IMF: Kenya’s Economy Will Grow (Yee-Haw!)
Did anyone catch this story in the Daily Nation? Apparently, the “economists” at the Infant Mortality Fund, oh sorry, I meant to say the IMF, are now telling us that Kenya’s economy is set for boom times. Yes, people. The rest of the world’s economies maybe crashing, but not Kenya’s. Am I crazy or are they crazy?
I posed this question to my resident finance expert the other day and this was his response on the Kenyan economy. He basically said that Kenya’s economy is so small (about $30 billion dollars worth) that it’s totally insignificant to the overrall world economy.
For example (he said), Kenya is not like Japan, a country that is intricately connected to the global economy. Kenya does not make cars, or computers, or machines, which it exports to other developed countries. Outside of the traditional agricultural products, Kenya makes nothing and because of that, it is really an in-bred economy. What do I mean by the use of the word “in-bred”? I mean that whatever is produced in Kenya, things like food or even local banks like Equity, whatever is developed, stays within the country. It stays within that small, poor economy and most of the money is just circulated inside Kenya. So, according to him, as long as Kenya keeps growing it’s maize and beans and selling it’s “githeri” to each other, they’ll be fine since they were never part of the global economy anyway.
When he finished giving me this viewpoint, I said to myself, “well, gee”… what he’s really saying is that the Kenyan economy is in some ways like a Middle Eastern marriage. You know how the people in the Middle East marry their first cousins and just keep in-breeding amongst themselves? Well, that’s the Kenyan economy. We’re in-breeders, not exporters.
I didn’t agree with this view because I do think that Kenya will be affected by this world recession. As someone here pointed out, in order for Kenya to rebuild it’s infrastructure (vision 2030, hello? here we come), they are going to have to borrow money and that money comes from these developed economies that are currently undergoing a financial crisis. Heck, in order for Kenya to pay those exorbitant salaries of the grand illusion government, they are going to be forced to borrow massively and right now, there’s just not that much money floating around for these kinds of expenditures.
The second point I wanted to make is that Kenya’s largest foreign exchange earner is now remittances from Kenyans abroad who are working in either America or Europe. If these guys lose their jobs or their dollars or Euro’s lose their value, they are going to start sending less money back home and this will affect people’s spending power: they’ll have less money to spend on rent, on groceries, on school fee’s, etc, etc….
So, what do you think? You think those e-con-o-misseds at the IMF are right?
Well my thoughts and opinion are is YES, Kenya economy will even grow faster that it has grown in the last 5 years. Just wait and see. My reasons being:-
Slower western economies in the world will mean less demand for vital commodities like oil. This will mean high price bubbles bursting bringing high oil prices down. This will ease inflation on common mwananchi who will then have more purchasing power to fuel the local retail sector and trade.
Currently there are massive infrastructure projects going on. Roads are being built everywhere in the country. Your guess is as good as mine on the effect when these projects are completed in around 3 years time. An efficient road, rail networks and ports . Despite the challenges we are facing we are currently heading there.
Tourism: I see tourism flocking back to Kenya as they seek cheaper alternative holiday destinations. This combined with massive marketing campaign going on to market our country as a tourist destination.
Agriculture: Well there is great demand for food globally. Guys in ministry are working really hard. We have surplus for exports as we export our dairy, meat and horticultural products. The next big global rush for commodities will be food.
and lets not forget the telecoms and technology revolution coming to Kenya with the arrival of fibers next year. BPO will takeoff in a major way. Kenya is very attractive as a BPO destination the only hindrance has been the high bandwidth cost. With population that is well educated and speak good English a flat accent, we could just bag so many call center contracts.
Kenya is Tied to the world Economy….
1) We relly on foreign tourist …they wont come in numbers we project if their ecomoies are weak
2) We relly on others to Buy our Tea /Flowers/cofee etc….same fate as above
3) We import virtually anything (clothes,Mitumba,Cars,food (even food),medicines…..that means our money still goes out ..and lesss comes IN……
4) Our Diaspora (our largest pure free God sent donor) will shrink…..
5) Our BLOATED goverment wont shrink (if it does then more chaos)..the only thing keeping us together now is the BULGE in gov…we must continue feeding it
Conclussion
You cannot escape a WORLD RECESSION
I agree totally with your inhouse finance expert. Kenyan economy is totally inbred. Those foreign exchange you are talking about rarely makes a big impact to the Kenyan economy at large. Most of our money is generated within and spent within.
There are always winners and losers in this sort of situation.
I wonder where I fit in. Am still trying to find my way.
I was toying with the idea of buying some Kenyan Treasury Bills and Bonds but I am apprehensive.
How do I make money in this environment?
There must be a way……..
KE,
You shouldn’t be too pessimistic about kenya. I agree with the IMF Guy, in that in the long term, I’m very bullish about kenya and here are my reasons:
The gvt has committed to infrastrutcure development as a priority.
- Roads are being built- at least from what I hear from my colleagues in kenya, Work on the Thika Nbi hIGHway will begin in nov,
-The airport is still being worked on as a result, we’ll have direct flights from kenya to the US
-The reforms in the communication sector. right now we have 3 mobile phone companies, awaiting Essar group to launch theirs. Safaricom and zain were for a long time overcharging people in kenya, it’s only that they were the most reliable form of communication that people flocked to them.
-Kenya is already wired up by the gvt and private enterprise, i.e. we have fiber cable running within kenya, all we’re awaiting is the fiber optic line linking us to the outside world, and get this- they’ll be 3 fiber optic lines when complete, seacom, essy and teams, so that will drastically do some good for competition.
-I have no rpoblem with the grand coalition gvt, it was either that or more chaos, there’s no way kibaki would have ruled the country with half it’s people not giving him legitimacy. I supported the guy but in all honesty it would not have worked. as amatter of fact I see the grand coalition as one of the best thing sto happen, coz now it helps to keep checks and balances. MP’s are even keeping checks and balanced within their own parties like ODM and PNU
-The Railway line is set to be revamped, i.e. rebuilt according to the proposals set foward. A new railway line from mombasa to Bujumbura, Kigali then Kampala. and another one from Coast thru the North east to Ethiopia. If this is done, it should be all set by 2013
– The gvt has realized the high cost of energy and is already talking about nuclear alternatives. as yuv seen this week, kenya is Tz’s largest importer of natural gas.
-The Bypass raods will indeed help to alleviate traffic.
There are so many things going on that I see why kenya will only grow.
KE,your friend who’s an “expert” has very non expert opinions. I don’t trust any of those so called “Finance experts”
I mean sayingthat kenya’s economy is not liked to the world’s?? I mean where did he go to school?
Isn’t it also these “finance experts” from Harvard, MIT etc who were running kina Merril Lynch, Bear sterns, and Lehman, and see where their “expertise” got them.
all in all I’m very bullish about kenya.
Yes the grand coalition government does cost a lot, butthat is the price that has to be paid. Kenyans wanted peace at any cost and they got it.
There’s no way the gava would have been lean and thin during that time of unrest,It’s what most of us would’ve wanted but it’s the political reality.
KE your advisor gave you some half assed analysis, does he not understand the decoupling mantra or has he been living in another planet for the past 1.5 years?
Most emerging markets and frontier markets like Kenya will do fine and continue to grow robustly as long as there is no total collapse of the world financial system i.e. a collapse of the dollar because WE ARE NOT EXPOSED TO TOXIC FINANCIAL LIABILITIES IN THE WESTERN CAPITAL MARKETS. The fact of the matter is, there is plenty of capital remaining in the global marketplace and everyone is scrambling now to limit their exposure to western assets that are embroiled in this mess, meaning capital will flow like it usually does to places with guaranteed rates of return and relative stability. The only caveat for economies such as ours is limiting INFLATION and hopefully with the retreat of crude prices this will get back under control.
The IMF assessment mirrors what is common knowledge:
1) the commodities upswing will continue because of demand from Asia, Latin America and Russia so African economies will continue to reap from the commodities boom.
2) there is a potential new boom in the making, and that is bio-fuels induced…..with plenty of arable land that remains underutilized, investments in bio-fuels production in Africa is on the uptick and will increase.
3) DOMESTIC DEMAND……..the only real point your analyst advances. The technology and services boom in Africa is being driven by African consumers not diaspora remittances or FDI. Again these consumers have limited exposure to the Western crisis UNLESS it impacts adversely China’s ability to both produce cheap imports for African consumers and guarantee the level of demand for African exports.
So the real question, does this impact demand in emerging economies who are fuelling the real growth in Africa? If yes then certainly African economies will begin to contract, but if India, China, the Middle East and Latin America remain buoyant, African economies will see the 7-8% growth most expect.
SIJUI
Very well put
There are some real financial gurus on this blog e.g. Sijui
Kibaki should quickly give them places in the Economic Council.
This is what beats me about Kenya. A country with such massive talent yet going nowhere.
Sijui:
You are actually agreeing with my financial “expert” when you say that Kenya will not suffer economically because it is not exposed to the western capital markets! That’s exactly what he said.
However, where perhaps you disagree is in your assessment of the relative wealth of Kenya’s domestic market. For example, when you say that the economy is being fueled by “locals”, well, that’s what I said and that’s what he said, when I described it as an “in-bred” economy. i.e. we produce and sell to ourselves, but what is the per capita income of an average Kenyan? It’s still extremely low even compared to an America in deep recession.
Equity for example, will never become a global bank. It will remain a local kenyan bank where most of it’s customers are farmers because in an agricultural country like Kenya, that’s who has the money.
On Commodities:
Kenya (like I said) does not have the main commodities that are still in high demand. For example, we don’t have oil, gold, copper, magnesium…nothing. So, do not compare Kenya to other countries in Africa that do possess these tradeable commodities.
And through your entire analysis, you missed the main point of the article, which concluded that the size of Kenya’s economy is so tiny that it is irrelevant to the global economy. Africa as a whole still produces less than 2% of the world’s GDP. With the exception of South Africa, Africa is just not part of the global economy. Now, this may change in 30 years as the commodity boom expands, but right now, the continent is disconnected from the global markets.
What countries still have money in this crashing world economy? it’s the oil producing countries. Saudi Arabia, Russia, Venezuela, etc, etc. that’s it. So, assuming these countries have cash on hand, do you think they are going to be willing to lend it out to African countries with their shaky political systems? I don’t think so. Everyone is holding onto their money right now or taking it out of the market and buying gold.
I agree with most comments above……Kenya is headed for an economic boom….good thing we’re not too reliant on the western economies…..means we have a chance of learning from their mistakes.
cheers!
KE,
I disagree with your assessment on some issues. You say Equity will never become a global bank, that it does well and will continue doing well coz it serves farmers ? KE In all due respect that is an ignorant statement to make.
Yes, Equity started out as a building and savings sacco for mainly farmers in murang’a. However they prolly opted to stay that way not coz thy didn’t have ambitions, but coz the gava of the day, yaani MOI did not look favorably on any kikuyu businesses.
How can you say Equity is a local bank when it’s already in Rwanda and Uganda ? I know it has either set up shop in South Sudan or is about to and also TZ.
KE I’m not sure of the last time you were in kenya but you have to appreciate the fact that the reality on the ground is difernt from what we read in the newspapers.
I mean which “global” firm or bank started out as a big dominant company ? Did you Know Lehman brothers started out as a trading outfit in the south, dealing pimarily with Cotton and dry goods? and then morphed into an investment bank (global) one after that ?
Did you know that SAB, South African Brewers started out to cater to the “local” SA Market and now they are 2nd largest brewer in the world after IMBEV?
My fellow kenyans, we need to stop thinking like wazunguz. I get the sense that when we stay abroad for long, we start to look at kenya the way foreigners do, we first see africa, before we recognize kenya, and we assume it bears all the scars and crisis of africa.
I mean, for the ever pessimistic IMF to declare economic growth – that should tell you somthing.
I’m not sure if you know this but at the New York Stock xchange, they have an index for the top performers in africa, and guess who’s among the four companis from kenya ?
Equity, Safaricom, East african breweries and nationmedia group.
So please, let’s not assume stuff about our country by listening to wetsren media, let’s do our h/work and be able to read in between the lines.
and by the way, good news, especially in africa or knya for that matter, will never make it to our tv screens in the U.S. or the main newspapaers here. It does not fit their profile for a story about africa.
Even a good story will be in the context of negativity. they’ll prolly show a US trained african doctor going abck to his homeland to offer medical help to the poor country men.
anyway, just my 2 cents
I think some of the arguments on this site, are because many do not understand how this financial crisis is different form others, financial products called derivatives. What has happened is that the rest of the world has insured American commercial banks’ mortgages(through financial instruments called derivatives) and the insurance policies are coming due.
The rest of the world, and the Wall Street investment banks have based their insurance on the mortgages being solid (A to AAA) when they really are garbage.
Everyone holding the financial instruments, really are dependent on the mortgage default rate staying low. So everytime the default rate increases, the value of the investment drops, and in some cases, they are required to pay up. That is one of the reasons the institutions are failing, nobody knows how much more the companies will have to pay up. If some take the worst case scenario ( all the mortgages default) then….. you experience last week.
How does this affect Kenya one might ask. Let’s take the example of Equity Bank that Mzeiya pointed out.
Equity Bank, to expand obtained funding from an equity fund Helios based in London. (http://www.bdafrica.com/index......temid=5812).
Now for the interesting part, guess who one of the partners is, yes AIG!!!!(http://www.heliosinv.com/04_investment_partners.html). The firm that in the process of liquidating it’s assets. It would be interesting to see how much the Helios fund is exposed to the toxic derivatives.
Question, Mzeiya, with all the infrastructure improvement that the Kenya government has in the plans where are they going to get the financing?
Mind you businesses in the US have already begun to suffer from the impact, lines of credit are getting harder to come by.
From Business Week we find that
“”Many small businesses are not eligible for loans because of their credit standings,” says Paul Rauseo, managing director of George S. May International in Chicago. “About 20% of our clients are having their notes called. Out of the blue, they’re receiving a letter either reducing their credit lines or calling in their notes.” (http://www.businessweek.com/sm.....page_2.htm).
The Chinese boom is directly tied to the American consumer, the Indian boom is linked to the American business outsourcing it’s functions.
Kenya is going to be affected.
The only way the Kenyan economy will prosper is if concrete commitment is given to the promotion of MSME’s. After all they form the majority of Kenyan enterprises.
Let’s not kid ourselves, funds such as the youth enterprise fund are not going to help in their current form. Most of the businesses are household, and their market opportunities are severely constrained. Most of them never get the chance to even tender for public procurement notices- where the big business is.
The 2005-06 Kenya Integrated Household Budget Survey estimated that there are a total of 2.1 million non-agricultural household enterprises in Kenya, of which approximately 90% are informal, These enterprises employ about 5.2 million people. Last year, a UNDP survey “An Employment-Targeted Economic Program for Kenya” found that startlingly, less than one-tenth of one percent of these firms exported their goods and services. In fact, their customers were located within a short radius. The possibilities of expansion was also almost nil, because they lack access to credit.
Will we ever reach the promised land of Vision 2030 when most of these outfits focus on the services sector?… your term “inbreeding” really fits!
The 2007 UNDP survey showed that out of the 2.1 million enterprises, less than 10% were involved in manufacturing. Just walk around the Nairobi CBD and its a wonder these businesses survive at all. Clothes shop after clothes shop (selling the same style of clothes!), DVD pirates and mobile phone accessory stalls. They all rely on walk in custom, and because they are over-saturated on the market, consumers can haggle with these entrepreneurs so that they sell at the basic minimum.
Apart from throwing money to women and youth entrepreneurs through the government sponsored funds, they need to find alternative ways of fixing these market failures.
I agree with mzeiya. It took centuries for western countries to be where they are. But now with emerging technologies, the world has become flat for emerging economies to compete with the western world. Look at how companies in India and China are competitive? For example a company called infosys in India that started with start up capital of $25 has become a global company. Countries like Kenya are considered as emerging technologies and the coming technology revolution and boom my just transform Kenya.
WORKING STIFF
No wonder then that the US gvt bailed out AIG , I guess it’s tentacles are everywhere.
But a syou said, who knows the exact extent of these bad loans on the books of all these financial institutions.
I’m not sure what plan the kenyan gvt and kenyan pple have in order to raise funding for all the infrusturcture work that has been planned.
FINONA MATI
What then would you say are the right strategies for kenya to go head ? what are the SPECIFIC startegies you would use and implement that are sure to work ?
NONI
Alot of those indian companies started out as very himble operations but grew dramatically. let’s wait and see what impact telecoms and tech will have in kenya in the next 4 years.
“What countries still have money in this crashing world economy? it’s the oil producing countries. Saudi Arabia, Russia, Venezuela, etc, etc. that’s it. So, assuming these countries have cash on hand, do you think they are going to be willing to lend it out to African countries with their shaky political systems? I don’t think so. Everyone is holding onto their money right now or taking it out of the market and buying gold.”
Completely disagree with your assessment here because it is not supported by fact. Here’s why, the two emerging markets that are relevant here are China and India. Combined have a population of 2.5 billion and essentially need to move at least 1 billion people in to the middle class in order to sustain their economic growth. The point neither India nor China can afford to stagnate either in terms of economic growth or the mobility of their poor in to the mainstream economy. It is a fact that neither countries possess the raw materials to support either of these objectives within their borders consequently if anything China and India are ratcheting their investments in countries like Kenya. The clearest example yet is China floating a trial balloon of relocating thousands of peasants from China to populate arable areas of Kenya!
The fact that this is even being discussed considering the very recent near civil war in Kenya shows that the Chinese 1) are fully conversant of their very finite access to raw materials in China 2) understand that their middle class dream will require transplanting thousands if not millions of Chinese to outlier markets in the third world where they can produce goods and services at a higher competitive advantage than in China and remit that wealth back to China 3) tensions that are building in their domestic economies such as pressures for rising wages, the threat of inflation, their own credit bubble etc means to relieve that pressure there will be scaled up investments outside their borders.
So in a nutshell, China and India have shown they are increasing their investments…….ditto for the Middle East as the present economic turmoil reveals the urgency of controlling real assets that are vital to maintaining their levels of growth.
Mzeiya:
Saying that Equity bank will not become a global banking power house is not an ignorant statement. It is simply a fact borne from the economic realities of Kenya.
Equity bank started in Central Province. The heart of farm country. It’s initial customers were small scale Kikuyu farmers who needed a cheap place to put their cash and who occassionally, needed small loans for their farms. Equity provided both of these services for them. In an agricultural country such as Kenya, it is the farmers who have the money.
Now, if Equity bank was in India or China, then I’d say, they had a chance to become a global power because they’d be based in economies with large populations and in economies that had diversified industries that actually produced “stuff”.
Kenya, does not fit the above description. It is a small, poor, country with a low population of 35 million. It’s economy is not diversified and outside of agricultural crops, we produce nothing. You cannot become a global banking conglomerate when you operate under these economic realities.
Sijui:
Kenya does not possess these commodities that you keep mentioning and even in African countries that do possess these vital commodities that China and India are after, the corruption in those countries has resulted in a few oligarch’s becoming rich, while the vast members of the population remain poor. Also, because of the massive corruption, infrastructure development is still not taking place in much of Africa and important funding of things like education is still almost non-existent. The best example of this is Angola. Despite it’s vast minerals and despite, heavy Chinese investment in the country, it still remains one of the poorest in the world because the government is totally corrupt.
India and China, cannot reform Africa and their purchasing of commodities will not reform African economies if Africans themselves do not develop responsible public policies that seek to use that money for the public good.
Therefore, the conclusion of my argument still remains: Africa is still disconnected from the global economy and it will remain so, until it’s public policies begin to uplift those at the bottom.
KE,
your facts may be right, but you draw an unecessarily pessimistic conclusion. Pay Nairobi a visit, and see if you still hold on to your view.
I think the answer may lie in dismantling the artficial colonial boundaries. You have to create a whole new economic landscape by integrating the economies – EU or US style.
How do you expect the economy of Rwanda, Kenya, Cameroon etc to compete on the global platform when their GDP is equal to a small company in the US or Japan????
Remember that India is a conglomeration of different states. This was the biggest gift of the colonialists to India.
If that were to happen perhaps Equity (& others) could have a chance to go global.
I think KE thinks straight…..Not with a ‘tinge of patriotism ‘ or the heart!
Well KE, it seems like your main agenda “is let me show you about the bad side of Kenya” I honestly think this is the kind of thinking that we all need to get rid of.
The scenario that our economy is in-bred does not hold water. This is because our local Equity is now becoming a regional player and it was made from Kenyans who had a vision for a bank that could help them out without punitive penalties and as someone working in the financial services, Equity have the highest loan recovery rate than any bank in Kenya.
Equity was willing to help the down trodden farmer, who managed to first feed his family, village, then location, district, province then the country and that’s why now in Kenya we have surplus to export and the money we get (export income) is coming back to the country.
Nevertheless the reason why Kenya will become a global player is because of service. Yes the service industry. Major technology companies have shifted their Africa base of operations from South Africa to Kenya. These are the Cisco, Oracle, HP, Finlays because of the excellent man power we have in the country.
If we could exploit this to our advantage, we could provide BPO services, financial services and expert advise in a myriad of fields that the western world is grappling with.
Skill is the next commodity and Africa is the playground for this.
KE you keep contradicting yourself, how are these 7-9% economies growing at such a clip if power and wealth remains isolated to a few? The two don’t add up!
Let’s take Kenya as an example, the sectors that are fueling the economic growth are built on what? Is it Chinese investment circulating amongst a small elite who miraculously are productive enough in a population of 30 million that they are single handedly achieving 5.5-6% growth?
As others have mentioned, this just does not make sense? Moreso the sectors that are growing in Kenya are those that are customer intensive i.e. telecommunications, financial services, construction etc. Meaning either Kenya’s middle class is growing or many working poor are increasing their disposable incomes? Which is it?
As for the commodities argument, Kenya may not have the lucrative heavy metals but it is has a stong agricultural base that is being sought after hence the push for increased bio-fue production and agro-processing.
Bottom line, Africa is growing because of REFORMING, OPEN AND MORE EFFICIENT economies not because of oligarchs single handedly propping up entire economies.
Do your homework and find out what the fundamentals of the fastest growing economies in Africa are, especially those countries like Ghana and Botswana where stock market returns are averaging 30-50% this year alone!
http://africa.reuters.com/busi.....51360.html
Notice the comment about Zambia where FDI is not isolated to the copper industry but broad based extending to manufacturing and agriculture. That story is repeated in Tanzania, Uganda, Rwanda, Senegal, Ghana, Botswana, Namibia, even irredeemably corrupt Nigeria has success stories…….infact the oil boom in Nigeria is fuelling economic growth in West Africa because Nigerian business is fanning out and fuelling regional investment.
Although I wouldn’t use “inbred” , KE is raising a genuine point! Equity is great and has done kenya alot of pride..but its only been in the regional scene for a year…it has to swallow competition across subsaharan africa..fight hostile takeovers, even survive in govs that are being overthrown.. before thinking of joining the ranks of barclays , and thats a stretch in time and resources. Then it can take the competition to the Big boys.150 yr old banks.. Ask Japan they been there, done that..see how a company like ford took mazda brand and shred it into pieces..It gets brutal. How quickly can we rebuilt if a tornado ripped through nairobi leave alone a hurricane or a earthquake! These are real issues, so the we’ve to get the fundamentals right. We cant even get Safcon right . How do we expect to realize Vision 2030, if ministers today are grabbing those nssf flats in embakasi build for the working class. Can you spell GREED.
These companies have to withstand such exposures…Our neighbor, TZ isn’t even done experimenting with communism, and thats part of the regional growth Equity wants. Our politicians are still immature and it will take them a while before they could differentiate between leadership and greed.
Kenya economy resilient and to grow 5pc this year
http://www.nation.co.ke/busine.....index.html
Hi guys.
I am so glad to have discovered this forum because all I am hearing in Kenya right now is bad news. I want to suggest something related to the future industrialization of Kenya.
Everyone right now is agreed that the fibre-optic cables (SEACOM, EASSY & TEAMS) will revolutionize kenya or have the potential to do that. Now in order for this to happen another factor needs to be looked at and that is energy.
There is a new www (world wide web) emerging right before our very eyes and it is a new world wide web of interconnected electric grids to transport green electricity all over the world. This mega grid if pushed by kenya begining within the EAC could totally revolutionize Kenya’s and Africa’s growth.
I am in the process of starting something along those lines and are looking for some serious contacts. Green Electricity is the next big thing. Watch this space.
Jellyfish