Category Archives: Kenya economic growth

World Bank Reduces Kenya Economic Forecast

A new report from the  World Bank slightly revised down the forecast for Kenya economic growth from the 5.9% achieved last year to 5.5% in 2017. This is attributed to ongoing drought, depressed private sector growth, and rising oil prices while 2016 had low oil prices, tourism recovery, and favourable weather conditions.

At the launch, Central Bank Governor, Patrick Njoroge said the focus should not be on the rate change, but on the medium term in which Kenya’s economy had distinguished itself by its resilience. This comes from Kenya having a highly diversified economy  – a mix of largest export is tea but his tea, and that goes to Egypt (not the UK), the economy has a strong regional focus (25% of exports are to EAC, and 40% to sub-Saharan Africa), a dynamic private sector (that’s becoming more transparency, with good governance & better business models), a well-educated labour force and investments in infrastructure (he said more should be written about the SGR vs. the old lunatic express railway) which will improve the country’s competitiveness. He said that foreign exchange reserves were at an all-time high (5.3 months) and while rains had failed in 2017 and there was a slowdown in bank lending, the risk of Brexit to Kenya was more on foreign direct investment (FDI) side and less on exports.

At the launch, the World Bank also did a report on housing in Kenya titled unavailable and unaffordable that highlighted that there were fewer than 50,000 new houses being built each year compared to an annual demand for 200,000 homes. Also, there’s low financial participation with fewer than 25,000 mortgages in the country, yet mortgages are one of the most secure loans, as people do not default on their homes easily.

The World Bank proposes having a Kenya mortgage refinance company (KMRC) that adapts from other successful models in Malaysia, Morocco (guarantees for 70% of loans) and Nigeria (fully subscribed bond scheme) to see if the number of mortgages in Kenya can go up to 60,000. They also have private-public partnership at Naivasha in Nakuru County to build 1,000 low-cost homes, most of which will be below Kshs 2 million (~$20,000)

Also see a report of an IMF staff visit to Kenya.

Urban Inflation Index: March 2017

Comparing prices and inflation in Nairobi to four and five years ago.

It’s exactly four years since the last election and we are back into campaign mode for an election on August 8. How has life changed since the Jubilee government came to power? There are many reports about economic growth and food inflation, and the budget speech that was read last week had a planned expenditure of Kshs 2.6 trillion (~$25.2 billion) compared to the government’s first budget  that was Kshs 1.6 trillion for 2013/14.

On to the index comparing prices of basic urban commodities.

Gotten Cheaper

Finance: Bank loans are 14.0% due to the interest capping law of 2016. The Central Bank of Kenya’s bank supervision annual report for 2014 notes that the average lending rate was  16.99%  in December 2013 and 15.98% in December 2014.

Fuel: A liter of petrol is Kshs 101 (~$4.41/gallon) today in Nairobi. It was  Kshs. 111.6 per litre in March 2012 and Kshs 117.6 in March 2013.

Cooking Gas: A cylinder of LPG (cooking gas) is Kshs  2,030 today. It was about Kshs. 3,000 ($37) in 2012 for the 13kg cylinder.

Communications: Safaricom dominates. Prices are coming down and both Safaricom and Airtel have combined packages called Flex and Unliminet respectively . With Unliminet, Airtel customers get free WhatsApp, Facebook & Twitter of up to 100MB per day and at Safaricom, every reload of M-PESA  gets someone 3 free FLEX units. On the money transfer side,  Equitel and Pesalink are driving down the cost of mobile money usage.

About the Same

Beer/Entertainment: A bottle of Tusker beer is Kshs 200 at the local pub. This is the same price it was in March 2013.

Utilities: Pre-paid electricity is about Kshs 2,500 per month which is unchanged from the last review. The calculation of pre-paid tokens remains a complicated exercise.

More Expensive

Staple Food: A 2kg pack of (Unga) Maize flour which is used to make Ugali that is eaten by a majority of Kenyans daily, costs Kshs. 147 up from Kshs 97 in March 2012 and Kshs 105 in March 2013. But in his budget speech last week, the Minister proposed to zero-rate bread and maize flour to remove VAT. “ Manufacturers, Wholesalers, and Retailers who sell such goods will be expected to reduce the prices of these basic commodities, failure to which, I will reverse the policy. In addition to further lower the cost to Wananchi, the importation of maize during the next four months will be duty free. I expect, therefore to see a reduction of prices for these basic commodities which enjoyed by majority of our people.”

Other food item: Sugar: A 2 kg. Mumias Sugar pack is now Kshs 292; it was Kshs 245 in March 2012 and Kshs 250 in March 2013. It has hard to find Mumias sugar which is going through some issues, so this is the price of Chemelil sugar at the supermarket.

Foreign Exchange: 1 US$ equals Kshs. about Ksh 103 today compared to Kshs 83 in March 2012 and Kshs 85 in March 2013.

Utility: Water in Nairobi is more expensive.

Kenya Direct Flights to USA? KQ Outlook

On Thursday, Kenya government officials, led by the Cabinet Secretary for Transport announced that Kenya has been granted Category 1 Status by Federal Aviation Administration(FAA) of the USA. This followed extensive renovation work at the JKIA airport in Nairobi and other aviation improvements. The elevation by one US aviation authority is a welcome step, but it is part of a process towards getting to direct flights, and there will still be more security checks, permissions, and deals to be done with airlines and airports before this comes to fruition.

The last direct flight attempt in June 2009 was halted by the US Department of Homeland Security. The Kenyan Transport minister had even traveled to the US to be on an inaugural flight only for it to be canceled at the last-minute. Delta had planned four flights a week to Nairobi, with a stop in Dakar, Senegal.

The announcement could be a boost for Kenya Airways (KQ), but the initial focus which they have maintained over the years when asked about the US,  is to pursue a code-share partnership, perhaps with Delta Airlines. Under the ongoing KQ restructuring project Operation Pride at the airline, code-shares which involve selling their tickets on partner airlines gets them revenue without having to deploy aircraft.

But once partner flights start, national prestige will force KQ to step in and do the flights themselves. They have the equipment, Boeing 787’s ‘Dreamliners’ that are perfect for direct US flights. The first Dreamliner for Kenya Airways, April 2014, flew from the Boeing factory on the West coast of the US on a non-stop a 16-hour flight to Nairobi, and expectations are to have much shorter flights from the eastern coast of the US, likely to  be Washington DC or New York. After all, rival Ethiopian Airlines  flies to five North American destinations, and there are ample numbers of Kenyans and US tourists and cargo in both directions to justify KQ flights. Perhaps once KQ gets back the Boeing 777-300’s leased out to Turkish Air.

The last direct flights to the US were on defunct Pan Am, which TV anchor Jeff Koinange who  briefly worked as a flight steward on Pan Am and he describes the flights in his autobiography “Through My African Eyes”. That flight appears to have been New York-Dakar-Monrovia-Lagos-Nairobi with a Boeing 747.

Pan Am flights to Africa were rather interesting, as this excerpt from “Life Is an Excellent Adventure: An Irreverent Personal Odyssey”, by  Jerry Funk, shows.

Kenya’s Money in the Past: Indians in East Africa

Indian Africa, minorities of Indian-Pakistani origin in Eastern Africa, is a 484-page book with lots of information, charts, statistics and stories of the arrival and enduring impact of Indians in East Africa:

Some excerpts: 

  • Almost all Indian traders to East Africa were from the northwest (Sindh) now Pakistan, Gujarat, Punjab, and Maharashtra in India.
  • The Indian population in Kenya which fell to 78,000 in 1979 rose once again to stabilize at 100,000, half of whom acquired Kenyan nationality. The demographic resurgence was probably due to donor pressure but also favorable treatment under President Moi who got into a tactical alliance with high society to check the influence of the emerging Kikuyu middle class. Thus in 1986, Indians who had been dispossessed in 1967 returned to manufacturing, by buying out subsidiaries of multinationals.
  • Indians are in 80% of industrial sectors and control 90% of business activity in the textile industry through 50 mills and 350 other companies. In the pharmaceutical sector, they control 60%, 80% of the chemical/plastics, 80% of iron business, and 90% of electrical installation ones (French Embassy statistics).
  • 25 of the 44 banks are controlled by Kenyan Indians.
  • Family business structure: Capital raised stays with the founder (first generation) while the second generation (sons) assume managerial and administrative positions and prepare the business for expansion.
  • Business Capital: Most Kenyan Indians businesses are totally dependent on local resources unlike the perception that they get foreign capital – only 5% of 210 entrepreneurs surveyed said they had received such – and this was from expatriate parents in Britain, India, Dubai.
  • Business Finance: Bank loans are secondary sources of funding – only 33% had received them, while 67% never had. They have other informal sources of credit such as employer associations to which some Europeans and Africans all benefit – and 32% of interviewees were members of groups like the United Business Association. Suppliers are frequent credit sources for small merchants. To obtain credit, one must demonstrate honesty, good management and present minimum guarantees such as from family members, real estate collateral, and repayment schedule. There is also mutual help within communities on matters of illness, death, or when a business is failing.
  • The book has profiles of different types of duka wallahs (traditional shopkeepers) as well as chapters on the settlement and emergence of business communities in Kampala, Nakuru, and Dar es Salaam.
  • For Ismailis, health and education are their priority political commitments.

The book, edited by Michel Adam is published by Mkuki na Nyota publishers of Dar es Salaam and the French Institute for Research in Africa and distributed outside Africa by the African Books collective.

Mombasa and Tax Collection

There was an interesting screen shot of the amount of customs tax collected by the Kenya Revenue Authority (KRA) on 16 December 2016.

It showed a total of Kshs 1.57 billion collected that day. Of that, Kshs 1.24 billion (79%) was recorded at Mombasa, and Kshs 139 million (9%) at Nairobi. Other top collection points were 6% at Nairobi’s  JKIA airport, 2% at Mombasa Airport and at Pepe Containers each, and 1% (Kshs 15 million) at Busia town.

Other centers listed include Eldoret and Wilson airports, and border towns of Moyale (Kshs 640,000), Isabanya, Namanga and Malaba which all recorded small collections. Other centres were Lamu with Kshs 21,000 and Kshs Kisumu 10,000. Mombasa had 1,887 transactions, JKIA had 1,205 transactions, Busia had 141, as Lamu had just 3 on that day.

In 2016, KRA collected Kshs 1.2 trillion of revenue for the government, which included Kshs 386 billion of customs tax – which works out to almost Kshs 1 billion per day. So Friday, December 16, was an exceptional collection day that came just before the Christmas break.

It’s worth noting that landlocked countries in East Africa are also able to pay tax and clear goods at Mombasa before transportation to the countries. This is done to prevent dumping of untaxed cargo during transit through Kenya.

KRA’s strategic corporate plan calls for clearing more cargo at Internal Container Depots (ICD’s) and this may have implications for Customs’ deployment of staff in the coast region. KRA’s 6th corporate plan also noted that the perception of corruption is highest at Customs service area at 66%.