Download annual advantage forum april 27th, 2015 at fondazione giorgio cini

ANNUAL ADVANTAGE FORUM APRIL 27TH, 2015 AT FONDAZIONE GIORGIO CINI IN
VENICE, ITALY
PRESENTATION BY ENG. PATRICK OBATH ON:
THE ROLE OF PRIVATE ENTERPRISE AS AN ENGINE OF GROWTH FOR KENYA AND
EAST AFRICA: OPPORTUNITIES AND CHALLENGES; ROLE OF FOREIGN INVESTORS
AND KEY PARTNERS FOR STABILITY IN KENYA AND THE REGION
Contents
1.
KENYA’S ECONOMY AT A GLANCE ................................................................................................. 3
2.
THE ROLE OF PRIVATE ENTERPRISE AS AN ENGINE OF GROWTH IN KENYA ........................ 4
3. OPPORTUNITIES AND CHALLENGES FOR PRIVATE ENTERPRISE IN KENYA AND THE
REGION ..................................................................................................................................................... 8
4.
PRIVATE SECTOR AND OTHER KEY PARTNERS IN STABILITY IN KENYA AND THE REGION
11
5.
CONCLUSION .................................................................................................................................. 11
2
1. KENYA’S ECONOMY AT A GLANCE
This section will give you a brief rundown of Kenya’s economy from the KEPSA perspective because it is
within this context that we can situate the role and quantum contribution of private enterprises and also
appreciate the opportunities available and the limitations that could be turned into great opportunities.
While it is home to an estimated population of 44 million, Kenya covers an area of almost the same size as
mainland France, being classified as the largest economy by GDP in southeast and central Africa. After
rebasing the economy in 2014 in which the base calculation year was changed from 2001 to 2009,
Kenya’s economy grew by 25 per cent in 2013 with a GDP of US$ 53.4 billion in 2013 and US$ 55billion in
2014. The growth in output has sent the country to the fifth rank among largest Sub-Saharan
economies after Nigeria, South Africa, Angola and Sudan. The country is now considered a lower-middleincome country. The growth of the per capita Gross National Income from US$1,163 in 2013 to US$ 1,245
in 2014 is a reflection of the health of
the economy.
Fig 1: GDPGrowth 2010-2014 and projected growth 2015-2017
8.0
Percentage Growth
In the last five years, Kenya’s economy
has shown remarkable annual gains
and has maintained a robust growth
rate. In 2014, the economy registered a
5.4 percent growth in its Real Gross
Domestic Product (GDP), which was an
improvement over the 5.1 per cent
recorded in 2013 and 4.6 per cent in
2012. Going forward, the GDP growth
rate is projected to reach 7.0 percent
by 2017.
6.0
4.0
2.0
0.0
2010 2011 2012 2013 2014 2015 2016 2017
GDP Growth 5.6
4.4
4.6
5.1
5.4
6.0
6.5
7.0
In the last four consecutive years, Kenya has moved up in terms of competitiveness and ranks high
compared to its neighbors and cementing its status among the most improved African and Sub Saharan
countries on the Global Competitiveness Index (GCI) top 100 rankings. The country attained an index
score of 3.9 out of a maximum of 7 (score for most competitive) in 2014 – 2015 and was ranked at position
90 out of 146 countries ranked. This makes Kenya the sixth most competitive economy in Sub-Saharan
Africa after Mauritius (4.52), South Africa (4.35), Rwanda (4.27), Botswana (4.15), and Namibia (3.96) (see
fig. 2).
The 2015 Doing Business Report by the World
Bank ranks Kenya at position 136 out of 189
economies surveyed globally (2015) vs. its 137th
ranking in 2014. Though modest, this move is an
indication that ongoing reforms are coming to
fruition thereby making Kenya a more attractive
destination for both local and foreign investments.
Today, Kenya enjoys global recognition of the
reforms happening in the country and its positive
economic outlook:
rd
⇒ Bloomberg, 2015: Kenya is the 3 fastest
growing economy in a global survey of 57
3
⇒
⇒
⇒
⇒
⇒
economies projected to register the fastest growth in 2015 globally. Kenya Ranked alongside China,
India, Philippines and Indonesia as the only economies hitting a five per cent growth rate and above in
2014 and is projected to grow to 6.0 percent or better in 2015 forwards.
World Bank Group, 2015: Kenya’s macroeconomic indicators are solid. Economic growth is projected
at 6.0 percent in 2015; 6.5% 2016 and 7% in 2017. Inflation is forecasted to remain within Central Bank
target of 5 percent; public debt to remain below 50% of GDP; and, current account deficit to decline
significantly to 4.7 percent in 2017.
Fortune, 2015: Kenya is one of the seven top investment destinations to watch in emerging markets
ahead of continental giants Nigeria and South Africa. The country rates highly in sound regulatory
framework, continued political stability, and improved infrastructure growth rate this year (2014).
Citibank: Projects a 6 per cent GDP growth in 2015 due to lower fuel costs, expected to result in
falling general prices and dividend from investing in infrastructure projects.
UNCTAD, WIR, 2014: Kenya is developing as the favoured business hub for Oil and gas exploration,
manufacturing and transport investments.
Brookings: Overall performance of the EAC region dependent on what happens in Kenya. The
country contributes up to 40 per cent of the regional GDP and the economy is much better linked to the
other economies in terms of investment flows and trade. The country’s strengths include advanced
human capital base, diversified economy, and a strong private sector.
The impressive positive performance in the Kenya’s economy has been accelerated by a set of bold
economic and business reforms that the government in collaboration with the private sector has taken to
improve the economy. The private sector participation is being led by the umbrella apex body –the Kenya
Private Sector Alliance (KEPSA). Specifically, prudent policies (expansionary fiscal policy and
accommodative monetary policy) in addition to massive investments in infrastructure, reduced cost of
energy, and a favourable rating of its government issued bonds have all helped to anchor the country’s
conditions for strong and stable growth; while keeping inflation within target.
2. THE ROLE OF PRIVATE ENTERPRISE AS AN ENGINE OF GROWTH IN KENYA
The private sector is indisputably the driving force behind economic growth of any country and is essential
to achieving meaningful development outcomes that raise people out of poverty and put them onto the
road of prosperity. The output of Kenya’s private sector accounts for approximately 88 per cent of total
GDP and 70 per cent of formal employment in 2013. The private sector in Kenya is dichotomized into both
a formal sector which is relatively healthy and productive, and dominated by large businesses (notably,
ICT, tourism and finance); and, a large yet unproductive informal small business sector.
Private Sector Dichotomy:
Although the full understanding of the structure and composition of the informal sector is still developing; it
is estimated that the informal sector contributed about 34.3 per cent to GDP and accounted for 77 per cent
of employment statistics in 2012. When put together, the informal private sector in the country employs 8
out of 10 workers in the whole private sector and it comprises 90 per cent of all businesses in the country.
In the past, small enterprises were seen as competitors with larger companies. Increasingly, though, the
linkages between the formal and the informal economy have emerged as an opportunity to create a winwin situation for both sectors. About 80 per cent of the players in the informal sector belong to a category
known as micro and small enterprises. The leading trading activities with many MSEs are wholesale and
retail trade, restaurants and hotels; those providing social and government services; insurance, real estate
and business services; and, manufacturing.
4
The creation of jobs by the private sector is both by direct and indirect means. Specifically, the private
sector’s contribution to employment creation is through following key aspects:
⇒ Filling the funding gap for projects;
⇒ Creating a more competitive environment that enhances expansion;
⇒ Providing technological and management expertise; and
⇒ Reducing the business operating costs hence attracting more investments for employment creation.
⇒ Backward and forward integration.
The Africa Development Bank (2013) describes the Kenya’s private sector as vibrant, competitive and
innovative, while the government looks up to the private sector to play an increasingly vital role in
sustainable and inclusive economic growth towards the realization of Vision 2030 (GoK, 2008).
Employment growth in private sector in Kenya:
Between 2010 and 2013, firms in Kenya added jobs at an annual rate of 2.5 per cent. But this is below the
average of 6.3 per cent for countries with a similar income levels as Kenya. Large firms grew the fastest,
adding jobs at an annual rate of 4.1 per cent, followed by medium firms at 3.4 per cent and small firms at
1.5 per cent. While the average annual employment growth rate in Kenya’s private sector was remarkably
higher during the period 2005-2007 (10.4 per cent) than between 2010 and 2013 (2.5 per cent) the
previous period is regarded more as a
growth period underpinned by an improving
political governance, relative peace and a
deliberate agenda to by government to
attract private investment. On the other
hand, the latter period was characterized by
post-election violence (political turmoil) and
unpredictability leading to many businesses
relocating from the country. This simply
underscores the fact that businesses need
stability and policy predictability in order to
grow, expand and create more jobs. The
process of job creation, attraction of private
investment and business environment
reforms therefore remains a top advocacy
issue for KEPSA.
5
Improved Access to Financial Products by Private Sector:
Over the last seven years, access to financial services by Kenya’s private sector has remarkably improved
since 2007. On average, today, 44 per cent and 41 per cent of Kenyan firms use banks to finance
investment and working capital, respectively. The corresponding figures seven years ago were much lower
at 23 per cent and 26 per cent.
Moreover, the percent of firms
with a bank loan in Kenya is 36
per cent which is comparable to
the global average and higher
than the average of countries in
the same income group as Kenya.
It is an encouraging signal that
Kenyan firms are more likely to
use formal financial services to
support their businesses and
therefore also grow the financial
sector of the country. And this
means more growth is being
realized in the financial sector,
which means more jobs and
revenue for government.
Contribution of Private Sector through Public-Private Partnerships:
While the government’s main role is service delivery (Constitution of the Republic of Kenya, 2010), in most
cases, the government is limited in resources to provide all the services needed. The fiscal constraints
have resulted in the need for new and innovative approaches to the provisioning and financing of public
infrastructure and services. Here the Kenyan Government has acknowledged this need and has adopted a
Public Private Partnership (PPP) framework to attract private investment to complement the provision of
these services through. The PPPs provide a new source of investment capital for required government
projects, reduce Government sovereign borrowings and associated risks, drive the creation of local longterm funding market, utilize efficiencies of private sector in running public services, expand economy and
stimulate job creation, and increase the quality of public services to the Kenyan citizen.
Examples of the ongoing and pipeline PPP projects in Kenya include:
Under transport and infrastructure:
Under Energy:
⇒ Development of a 2nd Nyali Bridge connecting the
Mombasa Island with the North mainland to ease
congestion on the existing Nyali Bridge and to make
the traffic less dependent on a single channel
crossing.
⇒ Dualling of the heavily trafficked 485 KM NairobiMombasa Highway through upgrading, capacity
expansion
and
subsequent
operation
and
maintenance.
⇒ Dualling of Nairobi-Nakuru Highway.
⇒ Nairobi commuter rail services.
⇒ Development of a 2nd container terminal in the Port
of Mombasa.
⇒ GoK has also adopted an ambitious plan (Roads
Annuity Programme) to develop and rehabilitate
10,000 km of the roads network by 2020.
⇒ Development of a Coal Plant in Lamu and generation of
980MW of power by IPPs on a Build, Own, Operate and
Transfer basis for 20 to 25 years.
⇒ 800MW Liquefied Natural Gas LNG power plant to be
located at Dongo Kundu in Mombasa on design, finance,
construct, own, operate and maintain for a period of 20
years.
⇒ Procuring the generation of 40MW Solar Power Plant at
Muhoroni, Kisumu County through IPP
⇒ 560MW Geothermal Olkaria VI project pipeline (divided
into four equal projects of 140MW each) on Build, Own,
Operate and Transfer basis for a period of 15 years
6
Certainly the list of PPPs in Kenya is longer than the above examples which have only been used to
illustrate the role of private sector in financing provision of essential government services and
infrastructure. Kenya has worked hard to attract private investments by strengthening its PPP legal and
regulatory framework. Actions since 2009 include:
⇒ The Government of Kenya establishing an institutional framework through regulations issued under the
Public Procurement Disposal Regulations of 2009;
⇒ A review of Kenya’s legal and regulatory framework which recommended the enactment of a PPP Law
to address identified gaps, inconsistencies, conflicts and overlaps in 2010;
⇒ The approval of a PPP Policy Statement by the Government of Kenya in 2010;
⇒ An agreement with the World Bank in December 2012, where the Government of Kenya received a
credit from the World Bank for the Infrastructure Finance and Public Private Partnership (IFPPP)
Project, with an overall objective of increasing private sector investment in the Kenyan infrastructure
market and to improve the enabling environment so as to generate a pipeline of bankable PPP
projects; and
⇒ The PPP Bill approved by the Kenyan Parliament in December 2012, which received Presidential
Assent on 14th January 2013. This resulted in the Public Private Partnership Act, No. 15 of 2013,
published in the Kenya Gazette supplement No. 27 of 25th January 2013. Consequently the PPP Act
came into effect on 8th February 2013.
Contribution of Private Sector to promotion of ethics and integrity:
The private sector in Kenya also plays a critical role in corporate governance and citizenship that help
ensure private sector growth benefits society and protects the environment in various aspects. This way,
economic development is achieved. Investments by the private sector have increased access to a
diversified set of financial services both for households and micro, small and medium-sized enterprises
thus deepening financial inclusion and enhancing economic growth. In addition, the private sector led by
KEPSA has and continues to be involved in promotion of ethics and integrity both within the private sector
and the public sector. KEPSA, for instance, has developed a Code of Ethics for private sector which its
members continue to sign. It also continues to marshal the entire private sector to sign and adopt it as
standard procedure and as a commitment to ethical business within the sector and also with government.
Each year, the private sector in Kenya also holds annual anti-corruption campaigns together with Kenya
Integrity Forum during International Anti-Corruption Day. KEPSA pushes for the private sector selfassessment and internal risk profiling in order to institute internal measures to fight corruption. The
Governance and Ethics Sector Board at KEPSA and the UN Global Compact Kenya Chapter form two
focal points through which KEPSA members pursue and strengthen their commitments to ethics and
integrity issues.
Contribution of Private Sector through Inclusive Growth Models:
The private sector directly contributes to inclusive growth by engaging in economic activities that have an
immediate impact on the poor by way of enhancing their economic opportunities as clients and customers
on the demand side, and as producers, distributors or workers on the supply side. There are many models
of inclusive businesses in Kenya that are helping to both grow the economy and to alleviate poverty in very
direct ways. We have several examples:
⇒ In the ICT sector -IT-based businesses and products have proven extremely successful in meeting
social needs. Growth in mobile phone ownership and usage has provided a viable, cost-effective and
widespread platform for IT-based interventions. For example, M-PESA has made financial transactions
faster, cheaper, more secure & inclusive for its over 15 million subscribers. Other variants include
PESA-PAP, MShwari, M-SOKO etc.
⇒ In the agricultural sector, agro-based value chain interventions have shown marked success and
proven impact, given the predominance of agriculture in the Kenyan economy –a sector which is
dominated by many low-income earners. Most private enterprise models in this sector tend to
7
capitalize on strategic partnerships such as establishing supplier-market farming contracts, providing
technical assistance and dissemination of new technologies, use of local distribution channels and
creating linkages with the downstream operations.
⇒ In the Banking Sector, we have several large multinational commercial banks and micro-finance banks
that have proven to be a key solution for mainstreaming micro-businesses in the banking industry
⇒ In the Education Sector, the conventional perspective is that the private sector has very little to offer in
terms of reaching the MDG Goal of “education for all” by 2015 as it is perceived that private education
industry is only concerned with serving the elite or middle class, and not the poor. However, in Kenya,
a census of educational facilities invested within low-income locations including slums tells a different
story. Investments in private schools are playing an important role in reaching the poor and satisfying
their educational needs, enabling production of graduates with much required skills that feed into the
employment market and growth of the economy.
⇒ In the Energy Sector, the private enterprises are helping to distribute clean and affordable energy and
in most cases directly benefiting the poor populations. Bio-energy and solar technologies offer a future
for the Kenyan poor, especially the youth when they are able to run their businesses in spite of high
energy costs in the country. These are innovations that have been driven by the private sector and
have proven to have significant positive knock-on effects on poverty alleviation and contribution to the
economy. In a country whose energy demand & cost keep growing, hydro, solar & wind energy and in
deed other renewable forms of energy become more attractive and it is the private sector that is on the
driving seat in generating innovations that tap into these opportunities.
3. OPPORTUNITIES AND CHALLENGES FOR PRIVATE ENTERPRISE IN KENYA AND
THE REGION
The process of transformation of the Kenyan economy to a globally competitive and prosperous country
with a high quality of life by 2030 posits that a lot of both public and private investments would have to
be marshalled.
Opportunities for Private Enterprise in specific sectors
Given the emerging picture above, there are opportunities in specific sectors of Kenya’s economy for
immediate attraction of private enterprise in infrastructure, agriculture, energy, tourism, ICT, real estate
and construction, financial services, general manufacturing, education, and health
a) Opportunities in infrastructure
Kenya is regarded as the regional hub for road transport and logistics with the port of Mombasa being a
gateway to 7 countries: Tanzania, Uganda, Rwanda, Burundi, DRC, Ethiopia and South Sudan. Roads in
Kenya represent 80 percent of total passenger and goods movement in Kenya. The country has over
160,866 km of public road network, about 10 percent of which is tarmacked The share of tarmacked is set
to increase significantly within the next five years (by 2020) as the government has adopted an ambitious
Roads Annuity Programme to develop and rehabilitate additional 10,000 km of the roads network by 2020.
The rail transport network covers 2778km of narrow-gauge, and serves 150 stations with a fleet of 156
locomotives (2013 data), 7,000 coaches and wagons including container-carrying rail trainers. A new
standard gauge railway line is being built with private sector participation and will have 40 stations. This
will lead to creation of many economies along the line that private investors can start planning with.
The expansion of the Jomo Kenyatta International Airport (JKIA) has enabled additional flights and
presents an expanded space for more trade that can be established in Kenya. The establishment of Lamu
8
Port and Southern Sudan-Ethiopia Transport (LAPSSET) will see the establishment of special economic
zones (SEZs) along the LAPSSET corridor and an emergence of several producer and services
economies among others.
The infrastructure sector opportunities include the following areas:
⇒ Airport ground handling
⇒ Waste collection disposal
⇒ Waste recycling plant
⇒ Water transport infrastructure
⇒ Road construction, rehabilitation and maintenance
⇒ Distribution and supplies in the new stations
⇒ ICT opportunities and BPOs in the new stations
⇒ Air transportation
⇒ Cargo transportation
⇒ Airport services: ground handling, pilot training etc
b) Opportunities in agriculture sector
In the agriculture sector, more than 75 percent of Kenyans earn a living in Agriculture and the sector
accounts for more than half of country’s GDP (Feed the Future, 2014) and around 65 percent of the
population is engaged in agricultural activities. At only 16 per cent of value addition currently being
conducted in the agriculture sector, there are numerous opportunities for private investment in increasing
the quantum of value-added products that could be consumed domestically and for exports. There are big
opportunities for Kenya regionally in agro-processing-at the moment only 16% of our agricultural produce
is processed. Such opportunities include investments in fertiliser manufacturing plant; tea blending and
packaging plant; large scale production of fruits (passion, tree tomatoes, papayas, mangoes etc) and
vegetables (tomatoes, green peas, carrots etc) and fruit and vegetable processing (juice concentrates,
tomatoes paste, dried fruits, jams etc).
c) Opportunities in Energy sector
Currently, only 23 per cent of Kenya’s population has access to electricity. While this is very low, the rural
population having access to electricity (5 per cent) is serious and requires an immediate intervention.
There are 122 approved private renewable energy feed-in-tariff projects by ERC. There is a projected
demand of 5,000MW by 2017. However, with targeted access of 40 per cent of population connected by
2020 and 98 per cent by 2030, opportunities abound for public private partnerships and scaling up PPPs to
increase access, transmission and distribution networks.
In the renewable sub-sector, there is a total installed large hydro power capacity of 827 MW while the
small-scale hydro potential is estimated at 3,000MW of which less than 30MW have been exploited and
only 15MW supply the grid. Wind installed capacity is 25.5MW to be increased to 2036MW by year 2030.
On Geothermal, there exists a 7,000-10,000MW potential with current installed capacity ranging at 593MW
and 1GW capacity is targeted to be installed by 2018.
There are therefore wider opportunities to scale up the commercial private power generation component to
meet the projected growth in energy demand since power sector has been liberalized since 1997. The
planned creation of an East Africa power pool is a project opportunity that that private enterprises can tap
into. Worth noting also is that Kenya and Ethiopia both have more than 80 per cent of Africa’s geothermal
potential, with Kenya leading. Renewable targets by 2030 amounts to 19,200MW, which has more
opportunities for independent private sector investments in power production. Specific opportunities for
9
private investment also exist in methane gas production, solar energy, wind energy, bio-mass, bio-diesel to
increase rural population access.
d) Opportunities in ICT sector
Three in four Kenyans have a mobile phone; 47 per cent of population use internet –Kenya is number 4 in
internet penetration in Africa after Nigeria, Egypt and South Africa and is a leading player in mobile money
transfer for development (M-PESA) with 68 per cent of the population regularly making/receiving payments
on their phone. The opportunities for private enterprise that exist in the ICT sector in Kenya and indeed the
EAC region are in the following areas:
⇒ E-Waste management (recycling and disposal)
⇒ Business Process Outsourcing
⇒ Technical Training institutes for specialized courses.
⇒ Software development: Mobile applications, innovative e-payment solutions
⇒ Internet Data Centre: Computer Security management & Disaster recovery planning facilities
⇒ World class Technology park
⇒ SMART energy grid development
⇒ Access Network/Last Mile connectivity (Fiber-To-The-Home, Curb etc.)
⇒ Content – Video/Education/Health/Agriculture
e) Opportunities in Real Estate and Construction sector
More than 15 million Kenyans live in slums or sub-standard houses and 3 million houses are needed to
change the picture of slums to apartment complexes and houses all over the country. In this scenario,
150,000 houses are required every year to eradicate slums for the next 15 years. Opportunities for private
enterprise exist in several areas including residential houses for low and middle-income class, investments
in youth sport centre, office Blocks in various County Cities, a real estate agency, brick & tile making
factories and other low-cost building materials.
There would be opportunities also for private enterprise in manufacturing of construction finishing
materials; estate development for the high income in different counties such as Nakuru, Kisumu, Eldoret,
Machakos etc; construction of commercial complexes and shopping areas across different counties;
development of entertainment centres; and investment in training and certification of key services that ply
trade in these sub-sectors such as architects, engineers, plumbers, welders and electricians.
f) Opportunities in general manufacturing
The country has a strong manufacturing base; although its share to GDP has been stagnant at 10 per cent
over last 30 years, it is still the largest in COMESA. This means foreign investments in manufacturing
sector targeting COMESA market would prefer to set base in Kenya to enjoy the attendant access to
regional market.
Opportunities in this sector for private enterprise would be in increasing value addition and also in the
production of wood and other related products; paper and other related products; publishing, printing and
reproduction of recorded media; chemical products; rubber and plastic products; fabricated metal products;
pharmaceutical products; packaging materials; cooking oil production; agro-processed products;
production of construction materials; zinc oxide factory; and, leather goods products.
Key Challenges that may impede profitability of private enterprises in Kenya
10
Nonetheless, multiple challenges in private sector involvement in development persist. Such challenges
include weak regulatory environment in some sectors. In some cases limited access to finance particularly
for the SMEs could limit the capability of the private sector to contribute fully to growth and job creation in
Kenya. This is also coupled by the high cost of financing.
The slow pace of implementation of legislation and policies in place to support private sector growth is
another challenge, particularly legislations regulating business registration and operations. Similarly, some
sectors do not have sufficient tools and policies in place to encourage private-sector-led economic growth.
Weak public sector governance and endemic corruption are serious obstacles to private growth and the
overall growth of the country. Inadequate leveraging of development agencies and partners towards the
national development priorities is in itself limiting the potential for private sector activity to create more
growth and jobs.
Low level of competition in some industries and sectors make investments in such sectors non-productive.
Finally, slow transformation of the business and investment environment that presents investors with
barriers, high costs and risks of doing business is a limiting factor.
There is need for greater integration of informal businesses into the formal sector to enhance their credit
access, which would not only reinforce the positive output and employment effects, but also increase the
already commendable tax revenue-to-GDP ratio.
4. PRIVATE SECTOR AND OTHER KEY PARTNERS IN STABILITY IN KENYA AND THE
REGION
The truth is that investors love a destination that is free of insecurity, political tensions and corruption to
assure them that their money will compete fairly and transparently and that no opportunity is off-limits. This
means that political stability and predictability; security; and good business regulatory environment are
primary factors that all business persons take into account in their decision-making on where to locate their
enterprises.
The business community has learnt over the last five years that it is beneficial to them to be proactive
rather than wait and fully charge the government with the establishment of a peaceful environment,
corruption-free environment which are a key yardstick for a friendly business environment.
The private sector in Kenya under the umbrella of KEPSA has invested in increasing self-awareness of
these instability issues and has come out as a more proactive player rather than a reactive player in
promoting peace and stability as a necessity for investment and development.
Given that the main trigger factor to instability in most African countries including Kenya has been the
combination of high levels of poverty against the backdrop of a burgeoning unemployed youth population
coupled with weaker economies. By working with other partners, the private sector has begun to overcome
these.
5. CONCLUSION
A number of factors make Kenya and the region a more attractive place for establishing private
enterprises. Other than the emerging competitive environment discussed above, and the aspiration to
industrialise by 2030, there are also key foundational factors that present opportunities for any investor.
11
Kenya has access to 156 million consumers drawn from both its domestic market and the greater EAC
regional market. In addition, Kenya is a member of the 404 million people COMESA region. Membership to
the proposed Tripartite Trade Union of 556 million persons and 1.14 trillion GDP present an emerging
opportunity for further market expansion and crucial attraction for trade and investments. Kenya and East
Africa are well positioned to realize accelerated economic growth, with industrialization & regional
integration powering job creation. The country also has a commanding human capital advantage, access
to the sea and a fast improving port and logistics hub for East Africa. In addition, heavy investments in
energy, road and rail infrastructure are all beginning to make the country a suitable place for private
enterprise. The country’s status as the regional manufacturing hub, given its dominance in manufactured
exports into the EAC region; its financial and communications hub status and an airlines logistical hub
makes it a true regional business hub of Sub Saharan Africa. These factors coupled with the country’s
prime location would put any investor in Kenya at a vantage point to tap into Africa’s growing trade with
China and India.
The country has a strong manufacturing base; although its share to GDP has been stagnant at 10 per cent
over the last 30 years, it is still the largest in COMESA. This means foreign investments in manufacturing
sector targeting COMESA market would prefer to set base in Kenya to enjoy the attendant access to the
regional market. At 72% of the population, Kenya has one of the highest rates of urban internet access on
the continent leveraging on high mobile phone penetration. The country has pioneered the use of mobile
money through its globally renowned M-pesa platform. This has set the stage for any investor to use ICT
as their launch-pad to a new entrepreneurship frontier. There is also great potential for i-hub, especially the
emerging business in the development of business applications (mobile apps) which is opening up and
expanding virtual markets.
The combination of Kenya’s backstreet mechanical workshops and sophisticated agro-processing sector
has created a large pool of labour ready for the factory floor. Lastly, there is a huge demographic dividend
opportunity; with 61 per cent of Kenya’s 45 million people falling below the age of 25 years and 70 per cent
being under the age of 35 while more than 40 per cent being under the age of 15. This means over the
next 5 to 10 years, 75 per cent of those under the age of 15 years will join the active labour market with
different skill sets and also as high-demand consumers –both factors present real business opportunities.
By producing essential goods and services in large-scale production, private sector helps to keep the price
of essential goods and services down, increasing the real effective incomes of the people, especially the
poor. Equally, as firms grow, they provide a larger source of tax revenues to the government, which in turn
supports increased public investments. Private investment therefore remains an important feature of the
modern economic life and source of global development finance.
12