Category Archives: Kenya economic growth

Oil Pipeline, Economics & Politics

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.

Pipeline Impact

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 won’t 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 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.

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The Luxury Network in Africa

Last week saw the launch of The Luxury Network in Nairobi, Kenya. This came after a B2B luxury seminar that featured brands that are targeting affluent Kenyans and Africans who will pay extra for quality and exclusivity.

Recent research by IPSOS estimates that there are between 5,000 and 8,000 dollar millionaires living in Kenya. These are defined as people who have made money though business, and entrepreneurship, sometimes through land and government tenders and have liquid cash that is not tied up in land or in current accounts. The country has gone from 5 malls to 51 malls (some under development) in the last decade as more shoppers turn out and the shoppers that the luxury network targets are ready to spend for the right things.

Some of the members of the network include Africab Tours (luxury meet & greet service), CJW (bespoke legal services), English Point Marina (a piece of Monaco in Mombasa), Elite Digital (who have been selling Apple products in Kenya for 30 years), Kartell, Little Red (who sell Italian brands), Majestic Events, SHK Consulting (bespoke PR), RMA Motors (Jaguar, Land Rover franchise in Kenya), Goshen Acquisitions (strategic land investors) and Bombardier Aero who plan to open an office in Kenya in 2017.

The luxury network has 25 offices around the world. In Africa, they are in South Africa, and after the launched in Kenya, they will next go to Nigeria – which has the highest number of private jets in Africa.

By being members of the luxury network, entrepreneurs enjoy benefits such as alignment and a connection with other global luxury brands, access to pre qualified high net worth private clients, and access to seminars, event and privilege loyalty programs.

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Yara and the Kenya Fertilizer Market

This week Yara had a lunch meeting in Nairobi to highlight their investments, plans, products and solutions, for Kenyan farmers. Yara Kenya Country Manager, James Craske, also spoke about the global fertilizer environment, including regional markets, production, challenges, and other aspects of the industry.

Excerpts

History: Yara, the largest nitrogen fertilizer producing company in the world (33 million tons in 2014), and has been shipping to Africa since 1929. Yara East Africa has been in Kenya for 20 years, has 20 – 50% market share in most of the sectors they specialize in (e.g they call their CAN fertilizer – Yara Bela Extra). They will be doing a roadshow in the North Rift area, starting in Eldoret-Uasin Gishu area.

Farmer Focused: They are farmer focused on developing farmers and improving farm profitability. They target to increase a farmers earnings by a factor of 4:1 after he or she invests in their fertilizer. They have crop specific guides like for maize, coffee, tea, horticulture variants and other crops, and have trained 55 interns to work with the farmers in Kenya.

Distribution Network: They have 80 distributors and 10,000 stores in Kenya. They also sell directly to large commercial farms of more than 500 hectares. Freight is big cost factor for farmers in Kenya.Craske said they can load a 30,000 ton vessel in Norway and ship the fertilizer to Mombasa for $30 per ton, but it costs another $70 – $80 per ton to get the fertilizer from Mombasa to Eldoret.

Production potential: Countries that have natural gas like Tanzania and Mozambique are natural places to produce fertilizer. But local production may be a challenge as fertilizer components come from many countries e.g. Saudi Arabia, Russia, China and processing is sometimes a dirty process. Kenya is a 500,000 metric ton fertilizer market and Tanzania is a 200,000 one. A urea factory costs about $1 billion and it is expected that a factory will need to produce about 1 million tons per year to break-even so they will have to factor in some exports from Kenya to invest in one here. (There’s a factory that is being built in Uasin Gishu, by Toyota, that may produce fertilizer blends)

Counterfeiting: This is a big concern for Yara and they carefully monitor their products distribution channels to stop contamination and counterfeiting e.g. people re-using their branded bags or people taking other subsidized government fertilizer and selling it in Yara bags – as has happened in Tanzania. It is estimated that 20% of Kenya government subsidized fertilizer may end up in Uganda, and in Kenya, any Yara store found selling open bags is kicked out of their program, and in Asia, every Yara bag has a tracking barcode to discourage counterfeiting.

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Do Kenyans Have More Financial Access than Americans?

This week, FSD Kenya released Financial Access 2016, their fourth report, after others in 2006, 2009 and 2013. This year is the 10th anniversary of FSD Kenya, and much has changed since the first survey was done back in 2006 which showed that 40% of Kenyans were excluded from financial services. The Financial Access report will now be done annually, and will feature in the national statical publication – the Kenya Economic Survey, from April 2016 onwards.

Central Bank Deputy Governor, Sheila M’Mbijjewe, said that she was happy that the report drilled down into trying to understand the differences in financial access and usage between men and women, and between rural and urban residents, but that the government would now like to see more from mobile money in terms of quality of financial products and impact, as access and usage are no longer enough.

She also said that the study’s finding that 75% of Kenyans have financial services access, was higher than the USA figure of 67%. Another important finding was that, while cash remains king as a payment option for a majority of the population, 59% of Kenyans now have more than one way of paying for things – compared to 18% in the first survey.

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#WhatsNextAgTech

Nest Nairobi held its monthly entrepreneurship speaker series in partnership with the Kenya Climate Innovation Centre (KCIC) on January 27, at the Strathmore Business School.

#WhatsNextAgTech panel

Hosted by Zeynab Wandati (business reporter at NTV Kenya), the panel featured Stefano Carcoforo (CEO/Co-Founder of iProcure Africa), Grant Brooke (CEO at Twiga Foods), Marion Moon (Managing Director Wanda Organic), Charles Odida (a farmer), Linda Kwamboka (Co-Founder at MFarm Ltd), Chris Kolenberg (Director Marketing & Sales at Kenya Biologics), and Munyutu Waigi (Co-Founder of Umati Capital)

Excerpts from the event sorted by subject

Agri-Economy Agriculture is 26% of Kenya’s GDP and employs 80% of the rural population. It comprises 40% of exports and 45% of govt. revenue and 7% of industrial raw materials – KCIC rep

Government

A law is coming in farming which will require all farmers to be members of an organization, and through that, they will be taxed – Marion
I’ve no faith in the government to solve small farmer problems e.g. they allow contaminated maize imports, our borders are porous and farmers get zero protection, just exploitation from the government – Munyutu
The support that governments give to farmers has very little to do with farmers interest e.g. in the choice of fertilizers sold – Charles
Ultimately you have to work with the government. It’s not as bad as it was in the 90’s – Stefano

Cooperatives

We work with cooperatives, providing tech to them; while others devalue them by saying they want a cut, and there are many shady ones, cooperatives aggregate demand on behalf of farmers and play an integral role in rural societies – Stefano
We don’t work with cooperative, as we want to pay farmers directly. I’ve never seen a successful corporative, they are more like pyramid schemes. They may work when they are 10-15 people, but go bad when they are 200-300 members and become unions – Grant
Cooperatives are very critical but don’t have farmers’ interest at heart. There is an Eldoret dairy cooperative with $10 million revenue, but it’s farmer members remain poor – Munyutu

Maize

Maize is a terrible crop – when you have a bumper season, the price goes down. When you have a bad year, the government imports a lot of maize – Stefano
Maize is a good crop. Farmers with good storage and good planning don’t have to sell maize at throwaway prices. Ugali (made from maize meal) is one of the top foods bought in every household. Also there are institutions that buy hundreds of bags of maize every year e.g. schools to fees students – they need quality and villages don’t trust imported maize – talk to them, negotiate sales in advance and they come to check out the farmers’ fields and pay more than the government – Charles

Farmers

The average of age of a Kenyan farmer is 62 years; they are used to a certain way of doing things right, and it is hard for them to change – Charles
Growing a crop does not happen overnight like the Eurobond; Farming does not produce quick money, and farmers, by nature, are patient – Charles
Farmers trust each other, they trust farmers who have tried things e.g. they will try a pest control fertilizer that they are referred to by others – Linda
Farmers will adapt when they see something work. So you often have to give them free samples – Chris

Finance

98% of produce is sold to the informal markets and there is little formal financing for that. Debt is about 20-30% of the market cost of foods sold as middle-men and “mama mboga” pass on the cost of default risk – Grant
Cash flow is key in agriculture. When a crop needs weeding, you have no choice, you have to do it, or you’ll have no harvest. You have to schedule money for from activities. – Charles
SACCO’s are good for farmers, but there are also many Kenyans in the US and Dubai (where investments only earn 1-2%), and who are willing, and do lend their idle cash, to farmers they trust to earn much more (some of them are even on @twitter) – Charles
The government has many avenues of financing farmers e.g. AFC lends to sugar farmers at 5% – Charles
Bank ads for farmer loans look sexy in TV but in reality, they are too slow for farmers – they don’t disburse money quickly enough – Munyutu

Local Markets

Food is 51% of household spending – Grant
Food safety is the driving concern for a mama mboga as she will want to know and tell her customers which farm her produce comes from –Grant
Urban young farmers who want to get rich doing passion fruit and strawberry should instead grow things that you can see a market for every day – Grant
It’s crazy that 100% of our local produce would be rejected at the EU – Chris
Processors are getting tired of dealing with brokers and aggregators and want to go deal with the farmers directly – e.g. for dairy, fruits (A company called Fresh & Juicy is working with farmers to supply Nakumatt) – Munyutu

Inputs

It took 2 years to get bio-organic fertilizer approved in Kenya – Marion
Ultimately, what farmer can produce is declining, and those who are increasing productivity are doing so using chemicals, but that is only a short-term (5 years) measure – Marion

Export Markets

Italian companies that produce canned beans and used to source them from South America, are now looking to get them in Kenya, but are struggling to find enough farmers – Marion
Kenya can compete with Brazil in passion fruit; that market is big – Marion.
Kakuzi has 300 small-scale farmers that they used to grow their produce. They know what they spray on their own 6,000 acres, and work with 300 other farmers who they advise, but ultimately, they can’t establish exactly what inputs these farmers are adding to fruits – Chris
Small scale farmers won’t be able to compete in future – 1st world farmers are 40X more efficient – Chris

Logistics / Middle Men

Kenya is not food insecure, it is logistics insecure. A banana is Kshs 10 (sometimes 20), which is the same price as a banana in London; that’s because we stopped investing in markets, and there are many bottlenecks, broken links and 5-7 people between the farm and the market – Grant
Supply chains are longer in Kenya that they need to be – there are too many brokers, and the farmer is not visible in the farm to fork story – Charles
Middlemen exist because farmers don’t understand what the markets want – Linda
Middlemen add zero value, and that’s why the price of food is high – as they hedge against their defaults – Munyutu.

Tech

Farming is putting a seed in the soil, nurturing it and harvesting – it’s not phone or apps or tabs – (which only bring in efficiency) – Marion
Kenya has been slow to get/adopt farm smart phone apps & software compared to Brazil and South Africa – Charles
Kenyans don’t use Kenyan products, but use our apps so we can make them better – Linda

What’s the Next Big Thing in AgTech?

Traceability fake products look more real than the original product – so the next big thing in agri-tech will be clever apps to provide assurance through traceability of inputs. There’s now a lack of traceability, farmers will tell you what you want to hear, and counterfeit products are prevalent – Stefano
Distributed Commodity Exchanges, which used to be in Chicago and Ethiopia (ECX) are now in the cloud with firms like Twiga that act as warehouses – Grant
Mid-size farm management as a career. There are people in this room who inherit 30-40 acres in rural areas but want other people to profitably manage farms for them – Grant
Partnerships – Marion
Farmers specializing in certain crops and increasing their yields drastically – Chris
Financial capacity building – financial products in simple math, loan calculations in easy language – Munyutu

The outreach manager of KCIC said they provide entrepreneurs with an enabling environment (policy) for innovation, business advisory services and financing opportunities [for (1) proof of concept financing and (2) a seed facility of climate change venture funding of $100,000-500,000 of growth capital for entrepreneurs from June 2016]

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Bankelele

Nairobi writer on Banking, Finance, Technology, and Investments

Category Archives: Kenya economic growth

Oil Pipeline, Economics & Politics

The Luxury Network in Africa

Yara and the Kenya Fertilizer Market

Do Kenyans Have More Financial Access than Americans?

#WhatsNextAgTech