Mobile power leads expansion

Tom Maliti

The growth of telecommunications in recent years is helping to stimulate an economic revolution in East Africa’s largest economy, and Kenyans abroad are helping out too, writes Tom Maliti

Kenya’s economy has been managing to pull through from both the global financial crisis and the country’s domestic meltdown in 2008, in part because the agricultural and manufacturing sectors have recorded positive growth in 2010 for the first time in three years.

Central Bank of Kenya’s Governor, Professor Njuguna Ndungu, attributes the growth in agriculture to the good and regular rains since 2008, when the country experienced a drought. Ndungu also said that the Kenyan economy was able to begin recovering faster because, unlike during previous times of economic decline – such as the global oil crisis of the 1970s – the government did not redirect its budget for ongoing infrastructure and other development needs towards the running costs of government or other more immediate priorities. “This time we protected the development budget and protected capacity for future growth,” Ndungu said. “We are confident we are going to achieve 5 percent [economic growth] in 2010.”

The 5 percent forecast is confirmed by other experts such as the director-general of the secretariat for Kenya’s Vision 2030 programme, Mugo Kibati, whose task is to set out a viable blueprint for Kenya to become a middle-income country over the next two decades. For Kibati, the main driver of growth since 2008 has not been agriculture, manufacturing or even Kenya’s rapidly reviving tourist trade, but the ICT sector.

“If you look at the impact that mobile telephony has had over the last, say, five years, it’s tremendous,” Kibati told Global. “A significant part of GDP growth can be directly attributed to that change. The number of 17 million mobile subscribers is huge because you are now having SMEs [small and medium enterprises] and businesses of all kind, who previously were not able to conduct business, conducting it on mobile telephony. And of course you are having things like M-Pesa and M-Kesho [Kenyan mobile telephone financial services] – access to finance via mobile telephony is on the rise.”

Investment in Kenya’s physical infrastructure is also expanding, and this will play an important role, Kibati added. Roads are being built to areas that businesses could not previously access, meaning that these places will now be able to sell their local produce more easily. Rural electrification is also making a big difference. Kibati predicted that Kenya will have “100 percent of all markets and institutions in the country with access to electricity by the year 2012”, allowing businesses to intensify economic activity everywhere.

An often-overlooked role in financing Kenya’s ongoing economic expansion is played by the availability of funds that Kenyans abroad send home. The latest World Bank figures indicate that remittances, estimated at $1.7 billion dollars coming through the formal banking system in 2010, have now overtaken Kenya’s other big earners of foreign exchange such as tourism, horticulture, coffee and tea. The real remittance total is almost certainly considerably higher than this, because many people prefer to use informal channels to send money to relatives, friends and businesses back home.

High remittance flows help explain why the property prices in Kenya’s up-market residential areas have not fallen, even while the economy was taking a major hit, especially after the post-election violence of 2007/8. Unsurprisingly, some of the developers of townhouse properties or blocks of flats in Nairobi have targeted the diaspora because of the perception that they are a growing class of customers.

While Kibati agreed that remittances now play a significant part in the Kenyan economy, he was keen to stress that “it is only a part, and it will continue to only be a part”. More important, from the authorities’ point of view, is to convert or leverage remittances into substantial foreign direct investment. Both foreign and local private investment is beginning to flow.

Kenya has now begun to look forward to receiving a ‘constitutional dividend’, in the form of short-term and medium-term economic and other benefits, as a result of the approval of the new Constitution which is acknowledged to be more democratic and which, it is hoped, will diffuse political power across Kenya’s national and regional institutions. US Vice-President Joe Biden was among the first to raise such hopes during his June 2010 visit to Kenya, when he told university students that if the country passed the new Constitution and pursued the reforms on the table, Kenya would see more foreign investment. “If you make these changes, I promise you, new foreign private investment will come in like you’ve never seen and you will have a reinvigorated tourism industry that will exceed the billion dollars it was before the economic crisis,” Biden said.

Remittances, estimated at $1.7 billion coming through the formal financial system in 2010, have now overtaken Kenya’s other big earners of foreign exchange such as tourism, horticulture, coffee and tea. The real total is probably higher

Others are waiting to see how things turn out. A consistent foreign investor in Kenya is the CDC Group (a UK government-owned fund), which has put $90 million into Kenyan firms over the years, as well as investments worth several hundred million dollars across the rest of Africa. Speaking to Global in Nairobi in late November, its chief executive, Richard Laing, said: “I think what is most important of all is that, whatever the politicians decide to do, it is a friendly environment for business. Nobody has to invest in any country. So the countries that will attract the best capital will be the countries that can provide the best opportunities and the easiest environment in which to do business.”

About the author:

Tom Maliti is a senior correspondent working in Nairobi


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