Country profiles series - Kenya

Kenya profile
Kenya profile

Home to more than 45 million people, Kenya lies on the equator with the Indian Ocean to the south-east, Tanzania to the south, Uganda to the west, South Sudan to the north-west, Ethiopia to the north and Somalia to the north-east.

Kenya remains the dominant economy in the East Africa Community (EAC), contributing more than 40% to the region’s GDP. It is the fifth largest economy in Sub-Sahara Africa and the ninth largest in Africa.

It has been a mixed journey for the country since it gained independence in 1963, both politically and economically, with matters reaching a low in 2008 and 2009 with civil unrest and the displacement of huge numbers of people.

However, empowered by a new constitution and administration in 2010, Kenya has made significant structural and economic reforms, supported by lower energy costs, investment in infrastructure, agriculture and manufacturing. These include deregulation, the privatisation of some institutions and a growing role in regional trade, while import licences are no longer required.

Kenya officially became a lower-middle income country in 2014 following a GDP recalculation exercise, and according to the World Bank, Kenya’s Gross National Income (GNI) now stands at US$ 1,280.

Meanwhile, Kenya’s inward foreign direct investment (FDI) almost doubled to US$989m in 2014 – an all-time high– according to the 2015 edition of the World Investment Report.

Sectors attracting investment include oil and gas exploration, energy, banking, real estate, retailing, consumer goods manufacturing, vehicle assembly, agriculture and tourism with the FDI flows coming from a wide variety of sources, including the US, Europe, key Asian economies and South Africa.

In June 2014, Kenya successfully launched its debut Eurobond. Seeking to raise US$1.5bn, Kenya eventually raised US$2bn after the launch attracted bids four times the initial offer.

Kenya has a strong history with the UK and many UK companies have succeeded in this market. There continues to be strong performance from existing UK companies and a number of new entrants have identified this as an important market. More than 60 UK companies operate from Kenya, including Barclays, British Airways, BAT, Standard Chartered bank, Diageo, GlaxoSmithKline, Unilever, De La Rue, Finlays, G4S, Tullow Oil and BG Group.

Strengths of the Kenyan market

  • Fully liberalised economy – free flow of trade and foreign private investment
  • Good financial and legal systems compared to sub-Saharan Africa
  • Skilled workforce
  • Regional entry point for the east Africa region – Nairobi serves as a regional economic hub
  • Well established private sector
  • English is the official language

Challenges of the Kenyan market

  • Strong competition from the east, especially on price
  • Security threats
  • Infrastructure limitations
  • Cost of doing business can be high (taxes)
  • Bureaucracy
  • Corruption

While the overall medium term outlook remains favourable, risks exist from the continued downturn of the tourism sector arising from security concerns.

External demand for exports is also sluggish and low growth of production for exports is widening the current account deficit. Also, the share of the manufacturing sector to GDP has remained stagnant in recent years, with low overall productivity and large productivity differences in firms across subsectors due to lack of competition. Much new investment in manufacturing in the region has been taking place in neighbouring Ethiopia where wages and energy costs are lower.

And despite market reforms, several business surveys reveal that business-government corruption is still widespread in Kenya –companies frequently encounter demands for bribes and informal payments in order to ‘get things done’ in Kenya.

Key sectors

Energy

Oil and gas: Recent oil discoveries and high potential gas finds have created many opportunities. To support this growth, the related infrastructure will provide opportunities for its improvement.

Low carbon energy: The potential for geothermal energy is over 10,000 megawatts. The government has allocated about £68 million towards geothermal development.

In addition to this, there is high potential for solar and wind energy development.

Infrastructure

Ports: The government has allocated funding towards constructing three new airports and the upgrading two existing airports.

There is also a project to develop a large port off the Indian Ocean coast in the Lamu area. The port will serve the northern part of Kenya which recently discovered oil as well as landlocked South Sudan and Ethiopia.

Rail: The government has allocated approximately £132 million towards standard gauge rail. About £23 million has been allocated towards an urban commuter rail system.

Education and training

The government has allocated about £119 million towards improving education and training. There are opportunities for UK companies in:

  • development of digital content
  • training
  • building capacity and local content development in the oil and gas sector
  • supply of computers

Defence and security

The government has allocated over £600 million (about 8% of total budget), towards enhancement of security.

Opportunities in this sector include:

  • Surveillance equipment
  • Border control solutions
  • Anti-poaching equipment
  • Training of security personnel
  • Forensics equipment
  • Procurement of police aircraft

Financial services

The banking sector is undeveloped in Kenya. Loans amount to nearly 30% of GDP. Opportunities exist for companies to provide products and services from advisory and capacity building to technical support. The primary industries with financial services opportunities are in extractives, energy and agriculture.

Kenya has the potential to be one of Africa’s great success stories from its growing and youthful population, a dynamic private sector, a new constitution, and its pivotal role in East Africa.

Addressing challenges of poverty, inequality, governance, low investment and low firm productivity to achieve rapid, sustained growth rates that will transform the lives of ordinary citizens, will be a major goal for the country.