Global Trends and Kenya Economic Review 2017

Table of Contents

• Key Global Trends that affect Kenya

• Expected Business Environment

• Key themes of the Budget 2017

• Economic Analysis

Key Global Trends that Impacts Kenya

Trump’s proposed tax reform policies for United States

US Corporate Tax Rates

35%

15%

US destination based tax would boost local

productivity and negatively impact countries that

export to US

Key Global Trends that Impacts Kenya

• De-globalisation wave: Protectionism andnationalism approach (Trump’s win, Brexit,Make in India)

• Decline in world trade as a % of World GDP:Economic slowdown in china, recession inBrazil, plunge in commodity prices

• Decline in cross border capital flows: Reducedcross border interbank lending betweenmajor financial institutions of the developedmarket after the 2008 global financial crises

Finding export markets in developed world would be harder

Key Global Trends that Impacts Kenya

China under Kiss of Debt

Expected business environment in 2017Current scenario

• T Bills have been oversubscribed. Launch of M-Akiba (+)

• Financial Services, Hospitality and Energy sector,witnessing increased private equity activity (+)

• Increased activity in the hospitality sector withnew franchises and international entrants (+)

• Low credit growth impacting SME businesses (-)

• Food Inflation in March crosses 10% mark due to ongoing drought (-)

Expected scenario

• Increased expenditure spending during electionperiod will increase the money supply (+)

• Stable interest rate regime (+)

• FDI is expected to remain positive due togovernment commitment to ensure stabilityduring and after election. MNCs includingVolkswagen, Wrigley's, Johnson and Johnsonhave announced market entry (+)

• Implementation of Business friendly policies andthose that improve savings for individuals asevidenced by Budget 2017 (+)

• Increased pressure on government borrowing tocomplete milestones on ongoing project (-)

• Low credit lending by financial institutions dueto reduced willingness and swell in Non-performing loans (-)

Key themes of the Budget 2017

Export and Prosper

Local Manufacturing

and Assembling

Grow the Automotive

sector

Lower corporate

tax rates in strategic

areas Invest in Security and Invite investment in

Tourism and Hospitality

Strengthen Healthcare by inviting

FDI

Heavy tax on gambling and

hard liquor

Recognition of Islamic

finance

Nairobi International

Finance Centre

Global growth pacing slowly

World GDP decelerated to 3.1 % in 2016 but expected to recover to 3.4% in 2017. It’s expected togrow in 2018 however uncertainty over the new US administration’s policies and its effect on theWorld’s economies needs to be monitored.

Kenya’s GDP is approximately USD 63 billion and is the largest among all East African Nations Kenya’s GDP is seemingly growing due to consumption (government expenditure and private

consumption) and not by increase in net exports (export cover ratio is a deficit) Kenya GDP growth is well above the global growth rates but needs a major push and hence there

are major policy moves by the Kenyan government to boost exports Sub Saharan Africa GDP growth decelerated sharply on account of decline in commodity prices,

higher inflation due to weakening of region’s major currencies and weaker global trade

(4.00) (2.00) - 2.00 4.00 6.00 8.00 10.00

China

India

UK

Japan

Brazil

Russia

US

Kenya

South Africa

REAL GDP GROWTH RATESGDP Growth (Real) 2017 GDP Growth (Real) 2016*

- 1.00 2.00 3.00 4.00 5.00 6.00 7.00

Euro Zone

BRICS

ASEAN 5

EAC

SSA

SADC

REAL GDP GROWTH RATESGDP Growth (Real) 2017 GDP Growth (Real) 2016*

Source: IMF World Economic Outlook October 2016Source: IMF World and Regional Economic Outlook - October 2016

Kenya not on top slot in FDI Destinations

- 5,000 10,000 15,000 20,000 25,000 30,000

Mozambique

Tanzania

Uganda

Kenya

Zimbabwe

Seychelles

2010-2015 FDI - USD in Million

-

500,000

1,000,000

1,500,000

2,000,000

2002 2004 2006 2008 2010 2012 2014 2016 2018

KENYA DIASPORA REMITTANCE -USD MILLION

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2011 2012 2013 2014 2015 2016

Gross Foreign Reserves in Kshs Million

- 10,000 20,000 30,000 40,000

Nigeria

Egypt

Morocco

Dem. Rep. of the Congo

Botswana

2010-2015 FDI - USD in Million

Macros

0.00

2.00

4.00

6.00

8.00

10.00

Kenya Tanzania Uganda Rwanda Burundi

Inflation - EAC 5

2015 2016 2017*

(2.00) -

2.00 4.00 6.00 8.00

Inflation - World key economies

2015 2016 2017*

(20.00)

(15.00)

(10.00)

(5.00)

-Kenya Tanzania Uganda Rwanda Burundi

Current A/C as a % of GDP -EAC 5

2015 2016 2017*

Source: IMF World Economic Outlook October 2016

(8.00)

(6.00)

(4.00)

(2.00)

-

2.00

4.00

6.00

8.00

10.00

USA UK Japan Germany India China South Africa

Current A/C as a % of GDP - World key economies

2015 2016 2017*

How the key Sector Performance tie to GDP growth

Agriculture, Manufacturing, Transport and Storage and Electricity Supply –sectors have expanded in last two years and are the key winners

Wholesale and retail trade, Real estate & Information and Communication sector contribution to GDP has shown a decline over a period of last two years

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

Agriculture,forestry and

fishing

Manufacturing Transport andstorage

Wholesale andretail tradewith repairs

Real Estate Financial andInsuranceactivities

Education Construction

Top Sectors contribution to GDP in %

2016* 2015 2014

0.00%5.00%

10.00%15.00%20.00%25.00%

GDP Growth Rates YOY

Growth Rate YOY 2016 Growth Rate YOY 2015 Growth Rate YOY 2014

Source: Kenya National Bureau of Statistics

Agriculture accounts for 30% of GDP

6,000

6,200

6,400

6,600

6,800

7,000

7,200

7,400

2013 2014 2015 2016

Sugar Cane Marketed Production (in 000s Tonnes)

-

5

10

15

20

25

30

35

40

45

2013 2014 2015 2016

Coffee Marketed Production (in 000s Tonnes)

-

100

200

300

400

500

2013 2014 2015 2016

Marketed Production (in 000s Tonnes)

Tea Marketed Production Horticulture Marketed Production

Maize Marketed Production

Source: Kenya National Bureau of Statistics

Trend indicators

26%

010002000300040005000

NSE 20 Share Index

2016 2017

Balance of Trade2012 2013 2014 2015 2016

Exports of goods (FOB) 517,847 502,287 537,236 581,045 578,632 Growth -3% 7% 8% -0.4%Imports of goods (CIF) 1,374,587 1,413,316 1,618,321 1,577,557 1,432,420 Growth 3% 15% -3% -9%Net Export -856,740 -911,029 -1,081,085 -996,512 -853,788Total trade 1,892,434 1,915,603 2,155,557 2,158,602 2,011,052Cover Ratio 38% 36% 33% 37% 40%

In Kshs Million

155160165170175180185

Consumer Price Inflation: Base period February 2009=100

2016 2017

Mobile and Internet Indicators 2016 2015Mobile Subscription Penetration 88.20% 85.40%Internet Penetration 89.70% 54.20%Mobile money transfer agents 161,583 143,946 Mobile money service subscribers 32 million 26.8 millionMoney Transaction on Mobile Money platforms (Kshs Billion) 3,567 2,816

Source: Kenya National Bureau of Statistics

Horticulture (Cut Flowers)

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Qty Sold (MT)

2016 2015

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

Kshs in Million

Value (KSh Million) 2016 Value (KSh Million) 2015

IndustrySize 2016 2015

January 8,399 4,379 February 8,073 6,117 March 8,462 8,515 April 5,389 4,304 May 4,780 4,432 June 6,031 3,244 July 3,374 6,363 August 4,910 3,555 September 4,465 4,578 October 6,073 7,144 November 5,355 5,520 December 5,520 4,786 Total 70,830 62,938

Value (KSh Million)

Commodities Unit 2012 2013 2014 2015 2016Horticulture Kg 217.69 193.33 208.86 204.01 206.00 Coffee, Unroasted Kg 427.46 334.17 418.98 468.37 463.41 Tea Kg 268.96 235.17 206.39 290.85 260.04

Average Export Price Realisation

Source: Kenya National Bureau of Statistics

Tourism and Hospitality

- 50,000

100,000 150,000 200,000 250,000 300,000 350,000 400,000

Asia Middle East Africa andIndianOcean

Americas Oceania Europe

AIR TRAVEL ARRIVALS BY REGION

2014 2015 2016

861,395 748,772 874,885 N/a 3,302 2,717 N/a 431,744 429,749

861,395 1,183,818 1,307,351

CruiseCross BorderTotal

Total no. of International Arrivals2014 2015 2016

Air

Source: Kenya Toursim Board

Trends and Market Updates Increase in franchising by foreign brands (Best

Western International has given use of its brand toMeridian Hotel and Mombasa’s Creekside Hotel)

Sarovar Group from India announced plans toopen Budget Hotel under Hometel Brand inNairobi by 2019

Hotels in pipeline include Park-Inn, LaziziPremiere, Pullman and Hilton Garden Inn

What will drive growth in Tourism Planned direct flight from JKIA to USA

Major conferences planned (Africa SugarConference, American Society of Travel AgentsDestination Expo, Africa Renewable EnergyLeaders Summit, SKAL International WorldCongress

Growth in conference tourism and Hotelsexpected to take a large share of the growth

Disclaimer

Information provided here is of general nature and is not intended to address the circumstances ofany particular individual or entity. The Information compiled in this document has been drawnand interpreted from the Budget Statement by Cabinet Secretary for National Treasury on 30March 2017, Finance Bill 2017, Economic Indicators issued by Kenya National Bureau of Statistics,Central Bank of Kenya website, UCTAD Knowledge resource website, East Africa CommunityCustoms Resources. A misstatement or omission of any fact or a change or amendment in any ofthe facts and assumptions we have relied upon may require a modification of all or a part of thisdocument. Although we endeavor to provide accurate and timely information, there can be noguarantee that such information is accurate as of the date of it is received or that it will continueto be accurate in future. No one should action such information without appropriate professionaladvice and after a thorough examination of the particular situation

FCA. Simant PrakashInternational Contact Partner

CPA. Jitendra SwalySenior Partner, Kenya

CPA. Gurudas AnvekarSenior Partner, Tanzania

CA. Dipak ChatterjeeSenior Partner, India

CA. Vijay SastryDirector, Canada

Kamal IyarooDirector, Mauritius

CA. Imran JumaDirector, Kenya

Kenya | Tanzania | Mauritius | Canada |India

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