Kenya: A Hub of Activity in 2016

The recent Oxford Business Group Kenya 2016 Report has confirmed what many analysts had already been forecasting about the prominence of the East African nation, and Anne Muchoki of KenInvest looks ahead to Kenya’s economic potential for the next 12 months

Written by Anne Muchoki, Chairperson, Kenyan Investment Authority (KenInvest)

Hailed as the largest economy in East Africa by the Oxford Business Group Kenya 2016 Report, Kenya is an important player and a heavyweight for attracting direct investment from international markets.

Strategically placed, with a major port, Mombasa, and well-developed financial markets, the country is the regional service hub for information, transportation and business. Its increasing ties with the UK, US and China bode well for trade and investment and position Kenya as a gateway to the region.  The economy is broad-based, reducing its vulnerability to commodity prices shocks and technology stands out as a rapidly growing sector.

A strong, youthful workforce and a growing economy gives us cause for strong optimism as we approach 2016. The short-to-medium-term positive growth projections are based on assumptions of a stable macroeconomic environment, continued low international oil prices, stability of the Kenya shilling, and reforms in the areas of governance and justice; all of which are key focuses for the Government.

In a drive to boost business, the Government, in collaboration with key partners such as KenInvest, has taken initiatives to encourage foreign investment in the country, resulting in strong economic fundamentals.

As a part of this strategic effort, the Kenya International Investment Conference in November, 2015 saw the launch of the Kenya 2016 Report published by Oxford Business Group that positions Kenya as the region’s gateway.

Robust and diversified

Growth in 2016 is predicted at 6.91 percent, an upward revision from the 2015 prediction while inflation is predicted to fall to 5.91 percent, bolstering Kenya’s reputation as a robust and diversified economy.

With its major exports being tea and coffee, Kenya has been somewhat protected by the fall in global mineral commodity prices, which have negatively impacted other serious economic players in sub-Saharan Africa such as Ghana and Zambia. However, it is conceivable that the impact of El Niño may have a depressing influence on the agricultural commodities market globally.

Kenya’s economy is sufficiently robust to survive this, since it is likely to only be a temporary fall. The World Bank has indicated that Kenya is still on track to be one of Africa’s fastest growing economies, with growth estimates outstripping those of more advanced economies.

Vision 2030

Kenya’s economic planning focuses on the Vision 2030 goals, and as such the government has made substantial strides towards the creation of comprehensive five-year plans for large infrastructural schemes, which represent excellent opportunities for inward investment.

Emphasis has been placed on the agricultural sector, ICT, finance and energy development. In terms of competitiveness within the broader sub-Saharan Africa region, the Government of Kenya has, for example, fostered the right conditions for stable and rational sector investment to plug the energy generation deficit, which it is believed will continue to bring down the cost of power within the country. In turn this will enable the manufacturing sector to grow further in the coming years. 

Trade partners

Kenya has a diverse selection of trade partners, with strong ties to Europe, the US and Asia. The East African Community (EAC), and Kenya’s leadership within it, presents a burgeoning opportunity for economic growth within the region as a whole, with future regulatory rationalisation possible.

The Common Market for Eastern and Southern Africa and the Southern African Development Community will be instrumental in helping Kenya to penetrate new markets elsewhere within the African continent itself, which should shelter it from any economic uncertainty experienced by European and American economies in the coming years.

Ease of doing business

Kenya has made great strides in the well regarded “ease of doing business” rankings compiled by the World Bank, rising an impressive 28 places in this year’s rankings.

This, coupled with the Government’s drive to combat corruption, through measures such as the introduction of an e-procurement and e-regulations platform, places Kenya on a strong reputational footing with the international community.

The government also recognises the concerns around national security, and has presided over a 12 percent year-on-year rise to the total national budget allocation for the national security services, to $2.5 billion.

Devolution

Diversification of governance within Kenya through the maturing county devolution model is opening up new internal markets to development, a positive move which will be further supported by the Ministry of Industrialisation’s development of Special Economic Zones.

The generous benefits to industrial development in these zones include an exemption from Value Added Tax, a significant reduction in corporate tax for enterprises, developers and operators (10 percent for the first decade, 15 percent for the second decade).

These should support the drive for investment by the central Government, and avoid the clustering of industries around major cities, a pitfall that more advanced economies have historically fallen into.  This is expected to further support robust and sustainable growth in the coming years.

Lucrative prospects

The 2015 budget prioritised security, infrastructure investment, social expenditure on education and health and the rationalisation of Government internal expenditure, in line with IMF agreements.

The fiscal deficit - which currently stands at around 8.7 percent of GDP - will be sustainably covered by a combination of net external financing and domestic financing.

The future outlook, while slightly more modest than previous forecasts, is nonetheless impressively robust, with growth expected to be greater than in advanced economies.

Kenya is still on course to be one of Africa’s fastest-growing economies despite the slight economic slowdown. The economy is one of the most advanced and diversified in Africa.

Infrastructure projects, including the railway, roads and ports, are set to bring benefits in the form of lower transports costs and competitiveness as they come on-stream.

With such a favourable environment, expansion is expected to be driven by underlying factors, including demographic growth and increasing household consumption, as well as more stable improvements in key sectors such as agriculture, transport, telecommunications and financial services.

Kenya is well placed to benefit from the fast-moving integration of the EAC. Indeed, such is the current momentum that the significant reserves of oil and gas, when they do start production, will hardly be needed to fuel the growth. The economy is proving itself robust with lucrative prospects for long-term investors.