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BUSINESS ENVIRONMENT IN KENYA, DEVELOPMENT AND

OPPORTUNITIES

PRESENTATION BY CAROLE KARIUKI, KEPSA CEO

12 OCTOBER 2018

ABOUT KEPSA - KENYA’S PRIVATE SECTOR APEX BODY

Presidential Roundtable May 2018

KEPSA was established in 2003 to unite businesses

across all sectors under one umbrella and to provide

a unified private sector voice in engagement with the

government and other strategic partners on matters

of interest/concern to Kenyan businesses.

KEPSA Members comprise of Corporates, SMEs,

Trade Unions, Multinationals and BMOs – the total

number is in excess of 500,000 businesses.

KEPSA engages through structured Public Private

Dialogue platform spanning all levels of government

i.e. Presidential, MDAs, Legislature (Senate & National

Assembly), Counties, etc.

The main focus is ensure a stable, secure and

enabling business environment for private sector

development in Kenya. MOU signing between KEPSA and

Embassy of Finland Kenya – March 2018

Population – 48 Million

Size of Economy (GDP) - US$74.9 Billion

Largest contributors to GDP ( in 2017)– Agriculture

(31.5%), Manufacturing (8.4%), Transport and

storage (7.7%), Wholesale and retail trade (7.6%)

GDP Growth – average 5.6% over the last 5 years

(4.9% in 2017); Inflation

Fastest growing sectors - Accommodation & food

services (14.7%), ICT (11%), Construction (8.6%)

FDI inflows – $3.6 billion since 2013; $0.67 billion

in 2017.

Trade: Main exports to Finland – Coffee, tea,

pineapples, cut flowers;

Main imports – paper products, fertilizers,

electrical equipment and equipment, plastic

products.

KEY FACTS ABOUT KENYA

1.6

6.1

0.2

6.9

2.6

8.6

5.7

7.3

14.7

11

3.1

6.1

4.3

6.1

4.9

0 5 10 15 20

Agriculture, forestry and…

Mining and quarrying

Manufacturing

Electricity supply

Water supply; sewerage,…

Construction

Wholesale and retail trade;…

Transport and storage

Accommodation and food…

ICT

Financial and insurance…

Real estate

Professional, scientific and…

Education

Overall GDP Growth rate

GDP Growth rate by sector

WHY INVEST IN KENYA

1. IMPROVED BUSINESS ENVIRONMENT: Kenya ranks 3rd best in Africa and position 80 globally on Ease of Doing Business.

2. SUPPORTIVE GOVERNMENT TO PRIVATE SECTOR INVESTMENT, strong policy and legal frameworks make it a safe low-risk investment environment.

3. STABLE POLITICAL AND MACROECONOMIC ENVIRONMENT (in 2017, Kenya made history by carrying out a successful repeat presidential election and economy still managed to maintain resilience).

4. STRATEGIC LOCATION that makes Kenya the sea gateway to East and Central Africa;

5. QUALITY INFRASTRUCTURE (Kenya has the best quality physical and social infrastructure in East and Central Africa – a Standard Gauge Railway, expanded sea port and a Category 1 airport). Kenya’s internet connection is the fastest in the continent.

6. NUMEROUS OPPORTUNITIES – e.g. in the Big 4 (manufacturing, agriculture, housing, health) and enabler sectors such as ICT and Energy;

7. FAST GROWING LOCAL MARKET - growing middle-class, rapid urbanisation (4.3% growth), and highly educated youthful population (median age in Kenya is 19). This provides both skilled labour and demand.

8. ACCESS TO KEY REGIONAL AND GLOBAL MARKETS - EAC, COMESA, the Tripartite FTA, and Africa Continental Free Trade Area. Globally, Kenya enjoys preferential markets access to US under AGOA, EU under EPAs, among others

9. STRONG PRIVATE SECTOR REPRESENTATION through KEPSA, the apex body, and strong sectoral BMOs such as the Kenya Association of Manufacturers, Kenya Healthcare Federation, among others and sound companies to partner with.

Improved Doing Business Index Ranking Stable GDP growth

129 136

108 92

80

2014 2015 2016 2017 2018

Kenya's Ease of Doing Business Index ranking

Imp

rovem

en

t

102

106

96

90

99 96

91

80

85

90

95

100

105

110

THE BUSINESS ENVIRONMENT

0

1

2

3

4

5

6

7

2012 2013 2014 2015 2016 2017* 2018

Projected

World Real GDP Growth** Sub-Saharan Africa EAC-5 Kenya

Improved Competitiveness (GCI Index by World Economic Forum)

On attractiveness to investment in Africa, Kenya

ranks position 8 in the 2018 Africa Investment

Index up from position 15 last year. (Quantum

Global Group)

The Big Four is Kenya government’s development Agenda for the next 5 years i.e. 2018 – 2022.

The Agenda was born out of the President’s engagement with Kenyans during his election

campaign in 2017, where he identified the main challenges facing a majority of Kenyans e.g.

shortage of decent jobs, poverty incidence that is still high at 36.1%, food insecurity following

a persistent drought in 2016-2017, challenges in access to affordable healthcare, shortage of

affordable housing in urban areas, among other challenges.

These challenges were harmonized with the country’s Vision 2030 development Agenda, the

SDGs and the government’s development priorities; and 4 priority areas (manufacturing

competitiveness, food security, affordable housing for all and universal healthcare) identified

that if implemented have the potential to stimulate growth and accelerate Kenya’s Social

economic transformation towards a rapidly industrializing middle income economy providing

high quality of life for its citizens by year 2030.

BACKGROUND OF THE BIG FOUR

Manufacturing

Value chains development,

SEZs, Market opportunities

(Local, regional and global

trade agreements e.g.

AfCFTA, EAC, AGOA, etc.)

Food Security

Large scale food

production through

Irrigation, blue

economy, Food

processing and value

addition

Affordable Health Care for All

Health Insurance cover,

specialised treatment,

innovative medical

solutions, local

manufacturing of

pharmaceuticals and

health equipment

Affordable Housing

Large scale housing,

Affordable Construction

materials, innovative

building technologies,

PPPs in development of

affordable houses

BIG FOUR AGENDA: OPPORTUNITIES FOR PRIVATE SECTOR PARTICIPATION

1. ENHANCING MANUFACTURING COMPETITIVENESS

11.3 11.8 11 10.7

10 9.4 9.1

8.4

4.5

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5.6

2.5 3.6

2.7

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-2

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2

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8

10

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2010 2011 2012 2013 2014 2015 2016 2017

Manufacturing Contribution to GDP/Yr (%)

Manufacturing Sector Growth/Yr (%)

Manufacturing currently accounts for 18% of Kenya’s Total Exports

1. Kenya aims to grow

manufacturing contribution to

GDP from 8.4% in 2017 to 15%

in 2022 (US$6.5B to US$18B).

2. Key priority value chains

earmarked for development

include cotton, textile and

apparels, Agro-processing,

Leather, Construction materials,

Oil, mining and gas, Iron and

steel, ICT and Fish processing.

A legal framework was established through Special Economic Zones Act 2015, Special Economic Zones Regulations 2016 and SEZ Authority established.

Three special economic zones are set to be established to enhance value addition, innovation and job creation – one near lake Victoria (Kisumu) and 2 along the coast (Mombasa and Lamu). Incentives have been gazetted for investors in these parks including tax exemption, duty exemptions, work permit facilitation, and protection & repatriation of profits.

According the World Bank, it is estimated that SEZs in China accounted for 60% of China’s exports as of 2007 and created over 30 million jobs. The SEZs also accounted for 22% of China’s GDP, and about 46% of the FDI. In Rwanda, the Kigali SEZ produced $43.6 m worth of exports in 2017 up 554% from $5.5 m in 2016.

SPEACIAL ECONOMIC ZONES

OPPORTUNITIES FOR INVESTMENT IN MANUFACTURING SECTOR

The value chain development agenda presents numerous

opportunities for both Kenyan and foreign investors

1. Leather: a leather park is under establishment in Machakos and 3 others

will be identified along the SGR. 5,000 cottage industries are also set for

establishment with a policy to reduce imports of finished leather.

2. Apparels/cotton: Industrial sheds to be established in Athi River (near

Nairobi), and 200,000 hectares of BT cotton to be produced annually to

support the industry.

3. Agro-processing - the plan is to map coffee, tea, sugar, meat, dairy, and

crops value chains. Warehousing and cold chain sites will be developed,

while a food value hub will be set up in Mombasa. For tea, there are

opportunities for two global tea processors in Mombasa.

4. Fish processing - opportunities include Marine and Fresh water fish

processing; creation of fish feed mills, and an aquaculture SEZ is set to

established around Lake Victoria, which could see Kenya's fish exports grow

from 2,500 tons annually to 18,000 tons and create over 20,000 jobs.

OPPORTUNITIES FOR INVESTMENT IN MANUFACTURING

5. For manufacturers of construction materials, 70 per cent of

housing materials will be sourced locally – an opportunity to invest

locally.

6. In iron and steel, Kenya seeks $1 billion in new investments and

exploit coal and iron deposits identified in Kenya’s Southern

Eastern and Coastal areas. Incentives will be developed to attract

investors in the sector. The government also seeks iron and steel

manufacturers to form joint ventures with.

7. In ICT, Kenya seeks to attract local electronics assemblers/

manufacturers (at-least 2 investors in 2018, 5 BPO players,

incubators and accelerators.

8. In oil and mining, Kenya seeks to attract global scale players in

mining value addition.

9. Kenya also aims to create an EXIM Bank and a Kenya

Development Bank to fund industry development.

2. Opportunities under Food security

1. Large-scale production of the main staples (maize, potato, and rice): Kenya targets to place under irrigation 700,000 additional acres of land through private-public partnerships. The target is to increase Kenya's maize production from the current 40 million bags to 67 million by 2022; potatoes from 1.6 million tons to 2.5 million tons; and Rice from 124,080 tons to 406,486 tons over the same period.

2. Diversification of agricultural production beyond the main staples e.g. production of pulses to increase production of nutritious food. The surplus can be exported to Asian countries where there is a ready market.

3. Supply of agricultural inputs: quality seeds, modern farming technologies, locally blended fertilizers which will be used on a 50/50 basis, etc.

4. Investment in post-harvest handling technologies and market distribution infrastructure. The government is committed to give incentives for post-harvest technologies e.g. waive duty on cereal drying equipment, hematic bags, grain cocoons/silos, cold storage for fish, etc. in bid to reduce postharvest losses from 20% to 15%.

5. Fishing: Kenya seeks to secure investors to construct a new shipyard (a site already exists), increase domestic fishing fleet by 68 vessels in the coast and curb illegal fishing in Kenya's waters. Incentives will also be given for fishing and aquaculture equipment and feeds.

6. Production of animal feeds: Kenya aims to establish a commercialized feed systems under PPPs for livestock, fish, poultry and piggery to revolutionize feed regime and enhance traceability of animals.

7. Contract production for Strategic Food Reserves and other off-takers which is aimed at reducing the cost of food. 300,000 bags are targeted to be produced in 2018.

8. Under Big 4, Kenya aims establish East Africa’s Premier food hub, which will drive small holder productivity and create numerous opportunities for investors.

9. Investment in Agro-processing which is one of the priority value chains under manufacturing for improved export earnings. 1,000 SMEs are targeted for training in food processing along the value chain.

10. Implementation of capacity development programs for Kenyan farmers including training on modern farming techniques, value addition, etc.

Opportunities under Food security

3. AFFORDABLE HOUSING

The government has committed to support the agenda through:

Provision of public land for affordable housing development,

15% corporate tax incentive for large scale development of +100 affordable housing units.

Deduction of 5% of cost on taxable income for rental residential building in a planned Development area

25% deduction of the cost of infrastructure provided by developer - Taxable income.

The target is to increase real estate and construction sector contribution to GDP from 7% to 14% by 2022, and create 350,000 jobs

Kenya has a Housing Deficit of over 2 million units and an annual supply shortage of 150,000 units.

The target is to build 500,000 affordable housing units over the next 5 years (60% of which is expected to be financed by the private sector, 30% will be financed from the National Social Security Fund (pension) and 10% through budget allocation.

Opportunities for investment include:

housing development in designated areas,

leveraging on PPPs in housing and infrastructure development e.g. access roads, water and sewerage, power and lighting, etc.

financing developers and home buyers

supply of low cost construction materials, innovative building solutions/technologies.

4. UNIVERSAL HEALTHCARE - INVESTMENT OPPORTUNITIES

Opportunities for investors include:

• Roll out of innovative affordable health insurance options e.g. micro-insurance, to the uninsured (especially the informal sector, the elderly and the Bottom of Pyramid) for universal coverage.

• Investment in local manufacturing of pharmaceuticals and medical equipment to cut cost of healthcare

• PPPs opportunities in development and roll out of healthcare facilities across the country, acquisition of medical equipment, and roll out of critical infrastructure, etc.

• Leveraging on technology to provide innovative healthcare solutions – tele- medical solutions.

• Investment in specialized treatment e.g. dialysis, cancer diagnosis and treatment, etc. to complement public healthcare. Cancer is the 3rd leading cause of death in Kenya after Pneumonia and malaria

• Collaborations in medical research , sharing infrastructure, expertise and information to enhance response to infectious diseases, and improve quality of healthcare in the country.

• Training of health practitioners to ensure sufficient medical personnel is available for UHC.

To achieve 100 per cent universal health coverage by 2022 from the current 36 per cent coverage, Kenya

aims to increase spending on health, reconfigure the National Hospital Insurance Fund, and expand the free

maternity programme to missionary and private hospitals

Thank you!