Country FilesEast & HornKenya Country Profile 2015: That engine just keeps rolling

Sun,21Jan2018

Posted on Friday, 20 November 2015 11:00

Kenya Country Profile 2015: That engine just keeps rolling

By The Africa Report

altBuoyed by the confidence of local and international investors, Kenya's economy looks sufficiently stable to survive the damage done by a sharp drop in income from tourism after a spate of terrorist attacks – and it should remain strong enough to shrug off rising inflationary pressures going into 2015.

And yet the economic terrain will increasingly be determined by the state of security in the country, the impact of constitutional reforms and concerns about rising debts over the longer term.

Kenya's political environment will be marked by the drama and tensions of a creeping authoritarianism, ranged against the popular democratic order brought to life by the liberal 2010 constitution.

During its first full year in office in 2014, the Jubilee Alliance administration of President Uhuru Kenyatta was beset by growing insecurity and the threat of the Al-Shabaab terrorist insurgency.

Having managed to frustrate the prosecution efforts of the International Criminal Court (ICC), Kenyatta still has to face the reality that the means by which his government secured power – using the 2013 elections as a referendum on the ICC – are decidedly not the terms on which it can hope to retain power. Kenya remains a country divided along ethnic lines and impatient for the dividends of more devolved politics.

Army on the streets

Kenyatta and his team have turned almost reflexively to the political handbook of his Kenya African National Union predecessors.

Rejecting calls from opposition leader Raila Odinga for the withdrawal of troops from southern Somalia – where the Kenya Defence Forces (KDF) are now entrenched – in order to prevent a further escalation of Shabaab-instigated attacks on Kenyan soil, the administration has instead focused on building an increasingly militarised security infrastructure at home.

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The first signs of this came during the Westgate Mall attack in September 2013, when army units led by the KDF chief General Julius Karangi summarily replaced a paramilitary police squad that appeared to have the terror attack under control.

Later, having solemnly pledged to institute a public inquiry into the Westgate affair, Kenyatta quietly reversed this decision, thus giving the appearance of full support to Karangi as well as to the cabinet secretary for security, Julius Ole Lenku, and police chief David Kimaiyo.

In June 2014, after Al-Shabaab laid waste to Mpeketoni, a township just outside the coastal tourist resort of Lamu, Kenyatta and his men were quick to blame "local political networks", a thinly veiled reference to Odinga's supporters.

The thinking seemed to be that because Mpeketoni was dominated by settlers from Kenyatta's Kikuyu ethnic community, the attack constituted a pogrom on Kenyatta's own people.

Ethnic stronghold

Kenyatta's response to the public criticism of his security agencies has been to involve the military further in domestic policing.

Apparently heeding the counsel of General Karangi, who has become an influential figure, Kenyatta replaced intelligence chief Brigadier Michael Gichangi with a key Karangi ally, Major General Philip Kameru.

Many question the wisdom of continually appointing men from Kenyatta's Mount Kenya ethnic stronghold.

The new security apparatus will have to respond not just to terror attacks but to the grievances over land ownership in economically marginalised regions.

Kenyatta faces new political battles. Calls for a referendum precipitated by the familiar themes of insecurity and political exclusion have given Odinga and his allies renewed momentum in the long run-up to the 2017 elections.

The politics of devolution will shape the new republic created by the 2010 constitution, and so Kenyatta's continued reluctance to disperse power in real terms could come at a high cost.

Despite such concerns, Kenya's issuance of a $2bn eurobond in June 2014 was a triumph by any standards.

The bond received bids worth more than four times the target, introducing a new dimension in public debt that ushered in the benchmarking of Kenya's sovereign risk and highlighted the surging demand for a piece of Kenya's economy.

A rebasing of the economy to take into account new sectors also boosted the immediate prospects. The recalculation was completed in September and raised the country's 2013 gross domestic product by 25% to $53.4bn.

Kenya is, however, struggling to keep the key economic driver of tourism afloat after several Western countries issued travel advisories over insecurity, especially on the coast.

The Kenya Tourist Board (KTB) reported that arrivals in the second quarter of 2014 fell 45% to 172,258.

Industry players said the full year's numbers were expected to decline by similar margins because of the insecurity fears. In 2013, tourist numbers had already fallen to 1.5 million from an all-time high of 1.8 million in 2011, partly in response to the sharp price rises forced on the industry by increased value-added tax.

Regional projects

Altogether more positive is the anticipation of local and foreign investment in the manufacturing, mining, oil and gas and services sectors.

Several oil and gas discoveries suggest commercial oil production within five years. After success in northern Kenya, explorer Tullow said it plans to drill more wells.

Exploration firms have been on a fund-raising spree, especially through share sales.

The economy could also receive a boost from multi-billion-dollar infrastructure projects designed to expand trade across the East African Community as member states push to implement agreements under their monetary union protocol.

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Key projects include the construction of a standard-gauge railway, an oil refinery in Uganda and the Lamu Port-South Sudan-Ethiopia Transport Corridor.

A couple of geothermal projects are making progress, and the government has the goal of raising electricity production from 1,700MW to 5,000MW by 2017.

Banks are increasingly partnering with telecommunications firms, eliminating the gap between the two sectors.

Equity Bank, Kenya's biggest lender by customer numbers, is fighting off regulatory and competitor opposition to launch a mobile banking platform in partnership with Airtel, to rival Safaricom's M-PESA.

KCB bank has also partnered with Safaricom for a mobile-banking platform. The central bank wants to strengthen the banking sector in 2015. Its new prudential guidelines take effect in January 2015.

Banks now need a minimum 14.5% ratio of total capital to risk-weighted assets, up from 10.5%, and some have been raising capital to meet this.

Investor interest at the Nairobi bourse has increased, as seen in the September listing of the Nairobi Securities Exchange (NSE) itself, for which the initial public offering was oversubscribed by 763.9%.

The bourse saw its valuation double a week after listing, with its shares expected to be among the most promising on the market. The NSE is eyeing at least 37 new listings in the next four years as it seeks to satisfy demand.

Agriculture typically represents about 5% of GDP, but the government is trying to boost the sector and improve food security. Its flagship project is the Galana irrigation scheme in Tana River and Kilifi counties. It has faced a series of obstacles, including for funding, but the government maintains that it is back on track.

Some analysts see corruption in government as an emerging threat to the economy in the medium term. Tendering for the construction of the standard gauge railway and the purchase of laptops for schoolchildren were subject to recent parliamentary investigations.

The ongoing struggle for referendums and devolution

Governor Isaac Ruto of Bomet county in the southern rift valley was once one of the most vocal defenders of his namesake, deputy president William Ruto (no relation).

More recently, he has become an unrelenting critic of the Jubilee alliance's administration, accusing it of frustrating devolution.

Governor Ruto's push for a referendum, dubbed Pesa Mashinani (cash to the grassroots), has ratcheted up the tensions.

As chairman of the 47-strong council of Governors, Ruto is leading the campaign, although like another referendum campaign by the opposition coalition for reforms and Democracy, dubbed Okoa Kenya (save Kenya), this has drawn as much support as suspicion.

The administration said that none of the issues – from county finance to the role of the counties in security and the management of natural resources – warranted a referendum.

The trouble started even before Jubilee had taken power, in March 2013, when outgoing President Mwai Kibaki insisted on retaining county commissioners, the government-appointed counterparts to the elected county governors.

This contest between the centre and the periphery is as old as independent Kenya itself. In the 1960s, the centrists sabotaged the independence constitution and imposed themselves on a young nation.



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