for drawing further interest from investors.
This chapter contains an interview with Benson Waregi, Group Managing Director, Britam Insurance.Explore chapter
Industry & Retail
Under the auspices of the overarching Vision 2030 economic development plan, industrialisation remains a top priority for the Kenyan government, with the sector recording steady growth in 2015 against a backdrop of falling energy and input prices, lending an optimistic outlook for 2017 and beyond. Industrial stakeholders continue to face hurdles, however, and manufacturing’s contribution to GDP has not kept pace with broader macroeconomic growth. Low-cost imports across nearly all segments of the sector have had a negative impact on many local producers, while overlapping and unclear regulatory frameworks have created uncertainty about the role of the country’s export processing zones against a backdrop of planned new special economic zones. Although rising imports, shilling depreciation and unclear legal reforms will continue to challenge Kenyan industrial producers, the sector’s growth outlook for 2017 is positive. The retail sector in Kenya is benefitting from rising middle-class purchasing power, robust macroeconomic growth and a surge of investment in high-end formal retail space, with a host of foreign retailers, brands and producers entering the market. Although well-entrenched local players remain dominant in the supermarket segment, the entrance of France’s Carrefour in 2016 marked an increase in competition between local and foreign outlets for new market share. Kenya’s retail market is expected to record a positive performance in 2017, driven by population growth, positive economic metrics and heightened marketing activities. With urbanisation indicating strong potential for expansion into smaller cities and formal retail space in Nairobi approaching saturation, retailers will be looking to reorganise value chains.
This chapter contains interviews with Chris Kirubi, Chairman, Haco Tiger Brands; and Phyllis Wakiaga, CEO, Kenya Association of Manufacturers.Explore chapter
Energy & Mining
With commercial-scale resource discoveries in Kenya in recent years – of both oil and solid minerals – the country’s energy and mining sectors are expanding. Kenya is now poised to join the ranks of commodity exporters, which is a significant reversal from the country’s historic dependency on imports. Authorities are currently overhauling related regulatory frameworks and working on large-scale infrastructure projects to help solicit investment in upstream extractive industries, with an eye to boost both exports and domestic sales. The need for new infrastructure is largely based on the expectation that Kenyans – and East Africans overall – will trade up from burning biomass to consuming modern fuels as disposable incomes rise across the board. Demand could be met with local oil if the state elects to rehabilitate its old refinery or build a new one, or Kenya could equally choose to export its crude oil and import finished products. For now, however, the government is primarily focused on upstream production and improving its regional distribution capacity.
This chapter contains interviews with Dan Kazungu, Cabinet Secretary, Ministry of Mining; and John Ngumi, Chairman, Kenya Pipeline Company.Explore chapter
As with most African markets, Kenya’s power sector is defined by a two-track approach, with an eye to boosting generation and improving access. The reasoning behind the latter is clear; electrification rates in the country are low even by continental standards, and this is exacerbated by the modest urbanisation rate. As for the former, in contrast to much of the rest of the continent, Kenya currently has ample supply to meet demand, but has nonetheless set a series of targets to boost generation based on projections of increasing consumption on the back of rapid GDP growth and large public works projects. The government hopes to increase power supply dramatically over the next 12 years, with a large share coming from renewable sources. The future is also likely to involve a refocusing from building capacity to addressing cost and reliability.
This chapter contains interviews with Mugo Kibati, Chairman, Lake Turkana Wind Power.Explore chapter
Transport and logistics are at the core of Kenya’s economic narrative due to the country’s role as a trans-shipment hub for goods moving on to landlocked countries in East and Central Africa. The Port of Mombasa is a crucial landing point for goods, and links to the Northern Corridor that runs west across the country to the neighbouring markets of Uganda, Rwanda, Burundi and the Democratic Republic of Congo. Serving the region means maintaining sufficient transport and logistics capacity for now and for the future, meaning that the government is expending significant capital on transport networks, often in collaboration with private investors. The transport sector is a core part of Kenya’s economic strategy. The Standard-Gauge Railway project, efficiency upgrades at the Port of Mombasa and enhancement of other ports and transit corridors are central to the effort to compete with neighbouring countries’ projects. Being at the developmental forefront of transport infrastructure will help Kenya recapture some lost revenue and maintain its leading transit role in the region.
This chapter contains an interview with Frank Matsaert, CEO, TradeMark East Africa.Explore chapter
Agriculture is Kenya’s largest economic sector, and held its position as a major growth driver in 2015, with ideal weather conditions improving food security and cash crop export earnings. Despite economic uncertainty, the sector has been one of the most resilient in Kenya, with ongoing efforts to improve irrigation and bolster foreign investment, even as stakeholders continue to grapple with limited mechanisation and irrigation, spending cuts and insufficient value-added. Reducing reliance on rain-fed agriculture will be a critical priority for stakeholders as they seek to maintain the sector’s momentum in 2017. Despite domestic policy and labour challenges, Kenyan agriculture remains on track to continue driving national economic growth in 2017. Although production remains dependent on weather conditions, long-term strategies aimed at bolstering mechanisation and reducing rain-fed production should see the sector remain a growth driver for several years.
This chapter contains an interview with Peter Kimanga, Director, Gold Crown Beverages.Explore chapter
Kenya’s telecommunications sector plays an important role in the country’s economy. The industry as a whole has been on an upward trajectory over the last decade, as a burgeoning, tech-savvy middle class drives demand for smartphones and data, helping companies offset slowing growth in the voice and messaging segments. Operator Safaricom holds the dominant market share but competition has been increasing, and the rollout of new spectrum and a push to expand data services is creating new revenue-generating opportunities. As Kenyan residents increasingly embrace mobile broadband technology and data demand rises, the country’s telecommunications industry is set to remain on a mid-term growth path, bolstered by a diversified portfolio of innovative offerings. Kenya’s IT sector has risen to become an important contributor to economic growth, as the expansion of mobile broadband, WiMAX and fibre-optic networks has driven internet usage and subscribership in recent years. Increasing internet usage has also driven growth in both the e-commerce and start-up segments, with Nairobi standing as East Africa’s most vibrant technology hub. Although access gaps remain and high-speed internet availability is largely constrained to major urban centres, the combined efforts of the public and private sector should see Kenya meet its ICT goals by 2030.
This chapter contains interviews with Prasanta Das Sarma, Managing Director, Airtel Kenya; Bob Collymore, CEO, Safaricom; and Aldo Mareuse, CEO, Telkom Kenya Limited; James Mwangi, CEO and Managing Director, Equity Bank; Mike Macharia, Founder and Group CEO, Seven Seas Technologies.Explore chapter
Construction & Real Estate
Kenya’s construction industry has been accelerating at a rapid pace and making a substantial contribution to the country’s strong GDP growth figures on the back of major public works projects and rising demand for mixed-use and residential developments. However, the market is not without its challenges, and the funding and financing environment at all stages of project execution is tough, creating negative cost implications and a potential obstacle to the industry’s long-term, sustainable growth. Given the strong growth in the sector and the number of projects in the pipeline, it is unsurprising that there is significant interest in penetrating the local market. While there are challenges in terms of funding for the government and financing and cash flow for contracting firms, there are also substantial opportunities. However, in the longer term, the sustained growth of the sector will be dependent upon the ability to bring more private funding into projects on the ground. As one of the major markets of sub-Saharan Africa, Kenya is of increasing interest as a real estate investment destination. The 44.2m-person country and its 4.2m-strong capital Nairobi act as a gateway to a regional East African market, which is approaching 150m people. Domestically, the economy has been outperforming much of the world, the population is expanding and incomes are on the rise. Given these basic demand trends, it is hardly surprising that Kenya, like much of the sub-Saharan Africa region, is piquing the interests of a range of international funds and institutional investors. While there is undoubted potential in Kenya, the ability to tap into it is somewhat constrained, and affordability remains a concern.
This chapter contains interviews with Andrew Saisi, CEO, Nairobi Housing Corporation; and Ronald Ndegwa, Managing Director, Savannah Cement.Explore chapter
Home to 60 national parks and reserves, a broad offering of cultural and historic attractions, and over 500 km of sunny coastline, Kenya has seen its tourism sector rise to become the second-largest foreign exchange earner in the country. However, a spate of terror attacks since 2011, the 2014 Ebola outbreak in West Africa and ongoing security concerns have weighed heavily on the sector, with 2015 marking the fourth consecutive year of declining visitor arrivals and earnings. However, 2016 saw a return to form for the industry, as the sector recorded 17% growth in earnings, on the back of increased international visitor numbers from a diverse array of countries, including the US, China and India. Recognising the critical role tourism plays in employment and earnings, the government has moved to support the sector with the launch of its tourism recovery programme, a 10-point strategy emphasising marketing, infrastructure development and private sector investment. Combined with rising numbers of regional and domestic travellers, and intensifying efforts to develop the meetings, incentives, conferences and exhibitions segment, the sector is expected to gradually recover in 2017, with ongoing marketing initiatives helping to boost it to full recovery by 2018.Explore chapter
Health & Education
Kenya’s current administration has placed a great emphasis on the health care sector. Given that the country has one of the youngest populations in the world by average age, Nairobi is aware that investment in social services will be a key component of supporting growth and development in the coming years. Yet while the health industry performs solidly in comparison to its regional peers, there are substantial obstacles standing in the way of rapid progress. With the burden on public services at an all time high, more still needs to be done as funding and financing remain key challenges. While insurance coverage is slowly improving, government funding remains low. If the country wants to push its standard of care up towards developed nations, significant investment and developmental policy will need to be a focus for the sector in the coming years.
This chapter contains an interview with Paul Tiyambe Zeleza, Vice-Chancellor, United States International University.Explore chapter
In conjunction with EY, OBG explores the taxation system, examining Kenya’s investor-friendly environment.
It also features an interview with Gitahi Gachahi, CEO, EY Eastern Africa, on creating an enabling environment for foreign direct investment in Kenya.Explore chapter
OBG introduces the reader to the different aspects of the legal system in Kenya, in partnership with Anjarwalla & Khanna.
It also features a viewpoint with Karim Anjarwalla, Managing Partner, Anjarwalla & Khanna, on transforming Kenya into an international financial centre.Explore chapter
This section includes information on hotels, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.Explore chapter