201602 outlook kenya by The Africa Report

OUTLOOK is a supplement to THE AFRICA REPORT N째78

OUTLOOK INFRASTRUCTURE

FINANCE

PEOPLE

INVESTMENT

TELECOMS

ENERGY

Linking Asian investors with African markets

Not to be sold separately

FACUNDO ARRIZABALAGA/MAXPPP

Kenya

editorial CONTENTS BY N NICHOLAS NORBROOK 3 EDITORIAL Balancing powers

B Balancing p powers

4 POLITICS Economics and the elections

he Africa CEO Forum, held in the Ivorian economic capital on 21-22 March, heralds a new chapter in Africa’s economic integration. The first official visit by Kenya’s President Uhuru Kenyatta to Côte d’Ivoire is an opportunity for African leaders to move beyond the stale linguistic confines that are so much a part of the post-colonial era on the continent. As President Alassane Outtara of Côte d’Ivoire told The Africa Report in 2012, the relationship across the language divide needs to improve. “There are lots of obstacles, of course. But also there was previously no willingness in Côte d’Ivoire to develop those relationships, no determination to say: ‘We must build up our relationship with [Anglophone Africa], not just for diplomatic but for economic reasons’. We believe there is a lot we can do to grow together. We believe more in external trade than in received aid. We believe in foreign investment.” That determination to work together is now here. The two countries have similarities. Kenya and Côte d’Ivoire are regional champions – renascent Abidjan is regaining its diplomatic heft in West Africa while Nairobi is the venue for much of the dealmaking in the East African Community. Both have growing electricity networks and strong agricultural and manufacturing sectors. Tested by security challenges and rocked by corruption scandals, Kenya’s economy recalls the motto

8 INTERVIEW Phyllis Jepkosgei Kandie, former tourism secretary 9 INVESTMENT Connecting future generations 10 PEOPLE TO WATCH Nairobi moneymakers, old and new 11 TELECOMS

COVER CREDITS: EPA/FACUNDO ARRIZABALAGA /MAXPPP

A mobile-money obsession

12 ELECTRICITY Bringing power to the people 13 OIL AND GAS The waiting game 14 RANKINGS Top 20 companies and banks

of the city of Paris, fluctuat nec murgitur (‘She is tossed by the waves but does not sink’). The unsinkable and ever-optimistic Kenyan business class has been an exemplar of this ability to rise to the occasion and seize new opportunities – the latest being the discovery of sizeable oil deposits. They offer a way of balancing the country’s trade deficit, despite today’s lower oil prices. The country’s leadership is also showing the ruthlessness that characterises successful rising economies. Not impressed by Western threats of isolation before the 2013 presidential elections, the administration made overtures to Asian powers, with President Kenyatta embarking on an eight-day visit to Russia and China to discuss energy-sector investment immediately after his victory. China is building a new standard-gauge railway between Mombasa and Nairobi, with China’s Export-Import Bank providing 90% of the financing for the $3.8bn project. Not satisfied by this balancing of powers, Kenya has also balanced Asian powers amongst themselves. Japanese and Chinese investors are both keen to win the contract to build a second terminal at the Mombasa port. The final price may well turn out to be advantageous to Kenya as a result – evidence, if true, that African governments are finally playing hardball with global investors who want a slice of the ‘Africa rising’ story. Kenyan business folk and politicians at the Africa CEO Forum will no doubt trade stories and tactics with their Ivorian colleagues. Watch out, world. ●

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POLITICS

Economics and the elections

KENYA | OUTLOOK

A country with entrepreneurship to show to the world, but one where corruption weighs heavily

Despite the international headwinds, Kenya’s economic growth is continuing at a strong pace. But with the population complaining more about corruption, the race for the 2017 national polls could be a hot one By Ilya Gridneff in Nairobi

STUART PRICE/MEACCT/HANDOUT/MAXPPP

ntheonehand,theKenyan economy in 2016 is thriving and among Africa’s biggest success stories. It is growing faster than Nigeria’s or South Africa’s and its government is spending billions of dollars on new infrastructure. Nairobi also recently played host to two of the best-known world leaders: United States President Barack Obama and Pope Francis, both of whom heaped praise on the government for its development progress. However, a closer look shows that Kenya is still facing the same problems that have held it back for decades. A $1bn scandal relating to a eurobond and involving top politicians caused uproar at the end of last year. Kenya’s chief justice Willy Mutunga also recently said the country has “a bandit economy” run by cartels that “collect millions every day”. The debate over Kenya’s future is beginning to take centre stage as an intense political campaign begins ahead of the country’s next presidential election, which is scheduled for August 2017. Economic success is likely to be a key feature of the ruling Jubilee coalition’s election campaign, which will seek to get President Uhuru Kenyatta re-elected to a second four-year term. The global oil price crash has helped Kenya and other East African countries to tackle a perennial problem: gaping current-account deficits. Analysts have projected that Kenya’s spending on energy imports will fall to $1.1bn this year, down from an average of $3.4bn a year between 2011 and 2015, as the price of oil plunges to its lowest for more than a decade. As campaigning heats up before the next election, Kenya’s ruling Jubilee Alliance will seek to capitalise on the healthy economy, says Macharia Munene, a professor at the United States

International University in Nairobi. “The government really is in a good position to win the elections.” Kenyatta’s government is pushing major new infrastructure projects, from the construction of the Lamu transport corridor to a new railway line to link Nairobi to Mombasa and Kenya’s landlocked neighbours. With electricity production capacity of 1,708MW in 2013, Kenyatta’s government set an ambitious target of adding 5,000MW to the national grid by the end of 2016 – a target that is likely to be missed even with a steady stream of renewable energy projects on the agenda. POPULARITY TACTICS

Economic growth was 5.6% in 2015, even with low tourist arrival numbers (see page 8), but there are risks that the economy could take a wrong turn. In preparation for the upcoming national vote, the government could be tempted to ignore debt sustainability and spend to increase its popularity. A public sector pay rise is now under discussion. Ahmed Salim, a risk analyst at Teneo Intelligence, says: “It’s clear that the ruling government coalition is firmly only thinking about the 2017 elections […]. It’s just unclear how they will pay for these marquee infrastructure projects and also pay for public servants.” The International Monetary Fund, while generally upbeat, raised concerns in September 2015 about fiscal performance due to “shortfalls in revenue collections and additional expenditure pressures.” Still, it is expected to renew a $750m precautionary loan facility to Kenya for the next two years, seen by analysts as a critical insurance policy against any shocks the economy might face. The debates around the presidential election are likely to revolve around Kenya’s military intervention in Somalia,

OUTLOOK | KENYA

SOUTH SUDAN

200 km

ETHIOPIA

SOMALIA

UGANDA

K E N YA Lake Victoria

Kisumu NAIROBI

TANZANIA

Mombasa

Indian Ocean

KENYA IN NUMBERS POPULATION URBAN POPULATION (% of total)

25%1

LIFE EXPECTANCY AT BIRTH

62.22

INFANT MORTALITY (per 1,000 births)

49.82

FDI, INFLOWS (current US$) GDP (current US$)

$989 million3 $60.94 billion1

GDP GROWTH (annual %)

5.3%1

INDUSTRY, VALUE ADDED (% of GDP)

19.4%1

INFLATION, CONSUMER PRICES (annual %) 6.9%1 INTERNET USERS (per 100 people)

43.41

SPENDING AND SAVING

SOURCES: IMF COUNTRY REPORT, SEPTEMBER 2015

18 16 14 12 10 8 6 4 2 0

Trends in private credit and deposits (annual real growth, %)

Private credit Deposit Jan. Apr. Jul. Oct. Jan. Apr. Jul. Oct. Jan. Apr. Jul 13 13 13 13 14 14 14 14 15 15 15

MONEY COMING IN 1,700 1,500 1,300

Capital and remittances Inflows (millions of US$)

1,600

Direct investment (right) Remittances (left)

1,400 1,200 1,000

1,100

800 600

900

400

700 500

1,800

200 0 2009 2010 2011 2012 2013 2014 2015

SOURCE: WORLD BANK 20141, AFDB 20142, UNCTAD 20143

44.86 million1

domestic security, the economy and corruption. Despite a deadly attack on a base manned by Kenyan soldiers in Somalia in January, President Kenyatta says that Nairobi is committed to peace in Somalia and fighting Islamist radicals there. “We will continue in Somalia to fulfil our mission,” Kenyatta told reporters. The opposition has largely avoided debatingwhetherKenyansoldiersshould be fighting rebels in Somalia. Opposition leader Raila Odinga, who heads the Coalition for Reforms and Democracy (CORD), is focusing his attacks on government corruption scandals. The latest claim is that $1bn is missing from the sale of government bonds. “This is grand robbery through a thread of lies, an elaborate conspiracy with money laundering experts,” Odinga told The Africa Report in January without providing evidence of treasury’s mishandling of public finances. Odinga, 71, lost the past two consecutive elections, saying they were rigged. The 2017 poll will be decisive for his political future. And despite a string of scandals involving low-level government graft – such as procuring $1,000 wheelbarrows and $85 pens for a National Youth Service scheme – the opposition has not been able to land many punches. CORRUPTION HURDLE

William Ruto. The ICC is trying Ruto, who faces pressure from within his own party and the Kalenjin community, for his role in attacks after the contested 2007 national elections. This looming court case “continues to cloud” what appears to be a cohesive government coalition, but the alliance between Ruto and Kenyatta, – who faced similar ICC charges that have now been dropped – appears solid, says Teneo’s Salim. Facing internal pressures from his own coalition, Odinga told journalists in January that the opposition was united and will remain together going into the elections. “Our focus will be on registering supporters to vote […]. A big portion of the people who were eligible to vote were denied a vote last time,” he explains. President Kenyatta spent nearly a month earlier this year canvassing on the coast, which is traditionally opposition territory. He also promoted the country’s strugglingbillion-dollartourismindustry. Over the past several years tourism has suffered after a series of terrorist attacks by Somalia-based Al-Shabaab Islamist militants. Foreign governments issued travel advisories that last year resulted in a 20% drop in tourist arrivals, a big blow to the economy. The country’s security problems have been linked to unemployed coastal young people who have become radicalised. Some of them have joined Somali Islamist rebel group Al-Shabaab, often after promises of generous salaries to fight in Somalia or the KenyanSomali border region.

OntheirvisitstoKenyalastyear,President Obama and Pope Francis raised corruption as a major hurdle to the country’s development. “Every shilling that’s paid as a bribe could be put into the pocket of somebody who’s actually doing an honest day’s In a November poll 62% work,” Obama told a cheering crowd in Nairobi’s Saof Kenyans said the country faricom Kasarani Stadium. is headed in the wrong direction A poll taken in November showed that 62% of Kenyans think the country is headed in the wrong Aly-Kahn Satchu, chief executive ofdirection. “The key issue of concern for ficer of Nairobi-based Rich Management, many Kenyans has shifted from the ecosays that despite the continent’s worries nomy to corruption. Kenyans are emabout a commodity-driven downturn, pathetic that public officials mentioned Kenya is well positioned, with large inin corrupt dealing must either be prosecfrastructure projects and government uted immediately, step aside forthwith plans to spend at least $1bn on roads. or resign,” explained polling company “Kenya’s GDP [growth] at 6% is going to Infotrak’s managing director Angela Amlook really high versus a probably zero bitho about the results of the poll. per cent in Nigeria and South Africa,” he In the meantime, the relationships argues. “I remain optimistic.” between Kenya’s three main ethnic Satchu said that while Kenya’s mangroups – the Kikuyu, Kalenjin and Luo – ufacturing sector is far behind that in are being tested by the uncertainty countries like Ethiopia, there are indicover the International Criminal Court ators it can capture business moving out (ICC) case against deputy president of China. “There is good human capital S U P P L E M E N T TO T H E A F R I C A R E P O R T

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KENYA | OUTLOOK

here; tremendous connectivity; you’ve got geothermal [power]; and then the route to the sea. You are seeing gains in pocketslikeexpansionintextiles,” hesays. Kenya’s exports have been helped by a tumbling shilling, which fell 14% against the US dollar last year. The loss of value against the greenback is also a lot smaller than that of other major African currencies like South Africa’s rand.

PHILIPPE LISSAC/GODONG

Monetary union would mean lending scope for Kenyan banks

SHILLING NOT THRILLING

Peter Ng’eno, managing director of Kenya Unit Trusts at UAP-Old Mutual Group, says despite clawing back lost ground at the end of last year, high single-digit inflation is expected to put pressure on the currency. “The shilling is not out of the woods yet, as continued infrastructure and real-estate investments will lead to increased importation of capital goods puttingpressureonthecurrency,” hesays. Kenya’s most ambitious infrastructure project, the Lamu Port Southern Sudan-Ethiopia Transport Corridor (LAPSSET), which involves the construction of a port, power plant, railway and other infrastructure, is estimated to cost $26bn. The government cancelled a long-planned investor conference on LAPSSET in October, indicating a slowdowninactivityaroundthemega-project. Part of LAPSSET includes an oil pipeline to pump oil from northern Kenya. Crude was discovered in Uganda in 2006 and four years later in Kenya, but both countries are still far from first oil. Another sector that has been trumpeted as highly hopeful for the Kenyan economy is technology. Investor, adviser and author of Success in Africa, Jonathan Berman is investing in African tech companies. Even so, references to Kenya’s ‘Silicon Savannah’ make him wary. “It’s a pitch, and not a very convincing one, because it suggests a deep ecosystem that doesn’t exist yet,” he explains. “But there are opportunities to build companies that are very useful to large numbers of people and therefore enjoy rapid growth.” With the United Nations Children’s Fund estimating that Kenya’s poverty rate is 42%, Kenya’s economic performance is not just a subject of political debate. The country’s population is largely young and the working-age cohort is predicted to grow from about 18 million people now to 48 million in 2050. And so, today’s choices will help to determine if there are more marginalised youths on the coast or tech and service workers in Kenya’s major urban areas. ● S U P P L E M E N T TO T H E A F R I C A R E P O R T

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To the region and beyond As Kenya is a gateway to East Africa, local companies stand to benefit from regional integration

t has been touted as East Africa’s answer to the European Union. Made up of Burundi, Kenya, Rwanda, Tanzania and Uganda, the East African Community (EAC) envisions a regional political union, with free movement of people and a shared currency by 2024. Combined, the five member states have a population of about 140 million people and a gross domestic product totalling more than $100bn. Kenya’s banks are the most active lenders in East Africa, and they are poised to reap more of the rewards offered by a monetary union than the financial institutions of other EAC members. Kenya has 43 commercial banks, significantly more than any other country in the bloc, as well as two mortgage finance institutions. KCB Group leads the region with assets totalling $5.1bn and branches in every member state. Another Kenyan lender, Equity Bank Group, has total assets worth $3.7bn and is also wellplaced to capture regional markets. The region’s biggest companies are Kenyan, and they already hold a strong foothold across the five EAC countries. East Africa’s largest consumer goods retailer, Nakumatt, is expanding aggressively in Uganda and Tanzania. Kenyan brewer East African Breweries is also looking to strengthen its operations in the EAC. While there is much hope for a single currency, massive challenges remain, including the harmonisation

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of monetary and exchange-rate policy frameworks, which the EAC admits could take some time. However, the bloc heralds its greatest achievement – a tax-free trade zone – as a sign that bodes well for future harmonisation. CORRIDOR WIDENS REACH

Infrastructure projects are also a key component of the EAC. Phyllis Jepkosgei Kandie, cabinet secretary for labour and the EAC, tells The Africa Report: “We’ve been having twomonthly summits between Kenya, Uganda and Rwanda on the Northern Corridor infrastructure. Very interestingly, our neighbouring countries are beginning to see the benefits of this and they’re showing interest in actually joining that corridor – the Democratic Republic of Congo being one of those countries. We will be hearing very soon about new developments in that area. Ethiopia is an observer in that corridor. South Sudan is also very interested.” But the failure to include Ethiopia, South Sudan and Somalia in the EAC so far highlights inconsistencies amid the fanfare of unity. The EAC does not include a key driver of growth, and Ethiopia is set to surpass Kenya as East Africa’s largest economy this year. Developments in Ethiopia may get the leaders of the EAC thinking about broadening their horizons. ● Ilya Gridneff in Nairobi and Mark Anderson

OUTLOOK | KENYA

INTERVIEW

Phyllis Jepkosgei Kandie Former cabinet secretary, Ministry of East African Affairs, Commerce and Tourism

We’ve launched initiatives to attract more tourists Before moving to a new post in the Ministry of Labour and East African Community, Kandie told The Africa Report why she thinks 2016 will see Kenya’s tourism sector bounce back TAR: How important is tourism for the Kenyan economy? PHYLLIS JEPKOSGEI KANDIE: It’s very important. It contributes 12% to Kenya’s gross domestic product, so for us it’s huge. It’s a sector that quickly gains traction, as we are seeing right now. It employs quite a number of Kenyans either directly or indirectly – directly 250,000 and indirectly a lot. And so it’s a very important sector to our economy and a major focus for the government. Tourist arrivals fell dramatically after two high-profile terrorist attacks. What is Kenya doing about it? We have invested a lot in security. In our last budget, we invested close to 20% of our national spending on security. That’s how important this is. We also realise that we need to involve communities in security matters, and Kenyans are really coming together to fight this challenge. Our international partners are working with us. The world has come to an understanding that we must rally together. In Kenya, we’ve realised that we had to rebrand and we’ve just launched a new brand campaign called ‘Make it Kenya’ to tell our narrative, to tell our story. I think, oftentimes, other people told our story and the difference this time round is that we are confident that we know what we’re talking about.

There are a lot of emerging stories about East Africa and Kenya that we need to tell. When do you expect Kenya’s tourism sector to recover? After looking at forward bookings, I think 2016 will be the year Kenya’s tourism sector recovers. Airlines are coming back. Lufthansa came back after 18 years. China Southern Airlines is flying direct from Guangzhou to Nairobi. Delta is coming in soon. That tells you that we’re on the right track. Airlines don’t come in unless they’ve done their research. Negative travel advisories affected us hugely, especially in the

We invested close to 20% of our last budget on security. That’s how important this is. initial days following the attacks when there was a blanket ban on the country. We tried to make our case that terrorists are not all over the country. I think there’s a general understanding now that the terrorist threat is area-specific rather than country-specific, and that is helping the sector recover. How many tourists are you expecting to arrive this year? It’s a bit early to predict, but we’re hoping that we can at least

recover the 30% that we lost since the attacks. The Coast region has been really affected. All along Mombasa and Malindi it’s a really rich area in terms of what it holds for tourism. We’ve launched three new initiatives to attract more tourists: charters landing in Mombasa airport will not pay landing fees for the next two years; the government will subsidise $30 for each person the charters bring in; and any child under 16 will come into Kenya without paying a visa. These initiatives should really help the sector. Which countries are your main competitors for tourists? We realise that our tourism sector has to compete with everybody else. A lot of destinations are coming up, providing almost the same product: the beach, the safari. We need to differentiate ourselves. Tanzania, South Africa, Seychelles, Zimbabwe and other long-haul destinations are our major competitors. We’ve got to work a little bit harder and know what our competitive advantage is and know how to position ourselves. Business tourism is booming because there’s a huge interest in investment, not only into Kenya but into Africa in general. We are positioning Kenya as the entry point into East and Central Africa, and Kenya Airways is a huge part of that. ● Interview by Mark Anderson

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KENYA | OUTLOOK

Investment Connecting future generations Plans for major investments in railways, electricity and other infrastructure aim to make Kenya a stronger hub for the East African region

he government has put infrastructure development at the top of its priority list, ringfencing tens of billions of dollars to upgrade the country’s transportation and energy sectors through the Kenya Vision 2030 plan. President Kenyatta is determined to defend Kenya’s position as the gateway to East Africa and satisfy the country’s thirst for electricty. ● Mark Anderson

Under construction Future road Future rail Future port Power station Power lines Wind farm

Wolayta Sodo

ddis

Aba

ETHIOPIA

to A

SOUTH SUDAN

Kakuma

Lake Turkana

UGANDA

Eastern Africa Interconnector

Lake Turkana Wind Power Project Africa’s largest wind farm is

Marsabit

projected to generate 300MW, which could cover 15% of Kenya’s current electricity consumption. Google owns a 12.5% stake in the project, which is due to become operational next year.

Kenya’s chronic power shortages are set to get a boost from this 1,045km power line that will pump electricity into Kenya from hydroelectric power stations in Ethiopia. The line is set Wajir to be finished by the middle of 2018.

KENYA SOMALIA

Eldoret

Dabaab

Kisumu

Lake Victoria

Nakuru

Olkaria Geothermal Power Plant Geothermal power is now

Nyeri

Garissa

200 km

Suswa NAIROBI

Kenya’s number one source of energy according to KenGen. The 140MW Olkaria V project is underway and a 280MW extension to the Olkaria complex came online in December. Kenya now accounts for 5% of total global geothermal production.

Lamu TANZANIA

Malindi

Indian Ocean

Mombasa

Jomo Kenyatta International Airport Nairobi’s airport will get

Mombasa-Nairobi Standard Gauge Railway The country’s

a new terminal and runway through a $770m investment that will boost the number of passengers it can handle every year from seven million to 20 million. Kenya has borrowed about $425m from the African Development Bank to fund the upgrade.

most expensive single infrastructure project since independence will see Kenya splash out $3.8bn on a railway between Nairobi and the port of Mombasa. 90% funded by China’s Export-Import Bank, it is scheduled to be finished by the end of 2017.

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Lamu Port Southern SudanEthiopia Transport Corridor At an estimated $26bn, LAPSSET is the region’s most ambitious infrastructure project. It includes a port, roads and a 1,700km pipeline that will allow South Sudan to export oil via Kenya’s Lamu port.

OUTLOOK | KENYA

is one of a new generation of executives. She left her job as a librarian in 1997 to found Keroche Breweries. Since then, Karanja has taken on regional beer giant East African Breweries and Keroche captured a 5% share of Kenya’s beer market. Karanja puts her firm’s success down to strong sales of Keroche’s signature Summit beer to low-income Kenyans. Last year Keroche opened a $29m expansion project at its brewery, enabling it to increase its annual production 10-fold to 110m litres.

Some of the biggest names in Kenya’s business world are fighting for their careers, while others are just getting started

People to Watch Nairobi moneymakers, old and new

BOBBY PALL

ne of the toughest jobs in the Kenyan business world has to be that of Kenya Airways chief executive Mbuvi Ngunze (1). The troubled East African airline reported Kenya’s largest-ever corporate loss – $252m – in July of last year. Ngunze has been running Kenya Airways since 2014 and previously served as chief operating officer. He predicts that it will take at least a year and a half to put the company on a firmer footing. The carrier, which is partially owned by the Kenyan government, plans to shed jobs, sell aircraft and borrow $200m to improve its books. Competitors around the continent are paying close attention to the expansion plans announced by Atul Shah (2), supermarket chain Nakumatt’s managing director. Nakumatt has been buying up rivals in an aggressive regional expansion, and the management of Uchumi – a competitor that has been in turmoil since the board sacked former chief executive Jonathan Ciano last year – will be scrutinising Shah’s every move. Kenya’s retail giant continues to push into the East African region, and Shah says Nakumatt will open new outlets in Tanzania, Uganda and Rwanda in the first half of this year. The company currently operates 63 supermarkets. Shah started his career as a shelf-stacker in his father’s shop and opened his first store in Nakuru in 1978. The past few decades in Kenya have seen industry outsiders morph into business leaders. Tabitha Karanja (3)

START-UP SUCCESS

Kenya’s tech sector continues to be among the continent’s most vibrant. Kenyan entrepreneurs took in $47m of the estimated $186m that African tech start-ups raised last year, according to data compiled by Disrupt Africa, a media outlet. One tech start-up to watch in Kenya this year is Soko, which allows customers to buy jewellery and accessories from artisanal producers. Founded by Catherine Mahugu, Gwendolyn Floyd and Ella Peinovich, Soko is an online marketplace for products from more than 1,000 small-scale businesses across the continent. The platform aims to empower entrepreneurs who would otherwise be hamstrung by poor infrastructure and a lack of access and information relating to global markets. The Kenyan government has also taken notice of the potential its tech sector holds for the wider development of the country. In January, the government’s Information Communication Technology Authority signed a memorandum of understanding with Gilbert Saggia, Oracle Technology Systems’ Kenya country director, to improve technical skills as part of the country’s national plan for development. The government says the project is an important step towards its vision for a digital economy. Some companies have a head start in the technology field. Michael Macharia founded SevenSeas Technologies in 1999 and has since turned the company into one of Kenya’s largest private tech firms. SevenSeas rolls out information and communications technology infrastructure services in health, security and social sectors. It is now in the process of opening offices in 10 African countries. The company is planning to issue an initial public stock offering in 2017. ● By Idil Abshir in Nairobi

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KENYA | OUTLOOK

Telecoms A mobile-money obsession

TREVOR SNAPP/BLOOMBERG VIA GETTY IMAGES

Banks and start-ups want in on the future of Kenya’s mobile-money transfers business, which has so far been led by the telecom giant Safaricom

n a country as diverse as Kenya, unifying factors can be limited. But for nearly a decade, lime green kiosks have proliferated – from the farthest-flung corners of the countryside to Nairobi’s teeming slums and upscale malls. Laurence Wanjogu is a driver working in Turkana, Kenya’s remote northeastern corner. He drives humanitarian workers, sometimes a week at a time, on in the mobile financial space is through dusty rural villages without that the tables have turned – now finpetrol stations or grocery stores. “When ancial service providers are finding we go to the bush, I don’t want to have ways to compete and push products money in cash because it’s not safe to consumers.” so I load everything into my M-Pesa,” Ninety per cent of Kenyan househe says of Kenya’s revolutionary holds now use mobile money, and it mobile-money service. is a huge driver of access to financial services. Without M-Pesa, financial inM-Pesa’s ubiquitous green stalls clusion numbers would drop from 70% house more than 80,000 agents who to 26%. M-Pesa was revolutionary in its dispense and receive money through simplicity but it offered only the most mobile phones to some 23 million basic of person-to-person active customers. Wanjogu also uses it to buy fuel, to pay his electransfers. Equity Bank is tricity bill and to send money challenging Safaricom’s to his parents when they need dominance in the init. When his car breaks down, dustry by moving beyond he uses M-Pesa to pay for spare person-to-person mobile Some parts in Nairobi, which is 700km transfers to offer loan and away, and gets them sent with investment services, transthe next car driving up. He is also fers from financial instituof Kenyan proud of it: “M-Pesa has solved a tions to mobile phones and households lot of problems in this country,” even international transfers. use mobile he says. “And my friend just told money me they don’t even have M-Pesa GAME CHANGER payment in America!” And while Equity might schemes It has been almost a decnot yet be competing SOURCE: BROOKINGS ade since telecoms provider with M-Pesa, it is making Safaricom introduced the service. The Safaricom squirm. An ex-executive at mobile-money sector is still changing Equity Bank who spoke on the conrapidly, and Safaricom is no longer dition of anonymity argues that the the only game in town. In July 2015, game is changing: “I think what Equity Equity Bank entered the fray and began has done is put a crack in the door. offering mobile-phone transfer services Before there was only one flavour in through Equitel. Dylan Higgins, the town, one set of fees […]. Safaricom co-founder of Kopo Kopo, a mobile itself has to start to take notice that technology company based in Nairobi, there is competition, that you have to explains: “The beauty of what is going improve your services.” Equity now

90%

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Equity Bank’s mobile-money service has attracted 1.3 million customers since its 2015 launch

has 1.3 million mobile banking customers, and the average number of transactions has increased from two per customer per month to 21, according to the bank. With Equity offering a broader range of services to customers, Safaricom has been upping its game. In 2012, Safaricom and Commercial Bank of Africa launched M-Shwari, a mobile banking service that allows Kenyans to save and earn interest through M-Pesa accounts. One in five Kenyan adults are now active M-Shwari users. Launched in 2013, Lipa na M-Pesa enables Kenyans to pay everything from bar tabs to electricity bills on their phones. While the Equity-Safaricom battle grabbed the majority of the headlines in recent months, the future of mobile money is not exclusively in the hands of these major companies. Smaller firms from Nairobi’s technology scene are experimenting with more complex forms of mobile money, some with a great deal of success. More than 10,000 merchants use the services of Nairobi-based Kopo Kopo to accept mobile payments. In 2014, the company launched Grow, which offers loans to small enterprises using a credit history based on mobile transactions – a sign that the mobile-money universe continues to expand. ● By Abigail Higgins in Nairobi

OUTLOOK | KENYA

Electricity Bringing power to the people Solar power could hold the answer to Kenya’s electricity woes, but officials warn that costs are still not competitive on large-scale projects

fering tools to low-income consumers, who make up the bulk of Kenyans that do not have access to power. SunnyMoney, a solar lantern distributor, provides accessories made up of a solar panel, an LED lamp, a battery and a phone charger. The units cost between $10 and $100 and clients can pay for them in instalments using mobilemoney platforms. In 2014, SunnyMoney sold about 660,00 units across five African countries. Kenya is one of its core markets, and SunnyMoney has sold just under 500,000 units there since 2013.

he race is on to connect Kenyans to sources of electricity, and scores of nimble companies are pedalling individual panels, solar roofs for companies and micro-grids for villages, many using new financing tools. While the price of solar energy is not as low as hydro or geothermal power, more Kenyans have the option of using solar power as an alternative to the national grid, which has just 2.7 million domestic power connections MICRO-GRID SOLUTIONS for a population of about 44 million, according to Kenya Power, the state-run SunnyMoney still relies power distribution company. on donor funding, says its The quality of electricity on the global marketing director national grid can be poor too. Every Cindy Kerr. The company month, Kenyans experience an average estimates that it would of more than six power outages, accordneed to sell 500,000 to Rather than waiting for national grids to catch ing to estimates from the World Bank. 600,000 units every year up, communities are opting for micro-grids and A typical disruption lasts about five to wean itself off outside other decentralised energy solutions hours, bringing business to a standstill help. “We’re not there yet, and costing Kenyan firms an average but we’re close,” says Kerr. ive than the grid. KenGen managing of 5.6% in lost sales. Powerhive, a United States-based director Albert Mugo says the main Vimal Shah, the chief executive of provider of micro-electricity units, is consumer goods company Bidco Group, obstacle to investments in utility-scale targeting larger groups of people. It has explains his worries: “Energy has always completed two years of field testing at its solar power is the cost. “Kenyans need been a concern […] not only the price of cheaper power, not expensive power,” pilot project in Kisii in western Kenya. energy, but the quality of enhe says. “Even though solar poPowerhive’s technology, which relies ergy.” After a fall in the price of tential is [plentiful] in Kenya, we on solar-powered micro-grids, should photovoltaic panels, Shah says enable the firm to “cost-effectively reach need to get to that point where he gave up on the grid and tens of millions of people in rural vilthe price is [cheap] so that we lages unserved by grids while offering turned to solar power. “All our are not supplying Kenyans with roofs [at our headquarters], expensive power.” strong risk-weighted returns to investors,” within the next two years, will Powerhive chief executive Christopher But expensive power is betHornor told media in April last year. all be solar roofs,” he says. ter than no power at all, and The company raised $20m in January, companies are reaching out to of Kenyans building on an $11m equity investment RAY OF LIGHT communities that have few ophave access The Kenyan government is in the company’s flagship project, which tions for their power supplies. to electricity, will serve approximately 90,000 people. looking to supply more reNairobi-based M-Kopa offers according newable energy to the naSolar power projects are also being customers a highly subsidised to 2012 data SOURCE: WORLD BANK launched in tandem with development tional electricity network. power system, including solar initiatives. Counties in the Rift Valley are panels and a rechargeable radio. The most ambitious deal it is pursuing is a $4.4bn investment from They spend a year paying it off in small, drilling wells in arid areas that will be Canada’s SkyPower, which could propowered by solar units, reducing conflict daily increments using mobile-money duce upwards of 2GW. payment systems. The company aims to and competition over water supplies. ● But regulators argue that solar power By Ramah Nyang reach one million homes in East Africa is no panacea and is more expensand Abigail Higgins in Nairobi by 2017. Meanwhile, companies are ofAKE WARGA/CORBIS

23%

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KENYA | OUTLOOK

TULLOW

The Ngamia rig site in the South Lokichar Basin, where Tullow’s oil discovery made headlines in 2012

Oil and gas The waiting game Energy companies and commercial banks that are active in Kenya are positioning themselves to get rich from oil when times get better

ig questions loom over the external relations for Africa Oil. “Kenya development of East Africa’s oil and the upstream companies who have and gas sector, which has yet to discovered oil are well placed to lay a move beyond the exploration phase. The solid foundation for future production ambitiousregionalinfrastructureprojects to take advantage of the inevitable that are needed to export the oil have future price rises,” Budden says. stalled for years, with few signs Denmark’s Maersk Oil anthat they will get off the ground. nounced in November that it To make matters worse, the would buy half of Africa Oil’s lowest oil prices for more than shares in three exploration a decade are predicted to scare licences in Kenya and two Reserves off investors. Kenya’s reserves in Ethiopia for up to $845m, totalling are also small in comparison to with the ultimate price dethose found in Uganda. Ireland’s termined by how much oil Tullow estimates that there are is found. Luke Patey, a re600m barrels of recoverable oil searcher at Oxford Institute barrels of oil are thought in Kenya’s South Lokichar Basin, for Energy Studies at Oxford to have been where it acquired a 50% interest University, explains: “The discovered in five licences in 2010. In the entry of Maersk Oil and in Kenyan Lake Albert Rift Basin in Uganda, Gas injects new life into the exploration where it has been exploring since Africa Oil project, but the blocks 2006, Tullow estimates there are question remains whether controlled 1.7bn barrels. The Kenyan govthere are enough proven oil by Tullow Oil ernment, however, is keen for the reserves to go ahead in the SOURCE: DELOITTE country to play a major role as an new price environment.” oil and gas hub for the region. Africa Oil’s leadership is optimistic about Kenya and says it will LAYING FOUNDATIONS make a final investment decision by This year will be “a pivotal year” for 2017. Chief executive Keith Hill says East Africa, and especially Kenya, in he hopes decisions about regional oil managing the emerging oil industry at transportation infrastructure will have a time of low and uncertain oil prices, been made by then. East Africa’s most says Alex Budden, vice-president of ambitious infrastructure project, the

600m

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Lamu Port Southern Sudan-Ethiopia Transport Corridor (LAPSSET), includes the construction of a port, power plant, railway and infrastructure with an estimated cost of $26bn. But the project’s high price tag and dependence on oil projects have caused some analysts to doubt its viability. There is much to be gained if LAPSSET comes to life. Should Kenya and Uganda cooperate on a joint pipeline both countries may have “a fighting chance” to see their oil industries come to life by the end of the decade, Patey argues. BANKS EYE THE PRIZE

Kenya’s banks have been mulling investments in regional oil and gas projects since oil was discovered in Uganda in 2006. Kenya Commercial Bank (KCB) says it has invested millions of dollars in upstream and midstream activities, though the bank has not disclosed details about the projects and companies it finances. KCB’s chief executive, Joshua Oigara, tells The Africa Report that his bank is prepared to put more money into the oil and gas sector: “The bank’s corporate financing portfolio has been a multi-pronged one where we identify sustainable projects and finance them. We believe that, through this, we shall be contributing to the economic well-being of our country as well as placing it at a strategic point to attract investors.” He adds: “The same applies to the oil and gas sector, where we have been able to finance various investors with working capital to enable them to carry out exploration works as well as invest in other initiatives.” Aly-Khan Satchu, a Kenya-based analyst, adds that he is optimistic about the attractiveness of the region’s hydrocarbons sector: “In the long-term, East African oil and gas is going to play a very big role, particularly for Asia. From a geo-strategic point of view, Japan, China and India are all going to have to take a position.” He concludes: “I think if I was sitting in their [KCB’s] shoes, I’d be looking to pick up positions right now because in the scheme of things you are going to get it at a good price.” ● By Ilya Gridneff and Idil Abshir in Nairobi

OUTLOOK | KENYA

Rankings Kenya’s corporate elite Noted in the region for their tough dealing and international connections, Kenyan banks and companies have largely weathered the political storms of recent years

Top 20 banks (in $’000s) Total assets

Net interest income

Loans

Deposits

628 176

3 075 657

4 089 627

349 184

2 697 249

2 150 332

173 344

516 512

2 321 607

2 665 756

185 921

3 093 693

347 810

1 945 632

2 394 098

86 883

2 713 030

269 829

2 448 149

212 507

1 359 585

1 786 204

90 915

2 411 855

187 537

1 330 602

1 670 086

113 128

2 293 087

179 608

1 492 175

1 744 759

61 879

76 189

1 080 471

1 501 960

36 685

91 727

957 686

1 038 893

61 643

98 588

1 101 458

1 075 455

56 743

1 090 237

1 088 715

44 625

Kenya Commercial Banking Group

5 315 267

Kenya Commercial Bank

4 096 068

Equity Bank Group

3 735 157

Co-operative Bank of Kenya

Equity Bank Kenya*

Barclays Bank of Kenya

Standard Chartered Bank Kenya

Diamond Trust Bank Kenya

Commercial Bank of Africa

2 140 507

CFC Stanbic Bank

1 962 029

Investment & Mortgages Bank

1 671 132

NIC Bank

1 580 261

86 700

Net profits

182 642

National Bank of Kenya

1 334 317

73 684

711 554

1 135 313

9 438

Chase Bank Kenya

1 183 279

78 133

620 439

865 616

26 260

CitiBank N.A. Kenya

860 672

49 037

260 291

554 465

25 885

Bank of Africa – Kenya

674 378

34 623

416 950

451 714

1 561

Bank of Baroda Kenya

671 480

39 371

307 735

527 726

26 847

Family Bank

670 285

58 247

411 112

510 959

19 618

Prime Bank

563 360

28 443

304 700

462 002

20 211

Housing Finance Co. of Kenya

539 765

29 083

301 917

11 335

SOURCE: JEUNE AFRIQUE RESEARCH

Rank Company

2014 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2013 RESULTS

Top 20 companies (in $’000s) Rank Company

Sector

Turnover

Turnover change (since 2014 rankings)

Net profits

Total Kenya

Petroleum Services

1 850 665

5.08%

15 437

Safaricom

ICT/Telecoms

1 770 867

7.47%

345 485

Kenya Airways

Air Transport

1 194 145

-1.10%

(279 054)

Kenolkobil

Petroleum Services

989 862

-20.77%

11 830

Kenya Power and Lighting

Utilities

678 552

24.33%

69 986 74 347

East African Breweries Group

Food and Drink

658 518

-2.11%

East African Breweries Kenya

Food and Drink

521 115

Bamburi Cement

Construction

390 554

1.06%

42 309

Masumali Meghji Insurance Brokers

Insurance

344 453

325 657

Jubilee Holdings

Insurance

268 637

118.92%

33 644

British American Tobacco Kenya

Agribusiness

227 987

2.03%

46 124

Kenya Electricity Generating Co.

Utilities

188 874

0.80%

30 637

Unga Group

Agribusiness

184 305

6.86%

5 144

Jubilee Insurance Kenya

Insurance

173 671

40.74%

18 301

Airtel Kenya

ICT/Telecoms

162 532

-6.01%

(75 413)

Scangroup*

Media

161 374

9 879

Uchumi Supermarket

Retail

155 715

-4.85%

4 166

British American Investments Co. Kenya

Financial Services

152 256

51.09%

27 077

Athi River Mining - Kenya

Construction

148 976

-7.76%

16 183

Nation Media Group

Media

144 728

-4.99%

26 714

2014 RESULTS IN THOUSANDS OF US DOLLARS; *IN ITALICS 2013 RESULTS; NA: NOT AVAILABLE

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SOURCE: JEUNE AFRIQUE RESEARCH

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10000000 2012

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2014

Supported 1000 SMEs. 24,000 jobs created.

2017 Plan

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