Invest in Kenya: An Overview of the Kenyan Economy by Moses Ikiara of KenInvest

Interview with Dr. Moses Ikiara, Managing Director of KenInvest (Kenya Investment Authority)

What benefits does Kenya offer?

Kenya is a great product to sell. Our economy is quite big by African standards. We account for more than 40% of the East African GDP. Right now, it is a $90 billion economy and it is growing very fast. In the last 20 years, it has grown an average of about 5.5%, but we are targeting double digits, at least 10%. Last year, we recorded 6.3%, so we are accelerating. It is a strong economy. Unlike many economies that are dependent on a single commodity or one or two sectors, we are an economy that is very diversified. About 32% of the GDP is from agriculture, industry accounts for about 15%, and the rest is services. Key services include transport, financial, professional, tourism, etc. We are quite strong in the services sub sector. With the infrastructure investment we are making as a country, our economy is going to grow even bigger. Besides the economy, the other key factor for Kenya is the location. Kenya is a very good hub for transport services. We have access to the Indian Ocean. You can connect to any part of Africa, Asia, Europe, America, etc. We now have direct flights from New York. It is easy to do business from Nairobi. We have business people who fly business class overnight, get to London in the morning, do their business during the day, then fly back that night. It is quite convenient and cost-effective. Kenya is also the hub for many other services. In telecommunications, if you test the speed and the cost of our internet, you will find that we beat the speed of many other countries in Asia. When I travel, I am surprised at the things we take for granted in the country. The internet is quite good. The factor that really makes Kenya stand out is our human resources. Many of the multinationals that put their continental headquarters here say that of the many factors that attracted them to Kenya, the one that helped them make the decision to come here is the quality of our human resources. Our people are young, well-educated, easily trainable, good speakers of English. When you combine productivity and cost, we are very competitive globally because we are able to get value for money from the labor we have. From 1963, Kenya has had a very strong track record of respecting private property. Unlike what you see with some governments nationalizing or taking over private property, in Kenya, the government has always respected private property. The Foreign Investments Protection Act was enacted in 1964. Our constitution in 2010 explicitly guaranteed the private sector protection of their capital and investment. The track record has been good. In addition to that, the country has entered into the international agri instruments such as MIGA. We are a member of the International Centre for Settlement of Investment Disputes. We also are the headquarters for the African Trade Insurance Agency where people with a very low appetite for risk can take out a policy if they need to. The business ecosystem is another factor. If you are a foreign investor, when you come to Africa what kind of ecosystem do you find? Are you able to get good consultancy services from top agencies? In Kenya, besides the big four accounting audit firms, we have many other consultancy agencies. We also have a very strong private sector which is organized by the Kenya Private Sector Alliance. Anybody looking for a partner is more likely to find the right partner in our private sector here because it is very well-developed. Another important factor is the policy environment and investment opportunities. As a country, we have a very aggressive development agenda. By the year 2030, we aim for there to be no Kenyans below the poverty line. We want the average Kenyan to be earning at least $3,000. Currently we have reached about $1,900. We would like to have very modern infrastructure, such as the SGR we have built from Mombasa to Nairobi. We would like to move to any part of the country quickly and easily. We also want a clean environment. We are the headquarters of UNEP so we want to be a global leader in environmental protection and integrity. This is one of the key things that we put in our vision. That aggressive agenda has identified a lot of investment opportunities in at least 8 sectors from agriculture, manufacturing, tourism, retail, trade, ICT, business outsourcing, and financial services. After discovering hydrocarbons, we are now mining oil and the blue economy which is maritime logistics and fisheries. We can use these eight sectors to lead and to give us the kind of growth to eliminate poverty. We are also supporting those eight sectors through infrastructure, technology and good governance. That clarity of policy to know where we want to go and how quickly we want to get there is one of the key things that gives Kenya an advantage. Between now and 2022, our president has come up with a subset of the vision called the Big Four Agenda which focuses on food security, nutrition and manufacturing. Our target is 100% food security for Kenya by 2022. We would like to also increase the output of manufacturing from where it is now at 8.7% of the GDP to 15% by 2022. We have several subsectors we are focusing on to take us there. We also want to build at least half a million affordable houses to give to people with low income so they have a decent place to live. The fourth area is universal healthcare. This is also one of the agendas being pursued at the international level. By 2022, we would like all 52 million Kenyans to have good medical healthcare. We will build health facilities, manufacture pharmaceuticals, come up with innovative insurance schemes to provide medical insurance. The ability to invest in export processes and zones with a number of incentives is making Kenya quite attractive because you can come here and have a choice in what kinds of areas to invest in depending on which market you are targeting. Another advantage is livability, combining business and leisure. Nairobi is well-known for many good factors. We do have a bit of traffic, but you can go to a National Park very easily, there is good food from different parts of the world at our restaurants, we have international schools, it is a very cosmopolitan city because we have UNEP. Nairobi has been voted as Africa’s entertainment capital. You can enjoy a good social life. It is also the only city you see voted among the 10 Most Dynamic Cities in the world in Africa for its ability to reinvent itself and the livability factors. You can go to a beach in just a 45-minute flight or a 4-hour trip by rail. You can go to Naivasha which is less than an hour by car. These are the key factors that make Kenya quite attractive to investors. The bottom line, though, is how much profit can you make when you invest? We have companies like Safaricom and others that are making impressive profits in different sectors of the economy. When your model is very good, rather than going for only high-income people, you come looking at the majority of people for your customers. There is good money to be made in this market.

Is there an example of a large corporation that established a head office here in Kenya?

We have giants like General Electric from the US, Google, etc. More recently, there are companies from Japan, France, even Malaysia and South Africa coming in. In fact, over the last five years, companies from some of those countries that have come here to invest have doubled their investment. Some have set up their African headquarters here and some have just set up branches. IBM Research has opened the only research lab in the continent in Kenya.

What are the challenges that Kenya faces?

We want to make sure that through investor targeting we can get the right caliber of investors who have the best track record in creating transformation and impact wherever they have been. Safaricom is a good example of the kind of investors we would like to see more in our country.

The most important challenge we are facing as a country is to provide employment to our young people who have finished college and university. The economy has not expanded as fast as we need it to in order to absorb these people. We want the type of growth that comes with jobs. The young people now are more interested not in the traditional jobs like on farms or factories. They want ICT jobs, innovation space, etc. As we promote Kenya, we want to attract more of the companies that are labor intensive and who are able to offer more jobs and better-quality jobs. The other challenge that we face is openness of markets. When you produce, you want to be able to export and sell your products. If the market is limited, the scope for growth is also limited. We have seen some tendencies globally to go back to protectionism, which is quite worrying. We look toward other parts of the world to take the example that Africa has implemented and form a continental free trade area. 54 countries in Africa have supported this in a big way. We want these other developed countries to open their markets to products from Kenya and Africa to provide more impetus for growth.

What is Kenya’s role in the free trade zone?

One of the key things that we have seen in the process of setting up this continental free trade area is a level of unity. Leaders have expressed a lot of interest and they want to do this quickly. The meeting that just happened was for developing a road map for implementation to make sure this is realized as soon as possible. Kenya is one of the leaders in Africa. So, when the continent opens up and is one free trade area, it is going to be a good platform that countries like Kenya and other countries in Africa can build their competitiveness to be able also to penetrate the international markets more. If you have a market of 1.2 billion people with a large GDP and you can build the capacity and the competitiveness to serve that market, it prepares you to do better in Asia, Europe, and other markets. Kenya will be able to have a platform to build our competitiveness, a market for our products and our innovations and services because we are a key leader in terms of professional services. As one of the leaders in Africa, our role as a country will also be to be at the forefront, to build the momentum, the partnerships, and the cooperation required to realize and implement this continental free trade in a very short time. This is the time for leading countries in Africa to really step up to get the free trade area ready and open for business.

As KenInvest, you have to select some areas where you want to attract investors. What are these areas geographically?

Luckily for us, this has been clearly defined by our policy space and our leaders. Between now and 2022, we are looking at the Four Pillars as the top priority. We are looking at these areas to concentrate our investment, promotion, and facilitation of investors. Then, we are able to facilitate good investors that emerge and want to invest in the country in sectors that either enable us for the Big Four or are part of the 2030 vision. We want to make sure that through investor targeting we can get the right caliber of investors who have the best track record in creating transformation and impact wherever they have been. Safaricom is a good example of the kind of investors we would like to see more in our country. They were a big investor who built a value chain and an ecosystem with small and medium enterprises that are packed into that ecosystem as customers or suppliers of parts, products, and services. This company has created over 400,000 enterprises within the ecosystem. We would like to see more value chains that are that kind of model that are able to create opportunities for the SME sector. You can also create linkages into the domestic economy where you are able to buy products and services and, in turn, it will help deal with the employment problem which is our main focus. Investor targeting will give us the best investors for each pillar. This means, of course, we are not necessarily saying it needs to be from this particular country or from this region of the world. We are more interested at KenInvest in the caliber and the track record of a company or investor. That is better than just focusing on Asia or America, etc. It is more about finding the companies with the right credentials and ones that can form joint ventures with local companies so that we are able to create sustainable businesses.

Project yourself three years, what would you like to have achieved by then? What is your dream for KenInvest?

We have done a lot in the last few years. We are a one stop shop for investors now. Now, an investor can come here to the 14th floor of this nice building and they can get help with tax issues, company registration, apply to connect to power, start the environmental impact assessment process. Everything is in one place. If you want to invest in an EPZ, we can show you the way. If the best scheme for your project is special economic zones, we can take you through the process of setting up within the shortest amount of time. We are very proud of this one stop center. The second thing we are proud of is that for the first time as a country, we have developed up a national holistic policy which we call the Kenya Investment Policy. Previously, the policy and registration had several pieces and the policies were attached to investments from different sectors. But we never had a holistic policy looking at the overall picture of investment. We have that now and it has been passed by the Cabinet. This is going to be one of the major instruments to provide more certainty and clarity to investors so they know where we are moving and how we want to deal with a number of issues. In democratic setups, because of various views, decision making tends to take a long time. While we are one of the strongest democracies in the developing world, we are putting structures in that policy that can enhance the speed of decision making. Another issue we are dealing with much more now as a country is setting up and identifying land for industrial parks, special economic zones, and export processing zones in different parts of the country. Some are specialized, for example, if a zone was for textiles, we would make sure that power and the other inputs that are required there are very competitive in terms of cost and efficiency. We also have mixed parks and zones in other parts of the country such as the coast, Mombasa, Lamun, Nairobi, Naivasha, Kisumu. By providing industrial infrastructure in the spaces for investment, we have improved a great deal. We expect the investment uptick to be even faster from here. Also, now, the infrastructure that the country has invested in is reducing the cost of doing business. The structures we set up in 2013 to improve the quality of the business environment are bearing very good fruit. In 2014, in the World Bank Ease of Doing Business Index, Kenya was 136 out of the 189 countries that were ranked. In the most recent survey, we were 61. It was one of the biggest jumps. No other country has made such a tremendous improvement. Our focus is to get better and better in this. The next time we meet, I would like to be attracting FDI inflows that are 5 times what we have been experiencing because all the factors are now in place. I also hope that we no longer have any social political issues from employment of youth because factories and investment will have solved all those issues with people coming into the labor market. I hope that we have achieved or are very close to achieving our vision in terms of eliminating poverty and all our other goals.

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