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Everything keeps going right for Kenya as it consolidates its powerhouse status

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Dr Michael Power recently retired from Ninety One where he was the Global Strategist for most of the past two decades. He remains a Consultant to Ninety One. Prior to Ninety One, he had worked in London, South Africa and Kenya for Anglo-American, Rothschild, HSBC Equator and Barings. He has a PhD from UCT, a master’s from the Fletcher School at Tufts and a bachelor’s from Oxford. His primary focus today is doing research into the emerging field of geo-economics focussing in particular on the global implications of the return of the economic centre of gravity to a China-centred Asia.

Unlike the ‘Lion King’ song which dubbed ‘hakuna matata’ as a ‘problem-free philosophy’, for Kenya it epitomises a ‘problem-solving philosophy’. So when faced with a problem, the Kenyan response is ‘hakuna matata… let’s pull together and find a solution.’

It may have been said by Albert Einstein, but probably wasn’t, that “the definition of insanity is doing the same thing over and over again and expecting a different result.” However, the quote does sound like the advice a famously absent-minded albeit practical scientist might give!

This quip made me think as to why South Africa has been unable over the past 25 years to grow its GDP at a remotely respectable pace nor make a dent in its extraordinarily high unemployment. We have been following the same Washington Consensus-inspired dogma in our economic policy for a quarter century, but with little success. Yet we persist in “doing the same thing over and over again and expecting a different result”. Insanity?

And before one dismisses our fate as being an Africa thing, it isn’t. I realised this reading an opinion economist Tyler Cowen wrote for Bloomberg. Better known for his refreshingly candid commentary on the US economy, recently Cowen ventured into unfamiliar territory. And how revealing was his piece. It was titled: “Kenya Is Poised to Become the ‘Singapore of Africa’.”

Before I proceed, I must declare an interest: I was born and grew up in Kenya as did my father. Aside from my love for the land, I have always closely followed its politics and, especially over the past decade, its economics. I visit often. What then is Kenya doing so differently and getting so right?

As it happens, rather a lot… and not just in the “more relevant for this article” economic sphere. So let me get the politics out of the way first as the economics that follows will be even more illuminating.

Kenya is non-aligned… though perhaps the term “multi-aligned” would be more accurate. Kenya seeks to be friends with pretty much everyone, even though it never fails to stand up and vote for what it believes in. Supporting Ukraine after the Russian invasion? Check.

Welcoming Chinese and Indian investment into its economy? Check.

Allowing US special forces to be based in Wajir and Garissa Provinces to help Kenya’s army contain the incursions of al-Shabaab from Somalia? Check.

Voting to expel Russia from the UN’s Human Rights Commission? Abstain: with four of the world’s eight largest refugee camps (Ifo, Dagahaley, Hagadera, Kakuma), Kenya is against politicising the work of the UN’s commissions, be they that of Human Rights or Refugees.

  • Taking loans from China to supercharge its infrastructure programme? Check.
  • Allowing former colonial power Britain to have a military base in Laikipia and train Kenya’s marines in Mombasa? Check.
  • Hosting an Indian warship in Mombasa harbour in May 2023? Check.
  • Displaying “no hard feelings” towards its coloniser when president William Ruto attended King Charles’s coronation? Check.
  • Holding the first round of the Strategic Trade and Investment Partnership talks with the United States in April 2023? Check.
  • Inviting Russian Foreign Minister Sergey Lavrov to meet president Ruto in Nairobi in May 2023 and agreeing to expand trade links? Check.
  • Signing an economic partnership agreement with the EU a month later? Check.
  • Hearing President Ruto urge African nations to use local currencies and not the US dollar to settle their inter-continental trade? Check.
  • Attending the 2017 BRICS Summit in Xiamen at China’s invitation and most likely attending the 2023 Summit in Johannesburg at South Africa’s? Check.

Fitting Kenya’s geopolitical stance into a precise box is impossible to do… and that is because Kenya deliberately does not want to be so pigeon-holed, far less put into any straitjacket, not of its own choosing.

Meanwhile, in fits and starts and with evident bumps along the way, it is making real progress on the economic front, as well noted by Cowen.

With cyclical and Covid-related variations, of course, Kenya has been running a 5%+ GDP average annual growth rate for two decades. Since 1994, South Africa’s has, with an average of 2.4% per annum, not achieved half that. The contrast in performance is even more stark since 2011: in that year, South Africa’s GDP was 10.2 times Kenya’s; a decade later, in 2021, this ratio had fallen to 3.8. Meanwhile, according to Trading Economics, as South Africa’s current unemployment rate is 33%, Kenya’s is 5%.

But let me leave the South Africa vs Kenya comparisons to one side as this is not meant to be an article that discusses the whys and wherefores of “us versus them”. Rather it aims to focus on what Kenya appears to be doing right… even if many South Africans might conclude that this amounts to noting what Kenya is doing “better”.

For my part, I also regard it as more important for habitual Afro-pessimists to note the qualified African success stories elsewhere in the continent. There is an African way even if, like many of Africa’s roads, it may require the equivalent four-wheel drive economic policies to navigate it.

‘Can do’ attitude

The first item to note in Kenya’s favour is the extraordinary “can do” commercial attitude that prevails no matter which political party is in power. Of course, there have been, are and will be differences in emphasis, but whether it is Team Uhuru Kenyatta or Team William Ruto that is calling the shots, both sides are unashamedly pro-business.

And before assuming that this means they are therefore anti-labour, that is simply not the case: more than halving unemployment to under 5% during the last decade is evidence of that. It helps that 86% of Kenya’s workforce now has some post-secondary education.

Kenya’s informal economy is vibrant, solutions-oriented and celebrated — far more than pooh-poohed — by politicians of every persuasion. Called in Swahili “jua kali” — “hot sun”, or, literally, “sun hot” — it operates outdoors and amounts to a training ground for industrial labourers, many of whom have gone on to “graduate” into more formal manufacturing activities, a form of tropical apprenticeship that even the Germans would applaud.

On a drive into the City Centre from Nairobi Airport — now much faster thanks to a Chinese-built highway — you can see roadside manufacture of beds, buckets, furniture, tin trunks, lamps, kitchen pots, jikos (ovens), coffins… you name it. And this is all happening at 8pm, well after the jua has gone down!

As Cowen notes, that “sun hot” has had other benefits too. Solar energy has transformed the economy, especially the rural areas where it would have been uneconomic for Kenya Power & Light to extend their grid network.

Far from being ostracised, the private sector was encouraged to step in: individual solar panels for homes were made available via hire purchase with monthly instalments settled via the mobile money app, Mpesa, of which more below.

Remoteness in Kenya is no longer a barrier to generating power: a flight over arid northern Kenya on a sunny day gives the impression of a country littered with “glittering diamonds”. On-grid electricity has benefitted from solar too, as well as wind and thermal with over 90% of power generated now coming from these sources.

The 2030 target — which is well within reach as the country is ahead of its interim targets — is to generate 100% of power from renewable sources.

As noted above, for renewable energy projects, private sector financing is everywhere to be seen, from the single solar panel on a house to the giant wind farms of Kipeto and Lake Turkana: Blackrock is an investor in the latter with the US government helping fund the former.

And Kenya’s thermal endowment — born of the country’s geological position astride the hot steam vents of the Great Rift Valley — is the original underpinning of its renewable energy story: here it has benefitted hugely from best-in-class Icelandic technical support and finance.

Kenya has a strong reputation in African tech. Cape Town is arguably Africa’s Silicon Valley, especially after the Amazon decision to locate its African HQ there. Lagos might still dispute this claim.  

But there are important tech clusters elsewhere in Africa and, in particular, in Cairo and Nairobi with the latter calling itself the “Silicon Savannah”. Among the big names operating from Nairobi are Google, Microsoft, Qualcomm, IBM, Intel, Cisco, Motorola and VMWare. And these are not mere brass nameplate offices: Nairobi is the location of IBM’s first African Research Centre as well as Google’s first African Product Development Hub.

Venture capital, private equity paradise

To house this growing sector, Kenya has opted to build a tech city, Konza. After visiting South Korea in November last year, president Ruto secured critical funding from the Korean International Cooperation Agency (Koica) to help establish it. Perhaps more significantly, Koica will also provide valuable technical assistance in installing and managing much of Konza’s technology before gradually handing it over to Kenyan operators. (This development model is typical of Korean overseas trade and investment: it was Daewoo that supercharged Bangladesh’s textile sector.) The Silicon Savannah tech hub is already home to over 200 start-ups.

The success of Kenya’s tech sector owes much of its momentum to the runaway success of Mpesa, the mobile money app that is now the largest such service in the world. It now processes some 70% of Kenya’s daily financial transactions amounting to 59% of the country’s GDP. Mpesa has an open architecture software philosophy that has attracted 60,000 app developers. Unsurprisingly, phone-based fintech and other apps are the most vibrant sub-sector of Kenya’s tech community.

But tech is only part of that magnet attracting new private equity investment into Kenya. AVCA reports a secured $676-million worth of new PE flowed in 2022, placing it second in Africa, equal with Egypt after first-placed Nigeria ($780-million) and ahead of fourth-placed South Africa ($520-million).

GDP-adjusted, Kenya now receives more venture capital investment than anywhere else in Africa; its ratio of VC-to-GDP is more than triple “rivals” Nigeria, Egypt and South Africa. Unsurprisingly, these money inflows have helped reinforce Nairobi’s long-held status as East Africa’s financial capital.

Kenya is using its geographic position to maximum effect. Facing East across the Indian Ocean towards Asia, it was the only non-Asian nation included in the original manifestation of China’s Belt and Road Initiative. It also has a millennium of trade links with Greater Arabia and over 500 years of commercial exchanges with India; it was even visited by Admiral Zheng He, China’s famed mariner, in the early 15th century, 75 years before Vasco da Gama called in.

Its coastal region with its cultural, religious and linguistic links to the Arabian Gulf and the 100,000 Kenyans with family roots in South Asia reinforce these historic connections. The Indian and Pakistani communities in particular play vital and very welcome roles in Kenya’s economy.

Meanwhile, the Aga Khan is Kenya’s — indeed East Africa’s — largest foreign investor and the Ismaili community he leads — while small in number — is immensely influential in Kenyan business. The near 30,000 white Kenyans also play an active and wholly appreciated role in the economy, especially in tourism and the professional service sectors (at the 2012 London Olympics, the Kenyan team nominated the popular and only white member of their squad, swimmer Jason Dunford, to be the flag bearer in the opening ceremony.)    

More recently, China has chosen Kenya as its muster point for its Eastern and Central African strategy. Kenya’s infrastructure, historically the best in the region, has been further improved by Chinese loans and investment as part of underwriting what one observer has called China’s Eastern Africa “Horseshoe Strategy”. This locates Kenya at the heart of a 500 million-plus strong potential regional market, bigger than that of West Africa including Nigeria’s 220 million.

This horseshoe covers an arc that stretches from Ethiopia in the north via the Democratic Republic of Congo in the west to Tanzania in the south. The Chinese vision aims to ensure that “many if not all roads in Eastern Africa lead via Nairobi to Kenya’s main port, Mombasa” (Mombasa already handles 80% of regional trade). China has helped build cross-border road and rail facilities from Kenya to its neighbours so as to “hammer this horseshoe” into place.

But China’s commitment to Kenya goes way beyond trade, as any visit to the streets of Nairobi would testify: signs written in one or other dialects of Chinese are now commonplace and the Chinese food is excellent. Echoing history, Indian shopkeepers even complain their dukas (shops) are being undercut by Chinese traders. In 2005, China established Africa’s first Confucius Institute in Kenya’s capital city, which is also the Africa HQ for both the state-directed China Daily newspaper and the state-run CGTN TV channel.

Although Kenya’s Export Processing Zones pre-date the involvement of China Inc in Kenya, Chinese companies have recently become active participants in these set-ups, mostly in the textiles-for-export sector. But investments from other nations are well represented too.

And there are also a growing number of Kenyan-owned enterprises, often adding value to Kenya’s most important export sector: agribusiness. From tea to coffee, from fruit to vegetables and from nuts to flowers, much of Kenya’s agricultural abundance is transformed via these EPZs into shelf-ready exports.

All that noted, value-wise, apparel goods are now the leading export category and, as with Lesotho, over 70% of these exports are going to the US under the terms of the Agoa trade pact. Denim jeans – for Levi’s, Wrangler and Lee – feature heavily; other branded products are made for Walmart, Tommy Hilfiger and Calvin Klein. EPZs have now been set up on the edges of nearly every major town in Kenya: they number over 40, employ over 200,000 workers and account for over 10% of Kenya’s exports.

Lest we forget, Kenya has its challenges too: tribal competition, lingering corruption, a fractious border with Somalia and the fall-out from climate change that sees a La Nina drought one year and El Nino floods the next. But this does not stop the people of Kenya accepting what hand fate deals them and responding by doubling down to make their lives better.

“Hakuna matata” is a Swahili phrase made world-famous by the film “The Lion King”. And the “don’t sweat it” attitude it represents embodies Kenya’s all-around approach… except it captures only part of the Kenyan mantra. (And Kenya’s mantra still involves working up a hard-earned sweat!)

Unlike the Lion King song which goes on to dub hakuna matata as a “problem-free philosophy”, for Kenya it epitomises a “problem-solving philosophy”. So when faced with a problem, the Kenyan response is “hakuna matata… let’s pull together and find a solution.”

It is hardly surprising then that country’s motto is Harambee: “let’s pull together”.  

Kenya is one of the growing list of “can do” nations in Africa that have forsaken the “same old, same old’’. Where it served its national interests, Kenya has deviated from the dirigisme of Washington Consensus orthodoxy with well-thought-through, fit-for-purpose and often very different economic policies. (Guess what? The US has just ditched the misconceived WCI for WCII!)

And the result of trying something different? Kenya has got different — and better — results. Risky perhaps… but then, in today’s world, even Einstein would surely call that sanity. DM

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  • Bruce Danckwerts says:

    Great article. So refreshing to read something positive for a change. Describing Kenya’s “Can Do” attitude reminds me of the first few months of Chiluba’s presidency after he ousted Kaunda in 1993 – we, in Zambia, felt that anything was possible. . . . . until corruption overwhelmed his new government. I wonder if Mr. Power could write a follow-up article discussing how Kenya managed to limit corruption to a level that could be tolerated by a thriving economy. I know that tackling corruption is high on our president’s priority (HH spent a lot of time during the coronation of Chalres III trying to get help from the UK, Scottish and French governments in fighting this scourge) but we still have a long way to go.
    Bruce Danckwerts, CHOMA, Zambia

  • Niek Joubert says:

    Sounds like a travel brochure. Although I understand that Kenya is improving, corruption and political interference are very much at the order of the day. And then there is the thread of Muslim terrorism in the north.

    • D'Esprit Dan says:

      I’ve been travelling to Kenya since the end of the Moi era, when Kenya was a tired, corrupt and depressed country, with little hope in the business community. The changes over the last 25 years are almost diametrically opposed to South Africa’s: where we were a robust country with excellent infrastructure and thriving business community, we’re no longer that; Kenya, on the other hand, has shifted up a couple of gears and is attracting not just the blue-chip foreign investment cited in the article, but considerable domestic investment in tech, manufacturing, agri-industry, financial services and much else. It’s a pleasure to do business there. Of course there is still corruption and poverty, but there is in pretty much every country (visited Las Vegas or LA recently?), the point being that Kenya is on the correct path – and a path of its own choosing. Unlike, once again, South Africa, where we have to ask Putin and Xi for direction on everything except state capture.

  • Beyond Fedup says:

    Thank you for a great, positive and revealing expose about Kenya, listing the triumphs/wins and what they are doing right and not whitewashing the challenges and problems. The big difference with SA is that the Kenyan government is not stuck and loyal to old, failed and miserable communist/socialist dogma, purely factional, unity and party interests above all and welcomes private enterprise as positive and constructive – not the enemy. Our inept, predatory, treasonous and corrupt rabble masquerading as a government has let this country down so detrimentally that even smaller African nations are making huge positive inroads whilst we are going backwards and close to a failed/bankrupt state. There is only one hope – vote these hyenas, scoundrels and thieves out of power! If only the masses would up!!!!

  • Peter Doble says:

    Excellent synopsis, analysis and comparison Dr Power. There are some rose-tinted elements but undoubtedly Kenya is brilliantly positioned, equipped and aligned to achieve the role as an African powerhouse. Having travelled and worked all over the country for 40 years, I would concur with the economic progress. But despite the tribalism and border threats, Kenyans have embraced the benefits of their colonial past and diverse ethnic population rather than keep resenting and erasing these assets.

  • Andrew Newman says:

    Kenya’s growth and international relations are a good example.
    The unemployment rate though is inaccurate. Kenya is unable to register much more than 60% of deaths let alone the cause of deaths so the unemployment rate is likely a vast underestimate.

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