Telecoms and financial services ‘set to overtake’ exports of goods from Kenya

Trade, transport, information and communications technology and financial services “lead the pack” of services, according to the bank’s ‘Kenya Country Economic Memorandum’ for 2016 (164-page / 8.01 MB PDF).

The report said an “expansion in modern services, such as financial intermediation and mobile communications... stimulated demand for traditional services such as trade”.

Kenya’s growth in mobile communications was due in part to “innovative solutions” such as the country’s M-Pesa mobile money network, the report said. “For example, there are more than 40,000 M-Pesa retail agents who also sell other products and services.”

The report said: “Investment and promotion of tourism have boosted hospitality, real estate, and transport services. Re-orientation of public resources toward public and social infrastructure has promoted educational services as well as construction and transport.”

In promoting private investment, the report said Kenya’s financial system “is relatively developed, so the onus should be on lowering production (infrastructure) costs and improving the business environment”. Oil revenue “may become a significant source of savings in the long term, although the potential (discoveries) is still uncertain and the outcomes will depend on how the oil sector (and revenue) is managed”, the report said.

The report said “windfall revenues could help bridge Kenya’s infrastructure gaps and skills deficiencies and expand the provision of health or other social services”. However, it said “the outcome of resource discoveries is not guaranteed”.

According to the report, by 2014, commercial oil exploration in northern Kenya brought the discovery of up to one billion barrels of oil resources. “More exploration, for oil as well as gas, is ongoing shore and offshore.” However, “these reserves would not turn Kenya into a significant oil producer at the global stage, but will generate fiscal revenue that can raise the country’s human and physical capital”, the report said.

The report said Kenya now needs “complementary policy reforms and investments for transformational growth”. In addition, the report said Kenya’s government “should consider investments that can unlock Kenya’s comparative advantage”. The report cited energy and transport infrastructure as being “among the main bottlenecks” but said “there is notable progress in these areas”.

Regulations and tax policy are “the largest constraints” for foreign companies in Kenya, followed by logistics and infrastructure” the report said. “Obtaining work permits for expat staff, typically managers, has been especially difficult according to a survey by the International Finance Corporation of foreign investors in Kenya.” The report said “having restrictive policies or practices on employing foreign workers seems unnecessary, as two-thirds of the managers in special economic zones (SEZs) are Kenyans, a level similar to other zones across the world”.

Kenya “is in the process of transforming” its SEZs programme, the report said. “However, SEZs as a model are not a panacea for economic transformation, and simply adopting a new regime is no guarantee of success.”

The report said international experience has “shown clearly” that the proximity of SEZs to “major trade gateways” such as ports and airports and largest metropolitan areas “is critical to the success of the SEZ”.

“This finding is particularly important for zones that depend on manufacturers who require access to imported inputs, business services, large pools of labour, and transport networks,” the report said. “But it also holds true for knowledge-based zones (for example, information technology parks), which require proximity to specialised labour and high-quality backbone services. In Kenya, this means focusing on Nairobi (especially for services-oriented investments), Mombasa (exports for world markets), and Kisumu (exports for the East African Community).

In 2014, the World Bank announced plans to “target investments” of more than $4 billion up to 2018 to help Kenya “realise its potential to become one of Africa’s enduring economic powers”. Under the bank’s ‘Country Partnership Strategy’ for Kenya, supported by the bank group’s International Finance Corporation and Multilateral Investment Guarantee Agency, all three organisations said they were “committed to leveraging private resources for innovative financing for infrastructure, including public-private partnerships in energy, water and transport”.

A report released this year by the Communications Authority of Kenya (CA) said the emergence of new electronic commerce services in the country’s rapidly-expanding telecoms market was set to increase already “stiff competition” for the country’s traditional postal and courier sectors.

According to the CA’s quarterly sector statistics report, subscriptions to mobile telecoms services increased by nearly 33% during the first quarter of Kenya’s 2015-16 (July-June) financial year and the market now has a penetration rate of almost 90%.