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JOH-KYA001-20070204-JvW-P1
Delivering on Vision 2030
By Wahome Gakuru (PhD)- NESC
March 2007
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without prior written approval from McKinsey & Company. This material was
used by McKinsey & Company during an oral presentation; it is not a complete
record of the discussion.
Contents
•Background
•National Visioning
•Kenya Vision 2030 Project Approach
•Sector Selection Process
1
Historical context
• Kenya has in the past had two long-term policies and several
5 Years Development Plans that have guided planning and
investment: The first was Sessional Paper No 10 of 1965:
African Socialism and Its Application to Planning in Kenya,
and the second was Sessional Paper No 1 of 1986:
Economic Management for Renewed Growth.
• These plans attempted to confront the country’s most
entrenched problems – by charting a vision of how
development would tackle them.
• Whereas the economy grew by an average of 6 per cent over
1964-1980 and 4.1 per cent over 1980-1990, the period
1990-2002 was a period of declining per capita income with
GDP growth of 1.9 per cent against a population growth of
2.9 per cent.
• However, since, 2003, We have made tremendous effort to
get the economy back on track through the ERS with the
GDP growth rate shooting back to 5.8 percent by 2005.
2
Taking stock of National Development under the ERS to date
Revenue Growth by over Kshs 140 B – from Year 2001/ 02.
Primary school enrolment 7.6 Million - Year 2005.
Health Facilities 4,557 –Year 2003 -4,912 – Year 2005
CDF & LATF, etc
Percentage of Roads in poor state fell to 32% -Year 2005.
Oversubscription of the KenGen and ScanGroup IPOs earlier this year is an
example of the confidence which the Kenyan economy enjoys among local and
foreign investors.
The most dramatic change in our economy in the past year has been in the
telecommunications sector. The mobile telephone subscription base in Kenya went
up by 57 percent in 2005, connecting 5.6 million subscribers
Some 400 million SMS were exchanged by Kenyans in 2005
3
After Economic Recovery What Next?
• These highlights of our economic performance simply demonstrate that
we have reached and exceeded the stage of economic recovery that the
ERS targeted.
• But the ERS is coming to an end in December 2007.
• The question then is “What Next?” And this is where the Kenya Vision
2030 comes in.
• Please note that the Kenya Vision 2030 is a strategic plan, which will in
turn be implemented in 5 year development plans/phases to coincide
with the electoral cycles.
• Therefore, every succeeding government will be evaluated by Kenyans
on the basis of the targets and milestones in the Vision 2030 document.
• For this reason, the Kenya Vision 2030 is a National Project and not a
government-of-the-day-project.
4
Present Challenges: What challenges must we as a Nation overcome
through the Vision?
1. Unemployment Especially In Youth- Most Jobs
In Informal Sector.
2. Income Redistribution – Inequality
3. Low Saving Ratio (16%) Compared To Need
4. Rapid Urbanization – 6 % Annually
Year 2001- 33%
Year 2030- 60%
5
Composition of our Economy over time: An underlying structural
Problem
Se ctoral Share s in Re al GDP - 1964 - 1995
70
60
Percentage Share
50
40
Agriculture
Manufacturing
30
Services
20
10
0
1964-73
1974-79
1980-89
1990-95
2004
Ye ars
• This figure shows that there has not been those expected structural
changes in the sectoral shares of real GDP since independence.
• The right picture for economic take-off would be that the share
(percentage) of Agricultural sector contribution should be significantly
going down while that of Services and Manufacturing should be going up.
6
GDP Growth Rates Trends 1965-2003
24
22
20
18
16
14
Rate (%)
12
10
GDP Growth Rates
8
6
4
2
0
-2
1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
-4
-6
-8
Year
7
Future Challenges
Projected Population Growth
60
Population (Million)
50
40
Series1
30
20
10
0
1969
1979
1989
1999
2025
2045
Years
Therefore: the Economy must grow to cater for this !
8
Future Challenges cont …
• Globalization- Increasing international competition
• Climate change- Global warming, ETC.,
We must start to tackle these
challenges now!!
9
Contents
•Background
•National Visioning
•Kenya Vision 2030 Project Approach
•Sector Selection Process
10
THE ROADMAP BEING DEVELOPED FOR KENYA’S ECONOMIC
TRANSFORMATION JOURNEY HINGES ON THREE KEY ELEMENTS
• Overarching goal toward which Kenya aspires
over a the next 25 years
Vision
• Tangible approach which Kenya will follow to
Strategy
achieve the vision (e.g., which sectors to prioritise,
which projects to launch, which specific skills to
develop)
• Concrete plans to execute and deliver on the
Plans and
implementation
Source: Team analysis
strategy (e.g., activities, roles and
responsibilities, milestones, timing, tracking
mechanism)
11
MANY COUNTRIES HAVE GONE THROUGH THE FIRST STEP OF
DEVELOPING A COUNTRY VISION
Country
Vision
Central theme of the vision
Malaysia
• Vision 2020
• Malaysia to be a fully developed country by 2020
Singapore
• New Singapore
• To turn Singapore into a “globapolis”, a global city
Nigeria
• Vision 2010
• To build and sustain a democratic society and to
become Africa’s leading economy
India
• Vision 2020
• India to be counted as a developed nation by 2020
China
• Three Step
• Build a moderately well-off society in an all-round
Development
Strategy
South Africa
• Programme
of Action
Russia
• Social and
way that benefits over one billion people
• To achieve higher rates of economic growth and
development, improve the quality of life and
consolidate social cohesion
• Boost the competitiveness of the country
Economic Program
12
HOWEVER, A COMPELLING VISION ON ITS OWN IS NOT ENOUGH
1
Developing an
aspirational,
directional, and
inspiring vision
around which all
stakeholders can rally
is a critical first step
Vision – 5 yrs
Destination A
Today
3
The strategy must be
supported by a realistic
and concrete action plan
that will ensure that the
strategy is delivered
Vision – 10 yrs
Destination B
2
Vision – 15 yrs
Destination C
This vision must absolutely be complemented by a robust and integrated
strategy that will help achieve the vision
13
Contents
•Background
•National Visioning
•Kenya Vision 2030 Project Approach
•Sector Selection Process
14
KENYA VISION 2030
Overarching vision
A globally competitive and
prosperous nation with a high
quality of life by 2030
Vision
Strategy
Plans and
implementation
Economic
To maintain a
sustained
economic growth of
10% p.a. over the
next 25 years
Source: NESC Vision workshop, January 13–14, Naivasha, Kenya
Social
A just and cohesive
society enjoying
equitable social
development in a
clean and secure
environment
Political
An issue-based,
people-centered,
result-oriented, and
accountable
democratic political
system
15
THE SIZE OF THE PRIZE FROM ACHIEVING THIS VISION IS SIGNIFICANT
ECONOMICALLY…
High-growth countries
Real GDP growth rates
% CAGR
Potential Kenya GDP
Nominal, $b
Singapore (1986–1996)
9.3
Dubai (1992–2002)
8.4
Hong Kong (1978–1988)
8.2
Chile (1988–1998)
7.6
15.6
7.0
Malaysia (1990–2000)
2005
Medium growth countries
India (1995–2005)
6.0
Singapore (1995–2005)
4.7
Malaysia (1995–2005)
4.6
Nigeria (1995–2005)
2030
Potential Kenya GDP/capita*
$
3,065
660%
4.4
464
3.1
South Africa (1995–2005)
Kenya today
Kenya (1995–2005)
169
153.4
2005
2.0
10.0%
* Assuming 2% population growth rate similar to 1990–2005 period
Source: McKinsey; Global Insight
2030
Opportunity for Kenya to
join the ranks of Middleincome countries by 2030
16
…AND THIS GROWTH IN GDP WILL BE DEPENDENT ON PROPER
STRATEGIES AND TARGETING OF THE SOCIAL AND POLITICAL
GOVERNANCE PILLARS, IMPLYING
•Better access to affordable and high quality health care
•Affordable and high quality education at all levels
•A just and cohesive society
•A more equitable society
•Secure and clean environment
•An issue-based, people-centered, result-oriented, and accountable
democratic political system, among others
17
THE VISION HAS SO FAR RECEIVED BROAD SUPPORT FROM VARIOUS
STAKEHOLDER GROUPS ACROSS THE COUNTRY
Process was launched by H.E. President
Kibaki, 30 Oct 2006 . . .
. . . and there has been broad support for the
vision so far
This is a good follow-up to the ERS and will
break the cycle of promises made and not
delivered in the past
— National Aids Control Council
Vision 2030 should energise Kenyans to slay the
dragon of implementation
— World Bank
The Vision will create higher quality of jobs for
Kenyans and could even double the GDP of
Kenya in 3 years
— Ministry of Information and communication
“Vision 2030” is a call to all Kenyans
to make it possible to wipe out our
land from absolute poverty
— H.E. President Kibaki
Source: Kenya Vision 2030 launch; interviews
In the past we have been too individualistic, the
Vision gives Kenyans a collective dream, which
now needs to be implemented or else it will
remain as a dream
— Central Bank of Kenya
18
THE FOCUS OF THE VISION 2030 PROJECT IS TO DEVELOP CONCRETE
STRATEGIES AND A ROBUST ACTION PLAN TO MAKE THIS VISION A
REALITY
Overarching vision
A globally competitive and
prosperous nation with a high
quality of life by 2030
Vision
Strategy
Economic
To maintain a
sustained
economic growth
of 10% p.a. over
the next 25 years
Social
A just and cohesive
society enjoying
equitable social
development in a
clean and secure
environment
Political
An issue-based,
people-centered,
result-oriented, and
accountable
democratic political
system
Plans and
implementation
Current
focus of
project
Source: NESC Vision workshop, January 13–14 2006, Naivasha, Kenya
Concurrently outlining key social
and political pre-requisites to
achieve economic aspirations
19
INITIAL FOCUS ON THE ECONOMIC PILLAR IS PART OF A BROADER AND
LONGER PROCESS TO START REALISING THE VISION
Current focus
Drive successful implementation of the Vision
Phase I
High-level
diagnostic &
benchmarking
Phase II
High-level
strategies
Phase III
Master plan
and communication
Roll out sector
strategies to other
sectors of the economy
Finalise concrete
strategies and action
plans to deliver on
social and political
pillars
Communicate, Communicate, Communicate
4 months
Source: Team analysis
12–18 months
20
PROJECT APPROACH AND TIMELINE
MX
Module X
We are here
Portfolio
Phase I – High-level
diagnostic and
benchmarking
M1
Phase III – Master plan
and communication/
syndication
Phase II – High-level
strategies
Implications
of vision
M5
Master plan and
M8 management
approach
Portfolio objectives
and priorities
Monitoring and
M9 implementation
dashboard
High level
M2 portfolio
diagnostic
M10 Resources
Sectors
High-level
M3 diagnostic of
key sectors
Contours of sector
M6 strategy – 4 key
sectors
Diagnostic
M4 of quick win
projects
M7
Strategy and plans
to deliver quick wins
M11
Communication
plan
M12
Launch of quickwin projects
6
29/11
Source: McKinsey
7 weeks*
09/02 12/02
week
s
23/03 26/03
3 weeks
13/04
21
THE PORTFOLIO DIAGNOSTIC SHOWS SIGNIFICANT OPPORTUNITY TO
BUILD ON THE MACRO-ECONOMIC STABILITY ACHIEVED IN KENYA
Focus areas
Summary of key messages from diagnostic
• Kenya’s economic recovery strategy has created a stable
Kenyan economic
context
macroeconomic environment and produced robust GDP growth
over the past few years
• Growth has been fairly broad-based across all sectors, in
+
particular in communications, energy, manufacturing and tourism
• While on the up-tick, Kenya still has significant opportunity to
High growth country
benchmarks
+
improve across several key dimensions
– Investment levels are relatively low and widespread across sectors
– Development spending has been low and overly focussed on
administration and social services
– Employment remains highly informal with low levels of productivity
• Vision 2030 is aspirational and Kenya will be the 3rd country in the
Implications for the
Vision
Source: Team analysis
world to achieve such growth
– The first step is to identify key (sub) sectors with significant
potential which can be unleashed in the short-term
– Strong need to focus investments on a few key ‘growth’ engines
to promote growth initially
– These are likely to change overtime to sustain the growth
22
BREAKDOWN OF THE KENYAN ECONOMY BY SECTORS*
Vertical sectors (57, 47)
• Industrial
•
Agriculture
(24, 18)
•
•
• Food
– Tea
– Coffee
– Sugar cane
– Cotton
– Tobacco
– Sisal
Horticulture
– Fruit
Manu– Vegetables
facturing
– Flowers
(12, 14)
– Nuts
– Spices
Food crops
– Cereals
– Legumes
– Tubers
Livestock &
Fishing
•
•
•
•
•
•
•
•
processing,
Beverages
and Tobacco
Refined
Petroleum
Textiles,
Apparel &
Leather
Goods
Forest
products
Chemicals
Equipment &
Machinery
Fabricated
Metals
Rubber and
Plastics
Other (~10
other ISIC
codes)
(% formal GDP, % format jobs)
• Wholesale
•
•
•
•
Services
(21, 15)
• Oil & gas
• Minerals
& Retail
Financial
Tourism
Business
services
Others
–
–
–
–
–
Soda ash
Flousphor
Salt
Limestone
Titanium
Extractive
(<1, <1)
Enabling sectors (43, 53)
•
•
•
•
•
* Not exhaustive
** Roads railroads, ports and airports
Source: Team analysis
Transportation** (8, 3)
Energy (1,1)
Telecommunications (2,3)
Social services (19, 42)
Construction (4,4)
23
AT THE SECTOR LEVEL THE KEY SUB-SECTORS OF THE KENYAN
Focus of diagnostic
ECONOMY HAVE BEEN ASSESSED…
% of Kenyan GDP1
Agriculture
Manufacturing
Services
Extractive
Enabling
Sectors
Horticulture4
Food Crops
Industrial Agriculture
Livestock & Fish
Food Processing, Beverages, Tobacco
Refined petroleum products
Textiles, apparel and leather goods5
Forest products
Chemicals
Equipment
Fabricated metals
Rubber and plastic products
Publishing & Printing
Furniture
Other manufacturing6
Retail
Real Estate7
Financial Services
Hotels and Restaurants
Business Services
Oil & Gas (Refinery)
Mining & Quarrying
Chemical & fertilizer mineral
Transport and storage
Education
Public administration and defence
Construction
Other Social Services
Health and social work
Post and telecommunications
Electricity supply
Water supply
8.8
8.6
% of Kenyan formal
employment3
33.0
0
0.6
0
0
5.3
0
-0.8
3.4
1.0
0.8
0.7
1.1
0.6
0.5
0.5
0.9
2.2
0.7
0
0.6
0
2.4
0
0
0
0
0
0
1.0
-3.6
1.7
3.7
2.3
2.5
0.1
-4.9
8.4
3.5
7.1
2.3
7.0
1.5
6.8
30.0
9.3
8.1
10.7
4.7
15.2
11.9
4.4
3.7
1.0
0
0
0
0
0
0
0
0
0
0
91% GDP
86% exports
1 Accounts for 91% of total economy
covered in
covered in
2 Accounts for 86% of total exports
diagnostic
diagnostic
3 Accounts for 96% of total formal employment
4 Do not yet have horticulture employment data
5 Textiles includes textile portion of EPZ for GDP but not in exports or formal employment
6 Other manufacturing includes fragmented production of various mineral products, non-textile EPZ,
7 Addressed a part of construction sector
Source: Central Bureau of Statistics
12.1
2.3
3.6
7.8
4.5
3.8
2.3
3.0
3.4
1.5
3.1
GDP Growth
2001-05 % (real)
0
23.3
0.3
4.4
3.7
3.3
1.3
0.9
0.6
0.6
0.5
0.5
0.4
0.3
0.2
3.0
5.0
4.4
4.1
2.8
2.7
1.4
0.8
% of Kenyan
exports2
0.2
1.9
2.9
2.7
0
0.1
0.1
3.3
0
2.7
0
4.1
3.7
18.2
7.9
4.3
8.7
5.8
3.1
0.6
0.6
-0.2
2.5
4.4
3.3
14.5
11.2
4.3
96% employment
covered in
diagnostic
and small scale production
24
…AND THESE SUBSECTORS ARE BOTH EXPORT & DOMESTIC ORIENTED ALL NEEDED TO GROW & MODERNISE THE KENYAN ECONOMY
Export-oriented
sectors
Domestic-oriented
sectors
On the Export-oriented sectors:
On Domestic Oriented Sectors:
•
The primary focus will be Growth of
GDP, Improvement of trade balance,
Attracting FDI, technology and knowhow.
•
The primary focus will be Growth of
GDP and job creation, Improvement
in labour and investment productivity,
Migrating informal economy towards
formal economy
•
Example of selection criteria include
absolute size and growth of exports,
level of global competitiveness and
ability to improve, and ability to attract
FDI
•
Example of selection criteria include
absolute size and growth of GDP
and jobs, level of productivity gaps
and ability to improve, and impact on
informal economy
25
AN IN-DEPTH DIAGNOSTIC WAS CONDUCTED FOR EACH KEY (SUB)SECTOR
1
Size and
growth
2
Structure
3
Challenges
4
Key areas
to explore
during
deep dive
Agri
Agriculture is the pillar of the Kenyan economy
•
Largest sector overall with 24% of GDP (KSh 342 billion)
•
>5 million people earning incomes from this sector, >90% of which are ‘active’ in the informal economy
•
Contributes 65% of Kenya’s exports (KS126 Billion) with 36% of total production exported
Small holder farmers make up
Manufacturing
the vast majority
has held
of those
a steady
involved
shareinofthe
Kenya’s
agricultural
economy
sector,
(~10%)
while
since
the the 1970s
rest are estate or plantation•farmers,
Contributes
processors,
11% of
and
Kenya’s
marketers
GDP (KSh 148 bn) – same level of contribution over past 15 years
•
Over
5 million small holders
•
across
Formally
theemploys
spectrum~250
of agriculture
000 people,
withabout
various
13%levels
of total
of organisation
formal employment; there are also ~1.3 million
1
Sizeon
and
depending
particular crop small scale manufacturers that constitute the informal side of the industry
•
Estatesgrowth
also range in size;
estates 25%
currently
facing exports
difficult times
all with
listed33%
tea of
companies
• largest
Contributes
of Kenya’s
(KS49(e.g.,
Billion)
total production exported
either operating at a loss or barely breaking even in last 18 months)
•
The financial services sector plays a critical enabling role in the economy and has a lot of room
Orientation of current agricultural economy towards exportstooffurther
unfinished
raw
materials
and
production
develop
Manufacturing is a fragmented sector
for domestic consumption of lower value produce
– various
While ownership
financial services
accounts
for only
~4%
of GDP,
plays a critical enabling role in the
•
manufacturing units with
structures
producing
goods
across
10+itgeneral
1>2,000
•
Productivity and value to small
holder
farmers
high costby
of providing
inputs, limited
Size
and minimized througheconomy
capitalextension
equivalent to ~40% of GDP
categories
2
services,
low value placed on domestic
oriented products, –dependence
on rain, and
lack of visibility
into
growth
Kenya’s
are underdeveloped
when compared to other
•
Long tradition
of manufacturing dating
back banking
to Worldand
Warcapital
II but market
with losssectors
of momentum
in past decade
market Structure
opportunities
countries like Malaysia (e.g., domestic credit/GDP is ~40% for Kenya vs ~140% for Malaysia)
•
50% of firms have less than 50 employees
•
Estate production focused on raw material export that fails–to capture
full value
coupled
with
high ishave
And informal
while
Kenya’s
markets
growingmajor
rapidlyeconomic
with current
market
of contributor to foreign
•capital
Tourism
onebeen
of Kenya’s
pillars
andcapitalization
is the largest
•
12% of output produced by small scale
manufacturers
production costs (e.g., labour, taxes, energy, infrastructure) making
Kenya’s
~KSh
800 bncommodity
or ~50% ofproducers
GDP, thereearnings,
is still a lot
of is
room
to further develop when
(e.g., compared
Malaysia sittoatother top tourist
exchange
but
far underdeveloped
unprofitable
151% of GDP)
destinations
•
Dependence on a few export
tea to Pakistan,
to EU)
Overallmarkets
lack of(e.g.,
competitiveness
makes
itSize
difficult
for
manufacturing
to
thrive
–1 horticulture
Moreover,
savings
and
investment
levels
in
Kenya
are
relatively
low
(i.e.,
11%
savings
and
17%
–
Tourism
currently
accounts
for
~5
of
GDP
and
has
been
mainly
driven
by beach and eco
and
•
Land ownership issues •
Unfriendly labour laws (e.g., annualinvestments
increase
minimum
related like
to market
forces, illegality of
~30% inwage
othernot
countries
Malaysia)
tourism
growth in vs
•
Environmental issues (soil acidity,
rainfallcasual
patterns,
deforestation)
Kenya’s long
viability
employing
labour,
illegality of jeopardizing
matching compensation
individual
performance)
– toterm
Tourism
contributes significantly to employment and is the largest earner of foreign exchange
3
as agricultural producer•
• energy
Banking
the largest in
sub-sector
within
Financial
Services
and
is very concentrated, but also
Unreliable and expensive
(e.g.,is$0.15c/Kwh
Kenya vs $0.07c
in
China
and
$0.04c in
South
(~$800m
in 2006)
•
What can
be done to increaseAfrica)
small holder productivity? has many small and inefficient banks
Challenges
–
While number of•tourists
has been and
increasing
at ~13%
year,
other
top tourist
destinations
Wholesale
retail trade
is aper
major
part
of the
economy,
but largely informal
–
Consolidation (gets
ownership
issues)
–
The
bankingregimes
industry(e.g.,
consists
~40
banks
with
the Egypt
top
10attract
accounting
70%
of trade
assets
and
• at 2land
Disjointed
taxation
(import, export,
corporate)
total of
tax
rate
~75%
of gross
like
South
Africa
and
~4-6xfor
more
tourists
than
Kenyafor
(e.g.,
in Kenya
8.2m
–profits)
Wholesale
and
retail
accounts
12%1.3m
of formal
GDPvsand
7% of formal employment but up
–
Access to cheap •credit Heavy
to afford
better inputs
Structure
foreign banks playing a key rolein(5Egypt
out ofand
the7.5m
top 10
banks
are
foreign)of GDP and ~50% of employment
regulation
in South Africa)
to ~30%
–
Improved extension services
1
–
The
bottom
~30 banks are
inefficient with an–average
return
on assets
ofand
~1.8%
vsother
3.5%
–
Over 1 300 business related
licenses
in Kenya
– relatively
Average
in Kenya
is employment
also
much lower
than
destinations
has is
been
~97%
of
~70%
of the
value in theand
sector
informal
Size
and spend per tourist
–
Better understanding of– market
to
transition
from
peasant
producers
to
entrepreneurs
for the top 10
banks and investment
Complex (and sometimes overlapping)
business
registration
declining
at ~2% over the
pastThe
fewformal
years segment
(e.g., tourists
spend
~70%
more
in Egypt)
–
of
the
sector
is
~10x
more
productive
than
the
informal segments, making
growth
•
What is driving the poor• economic
of agricultural
firms?
Moreover,
Kenya
has far more
than othermarket
countries like
Morocco,and
South
Africa
and
Nigeria
Cheapperformance
(in quality and
price) –
imports
that are hard
to compete
with banks
in the domestic
organized
formal
retail
much
more attractive
–
Costs or revenues?
(i.e.,
~40 vs 21, 33• and 25
respectively)
–
Second hand goods (primarily
clothing)
The
tourism industry structure is made up of hundreds of firms with a primary focus on the
–
Government or internal–inefficiencies?
•
5 major
challenges
‘Smuggled’ or informally
imported
goods (CPG and processed
mass market
foods)
as opposed
to
the
high
end
•
The wholesale and retail sector is extremely fragmented with thousands of small informal
•
In what ways can stronger
made
to other sectors
(e.g.,
foodSmall
and beverages,
tourism,
–2management
Scale:
bank sizes –
making
itbiodifficult
compete
especially
regionally
– as well supply
ashotels
raisechains
• linkages
Rising be
costs
of environmental
There
are 3totypes
of players
– Airlines
(concentrated),
(fragmented)
operators
players
and
very
inefficient
acrossand
all tour
major
product categories
fuels) to provide additional
for domestic
producers?
37% ofopportunities
significant
Structurecapital locally2
• income
formal employees
HIV positive
(fragmented)
Theretailers
BPO sector
in Kenya(~20
is anstores
extremely
and nascent
part of isthe economy, but there is an
–
While a few•national
have emerged
each),small
the majority
of the market
•
How can Kenya strategically protect (and expand) their export
markets?
–
Legal environment: Difficult
banks~18%
to getofresolution
on judicial
(e.g.,
2while
yrs
toother
repossess
– for Only
hotels in Kenya
are 4issues
andof5millions
starsopportunity
countries
likesmall
South
has(market-based
to
gain
share
of enterprises
a Africa
very fast
growing and large
global
market
made
up
of hawkers
and
micro
vendors
and BPO
kiosks)
Challenges
Structure
•
What strategic opportunities for value addition are there?
collateral)
~38% of their hotels as–4 and While
5 stars~70% of retailers
–
Kenya’s
BPO
sector
only
accounts
~0.01%
of GDP
with areas
~450 seats and ~800 agents
are
in
rural
areas,
the
majority
of
thefor
value
still lies
in urban
•
What is the size of the manufacturing
opportunity barriers:
for KenyaDifficult
– how to
bigopen
can itupget?
1have (eg,
–
Administrative
bank accounts
min
account
balances
too
high)
–
Various
organisations
been
created
to
promote
tourism,
maintain
and
build
facilities,
train
–
However,
the
global
offshore
market
is
expected
to
grow
from
$11bn in 2005 to ~$100bn by 2008
–
Formal
Size
andprices are much higher than informal prices, which is one of the drivers of informality
Key areas
•
How to improve Kenya’s manufacturing
competitiveness
–
Infrastructure:
Lack of infrastructure
makes
it
difficult
to
penetrate
and
serve
the
low
end
talent and preserve wildlife
presenting
a significant
forretailers
Kenya todirectly,
gain a especially
meaningfulinfoothold
–
Supply chains have several
small producers
whoopportunity
supply small
food
growth
to explore
–
Which categories can Kenya truly be competitive in – domestic and export?
4
–
Africa as a whole has only managed to capture only ~1-2% of the offshore BPO opportunity
categories
during
–
How to improve• key drivers,
energy
costs,dive
labour costs, tax regime, regulate?
Prioritye.g.,
areas
for deep
• needs
Thetoextractive
industry
is a very
small part
(~500,000
total
globally)
– within
Organized
retail results in
additionalseats
costsinand
be compared
to additional
revenues
and of Kenya’s economy and despite future
deep dive
• investment
Challenges
•
How can
domestic
and foreign
in manufacturing
– both
andconsolidation)
KeyKenya
areasencourage more
–
Overall: Understanding
how
to strengthen
the banking
sector (eg,
and Tier
balance
growth
potential,
the
future
size
of
the
sector
expected
to be
small
–
I
players
will
be
unable
to
meet
all
the
demand
(total
of
~2m
workers
byis2008
and gap
of 200other
benefits
Greater
in key tourist
areas
outsidetoofexplore
Nairobi?
between stronger sector –and access
to security
credit especially
for low
income and rural (e.g.,
Nigeria
The extractive
currently
accounts for ~0.5% of GDP, has been growing at
500k
workers), presenting –an opportunity
for tierindustry
II players
like Kenya
4How can
– international
Poor quality
or non-existent roads between existing and
3 partnerships
•
Kenya attract strategic
firms?
during
case study)with competitive
1 potential tourist sites
Size
and
–
Ensure
top management
and
preservation
of “tourism
assets”
(beaches
and wildlife) ~3% per year and despite projected strong future growth, is expected to be relatively
deep dive
–
Retail:
Increasing
bank
account
penetration
and
deposits
(e.g.,
lessons
learned
from
Equity
Bank)
Challenges
small in size in the near term
growth
bed (e.g.,
capacity
• best Urban
retailers
very
different
challenges
than rural
retailers
with
lack
of real
estate
•finance
Kenya’s
BPO
sector currently
consists
~450 the
seats
with
KenCall
the
clear
leader
at 250with
seats
andAsh and Flourspar
–
Microfinance: Lending to–MSEsLack
and of
SMEs
practices
in microface
globally)
–
Theofindustry
is mainly
made
up of
a few
basic
minerals
Soda
topping
severalcountry
others with 10-20 seats each accounting for the majority of the value as well as other related commodities such as
–
Corporate: Increasing long term financing and larger loan
sizesthe
(eg,list
other successful
2–
The major challenges
urban retailers
are as
theKenya’s
lack of real
estate, high
of andout
unreliable
– forKenCall
stands out
BPO
with cost
250
seats
a market
of ~450 seats
cases)
3
gold,leader
limestone,
titanium,
oil &ofgas
and coal
Structure
•
Priority
Areas
for Deep
Dive VC/PE
power
as well
from
authorities
–as bond
Overall,
Kenya
is one of the
lowest
cost
competitors
today
(e.g.,
~$17
000/seat
in
Kenya
vs
~$17
000 exports of
–
Capital
markets: Growing
the capital
market,
developing
market
as as
wellinterference
market
Key areas
–
The industry is largely domestic oriented with the exception of strong
Challenges
–
Increasing
# of
understand
needs
by segment,
determine
how
– Segment
The customers,
major challenges
forinrural
retailers
are in
lack
of infrastructure
andopportunity
poor access
to water even more competitive by reducing
India,
~$30
000
South
Africa)
with to
an
to
become
(capital
markets maybe potential
solution to
LTtourists:
financing
problem)
to explore
limestone
(~30–40%)
and
gold (~80–90%)
•
Production
is presently nil, with significant growth potential
attractcost
various
segments
andbydevelop
case
studies eliminating
of telecom
other successful
tourist destinations
costs
–4
Cross-cutting
challenges: Reducing
of doing
business
improving
judiciary,
during
•
5
key
areas
for
deep
dive
–
focus
on
addressing
informality
–
Two
plants
capable
of
producing
bio-ethanol,
but lack of market has led them to produce
– critical
Increasing
length of stay: Determine key drivers to length of stay, potential to increase traffic to
admin
infrastructure
deepbarriers
dive and building
– of Case
studies:
Understand
lessons
learned
other
countries with informality problemspirit
(e.g.,
alcohol and chemicals instead; total capacity of 10 million litres small by international
existing
sites and potential
new sites
(i.e.,
Kenya,faces
Nairobi,
beachesfrom
south
of1 Lamu)
Key areas
• Mt.Kenya
challenges
in
3 major
areas
Size makeup
and
Poland, India)
standards
• a distinctive
A few (e.g.,
firms
the majority of
the industry, however there are ~200 licenses that
–
Increasing
opportunities
to increase
spend
to explore average spend/tourist: Identify and assess
–
Front
end: Developing
value
proposition
beyond
just
low
cost
and
penetrating
key
growth
Customer
segmentation:
Segment
customers
by income
and
understand
needs
group
have
given out for
various
exploration
activities
4
higher
as
well as how
to leverage
all the things
that make
Kenyabeen
great
–of each
With
favourable
fuel prices, a single 100 million gallon plant could add KSh 3 billion to GDP
3–
duringend items and pricing
geographic
markets
and sectors
–
Product categories:
Identify
which product categories
be easiest
formalize
(e.g.,
lowest
– will The
mining to
industry
is very
concentrated
with 0.2%
Magadi Soda
like
coffee
marathon– museum)
2 Infrastructure:
year (about
GDP) andofKenya Fluorspar
deep
dive and tea tours, international
Reducing telecom costs, which are ~30% of totalper
operating
costs (e.g.,of potential
Challenges
formal price premium) and keyStructure
barriers to formalizing these
categories
accounting
for ~70–80% with a number of smaller firms mining various other minerals
reducing it to ~10% of costs)
–
Supply chain: Understand supply chains across key product
categories
such
as gold and impact to supply
–
Back end: Focussing on the right incentives (e.g.,•infrastructure,
land,
training)
to
encourage capability and 1,000s of potential bio-stock producers
Two
small
plants
with
bio-ethanol
chains by product category from formalizing
–
Other related commodity industries like limestone, oil & gas, titanium and coal are
development of the BPO sector in Kenya
–
Two plants are Spectre International (private) and Agrochemicals and Food Company
–
Formats: Determine range of format options and which formats
makeconcentrated
sense for which
locations
also highly
(parastatal)
2
•
Key
areas
to
explore
•
Greatest
challenges
–
Potential bio-stock inputs include:
Key areas
Structure
–
Front
end:
Develop
Kenya’s
distinctive
value
proposition,
identify
keyas
sectors
andfor
to focus
–
Lack of long term financing as• well
highcane
cost
ofprocesses
capital
making
it difficult
to pursue
to explore
Sugar
bio-ethanol
currently
being
produced by 200,000 smallholders on
4
3 on, develop list of potential clientslarge
and exploration
best way toprojects
market Kenya as about
an attractive
during
145,000BPO
ha. destination
(e.g., Challenges
case studies, role of –new industry
association) drives up the cost of exploration activities (e.g., high energy and
Poor infrastructure
deep dive
•
Wheat, maize, and cotton seed also potential bio-stocks, but more expensive to
–
Infrastructure: Understand current
cost structure
transport
costs) and quality, assess competitiveness, understand
process
infrastructure needed and –compare
to issues
what infrastructure
is being developed
Land
and unclear exploration
rights
Jatropha
currently
being piloted in semi-arid areas by about 1,000 farmers as
–
Back end: Assess quality and depth of labour pools by location• and decide
on iswhich
government
potential feed stock for bio-diesel
incentives are best to develop the sector (e.g., case studies)
Manuf
Finance
Tourism
Retail
BPO
4
Key areas
to explore
during
deep dive
•
Potential priority areas going forward
–
Exports of nonferrous
minerals
as soda bio-fuels
ash, flourspar
andand
limestone
•
Lack of such
government
policy
shortage of feed stock availability likely to be
–
High value added mining
(e.g., value
addition to gemstones, manufacturing around
limiting
factors
minerals)
–
To make bio-fuel production attractive for domestic market, government needs to mandate
3
–
Large scale mineral development
(e.g.,
and metals)
a 5 or
10%titanium
bio-ethanol
component in petrol as well as provide subsidies to producers (can
Challenges
be in the form of tax waivers) to ensure competitiveness
–
Mining
4
Key areas
to explore
during
deep dive
•
•
•
•
Majority of feed stock would need to come from new agricultural production so as not to
undermine internal food security
What is current government appetite for creating necessary enabling environment?
How can bio-fuels fit into an overarching domestic energy strategy?
What oil and/or energy companies would be interested in investing in a bio-fuels plant in Kenya?
What opportunities exist for new production of potential feed stock? (e.g., additional sugar cane
production in the Tana River delta)
Biofuels
Source: Team analysis
26
EXAMPLE: HIGH-LEVEL DIAGNOSTIC OF THE AGRICULTURAL SECTOR
1
2
Size and
growth
Structure
3
Challenges
4
Key areas
to explore
during
deep dive
Agriculture is the pillar of the Kenyan economy
• Largest sector overall with 24% of GDP (KSh 342 billion)
• >5 million people earning incomes from this sector, >90% of which are ‘active’ in the informal economy
• Contributes 65% of Kenya’s exports (KS126 Billion) with 36% of total production exported
Small holder farmers make up the vast majority of those involved in the agricultural sector, while the
rest are estate or plantation farmers, processors, and marketers
• Over 5 million small holders across the spectrum of agriculture with various levels of organisation depending
on particular crop
• Estates also range in size; largest estates currently facing difficult times (e.g., all listed tea companies either
operating at a loss or barely breaking even in last 18 months)
Orientation of current agricultural economy towards exports of unfinished raw materials and production
for domestic consumption of lower value produce
• Productivity and value to small holder farmers minimized through high cost of inputs, limited extension services,
low value placed on domestic oriented products, dependence on rain, and lack of visibility into market
opportunities
• Estate production focused on raw material export that fails to capture full value coupled with high production
costs (e.g., labour, taxes, energy, infrastructure) making Kenya’s commodity producers unprofitable
• Dependence on a few export markets (e.g., tea to Pakistan, horticulture to EU)
• Land ownership issues
• Environmental issues (soil acidity, rainfall patterns, deforestation) jeopardizing Kenya’s long term viability as
agricultural producer
• What can be done to increase small holder productivity?
•
•
•
•
– Consolidation (gets at land ownership issues)
– Access to cheap credit to afford better inputs
– Improved extension services
– Better understanding of market to transition from peasant producers to entrepreneurs
What is driving the poor economic performance of agricultural firms?
– Costs or revenues?
– Government or internal inefficiencies?
In what ways can stronger linkages be made to other sectors (e.g., food and beverages, tourism, bio-fuels) to
provide additional income opportunities for domestic producers?
How can Kenya strategically protect (and expand) their export markets?
What strategic opportunities for value addition are there?
Source: Central Bureau of Statistics; Economic Survey 2006; Ministry of Agriculture
27
TWO KEY DIMENSIONS WERE CONSIDERED IN SELECTING FOCUS
VERTICAL SUB-SECTORS FOR KENYA…
Validated with technical committee
Description
• Assessed based on diagnosing sub-
Overall approach
Attractiveness
Attractiveness
Bubble size
indicating
current size of
the sector
• Assessed based on diagnosing sub-
1
Feasibility
2 Feasibility
Given the level of complexity these two dimensions,
assessment relied on a combination of both
quantitative analysis and qualitative assessment
Source: Team analysis
sectors in order to understand
– Current size and growth
potential (e.g. GDP, Jobs,
employment)
– Interdependencies with other
sectors (including informal sector)
– Level of competitiveness/
productivity and ability to improve
– Momentum in each sub-sector
(e.g. ongoing projects etc)
sectors in order to understand
– Potential of public policy to
impact sub-sector
– Level of resources required
– Number of stakeholders involved
– Requirement for external
partners
– Complexity and potential risks of
intervention
– Existence of local know-how,
technology and capital vs need
for external partners
28
…LEADING TO 6 PRIORITY VERTICAL SECTORS BEING
IDENTIFIED AS CRITICAL FOCUS AREAS FOR KENYA
+
FOR DISCUSSION
Current size of GDP
Proposed deep
dive sectors for
phase 2
Retail
Financial
services
Key message
Tourism
• 6 key sectors
BPO
Agriculture
1
Attractiveness
proposed for
deep dive
analysis in
phase 2 to
develop high
level strategies
for each of
them
Manufacturing
Petroleum
• Implications on
Bio-fuels
enabling
sectors (e.g.,
energy,
telecoms,
education) also
be analysed
Mining
Although not a priority in the
short term, these and other nonprioritised (sub)-sectors are still
important for the Kenyan
economy
2 Feasibility
Source: Team analysis
+
29
…AND UNDERSTANDING HOW KEY ENABLERS NEED TO BE IMPROVED AS
KENYA’S CURRENT COMPETITIVENESS NEEDS TO BE STRENGTHENED
Kenya’s weaknesses
compared to these
countries
+
Cost of labour
F1
F1.1
F1.2
Literacy level
F1.3
Labour
F1.4
FDI as % of GDP
F2
• Kenya is generally, not
F2.1
F2.2
F2.3
F2.4
Capital
more competitive than
countries with similar level
of development
– It is typically at par or
less competitive across
the various factors
Cost of diesel
F3
Energy
F3.3
F3.2
F3.1
F4.1
F4
Cost of electricity
Agricultural resources
F4.2
F4.3
F5
F6
Information and
telecommunications
Kenya’s strengths
compared to these
countries
Cost of ADSL
F5.4
F6.2
Roads
Logistics
F5.2
• Key strengths include high
F5.1
F5.3 Airport traffic
literacy levels and high
utilisation of airport
infrastructure
F6.4
F6.1
F6.3
• Primary weaknesses
F7.1
F7
Tax
F8
General Services
F9
Business Climate
include:
– Higher labour, electricity,
and communications
costs
– Poorer road
infrastructure
– Business climate linked
to ease of doing
business and
government
F7.2
Postal services
F8.1
F8.2
Ease of doing business
F9.1
F9.2
F10 Government
F10.1
Constraints to business
-0.6
Source: Team analysis
-0.4
-0.2
+0.2
Peer
Average
+0.4
+0.6
30
PHASE II “DEEP DIVES’ ARE NOW FOCUSSED ON DEVELOPING HIGH
LEVEL STRATEGIES FOR THESE PRIORITY SECTORS
Areas
Size potential
to unlock
sector growth
Activities
End products
• Perform gap analysis for ‘deep-dive’ sectors – • Identify key levers,
What is the overall size of the opportunity?
• Formulate strategy in ‘deep-dive’ sectors in
impact, and
priority actions for
‘deep-dive’ sectors
order to close gaps (e.g., key levers, impact
of each lever, priority actions) based on
international experience and best practices
Strategy and
plans to deliver
quick wins
• Perform in-depth analysis of selected quick
win projects to identify actions required to
accelerate projects
• Develop robust strategy and concrete
implementation plan to ensure successful
delivery of project in the short term
• Robust strategy
and concrete
plans to
successfully
deliver on quick
win projects
• Align all key stakeholders behind
recommended strategy and plan
Source: Team analysis
31
THE NEXT PHASE WILL FOCUS ON DEVELOPING A ROBUST
MASTERPLAN TO ENSURE SUCCESSFUL IMPLEMENTATION
Key next steps
Master plan and
management
approach
Monitoring and
implementation
dashboard
Activities
• Develop a detailed master project plan, including
activity list, roles and responsibilities, and
milestones
• Create tools to track progress of implementation,
with initial focus on quick win projects
• Monitor results versus targets for quick win
projects
• Analyse required human and financial resources
Resources
to deliver on the vision
• Develop options to source required resources
• Ensure alignment of all key stakeholders behind
Communication
Launch of quick
win projects
strategy and action plans
• Launch communication effort
• Provide in-depth support to champions of selected
quick win projects
• Robust Master plan
• Monitor
implementation
• Deploy required skills
and funding
• Communicate
strategy and plans
• Drive quick win
projects
32
God Bless His Nation
Kenya
33