Category Archives: Kenya economic growth

Africa in 2017: Barclays Forecasts

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.

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Coal Energy in Kenya

This week, there was a debate on the future of coal in Kenya and its place in the energy mix for the country. It took place at the Strathmore (University) Extractives Industry Centre (SEIC) Nairobi, and was co-hosted by WWF Kenya). The government plans to put up a coal plant on maInland Lamu and a private developer Amu Power was selected to build it, and is seeking approval from the energy regulatory commission to commence construction.

Excerpts:

Coal around the world

There are 3 new coal plants in Africa, and Japan & Korea will build 60 new ones to replace their old coal & nuclear ones.
There are now more global jobs in solar than coal, and solar has gone from 1 GW production in 2003 to 70 GW this year.
Trump got votes from Appalachian coal states where jobs were lost. But coal shares are down as gas has replaced coal.
With or without Kenya, the world is going green – Ethiopia aims to get to 100% renewable., Germany gets 20% renewable (all in the last 8 years), US has gone from 2 to 7% renewable (in 10 years), South Africa gets 2 GW from solar, and Rwanda’s 8.5MW solar is the largest in the region.

Lamu

No projects happen at Lamu because NGOs on the beach want it to stay marginalized and oppose port, coal, roads etc.
Lamu has high unemployment leaving youth exposed to Al-shabab & drugs. This project will have 1,800 jobs for locals.
It is not the job of private company to create jobs or improve security in Lamu – that is the government’s role
“Save Lamu” groups oppose the plant because all its side-effects have not been quantified, and it will destroy far more (fishing) jobs than it creates.

Other Sources and Energy Mix

Amu Power’s 1050 MW will add 50% to Kenya’s 2,200 MW electricity from the coal plant that is 20 kilometers from Lamu town.
A country’s rate of development depends on availability of cheaper and reliable energy supply. Developed countries get 60% from coal/nuclear and just 3% from renewables on average.
Solar is okay for isolated homes, but it will not recover the cost of national power generation and distribution.
Geothermal costs $4-5 million per well per well & each one generates 5MW – so how many can Kenya get? It’s very expensive for government & IPP’s who often sink many dry wells
Geothermal depends on nature to generate the steam and you can’t tweak the inputs, unlike with coal & nuclear where you can vary the inputs to match demand.
Industries need coal. Moyale which gets electricity from Ethiopia hydro only has supply three days a week
Even today people on the grid will not turn on electric cookers – the main energy sources in Kenya are charcoal and wood, and they are larger pollutants than coal.
Kenya imports all glass because we don’t have the energy to make glass.
Coal is Kshs 7.5 per unit compared to kshs 20 from diesel-fired plants.

Environment

The US has lake signs that “if you fish here, don’t eat the fish” – Kenya will likewise have to monitor coal pollution risks
Kenya emissions (excluding extractives) will be 150 MT of carbon by 2030 and the government has committed to reduce this by 30%. How?
How will the plant dispose of the ash, carbon dioxide and acid rain? Lamu does not have infrastructure
An EIA (environmental impact assessment) audit process in Kenya is a compromised one. They are done by auditors hired by investors and will never oppose projects.
Amu Power will use three new clean coal technologies at the plant.
The government must check that industry and investors comply with environmental standards – there was a toxic battery factory in Mombasa. County and national governments need to do their own monitoring.
Energy projects are financed by lenders have strict conditions.e .g IFC/World Bank finance many thermal plants, and they can’t allow plants that compromise the environment. The Amu power one is guaranteed by the African Development Bank.

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Growth Crossings: Africa Rising?

Excerpts from the Economist Events #GrowthCrossings dinner in Nairobi this week.

China grew by exporting to the world, Africa is rising by buying products – Abiola Olaniran
There are 1 trillion cash transactions in Africa that can be financially included through partnerships & technology – Sanjay Rughani
In two years, the unbanked African population has dropped from 54% to 46% – Sanjay Rughani
An ADB study found 3 drivers of Africa growth to be demographics (young urban population), climate change, and digital leapfrogging – Donald Kaberuka
A mobile network is many things in Africa, and Safaricom will be an ecosystem for others to succeed e.g in health, education, energy – Stephen Chege.
E-commerce is driven by high volumes, consistent delivery, and consumer protection – this takes a lot to succeed in Africa – Sanjay Rughani.

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IMF Laments Interest Rate Caps

The IMF has released a statement following its latest discussions with Kenya government officials. It notes that the

“The IMF team expressed concern that the recent amendments to the Banking Act that set limits on deposit and lending rates are likely to have an adverse impact on Kenya’s economy. While these amendments aim to reduce the cost of borrowing and increase the return on savings, international experience shows that interest rate controls are ineffective and give rise to unintended negative consequences. These include reduced access to financing for small and medium-sized enterprises, and an increase in informal and predatory lending at much higher interest rates. Interest rate limits could also reverse the remarkable increase in financial inclusion that has benefited a large proportion of Kenya’s population. These adverse effects could lead to lower economic growth and undermine efforts to reduce poverty. In addition, interest rates limits undermine the effectiveness of monetary policy aimed at ensuring price stability and supporting sustainable economic growth.

that said the law is here and so far banks have complied, and not challenged the law. They are also releasing their Q3 results, but the full impact of the law will not become apparent till the end fo the year when more details are released such as the number and type of new loans issued in 2016.

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Water Moment: Understanding Nairobi Water Bills

Have you been getting more and more visits from the water meter crews from Nairobi Water (NCWSC), demanding payment?

For years, I’ve been paying every month the same amount of about Kshs 500 (~$5), without seeing my bill, but of late, the bill has always remained over Kshs 1,000 even when I have paid twice within the month. One day they even came around with a bulldozer which they told area people was to yank out meters from people who have not paid.

So I had some tweet chats and went to the NCWSC offices and found out some stuff:

They no longer send out statements or hardly do. They have cut back on mailing statements via the post office. They won’t even issue you with a bill event at the office
They increased their rates at the end of 2015. The guy who came with the bulldozer and another at the NCWSC office said the rates doubled at the beginning of the year.
They have instituted a charge of Kshs 1,000 on every unpaid or overdue bill. This means even if you’re late on a Kshs 204 bill (the lowest bill you can get), you get charged Kshs 1,000.
You can check your bill via *888# on your phone. Sometimes the SMS comes through without information but you still get charged Kshs 10 for the service.
They have an online platform for one to check bills but not ready. Alternately there is a There is a Jambopay Water Bill checker that’s free to check your bill. It is accurate, but often offline.
It costs Kshs 33 to pay your water bill via M-Pesa (assuming Kshs 30 goes to Safaricom and Kshs 3 excise tax charge of the financial service.
The due dates for bills vary in the month, depending on when the water readers come round to read or estimate the amounts.
Water, electricity and other utility companies can now report customers to credit reference bureaus over unpaid bills.. but who is the customer to be reported? The person who pays the bill? This is often a tenant of a house or building. Or the registered owner of a property with a meter? Sometimes this is the landlord or the contractor who put up the building.

Other water tales:

A few years ago, IBM Research in Nairobi gave a talk on the water situation in Nairobi. There are 3,000 known boreholes in Nairobi and it can cost $10,000 to drill one as you have to go deeper than 400 meters instead of 200 in the past.
IBM also reported that 40 – 50% of water sourced is lost (just doesn’t get to consumers) AND that 50% of hospital visits in Kenya may be water/sanitation related.
A feel good story about water supply and the World Bank in Kenya.
Are water charges going up again? – Not sure if these are even more new charges from October 2016
Adding value to water: How the business of bottled water went mad ..How did a substance that falls from the air, springs from the earth and comes out of your tap become a hyperactive multibillion-dollar business? (The Guardian)

Even with the new water rates, getting water from the NCWSC is a lesser evil than paying for your lorries, but…

Residents of an estate in Langata went out and bought a water lorry to ensure they get reliable and affordable water deliveries.
Water supply via lorry is a lucrative business.

$ = Kshs 101

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Bankelele

Nairobi writer on Banking, Finance, Technology, and Investments

Category Archives: Kenya economic growth

Africa in 2017: Barclays Forecasts

Coal Energy in Kenya

Growth Crossings: Africa Rising?

IMF Laments Interest Rate Caps

Water Moment: Understanding Nairobi Water Bills