the kenya private sector alliance and its role in promoting private sector investment in kenya...

THE KENYA PRIVATE SECTOR ALLIANCE AND ITS ROLE IN PROMOTING PRIVATE SECTOR

INVESTMENT IN KENYAPRESENTED BY

ENG. JULIUS M. RIUNGUIMMEDIATE PAST CHAIRMAN, KEPSA ENERGY

SECTOR BOARD AT

THE WEPEEX 2016 PRESS CONFERENCE HELD AT FAIRMONT NILE CITY HOTEL ON 19TH

OCTOBER 2015

INTRODUCTION TO KENYA PRIVATE SECTOR ALLIANCE-1

• Kenya Private Sector Alliance (KEPSA) is the apex body for the private sector in Kenya founded in 2003 as a limited liability membership organization.

• KEPSA offers a unified voice for the Kenyan Private sector towards easing the cost of doing business and improving the overall investment climate.

• It brings together over 100,000 members – through Business Membership Organizations (BMOs) and direct corporate membership


• KEPSA’S strategy is to pursue an enabling business environment by ensuring Year-on-Year improvement on key global business rankings:

• Ease of Doing Business Index (World Bank) from 136 (2014) to 50 and below (2024)

• Global Competitiveness Index (World Economic Forum) from 96 (2013) to 50 and below (2017)

• Bribery index (Transparency International) from 146 (2013) to 100 and below (2024)


• GDP Growth Rate - 5% to 7% by 2018 and 7% to 10% (2024).• Human Development Index - 100

and below (2024)

KEPSA ADVOCACY PROGRAMS-1

• We do this through our Public Private Dialogue Platforms. KEPSA Advocacy platforms include:

• Semi – Annual Presidential Roundtable • Ministerial Stakeholders Forum held every two

months• Speaker’s Round Table ( both Senate and National

Assembly)• Annual Council of Governor’s Summit• Annual Judicial Round Table

KEPSA ADVOCACY PROGRAMS-2

• Regional Ministerial Stakeholder’s Forum • Regular engagement with all other Government

Agencies including: Attorney General (AG), Kenya Revenue Authority (KRA), Energy Regulatory Commission (ERC), Office of Auditor General, Kenya Power and lighting Company (KPLC), Department of Immigration among others.

• Engagement forums with Departmental Committees of both the National Assembly and the Senate to ensure that law makers understand the importance and impact of policy on the business environment

ORGANIZATION OF KEPSA-1

• Our members are organized into 16 sector boards that hold direct engagements with policy makers

• Each sector meets with its respective ministry to identify and address policy issues key to improving the business environment.

• Those policies that require more than one ministry are referred to the inter-ministerial stakeholders forum and if unresolved, they are referred to the ultimate platform which is the presidential roundtable chaired by the President.

ORGANIZATION OF KEPSA-2

• To ensure unity of purpose and private sector representation in regional projects the private sector has a say in regional matters through the Regional Ministerial Stakeholders forum

• Over time, KEPSA has cultivated a unique relationship with policy makers at all levels of government enabling Kenya’s Private Sector to directly articulate its policy needs to key decision makers

Overview of the Private sector In Kenya-1

• The Private sector in Kenya is well developed, vibrant and continues to record a remarkable consistent growth in the Sub-Saharan Africa even though not to the full potential.

• The Private Sector in Kenya is dichotomized into two: formal with a fairly strong and large business sector with large and medium corporates, and informal with small business sector that is composed of SMEs.


• The private sector activities in Kenya transverse all the sectors of the economy namely: agriculture, mining, trade, infrastructure,

tourism, financial services, transport and communication, attracting both local and foreign investors.


• There is an increasing trend of FDI especially within the opportunities available in initiatives such as the recently concluded Global Entrepreneurship Summit (GES) and public private partnerships (PPPs) in Energy, Infrastructure, Manufacturing, among others.

• In a more promising note in growth of the private sector and FDI in Kenya, UNCTAD’s World Investment Report 2015 indicates that Kenya’s FDI grew by 95% in 2014 from $ 49.9 billion in 2013 to $ 97.8 billion.

Role of KEPSA (Private sector) in Foreign Direct Investment in Kenya

• Main type of investments• There are four main types of investments in Kenya:

– Resource Seeking (FDI in natural resources, FDI seeking low cost or specialized labour);

– Market Seeking (FDI into markets previously served by exports or closed, FDI by supplier companies following customers overseas, FDI aims to adopt products to local tastes or use resources);

– Efficiency Seeking (rationalized or integrated operations leading to cross-border specialization); and,

– Strategic Asset Seeking (acquisitions and alliances).

Key FDI determinants

• The private sector often study a country’s competitiveness for investment by considering a number of factors and indicators, which include important elements of economic fundamentals of the country, ease of doing business indicators, quality of regulations and rule of law

FDI determinants: Attracting Foreign Investment Milken Institute Approach-1

ECONOMIC FUNDAMENTALS

EASE OF DOING BUSINESS

QUALITY OF REGULATIONS (QR)

RULE OF LAW

a). Macro performance: inflation & interest rates

a). Tax regulations/burden

a). Extent and burden of regulation

a).Legal Infrastructure

b). Openness of the economy to trade and FDI

b). Costs of starting a business

b).Corruption b). Protection of property rights

c).Education level, quality and structure of labour force

c).Costs of enforcing contracts

c).Transparency c).Protection of investor rights

FDI determinants: Attracting Foreign Investment Milken Institute Approach-2

ECONOMIC FUNDAMENTALS

EASE OF DOING BUSINESS

QUALITY OF REGULATIONS (QR)

RULE OF LAW

d).Physical infrastructure

d).Costs of resolving insolvency

d).Extent of controls on Capital

d).Political stability and predictability

e).Degree of globalization

e).Accounting and disclosure requirements

e).Foreign currency regulations

e).Tribal conflicts

f).Size of the market accessible

f).Costs of terrorism and crime

f).Certainty on costs of regulations

KEPSA’s/Private Sector Role in attracting Foreign Investment-1

• The private sector in Kenya, led by the Kenya Private Sector Alliance (KEPSA), has been working together with the government, development partners and other stakeholders to improve all these factors and conditions and therefore make Kenya an attractive place to invest in, grow business and create jobs and wealth.

• The Milken Institute has been involved in measuring countries’ competitiveness since 2009 by pulling together a composite of different factors and indicators that are compared across over 120 countries globally.

Economic Fundamentals Ease of Doing Business Quality of Regulations Rule of Law

2014 5.64 7.31 5 6

2013 3.23 3.84 4.3 4.3

2012 3.09 3.21 4.1 3.9

2011 3.32 3.37 4.4 3.9

2010 2.95 3.42 4.9 4.1

2009 3.05 3.95 4.8 4.2

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

Scor

e 0-

10KEPSA’s/Private Sector Role in attracting

Foreign Investment-2

• From the trend (see figure above), Kenya’s score across the four groups of indicators has been improving albeit at a slow rate but recently registered tremendous improvement in 2014. This is largely the result of positive reforms that the country has been implementing since 2013 following close and stronger collaboration and partnerships between the private sector and government.

• .



• Kenya’s score (measured between 0 and 10) rose to above average score in all the four composite indicator measurements. For instance, our score in economic fundamentals shot up from 3.23 in 2013 to 5.64 out of 10 in 2014; improvements in the ease of doing score almost doubled from 3.84 to 7.31; quality of regulations from 4.3 to 5 and rule of law rose from 4.3 in 2013 to 6 out of 10 in 2014

Spurring economic growth

• Within EAC bloc, Kenya’s GDP accounts for 40% of the total regional GDP.

• Kenya’s access to EAC market has provided a big impetus to Kenya’s economic growth and investors locating in Kenya have the added advantage to expand their trade outside the domestic market into the regional market.

• The Kenya private sector is deeply rooted in the discussions leading to deeper economic integration within EAC and the wider Tripartite bloc of about 600million people market.

Policymaking Process and Rule of Law

• Policies provide a framework for doing business and the Private sector through such platforms as those provided by KEPSA engages the policy formulation process to ensure business supportive policies are enacted.

• The Private sector in Kenya believes in the Private-Public dialogue to foster growth and investment, and this has informed the process of reforming investment climate in Kenya.

Policymaking Process and Rule of Law

• The private sector in Kenya is also involved in promotion of responsible business practices in such areas as labour relations, market environment and anti-corruption to make sure there is strict adherence to ethical business practices and rule of law to promote property protection, investor protection, political stability and promoting peaceful tribal coexistence.

Improving competition for sound investment

• Business thrives where in an environment where there is healthy competition for all the market actors. The private sector role in Kenya is to promote a competitive investment climate that improves efficiency, encourages innovation and drives productivity.

• The private sector has been vocal in the removal of market protectionist policies and laws, and or any anti-competitive behaviors in the market and thereby engendering a culture of competition in Kenya.

Building Human capital

• Human capital plays a big role in creating a healthy investment climate in an economy, and in large extent shapes the quality of production in the market.

• The private sector has been committed to promoting and building the capacity of human capital in the country through education and training.

• Through contribution to policies that support skills enhancement and investing in the same, the private sector has enabled the market to have a supply of skilled and educated manpower.

Building Human capital

• The Private sector has immensely invested in primary, secondary, university and TVET institutes to ensure that the market and subsequent investments are served by seasoned personnel.

• Private universities are famous in the country because of the quality they offer which is gauged by their graduates’ performance on job.

• Nevertheless, the private sector engages graduates in internships and industrial attachments that impacts the recipients with hands-on job experience and helps in building their career in the long run.

Research and development-1

• One guiding principle of investment is providing timely and appropriate solutions to solve particular needs in the society, which are achieved through research and development.

• The private sector in Kenya has been vibrant in development and deployment of new technologies and innovations in order to respond to market pressures and stay competitive in the country and the region.

Research and Development-2

• Responding to market needs has continuously called for incorporating of new systems, knowledge, technologies and practices in business operations to boost efficiency, productivity and profits.

• Research and development have inspired the private sector in making informed investment decisions and re-engineering business processes

Leading Trade and Investment Delegations and Forums-1

• The Private sector has widely been involved in Trade and Investment platforms in bringing together potential Investors and mapping opportunities in the country. The aim is to ensure private sector inclusion and prioritization in development agenda and projects in Kenya.

• Some of the trade and investment delegations and forums include:

• Global Entrepreneurial Summit (GES): One of a kind to happen in Kenya, presided by the President of USA ,President Obama. A Pre-GES summit brought together more than 100 investors. GES saw investment pledges, mentorship of local entrepreneurs and has opened Kenya to the global investment niche.

Leading Trade and Investment Delegations and Forums-2

• Tokyo International Conference on African Development (TICAD): Is a huge platform for Japan’s interaction with Africa. Kenya, particularly the private sector are honoured to be part of organizing and hosting TICAD in 2016.

• Northern Corridor Integration Projects (NCIP): Is a concerted effort of the Private Sector across/along the Northern Corridor and within the EAC in identifying common projects and offering Private sector inclusion in implementation.

KENYA ENERGY SECTOR

Petroleum

Electricity

Ministry of Energy & Petroleum

(responsible for policy matters)

KenGen (74% GoK) - (1639MW)IPPs (572MW)

Upcoming IPPs

Generation

Transmission (KETRACO)

Energy Regulatory Commissio

n(ERC)

(responsible for

regulating the energy

sector)

Marketing (NOCK) Private)

Transportation (KPC)

Refinery (KPRL)

Rural Electrificati

on (REA)

New Energy Bills being enacted to align the sector to the New

Constitution…

Distribution (KENYA POWER)

Geothermal Development Company(GDC) established

in 2009 to accelerate Geothermal Resource

Assessment

Energy Tribunal

Means of Developing Electricity Projects

•Under Least Cost Power Development Plan(LCPDP).

•Under PPP framework- competitive or privately initiated investment proposals.

•Under Feed-in Tariffs Policy (FiT)

Synopsis of Energy situation and Resources in Kenya-1

• 43.18% of generation is from hydropower. Erratic rainfall causes shortfall in power available from hydro resources. The imbalance is largely addressed through importation of very expensive Emergency Power, of which currently the existing capacity is 120MW.

• Only 23 per cent of Kenya’s population have access to electricity. While this is very low, the rural population having access to electricity (5 per cent) is serious and requires an immediate intervention.

• Wood fuel and other biomass account for 68 per cent while kerosene accounts for 80 per cent of all energy sources in Kenya.


• Currently, there are 122 approved private renewable energy feed-in-tariff projects by Energy Regulatory Commission (ERC).

• There is a projected demand of 5,000MW by 2017. However, with targeted access of 40 per cent of population connected by 2020 and 98 per cent by 2030, opportunities abound for public private partnerships and scaling up PPPs to increase access, transmission and distribution networks.

• Out of the total installed effective capacity under average hydrology of 2,123 MW, 503 MW or 28.2% is generated by Independent Power Producers, 1,611 MW or 76% is generated by KenGen, and 30MW or 1.4% is Emergency Power.


• In the renewable sub-sector, there is a total installed hydro power capacity of 820 MW.

• The small-scale hydro potential is estimated at 3,000MW of which less than 30MW have been exploited and only 15MW supply the grid.

• Wind installed capacity is 26MW to be increased to 2036MW by year 2030.


• On Geothermal, there exists a 7,000-10,000MW potential with current installed capacity ranging at 588 MW and 1GW capacity is targeted to be installed by 2018.

• On Solar energy, Kenya has a geographical advantage that gives it a comparative advantage in production of solar energy that remains untapped. Kenya receives on average 4.5 kWh per square metre daily. However, most of this solar energy goes to waste as it remains untapped.


• Renewable energy targets by 2030 amounts to 19,200MW. Therefore, there are more opportunities for independent private sector investments in power production to scale up the commercial private power generation component to meet the projected growth in renewable energy demand and to create an East Africa power pool.

• In 2014, Kenya’s investment in renewables was estimated to be $ 1.3 billion compared to South Africa’s $ 5 billion. 90% of the $ 1.3 billion went into 310MW Lake Turkana wind project.

Renewable Energy Projects

• Generation of projects under Feed-in Tariffs• Standard PPAs and Connection Guidelines

prepared.• GoK facilitating investors with resource

assessment.• Wind data logging on-going, to install 100

metre mast in high potential areas for pre-investment data.

• National atlas on small hydro almost ready.

Feed-in-Tariff (FiT) Policy

• Instrument to promote generation of electricity from Renewable Energy sources

• FiT Policy established in April 2008 and reviewed in Jan 2010, and Dec 2012

• Reviews to accommodate new technologies, as well as changes in cost of equipments and money

• Model PPA and Connection guidelines also done• Exploring the implementation of Energy Auctions

Investment opportunities in Kenya’s renewable energy-1

• The above solutions present great opportunities for investment in green energy development. The Government of Kenya in collaboration with the private sector has put in place favourable and necessary policy and regulatory frameworks that encourage and facilitate private investment in the following specific areas:


• Urbanisation sector: Urban electrification of new centres without access could be done through the delegation of public services to private sector investors. Renewable energy production to remote urban centres could be carried out by neighbouring hydropower sites, by hybrid thermal-photovoltaic power plant, or by the distribution of solar kits in areas that are unable to be connected to the grid in the short-term.


• Commercial sector: The commercial and handicraft sector has a considerable need for electricity (welding, preservation of milk etc). Urban development demands ever-greater energy provision for small businesses and boutiques. For shopkeepers in remote areas who are affected by power cuts, an option with considerable economic potential could be provision of small photovoltaic generators.


• Agricultural sector: The processing and conservation of fruits, vegetables or milk in both rural and urban areas is a way of achieving economic development. The use of renewable energy sources is a solution to the energy problems the sector is suffering.


• Health and Education sector: Quite a number of schools, hospitals and health centres in the rural areas of Kenya do not have access to energy. There is a considerable public health and education challenge in supplying these buildings with a minimum level of energy for lighting, refrigeration, and sanitation.

• Tourism sector: Access to solar energy or small-scale hydropower for remote tourism destinations would improve the quality of accommodation and also promote the development of ecological tourism.

GOVERNMENT OF KENYA SUPPORT

• Favourable policy and regulatory frameworks for energy provision

• GoK is committed to increasing access to modern energy, and will use Renewable Energy solutions as much as possible

• Development partners and the Private Sector are key partners in energy provision, and as such are Encouraged and Facilitated to participate in energy sector in Kenya

Other investment opportunities

• Developing gas and coal projects for electricity generation

• Maintaining the existing hydropower plants.• Bulk procurement of marketing of petroleum

products• Management and operation of strategic oil

reserves

Conclusion

• The private sector will continue engaging different stakeholders in coming up/addressing matters contributing to a healthy investment climate in the country, in order to both increase competitiveness as well as attract more investment in Kenya’s economy.

• This will be achieved through progressive attention at policy and legislative reforms to ensure the right environment for business is created.

THANK YOU FOR YOUR ATTENTION

WELCOME TO KENYA

the kenya private sector alliance and its role in promoting private sector investment in kenya...

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