Kenya

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Kenya is about to embark on the second phase of its Vision 2030 national plan aimed at achieving middle-income status by that year. The first five-year medium-term plan, from 2008 to 2012, hit a few roadblocks along the way – the global financial crisis, the Euro crisis, post-election violence in 2009, and a coalition government at home that made rapid progress more difficult.

The double-digit growth Vision 2030 needed in order to achieve its goal – moving the nation to a middle-level income plateau and a higher quality of life – seemed to move further beyond the country’s grasp. Yet despite these obstacles, the na-tion’s progress in that first stage is clearly visible today, and the inspiration its people are drawing from these advances is palpable. In Kenya today, Kenyans can taste success.

In 2010, the World Bank predicted that the country was at the tipping point for robust growth. The groundwork – a new constitution, a telecoms revolution, regional integration, and massive investment in public infrastructure – was being laid for an economic resurgence. Since then, new highways have been completed to Ethiopia and Tanzania, advances made in the Lamu Port-South Sudan-Ethiopia Transport Corridor project (known as LAPSSET), ambitious power generation and irrigation projects have been launched, a new ter-minal has been constructed at Nairobi’s main airport, and a new standard-gauge railway is in the works. The results? Kenya jumped 48 places on the World Bank’s Logistics Performance Indicator for 2014, and the country estimates that the time taken to move goods from Mombasa to Uganda has fallen from 18 days to just four.

despite a challenging start to its vision 2030 national plan, kenya is now in the midst of

a new phase with solid foundations to put it on track to achieving its full potential

lessons learned

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PROJECT TEAM: Blanca Barajas, marketing; santiago mitchell, Journalist; and santiago f. ordieres, publisher

Vision 2030 includes the development of a national spatial plan for sustainable land use

Kenya

And while not yet in double figures, the economy has sustained a growth rate above 5 percent, even during last year’s election. Banking and telecommunications have rapidly expanded, in many cases beyond the country’s borders. Regional integration within the East African Com-munity (EAC), a fast growing market of 130 million people, has gained momentum and created a raft of new business opportunities. The new constitutional framework has taken root, bringing about structural reforms, and most importantly the devolution of power to the states; 47 new state governors celebrated their first year in office in April 2014. And while the middle class is not expanding as quickly as envisioned in the national plan, it is nearly doubling each year.

“In the last year and a half, we Kenyans have seen some of the most striking events of our national life. There have been achievements to lift the hearts of every Kenyan: we have finally established our new constitu-tion, and devolved power and resources, as it demands,” says President Uhuru Muigai Kenyatta, who assumed office in April 2013. “This – perhaps the most extensive reorganization of an African state in peacetime – is a remarkable achievement by any standard... Our success – the fact that our county governments were able to begin work so soon after last year’s elec-tions – bears witness to the goodwill of Kenyans, the skill with which the transition mechanisms were designed, and the devotion of my government to the cause of devolution. It is the firmest of replies to those who doubt this administration’s transformative agenda.”

Perhaps Vision 2030’s most important transformation in its first term was the laying of a foundation for growth, and this was not accidental. The plan is divided into three pillars: the political, which aims to move the nation forward in a unified manner, while promoting transparency and integrity; the economic, which has identified seven priority sectors; and the social. Yet Vision 2030’s creators had the foresight to realize that these pillars would need a solid foundation comprising enablers of economic growth such as transport infrastructure, ICT and regional integration.

In the end, it is this foundation that has most contributed to the feeling of optimism Kenyans are experiencing today, and the positive response the country has received in the international arena; it’s the feeling of possibility.

“The days of power rationing and water rationing in Nairobi are over. I would say the drivers of transformation have kicked in,” says James Mwiangi, Chairman of Vision 2030 and CEO of Equity Bank. “My feeling is that Kenya is no longer at the tipping point. The evidence I would put on the table is the significant number of companies that have chosen Kenya as their headquarters for Africa – the IMF, the World Bank, IFC, General Electric, IBM and Google. I can speak of 28 other companies of that nature. This is a strong indication that the tipping point, the inflexion point as it were, has delivered the desired objective.”

Kenya LESSONS LEARNED

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universal ict access and africa’s first smart city

Universal access to ICT forms part of the main objectives of Vision 2030, according to Fred Matiang’i, Cabinet Secretary for ICT. “This will propel Kenya from a developing to a middle-income country in the next few years,” he states.

Indeed, with almost 100 percent telecoms connectivity (the percentage of households with at least one mobile phone increased 30 percent per year from 2005 onward) and with an Internet pen-etration of approximately 16 million, ICT services have become enablers of Kenya’s development.

“There has been substantial infrastructure improvement in recent years and there is more to come. This has been a major contributor in encouraging companies to operate in the country and further expand in the region. The ICT sector is a key part of infrastructure development, generating investment and reducing the cost of doing business,” says Matiang’i.

Today, Kenya is host to regional offices for the world’s big-gest technology companies, including Microsoft, Google, Cisco, Oracle, IBM and SAP. The country is also a premier business process outsourcing (BPO) destination, dominated by strong lo-cal companies such as Kencall, Horizon Contact Centers, Direct Channel, TechnoBrain, Adept Systems and Craft Silicon, a leading software development house.

Still, there is work to be done to deepen Internet penetration, says Matiang’i. The construction of a national fiber-optic backbone linking all 47 counties is underway, and the government’s ICT Masterplan 2017 includes plans to construct ICT parks and digital villages throughout the national territory for the provision of low-cost ICT services. Additionally, the Konza Techno City mega-project is now in the initial development phase and is expected to create the “Silicon Savannah” of Africa 60km from Nairobi.

Matiang’i says that Konza will be Africa’s first smart city. The proposed development includes a BPO park, convention center, retail space, hotels, and residential facilities. “Konza will open up many opportunities and it is part of the strategy to position Kenya as a technological hub,” says the cabinet secretary. Kenya boasts a potential ICT market of $500 million, and as a regional ICT hub it offers significant market potential in the East African Community, where penetration rates lag behind.

China has been instrumental in positioning Kenya on Africa’s ICT map, adds Matiang’i. “Chinese investment in ICT, energy and infrastructure has increased international attention to the country’s development. Its concentrated investment in telecommunication infrastructure has accelerated development to a degree that oth-erwise would have been impossible,” he concludes.

“there has been substantial infrastructure improvement in recent years and there is more to come”

Fred Matiang’iMinister of Information, Communication and Technology

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An iconic national landmark, the KICC features state-of-the-art facilities that assure comfort, convenience and the utmost professional service for visitors and exhibitors alike. Located at the heart of the capital’s central business district, for more than four decades the KICC has successfully hosted numerous high profile events and consolidated its position as an internationally renowned venue for meetings, incentives, conferences and exhibitions (MICE).

LOOKing fORwARd: invEsTMEnT And ChinA

Kenya has now entered Vision 2030’s second five-year term; it is a time for reflection on the lessons learned so far. Professor Gituro Wainaina, Acting General Director of Vision 2030, identifies the human element, the intangibles, as weaknesses. “In the end, we found that the Vision’s structure was good – three pillars and a foundation. But it lacked what we call the soft part of it. What defines us as a country? How do we integrate issues of integrity, how we do we improve the ease of doing business? Perhaps this is the biggest challenge we have, addressing the soft part of the Vision.”

James Mwiangi, Professor Wainaina’s colleague, says Vision 2030 should be a people-driven initiative. “I think we learned the need to anchor the aspiration, the dream, the vision, in the people. A transformation of this magnitude requires more than just government input and this is where the private sector plays a key role. The enactment of the Private-Public Partner-ship Act is what is enabling airports, ports, railways and other infrastructure to be developed by the private sector,” he states. Mwiangi says Kenya has also learned that strong bilateral relationships with countries such as China are very helpful.

To improve the ease of doing business, Kenya is now developing a single-window approach. In May, it opened a single electronic trade window to allow importers and exporters to complete all documentation online, which will reduce clearance times at Mombasa’s port and Nairobi’s airport. Similar systems are planned in other EAC states with the eventual aim of creating a single EAC-wide framework.

Moses Ikiara, Managing Director of KenInvest and a member of the team that created Vision 2030, says his agency is also creating a one-stop shop where information on investment opportunities in all 47 counties can be obtained, and where all of the red tape involved with moving forward with those investments can be handled.

“Investment is critical in achieving the 10 percent per annum we had hoped to achieve by 2012. We estimated that we needed an investment to GDP ratio of 32 percent. Figures vary, but we are now between 20-22 percent. The target for us at KenInvest is to reach 30 percent by 2017. It’s an ambitious target but we feel there is potential to achieve that,” he states.

China is now Kenya’s largest source of FDI and its second largest trade partner. Chinese investment in highways, railways (a $3.8 billion railfunding deal was reached in May) and large-scale projects like the Safaricom stadium has been significant. Many Chinese companies are now entering the country for smaller projects, mainly in construction, according to KenInvest’s boss, who says Kenya’s manufacturing and energy sectors offer also “rich investment opportunities” for new investors.

As Kenya pushes ahead with the second term of its Vision 2030, it

is clear that the country is fulfilling the World Bank’s 2010 prediction. As President Kenyatta says, “The fact of the matter is that we are a freer, more prosperous country than we were a year ago. There is no doubt that we are closer to fulfilling our potential now than we were a year ago. These facts have been recognised and given due weight by our friends and investors abroad, as they showed their faith in our future by oversubscribing our initial Eurobond offering. That faith in Kenya is not misplaced.”

China is now Kenya’s

largest source of FDI and

is its second trade partner.

President Xi Jinping welcomed

Kenyan President

Uhuru Kenyatta

on his first official visit to China in

2013, during which deals worth $5bn were signed


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There are big things going on in Kisumu. At the epicentre of Africa’s most important invest-ment bloc, the Kenyan county on the shores of Lake Victoria is putting in place the infrastructure to take advantage of its location as gateway to the lucrative and growing markets of East and Central Africa. A new local government is ready to launch the county’s economic future, envisioning an ag-ricultural and industrial powerhouse that can send cheaper exports to the hinterlands.

Jack Ranguma, Governor of Kisumu County, explains: “Today the focus is on Africa as the next frontier of investment. There are three areas where the population growth is the highest and which have greater dynamism: Southern Africa; East and Cen-tral Africa, which incorporates COMESA members DRC, Burundi, Kenya, Tanzania, Southern Sudan, and all that region, including Ethiopia; and finally, West Africa, where there is already a sufficient amount of growth. But economists worldwide say that the area with the greatest potential of all three will be East and Central Africa, the COMESA area.”

If this is true, says Governor Ranguma, then Kisumu, as the natural commercial hub for this re-gional market, is set for a growth explosion. “Kenya is the leading economy in East and Central Africa, and it is connected to the rest of the East African Community through Kisumu,” Ranguma says from his office in Kisumu City, Kenya’s third largest city and the location of the county’s new government.

The major commercial center in West Kenya, Kisumu is a fitting location for this new trade hub. The county’s name comes from the Luo word Kisuma, meaning “a place where people meet to exchange goods”. Ranguma says his government has identified water routes to connect the

county with both the Indian Ocean and the Atlantic Ocean, which run from Lake Victoria along the Kagera River through Rwanda and Burundi, and on through the Democratic Republic of Congo on the Congo River. These routes will put an end to the more costly land transit, using Kisumu’s rail terminal to move goods from other parts of Kenya to the lake.

“With the standard gauge railway which terminates in Kisumu, we will put goods on the ferry, and all the imports will go through the Port of Kisumu. This is a great opportunity for the people of Kisumu,” says the governor, who has already signed agreements with the na-tional government and the Kenya Port Authority to develop a new port in the city and other ports throughout the county, in-cluding facilities for ferry transport. The Kisumu government is also collaborating with other counties on Lake Victoria to invest in a more comprehensive ferry system, which will be designed by an Australian firm.

To produce the goods for the inte-rior, the Kisumu government has devel-oped a special economic zone to serve the East Africa Community. Kenya’s two other economic zones are located on the

country’s eastern and southern coasts. “Industries in Kisumu will produce here and put their goods on the lake. From there, they can be distributed across the entire COMESA region. The final price of the goods will be less than half of those produced in Nairobi,” says Ranguma, who is planning the development of an agribusiness export industry that will represent a good portion of these goods.

Nearly 70 percent of the rivers that feed into Lake Victoria run through Kisumu County, creating fertile silt and mineral-rich soil. The northern and eastern fringes of the Kano Plains play host to some of Kenya’s most produc-tive sugarcane fields, and Ranguma’s government is planning to implement a productivity program to increase sugar yields, while also promoting the cultivation of coffee, fruits, sorghum and cotton – crops that offer increased added agribusiness value in the form of sugar alcohol, processed foods, brewing, and textiles.

Kisumu is also set to benefit from expanding tourism, one of the seven pillars of growth earmarked by Ranguma’s administration. The county is fast developing as a tourist destination on the Western Circuit, which runs from the Maasai Mara in the south to Turkana in the north and includes attractions ranging from Lake Victoria, Ndere Island National Park and the Nyabondo mesa. Kisumu is also said to have one of the best sunsets in the world: the lake reflects the hues of the waning afternoon, producing a spectacular multicolored effect.

Kisumu International Airport can deliver international tourists di-rectly into the heart of Kenya’s major attractions, says Governor Ranguma. “With lake transport and the airport, it is easier to go to Maasai Mara from Kisumu. It takes two to three hours, whereas from Nairobi it takes eight hours. With lake transport, you can reach the Serengeti, the other side of the wildebeest migration, in less than six hours. Getting there from Nairobi takes 16 hours,” he says.

The development plans underway for Kisumu County represent the new face of Kenya, says the governor, one which guarantees national growth. “To become a middle-income economy, we need to grow at a rate of 10 percent. We have given ourselves very ambitious plans as a country to get to that level of growth, and it is the counties that will give Kenya the chance to achieve it,” he states. “Each one is trying very hard to grow its own economy. Devolution is a real driver for growth, and I believe that this new crop of governors will bring great change to this country.”

the gateway to the expanding marKets of east and central africa

kisumu rises

Nearly 70 percent of the rivers that feed into Lake Victoria run through Kisumu County

“today the focus is on africa as the next frontier of investment. But economists worldwide say that the area with the greatest potential will be east and Central africa, the Comesa area”Jack Ranguma,Governor of Kisumu

From the urban delights of cosmopolitan Nairobi to the flamingos of Lake Nakuru and the elephants grazing below Mt Kilimanjaro at Amboseli, Kenya’s famed attractions are well documented. The Masai Mara National Reserve attracts thousands of viewers each year to the annual wildebeest migration, while thousands more flock to the coral reefs and beaches of Mombasa. In fact, the country welcomed 1.5 million international visitors in 2013, and figures like these have helped convert the tourism sector into one of the key drivers of the Kenyan economy.

Today, the tourism sector is the second largest source of foreign exchange earnings, contributing 12 percent per year to national GDP and employs 4.1 percent of the population. President Kenyatta is aiming to at-tract 3 million annual visitors by 2017, and efforts are underway to diversify Kenya’s offer for a wider market. Attracting more Chinese tourists forms part of this plan. While visitor numbers from China have been growing at about 10 percent per year, to just over 41,000 last year, Kenya is aiming for a larger share of this market: 0.1 percent of the population, or in other words, one million Chinese visitors per year.

Consequently, Chinese citizens can expect to see a lot more of Kenya in the near future. Dr Ibrahim Mohamed, Principal Secretary for Commerce and Tourism, says a promotional blitzkrieg is planned that in-cludes exhibitions and a TV advertisement campaign. “I think that the challenge is that many Chinese tourists do not know about Kenya or the facilities and attractions that we have, and I think this is because Kenya has leaned more towards the west in the past,” he explains. “So there is a lack of information and a lack of awareness, and we need to increase our presence.”

The government is also planning to expand its lucrative business tourism sector, currently the fastest growing tour-ism segment in the country. Nairobi now ranks second in Africa after Cape Town for conference tourism, and hosted 30 interna-tional conferences last year. Dr. Mohamed says several additional conference centers are planned to complement Kenya’s main venue, the Kenyatta International Conven-tion Centre (KICC).

“Kenya is quite lucky to have a cen-

tral location in Africa, so it is easily accessible in terms of air travel, and connecting east and west. Because of this, we attract a number of conferences, more than we have been able to handle,” says Mohamed.

Fred Simiyu, who heads up KICC, adds, “We are building a confer-ence centre in Mombasa, just near Mombasa Beach Hotel. We have plans to develop one in Kisumu, which is our most western town, on Lake Victoria. We believe that it can be a meeting point for East Africa as Kisumu connects Uganda, Tanzania and Kenya so we expect a lot of business to be developed there, especially among the NGOs.”

Government efforts to attract more conferences have contributed to the success of the sector, says Simiyu. “Quite a number of initiatives have been put in place in order to increase the marketing of Kenya as a conference tourism destination, and for bidding on international conferences, which has led to an increased number of conferences coming,” he explains. A

recent trip to China along with President Kenyatta to market conference tourism produced results that “surpassed” Simiyu’s expectations: “KICC successfully brought in new Chinese partners to participate in the Mombasa, BOMAS [in Nairobi] and Kisumu projects.”

Investment in transport infrastructure has also boosted the industry, while new hotels and airport expansions are also in the pipeline. A number of leading hotel chains, such as Kempinski and Radisson Blu, have set up properties in Nairobi in order to fill conference demand, something that Simiyu sees as “a strong sign of growth in this sector.”

Dr. Mohamed says the tourism sector offers opportunities for Chinese investors, especially in hotel development. “Kenya is ready for investment in tourism as well as in trade development. Our economy is fast growing. We have agreements within the East African region, we have agreements with COMESA, and we are trying to re-ally decrease the cost of doing business in this country. We are investing heavily in infrastructure, and road and rail transport as well as airports. We expect the economy to grow over 10 percent in the next couple of years, so we encourage investors from China to come and explore these opportuni-ties,” he concludes.


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east africa’s conference tourism destination of the future

Business is booming in conference

tourism

Tourism is one of the key drivers of the Kenyan economy

Samuel Kuntai Tunai, Governor of Narok County, says devolution is helping government to become more effective in reaching Kenyans. A gover-nance model ushered in by the 2010 Constitution of Kenya, and which came into full effect last year after the first election, bestows significant authority at the level of Kenya’s 47 new county governments, and recognizes the rights of communities to manage their own affairs and to promote and protect the interests and the rights of marginalized and minority groups. With more power to act, county governments are quicker to respond to the needs and demands of the people and more likely to have accurate data. Governor Tunai, since as-suming office last year, has assented to a bill allowing 19 percent of revenues generated from the Maasai Mara to be reinvested in communities neighboring the reserve to cushion them from economic strife and as compensation for preserving their land for conservation.

This is not just altruistic government, this is smart government. In addition it has taken steps to turn Maasai Mara into a year-round destination. Currently, the wildebeest migration marks the high season when 85 percent of Kenya’s 1.5 million yearly visitors arrive, yet with a wider offer and new markets, Narok County expects to attract more visitors during the other seasons, thus positioning Kenya higher on the global tourism totem pole, quadrupling its visitor numbers and, by extension, the number of workers the sector employs.

“If Kenya is to realize the double-digit growth that the Jubilee admin-istration seeks, the counties must become the centers of growth,” remarks Governor Tunai.

Narok’s new government delved into tackling the county’s most pressing

problems off the bat. Initiatives to expand infrastructure and improve delivery in priority sectors such as health and education are already underway. In the health sector, an independent audit has been performed to identify inefficiencies, and the government has become more directly involved in delivering medicines to areas where they are most needed. “Now we are able to ensure that the money we spend goes to the people, and we are better able to monitor that people are receiving services,” says Governor Tunai.

The government is also investing in education, and Governor Tunai is hoping that efforts to keep Narok’s children in school will have a positive knock-on effect on another issue of national proportion, youth unemployment. This is a cause that Governor Tunai has taken to heart: “The challenges facing the youth and women will be met and resolved gradually. Presently, Narok is grappling with youth bulge, but we are rolling out a progressive initiative that seeks to give women and youth preferential access to county government jobs and contracts for opportunities such as construction, drilling of boreholes and

water reservoirs, and access to credit and trade opportunities, among others.”A directorate of youth has been created under the governor’s office to

specifically deal with matters concerning youth affairs, and the Narok govern-ment is in the process of establishing a secretariat for youth. Governor Tunai has also been keen to learn from programs in South Africa that have had suc-cess in training and finding employment for youth-at-risk. These are aimed at reintegrating these social groups into society and giving them an opportunity for training, employment and self-sustenance, while reducing social ills.

From an economic standpoint, Governor Tunai encourages foreign in-vestment in road infrastructure that will improve access to both tourism sites and markets for agricultural producers, thus boosting the county’s two main economic drivers. He also encourages new investment in hydro and renewable energy projects and in value-added agribusiness.

“Steps to strengthen the investment climate in the county are under way, including efforts to fortify its energy supply,” says Governor Tunai. A project to produce 60MW from solar energy is launching soon, and the government is preparing new projects in hydro and bio-thermal energy as the national government works to fast track a framework for public-private partnerships.

“We want to make sure that investors have sufficient energy at a reasonable cost. As a local government, we are taking the necessary steps to ensure that we provide a good environment and infrastructure for doing business,” he says.

smart initiatives target health, education and infrastructure as focal points

“We are improving lives in narok County, one step at a time. for instance, when a mother gets treatment at a village health centre and when our children get access to high school education, or when farmers gain access to markets through improved roads – then lives are changing for the better”samuel kuntai tunai, governor of narok county


narok county, up and running

agricultural potential Further to addressing social issues, Narok’s new government has

been hands on since its election last year in creating initiatives to develop the county’s economy, in particular those aimed at building the region’s nascent agribusiness industry. New sugar mills are in the works that are projected to create employment for more than 4,000, and Governor Tunai believes ef-forts to fortify the agriculture sector, at heart of the county’s economy and its main employer, will also go far in combating youth unemployment.

“Our primary aim is to reduce unemployment statistics to base levels,” he comments, adding that investor dollars are helping to create thousands of new jobs in Narok. “This is a land of opportunities, a sleeping giant if you will.”

Governor Tunai plans to strengthen the traditional cash crop variety in the county, namely barley, wheat, maize and potatoes, through modern farm-ing practices and commoditization for increased productivity to the farmers. Historically, Narok has predominantly been inhabited by the Maasai pastoral-ist community, which still constitutes a majority of the population. The coun-ty plans to develop the beef and dairy value chains and attract investment in processing of livestock products for the local and export markets.

Evidently, value-addition is a major strategy for his government, which is looking to collaborate with foreign partners in technical transfer, in building new agribusiness and in expanding commercial agricultural prac-tice to increase yields.

samuel kuntai tunai, governor of narok county

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Maasai MaraMaasai MaraMaasai Maraseduce youseduce youseduce you

One of the world’s most splendid wildlife reserves, the

Maasai Mara is home to an extraordinary variety of wil-

dlife, large and small. Here you will see nature at its best

and feel more alive than ever, watching big cats, rhinos,

gazelles and elephants, among others, in their own raw

and real habitat. Yet the real rush comes with the Great

Wildebeest Migration, one of the Seven New Wonders of

the World, when millions of wildebeests cause the earth to

rumble as they make the crossing.

Enjoy luxurious safari lodges nestled in the heart of the

Maasai Mara wilderness, a natural heritage that Narok

County is fully committed to conserving.

NAROK [email protected]

Let


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Kenya’s banking industry stands above the crowd. A slate of reforms since 2007 has deepened its reach both domestically and abroad: reforms that were envisioned in Vision 2030, which aimed to “create a vibrant and globally competitive financial sector”. Higher levels of savings, it reasoned, would help finance Kenya’s investment needs. The plan also aimed to establish Kenya as a regional financial services hub.

iT hAs suCCEEdEd On bOTh ACCOunTs Comprised of 43 commercial banks, Kenya’s banking sector registered 15.9 percent growth in assets and 13.5 percent growth in deposits last year. In the second quarter of this year, lending rose by 22.6 percent to reach $20.4 billion. Pre-tax profits were also up in June to 13.3 percent over the previous year. The Nairobi Stock Exchange, which is ranked fourth in Africa in terms of market capitalization ($22.3 billion at the end of 2013), is the largest and most robust in the East African Community (EAC).

The banking sector transformation deepened financial penetration and introduced core capital limits, strengthening the industry’s capacity to move beyond Kenya’s borders. Ten Kenyan banks now boast a combined 282 branches throughout the East African region, where the much lower levels of financial penetration offer them the potential for further decades of solid growth.

“If you create strong banks by raising core capital, they have the choice to look for funds or margin. And believe it: margin is really a market outcome. If you cover the region, you widen the market so our banks are serving the East African Region, they are widening their markets,” explains Governor of the Central Bank of Kenya Professor Njuguna Ndung’u.

Ndung’u says that banks that have made the regional leap have continued to “grow and be strong.” They have also, through buying equity in existing banks in other countries, contributed to the creation of strong regional institutions, according to the governor.

Habil O. Olaka, CEO of the Kenya Bankers Association, says that, “The banking sector in Kenya has been the backbone behind economic growth,” and that its growth almost mirrors the economic growth of the country. The association was founded to ensure cross-border support for Kenyan banks operating in the EAC, which includes Burundi, Rwanda, Tanzania and Uganda. “Members have expanded to take advantage of the integration of the EAC as a single market. There are Kenyan banks operating quite actively in all five of these markets, plus South Sudan,” he says.

One Kenyan bank with activity in the wider region is the Co-operative Bank of Kenya, the country’s third largest bank in terms of assets. Co-operative boasts 4.1 million direct account holders at home and a staggering 6 million more that use the bank’s services through the co-operative move-ment in Kenya, Africa’s largest.

with the BanKing industry now on a solid

footing, kenya lays out the foundations for

sustainaBle national growth

poised for

take-off


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The creation of innovative products, such as mobile phone financial services and agent banking, has converted Kenya into a global model of financial inclusion

Described as one of the most ambitious banks on the continent for the tempo of its expansion, it is now the fastest growing bank in Kenya, where it now boasts 134 branches and over 7,000 outlets. The bank is currently in the process of exporting its model to South Sudan, as a first step in a planned pan-African expansion. “We are the face of Kenya in the context that we are in every small corner business destination, we are in every county, we have everybody in the country represented out of the unique ownership of the co-operative movement,” says CEO Dr. Gideon Muriuki. “Consequently, we have a significant competitive edge as we are local and we serve local interests. We are a source of pride for Kenyan owners and therefore they support us. That is why we have gone with the same model in South Sudan.”

Joshua Oigara, CEO of Commercial Bank of Kenya (KCB), says that 15 percent of his bank’s business is now conducted outside of the country. KCB, which invested $300 million abroad last year, plans to have a presence in 10 countries in the region by 2020.

“Regional expansion is a big op-portunity because of two aspects: first, you have access to 140 million people, close to 60 percent of which are under 25 years old, with a university or col-lege education. So that is an opportunity for us to be able to grow up businesses. Secondly, the level of financial services in some countries, like Rwanda, Burundi, Tanzania, Uganda and South Sudan, is below 10 percent,” he explains.

Kenya’s largest bank, KCB is also betting on the growth of Kenyan com-panies in the region, and their demand for cross-border services. “We believe our customers will have the opportunity to sell their products within the region. This is a natural market. KCB is in eight countries, including the DRC and Ethio-pia,” says Oigara. The bank offers a single cross-border platform for these customers. “Whether you are in Tan-zania, Rwanda or Uganda, you get the same banking platform so that gives our customers easy access.”

ThE winning fORMuLA

The strong platform from which Kenyan banks have been able to spring across regional borders is, of course, the transformation of the industry at home. Industry reforms based around the ultimate goal of deepening penetration resulted in the creation of innovative products that have, since 2007, overcome barriers to access, such as high costs and a fragmented, rural population, low incomes and a lack of permanent income flows, and low education and financial literacy levels. The success of these products – namely, mobile phone financial services and agent banking – has converted the country into a global model of financial inclusion.

The mobile phone financial services revolution initially started in March 2007 as a money transfer payments service, with e-value backed by funds in bank accounts. Expanding exponentially with the entry of a number of new interfaces (M-Shwari, M-Kesho, Pesa-Pap, KCB Mtaani, Co-op kwa Jirani, Faulu Popote,

and ATM-mobile linkages) and players (now numbering six), the sector had per-formed more than 60 million transactions by 2013. Today, total mobile transactions per day are valued at $58.4 million.

Agent banking, which enables third parties to offer a select range of financial services, was introduced in Kenya in 2010. Since then, 13 banks have been granted agency network approval, and the number of transactions since 2010 has topped 60 million, with a value of more than $3.5 billion.

Professor Ndung’u from the Cen-tral Bank says the greatest impact of the country’s financial inclusion policies was that most of the money outside the bank-ing system came back into it. Since the creation of these industry providers, the percentage of the financially excluded dropped from 39.3 percent in 2006 to 25.4 percent of adults in 2013. Over the same period, the percentage of the population using informal financial services declined to 7.8 percent from 33.3 percent. The Co-operative Bank of Kenya is the country’s fastest growing bank 4


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We know the elephant for its strength. But animals know the elephant for what we don’t see: its memory and wisdom. So well-known is its ability to survive the harshest of conditions that other animals have been known to follow it so as to survive. From humble beginnings and through the toughest of economic times, The Co-operative Bank has prevailed and thrived to become one of the largest and most profitable banks in East Africa.

The elephant has been our symbol to remind us not just of what is easy to see, our strength, but of what we can’t see: our memory of how far we have come. Yet this is also a new beginning … As we chart new horizons beyond Kenya to the rest of Africa, we remain faithful to the values that have brought us this far: prudent with risk and keen on return.

www.co-opbank.co.ke

Since 2002, the number of micro accounts in the country has increased by a remark-able 900 percent, from 1.5 million to 19.9 million last year.

“Right now we have nearly 20,000 agents operating. Combine that with 50,000 telecoms agents and we have 70,000 agents. The maximum number of bank branches we have managed to build in the country is about 1,100 and it seems like we have topped. These small units that provide financial services have spread across the country and they have allowed us to reach the market,” says the head of the Central Bank. He adds that the regulator is now working to expand services to include pension and insurance payments and capital market transactions. The bank is also planning to export these models throughout Africa through peer learning platforms.

KCB, which is already using these models abroad, has seen a customer increase of 300 percent over the past three years due to the innovations. “If you look at the financial success across the country, there has been a tremendous change in the last five years. People ask me: did they not take your business? I say they created customers we never had,” says Oigara.

“Kenya was the leader and we need to thank the governor of the Central Bank specifically for driving this level of financial services.

None of this was there before; it needed a very strong governor that said, ‘We want to grow.’ Partnerships with mobile phone corporations provided huge value creation.”

finAnCing TAKE-Off

With the banking industry now on very solid footing, Governor Ndung’u believes Kenya has laid the foundations, both in a physical sense and in a regulatory sense, for national growth. “We had an IMF conference last September in which it was stated that Kenya was ready for take-off. If you have cleaned up your house and you have provided the right incentives for the market to develop, you have given space for the private sector to grow. We have done the groundwork, we have elaborated the foundation. We have

a new constitution which has allowed us to create strong institutions. We have completed the financial infrastructure. And we are serving six relatively resource-rich countries. The next thing is take-off.”

National Bank, which was created as a public entity for financing small business in 1968, represents an opportunity for Chinese investors to participate in this take-off. Although the bank had become largely retail oriented in recent years, it is now undergoing a comprehensive restructuring that aims to see it morph into a full-scale commercial bank and regain its status as one of the top financial institutions in the country.

“If you look at the financial success across the country, there hasbeen a tremendous change in the last five years”

Joshua Oigara, CEO of the Commercial Bank of Kenya

Total mobile transactions per day are valued at $58.4 million

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China Ad 8.pdf 1 2/13/14 6:00 PM

“We are still one of the biggest banks in the country in terms of retail network, employees and capital. But we want to rebuild the busi-ness side of the bank, with a stronger focus on corporate,” says National Bank’s Managing Director Munir Ahmed.

New expansion plans at National Bank include broadening its agent network to include 5,000 agents and adding new branches – 10 new of-fices are opening this year. The institution, which has 30 percent of its shares listed on the Nairobi Stock Exchange, is planning an upcoming rights issue to raise capital that offers new investors the opportunity to participate in Kenya’s financial sector growth. Ahmed says the bank is also looking for Chinese partners to establish currency clearing houses.

KCB’s Oigara adds that Chinese investors looking for solid oppor-tunities need not look far. “I do not see any sector, whether it is tourism, manufacturing, mining or telecommunications, which does not have the opportunity to expand. And this is Kenya. If you take the greater East and Central African region, we are just scratching the surface. Today, the banking sector is strong, but we are far from meeting the requirements of this country. For example, just recently, the government was seeking financing for $1.5 billion. None of us have that size or capability,” he comments.

“For me it is an issue of increasing the pie and we see more and more collaboration within the top local banks in terms of supporting our economy. But it is not for lack of opportunity. If you look at the oil and gas sector, for instance, it is an area that we may not be able to meet fully, so we need partnership with local banks, but more importantly, with international banks, especially from Asia, and particularly from China. We are very keen at KCB for long-term partnerships with Chinese institutions and Chinese banks.”

“We had an imf conference last september in which it was stated that Kenya was ready for take-off”

Professor Njuguna Ndung’u, Governor of the Central Bank of Kenya

The Nairobi Stock Exchange is the largest and most robust in the EAC

[email protected]

Kisumu: The springboard to East and Central Africa frontiers On the eastern shores of Lake Victoria, balmy and fertile Kisumu County is busy, juggling numerous projects intended to raise living standards and grow the economy. The county government is, among other things, working towards boosting its agricultural output, encouraging industrialisation, promoting social services like healthcare and education, as well as sports and the creative industries, establishing an ICT park, developing its infrastructure, and harnessing its renewable power sources. The County Government of Kisumu welcomes foreign investment and partnerships with a long-term view towards reaping benefits that will profit both the people of this region and stakeholders alike.

THE COUNTY GOVERNMENT

OF KISUMU

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