1 kenya’s investment opportunities recent economic developments and the next steps: vision 2030...

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KENYA’S INVESTMENT KENYA’S INVESTMENT OPPORTUNITIESOPPORTUNITIES

RECENT ECONOMIC DEVELOPMENTS AND THE RECENT ECONOMIC DEVELOPMENTS AND THE

NEXT STEPS: VISION 2030NEXT STEPS: VISION 2030

By:By:

Hon. Amos KimunyaHon. Amos Kimunya

MINISTER FOR FINANCEMINISTER FOR FINANCE

[email protected]@treasury.go.ke

March 2007March 2007

2

Format of PresentationFormat of PresentationRecalling the three ERS Pillars and progress under each of them;

Next Steps After The ERS: Vision 2030

Medium-Term Prospects Macro-framework Structural Reforms

Conclusion

3

Recalling ERS ObjectivesRecalling ERS Objectives

Under the ERS, the Government Development Strategy is built around three pillars:Pillar I: Rapid Economic growth

underpinned by macro-economic stability;Pillar II: Enhancing equity and poverty

reduction; and Pillar III: Improving governance to support

the other two pillars of growth and poverty reduction

4

Progress Under Pillar I: Recent Progress Under Pillar I: Recent Economic Performance Economic Performance

Significant progress has been achieved under each Pillar of the ERS, over the last 4-years.Let me start with the first pillar which focuses on macro-economic stability and rapid but sustainable economic growth.Prudent fiscal and monetary policies have resulted in: A steady decline in interest rates; A broadly stable underlying rate of inflation; and A strengthened shilling exchange rate.

5

Progress Under Pillar I - Macro-Economic Progress Under Pillar I - Macro-Economic Variables: Inflation, interest, X-rateVariables: Inflation, interest, X-rate

Inflation and Interest Rates

3.33.7

5.5 5.6

4.45.1

8.4

1.5

8.0 8.1

6.6

5.6

-1.02.03.04.05.06.07.08.09.0

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

(In p

erce

nt)

Underlying Inflation 91-days T-Bill

Exchange Rate

79.5

76.0

79.8

73.173.9

70.0

64.0

66.0

68.0

70.0

72.074.0

76.0

78.0

80.0

82.0

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

(Ksh

s. p

er D

olla

r)

Exchange Rate

6

Progress Under Pillar I Cont.. Progress Under Pillar I Cont..

Reflecting this stable macro-environment, real GDP growth has

accelerated sharply

0.6

3.0

4.9

5.8 6.0

01234567

2002 2003 2004 2005 2006

(In p

erce

nt)

This has resulted in a marked increase in growth of per capita income from

minus 1.6% to plus 3.8%

0.8

2.7

3.6 3.8

-1.6

-2

-1

0

1

2

3

4

5

2002 2003 2004 2005 2006

(in p

erce

nt)

7


Growth in real GDP has been broad based: Agriculture production has

shown a steady improvement...

2.61.6

6.7

-3.0

-4

-2

0

2

4

6

8

2002 2003 2004 2005(in p

erce

nt)

...as has the manufacturing Sector .

0.1

6.0

4.55.0

0

1

2

3

4

5

6

7

2002 2003 2004 2005

(in p

erce

nt)

8


With lower interest rates, increased remittances, construction has picked

up substantially.

1.0

4.0

-1.9

7.2

-4

-2

0

2

4

6

8

2002 2003 2004 2005

(in p

erce

nt)

After dipping in 2003, the hotels and restaurants sector has recovered strongly.

4.7

-20.3

38.8

13.3

-30

-20

-10

0

10

20

30

40

50

2002 2003 2004 2005(in p

erce

nt)

9


The transport and communication sector shows significant momentum going

forward.

9.1

3.6

6.7

8.3

0

2

4

6

8

10

2002 2003 2004 2005

(in p

erce

nt)

The wholesale and retail trade sector also shows signs of sustained growth over the

medium-term

1.7

8.5

6.5

-2.5

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

2002 2003 2004 2005(in

per

cen

t)

10


Reflecting confidence in the economy, the NSE index had increased by over

350%-before the recent correction

1,351 1,363

2,738 2,946

3,973

5,642

-

1,000

2,000

3,000

4,000

5,000

6,000

2001 2002 2003 2004 2005 2006-Nov

(Jan

196

6=10

0)

As a result, market capitalization has increased by over 745%--or a

compounded rate of 53% a year.

86 112

318 306

462

727

0

100

200

300

400

500

600

700

800

2001 2002 2003 2004 2005 2006-Sept.

(Ksh

. b

n)

11


Reflecting fiscal discipline and low inflation, bank lending rates have

trended downwards

19.518.3

13.512.3

13.2

0

5

10

15

20

25

2001 2002 2003 2004 2005

(In

Per

cen

t)

After initially declining due to high lending rates, overall investment has picked up in line w ith lower

interest rates.

185174

160171

218

-

50

100

150

200

250

2001 2002 2003 2004 2005

(co

nst

ant

2001

pri

ces,

K

sh.m

n)

12

Progress Under Pillar I —Balance of Progress Under Pillar I —Balance of Payments (Cont.)Payments (Cont.)

Total exports have almost doubled...

1,962

2,3222,530

2,994

3,3853,637

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

(in M

n. U

S$)

Coffee receipts are expected to have doubled by 2006/07

85 85 83

112

146

167

0

20

40

60

80

100

120

140

160

180

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

13


The tea sector has experinced strong growth although adversley affected by

drought in early 2006

421 433 452

513

610643

0

100

200

300

400

500

600

700

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

Horticultural exports have continued to perform well.

241

296

390425

454

504

0

100

200

300

400

500

600

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

14


Reflecting the improved exports and capital inflows, international reserves

have more than doubled

1,1371,260

1,3991,587

2,3532,635

0

500

1,000

1,500

2,000

2,500

3,000

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

(US

$ m

illi

on

s)

15


In sum over the last 4 years, most if not all key macro-economic indicators have moved in the right direction: Interest rates, exchange rates and inflation rates have

either declined or stabilized; while Real GDP and per capita income have increased, as have

international reserves and market capitalization.

Some have argued that the recent growth momentum is due to a change in the way GDP has been calculated. This cannot be supported by facts.A longer term perspective on growth, based on the same method of calculating GDP, shows that growth has indeed accelerated over the past 4 years.

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Growth Pillar—A Longer-term Growth Pillar—A Longer-term PerspectivePerspective

Average growth of real GDP over the 3-year period to end-2005 has more than doubled

compared with the earlier periods

1.9 1.8

4.5

0.0

1.0

2.0

3.0

4.0

5.0

1997-2002 2000-02 2003-05

Average Average Average

(in p

erce

nt)

This has implied that growth real GDP per capita, assuming a population growth of

2.2%, has turned from negative to positive2.3

-0.3 -0.4

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

1997-2002 2000-02 2003-05


(in p

erce

nt)

17

Growth (Cont..)-Agric/ManuGrowth (Cont..)-Agric/Manu

Average growth of agriculture production in 2003-05 has accelerated

compared with the immediate previous 3 years.

3.0

2.1

3.7

0.0

1.0

2.0

3.0

4.0

1997-2002 2000-02 2003-05


(in p

ecen

t)

We have also seen a rapid growth in the manufacturing Sector

0.9

5.2

-0.2

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1997-2002 2000-02 2003-05


(In p

erce

nt)

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Growth-Tourism/ConstructionGrowth-Tourism/Construction

Reflecting increased tourist arrivals, the hotels and restaurants sector has rebounded.

3.8

10.6

-3.7

-6.0-4.0

-2.00.0

2.04.0

6.08.0

10.012.0

1997-2002 2000-02 2003-05


(in p

erce

nt)

Construction, which registered negative growth in the period 2000-02 has increased

sharply in line lower interest rates and increased confidence in the economy.

2.5

4.1

-1.2

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

1997-2002 2000-02 2003-05


(in p

erce

nt)

19

Growth-Trans/Commu/TradeGrowth-Trans/Commu/Trade

The transport and communication sector continue to register strong growth--the rapid growth in 2000-02 reflected the coming on

stream of Safaricom

5.0

9.7

6.2

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1997-2002 2000-02 2003-05


( in

perc

ent)

After decelarating in 2000-02, the wholesale retail trade sector has made a noticeable

turnaround.

1.60.9

5.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1997-2002 2000-02 2003-05


(in p

erce

nt)

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Progress-Pillar II: Reforms for Progress-Pillar II: Reforms for Poverty Reduction--FiscalPoverty Reduction--Fiscal

Under the ERS’s Pillar II, fiscal reforms have focused on creating fiscal pace through tax and expenditure efficiencies in order to ensure expenditures:

are pro-poor –providing for increased spending on core-poverty programs, including increased funding under education, health and water provision

are pro-growth -ensuring ample resources are directed toward key priority sectors such as agriculture and infrastructure; and are

consistent with a sustainable increase in domestic debt and that government does not crowd-out the private sector by driving up interest rates.

21

Progress-Pillar II: Reforms for Progress-Pillar II: Reforms for Poverty Reduction—Fiscal Cont..Poverty Reduction—Fiscal Cont..

Revenue collection has almost doubled despite a reduction in VAT

from 18% to 16% and lower EAC customs duties

198 211

255

290311

377

-

50

100

150

200

250

300

350

400

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

(in

Ksh

. bill

ion

s)

Domestically funded capital expenditure has increased almost six-

fold

10.9 12.8

21.2 22.6

40.5

58.5

-

10

20

30

40

50

60

70

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

(in

Ksh

. b

illi

on

s)

22


Including foreign financing, total Capex is set to increase by 3.8 times

26.3

34.738.3

44.8

63.6

100.9

0

20

40

60

80

100

120

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

(in K

sh. b

illio

ns)

89.5

10.5

87.7

12.3

87.3

12.7

86.3

13.7

84.5

15.5

78.7

21.3

0.0

20.0

40.0

60.0

80.0

100.0

(In p

erce

nt)

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

Changing shares of Recurrent and Capital Expenditures in total expenditure

Recurrent Expenditure Capital expenditures

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Agricultural expenditures are now more than double what they were in 2001/02.

7.9

10.1

12.211.3

16.3

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

2001/02 2002/03 2003/04 2004/05 2005/06

(in

Ksh

. bill

ion

s)

Meanwhile, health expenditures are now 114 % higher per year, or more

than 2 times what they were in 2001/02.

15.2 14.015.3 15.6

32.6

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2001/02 2002/03 2003/04 2004/05 2005/06

(in

Ksh

. bill

ion

s)

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Progress-Pillar II: Structural Progress-Pillar II: Structural Reforms for Poverty ReductionReforms for Poverty Reduction

The strong rebound in growth of the agricultural sector has impacted positively on rural incomes where most of the poor Kenyans live.Reforms in the agriculture sector have included: Rehabilitating the rice irrigation schemes Enhancing the regulatory capacity of the Coffee Board to address

governance and encourage coffee production Restructuring the pyrethrum Board, the cotton and sugar sub-sectors,

resulting in strong rebound in output growth Restructuring the dairy industry –which resulted in 125% increase in milk

sold between 2001 and 2005 thus improving farmers’ earnings Improving governance in the cooperative sector thus making credit

accessible to farmers, improving farm productivity, output and income earnings

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Progress-Pillar II: Structural Progress-Pillar II: Structural Reforms for EquityReforms for Equity

Strengthened management of LATF to improve service delivery countrywide Increased disbursements from KShs.9.2 bn in FY00/01-

02/03 to KShs.14.2 bn in FY03/04-05/06 - a 52% growth

Introduced CDF for poverty reduction and regional developmentCDF increased from KShs.1.2 bn in FY03/04 to

KShs.10.0 bn in FY06/07. Each constituency now receives KShs.120 million of

devolved funds to implement poverty reducing developments and boost local rural economies.

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Progress-Pillar III: Governance Progress-Pillar III: Governance ReformsReforms

Reforms under governance and anti-corruption have aimed at: Improving efficiency in public service; and Creating an enabling environment for business development

Therefore, Government has: Introduced several pieces of legislation aimed at fighting corruption;

and enhancing public ethics, public financial management, public procurement and oversight on public finances

Taken administrative actions to reduce corruption in public sector Strengthened capacity for investigations and prosecutions Created anti-corruption awareness through education Privatized/restructured SOE to enhance, transparency, accountability

and efficiency As a show of his commitment to fight corruption, H.E. has subjected

himself to a review by his peers under the APRM

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THE NEXT STEPS: VISION 2030

We have accomplished what we set out to do under the ERS, and the challenge now is how to consolidate these gains and set the stage for much higher rates of growth.The Question then is – “What Next” and this is where Vision 2030 comes inThe Vision 2030 process was officially launched by H.E. late in 2006. It has been developed in such a way that: All Kenyans can identify with it; All Kenyans can believe in it; and All Kenyans can rally to it; and Therefore, it must be inclusive of Kenyans diverse cultures, religion,

races and geographic areas of interestFor these reasons, the Vision should be devoid of political and sectarian interests

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THE VISION 2030

A globally competitive and prosperous nation with a high quality of life by 2030

Overarching vision

Economic

To maintain a sustained economic

growth of 10% p.a over the

next 25 years

Social

A just and cohesive society

enjoying equitable social

development in a clean and secure

environment

Political

An issue-based, people-centered, result-oriented,

and accountable democratic

political system

Strategy

Plans and implement

ation

Vision

Strategy

Master Plan

Implementation

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A highly participative supervision being followed to develop the Vision

National Steering CommitteeMade up of NESC Members and Chaired by

H E the PresidentMeeting once every 4-6 weeks

Operations CommitteeMade up of Reps from the Private Sector & PSs from Key Ministries & Chaired by the

Head Of Public ServiceMeeting once every 3-4 weeks

Core/Technical TeamMade up of several Key mangers from the Public

sector & external experts as neededMeeting Continuously

Ministerial Vision 2030 CommitteesMade up of Approx 5-7 Top Ministerial

Officers & 5-7 relevant Ministerial Stakeholders & Chaired by PSs

Meeting as necessary

Exe

cuti

onE

xecu

tion

Supp

ort

Supp

ort

Dec

isio

n

30

THE PROJECT APPROACH

Phase I High level diagnostic &

benchmarking:

•Understanding the implication of the vision and the key success factors to realise it.

•National & sector diagnostics to isolate key indicators for comparison with Kenya’s peers & aspirational Countries.

•Aim is to identify major barriers to national & sectoral devt & how to overcome them.

•Identify key sectors with possibilities of quick wins.

Phase II High level strategies:

•Devt of major objectives and priorities by key sectors based on their competitive advantage, unique competencies & possible inter-sectoral linkages for vision 2030.

•Followed by devt of strategies for each key sector based on a thorough analysis of the external environment as well as the internal capabilities of each.• Strategies able to move the country to the targets envisaged by Vision 2030.

Phase III Master plan & Communication:

•Devt of implementation plans incl activities, roles & responsibilities.

•Critical to detail resources needed to realize vision 2030 targets, a communication strategy for buy in & an M&E system with clear milestones for effective control of project.

•Last, piloting of consultants’ recommendations in a few sectors before full rolled out. The consultant will detail how to do this.

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Vision 2030 Growth Profile

Vision 2030: Possible Real GDP Growth Scenario

6.0 6.7 7.4 8.1 8.9 9.4 9.9 10.4

19.120.8 22.1 23.4

25.1 26.5 27.9 29.3

16.3 17.9 18.7 19.3 19.9 20.5 21.9 23.3

3.2 3.1 3.0 2.9 2.8 2.8 2.8 2.8-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2006 2007 2008 2009 2010 2011 2012 2013

(In p

erce

nt)

Real GDP Grow th (Vision 2030) Invesment GDP ratio

Domestic Savings ICOR

Real GDP Growth

1.9 1.8

4.5

6.17.0

10.4

-

2.0

4.0

6.0

8.0

10.0

12.0

1997-2002 2000-02 2003-05 2006-2010 2006-2010 2013

Average Average Average Average Average (V2030)

(in p

erce

nt)

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Medium Term Structural Reforms

Achieving the Vision 2030 growth targets will be underpinned by various structural reforms to increase Total Factor Productivity (TFP) in the following areas: Public expenditure management and public financial reforms to

enhance efficiency and effectiveness in use of resources Financial sector reforms to improve efficiency and enhance access

to credit for private sector dev. Private sector development aimed at improving business

environment and encourage private sector dev Privatization and restructuring of parastatals to enhance

accountability and efficiency in their operations Increased efficiency and effectiveness in public service delivery

—Kenya’s public sector reforms (performance contracting) have been recommended for an award by the UN.

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ConclusionConclusion

The Kenyan government has been successful in implementing the economic and structural reforms stipulated in the ERS.In terms of the way forward, we will : Sustain macro-economic stability and deepen structural

reforms in areas such as: Accelerate development of Infrastructure Reform the financial sector Reduce the cost of doing business Privatize/restructure public enterprises; and Develop ICT.

Creating a conducive business environment for both foreign and domestic investors will be critical to achieving the levels of investments required to achieve V2030 and the MDGs.

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Conclusion Cont..Conclusion Cont..

Investors, including especially Kenyans in the Investors, including especially Kenyans in the Diaspora, are therefore encouraged to take Diaspora, are therefore encouraged to take advantage of emerging investment opportunities in advantage of emerging investment opportunities in Kenya in the areas of:Kenya in the areas of: Agriculture and agro-processingAgriculture and agro-processing Manufacturing for export into the regionManufacturing for export into the region BPO/ICT developmentBPO/ICT development Banking and insuranceBanking and insurance Tourism development;Tourism development; Educational and health care provisionsEducational and health care provisions Infrastructure development, including roads construction, Infrastructure development, including roads construction,

energy development; port developments, among othersenergy development; port developments, among others

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THANK YOUTHANK YOU

1 kenya’s investment opportunities recent economic developments and the next steps: vision 2030...

Documents

rapid economic growth

sustainable economic

macroeconomic stabilitypillar

macroeconomic variables

ers pillars

ers objectivesunder

pillars of growth

days tbill8