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Election Glow: A Report on a ‘Jubilated’ Kenyan Economy
Investors and entrepreneurs alike have experienced a downturn in fortunes since the end of the second fiscal year quarter, with some companies such as Jetlink Express – a Kenyan airline – having shut their doors down at the end of November last year. Effectively, the World Bank’s distance to frontier (DTF) measure of the Kenyan economy – which compares the current state of Kenya’s economy to that of the best performances across all world economies over time – showed a marked reduction in the ease of doing business from 2012 to 2013. The Stock Market is frequently a most straightforward harbinger of an economy’s well-being, and financial analysts noted that the market reacted stalwartly to the peaceful election process. It responded largely in a largely comparable trend to the respect of former premier Raila Odinga’s due process in seeking legal redress to his loss at the ballot, sending a powerful subliminal message of investor confidence.
The beginning of the last financial quarter of the year – on 1st April – coincided with the upholding of Uhuru Kenyatta’s election win two days earlier by the Supreme Court, ending a prolonged period of uncertainty; and along with it, all the attendant glum brought about by the glacial progress of business prospects. The bullish market reacted ever stronger to President Uhuru’s inauguration eight days later, closing at a multi-year high on 11th April. Even with mild recoils ever since, it is clear that key players within the Kenyan business scene were relieved that the president said all the right things; the attendance of past and present African heads-of-state, as well as diplomats the world over, particularly came off as a “tempered hope” that “if Kenya succeeded, they too would succeed.” (author's note [henceforth, AN]: Too Big To Fail?)
While it may not have hit the ground running as fast as the bustling and carping Kenyan population demands, the leading indicators of this administration’s commitment to building upon the immense gains made by the past regime appear quite promising. In his first address to both Houses at Parliament a week after his inauguration, President Kenyatta emphasized that his government would emphasize “lean and effective” governance, and a restructuring of Public Service operations. Indeed the first step towards this envisioned end was taken within the past week, with the short-listing and presentation of 16 out of the 18 Cabinet secretaries who – pending the outcome of an ideally meticulous public scrutiny and Parliamentary vetting period – will take to office in mid-May at the earliest.
With the composition of Cabinet brought down by more than half, and the fact that a good majority of the nominees are technocrats with vast experience as leaders in both Public and Private sector organizations locally and abroad, a “lean and effective” Government appears within reach. These appointments may yet prove to be a masterstroke for the Kenyatta Government, particularly with the broader economic environment in mind. As the president noted, his term begins amidst a deepening world economic crisis and “recession in the West”, compounded by “rising costs in the East”. The nominees’ understanding of world trade and industry operations will be invaluable in shoring the economy up, protecting vulnerable industries and building up those in comparative advantage; it would seem that this knowledge informed his reference to pan-African collaboration during the inauguration, coupled with a well-placed allusion to the relative robustness of African economies in his speech to the Houses of parliament.
Further, roughly 60% of the country’s population comprises Kenyans aged between 15 and 35, with this demographic, according to Youth Challenge International, comprising 61% of Kenya’s unemployed. The Jubilee Government’s statistics place this figure at closer to 70% (AN: a Trojan Horse display of honesty); with the youth literacy rate estimated at around 80% (AN: the rate only considers very simple sentence construction), and that of young citizens between ages 15 and 24 approximated at 92.72% in a 2009 World Bank report, this represents a massive untapped workforce potential. During the latest announcement of Cabinet nominees on 25th April, President Kenyatta stipulated that the first item on the Cabinet Secretaries’ agenda upon assumption of office will be to come up with an inclusion plan for women and youth in their respective portfolios. This, he elaborated, explained his decision not to allocate special dockets for women and youth affairs in his Cabinet, and was in part a fulfillment of his earlier pledge in a 5 year agenda unveiled in his address to parliament regarding job creation for these two demographics.
The new nominees have expressed their own commitment to include more youth and women in government, as well as implement new loan provisions for the youth and women from the anticipated kitty amounting to US $ 70 million in interest-free loans promised by the Kenyatta administration. President Kenyatta has further given assurances that he will push for obligatory allotment of a third of his government’s contracts to young people, in addition to the review and revision of the Public Procurement and Disposal Act, establishing official responsibility on government institutions and parastatals to prioritize buying locally produced goods. Kenya’s vibrant corporate scene – particularly the innovative mobile and tech industry that has led to the country’s strategic positioning as the Silicon Savannah – has long pushed for favorable policy review. Entrepreneurs will no doubt laud his effort to create procurement quotas for youth and women in his government.
In the face of being the region's biggest economy boasting strong Financial and ICT sectors, the country’s Agriculture, Manufacturing and Transport sectors have largely left a lot to be desired in the past. Approximately 45% of Government revenue derived from the Agriculture sector alone, which also directly contributes 24% GDP according to a food security report prepared by the Kenya Agricultural Research Institute, KARI. With “the right combination of policies with a steady hand (AN: unless the whiskey gets to him) and determination” envisaged by Kenyatta’s plan to project Kenya to middle-income nation status within a generation, a more efficient and harder working generation of farmers (AN: when not drinking themselves to a stupor) would augur well both for the economy and for government revenue. The plan to modernize and expand agriculture by opening up at least 1 million acres of new land through irrigation, while ambitious, is backed by flagship projects identified under Kenya Vision 2030, among them the development of irrigation schemes. Implementation will be crucial to revolutionizing agriculture, with some of the other projects aimed at improving the sector including the reduction of fertilizer costs, branding of Kenyan farm produce, establishment of livestock disease-free zones, and the provision of publicly accessible land registries.
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Of these 50,000, the lively real estate scene in Kenya has focused primarily on high end and upper middle-class needs, locking out the low-earning majority’s needs. UNICEF estimates, however, that over half of Kenya’s population lives below the poverty line, less than KES 100 a day, even on the most optimistic estimates. This implies that while low-cost unit schemes, beyond those by the National Housing Corporation, should certainly be considered, reduction of poverty as a priority would make more business sense. Accordingly, the president’s calls for investment in “our greatest capital resource,” the people, by transforming our economy to enable our exports to “compete across the world and drive the growth necessary to create jobs for our youth and lift 10 million of our brothers and sisters out of poverty by 2017” are a bold statement of intent to provide the purchasing power that would justify low-cost housing units.
Prospects for oil in Turkana and mineral resources (AN: see graphic below for what copper has done to Zambia and Switzerland-based Glencore) in the Coast have whetted investor appetites recently. While the discovery is still in the test phase for commercial viability, the confidence exhibited by investors such as Base Resources, a subsidiary of the Australian Base Titanium in Kwale, as well as discovery of natural gas deposits suggests that there are alternatives for further investment in the Energy sector. This would be a welcome boost in the manufacturing sector, dogged by persistent energy shortages that have become a necessary added cost to many a businessman in the country, in the way of standby generators. President Kenyatta noted that in Argentina, whose population is roughly equal to Kenya’s, the national electric supply capacity is at 24 Gigawatts, to a paltry 1.5 Gigawatts comparatively in Kenya. His pledge to invest in bolstering the energy sector by sealing leakages in the revenue collection system and enhancing transparency would in turn reduce the cost of ordinary household goods, including food, housing, energy and transport. Coupled with the envisaged growth of the agricultural sector, these projected developments would in turn drive export led growth.
While Kenyatta’s government has been viewed as potentially debilitating for Kenya’s economy due to the pending ICC case against them for war crimes, the more likely scenario is supported by a background setting of absolute pragmatism. Simply put, Kenya is too important to close the eyes to. British corporations have a great deal of investment in this economy. The local creative industry is by and large experiencing an increased drive of international investment in the way of innovation hubs such as the iHub, Pawa254, 88mph, and the Go Down Arts Centre among myriad others. Kenya’s port connects a landlocked Uganda to the world trade scene, and the Jomo Kenyatta International Airport, JKIA, still serves as the air transport hub of the region. Kenya’s Defense Forces, KDF, are currently invested in battling Muslim fundamentalist militants in Somalia, while the country plays host to a United States forces’ base in close proximity to Somali perimeter. The UK military is also hosted in a base in Nanyuki, where British soldiers train in the wild territory as a precursor to their being sent to actual wars around the world. Also a major patron and noteworthy importer of Kenyan products is the European Union, whereas the United States, primarily through USAID, supplies around $900m in financial assistance annually. Nairobi recently became the United Nations’ environmental headquarters, with an upgrade of UNEP’s Governing Council to universal membership. The least intimation of sanctions or choices that could disturb Kenya’s economy would have far-reaching consequences.
Still, corruption is one of the biggest threats to Kenya’s development agenda. While Transparency International ranks Kenya at 139th out of 174 on the 2012 global corruption index, admittedly a marked improvement from her 154th position out of 182 in 2011, there is still a great deal of effort required to streamline the conduct of business in Kenya, and improve Government’s purchasing power. Especially so in the context of devolved government, with the county structure having increased the avenues of public service countrywide, and with the counties still dependent on the Central government financially, there is need for better managing of resources and stringent defense of public interests in line with the constitution of the people of the Republic of Kenya. Mechanisms for the resolution of administrative challenges are in place, according to the Jubilee administration, to enable devolution, and similar mechanisms for the punishment of corrupt officials are to begin implementation as the economy heads into a protectionist mode to survive in the global backdrop.
It would be incumbent on trade and industry forecasts to however note that the Jubilee government is still in the transitional phase of a long journey ahead.
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