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Kenya pulls in brands but growth path still rocky

03 November 2014, 09:02

Nairobi - Kenya, like other nations on a continent that boasts some of the fastest growth rates in the world, is racing to upgrade neglected infrastructure, improve regulations and revise often outdated economic figures to spur investment.

For some, there are echoes of the start of Asia's rise.

But Kenya's challenges, many of which are mirrored across Africa, are formidable if it wants to build on recent gains. It cannot boast the high savings that helped boost Asian economies and its efforts to attract the kind of new industry that will create jobs and boost exports have had mixed results.

"It needs a higher rate of savings and more investment in infrastructure to boost the country's productive potential," said Razia Khan, the head of research for Africa at Standard Chartered in London.

Gross national savings are 11 percent of gross domestic product (GDP), the International Monetary Fund says, below the 26 percent target set in the Vision 2030 economic blueprint and the kind of level seen in some Asian nations.

Savings are vital if Kenya is to avoid loading up too heavily on foreign debt to fix roads, pave dirt tracks and build power plants to meet the needs of businesses which frequently complain about the cost of electricity and outages.

French retailer Carrefour is one several new investors in Kenya, shrugging off the east African nation's infrastructure and other challenges to bet instead on the growing number of middle class Kenyans with money to spare.

Through its Dubai-based franchisee Majid al Futtaim, Carrefour will become the anchor tenant of the new Two Rivers mall due to open next year in Nairobi.

"There is huge demand," said James Mworia, chief executive of Centum Investment, the main investor in the mall, which is part of a bigger commercial and residential development.

"What is lacking today in Kenya and Africa generally is quality places for people to do business," he said at the building site.

Read Also: Now Cadbury Kenya shuts down over counterfeits


But while Kenya's consumers may catch the attention of companies like Carrefour and Porsche, the country needs to draw manufacturing and other industries if it is to generate more jobs and help expand exports beyond commodities.

Textiles are a bright spot. Kenya exported garments worth $335 million in 2013 and the business already employs 40,000 people, industry executives say.

"We are making very good progress in the textile sector," Adan Mohamed, minister for industrialisation and enterprise, said in October, adding a new factory employing 5,000 people would open in Mtwapa on the coast in November.

But other firms are struggling. Even budding clothes makers complain about expensive power supplies and poor infrastructure, saying it drives some investors away.

Eveready East Africa said in October it was stopping production of batteries in Kenya, with the loss of 99 jobs, and shifting to Egypt.

"It is not competitive," said the firm's chief executive, Jackson Mutua. "There are a number of factors that they need to put right."

When Kenya revised data last month, the economy was judged to be 25 percent bigger in 2013 than originally estimated, at $53.4 billion, reducing the ratio of debt to GDP from 57 percent to a healthier but still hefty 50 percent.

GDP per capita rose to $1,246, entering the World Bank's $1,045-to-$12,746 band for middle income states.

Growth was revised upward, with 2013's figure set at 5.7 percent. That is still below the 6 percent economists say is a minimum needed to make a tangible impact on the poor in a country where around 40 percent live below the poverty line, broadly defined as those living below $1.25 a day.

The economy has also been hurt by what turned out to be unfounded worries about election violence in 2013 as well as militant attacks including several in 2014. Economists say governance and corruption issues remain a drag on performance.

"We are behind," said Gachao Kiuna, chief executive of conglomerate TransCentury, who helped draft Vision 2030. "People put a lot of emphasis on foreign direct investment, which is important, but the bigger driver is domestic direct investment."

Kenya also languishes low down in the World Bank's rankings on ease of doing business. In the 2014 table, it crept up one place but was still in 136th position out of 189 countries, where No. 1 is the easiest place to do business.

Officials and a private sector lobby group said this year's ranking did not properly reflect changes that came into effect around the time when the positions were settled in June.

Read Also: Kenya's overall inflation rate declines to 6.43 percent

A single window system set up in May to speed up the clearance of imports and an electronic tax payment system to cut paperwork for firms filing returns would boost Kenya's position next year, the Kenya Private Sector Alliance (KEPSA) said.

"We are as a government committed to ensure we improve the business environment," the industrialisation minister said.

Seeking to address complaints about infrastructure, the government aims to expand power generation capacity by 5,000 megawatts (MW) by 2017, adding to installed capacity of 1,664 MW. It is also building a faster railway line and new roads.

"Having ambitious infrastructure plans and projects is a positive step because of the knock-on effects it has to overall economic development," said Ahmed Salim, an analyst with consultancy Teneo Intelligence in Dubai.

"But the challenge will continue to be project implementation."

- Reuters

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