Today Barclays Africa economists gave their forecasts on Africa and specifically Kenya for the year 2017 at an event that featured several roundtables sessions.
Populism: During 2016 the world changed in terms of two surprising votes in the US and the UK that reflected an inward focus. The votes in those countries were driven by populations who felt that their politicians were not pushing their agendas on matters such as trade and immigration. Also while incomes of the rich & poor have been improving, those of the middle class have stayed stable or declined.
US President-elect Trump is expected to reduce the US corporate tax rate which may woo companies to bring back some of the $2 trillion profits sitting outside the US.
Banks are seen as making too much money and not playing their part in society – this has resulted in things like the interest rate cap law in Kenya.
Reaching Entrepreneurs: There are 40-50 million emerging SME’s in Africa but only 1/5 of them have access to capital, and this is because banks ask for collateral
Banks operate in cash driven economies and many entrepreneurs don’t want to share information. Banks also have to collect a lot of documentation that bothers customers.
Barclays is committed to making sure there’s no systemic risk from their exit from Africa, and that its customers will continue to get good service in all the 10 markets
Barclays has a platform called Rise with centers in London, New York, Cape Town, Mumbai, Tel Aviv where they partner with companies on ideas to be implemented.
Africa: The continent is now becoming a bit more fragile, and for the first time in a decade, Africa is going to grow at a slower pace than the global average 3.5% (but if you exclude South Africa and Nigeria), the growth is still above average for most
African countries have been spending much more than their revenue and the years of deficits have eroded Africas strong starting point. Going forward, African countries will face higher financing cost and lower capital inflows.
Brexit Impact: 45% of FDI into Africa comes from Europe and Kenya gets 23% from the UK. But the pound has continued to weaken since the vote and this will result in reduced global demand for African exports, less tourism from UK/EU, and reduced remittances from African migrants
Kenya: The shilling currency has been weakening at a lower rate than its peers. This could make exports expensive and widens the current account deficit. It’s possible that the Kenya shilling could depreciate to 110/$ over the next 12 months. This is mainly due to the expected dollar strength against all currencies. Kenya has strong exchange reserves and can tap an IMF precautionary fund to cushion shocks.
East Africa: Trade lags the rest of the world. Since East African borders “opened up” around 2010, Kenya’s exports to the EAC have only increased by 8% compared to 50% to the rest of the world.
Yesterday there was a debate in Nairobi on the UK’s referendum on EU membership, on which there will be a vote in the UK (and Gibraltar) on June 23. Europe is the second largest destination for Kenya’s exports (after the rest of Africa) and the UK is second in Europe with about Kshs 40 billion of exports from Kenya, slightly behind Netherlands (a destination for flowers). Overall, the UK is the fourth largest destination of Kenya’s exports (after Uganda, Netherlands, the US), and it imports about the same amount from the UK (Kshs 42 billion).
The debate was sponsored by the St. Paul’s Property Trust and had Aly Khan Satchu (as the moderator), Graham Shaw (Brexiter) arguing for Britain to exit) and Chris Foot (Remainer) arguing for Britain to remain in the EU).
Reasons to BREXIT
If #BREXIT doesn’t happen now, Britain will beholden to unelected decision-makers in Brussels for the next 40 years. Other countries will soon have similar votes.
The (bureaucratic) EU has 5 laws on pillow cases, 109 on pillows, and 12,000 on milk.
Germany bailed out Greece, and the EU will soon have to bail it out again (Italy is also shaky)
EU laws limit Britain’s ability to get top talent (e.g from Kenya) as they have to give preference to the EU states.
Under the EU, the production of a country is controlled (they may have to destroy fishing boats, and Portugal’s wine industry was destroyed by the EU).
Britain will have to renegotiate trade deals with 28 (and maybe 32) countries, but probably has no interest in trading with 10 of them.
Brexit debate in Nairobi
Points against BREXIT
The great Winston Churchill wrote a book titled “Europe Unite”.
56% of Britain exports are to the EU, – don’t BREXIT.
The last time the UK thrived outside the EU, it had a protectionist market called the colonial empire.
There has not been much discussion about the positives of being in the EU – only the negatives – and that is not enough reason to leave.
Impact on Barclays Premier League (BPL)? : Arsene Wenger (Arsenal manager) asked Britain to stay in the EU (which is a huge global export, but how many in Europe watch the BPL ?).
The world is moving towards integration (e.g The East African Community).
The rise of nationalism in Europe is a concern.
Britain at 16%, is Europe’s biggest export market, ahead of the US (14%), and China (8%).
Also see this forum, with the (then) High Commissioner from Britain to Kenya in which he discussed the relationship between the two countries.
Decided to sell out of Bralirwa Rwanda and Stanbic Uganda, but its’ more difficult getting out thatn it was getting in (during their respective IPO’s). For Uganda, you have to open a CDS account there, just to sell your shares.
It’s been reported that the oil pipeline from Uganda is going to go through Tanzania, not Kenya. Two forgotten facts about the Uganda oil decision are that; (1) President Museveni of Uganda has been steadfast that he wanted to refine oil in Uganda, not export raw crude (2) Uganda’s oil has been said to be waxy or heavy. This means it would require complex heating to keep it flowing along a complex oil pipeline through the rift valleys and hills – to the coast of Kenya.
The cost, insecurity and difficulty of building infrastructure have been cited reasons that Uganda opted to go through Tanzania. Still Kenya has several LAPSSET projects on the cards including an oil pipeline to go to Lamu where there would be a new highway, railway, coal plant and modern, deep-sea port.
Last year at the TDS Nairobi summit, during the 10th Ministerial Conference (MC10) of the World Trade Organization (WTO), a session was held on local content in extractive (and oil) industries. Some interesting comments there included:
It is a legitimate objective for any resource rich country to try to maximize the value of its resources.
If a country puts restrictions on raw exports, it may distort the local economy; it creates artificial demand – and if it is not efficient, local related industries will not survive.
Kenya energy expert Patrick Obath suggested that Kenya, Uganda and South Sudan have to talk together and implement projects together for projects like the oil pipeline to be viable. That would also have to happen to get more value-addition from the oil in the countries e.g. can the countries plan to get fertilizer from oil?
With mining, you have 20 years of opportunity for local suppliers and jobs, but with an oil pipeline that’s only there in the beginning, then goes away once the pipeline is built (there wont be many local jobs after, and communities don’t get an economic boom from having an oil pipeline passing through their land..which may lead to some local frustration).
More on Kenya Pipeline:
The Kenya Pipeline Company is charged with transporting and storing of petroleum products.
A (presidential task force on parastatal reforms proposes the Treasury incorporate a holding company known as the Government Investment Corporation (GIC), into which Kenya Pipeline Company should be transferred to determine (its) intended privatization.
Meanwhile Kenya Pipeline is continuing with its projects including replacing the current Mombasa-Nairobi Pipeline.
Imperial Bank collapse: The shock of the year, and probably the decade. Owaahh shows in Part 1, 2, and 3, of “The Sack of Imperial Bank”, that it was actually a 13-year saga that unravelled in 2015.
The new Governor at the Central Bank of Kenya, Dr. Patrick Njoroge, had an immediate impact, not just with Imperial, but also Dubai. He also cracked down on banks that were apparently lax on large payments, legit and illicit ones.
Bank profit drop or flat growth: Whether it was the local economy, bad debts (Stanchart, Bank of Africa), or East African impact (events in South Sudan, Burundi or Mauritius [for Britam], this year tested banks after years of ‘easy money’ and double digit growth in the industry.
Barclays exit from Africa (really, a 2016 story)
Agency banking. Even Family, I&M and Barclays, took this route. While a few branches are still opening in new malls, they are not the main channel for small transactions, as ATM’s phones, social media, and now bank agents handle lost of customer interaction.
What other stories merit ranking?
The law on unclaimed financial assets, and the Unclaimed Financial Assets Authority (UFAA) became active