Kenya’s infrastructure investment ‘must continue to maintain growth’, says World Bank report

According to the bank’s Kenya Economic Update (KEU) (92-page / 1.15 MB PDF), investment “mainly in energy and standard gauge railways”, together with the benefit of falling oil prices, will see growth rise by 6-7% between now and 2017, compared to a rise of 5.4% in 2014.

The bank’s country director for Kenya Diarietou Gaye said: “To sustain momentum, Kenya needs to continue investing in infrastructure and jobs, improve its business climate and boost its exports. “Kenya is emerging as one of Africa’s key growth centres with sound economic policies in place for future improvement.”

The KEU, the bank’s eleventh such report, said “the country’s fiscal expansion allowed it to finance major infrastructure projects without putting excessive pressure on domestic financing”.

However, the KEU said that “in order to anchor and sustain growth, Kenya needs to boost productivity and improve the business environment to regain and increase its competitiveness”. Key steps Kenya needs to take include implementing a “business reform agenda, completing reforms at the port of Mombasa, improving the efficiency of its massive infrastructural projects and strengthening governance”.

The KEU said Kenya should streamline the process for stating a business and simplify the insolvency framework. According to the KEU, Kenya ranks 143rd in facilitating opening a business. “It takes 10 procedures and one month to start a business in Nairobi, more than the sub-Saharan Africa average of eight procedures and 27 days, and more than twice the Organisation of Economic Co-operation and Development (OECD) averages of five procedures and just 10 days.”

“In 2013, firms in Kenya reported that the obstacles that most constrained them were costly and unreliable electricity, inadequate access to finance, difficulties in trading across borders, competition from the informal sector and crime, theft, and disorder,” the KEU said.

Kenya’s government has also been urged to curb revenue-raising schemes from county governments “that increasingly hamstring businesses”. The KEU said: “Delivery vans reportedly require separate corporate branding licences from each county and construction licensing and permits are said to have jumped 300% in Nairobi County. These problems highlight the need for counties to take a national view to managing private investment and for the national government to step in to curb county revenue-raising schemes that increasingly handicap businesses.”

However, the KEU said there was a strong performance in 2014 in the general industry sector including construction, mining, quarrying and electricity and water supply, which grew by 8.9% in the first three quarters of the year, “up sharply from 6% in the same period in 2013”.

“The good news in the services sector is the continuing information and communications technology revolution,” the KEU said. “The number of mobile money transfer customers in 2014 stood at 26 million, and the number of transactions increased 24%, to 86 million. The value of transactions of mobile payments increased 24%, to 226 billion Kenyan shillings ($2.5bn), and the number of mobile agents rose 9% to 123,703.

Kenya’s government “continues to embark on initiatives to increase tax revenue and narrow fiscal deficits”, the KEU said. Draft ‘tax procedure’ legislation announced in 2014 would simplify Kenya’s tax system “by introducing uniform tax procedures for major tax laws and enable automation”, the KEU said. A draft customs and excise duty bill, also announced in 2014, would impose a 25% duty on steel, on which the KEU said there is currently no duty payable.

“In addition, the government will consider introducing an extractive industry tax and making changes to the income tax to reflect best international practices,” the KEU said. “These endeavours would facilitate investment by reducing the cost of doing business.”

Heather Self, tax partner at Pinsent Masons, the law firm behind Out-Law.com, said: “It is good to see Kenya focusing on efficient tax administration and international best practice in their tax system. Companies value certainty and simplicity in tax laws, and a stable tax system is an important factor in encouraging investment.”

Last year, the African Development Bank (AfDB) said in its Country Strategy Paper for Kenya for 2014-18 (53-page / 1.15 MB PDF) that recent discoveries of oil, gas and coal could help propel the country to “middle-income country status in the medium term”.

The AfDB said it wanted to work with development partners and the private sector to “leverage funding” for infrastructure development in Kenya, rather than act as a sole financier.