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.
Britain’s decision to exit the European Union (EU), as announced from the results of Thursday’s landmark “Brexit” referendum has been a hot topic around the world. 33.6 Million Britons flocked to the polling booths on Thursday with the ‘leave’ campaign marginally taking the victory with a 52%-48% vote. There is however a general consensus of uncertainty with what the UK’s (United Kingdom) decision holds for the future, with particular relevance to what it means for Kenya.
Britain is a key ally, as well as Kenya’s third largest export market with the value of exports at Sh40 Billion in 2015. The Central Bank of Kenya has already stated that it is ready to intervene and minimize disruption in money markets. Kunal Ajmera, COO of Grant Thornton Kenya provides an insight into how Britain’s decision to leave affects trade decisions and tourism in Kenya:
- Britain was not just any member of the EU but also one of the largest contributors and it’s most prosperous. Depending on how things unfold in the coming years other members may also demand for a referendum and this would ultimately weaken the EU substantially.
- The EU spends about 100 million euros per year on development co-operation in Kenya. With uncertainties over Europe due to Brexit we may see a reduced funding in coming years. We could see funding in key projects start to be cut.
- Investors anywhere in the world hate uncertainty and anxiety. Brexit leaves many questions unanswered and it will can take more than a year to get some clarity. Until that happens global economy, money markets and stock exchange may go through volatility and general negativity as we are currently seeing happen.
- It is highly likely that US Dollar($) will gain strength against major currencies in the world and GBP(£) will lose its value, the initial figures show that on the day of the results alone, the GBP slumped to a thirty year low, falling as much as 11% in the hours after the result. This therefore means that the Kenyan Shilling will be under increased pressure. It would be wise for businesses in Kenya to hedge against a future raise in dollar value.
- The UK is Kenya’s largest tourist source market. At its peak Kenya received 198,000 tourists from UK in 2013. The tourist arrival numbers from the UK have only just started to increase in last few months after years of travel advisory and terror threats. However with GBP weakening due to Brexit, it will cost the British tourists more to travel to Kenya and we may see reduced number of arrivals from UK in near future.
- Kenya exports a substantial number of products to the UK every year. The UK is the second largest export market for Kenya after Uganda. So far these exports were governed by EU trade laws. With UK exiting the EU, Kenya may need to re-negotiate the terms for export and this may take even a year resulting in to disruption and uncertainty.
- In the immediate short term, the UK is bound to have slower economic growth or even recession due to the Brexit referendum. This will also affect how it trades with other countries in the world. Since the UK is one of Kenya’s biggest trading partner, businesses in Kenya that export to the UK are bound to be nervous and must prepare for slump in business.
However, Kunal offers consolation by highlighting the potential in this decision. He states, “It’s not all doom and gloom. Brexit also presents new set of opportunities. EU laws on import and export are some of the most stringent in the world especially with agriculture, dairy, and meat items. The UK can now decide its own rules for import and export, new products may become eligible. It is worth noting that Kenya’s largest export to UK is agriculture/horticulture products.”
For further insight into the Brexit developments and its implications keep following Grant Thornton Kenya on twitter and Facebook.
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.