Kenya Market Review Q2 2019

Executive Summary

Kenya offers a comparatively high rating for ease of doing business, reformation of restrictive trade practices, positive economic prospects, governmental commitment to capital projects and favourable regional and global trade agreements.

An indicator of the potential of the country in the coming decade, and the Government’s confidence in a strong economic future, is the Vision 2030 initiative towards creating an industrial middle-income nation with its emphasis on manufacturing, universal healthcare, affordable housing and food security.

Kenya is also prepared to invest in training up its workforce with the aim of providing a labour pool possessing the technical skills necessary for a nation to be competitive in the current marketplace.

THE USAID work in the country’s vital agriculture sector, especially in the area of developing the awareness of global communities towards more sustainable farming techniques, is an indication of the flexibility of both the workforce and the authorities towards partnerships with bodies from other nations.

Joint ventures in the fields of tourism and transport are also successfully underway, as well as a focus on creating new energy sources away from the traditional use of wood and fossil fuels.

These factors, together with a stronger national business confidence and the ongoing government investments, are establishing a stable economic platform nurturing growth, as demonstrated by the expected GDP rise to 5.8% in 2019.

Kenya’s population is forecast to exceed 87 million by 2040 and would require significant investment to maintain the current standard of living. Infrastructure and Healthcare sectors needing the largest share.

Index

  • Overview
  • GDP Projections
  • Macroeconomics
  • Demographics
  • Population Breakdown
  • Education
  • Labour market
  • Legal Framework
  • Growth Sectors
    • Agriculture
    • Manufacturing
    • Energy & Resources
    • Tourism & Transport
    • Information and communication technology
    • Building & Construction
  • Major Infrastructure Projects
  • Exports
  • Key organisations & decision makers
  • Key indicators
  • Forecast 2040

Overview

Kenya is one of the fastest growing economies in Sub-Saharan Africa, with the support of a stable macroeconomic environment, low oil prices, an increase in tourism, remittance inflows from expatriate workers and a government-led infrastructure development programme.

The country has made reforms in the political and economic arenas which have driven sustained economic growth and a level of social and political development over the past decade.

However, its key development challenges still include poverty, inequality, the effects of climate change and the vulnerability of the economy to internal and external disruption.

Following the 2008 global economic recession, growth increased in the last five years reaching 5.7% in 2018.

Looking ahead, near-term gross domestic product growth (GDP) is expected to rise to 5.8% in 2019 underpinned by recovery in agriculture, better business sentiment, and easing of political uncertainty. This is expected to increase to 6.0% in 2020, but this forecast is dependent on growth in private sector credit, continued strong remittance flows, management of public debt and expenditure and global oil prices.

In the long-term, the adoption of prudent macroeconomic policies will be necessary to help safeguard Kenya’s improving economic performance. This includes implementation of fiscal and monetary prudence and lowering its deficit down to 4.3% by Fiscal Year 19/20.

However, this consolidation needs to avoid compromising public investments in critical infrastructure projects which are a key to unlocking the economy’s productive capacity.

In 2008 President Mwai Kibaki launched Vision 2030, an initiative to transform Kenya into a newly industrialised middle-income nation. This programme is still in place and was complemented by President Uhuru Kenyatta’s plans for development of the “Big Four” – manufacturing, universal healthcare, affordable housing and food security.

In the 2018-2019 financial year, the government allocated 400 billion Kenyan Shillings (KSh) (US$ 3.9 billion) to the four development pillars. The health coverage programme was allocated KSh 44.6 billion (US$ 441 million) while KSh 6.5 billion (US$ 64.3 million) went to the housing project. Food security was allocated KSh 20.25 billion (US$ 200 million) and KSh 2.4 billion (US$ 23.7 million) was set aside to support value addition and raise the manufacturing sector’s contribution to the GDP to 15% by 2022.

The Big Four agenda will be enabled through:

Targeted infrastructure investments to expand the:

  • Feeder roads network (linked to trunk roads) and the rehabilitation of 10,000 km of roads
  • Passenger handling capacity and construction of new runways at airports
  • Port infrastructure and facilities
  • Rail infrastructure to link Kenya with the wider East Africa region

 

Improvements in security:

  • Embark on a ‘Citizen-centric’ police reforms programme that supports a 24-hr economy
  • Enhance security infrastructure modernisation and improve staff welfare
  • Improve data management through the Integrated Population Registration System (IPRS) and National Identity Management System (NiMS)

 

Improve governance by putting in place:

  • Policy measures to address capital flight and government procurement reforms
  • Political and legislative measures to plug revenue leaks at national and county levels
  • Administrative measures to drive transparency and accountability in the public service
  • Fiscal measures to streamline tax breaks and plug revenue leakages
  • Law enforcement measures to strengthen the anti-corruption campaign

 

Technology and innovation measures:

  • Digitise land titles and expand e-Government services system
  • Expand the National Fibre Optic infrastructure to cover the entire country
  • Establish National Science Technology and Innovation parks

 

Stable and competitive cost of power:

  • Increase Kenya electricity generation capacity from 2,699 MW to 5,221 MW
  • Reduce commercial & industrial electricity tariffs
  • Modernise electricity dispatch optimisation, favouring low cost plants

 

Technical and Vocational Education and Training (TVET) to place young people in jobs through by:

  • Re-positioning and strengthening the TVET Education System to support the Big Four pillars
  • Implementing the Science, Technology, Engineering and Mathematics (STEM) education programme
  • Developing a Labour Market Information System (LMIS) to support labour market actors and stakeholders
  • Establishment of new industrial training centres and implementing the National Internship Programme

GDP Projections

Table 1 showing the Kenyan GDP as well as the GDP from each sector in millions of Kenyan Shillings and the percentage of the total GDP each sector makes up.

Table 1: Kenya GDP breakdown
2017 KSh million US$ million % of GDP
GDP 7,749.4 76.6
Agriculture 2,442.3 24.1 31.5
Manufacturing 648.4 6.4 8.4
Transport 599.4 5.9 7.7
Wholesale and retail trade 588.5 5.8 7.6
Financial and Insurance 577.8 5.7 7.5
Real estate 575.3 5.6 7.4
Construction 452.5 4.4 5.8
Information and communication 406.4 4.0 5.2
Public Administration 330.9 3.2 4.3
Education 319.4 3.1 4.1
Utilities 196.7 1.9 2.5
Health 126.7 1.2 1.6
Mining and quarrying 58.5 0.6 0.8
Accommodation and restaurant 58.1 0.6 0.8
Source:  Focus-economics, Ceicdata, Trading Economics

Macroeconomics

At the start of this year, weaker domestic demand caused a slowdown in private sector activity. However, this was offset by a buoyant tourism industry and continued solid remittance inflows which combined to narrow the account deficit and cushion the worst impacts of the decline.

The country is now aiming to raise up to KSh 50 billion (US$ 495 million) through auctioning a tax-free 25-year amortised infrastructure bond on 20 March, which will be used to fund Big Four development projects.

The bond, which will be auctioned according to the country’s central bank, which added that it be tax-free, in line with the government’s policy of encouraging investors to bank infrastructure bonds.

However fiscal consolidation is a major priority in order to reign in the country’s increasing public debt – a necessary condition in order to secure a new IMF standby credit facility.

For this year, economic prospects look positive as stronger business confidence should underpin solid growth in fixed investment, while governmental commitment to spending remains firm on infrastructure projects. Private consumption growth, however, is forecast to ease off, amidst tighter credit conditions.

The following policies are aimed at enhancing growth and development through deepening of economic regional integration:

1. Increase the productivity of the economy by promoting agro-processing and developing value chains even at regional level and exploit extractive resources to diversify sources of growth. Boosting private investment is also a priority.

2. Expand the export market through diversification of both products and destinations. This will in turn boost the development of industries in the priority sectors in the country.

3. Expand business development programmes to strengthen and integrate the wholesale and retail supply chains. Also, to improve the business environment for both wholesalers and retailers, rationalise and harmonise regulations across both national and county governments.

4. Establish a National Trade Commission to implement the National Trade Policy and coordinate bilateral, regional and multilateral trade issues.

5. Develop a tourism master plan to enhance sustainable development of the sector.

6. Train farmers on appropriate farming methods and management of post-harvest losses and improve food distribution to address food deficit. Promote commercialisation and value addition to boost productivity.

7. Eliminate non-tariff barriers on the East African Community (EAC) borders and simplify rules of origin to enhance cross-border trade and minimise food insecurity in the region.

8. Progressively diversify manufacturing to medium and high technology products and establish incubation centres to nurture innovation, in order to help in diversifying manufactured exports.

9. Invest in domestic infrastructure targeting to feed into the regional connectivity and support Trans-African infrastructure development. Scale-up measures towards least-cost energy technologies to support large scale industries and design a package for an infrastructure services hub.

10. Establish a joint labour portal to create awareness and enhance information sharing to facilitate wider labour mobility in the EAC region. In addition, standardise the certification and accreditation of professionals.

11. Continue promoting peace and security in the region to reduce conflicts, and displacement of persons.

12. Enhance citizen participation and representation at national and regional level to strengthen governance institutions.

13. Develop a comprehensive framework for implementation of Economic Partnership Agreements (EPA), including identifying specific roles of various agencies, documentation of violations and domestication of various provisions.

14. Remain alert to any changes in global strategy on foreign policy and security particularly by Europe and the United States.

Demographics

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Legal framework

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Growth sectors

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Exports

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