Our comprehensive assessment of Kenya's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Kenya, as well as the latest industry developments that could impact Kenya's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Kenya before your competitors.

Country Risk

Kenya Country Risk

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Core Views

  • The assassination of al-Shabaab leader Ahmed Abdi Godane will weaken the militant group but not eliminate the threat that it poses to Somalia, Kenya and the wider region.

  • The politicization of sharp ethnic divisions remains the key threat to Kenya's long-term political stability. Terrorism linked to Kenya's military involvement in Somalia is likely to remain a risk, but it does not pose a systemic threat to political stability.

  • Economic growth in Kenya fell far below expectations in 2014, but the country's gradual economic recovery will pick up steam in 2015 and 2016. Real GDP growth will average 6.4% between 2015 and 2018.

  • Updated GDP figures have not led us to significantly revise our outlook for the Kenyan economy. Achieving 'middle income status' may increase investor...

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Kenya Operational Risk Coverage (9)

Kenya Operational Risk

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Kenya's role as an economic and financial hub in East Africa is seriously threatened by rising levels of crime and terrorism, which the security services, crippled by rampant corruption, are struggling to contain. This poses a significant risk to the safety of foreign workers and business property, and has also had a severe impact on the Kenyan tourist industry, which previously offered one of the most promising opportunities for investment. In addition, businesses in the country are hindered by inefficient bureaucracy and high levels of tax.

We highlight that, at present, the business environment in Kenya is not favourable to foreign investors. Nevertheless, bureaucratic reform and infrastructure developments should improve the ease of doing business in the country over the medium term, and further success in curbing terrorism will allow Kenya to become an attractive location for investment in East Africa.

Kenya's...

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Kenya Crime & Security

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BMI View: Since the mid-2000s Kenya has faced increasing levels of crime and terrorism, fuelled by ethnic and religious tensions, high unemployment, and unrest in Somalia spreading over the border. Foreign workers and tourists in Kenya face a wide range of risks due to high levels of crime, violence related to terrorist activity, and the lack of capacity within the security services. Kidnapping remains a threat to foreigners, and there is also the potential that they will be a target for other forms of terrorist attack. Kenya scores very poorly in the overall BMI Crime and Security Risks Index. Its score of 28 out of 100 ranks the country 34 th out of 44 states in Sub-Saharan Africa (SSA).

BMI considers interstate conflict to pose the smallest direct risk to foreign workers in Kenya, because the country has close ties with its neighbours, particularly those...

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Kenya Labour Market

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The main advantage for businesses in Kenya, in terms of labour market risks, is the quality and variety of options available in the workforce in comparison to two of its neighbours and closest competitors for investment, Uganda and Tanzania. Kenya benefits from better education, in terms of quality and enrolment rates, and more widespread literacy among the working population. This means that businesses in the country have less trouble finding adequately skilled staff, face lower costs in terms of training, and have to bring in fewer foreign workers than companies in Uganda and Tanzania. This makes Kenya an attractive location for investment in East Africa.

Nevertheless, the large number of health issues, high minimum wages and reasonably high unionisation of the labour force in comparison to other countries in Sub-Saharan Africa will pose risks to businesses. In addition, while education in Kenya is good by regional standards, the quality of...

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Kenya Logistics

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A well developed logistics network in comparison to its regional peers gives Kenya a significant advantage in its bid to become the primary trading hub in East Africa and bolsters its attractiveness to investors. The country's transport network is of relatively high quality and offers a variety of options for internal supply chains, including road, rail and air transport. Major investment in infrastructure projects is also underway, which will further diversify logistics options and allow the country to become the primary destination for international shipping in the region. In addition, the government is attempting to streamline trade bureaucracy, which will reduce costs and import and export lead times. Risks to businesses in Kenya from its poorly developed utilities infrastructure lower the country's overall Logistics score, however we highlight that issues remain less serious than in many neighbouring countries. Kenya therefore performs reasonably well in the...

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Kenya Trade & Investment

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Although Kenya's economy is one of the most well developed in Sub-Saharan Africa (SSA), BMI highlights that the country's investment and business environment is hindered by high levels of tax and bureaucracy, widespread corruption in state institutions, and poor enforcement of intellectual property protection. Therefore, while the government is open to foreign business ventures, and there are opportunities for investment, particularly in the manufacturing industry, potential returns may be limited. Consequently, Kenya scores poorly overall in the BMI Trade and Investment Market Risks Index, with 31.9 out of 100 meaning the country comes in below the regional average of 31.8, and behind its neighbours Tanzania, Uganda, and Rwanda, in 28 th place out of 44 countries in Sub-Saharan Africa.

The government of Kenya is generally welcoming to foreign direct investment (FDI), although the...

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Kenya Industry Coverage (15)

Agribusiness

Kenya Agribusiness

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BMI View:   We expect to see a general stagnation in production for the 2014/15 season owing to erratic rains. This will contribute to rising imports and domestic food prices, which will lead to higher inflation . Ove r the long term, we believe Kenya's corn sector shows the most potential for growth, a function of corn prices remaining elevated by histo rical standards . However, the country will remain a large and growing importer due to strengthening demand and stagnating production. We continue to forecast strong coffee production growth in 2013/14 due to relatively high domestic prices and...

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Autos

Kenya Autos

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As a result of a data released from the Kenyan Bureau of Statistics BMI has slightly downgraded its GDP forecast for 2014 to 5.0%, down from 5.7%. Even this slower acceleration will still be a significant improvement compared to the low growth seen between 2008 and 2012, when annual real GDP expansion averaged just 3.8%. Further supporting vehicle sales is the rising private consumption and increased dealer presence in Kenya. As a result of this and off the back of strong new sales and production data for the first four months of 2014, BMI is forecasting total new and used vehicle sales growth to come in at 161,727 units in 2018.

According to the Kenyan Motor Industry Association, in the eight months to August 2013 new vehicle dealers sold 9,135 units compared to 8,117 units a year earlier.

BMI expects that as the passenger car market continues to...

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Commercial Banking

Kenya Commercial Banking

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Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Food & Drink

Kenya Food & Drink

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The outlook for Kenya's food and drink industry continues to be positive, with strong growth expected over the short-to-medium term. The success of premium-chain coffee shops highlights the likelihood that premiumisation will play a major part in the growth of many segments of the Kenyan food and drink industry. Going forward, the mass grocery sector is likely to be a key growth area with foreign investment from South African retailers likely over the next year or two.

Headline Industry Data

  • Per capita food consumption (local currency) is forecast to increase by 9.2% in 2014. Over the five years between 2013 and 2018, we are forecasting a compound annual growth rate of 9.3%.

  • Mass grocery retail sales (local currency) are forecast to increase by 33.0% in 2014. Over the five years between 2013 and 2018, we are forecasting a compound annual growth rate...

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Freight Transport

Kenya Freight Transport

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An accelerating domestic economy and rising demand in key export markets will cause Kenya's current account deficit to gradually narrow over the coming years. We predict that the country's current account shortfall will shrink from the 8.3% of GDP in 2014 to 5.6% in 2018. The key driver of Kenya's current account shortfall is the country's gaping trade deficit, which is driven by high demand for oil, manufactured goods and consumer products. This will provide some comfort for the Kenyan freight industry.

This wide trade deficit is partially offset by surpluses in the service and transfer accounts. Kenya's service exports are among the largest in the region, and reflect the earnings of the country's large travel and tourism sector. Despite a series of set-backs in 2013 (including an airport fire and the September Westgate attack), BMI holds a positive long-term view of the industry, and believes that it will continue to...

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Information Technology

Kenya Information Technology

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BMI View:   The increase in economic activity and improvements in data connectivity will drive investments in new IT services and solutions by businesses in Africa. One of the key growth areas is financial services, with emphasis on e-commerce and customer service. With businesses across key consumer-centric industries such as retail, aviation, telecoms and public utilities looking to build up their e-commerce capabilities, we see the regions' banks investing in solutions to enable them cope with new demand from corporate and individual customers.

Headline Expenditure Projections

Ghana

Computer Hardware Sales: GHS718mn in 2013 to GHS866mn in 2014, +22.1% in local currency terms. The government's ambitious Basic Schools Computerisation project and e-...

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Infrastructure

Kenya Infrastructure

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BMI View:   Despite a rebasing of the Kenyan economy, we are maintaining our forecasts for Kenya's construction industry. Growth over 2015 will suffer, following damage to investor confidence in the wake of growing insecurity in Kenya and consequently we forecast growth at 5.9% y-o-y.   However, the successful issuance of Kenya's eurobond shows that long-term interest in the market remains strong and also bodes well for the government's ability to fund infrastructure investment in the coming years.

Key Developments

  • The Kenyan National Bureau of Statistics (KNBS) has released an updated measure of Kenya's GDP. The new figures show that the country's economy was 25.3% larger in 2013 than had been previously assumed. The construction sector is 30% larger than previously...

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Insurance

Kenya Insurance

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BMI View :   As of late 2014, the latest news from Kenya's dynamic and resilient insurance sector confirms our optimistic view. Premium growth should remain well into double-digits in both of the main segments. This is partly because of innovate new products and distribution deals. It is also because of the emphasis on micro-insurance, bancassurance and measures to reach out to first time users. Growing awareness of pensions in the wake of the implementation of the NSSF Act from the end of May 2014 should also provide opportunities.

We remain of the view that Kenya's insurance sector is dynamic and resilient. Although insurance companies are small organisations by most standards, they are innovative and clearly understand the needs and challenges of their customers. Initiatives that have been announced in recent months include agricultural risk...

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Medical Devices

Kenya Medical Devices

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Espicom Industry View: The Kenyan medical device market is expected to grow by a CAGR of 14.4 % over the 2013-2018 period, alongside impressive GDP growth and strengthening imports. Almost all medical devices are imported, as domestic production is limited to basic consumable items, a situation that is expected to remain unchanged for the foreseeable future. Demand for medical devices remains high as many health facilities require modernisation.

Headline Industry Forecasts

  • In 2013, the Kenyan medical device market was estimated at US$122.7mn, or US$2.8 per capita. This market size is comparable to Oman; in per capita terms, the market is similar to the Philippines. The market is expected to expand at a CAGR of 14.4% over the 2013-2018 period,...

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Pharmaceuticals & Healthcare

Kenya Pharmaceuticals & Healthcare

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BMI View:   Investment into Kenya's healthcare sector by pharmaceutical and medical device companies is an advisable business strategy - as highlighted by the high growth forecast in healthcare spending between 2013 and 2018. However, we note that there are downside risks to our forecast , including government inefficiencies and the out-of-pocket characteristics of the market , which will act as challenges for companies looking for a rapid return on investment.

Headline Expenditure Projections

  • Pharmaceuticals: KES55.29bn (USD642mn) in 2013 to KES64.32bn (USD742mn) in 2014; 16.3% growth in local currency terms and 15.6% in US dollar terms.

  • ...

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Power

Kenya Power

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BMI View: Kenya is investing heavily in wind power and solar, and a number of coal-fired and gas-fired facilities are due to come online this decade , significantly increase Kenya ' s generating capacity and reduces the risk of outages associated with hydropower. Meanwhile, consumption is set to rise dramatically as both the population and the economy grow.

Kenya's power sector is set to change dramatically over the forecast period to 2023, with hydropower to lose its dominant share of the power mix. The country is investing heavily in wind power and solar, and a number of coal-fired and gas-fired facilities are due to come online this decade. Kenya is also increasing its import of electricity from neighbouring Ethiopia. These developments will significantly increase Kenya's generating capacity and...

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Renewables

Kenya Renewables

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BMI View:   The Kenyan government's push to improve electrification rates, expand renewable energy, improve electricity trade links and reduce its reliance on hydropower and diesel are strategically sound moves that will benefit the country both economically and socially over the coming decade. We hold a particularly optimistic outlook towards the country's geothermal industry, as capacity comes online and the government continues to invite proposals for the construction of new geothermal power plants.

Kenya's energy policy and efforts to promote renewable technology reflect the need to diversify the country's electricity mix away from expensive imported oil and unreliable hydropower. Kenya has the potential to generate power from almost all types of renewable energy resources - including geothermal, wind and solar power. We are witnessing...

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Shipping

Kenya Shipping

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For 2014, we have a positive outlook for Kenya's ports and shipping sector based on three main factors: reasonable economic growth in Kenya itself; a dynamic East African region (this is important because Mombasa acts as a trade gateway for many of Kenya's neighbouring countries); and finally, continuing signs that Mombasa port's ongoing congestion problems are easing. Granted, there are significant threats to Mombasa's almost monopoly-like role in this part of Africa, but they exist in the long term.

We are predicting that a combination of relative political stability, rising investment, and Kenya's status as the commercial hub of a fast-growing region will underpin strong GDP growth. BMI is now projecting 6.1% GDP growth in 2014 followed by 6.2% in 2015. In our view Kenya's capital, Nairobi, and key port, Mombasa, remain well-placed as the commercial centres of an East African Community (EAC) enjoying a resource boom...

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Telecommunications

Kenya Telecommunications

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BMI View: The imminent exit of YU Mobile from Kenya's mobile market will do little to ease the downward pressure on mobile tariffs and operators' voice revenues considering the expected entry of mobile virtual network operators into the market. As a result, we retain our view of revenue stream diversification as the most sustainable growth strategy for service providers. The Kenyan market is suitable for the implementation of telecoms crossover services and operators must explore opportunities to monetise the delivery of these services in the same manner as they have done with mobile financial services.

Key Data

  • Kenya's mobile market grew by 1.7% quarter-on-quarter (q-o-q) in Q114, compared with a contraction of 2.9% q-o-q during the same period in 2013.

  • Mobile ARPU appreciation...

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Tourism

Kenya Tourism

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BMI View: The bomb attacks in Nairobi and Mombasa in early May 2014 underline how precarious the short-term outlook for Kenyan tourism remains. BMI remains pessimistic on the outlook for tourism arrivals in 2014.

On May 4 2014, there were several bomb attacks in Kenya. There were explosions on two buses travelling on the outskirts of the capital Nairobi - leaving three people dead and at least 62 injured. In Mombasa, a grenade was thrown onto a bus - killing four and wounding 15, while a separate explosion on a beach near the Reef Hotel did not lead to any reported casualties .

These new bomb attacks act as a reminder that the security situation in Kenya is continuing to deteriorate. Although Kenya's Deputy President William Ruto has remained defiant, stating that the government will not recall its...

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