Cabinet Secretary, The National Treasury, Kenya JULY 18 TH 2013 1 - - PowerPoint PPT Presentation

KENYA’S MACROECONOMIC STATUS AND EMERGING BUSINESS OPPORTUNITIES

PRESENTATION TO BUSINESS COMMUNITY IN ITALY

Henry K. Rotich Cabinet Secretary, The National Treasury, Kenya

JULY 18TH 2013

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My Presentation will focus on the following:

I.

GENERAL MACROECONOMIC STATUS



Recent economic developments and Outlook

II.

KENYA’S DEVELOPMENT AGENDA

 Vision 2030 for a Competitive Kenya: Business

Opportunities

 The Economic Pillar: Six Priority Sectors  New Administration: 9-Point Action Plan  Key Reforms and enabling Infrastructure to Support the

Six Sectors

III.

CONCLUSION

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• I. General macroeconomic

status

Recent Economic Developments and Outlook

 The global economic recovery remains weak with Japan and Europe

sliding into recession

 The Kenyan economy remain resilient with the growth trajectory

accelerating towards Vision 2030 target of 10 percent annually. The economy expanded 4.6 percent in 2012 and is projected to grow by 5.6 percent in 2013 rising to 7.0 percent in the medium term.

 Overall, the macroeconomic environment is generally stable

• Inflation has been declining
• Short term interest rates have been stable
• Lending Rates have been declining
• Exchange rate has been stable
• Private sector credit has been rising and channeled to productive

sectors of the economy

• Financial Sector has been vibrant with an expanding banking

sector and rising Nairobi Stock Index (NSE)

• The Public debt remains sustainable

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Higher growth for employment creation

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Economic Growth - strong and recovered from the 2008 post election violence: peaked to 5.8 percent in 2010, 4.6 percent in 2012 and 5.2% in Q1 of 2013 In the last 10 years, massive investments in the modernization and development

• f

the nation’s infrastructure especially roads, airports, railways, energy and telecommunications have taken place. Financial sector recorded impressive growth with access to banking services including those served by the very successful mobile money transfer service increasing. Agriculture is dominant sector around 20.9 percent of GDP, whole sale and retail 11.0 percent, Transport and Communication 12 percent and Manufacturing around 10 percent

0,0% 1,0% 2,0% 3,0% 4,0% 5,0% 6,0% 7,0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013 0,5% 2,9% 5,1% 5,9% 6,3% 7,0% 1,5% 2,7% 5,8% 4,4% 4,6% 5,2%

Real GDP (% growth)

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Agriculture sector remains dominant and manufacturing picking up….

Agriculture remains a dominant

• sector. The sector expanded by 8.5

percent in Q1 of 2013 from a low of - 4.1 percent in 20008. Value addition through agro processing is taking centre stage in Agriculture sector. The Government has initiated irrigation programmes through construction of dams and will lead to less reliance to rain fed agriculture. Manufacturing sector is picking up with a growing market for manufactured products in EAC and COMESA region. The sector posted a 4.3 percent growth in Q1 of 2013

• 6,0
• 4,0
• 2,0

0,0 2,0 4,0 6,0 8,0 10,0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013 Annual Growth Rates

Agriculture and Manfucturing sectors

Agriculture Manufacturing

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Wholesale and Retail trade sector remains strong....

Whole sale and Retail trade sector has remained strong registering 6.4 percent annual growth in 2012 and 6.2% on Q1 of 2013 There are large producer groups and large whole sale hubs within the country and expanding to the regions.  This is a growing segment

• f our economy and chain

stores in Kenya are expanding to EAC region and demand is still very huge.

0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013 Annual Growth rates

Whole sale and retail

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Transport and communication & Building and Construction Sectors command strong growth….

Massive investment in the Communication sector as well as transport through expansion of the road network has led to growth of the sector. Communication as leveraged by ICT has equally registered positive growths over the period. Robust building and construction in the country continues to support the sector growth growing by 13.5 percent in Q1 of 2013.

0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 16,0 18,0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013

Transport and Communication

0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 16,0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013

Building and Construction

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Kenya has witnessed tremendous growth in the financial services

• sector. Sector grew by 6.5% in 2012 but slowed in Q1of 2013. Real

estate sector grew by 3.3% in 2012 and 3.0% in Q1 of 2013

Financial Sector expands & Real Estate remains robust…

0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0 8,0 9,0 10,0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013

Financial Intermediation

0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013

Real Estate

Inflation and money supply declines as monetary policy is tightened……

 Inflation declined to 4.9 percent below the 5 percent target due to

improved food supplies, stable oil prices, tight monetary policy, and stable exchange rate

 Money supply declines to target at 16.7 percent in May 2013

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10,0 12,0 14,0 16,0 18,0 20,0 22,0 24,0 26,0 28,0 0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 16,0 18,0 20,0 22,0 gen-10 mar-10 mag-10 lug-10 set-10 nov-10 gen-11 mar-11 mag-11 lug-11 set-11 nov-11 gen-12 mar-12 mag-12 lug-12 set-12 nov-12 gen-13 mar-13 mag-13 M3 annual growth rate (%) Inflation rates( %) Overall Inflation Non-food non-fuel inflation M3 growth

Exchange Rate has been stable

11 60,000 80,000 100,000 120,000 140,000 160,000 180,000 30-nov-10 31-gen-11 31-mar-11 31-mag-11 31-lug-11 30-set-11 30-nov-11 31-gen-12 31-mar-12 31-mag-12 31-lug-12 30-set-12 30-nov-12 31-gen-13 31-mar-13 Ksh/US$ Ksh/GBP Ksh/Euro

The Kenya Shilling exchange rate has been stable against major world currencies (at around Ksh 85 to the dollar supported by:

• Increased capital inflows
• Reduced

inflationary expectations (with easing of food and oil prices),

• Increased

diaspora remittances (that increased to US$ 1,193 million in the year to May 2013 from US$ 1,053 million in the year to May 2012) and

• IMF disbursements under

the Extended Credit Facility.

Overall Balance of Payments in Surplus, Capital inflows increase……

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13.77 2.25

• 11.52
• 14
• 10
• 6
• 2

2 6 10 14 May-01 Oct-01 Mar-02 Aug-02 Jan-03 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Percent of GDP

Overall BoP, Current account and Capital and Financial Account

Capital & Financial Account Overall Balance Current Account

Overall BOP in Surplus (2.25 percent of GDP Current Account has been widening due to increased imports for oil, Machinery and equipment for intermediate production Imports for Oil and Gas exploration have been rising

Foreign Exchange Reserves increased….

 Official reserves increased

to US$ 6,123 million (equivalent to 4.5 months

• f import cover) in June

2013.

 The

accumulation

• f

reserves during the period consisted

• f

IMF disbursements under the Extended Credit Facility financing and build up of reserves from the foreign exchange market by the Central Bank

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1,0 1,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5

• 1.000

2.000 3.000 4.000 5.000 6.000 7.000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 apr-13 mag-13

(Months)

US$ million

Official reserves (LHS) Months of import cover

Official Foreign Reserves

14 0,00 5,00 10,00 15,00 20,00 25,00 30,00 35,00 1-Jul-10 1-Sep-10 1-Nov-10 1-Jan-11 1-Mar-11 1-May-11 1-Jul-11 1-Sep-11 1-Nov-11 1-Jan-12 1-Mar-12 1-May-12 1-Jul-12 1-Sep-12 1-Nov-12 1-Jan-13 1-Mar-13 1-May-13 Interbank rate CBR

Short term and lending interest rates decline in line with reduction in Central Bank Rate (CBR) ….

Looking ahead, Kenya’s growth prospects are favorable in line with Vision 2013 Blue Print…..

 Real GDP growth is projected to expand by 5.6 percent in 2013 and rise to

7%-10% over the medium-term in line with Vision 2013 targets. Driving Factors for this outlook will be:

 Favourable weather conditions that will boost agricultural

production and expanded irrigation in the arid and semi arid areas. Target this Fiscal year is to irrigate over one million acreage of land

 Key infrastructural projects (in roads and energy) some that are on

going as well as additional investment in the a cargo and commuter trains

 Stable macroeconomic environment (low inflation, and stable

interest rates and exchange rate and sustainable debt levels)

 Structural reforms targeted to improving competitiveness of the

private sector and promoting overall productivity in the economy.

 Expanded exports in the EAC, COMESA and European markets

supported by the relatively strong economic growth in the sub

• region. Kenya will adopt deliberate measures to market its exports

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II.

Kenya’s Development Agenda

VISION 2030 FOR A COMPETITIVE KENYA: BUSINESS OPPORTUNITIES

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Kenya’s development blueprint To make Kenya a newly industrialized, middle income country providing a high quality life for all citizens Has three Pillars and aims at a sustained economic Growth

• f

10% per annum Has Enablers and Macro Foundations Its being implemented in 5year Medium Term Plans.

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The Economic Pillar: Six Priority Sectors

Attractive- ness Feasibility

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Current size of GDP Key Priority Sector for Sustaining Growth of 10 percent

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+

Whole sale and Retail trade ICT & BPO Agriculture Tourism Financial services Petroleum Bio-fuels Mining Manufacturing

Handling of Petroleum Products, Petrol Chemical Industries, Ports Development, Railway Development, LAPSET Project, Exploration of Oil, Coal, Gal

These sectors are supported by enablers that include energy, infrastructure, Human Resource Development , Security, Information Communication Technology , Land reforms, Science, Public Sector reforms, Technology and Innovation.

New Administration: 9-Point Action Plan

 The New Administration (Jubilee Government) has developed a 9-

point Action Plan on which government policy will work in partnership with the private sector and development partners to reinvigorate inclusive growth, in line with the Vision 2030 priority Sectors

1.

Creating a first class logistics hub, covering transport, roads, railways, waterways, pipelines, ports, storage & energy.

2.

Modernising agriculture that include opening up at least one million acres of new land through irrigation in order to end food insecurity.

3.

Diversifying exports, adding value, creating new products and opening up new markets.

4.

Sealing leakages in our revenue collection system and extend the tax base.

5.

Driving up value for money from public procurement process.

6.

Creating a business climate that encourages innovation, investment and growth

7.

Reducing the cost of the ordinary household’s basket of goods, including food, housing, energy and transport.

8.

Deepening our relationships with our regional partners in order to expand our markets, create jobs and boost growth.

9.

Investing in our greatest capital resource – our people and provide what our Constitution demands – social protection for every Kenyan.

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First Sector: Tourism

 The New Administration Commitment is to market Kenya as a

Country naturally endowed in:-

• Wildlife: Kenya has the Highest number of wildlife parks in the

world currently at 59

• National Park next to the Nairobi City- the Only one in the

world

• Migration of wildebeest across Mara River
• Pleasant weather
• Beautiful scenery: Spectacular Great Rift Valley Cuts through

Kenya

• Sandy beaches
• Best Sportsmen & women in the world

There are enormous opportunities in :-

• Hotels and Accommodation
• Recreation
• Entertainment
• Conferencing

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Second Sector: Transforming Agriculture for Food Security….

 Commercial Agriculture potential in

the country

 Supporting Agri-business through an

Agri-business fund

 Construction of irrigation

infrastructure

 Integrated basin based development

programme: multipurpose dams to irrigate land in ASAL areas.

 Expansion of on-going irrigation

projects

 Purchase of agricultural machines

and equipment

 The sector growth will also be

boosted by improved land tenure system through various land reforms being implemented under the Land

Commission established by the Constitution of Kenya (2010)

Investing in irrigated agriculture through modern and efficient farming methods

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Third Sector: Expanded Wholesale and Retail Trade….

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Supply

chain Opportunities to drive efficiencies through development of producer business groups and large wholesale hubs

Semi-formal retail Markets to tap in to the

informal players and help them grow

Formal retail to Attract and develop large

formal retails through stand alone and Joint Ventures

Huge Opportunities exist within the Country

and the EAC Region to invest in whole sale and retail Chain Stores. Kenyan Stores have spread in the EAC Region and demand is still HIGH

Fourth Sector: A robust, diversified and competitive manufacturing sector…….

 Manufacturing sector form about 10% of GDP and

this share can be scaled up.

 Three Strategic Thrusts have been identified for

this sector:

 Local Production by defending and restructuring key

industries that have local raw material availability, but no competitive edge especially sugar and paper industries

 Regional market expansion by exploiting opportunities to

further process imports and capture the “last step” of value addition especially in metals and plastics

 Global Niche by strategically driving increased level of

value addition in niche exports through Agro-processing

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Fifth Sector: ICT and Business Process Outsourcing

 A new and promising sector with a significant niche opportunity for

Kenya

 The goal is to create at least 7,500 direct BPO jobs with an

additional GDP contribution of Ksh 10 billion

 To be an International IT supplier base in by attracting top

international suppliers

 attract leading brands to establish at least 300 seat operations  Develop local champions through stand alone operations and joint

ventures

 Use of BPO park to concentrate marketing, training, incentives and

telecom infrastructure

 Konza Techno city project has been launched by the Government

with a 5000 land acreage. This will be an one stop City For ICT

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Sixth Sector: A vibrant and globally competitive Financial Sector

 An

enabling sector to transform the economy through mobilisation of savings

 The Nairobi Stock Exchange

(NSE) has grown by more than 50 percent per annum over the last ten years

 Development

• f

Capital markets, Banking, Informal finance, and International capital

 There is increased access and

deepening of financial services and products for Kenyan households and small businesses

 Strategies for this sector:  Raise savings and investment

rates from 17%to 30 % of GDP

 Increase bank deposits from

44% to 80% of GDP and reduce cost of capital

 Reduce the share of population

without access to finance from 85% to 70%,

 Raise stock market

capitalization from 50% to 90%

• f GDP,

 Raise 5% of GDP for investment

from remittances and 5% of GDP from other external sources such as FDI and sovereign bond.

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Key Reforms to Support the Six Sectors

 Public sector reforms-

 Transforming the Public Service for accountability and provision of

efficient and quality services

 Building the right competencies and skills for a Transformed Public

Service

 Developing and implementing real-time Performance Monitoring

System

 Land reforms-

 Reviewing and realigning the National Land Policy to the

Constitution of Kenya 2010

 development of a transparent, decentralized, affordable, effective

and efficient GIS based Land Information Management System.

 National Land Title Register  Land Adjudication and Titling Programme

 Transforming our Educational System for Knowledge-based

Economy to meet the necessary human skills for development.

 Subsidizing energy costs in key areas and within flagship

j t i ll th S i l E i Cl t f

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Enabling Infrastructure in Ports, Rail Transport and Rapid Transit Systems, Geothermal and Wind Power exists

Huge Investment Opportunities exists:

 In dredging and deepening of Mombasa Port to enable larger

post-Panamax vessels to access the port

 Developing Nairobi metropolitan region bus rapid transit

System for three transport corridors namely Athi River Town to Kikuyu Town, Thika Town to the Central Business District, and Jomo Kenyatta International Airport to the Central Business District

 Development of light Rail for Nairobi and its suburbs  Rehabilitation and maintenance of airstrips and airport

expansion and modernisation particularly those serving tourist and commercial sites in the country

 Geothermal Power Production and Green Energy, mainly

wind power

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Interventions by the New Administration on infrastructure projects



Improvement

• f

infrastructure and management of counties, cities, and urban centers

• massive

resources to road construction and maintenance (Ksh 97.9billion)



Expanding generation capacity to Geothermal, solar, solid waste and access to electricity, Current demand for energy is 1500 mega watts and an opportunity of 5000 mega watts exists - Geothermal development (Ksh. 12.5 billion), Power Transmission (Ksh. 23.8 billion)



Developing modern national ICT infra- structure



Expansion of the ports and rail facilities – LAPSSET (Ksh. 3.7 billion), Expansion of Kisumu Port (Ksh. 299 million) Standard Gauge Railway from Mombasa to Kisumu (Ksh. 22 billion) Proposed Turkana Wind Power Project

28 Geothermal Power Production in Naivasha , clean and affordable energy for growth Proposed Two-Track Standard Gauge Railway Line From Mombasa to Kisumu

Enhanced Security to Secure Growth and Investment in Kenya

Priority of the New Administration:

 Allocation of massive resources

to the security agencies to modernise security and enhance security operations;

 Allocation of resources for crime

research and investigation

 Leasing of new and serviced

motor vehicles from the private sector for use by the Security Agencies to promptly react to crime incidents

 Massive funds set aside for

policing specialized equipment and construction of police housing units

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A Recap: Six sectors and the Flag Ship Projects at a Glance………

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• III. Conclusion

Kenya will continue with appropriate macroeconomic policies

 Monetary and exchange rate policy

 To ensure delivery of low inflation around the 5 percent

target, while ensuring continued stability in long-term interest rates.

 Ensure stable exchange rate

 Fiscal policy

 To support economic activity within a context of

sustainable public finances

 To Reduce overall deficit to below 3.5 % in the medium

term

 Ensure sustainable level of debt (around 40 percent of

GDP)

 Maintain fiscal revenue-to-GDP ratio of around 24-25%  Keep budgetary expenditures consistent with medium-

term priorities

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What we are currently doing…..



Kenya will issuing a debut EURO Bond this Fiscal Year 2013/2014 of about US$ 1,500 million to the international investors



Implementation of the National Electronic Single Window System in order to enhance efficiency in cargo clearance



Kenya is currently establishing the Nairobi International Financial Center (NIFC) for mobilising domestic, regional and international savings and investments for Development



Financial sector reforms on regulations, enhancing consolidated supervision, creation of Financial Reporting Centre for purposes of monitoring proceeds of crime and money laundering activities are on going



Reforms of the Public Procurement and Disposal law to reduce time it takes to initiate and complete a procurement as well as enhancing preference and reservations for small and medium enterprises, especially those run by youth



Public Private Partnerships (PPPs) Secretariat established to enhance provision of quality infrastructure, among other services. Secretariat currently receiving proposals from the private sector.



Construction of the Ethiopia power interconnectivity line to source cheaper hydro power and completion of the Olkaria IV by 2014 are also expected to boost growth through supply of cheaper power

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THANK YOU

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