Monthly Archives: June 2015

Is Kenya ready for investment?

After being listed as the 3rd fastest growing economy in the world at a rate of 6.3% in 2015, close on the heels of China and the Philippines, a recent Bloomberg report came on bang time for Kenya as the country clings on during desperate times.

The narrative ‘ Kenya is open for Business’ has in recent months quieted to a low murmur as Kenya tries to shake off waning global investor confidence, in the wake of a weakening home currency, reduced foreign inflows, corruption and a burgeoning budget, among other challenges.

After crippling terrorist attacks, the Bloomberg ‘All-Stars of the Global economy’ report reveals a country that is stealthily, though somewhat fearfully walking back to the economic high tables.

‘’For someone looking at the region objectively, Kenya still offers the best investments, with an expanding port and pipeline while the discovery of oil and natural resources automatically catapults the country as an FDI destination ” say’s Kwame Owino, CEO, Institute of Economic affairs.

If one compares Foreign Direct Investment (FDI) quotient to GDP, Kenya is among the lowest in FDI in East Africa, meaning Kenya must now engage in strategic marketing to position itself for investment.

Billion dollar investments in Energy and Rail infrastructure were uncovered in 2014, key among them the Standard Gauge Railway and Kenya’s first Coal power plant, despite millions of Kenyans still living below the poverty line.

Economists agree that investment flows where challenges abound, and Kenya has its fair share of socio economic problems, which have created numerous opportunities for investment across different sectors.

Kenya’s Economic Blue Print, Vision 2030 was crafted to address these challenges and identifies pillars namely ICT, Tourism, Infrastructure, Agriculture, manufacturing and financial services as key drivers of industrialization. A look at the now Cliché success stories of Safaricom and Equity Bank gives a scope of the potential of investment in the Kenyan economy.

Thus, Vision 2030 becomes a road map investors outlining key opportunities such as supply of laptops to primary schools, connection of electricity to schools, building of economic zones, and construction of a Dubai like ‘free port’.

Tourism contributes 14% to the GDP but displays untapped ground given the diversity, from beaches, mountains and deserts.

In 2013, Virgin Atlantic’s Richard Branson opened Mahali Mazuri, an exclusive safari tented camp in Kenya’s Maasai Mara, where the world’s rich and famous now come to play, potential in tourism, however, remains untapped and suffers the curse of a single story, where major tourism circuits include mainly the Maasai Mara safaris and the coastal region, leaving out other high potential sites.

In Agriculture, the drive for value addition now needs to begin in earnest given that cash crops such as tea and coffee are exported in their raw form.

In real estate, despite Nairobi’s current popular status as a city under construction, housing has been slow to respond to growth. In the capital Nairobi, just over 22,000 mortgages exist in a population of over 3.5 million people.

However, massive construction sites reveal potential, such as the $156M Two Rivers, a project set to bring in Retail chain Carrefour among others, set on 830,000 SQM. The fact that they are largely driven by local investment is seen as a stamp of confidence in the potential of real estate.

According to real estate firm Hass Consult, Nairobi needs approximately 200,000 housing units annually. However, only 15,000 units were released into the market in 2013. With population growth in the city projected at 5 million in 2020, players in low cost housing are projected to be key winners.

Telco’s are big business in Kenya, however the exit of Essar Telkom in 2014 poses pertinent questions about competition and monopolies. In a population of 40 million people and a mobile subscription of 30.2 million, new investors must be innovative firms ready to tap into the 93percent mobile users.

On business models, firms targeting masses appear clear winners. The story of Barclays Bank for instance has a popular rendition in Kenya. It evolved from a ‘rich man’s’ bank in the 90’s to a humbled brand that boasts branches in the not so posh downtown Nairobi as well as corners of rural towns. Kenya seems ready for investors that are keen on the millions in the lower end of the pyramid.

However, while Kenya has come a long way, Geo-politics, corruption, and poor infrastructure continue to discourage FDI. Corruption seems peculiar to Kenya in the context of the EAC, and economists fear it may begin to look like those investing are agnostic about things such as corruption, further denting Kenya’s reputation.

The entry of Asia poses new Geo Political challenges, where Europe and the America’s were dominant and often bully investors.
“I would like to see a situation where Asian, European and others bring in FDI for manufacturing to export which will in turn earn much needed Foreign exchange” says Owino.
He adds that Kenya needs to customize its case for FDI, either to satisfy domestic demand or to create a manufacturing economy.

Owino says that a speedy resolution to the effects of Kenya’s incursion into Somalia needs to be reached as it may affect the confidence of investors new to Kenya. However, Shikwati says a trend showing entry of local and African investors from countries such as Nigeria and South Africa in an area largely dominated by foreign capital is also a game changer.

Tycoon Aliko Dangote’s planned 400 million dollar cement plant in Kenya is one among several FDI’s sending signals of African Investors that are awake to local opportunities.