Category Archives: Kenya economic growth

Barclays launches the Africa Financial Markets Index 

Barclays launched their first edition of the African Financial Markets Index (AFMI) that ranks and compares the depth of financial markets in seventeen African countries. The countries were score against six broad pillars of (1) Financial markets depth, (2) Access to foreign exchange,  (3) Market transparency & the regulatory environment, (4) Macroeconomic opportunity, (5) Enforceability of agreements and (6) Capacity of local investors.

South Africa came out on top of the AFMI with 92 out of 100. It was classified as a highly developed market but (with a) challenging macroeconomic outlook; It was followed distantly by Mauritius (66), Botswana (65) and Namibia (62).

Kenya was ranked fifth (59), just ahead of Nigeria (53) Ghana (49) and Rwanda (48), and Kenya was found to be the most sophisticated in East Africa due to innovations and reforms by the Nairobi Securities Exchange (NSE) and the Capital Markets Authority (CMA).  Kenya’s scores were quite consistent across the six pillars with recent developments including the de-mutualization and the IPO of the NSE, the launch of a first exchange-traded fund by Barclays Kenya, and the launch of the M-Akiba bond.

Kenya is the seventh largest stock exchange by market capitalization and sixth by bond listings. But George Asante, Managing Director and Head of Markets at Barclays Africa said that Kenya lacked deep-pocketed market-makers who could broker deals, and take price risks and also that Kenya needed to develop a primary dealership network. He added that the participation of local investors in long long-term investing was quite limited and local investors are critical as they buffer volatility caused by foreign investors. Assets were concentrated among buy-and-hold investors, rather than pension funds and insurers. Kenya’s domestic institutional investors have $12.6 billion of assets but this only works out to  $173 per capita and he suggested that Kenyan markets and regulators needed come up with more securities listings, instruments, and innovations.

Barclays Bank of Kenya Managing Director Jeremy Awori said that “The AFMI will be produced annually to drive conversations, track progress and address gaps in financial markets.” Already countries like Rwanda and Morocco want to use the index data to improve their financial markets.  At the tail end of the AFMI was Egypt, Mozambique, Seychelles and Ethiopia. Ethiopia was scored as “a fast-growing economy but with no financial markets depth or local investor capacity.”  

Guests at the launch included Jeffrey Odundo, CEO of the NSE, and Paul Muthaura, CEO of Kenya’s CMA. Muthaura said the CMA had a master plan to make Kenya a choice destination for capital flows by 2023, while Odundo said the NSE has broadened its  revenue and product base (by introducing REIT’s, ETF’s, M-Akiba and next derivatives, and a new law to govern securities lending), and was working to make Kenya more visible. They are active members of the Africa Securities Exchange Association and will host a “Building African Financial Markets” seminar in Nairobi in April 2018. They also plan to join the World Federation of Exchanges.

The AFMI report can be downloaded here from the Official Monetary and Financial Institutions Forum website; OMFIF produced the report with Barclays Africa

Barclays Africa Macro Economic Report

Africa is poised for third wave of growth that could return it to the Africa rising heights that preceded the global financial crisis. These are some of the highlights from a report released by Barclays Africa in Nairobi on their macro economic outlook for 2017-2018.

Barclays Africa Chief Economist Jeff Gable said that global growth was 3.7% and is at its strongest in 5 years with the growth synchronised in all regions – US, Europe (strongest in a decade), Asia (recovering from 2017), and Latin America (coming out of recession). Global concerns include the politics of rage and nationalism waves, US political uncertainty (with President Trump),  China’s economic adjustments and fluctuations in commodity demand.

Africa has shown itself to be resilient and is receiving foreign direct investments (FDI) flows at levels not seen in a decade. South Africa gets the top share of FDI (followed by Morocco, Egypt,  Nigeria, Kenya), with most deals coming from the USA – 91 investments (followed by France, China, UK, Dubai) but with the largest source of funding, by far, from China ($36 billion).

Gable sees African countries as better able to address macro economic conditions this time around, such as through making infrastructure pay off by focusing on smaller affordable achievable projects (such as Uganda oil and Tanzania gas), diversifying commodity-driven economies, and managing foreign exchange and debt with the lessons learnt from the earlier dip. He expects that a majority of African countries will continue to grow at a faster pace than in recent years and that average growth will be 4% across the continent.

Some risk concerns are that not many African countries can afford to pay for what they are spending and they are exposed to continued outside borrowing at a time that Sub-Saharan Africa credit ratings are declining and there are discussions about uncertain macro economic policies from Angola, Mozambique, Nigeria, Tanzania South Africa, and Zambia as well as other discussions on political strains in Ethiopia, Kenya Tanzania, Uganda, Zambia, and Zimbabwe.  Another concern is that climate change will disproportionately affect Africa. 

Earlier in the day, Barclays Bank of Kenya Managing Director, Jeremy Awori cautioned on the year-old interest rate cap law in Kenya that had constrained private sector growth, and bank earnings He said banking industry earnings had shrunk 8% as at the third quartet of 2017,  compared to average growth of 15% in previous years and that private sector credit may have shrunk during the year.

Barclays Africa Macro Economic Report launch.

Other highlights of the Macro Economic Report:

  • Kenya’s credit rating has been stable since 2010, but Moody’s are now reviewing it for downgrade (due to to large deficits, high borrowing costs, and policy uncertainty). What concerns Moody’s is not Kenya’s debt size, but its replacement of long-term concessionary debt with short-term commercial debt.
  • Barclays Africa forward exchange rate forecast for the Kenya shilling to the US dollar is 106 at the end of 2018, 108.5 in 2019, and 110.8 in 2020.
  • Interest rate caps have been tried in many countries besides Kenya. The intent is the same, but Kenya’s Central Bank won’t be able to do anything about interest rate caps until next year.
  • For Kenya, tourism and agriculture (after the drought) are moving up, but manufacturing is lagging, and the Purchasing Managers Index (PMI) showed dramatic improvement in December 2017 after plunging to lows in October 2017 during the election season.

The annual Macro economic report was produced by the Barclays Africa research desk. It will be followed by another release by Barclays – of their Africa Financial Markets Index which is a survey of 17 African stock markets.

Economic Forecasts from Citi, Barclays, World Bank, Brookings, Oxford

A roundup of recently published economic forecasts, reports, and surveys.   

AfDBThe African Development Bank’s interactive platform, #MapAfrica, maps the locations of the bank’s investments in every country across Africa.   

Also the AfDB launched their 2018 African Economic Outlook report. 

Barclays: In Nairobi this week, Barclays Africa launches the 2017/18 macro-economic report as well as the Africa Financial Markets Index,  which is a survey of 17 African stock markets.

Citi: Citi Research has just published two reports on frontier markets and one on food inflation in AfricaCiti found that frontier markets did better than developed markets and that Kenya did well (36% return on equities) despite the banking interest cap law and the prolonged election season which has now ended.

Citi’s forecasts of top picks for frontier markets in 2018 are Sri Lanka, Romania, and Kenya and they see weaknesses for Argentina, Morocco, and Egypt. The Citi rankings consider six factors: macro growth, macro imbalances, monetary factors, valuations, earnings momentum and price momentum for their forecasts. Citi also ranked five top stock for frontier markets BGEO Group (Georgia), Humansoft (Kuwait), IDH (Egypt), KCB (Kenya) and MHP (Ukraine). For KCB they like the growth profile of corporate and salaried customers from which the bank will grow market its share even if the banking law remains the same.

The Citi forecasts also looked at the Kenyan currency (shilling) which has remained stable relative to other African currencies and how it will continue to do so even with the country’s balance of payments deficits and heightened politics. But they found that one problem with making Kenya predictions is that a significant portion of inflows that offset the current account deficit is classified as other flows, and their timing is not predictable. They assume that the inflows are from the East and Central Africa region that sees Kenya as a safe haven, despite the politics of the second half of 2017. Another finding was that devaluation of currencies have a bigger impact on food inflation in sub-Saharan Africa but Kenya which had drought and food security issues in 2017 is able to draw on food production from its neighbors (Ethiopia, Tanzania, Uganda) that keeps food inflation in check even though the food trade data is not captured in official statistics.

World Bank: Meanwhile the World Bank is taking heat after one of their economists admitted that the WB “Doing Business” rankings for Chile had been manipulated for political reasons. The Doing Business reports are cited by leaders of several countries such as Kenya, Rwanda, India as indicators of their good performance in office, But this one admission of political interference could trigger fall out as to the credibility of other reports, country economic forecasts, growth statistics, inflation measures and discussions with governments that the World Bank does.

The Oxford Business Group: The Oxford forecasts reviewed the year Kenya in 2017 in which growth was expected to be about 5% (down from an initial forecast of 5.8% for 2017), but still above the sub-Saharan Africa average of 2.7%. It noted the mixed agriculture performance was due to the drought that affected maize, sugar, tea. Also that Kenya’s Supreme Court decision to nullify the presidential election set a good path for the country in 2018 despite the added cost of staging two elections in 2017 affecting the government’s ability to meet budgetary targets and which later resulted in Moody’s considering a downgrade of Kenya’s debt rating.

Brookings: The Brookings forecasts are contained in Foresight Africa, an Africa-focused report  that celebrates Africa’s growth and highlights priorities for the continent. For Kenya, it contains a sum up of the ability of the country to leverage technology and innovation for things like revenue collection and uptake of products and mobile bonds (M-Akiba), M-Tiba, and IFMIS. It mentions that Kenya can balance the impact of special economic zones and infrastructure from China against politics and that the successful launch of the SGR in May 2017 could one day serve Uganda Rwanda, Burundi and even Tanzania South Sudan and Ethiopia. It has special sections on the 2017 Kenya election and the M-Akiba bond (“The KSh 150.04 million (approximately $1.5 million) uptake of the M-Akiba bond was mainly dominated by small investors who invested less than KSh 10,000 (approximately $100)”)

Kenya Airways launches Nairobi New York direct flights for $869

Kenya Airways (KQ) has started selling tickets for non-stop flights between Nairobi’s Jomo Kenyatta and New York’s John F. Kennedy airport that will start on October 28, ahead of the 2018 US winter season.

Posted by Kenya Airways on 10 Januari 2018

The ultra-long flights from JKIA to JFK (15-hour KQ002 23:25 – 06:25 next day) and return leg (14-hour KQ003 12:25 – 10:55 next day) will be operated using two Boeing 787-8 Dreamliners, and an extended crew of 4 pilots and 13 flight attendants on each leg.

KQ welcomes its first Dreamliner in April 2014

KQ Chairman, Michael Joseph said this was a significant event after long planning and extensive interaction with US authorities (11 different agencies in the US are involved) while CEO Sebastian Mikosz said that they were targeting two main groups of flyers – corporate (48 US companies and international organizations that have their regional hubs in Nairobi) and premium leisure tourists (the USA is a top tourist source for Kenya that had 95,000 visitors between January and October in 2017, which was a 20% increase over the last two years).

Kenya Airways is  investing heavy with daily flights to New York (85,000 seats each way per year) that they estimate will have significant uptake, similar to the airline’s current routes to Europe (~85% loads) due to the attractiveness of non-stop flights between Nairobi and New York and they expect that the USA flights will constitute up to 10% of the airline’s revenue after 2019. The KQ Boeing Dreamliners seat 234 passengers – 30 in business class (tickets start at $2,499) and 204 in economy class (tickets start at $869).

In future, the airline will take back two other B-787 from Oman Air when the leases expire in 2019 and they also plan to sign a joint venture code-share with Delta Airlines in 2019 to expand the sale of tickets in the USA beyond New York.

Socio-Economic Atlas of Kenya

The Socio-Economic Atlas of Kenya provides a visual look Kenyan statistics, depicting the national population census by county and sub-location and showing the future of Kenya for Vision 2030 and planning purposes. The Atlas booklet that was for sale as a hardback (but also available as a PDF), was produced by the Kenya National Bureau of Statistics and first published in 2014. 

Excerpts

Young population of voters: There are both advantages and disadvantages to Kenya’s youthful population. It represents potential for the future, but it also increases dependency rates and reduces economic participation in the present. Employment creation will be the key to tapping the potential of the expected future labour force and future market opportunities. This implies that job creation is not only a national priority as stipulated in Kenya’s Vision 2030, but that it also requires efforts at the sub-national level; because grossly uneven population distribution will provoke major and increasing migration flows when today’s children and youths reach adulthood. This points to the major role that devolved governance will play in harnessing these potentials and facing the challenges posed by high proportions of young people in the population.

Female economic power: The 2009 census indicates that females head 32% of households in Kenya. This means that females head 2.8 million households, or one in every three. In a basically patriarchal society that assigns household leadership to one person and one gender, this is a high value. It implies that men are absent in one-third of all Kenyan households; in these households, women make the majority of the decisions concerning household matters and livelihoods.

Inequality at the Coast: Kenya’s overall Gini coefficient is 0.45. This value is comparatively high, higher than in neighbouring countries, and means that inequalities are quite pronounced at the national level. This reflects the economic diversity in the country, in particular the gradients between urban economic hubs and rural areas and between high-potential agricultural areas and very poor semi-arid and arid regions. The value is also typical of a nation on the verge of becoming a transition country, exhibiting rapid growth in economic centres and expanding secondary and tertiary sectors.

 

Purchasing Power is in towns: In 2006 prices, Kenya’s mean per person monthly expenditure for goods and services is KSh 3,430. If a cumulative inflation rate of 93% is applied in line with 2013 prices, this national mean rises to KSh 6,620. By this estimate, an average Kenyan family of five with two parents and three school-age children spends about KSh 26,000 per month on goods and services in 2013 prices. This average monthly estimate includes all monetary expenditures as well as consumption of self-produced farm, garden, and livestock products according to their market value. But the clearest pattern to emerge is that of the rural–urban divide. 

The map illustrates how virtually all of Kenya’s major towns exhibit higher mean per person monthly expenditures than their rural environs. The divide is further underscored by the fact that the two highest classes of mean per person monthly expenditure – i.e. KSh 6,000 to 10,000, and more than KSh 10,000 (in 2006 prices) – are found almost exclusively in urban settings. By contrast, the expenditure classes between KSh 1,000 and 3,500 are mostly found in rural sub-locations. This emphasizes the role of towns as national and regional economic hubs featuring growing secondary and tertiary sectors and the bulk of formal employment opportunities leading to continued rural–urban migration. At the same time, it is interesting to note that the phenomenon of slums in the major cities is not visible in the rural–urban graph: The very lowest expenditure class (below KSh 1,000) is almost exclusively found in rural settings. Multidimensional poverty measures could help to better capture poverty in urban areas.