Investing in Kenya.

July 11, 2009 · Filed under Uncategorized

Dear Friends.

In recent times Kenya has not had it easy in regard to matters economic or for that matter in any other areas. We have seen a good reputation of peace and harmony disappear overnight during the post election violence. In addition the global financial crisis has further exacerbated the economic decline we continue to experience.

Having said that it is important to point out some very salient indicators about our economy and the efforts that the government has taken to ensure that we mitigate and even recover from the decline. Some of you may be aware that Kenya has been experiencing a famine due to the failure of rains and the displacement of farming communities within the Rift Valley. Our tourism industry also suffered as a result of shocking television images of the post election violence and the global financial meltdown which affected our main source markets for tourism namely Europe and North America. Finally remittances from the Kenyan diaspora also declined as they also suffered loss of jobs. Furthermore revenue from our main exports declined even as oil was sustaining high prices.

If you take all those factors into consideration it is actually amazing that our economy has not done much worse. One would have thought that the economy would have totally collapsed. However before all this factors ganged up on us, Kenya had seen 5 years of some of the most robust economic growth in recent decades. To understand this developments let us take stock of some recent history.

In early January 2002 the NARC government led by President Mwai Kibaki took power from former President Daniel Arap Moi [KANU] who had led Kenya for 24yrs under a one party rule.  At the time Kibaki took over GDP growth was at 0.6%. He immediately formulated a new economic blueprint known as the Economic Recovery Strategy for Wealth and Employment Creation [ERS]. By the end of his first term at the end of 2007 growth had reached 7.1%. It was then that the unfortunate events took place.

Since then however a new coalition government has taken over and begun putting the country back on the road to recovery. The government has now begun the implementation of the new economic blueprint for Kenya known as Vision 2030. This is an extremely ambitious program meant to propel Kenya into a middle income status country on the same footing as the Asian tiger economies of the Far East.

VISION 2030.

The vision 2030 blueprint has three major pillars. These are namely the following;

• Political Pillar.

• Social Pillar.

• Economic Pillar. 

I will mainly focus on the third pillar which is concerned with economic prosperity. It is however important to briefly touch on the other two pillars. The political pillar envisages an issue-based, people centred, results oriented and accountable democratic political system. The social pillar vizualises a just and cohesive society enjoying equitable social development in a clean and secure environment.

The economic pillar is extremely ambitious it aims for sustained economic growth of 10% per annum. To achieve this the plan identifies six economic areas where it hopes to place the greatest emphasis. This areas are considered highly likely to succeed because Kenya has a competitive advantage in them. They are the following;

1. Agro – processing

2. Business Process Outsourcing

3. Financial services

4. Tourism

5. Retail & Regional Trade

6. Manufacturing.

Having identified this key areas it follows that the government  through the National Economic and Social Council sees most investments as being most profitable when directed towards this areas. However this does not mean that investors interested in other areas will not be welcome. It simply means this areas have the potential of making the geatest impact on Kenya’s growth. The following are excerpts from the vision 2030 document.

 Agriculture & AGRO – Processing.

Kenya will raise incomes in agriculture, livestock and fisheries even as industrial production and the service sector expand. This will be done by processing and thereby adding value to her products before they reach the market. She will do so in a manner that enables her producers to compete with the best in other parts of the world. This will be accomplished through an innovative, commercially oriented and modern agriculture, livestock and fisheries sector. These interventions are expected to generate an additional KSh.80 – 90 billion increase in GDP, mainly through better yields in key crops, increased smallholder specialisation in the cash crop sector (2-3 crops per plot), utilisation of a million hectares of currently uncultivated land, and new cultivation of up to 1.2 million hectares of newly-opened lands.

Specific strategies will involve the following:

 (i) transforming key institutions in agriculture and livestock to promote household and private sector agricultural growth; and

(ii) increasing productivity of crops and livestock. Kenya will also introduce new land use policies through: better utilisation of high and medium potential land.

Business Process Outsourcing

This is a new but promising sector for Kenya and especially for its young people. It involves providing business services via the Internet to companies and organisations in the developed world e.g. Britain, USA, Canada, etc. The 2030 vision for business process outsourcing is for Kenya to “quickly become the top BPO destination in Africa”. The goal for 2012 is to create at least 7,500 direct BPO jobs with an additional GDP contribution of KShs.10 billion. This will be done by attracting at least 5 major leading IT suppliers, at least 10 large multinational corporation companies and global BPO players to Kenya. This will create an estimated additional 5,000 jobs. At least 5 large local players will be identified to become local champions through stand-alone operations or joint ventures. Kenya will therefore attract top international IT suppliers to create confidence in more investments, thereby attracting leading multinational corporations and foreign companies with top BPO brands.

The Flagship BPO Project

The flagship BPO project for 2012 is to design and establish one major BPO park in Nairobi (possibly in Athi River) that will have world class infrastructure developed by top international IT suppliers. Kenya will offer competitive incentive packages for companies to locate in the park, provide a-one-stop shop for administration and talent and serve as a “showcase” park to attract more top foreign IT companies.

Financial Services.

The 2030 vision for financial services to create a vibrant and globally competitive financial sector in Kenya that will create jobs and also promote highlevels of savings to finance Kenya’s overall investment needs. As part of Kenya’s macro-economic goals, savings rates will rise from 17% to 30% of GDP in about a decade. This will be achieved through measures that include increasing of bank deposits from 44% to 80% of GDP and by a declining cost of borrowed capital i.e. interest rates. The country will also decrease the share of population without access to finance from 85% to below 70% at present, and increase stock market capitalisation from 50% to 90% of GDP. Savings of up to 10% of GDP for investment are expected to be realised from remittances, foreign direct investments (FDI), overseas development assistance (ODA) and sovereign bonds.

The flagship projects for 2012 are:

• Facilitate the transformation of the banking sector to bring in fewer stronger and well capitalized banks.

• Develope and execute a comprehensive model for pension reform.

• Pursue a comprehensive remittances strategy.

• Formulate a strategy for the issuing of benchmark sovereign bonds.

• Implement legal and institutional reforms required for a Regional financial centre.

 

Tourism

Tourism will be a leading sector in achieving the goals of the Vision. Kenya aims to be among the top 10 long-haul tourist destinations in the world offering a high-end, diverse, and distinctive visitor experience that few of her competitors can offer.

There are three specific goals for 2012:

• Quadruple tourism’s GDP contribution to more than Ksh. 200 Billion.

• Raise international visitors from 1.6 million in 2006 to 3 million in 2012, while raising average spent per visitor from the present KShs.40,000 to at least KShs.70,000; and

• Increase hotel beds from 40,000 to at least 65,000, combined with an emphasis on high quality service.

The specific strategies for realising the goals will involve: an aggressive strategy to develop Kenya’s coast (north and south) by developing resort cities in two key locations in addition to the Isiolo resort cities; achieving higher tourism revenue yield by increasing the country’s premium safari parks and improving facilities in all under-utilised parks; creating new high value niche products (e.g. cultural, eco-sports and water-based tourism); revamping business-visitor offering by attracting high-end international hotel chains; and by investing in new conference facilities.

 Flagship Projects for Tourism  

• Three (3) resort cities – two new resorts cities at the coast (one in north and the other at south coast). The third one will be located in Isiolo.

• Better marketing of little-visited parks so as to bring more tourists to game parks that have not been receiving many visitors, and which are located in all parts of the country.

Wholesale, Retail & Regional Trade

The 2030 vision for wholesale and retail trade is to move towards greater efficiency in the country’s marketing system by lowering transaction costs through institutional reforms. This involves strengthening informal trade (through investment in infrastructure, training and linking it to wider local and global markets). This will raise the market share of products sold through formal channels (e.g. supermarkets) from the current 5% to 30% by 2012. This will also contribute an additional KShs.50billion to the GDP. The plan is to attract at least three new retailers with more than 10 stores each into the Kenyan market. The vision also plans to enumerate informal sector operators, to provide them with permanent and serviced facilities, training and access to credit and markets. The simplification of business registration and trade licensing will continue in order to create a more enabling business environment for all trading activity. At producer level, the plan aims to establish “Producer Business Groups” (PBGs), which will in turn feed large wholesale hubs principally in rural areas.

These hubs will be “Tier 1” retail markets that will provide the primary producer with better value than at present where markets are heavily fragmented. The Government will continue to strengthen the producer co-operative movement and assist in branding and marketing Kenyan products in regional and international markets.

The Flagship projects for Retail & Wholesale Trade.

• Creation of at least 10 wholesale hubs and 1,000 – 1,500 Producer Business Groups (starting with a pilot project in Maragua, Central Province, that is to be extended to other regions).

• Building of at least 10 ‘Tier 1’ retail markets (starting with a pilot project in Athi River).

• The building of one free trade port at the coast inorder to “bring Dubai to Kenya”. This port will serve eastern and central Africa.

Manufacturing

Kenya aims to become the provider of choice for basic manufactured goods in eastern and central Africa, before breaking into other markets by targeting “niche” products (e.g. organic foods and beverages). This will be done through improved efficiency and competitiveness at firm level. The state will invest in training, research and development. The goal for 2012 is to: generate an additional KShs.30 billion to GDP by producing consumer goods that compete with imports (without resorting to restrictions) in key local industries; and raising market share in the regional market from 7% to 15%. Kenya also intends to attract at least 10 large strategic investors in key agro-processing industries, targeting local and international markets.

Flagship Projects for Manufacturing

The flagship projects for 2008 – 2012 are:

• The development and establishment of two economic clusters that is related industries to gain from linkage and multiplier economies.

• The development and creation of at least 5 Small and Medium Enterprise [SME] Industrial Parks.

To ensure that this vision is achieved the government has put in place preparatory measures that span from reforms in land, security, energy, education, health, legal and political reform. If this vision is achieved Kenya will truly be on the way to becoming the paradise it can be . Kenya Yes We Can.

 Jellyfish.