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TABLE OF CONTENTS ABBREVIATIONS........................................................................................................................................................................................................................................................... i FOREWORD...................................................................................................................................................................................................................................................................... ii ACKNOWLEDGEMENTS.......................................................................................................................................................................................................................................... iii EXECUTIVE SUMMARY............................................................................................................................................................................................................................................ v PART 1: THE STATE OF KENYA’S ECONOMY 1. Recent Economic Developments ............................................................................................................................................................................... 2 1.1. Global economic prospects have dampened ......................................................................................................................................................................... 2 1.2. After a strong rebound in 2018, Kenya’s economic growth has moderated ....................................................................................................... 3 1.3. On the demand side, private consumption is the primary driver of growth ....................................................................................................... 6 1.4. Fiscal consolidation has faced headwinds ................................................................................................................................................................................. 7 1.5. The macroeconomic environment remains stable with low inflation and a manageable current account deficit .................... 14 1.6. Lower imports bill and strong remittance inflows have contributed to a narrower current account deficit................................... 16 2. Outlook, Risks, and Policy Options............................................................................................................................................................................................................. 17 2.1. Kenya’s growth prospects remain positive over the medium term.............................................................................................................................17 2.2. Private consumption and investment are expected to support growth ................................................................................................................18 2.3. Downside risks dominate the balance of risks..........................................................................................................................................................................20 2.4. A balanced policy mix to sustain economic growth.............................................................................................................................................................20 PART 2: SPECIAL FOCUS 3. Accelerating Kenya’s Digital Economy..................................................................................................................................................................................................... 26 3.1. Digital transformation as a driver of Kenya’s growth............................................................................................................................................................ 26 3.2. A Snapshot of Kenya’s Digital Transformation.......................................................................................................................................................................... 26 3.3. Securing Kenya’s Digital Future: Critical Reforms and Investments............................................................................................................................. 32 3.4. Conclusion...................................................................................................................................................................................................................................................... 38 REFERENCES .................................................................................................................................................................................................................................................................... 39 STATISTICAL TABLES ................................................................................................................................................................................................................................................... 41 LIST OF FIGURES Figure 1: Global economic growth has weakened................................................................................................................................................................................... 2 Figure 2: Average growth in the EAC has been strong ......................................................................................................................................................................... 2 Figure 3: Kenya’s real GDP growth has moderated................................................................................................................................................................................... 3 Figure 4: Agricultural output slowed down in H1 2019 ....................................................................................................................................................................... 3 Figure 5: Output for key crops are recovering in H2 2019.................................................................................................................................................................... 4 Figure 6: The industrial sector has decelerated in H1 2019................................................................................................................................................................. 4 Figure 7: Selected output in manufacturing is on a gradual recovery......................................................................................................................................... 4 Figure 8: The PMI has remained expansionary............................................................................................................................................................................................ 4 Figure 9: The services sector remains a key driver of growth............................................................................................................................................................. 5 Figure 10: The growth of information and communications has been strong over time.................................................................................................. 5 Figure 11: Private consumption is supporting growth............................................................................................................................................................................. 6 Figure 12: Yields on government securities have narrowed ................................................................................................................................................................ 6 Figure 13: Private investment contribution to GDP remains weak .................................................................................................................................................. 7 Figure 14: The drag in growth from negative net exports is lower relative to historical trends..................................................................................... 7 Figure 15: The actual fiscal balance is wider than the target ............................................................................................................................................................... 7 Figure 16: Revenue shortfalls have resulted in fiscal slippages........................................................................................................................................................... 7 Figure 17: Revenues have declined consistently over the last five years....................................................................................................................................... 11 Figure 18: Significant underperformance in income tax ........................................................................................................................................................................ 11 Figure 19: The burden of fiscal adjustment falls mainly on development expenditures.................................................................................................... 12 Figure 20: Interest payments have exerted upward fiscal pressures................................................................................................................................................ 12 Figure 21: Kenya’s public debt stock is increasing ...................................................................................................................................................................................... 13 Figure 22: Debt increase is driven by a wider primary balance and interest payments...................................................................................................... 13 Figure 23: Inflation remains within the target range.................................................................................................................................................................................. 14 Figure 24: Inflation is also lower across the EAC economies ................................................................................................................................................................ 14 Figure 25: Although still weak, private sector credit growth has risen recently........................................................................................................................ 15 Figure 26: Interbank rates and volumes remain volatile.......................................................................................................................................................................... 15 Figure 27: Non-performing loans (NPLs) are higher for the medium and small banks........................................................................................................ 16 Figure 28: Current account balance improves............................................................................................................................................................................................... 16 Figure 29: Remittance inflows at an all-time high in H2 2019.............................................................................................................................................................. 17 Figure 30: Capital inflows have financed the current account deficit............................................................................................................................................. 17 Figure 31: Gross official reserves represent a comfortable buffer...................................................................................................................................................... 17 Figure 32: GDP per capita growth ......................................................................................................................................................................................................................... 18 Figure 33: Trends in extreme poverty (percent)............................................................................................................................................................................................ 18 Figure 34: The share of private and public investment, 2019-21 (in percentage points of GDP)................................................................................... 19 Figure 35: Fiscal consolidation is expected to be sustained over the medium term............................................................................................................. 19 Figure 36: Mobile penetration and internet subscriptions..................................................................................................................................................................... 27 Figure 37: Internet bandwidth has increased ................................................................................................................................................................................................ 27 Figure 38: Kenya has the second fastest internet speed in Africa...................................................................................................................................................... 27 Figure 39: Usage of formal and informal financial solutions (percent adults 2006-2019)................................................................................................... 28 Figure 40: Gaps in inclusion by gender (percent adults 2006-2019)................................................................................................................................................ 28 Figure 41: Service employment as a share of total employment in Kenya relative to peers............................................................................................ 29 Figure 42: ICT goods imports as percentage of total goods imports to Kenya is decreasing.......................................................................................... 29 Figure 43: The number of incubators and accelerators is increasing in support of tech-startups in Nairobi ....................................................... 29 Figure 44: A large proportion of start-ups are low-productivity microbusinesses in Nairobi relative to Bangalore India ����������������������������� 29 Figure 45: Market share of mobile market connections among retail operators (Q1 2019, percent).......................................................................... 35 Figure 46: Weekly internet use urban versus rural (percent) ................................................................................................................................................................ 36 Figure 47: East Africa is the 9th largest global market by population............................................................................................................................................... 37 LIST OF TABLES Table 1: Summary of Kenya’s Fiscal Operations, FY2013/14-FY2018/19 (in percent of GDP)..................................................................................... 9 Table 2: Financial soundness indicators (FSI) show a stable banking system...................................................................................................................... 16 Table 3: Medium term growth outlook (percent, unless otherwise stated)......................................................................................................................... 18 Table 4: Progress in the structural reform agenda to advance the Big 4................................................................................................................................ 23 LIST OF BOXES Box 1: Impact of previous global financial crisis on Kenya’s exports, tourism and remittances........................................................................... 8 Box 2: Business lines in the digital economy and taxation issues: Experiences from other countries ............................................................ 10 Box 3: The transformational impact of mobile money on poverty reduction and women’s empowerment............................................. 28 Box 4: Examples of promising Kenyan agritech startups.............................................................................................................................................................. 31 ABBREVIATIONS AfCFTA African Continental Free Trade Area MVNOS Mobile Virtual Network Operators BPO Business Process Outsourcing NCPB National Cereals and Produce Board CA Communication Authority NPL Non-Performing Loans CBK Central Bank of Kenya NSE Nairobi Security Exchange CGT Capital Gain Tax ONA One Network Area CIT Corporate Income Tax PDP Public Private Partnership CIV Côte d’Ivoire PIT Personal Income Tax COMESA Common Market for Eastern and Southern Africa PMI Purchasing Managers’ Index DPL Digital Literacy Program R&D Research and Development DSA Debt Sustainability Analysis ROA Return on Assets EAC East African Community ROE Return on Equity EMDE Emerging Markets and Developing Economies SEN Senegal EU European Union SEZ Special Economic Zones FDI Foreign Direct Investment SGR Standard Gauge Railway GDP Gross Domestic Product SMEs Small and Medium Enterprises GoK Government of Kenya SSA Sub-Saharan Africa GPS Global Positioning System STEM Science, Technology, Engineering and Mathematics H1, H2 First, Second Half TVET Technical and Vocational Education and Training HP Hodrick-Prescott UK United Kingdom ICT Information Communication Technology US United States KEU Kenya Economic Update VAT Value Added Tax KNBS Kenya National Bureau of Statistics WDI World Development Indicators KRA Kenya Revenue Authority WEF World Economic Forum MFMod Macroeconomic and Fiscal Model WITS World Integrated Solution MT Metric Tonnes WRS Warehouse Receipt System MTEF Medium-Term Expenditure Framework y-o-y Year on year MTP Medium- Term Plan i October 2019 | Edition No. 20 FOREWORD K enya continues to experience steady economic growth, with real GDP expanding on average by about 5.6 percent over the last five years (2014-2018). In 2019, however, economic activity has softened primarily due to lower agricultural output and weak private sector investment. As a result, the World Bank projects Kenya’s growth at 5.8 percent for 2019 and settling at around 5.9 percent over the medium term. The weakening of private investment partly reflects crowding out from widening fiscal deficits and relatedly limited access to credit by the private sector (growing by about 6.3 percent in August 2019). Against this backdrop, it is my great pleasure to present the twentieth edition of the World Bank’s Kenya Economic Update. The report contains three main messages. First, the fiscal out-turn data released by the National Treasury (NT) in September 2019 shows a substantial increase in the budget deficit for FY2018/19, calling for stronger measures to return Kenya to a path of fiscal consolidation. The fiscal deficit grew to 7.7 percent of GDP in FY2018/19 from 7.4 percent in the previous year - missing the target in FY2018/19 (of 6.8 percent of GDP) by almost a full percentage point of GDP. This in turn has resulted in the crowding out of the private sector, an unanticipated rise in public debt stock, and the continuation of slow private sector credit growth. This calls for credible adjustment measures by the government to place fiscal accounts back on a prudent trajectory. These should include actions to increase revenue, make revenue projections more realistic, and strengthen expenditure controls and cash management. In addition, measures to adjust the government’s borrowing plans are essential to rebalance the public debt portfolio towards lower cost and longer-maturity debt, hence reducing its vulnerability to market instability as well as creating fiscal space. Second, while the macroeconomic environment remains broadly stable with low inflation and a manageable current account deficit, interest rate caps have constrained the operating environment for the banking sector and reduced the effectiveness of monetary policy. The repeal of interest rate caps (if approved) is a welcome development that should be accompanied by complementary banking sector reforms. The removal of interest rate caps should eliminate what has been a powerful disincentive for banks to lend to SMEs and restore the potency of monetary policy. Reforms that address the root causes of high interest rates could be fast-tracked to accompany this step. These include fiscal consolidation (directed at lower government domestic borrowing), measures that strengthen credit-information sharing and promote transparency in pricing of credit. The success of innovative products such as STAWI should also be supported. Third, to secure Kenya’s digital future, there is need to “digitally enable” every individual, business and prepare the entrepreneurship ecosystem to capitalize on recent churning of innovative startup stage digital ventures. These startups require support to graduate to a higher growth stage – so they can become enterprises that will have a big impact on overall economic growth and jobs creation. In order to keep pace with the rapid digital transformation, strengthen personal data protection, and address growing market concentration, enactment of pending legislations need to be fast-tracked. Furthermore, initiatives aimed at building a digitally-savvy workforce should be strengthened. Finally, ongoing negotiations to establish a regional single digital economy is an essential step to create the economies of scale and network effects that a large digital market offers. C. Felipe Jaramillo Country Director for Kenya World Bank October 2019 | Edition No. 20 ii ACKNOWLEDGEMENTS T he production of this report was a collaborative effort by staff from the Macroeconomic Trade & Investment and Digital Development practices. The preparation of the report was led by Peter W Chacha and Casey Torgusson. Part one – The State of Kenya’s Economy was written by Angélique Umutesi, Celina Mutie and Peter W Chacha. Part two – Accelerating Kenya’s Digital Economy was written by Casey Torgusson, Caroline Koech, Patrick Chege, and Cecilia Paradi-Guilford. The report was made stronger by a team of peer reviewers whose views and insights helped polish ideas and key messages. A big thank you to Fayavar Hayati (Senior Economist, Macroeconomic Trade and Investment), and Timothy Kelly (Lead Digital Development Specialist, Transport and Digital Development). The team received overall guidance from Abebe Adugna (Practice Manager, Macroeconomic Trade and Investment), Philip Schuler (Lead Economist for Kenya, Rwanda, Uganda, and Somalia), Allen Dennis (Program Leader for Kenya, Rwanda, Uganda, and Somalia), and Felipe Jaramillo (Country Director for Kenya, Rwanda, Uganda, and Somalia). We would like to thank Anne Khatimba and Christine Wochieng for providing logistical support, Keziah Muthembwa and Vera Rosauer for managing communication and dissemination, Robert Waiharo for design and layout of the report, and Paul Clark for editorial support. We are also grateful to our continued collaboration with key policy makers in Kenya in the production of this Update. Most of the data used in the analysis was obtained from the Kenya National Bureau of Statistics (KNBS), the Central Bank of Kenya (CBK), and the National Treasury and Planning (NT). The preliminary findings in this report were shared with the NT, the Kenya Revenue Authority (KRA), and the CBK. Furthermore, in preparation for this report, the team solicited views from a broad range of private sector participants. iii October 2019 | Edition No. 20 EXECUTIVE SUMMARY 1. After a strong rebound in 2018, economic current account deficit, but interest rate caps have activity in Kenya moderated in 2019, primarily due constrained the operating environment for the to lower agricultural output and considerably weak banking sector and reduced the effectiveness of private sector investment. The economy expanded monetary policy. Headline inflation averaged 5.2 by 5.6 percent in first half (H1) of 2019 (a deceleration percent in the twelve months to September 2019 from 6.5 percent in H1 2018). While challenges in due to lower energy prices, which was able to offset agriculture account for a significant drag to growth, temporary pressure from rising food prices in H1. private investment has also accounted for a share of Further, core inflation (which excludes food and energy the deceleration. The weakening of private investment prices) decreased to 2.4 percent in September 2019 partly reflects crowding out from widening fiscal deficits (from 4.7 percent in September 2018). This is reflecting and relatedly limited access to credit by the private an economy where underlying demand pressures are sector (growing by about 6.3 percent in August 2019). As still benign. The low inflationary pressure has also been a result, the World Bank’s GDP growth estimate for 2019 supported by a stable local currency. Despite very low is about 5.8 percent, supported by a sustained pickup of core inflation, well anchored inflation expectations, and the economy in the second half (H2) of 2019 as reflected subdued demand pressures, the flexibility of monetary in a nascent recovery in private sector credit, positive policy to respond to the slack in the economy has been business sentiment, and improved short rains that are constrained1, and profitability as well as asset quality for expected to boost harvests. the small and medium sized banks have been affected in the context of the interest rate caps regime. 2. The fiscal out-turn data released by the National Treasury (NT) in September 2019 shows a substantial 4. The repeal of the interest rate caps (if approved) is increase in the budget deficit for FY2018/19, calling a welcome development that should be accompanied for stronger measures to return Kenya to a path by complementary reform measures. On October 16, of fiscal consolidation. The fiscal deficit grew to 7.7 2019, the president returned the Finance Bill 2019 to percent of GDP in FY2018/19 from 7.4 percent in the Parliament with a memorandum that calls for the repeal previous year-missing the target in FY2018/19 (of 6.8 of section 33B of the Banking (Amendment) Act of percent of GDP) by almost a full percentage point of 2016. The removal of interest rate caps should eliminate GDP. This in turn has resulted in the crowding out of the what has been a powerful disincentive for banks to private sector, driving the growth in public debt stock, lend to SMEs2 and restore the potency of monetary and anemic private sector credit growth. This calls for policy. Reforms that address the root causes of high credible adjustment measures by the government to interest rates could be fast-tracked to accompany this place fiscal accounts back on a prudent trajectory. These step. These include fiscal consolidation (which should include actions to increase revenue and make revenue reduce government domestic borrowing), measures projections more realistic, strengthening expenditure that strengthen credit-information sharing and controls and cash management. In addition, measures to promote transparency in pricing of credit. The success adjust the government’s borrowing plans are essential to of innovative products such as STAWI should also be rebalance the public debt portfolio towards cheaper and supported.3 longer-maturity debt, hence reducing its vulnerability to market instability as well as creating fiscal space. 5. External vulnerabilities remain contained with significant narrowing of the current account deficit. 3. The macroeconomic environment remains In the year to August 2019, the current account broadly stable with low inflation and a manageable deficit narrowed to 4.0 percent of GDP (from 5.4 1 The Central Bank Rate has been maintained at 9 percent since July 2018, despite core inflation dropping below the mid-point of inflation target of 5 percent (e.g. the case of 2.4 percent in September 2019). 2 The private sector still accounts for the largest share of total bank’s credit and Kenya ranks favorably (4th in WB Doing Business Report 2020) in ease of access to credit mainly due to implementing a functional secured transactions system. This was made possible by the Movable property security right act. No. 13 of 2017 that was assented into law in 2017. 3 STAWI is a mobile loan application that offers unsecured financing to small and medium scale enterprises (SMEs) in Kenya. It is managed by NCBA bank, Cooperative Bank of Kenya, Diamond Trust Bank (DTB), KCB Bank. October 2019 | Edition No. 20 iv Executive Summary percent in August 2018), driven by lower imports technologies and platforms as an enabler of the Big 4 (food and Standard Gauge Railway related imports), agenda. Adoption of digital technologies and platforms diaspora remittance inflows and improved receipts can play a catalytic role in enhancing productivity, from tourism. Nonetheless, Kenya’s manufacturing improving public service delivery, and providing new exports to Africa(which accounted for 35.3 percent opportunities for Kenyans to access digitally enabled of its merchandise export in 2018) have contracted jobs across nearly every economic and social sector. for the third consecutive year from Ksh.242.2 billion Several messages emerge from the analysis. in 2015) to Ksh.216.2 billion in 2018 (an average of 3.6 percent decline per year) in part due to intensified 8. First, Kenya could fast-track pending legislation, competition in these markets, indicating a need to boost regulations and policy guidelines to keep pace with competitiveness for Kenyan manufacturing. The current rapid digital technology and market transformation. account deficit continues to be adequately financed A new suite of regulatory and policy tools and more by official borrowing and private investment inflows proactive oversight is needed to promote investment, (portfolio and direct investment), resulting in a year-on- innovation, competition in telecoms, mobile money, year increase in official foreign reserves by 6.8 percent to e-commerce, and protect consumer interests and US$ 9.6 billion in August 2019 (or 6.0 months of import safety. Priority actions include enactment and cover). This is expected to provide a comfortable buffer enforcement of pending telecoms regulations such against external short-term shocks. as radio communications and frequency spectrum; interconnection and provision of fixed lines access and 6. Kenya’s growth prospects remain positive over the facilities; tariffs, consumer protection, licensing and medium term. GDP growth is projected at 6.0 percent equality of services. Approval of a data protection bill in 2020 and 5.8 percent in 2021. The growth outlook is and its enforcement could increase confidence that predicated on normal weather conditions, authorities’ sensitive personal data and privacy will be maintained staying the course in planned fiscal consolidation, and when citizens are transacting online. Further, while Kenya limited spillover effects from the anticipated global has made significant progress in increasing competition slowdown. Favorable weather conditions should support in the telecoms sector, more effort is needed to increase growth of agriculture and industry (at an average of 4.6 market competition and address market concentration percent and 5.6 percent, respectively for 2020-21), while in the interlinked telecoms and mobile money markets. the services sector is projected to continue growing at an average of 6.6 percent over the medium term. 9. Second, Kenya will need to prepare the Aggregate demand is also projected to strengthen due entrepreneurship ecosystem to support scale-up of to pent-up investment demand and improved business digitally enabled firms that will drive productivity sentiment. Nonetheless, downside risks to the outlook gains, economic growth and jobs creation. Kenya can are significant. On the domestic front, risks include capitalize on impressive performance of digital sector incidences of drought, fiscal slippages and crowding startups by providing better support to improve the out of private sector investment. On the external side, success rate in reaching high growth stages – hence unanticipated spillover effects from ongoing global generating the enterprises that will have a big impact on slowdown could affect demand for Kenya’s traditional overall economic growth and jobs creation. This includes exports (horticulture and textiles) and remittance mentoring and training to improve managerial skills and inflows. productivity as well as policy and financial instruments to improve access to early stage capital and markets. 7. The special focus topic reviews the recent Policy measures are also needed to ease business developments in Kenya’s digital economy, identifies registration processes, an enabling taxation regime to policy challenges and proposes key policy options to suit startup businesses and access to capital. Furthering support continued growth of the sector. This is critical the CBK’s efforts to develop a regulatory framework for in part because the Government of Kenya is committed responsible digital financial innovation and to position to expanding its digital economy as a new pathway for Kenya as a fintech leader are likewise critical to develop economic growth and job creation, and the role of digital Kenya’s digital economy. v October 2019 | Edition No. 20 Executive Summary 10. Third, efforts are needed to strengthen and sector investment to facilitate rollout, affordability, adequately fund initiatives aimed at building a and access to broadband in rural areas and among the digitally-savvy workforce in partnership with the most geographically, socially, and financially vulnerable private sector. This is key to harnessing emerging populations. Equally important is making it easier to opportunities in the digital economy, supporting access and afford broadband services and digital devices relevant and productive employment. It is also important among the poor. to empower new job entrants with the technical skills as well as the ‘soft skills’ to use technology effectively and 12. Fifth and finally, leveraging regional integration promote continual learning of those already employed of the East African neighbors to create a large single to increase their productivity in both current jobs and digital market for economies of scale and network jobs of the future. For example, the government could effects would be important. An integrated East African continue to support and adequately fund basic digital single digital market would be the 9th largest in the literacy for all citizens, reform formal education system world by population, with significant benefits for Kenya’s and encourage alternative learning methods to bridge digital firms and consumers of larger markets, lower the skills gap. prices and greater access to e-commerce and digital services. To achieve this, it will require efforts to develop 11. Fourth, public and private investment is required three interrelated sub-markets: (a) a single connectivity to close the digital divide between rural and urban, market, which would remove barriers to regional areas as well as the divide along the lines of income, telecoms infrastructure and services deployment, (b) a gender, age, and disability status to ensure that all single data market, which would enable secure exchange, Kenyans are able to reap the gains from adoption storage and processing of data across borders, (c) a of digital technology and are not locked out of an single online market, which would allow government, increasingly digitized economy and society. Over firms and citizens to access and deliver both public and the medium term, initiatives to increase broadband private services online, as well as make online purchases access outside of urban centers need to be undertaken. of goods and services seamlessly from anywhere in the For example, there will be need for continued public region. October 2019 | Edition No. 20 vi RECENT ECONOMIC TRENDS AND OUTLOOK Kenya’s real GDP growth has moderated Agricultural output declined in H1 2019 8 Contribution to GDP growth 8 6.3 5.7 5.9 5.8 6.5 6.2 GDP growth (y-o-y %) 6 6.1 5.4 6 5.6 5.7 5.8 5.6 5.6 5.1 4.9 Percentage points 4.8 4.9 2.6 3.2 4 4 2.5 3.1 2.9 3.5 3.5 3.0 3.1 2.9 3.3 2 1.3 1.0 1.4 1.1 1.5 1.1 0.9 2 0.8 1.2 1.6 0.8 1.7 1.1 0.9 1.4 0.7 1.0 1.2 0.8 0.7 0.6 0.2 0 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 2014 2015 2016 2017 2018 2019 0 2014 2015 2016 2017 2018 2019e Agriculture Industry Services Taxes GDP growth Source: Kenya National Bureau of Statistics and World Bank Source: Kenya National Bureau of Statistics and World Bank Note: “e” denotes an is an estimate The services sector remain a key driver of growth The PMI has remained expansionary Contribution to GDP growth 60 4 55 3 Percentage points 1.3 1.4 1.0 0.9 1.6 1.4 0.8 1.1 1.3 50 2 0.3 0.6 0.7 PMI Index 0.5 0.7 0.5 0.4 0.4 0.4 0.5 0.6 0.4 0.2 0.1 0.3 0.5 0.3 1 0.5 0.5 45 0.4 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.7 0.5 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.2 0.3 0 -0.1 0.1 0.1 0.2 0.1 0.2 0.1 H1 H2 H1 H2 H1 H2 H1 H2 H1 40 2015 2016 2017 2018 2019 -1 35 Accomodation and restaurant Transport and storage Information and communication Financial and insurance Real estate Other services 30 Services Aug-15 Mar-16 Oct-16 May-17 Dec-17 Jul -18 Feb-19 Sep-19 Source: Kenya National Bureau of Statistics and World Bank Source: Stanbic Bank Kenya Private consumption is supporting growth Private investment contribution to GDP remains weak Contribution to GDP growth Contribution to GDP growth 10 4 0.8 8 0.9 1.6 2 Percentage points 1.0 0.2 0.9 Percentage points 6 0.8 5.7 0.2 3.3 0.8 4 3.4 6.3 4.0 0.6 4.7 4.5 2 0.6 3.6 0 2.5 1.6 2.5 0.6 1.8 0.6 0.4 0 -0.2 -0.3 0.4 -0.2 0.4 0.4 -0.3 -2.1 -2.0 -1.3 -1.0 -2 0.0 -2 -3.7 -4 -6 -4 2012 2013 2014 2015 2016 2017 2018 2019e Private Gross Fixed Investment Government Investment -6 Private Consumption Net exports 2012 2013 2014 2015 2016 2017 2018 2019e Government Consumption GDP Government Investment Private Gross Fixed Investment Source: Kenya National Bureau of Statistics and World Bank Source: Kenya National Bureau of Statistics and World Bank Note: ”e” denotes an estimate Note: ”e” denotes an estimate vii April 2019 | Edition No. 19 RECENT ECONOMIC TRENDS AND OUTLOOK Inflation is within the target range Private sector credit growth is recovering 15.0 28 100 12.5 24 80 Year- on - year growth (%) Year-on- year growth (%) 20 60 10.0 16 40 Percent Upper bound 7.5 12 20 5.0 8 0 Lower bound 2.5 4 - 20 0.0 0 - 40 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 Sep-19 Mar-14 Jan-15 Nov-15 Sep-16 Jul -17 May-18 Mar-19 Aug-19 Overall in ation Core in ation Private sector credit Government (Net) Source: Kenya National Bureau of Statistics and World Bank Source: Kenya National Bureau of Statistics and World Bank Current account balance has improved Capital inflows have financed the current account deficit 15 16 10 12 5 Percent of GDP Percent of GDP 0 8 -4.9 -4.0 -5 -6.7 -6.2 -5.0 -8.8 -10.4 4 -10 -15 0 -20 -25 -4 2013 2014 2015 2016 2017 2018 2019 -Aug* 2013 2014 2015 2016 2017 2018 2019-Aug* Services trade Goods trade Current Account Direct Investment Portfolio Investment Income Net Errors and Omissions Net Errors and Omissions Other investments Source: Central Bank of Kenya Source: Central Bank of Kenya Notes: * indicates an estimate Notes: * indicates an estimate The actual fiscal balance is wider than the target Kenya’s public debt stock has increased 2014/15 2015/16 2016/17 2017/18 2018/19* 80 0 62.3 -2 60 57.6 59.1 53.8 Percent of GDP Percent of GDP 48.8 47.8 -4 40 -6 -6.3 -6.8 20 -7.1 -6.9 -8 -7.4 -7.4 -7.2 -7.7 -8.1 -9.1 0 -10 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19* Actual de cit Target de cit Domestic External Total public debt (Gross) Source: The National Treasury Source: World Bank Notes: * indicates preliminary results ,”e” denotes an estimate, “f” denotes forecast Notes: “e” denotes an estimate, “f” denotes forecast April 2019 | Edition No. 19 viii Part 1: The State of Kenya’s Economy Photo: © Sambrian Mbaabu | World Bank The State of Kenya’s Economy 1. Recent Economic Developments 1.1. Global economic prospects have Angola, Nigeria, and South Africa are expected to grow by dampened 0.7 percent, 2.0 percent, and 0.8 percent, respectively in 2019. Growth in the non-resource rich countries remains 1.1.1. Global economic growth is projected to ease steady, buoyed by ongoing public sector investments against a backdrop of a less favorable international (although limited fiscal space is raising questions on the trade environment and low investment. The slowdown sustainability of this growth model). Over the medium is underpinned by escalating trade and technology term, the region’s growth is projected to rise to 3.1 tensions among major economies (US-China tariff hikes percent in 2020 and 3.2 percent in 2021, supported by and uncertainty of the UK-EU trade relationship). These strengthening domestic demand even as the external events have resulted in weaker than anticipated global environment is expected to be difficult (Figure 2). trade and manufacturing, and eroded investor confidence for the remainder of 2019. Further, limited fiscal space among emerging and developing economies (EMDEs) is 1.1.3. Average economic growth in the East African likely to lower public investment in 2019. As a result, the Community (EAC) is much higher relative to growth World Bank’s revised estimate of global growth for 2019 is in SSA. Average real output for the EAC is projected to about 2.5 percent, a downward adjustment relative to the decrease to 5.9 percent in 2019 from 6.0 percent in 2018 June forecast of 2.6 percent.4 Growth in major advanced (Figure 2) but it remains significantly higher relative to economies is expected to decelerate from 2.1 percent the rest of SSA. Across member states, however, there is in 2018 to 1.6 percent in 2019 as economic activity substantial heterogeneity in projected growth.5 Kenya, moderates in the US and the Euro area. Similarly, growth Uganda, as well as Rwanda are all expected to moderate within EMDEs is estimated at 3.7 percent in 2019 down relative to growth realized in 2018, while Tanzania and from 4.3 percent in 2018 (Figure 1). Over the medium Burundi are expected to grow faster in 2019 relative term, however, global GDP is projected to pick up to 2.7 to 2018. In Kenya and Uganda, growth slowed due to percent in 2020 and 2.8 percent in 2021. weaker than expected performance in agriculture, while in Rwanda the moderation reflects a correction back to 1.1.2. The sub-Saharan Africa (SSA) region is potential growth. In Tanzania, higher growth is predicated projected to continue growing albeit, at a much slower on rebounding activity within its manufacturing and pace. The region’s economy is expected to expand from mining sector. Over the medium-term, growth for the 2.5 percent in 2018 to 2.6 percent in 2019 due to negative regional bloc is projected to average about 5.6 percent spillover from dampened global growth prospects and over 2020-21. falling commodity prices. The region’s largest economies- Figure 1: Global economic growth has weakened Figure 2: Average growth in the EAC has been strong 6 10 4.6 8 8.0 GDP growth (y-o-y %) 4 6.4 GDP growth (y-o-y %) 6 6.1 2.8 5.9 5.8 2 4 1.6 1.3 3.2 2 0 2013 2014 2015 2016 2017 2018 2019e 2020f 2021f 0 2014 2015 2016 2017 2018 2019e 2020f 2021f -2 Uganda Tanzania Kenya USA World EMDE Euro Area Rwanda EAC Average SSA Source: World Bank Source: World Bank Notes: “e” denotes an estimate Notes: “e” denotes an estimate 4 World Bank, 2019-Global Economic Prospects, June 2019. 5 The average excludes the Republic of South Sudan due to lack of data. Average growth rates are calculated using constant 2010 US$ prices. 2 October 2019 | Edition No. 20 The State of Kenya’s Economy 1.2. After a strong rebound in 2018, Kenya’s same period (Figure 4). With only about two percent of economic growth has moderated Kenya’s arable land farmed under irrigation, compared to 1.2.1. The moderation in real GDP growth reflects an average of about six percent in SSA and 37 percent in challenges in agricultural output that suffered delayed Asia8 the sector remains susceptible to drought shocks precipitation in the first half of the year. An upside and a source of volatility in Kenya’s GDP growth. More surprise in growth for agriculture and industry lifted recent data shows the output for key food crops such growth to 6.3 percent in 2018, but a delay in the receipt of as maize, beans, and production of cash crops such as long rains6 in 2019 has slowed down activities in the same tea, horticulture and sugarcane (Figure 5) are picking sectors in the first half (H1) of 2019. Official growth data up gradually and with receipt of short rains (October- shows a deceleration in real GDP growth to 5.6 percent November, 2019), which is expected to boost harvests in H1 2019 from 6.5 percent in H1 2018 (Figure 3). With in the second half (H2) of 2019. a nascent recovery in private sector credit and positive investor sentiment (with the Purchasing Managers’ Index 1.2.3. Reflecting a tighter linkage with the (PMI) well above the 50-point mark), the Bank’s estimated performance in agriculture, growth of the industrial growth for 2019 is about 5.8 percent, representing a 0.1 sector has also decelerated. Real growth in the industrial percent upward revision to the forecast made in the April sector (comprising manufacturing, construction, mining 2019 Kenya Economic Update (KEU). and quarrying, and electricity and water) has eased to an average of 4.8 percent in H1 2019 compared 1.2.2. Agriculture remains a key contributor to to an average of 5.1 percent in H1 2018. The sectors’ growth accounting for at least 26 percent of GDP in contribution to real GDP growth in H1 of 2019 was the last five years. Nonetheless, with 83 percent of stable at 0.9 percentage points. Unpacking this into sub- Kenya being arid and semi-arid lands, dependency sectors shows the contribution of manufacturing (0.4), on rain-fed agriculture continues to be a source of mining and quarrying (0.04), electricity and water supply volatility to the sector’s growth performance. For (0.2), and construction (0.3) remaining relatively steady instance, recent delays in the March-May 2019 long compared to H1 of 2018 (Figure 6). rains affected the planting season and raised operating costs, holding back agricultural production in H1 2019.7 1.2.4. Growth in the manufacturing sector, a key The sector’s average growth rate decreased from 7.0 pillar in the government’s Big 4 agenda and in jobs percent in H1 2018 to about 4.7 percent in H1 2019, creation, remains positive but below desired levels. while its contribution to real GDP growth fell from 1.7 Under the Big 4 agenda, the share of manufacturing percentage points to 1.2 percentage points over the to GDP is expected to increase from about 9.6 percent Figure 3: Kenya’s real GDP growth has moderated Figure 4: Agricultural output slowed down in H1 2019 8 Contribution to GDP growth 8 6.3 5.9 5.8 6.5 5.7 6.2 GDP growth (y-o-y %) 6 6.1 5.4 6 5.6 5.7 5.8 5.6 5.6 5.1 Percentage points 4.9 4.8 4.9 2.6 3.2 4 4 2.5 3.1 2.9 3.5 3.5 3.0 3.1 2.9 3.3 2 1.3 1.0 1.4 1.1 1.5 1.1 0.9 2 0.8 1.2 1.6 0.8 1.7 1.1 0.9 1.4 0.7 1.0 1.2 0.8 0.7 0.6 0.2 0 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 2014 2015 2016 2017 2018 2019 0 2014 2015 2016 2017 2018 2019e Agriculture Industry Services Taxes GDP growth Source: Kenya National Bureau of Statistics and World Bank Source: Kenya National Bureau of Statistics and World Bank Notes: “e” denotes an estimate 6 The long rains did materialize but some parts of the country are experiencing food shortage and drought risks remain high. 7 Most parts of the country experienced below-normal rainfall that was mainly recorded in April and May 2019. The seasonal rainfall onset was also quite late over the entire country with most areas remaining sunny and dry throughout the month of March 2019 (http://www.meteo.go.ke/pdf/seasonal.pdf ). 8 World Bank, Kenya Economic Update, 2019 (ed 19: p.31). October 2019 | Edition No. 20 3 The State of Kenya’s Economy Figure 5: Output for key crops are recovering in H2 2019 Figure 6: The industrial sector has decelerated in H1 2019 60 Contribution to GDP growth 2.0 40 Year-to-date growth (%) 1.5 1.5 Percentage points 20 1.3 1.2 0.8 1.1 1.0 1.1 0 1.0 0.6 0.4 0.6 0.8 0.4 0.9 0.7 0.3 0.2 0.3 - 20 0.3 0.4 0.5 0.3 0.1 0.2 0.2 0.5 0.2 0.5 - 40 0.3 0.3 0.3 0.2 0.4 0.4 0.4 0.1 0.1 0.1 0.1 0.0 0.1 0.1 0.1 0.0 0.0 0.0 0.0 - 60 H1 H2 H1 H2 H1 H2 H1 H2 H1 2015 2016 2017 2018 2019 May-16 Nov-16 May-17 Nov-17 May-18 Nov-18 Feb-19 Aug-19 Minning & quarrying Manufacturing Electricity & water supply Cane Tea Co ee Construction Industry Source: Kenya National Bureau of Statistics and World Bank Source: Kenya National Bureau of Statistics and World Bank in 2018 to 15 percent in 2022. For this to happen, credit, and resolving insolvency. The report points manufacturing ought to grow by at least 21 percent per areas for continued improvement to include starting a year (assuming real GDP expands at about 6.2 percent business, registering property, and trade across borders. per year between 2018 and 2022). As of H1 of 2019, the Nonetheless, given the desired growth target, more is sector grew by just 3.7 percent relative to H1 of 2018, required to crowd in private investment and incentivize which is substantially low relative to the desired growth faster manufacturing growth. Thus far, in the third target. This calls for great focus in policy measures to quarter of 2019 production of manufactured foods (dairy promote competitiveness in Kenyan manufacturing. products, soft drinks, and sugar) (Figure 7) and non-food products (cement and galvanized sheet)9 have improved. 1.2.5. The government is pursuing reforms to Similarly, the PMI has remained expansionary (above facilitate business friendly environment so as to raise the 50 points mark) indicating improved orders as the productivity in manufacturing. The government is in manufacturing sector recovers (Figure 8). the process of establishing special economic zones, improving transport infrastructure, and providing a 1.2.6. In the electricity and water supply sectors, rebate on the cost of electricity, among other initiatives. economic activity has softened while the construction The latest World Bank’s doing business report ranks sector continues to perform well. With the late onset Kenya 56 out of 190 economies with a DB2020 score of long rains in 2019, the performance of hydro power of 73.2 up from 71.0 in DB2019. Kenya is performing generation and water supply sub-sectors moderated in very well in protecting minority investors, getting H1 of 2019 to 5.8 from 7.5 percent in H1 of 2018. A large Figure 7: Selected output in manufacturing is on a gradual Figure 8: The PMI has remained expansionary recovery 60 250 60 40 200 55 y-o-y production growth (%) y-o-y production growth (%) 150 20 50 100 PMI Index 0 45 50 - 20 0 40 - 40 -50 35 - 60 -100 Apr-17 Aug-17 Dec-17 Apr-18 Aug-18 Dec-18 Apr-19 Aug-19 30 Soft Drink Galvanized Sheet Sugar Aug-15 Mar-16 Oct-16 May-17 Dec-17 Jul -18 Feb-19 Sep-19 Source: Kenya National Bureau of Statistics, CFC Stanbic Bank and World Bank Source: Kenya National Bureau of Statistics, CFC Stanbic Bank and World Bank 9 KNBS, Quarterly GDP, September 2019. 4 October 2019 | Edition No. 20 The State of Kenya’s Economy share of electricity generation from hydropower and 1.2.8. The ICT sub-sector is the fastest growing sector geothermal sources continues to support lower energy driven by dynamism in mobile telephony, uptake of prices, easing pressure on household incomes and e-commerce and penetration of internet usage. The contributing to increased value addition among firms sector has grown by an average of about 10.8 percent (whose production is energy intensive). The construction per year since 2016 (Figure 10). In H1 of 2019, it expanded sub-sector grew by 6.5 percent in H1 of 2019 compared to by 11.0 percent compared to 11.8 percent in H1 of 2018, 6.0 in H1 2018-thanks to ongoing government spending driven by increasing use of mobile broadband to access on infrastructure, especially roads and phase two of the internet and use of mobile money to send and receive Standard Gauge Railway (SGR). money across networks. Kenya’s mobile subscriptions are estimated at about 103 handsets per 100 persons, which 1.2.7. The services sector has regularly recorded is amongst the highest in the African continent. This has higher growth and typically dominates in the year-on- spurred increased penetration of internet, widespread year sector contribution to GDP growth. Over the last use of mobile banking, and improved financial inclusion. five years, the services sector has grown at an average of about 6.0 percent and has accounted for almost two 1.2.9. The special focus topic reviews the recent thirds of Kenya’s economic growth. In 2018, the sector developments in Kenya’s digital economy, identifies gained some momentum, possibly reflecting spillover policy challenges and proposes solutions to support from strengthening agriculture and manufacturing continued growth of the sector. This is critical not in that year. More recently in H1 2019, the sector has only because the Government of Kenya is committed grown by about 6.5 percent compared to 7.0 percent to expanding its digital economy as a new pathway for in H1 of 2018 (Figure 9). Top performing sub-sectors in economic growth and jobs creation, but also because H1 of 2019 within services include: accommodation and the sector is an enabler under the Big 4 agenda. restaurants (tourism) at 10.3 percent; information and Through its close linkages with other sectors, it could communication (ICT) at 11 percent; and transport and play a catalytic role of enhancing productivity (in the storage at 6.9 percent. Improved security measures and Big 4 focus areas such as agriculture and health). This apt marketing strategies have supported tourism, while edition’s special focus examines the evolution of the marginal growth in freight transport is behind expansion sector, discusses challenges, and proposes potential of the transport and storage sector. However, reflecting policy solutions to spur a solid digital ecosystem that ongoing challenges in the banking sector, including will safeguard Kenya’s place as a leader in digitalized from the interest rate caps, growth in the financial economy, and contribute to growth and jobs. services sector has decelerated to 5.9 percent in H1 of 2019 compared to an annual growth of about 8.6 percent (2013-2015) before the caps. Figure 9: The services sector remains a key driver of growth Figure 10: The growth of information and communications has been strong over time Contribution to GDP growth 8 20 4 6 15 3 Percentage points 1.3 1.4 1.0 0.9 1.6 1.4 0.8 1.1 1.3 Percent 2 0.3 Percent 0.6 0.7 0.7 4 10 0.5 0.5 0.5 0.4 0.4 0.4 0.6 0.4 0.2 0.1 0.3 0.5 0.3 1 0.5 0.5 0.4 0.4 0.4 0.4 0.4 0.3 0.3 0.3 0.7 0.5 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.2 0.3 2 5 0 -0.1 0.1 0.1 0.2 0.1 0.2 0.1 H1 H2 H1 H2 H1 H2 H1 H2 H1 2015 2016 2017 2018 2019 -1 0 0 Accomodation and restaurant Transport and storage H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 Information and communication Financial and insurance 2013 2014 2015 2016 2017 2018 2019 Real estate Other services Services ICT contribution to growth GDP growth ICT - annual growth (RHS) Source: Kenya National Bureau of Statistics and World Bank Source: Kenya National Bureau of Statistics and World Bank October 2019 | Edition No. 20 5 The State of Kenya’s Economy 1.3. On the demand side, private consumption is an obstacle to the higher levels of job creation is the primary driver of growth required by a young and growing population. With 1.3.1. The contribution to growth from private the recent narrowing of government yields on consumption remains solid, supported by a securities (Figure 12) and nascent recovery in credit bourgeoning middle class and large remittance to the private sector, however, we expect a gradual inflows. In 2018, private consumption expanded by recovery in private investment. approximately 5.9 percent and accounted for 77.1 percent of GDP (Figure 11). This was boosted by improved 1.3.3. The strong role of public sector investment in incomes from agricultural harvests, lower food inflation, growth is decreasing in part due to completion of key and strong remittance flows. Although household flagship investment projects but also due to narrowing consumption data for H1 2019 is not yet available, given fiscal space. Government’s investment contribution the backdrop of strong remittance, a nascent recovery in to GDP growth has decreased to about 0.6 percentage credit to households and stable food prices, the growth points of GDP in 2019 from a high of 2.5 percentage performance of private consumption is expected to be points in 2014 (Figure 13). This in part reflects maturity strong in 2019. in investment to key infrastructure projects (Roads and Nairobi-Mombasa SGR) but also narrowing fiscal space. 1.3.2. Private sector investment has been Consequently, the government has issued guidelines to comparatively modest and formal job growth remains MDAs to prioritize completion of ongoing projects and relatively weak. Despite less political uncertainty alignment of any new development projects to the Big and improved business confidence, private sector 4 agenda. investment’s contribution to GDP growth has been dismal. Its two-year average contribution has decreased 1.3.4. The contribution of net exports to growth to about 0.4 percentage points in 2018-19 from 2.5 remains negative, although its drag is much weaker percentage points in 2017. The slowdown is associated than in previous periods. In static analysis, net with strong government domestic borrowing to fund exports constitute a drag to growth for non-resource its deficit, which competes with private sector for credit. rich economies, although in a dynamic setting, access Interest rate caps has also disincentivized lending by to imports contributes to productivity gains through commercial banks to small and medium enterprises technology spillovers and learning by doing.11 Nonetheless, (SMEs), curtailing SMEs investment and expansion. from short term static analysis, imports have more than Delays in public payments-pending bills (estimated at offset Kenya’s exports (tea, coffee, horticultural, and 0.7 percent of GDP in FY2018/19) have reduced firm’s tourism receipts) constituting a drag to growth (Figure 14). liquidity, often delaying their hiring and investment However, over the last two years trends in the value of decisions. 10 This constrained business environment imports have been falling (as food and SGR imports have Figure 11: Private consumption is supporting growth Figure 12: Yields on government securities have narrowed Contribution to GDP growth Government securities yield curve 10 14.0 0.8 8 0.9 1.6 Percentage points 6 1.0 0.2 0.8 5.7 0.9 12.5 0.2 3.3 0.8 4 3.4 6.3 4.0 0.6 4.7 4.5 11.0 Yields (%) 2 0.6 2.5 3.6 1.8 1.6 2.5 0.4 0.6 0 0.6 -0.2 0.4 -0.2 0.4 0.4 -0.3 -0.3 -1.3 -1.0 -2.1 -2.0 -2 0.0 9.5 -3.7 -4 -6 8.0 2012 2013 2014 2015 2016 2017 2018 2019e Private Gross Fixed Investment Government Investment 6.5 Private Consumption Net exports 3m 6m 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Government Consumption GDP Jul-17 Jul -18 Jul -19 Source: Kenya National Bureau of Statistics and World Bank Source: Central Bank of Kenya 10 World Bank, 2019 (Kenya Economic Update, Ed:19 P.10). 11 Bustos, 2011; Lileeva & Trefler, 2010. 6 October 2019 | Edition No. 20 The State of Kenya’s Economy Figure 13: Private investment contribution to GDP remains Figure 14: The drag in growth from negative net exports is weak lower relative to historical trends Contribution to GDP growth 2 4 4- year moving average (%) 2 Percentage points 0 0 -2 -2 -4 -6 -4 2012 2013 2014 2015 2016 2017 2018 2019e 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019e Government Investment Private Gross Fixed Investment Imports Exports Net exports Source: Kenya National Bureau of Statistics and World Bank Source: Kenya National Bureau of Statistics and World Bank decreased), which has reduced the downward impact of for stronger measures to return Kenya to a path of net exports on growth. While Kenya’s agricultural exports fiscal consolidation (Table 1). Despite a significant destined for advanced economies have remained stable, reduction in the fiscal deficit from 9.1 percent of manufactured exports to Africa (which accounted for GDP in FY2016/17 to about 7.4 percent in FY2017/18, about 35.3 percent of Kenya’s merchandise exports in continued downward adjustment was not achieved as 2018) have contracted for the third consecutive year from the central government deficit expanded to 7.7 percent Ksh.242.2 billion in 2015 to Ksh.216.2 billion in 2018 (or an in FY2018/19 (compared to a target deficit of 6.8 average of 3.6 percent decline per year). The contraction percent of GDP). This represents 0.9 percentage points is in part due to intensified competition in these markets (as a share of GDP) above the target primarily due to with data showing shipments to countries such as revenue shortfalls (Figure 15) but also due to expenditure Democratic Republic of Congo, South Sudan, Ethiopia, pressures amidst revenue underperformance. This calls and Somalia decreasing. Further, rising policy uncertainty for credible adjustment measures by the government to on international trade (the US-China tariff war, and the place fiscal accounts back on a prudent trajectory. These exit of the UK from the EU) as well as ongoing global include actions to increase revenue and make revenue slowdown are likely to adversely affect Kenya’s exports, projections more realistic, strengthening expenditure tourism receipts and remittances, although such effects controls and cash management. Total revenue collection tend to materialize with a lag (Box 1). fell 7.3 percent short of the target (i.e. Ksh.1,671.1 billion against a revised target of Ksh.1,794.3 billion). As 1.4. Fiscal consolidation has faced headwinds share of GDP, total revenue stabilized at 17.9 percent 1.4.1. The fiscal out-turn data released by the National in FY2018/19 compared to 19.2 percent of GDP in Treasury (NT) in September 2019 shows a substantial FY2013/14 (Figure 16). increase in the budget deficit for FY2018/19, calling Figure 15: The actual fiscal balance is wider than the target Figure 16: Revenue shortfalls have resulted in fiscal slippages 2014/15 2015/16 2016/17 2017/18 2018/19* 30 0 25 -2 5.5 5.8 5.1 Percent of GDP 20 1.2 1.5 0.8 2.7 2.1 Percent of GDP -4 15 -6 10 18.7 19.2 19.2 19.0 18.7 18.8 17.9 17.9 -6.3 -6.9 -6.8 -7.1 -8 -7.4 -7.4 -7.2 5 -7.7 -8.1 -9.1 0 -10 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19* Actual de cit Target de cit Actual Revenue Shortfall Target Source: National Treasury Source: National Treasury October 2019 | Edition No. 20 7 The State of Kenya’s Economy Box 1: Impact of previous global financial crisis on Kenya’s exports, tourism and remittances Kenya is highly integrated into the global economy and a downturn in the global economy could worsen its net exports and the current account balance. To illustrate the likely impact on Kenya’s exports (to the EU and the US), as well as tourism and remittance receipts, in the event the global downturn materializes in 2019/20, we use the Hodrick-Prescott (HP) filter to obtain potential exports. Deviations between actual and potential exports pre and post 2008 global financial crisis provided an indicator of the impact of that crisis on exports, tourism and remittances. Percentage effect is calculated relative to the pre-crisis exports. The European Union (EU) and the United States (US) are leading destinations for Kenya’s exports (especially horticulture and textiles products). The 2008-2009 global financial crises impacted Kenya (with a lag), primarily through decreases in the value of exports, tourism receipts, and shortfall in remittance inflows. Exports to the EU and the US dropped on average by 5 percent and 8.8 percent, respectively (Figure B.1). Compared to other EAC countries, Kenya and Rwanda had a decline in exports to the EU. Similarly, Kenya and Tanzania’s exports to the US decreased. Figure B.1: Impact of the 2008-2009 crisis on Kenya’s exports to the EU and the US Exports to EU Exports to US 250 20 40 80 200 60 15 30 40 150 20 10 20 US$ Million US$ Million US$ Million US$ Million 100 10 0 5 50 0 -20 0 -40 0 -10 -60 -50 -5 -20 -80 -100 -10 -30 -100 2005 2006 2007 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 Kenya Tanzania Uganda Rwanda (RHS) Rwanda Tanzania Uganda Kenya (RHS) Source: World Bank, WITS database; Notes: we used the Hodrick-Prescott (HP) filter to obtain potential exports. Deviations between actual and potential exports pre and post crisis provided an indicator of the impact of the 2008-2009 global financial crisis. Percentage impact is calculated relative to the pre-crisis exports. Similarly, Kenya’s remittance inflows and tourism receipts contracted by 15.2 percent and 14.3 percent, respectively (Figure B.2). Figure B.2: Impact of the 2008-2009 crisis on Kenya’s tourism and remittance receipts Tourism Receipts Remittance in ow 400 200 300 150 100 200 50 100 US$ Mn US$ Mn 0 0 -50 - 100 -100 - 200 -150 - 300 -200 - 400 -250 2005 2006 2007 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 Kenya Tanzania Uganda Rwanda Kenya Tanzania Uganda Source: World Bank, WITS database; Notes: the HP filter is used to obtain potential tourism and remittance receipts. Deviations between actual and potential in pre and post crisis window provided an indicator of the impact of the 2008-2009 global financial crisis. Percentage impact is calculated relative to pre-crisis level. From this analysis, we can see that the greatest transmission of the global economic downturn is mainly through decline in tourism receipts and remittance inflows, which could potentially lead to widening of the current account deficit. The effect, however, tends to filter through with a lag of one year. 8 October 2019 | Edition No. 20 The State of Kenya’s Economy Table 1: Summary of Kenya’s Fiscal Operations, FY2013/14-FY2018/19 (in percent of GDP) Actual (percent of GDP) 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19* Revenue and Grants 19.7 19.5 19.1 19.2 18.2 18.1 Total Revenue 19.2 19.0 18.7 18.8 17.9 17.9 Tax revenue 18.1 17.7 17.2 17.1 16.0 16.1 Income tax 8.9 8.7 8.4 8.2 7.5 7.4 VAT 4.6 4.5 4.3 4.4 4.2 4.4 Import Duty 1.3 1.3 1.2 1.2 1.1 1.2 Excise Duty 2.0 2.0 2.1 2.2 2.0 2.1 Other Revenues 1.3 1.3 1.2 1.1 1.2 1.0 Railway Levy 0.0 0.0 0.0 0.0 0.0 0.0 Appropriation in Aid 1.1 1.3 1.5 1.7 1.8 1.9 Grants 0.5 0.5 0.4 0.4 0.3 0.2 Expenditure and Net Lending 25.6 28.1 26.9 28.1 25.2 25.8 Recurrent 14.8 15.4 15.4 15.7 15.8 16.1 Wages and salaries 5.5 5.1 4.6 4.4 4.6 4.5 Interest Payments 2.7 2.9 3.2 3.5 3.8 4.0 Other recurrent 6.6 7.3 7.7 7.7 7.5 7.5 Development and net lending 6.3 8.8 7.3 8.4 5.5 5.9 County allocation 3.8 3.9 4.1 4.0 3.8 3.9 Fiscal Deficit (incl. grants, cash basis) -6.1 -8.1 -7.1 -9.1 -7.4 -7.7 Financing 6.1 8.1 7.1 9.1 7.4 7.7 Foreign Financing 4.0 3.7 4.0 5.0 4.2 4.4 Domestic Financing 2.1 4.3 3.0 4.0 3.2 3.3 Total Public Debt (gross) 47.8 48.8 53.8 57.5 59.1 62.3 External Debt 22.4 24.4 26.8 30.0 30.0 32.4 Domestic Debt 25.3 24.4 27.1 27.6 29.1 29.9 Memo: GDP (Fiscal year current market prices, Ksh bn) 5,074 5,832 6,710 7,658 8,525 9,317 Source: National Treasury Note: * denotes preliminary results Collection from income tax has declined drastically, 34.2 percent of nominal GDP in 2018, its contribution accounting for most of the revenue shortfalls to revenue is just about 2.6 percent. This contrasts 1.4.2. Reversing the downward trend in tax revenue with manufacturing that accounted for 7.7 percent of mobilization is critical for creating fiscal space and nominal GDP but about 18.2 percent of tax revenue. providing flexibility for countercyclical policy. In recent Second, discretionary changes to the income tax code years there has been a structural decline in tax revenues (corporate and personal) have eroded the tax base (excl. other revenue) as a share of GDP to 15.0 percent through generous depreciation allowances, investment of GDP in FY2018/19 from 16.8 percent in FY2013/14 deductions and tax holidays, particularly for export (Figure 17). This has arisen due to several factors. First, the processing zones and special economic zones. Third and structure of the economy has changed in favor of non- final, a large informal sector12 and preference of firms to tax revenue rich sectors such as agriculture — which has stay under the radar of the revenue collecting agency.13 expanded as a share of GDP from 27.5 percent in 2014 to Moreover, the digitalization of the economy could have 34.2 percent in 2018 — and public sector investments. shifted economic activity to agents whose incentive to For instance, while agriculture accounts for about comply with taxation is traditionally low (Box 2). 12 The number of persons employed in the informal economy has increased from 82.5 percent in 2014 to 83.5 percent in 2018 (KNBS 2019-Economic Survey). 13 Alm, James, and Jorge Martinez-Vazquez (2010). October 2019 | Edition No. 20 9 The State of Kenya’s Economy Box 2: Business lines in the digital economy and taxation issues: Experiences from other countries14 The digital economy is very broad with a range of business lines. In this section we highlight two key business lines and experiences in different countries for taxing the underlying business transactions in these areas. The two are: Sale and resale of (access to) digital content or digital solutions (software, operating systems, web design and cloud computing), and multi- sided platforms, including ride-sharing and online travel/hospitality firms such as Airbnb. Sale and resale of (access to) digital content or digital solutions The product is delivered in purely digital form and payment is made in the form of periodic subscription, engaged through a web-interface. The subscriber is only granted access to or use of, but not ownership of the digital content for the duration of subscription. What is the main policy concern in taxation here? Importing digital content generates a liability for VAT. The onus is on the subscriber to declare the purchase and pay the relevant tax. If the transaction is B2B, then a business can declare the purchase and pay VAT in the regular course of business and claim input VAT against VAT collected from its own customers. Compliance gets difficult if most subscribers are individual final consumers. Here, VAT payable cannot be offset against another tax liability and should be remitted. Below is a summary of experiences in other jurisdictions. European Union: Levies VAT on nonresident suppliers of telecommunications, broadcasting, and electronic services, regardless of scale. Businesses without a permanent establishment in the EU can choose any member state with which to be identified and are assigned a VAT number. The suppliers must then apply the VAT accounting and remittance rules of the country of the subscriber to their digital content. Latin American countries: Require foreign digital suppliers to register with tax administrators and collect and remit VAT directly. A split payments arrangement is also used when processing payments for digital services and remitting that portion of the transaction directly. The UK is also proposing to introduce the split payments mechanisms. Generally, this means that credit, M-PESA and debit card providers could act as withholding agents. Chile has introduced a freestanding (independent of its 19 percent VAT rate) 10 percent charge on digital content firms such as Netflix and Spotify. Multi-sided platforms: Ride-sharing and Airbnb A digital supplier provides an online platform which acts as an intermediary between service providers (drivers) and customers (passengers) for the case of Uber and Bolt in Kenya. In accommodation, Airbnb allows matching between hosts and guests. In return, the platform provider charges a fee or commission to the service provider, with the remainder constituting revenue to the service provider. There is a clear income tax liability on the part of the service provider. The initial transaction between service provider and the customer may also generate indirect tax liabilities (VAT and excise taxes), as well as levies (catering levies and/or service charges). What is the main tax policy concern here? Involvement of service providers in sectors where tax compliance is traditionally low! France: Digital platforms are required to provide the service provider with a breakdown of their tax liability and reporting requirements with respect to each transaction, as well as an annual statement of gross income. Further, digital platforms are also required to report this information directly to tax administrators. Uruguay: Ride sharing platforms are obliged to withhold a proportion of each driver’s monthly transactions and remit the same to the tax office the following month. These earlier installments can be deducted by the drivers from their eventual liabilities to the tax office. Further at the sub-national level, ride-sharing platforms are required to register with City Hall, report the names of all drivers and withhold and remit a levy of US$0.06 for every kilometer driven. 14 Clavey et al (2019)-International Tax reforms, Digitalization and Developing Economies. 10 October 2019 | Edition No. 20 The State of Kenya’s Economy Figure 17: Revenues have declined consistently over the last Figure 18: Significant underperformance in income tax five years 20 19 1.3 18 1.3 1.2 1.5 16 1.2 2.0 2.0 1.1 1.2 17 2.1 2.2 0.1 0.2 1.3 1.3 2.0 2.1 16 0.3 Percent of GDP 1.2 1.1 Percent of GDP 12 1.2 1.0 4.6 15 4.5 4.3 4.4 4.2 4.4 14 18.1 16.1 8 13 12 4 8.9 8.7 8.4 8.2 7.5 7.4 11 10 0 2013/14 Excise Income Value Import Other 2018/19 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19* Duty tax Added Tax Duty Revenue Income tax Value Added tax Other revenue Excise duty Import duty (net) Negative Postive Source: National Treasury Source: National Treasury 1.4.3. The decline in income tax accounts for and CIT rate and could be providing perverse incentives most of the revenue shortfall. In FY2018/19, revenue for taxpayers to convert fully taxable income into lightly from income tax15 was below target by approximately taxed CGT. Nonetheless, the extent of this practice 16.3 percent, representing a decline to 7.4 percent in deserves further research beyond available data and time FY2018/19 from 8.9 percent in FY2013/14 (Figure 18). This for this KEU. reflects lower revenue yields from both corporate income tax (CIT), withholding tax and personal income tax (PIT). 1.4.5. The performance of value added taxes (VAT) The contribution from corporations and withholding and excise duty remains broadly stable, although taxes depends on profitability of firms — with the collections remain below historical trend. VAT has telecommunication and the financial sectors accounting stabilized at around 4.4 percent of GDP over the last five for most (at least 60 percent) of the CIT. However, the years (2014-2018), which is lower relative to the high of business environment for the financial sector has not 4.6 percent over 2010-2012 period. The removal of VAT been favorable in the context of interest rate caps exemptions on petroleum products in the Finance Act, (especially among small banks), which has affected 2018 yielded at least Ksh.14.4 billion (or 0.16 percent of profitability.16 Further, CIT is characterized by multiple GDP) in additional revenue, but a review of the entire rates and numerous tax incentives, which erodes the tax exemption regime and zero-rating could raise this base and collected revenues. to about 3.5 percent of GDP in additional revenue.19 Moreover, tax policy for the digital economy is still 1.4.4. In 2018, approximately 9,482 Kenyans were evolving, and authorities could review the extent to among the world’s high net-worth individuals17 but which VAT from the various business lines could be personal income tax (PIT) is far from being a stable collected (Box 2). Excise revenue marginally increased revenue contributor. Relatively narrow income brackets from about 2.0 percent in FY2013/14 to 2.1 percent of and deductions that benefit primarily upper-income GDP in FY18/19. Recent tax measures to boost collection households18 have continued to undermine progressivity from excise revenue (Excise on airtime, data, telephone of the PIT structure. Revenue collection through PIT has services, and financial services transactions) are likely to declined from 4.9 percent of GDP in FY2013/14 to 4.1 contribute to improved revenue collection but could percent in FY2018/19. Further, the capital gains tax (CGT) also lead to unintended disincentives to the growth of at 5.0 percent is substantially lower than the standard PIT the digital economy.20 15 Comprises PIT, CIT, withholding tax, turnover tax, lotteries tax, presumptive tax, capital gains tax, and rental income obtained from the fourth quarter of Quarterly Economic Budget Review, July 2019. 16 Value added for the financial services sector and level of employment decreased after the interest rate caps law. 17 Those with a net worth of over US$1 million excluding their primary residence: https://www.knightfrank.co.ke/news/kenya-adds-300-dollar-millionaires-in-2018-013003.aspx. 18 The PIT deductions include: Mortgage interest, contributions to pension and provident funds, home ownership savings plans among others, which are typically accessed by higher income households. 19 Revenue forgone due to VAT exemptions and zero rating is estimated at about 3.5 percent of GDP, while revenue forgone from CIT exemptions, accelerated depreciation allowances and preferential rates are estimated at about 1.9 percent of GDP (World Bank, 2017). 20 Close monitoring is needed to ensure that these taxes do not reverse gains in mobile money services, e-commerce and financial inclusion. October 2019 | Edition No. 20 11 The State of Kenya’s Economy Strengthening efficiency and effectiveness of FY2018/19 (Figure 19), increased expenses on interest development expenditures, while reducing rigidity of payments offset the gains from wage bill containment. recurrent spending, is critical for creation of fiscal space Interest payments grew by one percentage point in the 1.4.6. Expenditure control measures are also needed last five years to 4.0 percent of GDP in FY2018/19, while to support fiscal consolidation. The National Treasury county transfers stood at 3.9 percent of GDP (Figure has embarked on expenditure rationalization measures 20). It is important that authorities limit the extent and that include cutting travel expenses and reducing scope of earmarked expenses (transfers, salaries and wastages as well as ensuring that pending bills are wages), because such expenses are difficult to unwind cleared. Having a clear quantification on fiscal savings once established. expected from these cuts and the mechanisms that will ensure they are achieved will go a long way in restoring 1.4.8. Measures to enhance efficiency of capital credibility. As a share of GDP, overall government expenditures remain critical for optimal returns expenditure rose by about 0.6 percentage points to from public investment.22 Development spending has 25.8 percent in FY2018/19 (from 25.2 percent of GDP increased to 5.9 percent of GDP in FY2018/19 (from in FY2017/18). This is a substantial increase given that 5.5 percent in FY2017/18). Nonetheless, there remain revenue has been stuck at 17.9 percent of GDP over the challenges, which if addressed could improve the last two fiscal years. The marginal increase in spending efficiency and effectiveness of public expenditures reflects the government’s decision to defer any new in general. KEU19 found, for example, that the development projects and to ensure completion of accumulation of pending bills undermined public existing projects. This has provided room to align investments’ contribution to economic growth23 by development projects to the Big 4 agenda without affecting profitability of firms that trade with the public accelerating overall development spending. In addition, sector and curtailing private sector activity (pending there is generally low absorption of budget due to delays bills are estimated at 0.7 percent of GDP in FY2018/19). in project design, procurement, and implementation. The slow execution of the development budget signals weaknesses in project appraisal, planning and 1.4.7. Rigidity in recurrent spending makes it sequencing of implementation. Project implementation difficult to adjust overall spending. Expenditure on cycles and budgeting appear unsynchronized – in wages and salaries, interest payments, and county part due to uncertainty regarding multi-year budgets transfers accounted for 70.8 percent of ordinary revenue for projects. This practice tends to encourage over- in FY2018/19. While an ongoing process to contain the estimation of budget needed for a given implementation wage bill (including restricting new hiring to critical period per project, which has undermined progress services)21 has slowed expansion of the same from 5.5 made in mainstreaming programs based and the MTEF percent of GDP in FY2013/14 to 4.5 percent of GDP in budgeting process. Figure 19: The burden of fiscal adjustment falls mainly on Figure 20: Interest payments have exerted upward fiscal development expenditures pressures 30 30 3.9 4.0 0.7 1.2 4.1 3.9 1.4 0.4 0.3 3.8 2.9 3.5 3.8 25 3.2 20 2.7 3.8 4.0 Percent of GDP 5.1 4.4 Percent of GDP 4.6 5.5 4.6 4.5 20 7.3 7.7 7.7 25.6 25.8 10 6.6 7.5 7.5 15 8.8 7.3 8.4 6.3 5.5 5.9 0 2013/14 2014/15 2015/16 2016/17 2017/18* 2018/19e 10 Development and Net Lending Other recurrent 2013/14 Interest Other Wages and Develop Transfers 2018/19 Wages and salaries Interest payments Payments recurrent salaries Exp. County allocation Negative Positive Source: National Treasury Source: National Treasury 21 World Bank. 2017 (Kenya Economic Update Ed:16) and National Treasury. 2019. Budget Statement (June 2019). 22 Fosu et al. (2016). Optimal public investment, growth, and consumption: evidence from African countries. Macroeconomic Dynamics, Vol.20(8), pp.1957-1986 23 World Bank. 2019 (Kenya Economic Update Edition 19). 12 October 2019 | Edition No. 20 The State of Kenya’s Economy Modernization and improved debt management under the World Bank’s Country Policy and Institutional and transparency Assessment (CPIA) index. However, reflecting higher 1.4.9. Consistent with the expanded fiscal deficit, domestic interest rates, debt servicing charges on the public debt and debt service have increased. The fiscal domestic debt stock are three times higher than from slippage in FY2018/19 resulted in a 3.2 percentage points the external debt stock. Kenya continues to access increase in public debt to 62.3 percent of GDP from 59.1 international markets to refinance its external debt. For percent in 2017/18 (Figure 21).24 The increase was purely instance, it issued a third Eurobond (US$ 2.1 billion) to on account of a wider fiscal deficit and interest payments refinance a bullet repayment of US$750 million from (Figure 22). The contribution of primary balance deficit to the first Eurobond, with the balance going to budgetary growth in debt stock was about 3.7 percentage points of support. GDP, while interest payments and other residual factors added about 3.4, and 3.0 percentage points, respectively 1.4.11. Debt service obligations will continue to to that growth. On the other hand, expansion in real GDP impose significant fiscal strain on the exchequer. Kenya contributed to a decline in growth of debt stock by some could face fiscal pressure in meeting its near term debt 3.3 percentage points and exchange rate valuations and repayments obligations. For example, domestic reduced the same by some 3.6 percentage points. Kenya’s interest payment to tax revenue has increased to about debt remains below the low-middle income countries 18.2 percent in FY2018/19 from 16.3 percent in FY2016/17. Debt Sustainability Analysis (DSA) debt thresholds of 70 Further, with 43 percent of domestic debt expected percent of GDP in present value terms. to mature within one year, the government could face challenges in rolling over such bonds in an environment 1.4.10. The accumulation of Kenya’s public debt of no interest rate caps, low subscription rates and over- includes both external and domestic components, as exposure of commercial banks to these assets. This could the government borrowed to finance development significantly push up the cost of refinancing domestic projects but also to refinance repayments. As of June debt. A strategy of rebalancing the mix of expensive and 2019, the total debt stock rose to Ksh.5.8 trillion (from shorter maturity commercial debt is critical to reduce Ksh.5.0 trillion in June 2018) split between external and fiscal pressures associated with debt service obligations. domestic debt at a ratio of 52 to 48. At Ksh.3.0 trillion In this context, proactive debt management strategies, (32.4 percent of GDP), Kenya’s external debt remains including calling on creditors to remain in “the game” below 50 percent of GDP in net present value (NPV)25 for longer as a lender (through reprofiling) could be terms, which is the threshold applicable to a country, explored. Reprofiling is a type of debt re-organization whose policies and institutions are classified as strong strategy focused on extending the maturity of short- Figure 21: Kenya’s public debt stock is increasing Figure 22: Debt increase is driven by a wider primary balance and interest payments 80 15 Percentage points of GDP 62.3 10 60 57.6 59.1 53.8 5.7 5.1 Percent of GDP 48.8 3.7 47.8 5 3.2 0.9 1.0 1.6 40 0 -2.0 20 -5 -10 2012 2013 2014 2015 2016 2017 2018 2019 0 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19* Primary bal. Seignorage Growth e ect Interest Domestic External Total public debt (Gross) Revaluation Residual Change in debt Source: National Treasury Source: National Treasury Note: Data is in fiscal years (i.e. 2019 = FY2018/19) 24 Kenya’s policies and institutions are classified as “strong” under the World Bank’s Country Policy and Institutional Assessment (CPIA) Index (average score in 2014–16: 3.75). The relevant indicative thresholds for this category are: 50 percent for the NPV of debt-to-GDP ratio, 200 percent for the NPV of debt-to-exports ratio, 300 percent for the NPV of debt-to- revenue ratio, 25 percent for the debt service-to-exports ratio, and 22 percent for the debt service to-revenue ratio. These thresholds are applicable to public and publicly guaranteed external debt. 25 NPV is a method used to account for the time value of money. Debt stock at time t is the discounted sum of expected primary current account balanced and changes in non-debt capital flows plus discounted value of future debt stock at time (t+n). October 2019 | Edition No. 20 13 The State of Kenya’s Economy dated liabilities, potentially easing fiscal pressure on the by low energy and food prices and a stable local exchequer. In addition, liquidity of public debt could be currency. Headline inflation averaged about 5.2 percent enhanced by issuing longer maturity bonds, to capitalize in the twelve months to September 2019 due to lower on high propensity to invest in government bonds as energy and food prices (Figure 23). Kenya’s inflation, indicated by increase in subscription rate and declining like most of its EAC counterparts (Figure 24), is easing yields on government securities. due to dampened food and energy prices. Additionally, core inflation (which excludes energy and food prices) 1.4.12. Improvement and clarification of fiscal rules decreased to 2.4 percent in September 2019 (from 4.7 within the Public Financial Management Act (PFMA) of percent in September 2018), reflecting an economy 2012 remains important to provide fiscal targets that where underlying demand pressures are still benign. The will guide fiscal policy. The ongoing discussion to shift lower inflationary pressure is also supported by a stable the debt ceiling from 50 percent of GDP in present value local currency. terms to a nominal fixed value (at Ksh.9 trillion over the next three fiscal years) reflects the need for clarity and 1.5.2. Private sector credit growth has picked up in application of the current fiscal rules in the PFMA 2012. recent months but remains well below levels needed The law needs to be reviewed to provide a description to support growth. Research shows that credit and of procedures and correction mechanism required to economic growth are positively correlated, and that be followed in case the debt ceiling is breached. This the direction of causality is from credit to economic is critical as it will strengthen the fiscal framework over growth.26 Kenya’s private sector credit growth collapsed the medium term. Beyond agreement on monitorable from its peak of about 25 percent in mid-2014 to a low indicators (either as a ratio of GDP or as a fixed nominal of 1.4 percent in July 2017 with credit contracting in value), it is also critical to strengthen the Public Debt all key sectors of the economy. More recently, private Management Office (PDMO), including adequate staffing sector credit growth has risen to 6.3 percent in August and analytical tools to help assess the risks of its debt 2019, signifying a slow but steady pick-up (Figure 25) portfolio and adopt a proactive intervention to address but remains well below its historical average (of about the same. 19 percent) and certainly below projected expansion in nominal GDP (about 12 percent in 2019). Retention of 1.5. The macroeconomic environment interest rate caps has undermined growth of credit to the remains stable with low inflation and a private sector and private sector investment, especially manageable current account deficit among SMEs. As noted previously, the law also constrains 1.5.1. Inflation has remained within the government the use of monetary policy for liquidity management and of Kenya’s target band of 5±2.5 percent, supported support to aggregate demand.27 Figure 23: Inflation remains within the target range Figure 24: Inflation is also lower across the EAC economies 15.0 14 12.5 10 10.0 Percent Percent Upper bound 7.5 6 5.0 2 Lower bound 2.5 0.0 -2 Sep-16 Jan-17 May-17 Sep-17 Jan -18 May-18 Sep-18 Jan -19 May-19 Sep-19 Oct -16 Mar-17 Aug -17 Jan -18 Jun-18 Nov-18 Apr-19 Aug-19 Overall in ation Core in ation Rwanda Uganda Kenya Tanzania Sources: Kenya National Bureau of Statistics Sources: Kenya National Bureau of Statistics, National Institute of Statistics Rwanda, Uganda Bureau of Statistics and Tanzania National Bureau of Statistics 26 Garcia-Escribano and Han (2015). 27 IMF Country Report No. 18/296 of 2018. The impact of the cap on GDP growth is estimated at about 0.25-0.5 percentage points on an annual basis. 14 October 2019 | Edition No. 20 The State of Kenya’s Economy Figure 25: Although still weak, private sector credit growth has Figure 26: Interbank rates and volumes remain volatile risen recently 28 100 12 40,000 24 80 35,000 10 Year- on - year growth (%) 30,000 Year-on- year growth (%) 20 60 8 Intebank volume 25,000 16 40 Percent 6 20,000 12 20 15,000 4 8 0 10,000 2 4 - 20 5,000 0 - 40 0 0 Mar-14 Jan-15 Nov-15 Sep-16 Jul -17 May-18 Mar-19 Aug-19 2016-10- 04 2017-10- 04 2018 -10- 08 2019 -10- 09 Private sector credit Government (Net) Volume (RHS) CBR (LHS) Interbank rate (LHS) Source: Central Bank of Kenya Source: Central Bank of Kenya 1.5.3. Reflecting challenges to price risk, commercial monetary policy. Reforms that address the root causes of banks have shifted their lending portfolio in favor of high interest rates could be fast-tracked to accompany government and large corporations. Interest caps have this step. These include, for example sustained fiscal distorted allocation of credit from sectors (such as SMEs) consolidation (which should reduce government that need it the most.28 Why this unintended outcome? domestic borrowing), measures that strengthen credit- The law fixed interest rates at a low level (interest rates information sharing and promote transparency in pricing were historically in the range of 16 -18 percent in Kenya), of credit. The success of innovative products such as causing rationing of credit since lenders lack flexibility to STAWI should also be supported.30 vary pricing in line with credit risk assessment. There is a growing shift in lending from the private sector to the 1.5.5. The financial services sector remains government, with credit to government increasing from adequately capitalized, profitable and broadly stable, an average of 5.9 percent in H1 of 2017 to 27.2 percent in but risks are inherently high among smaller banks. As H1 2019. Over the same horizon, average growth in credit of June 2019, total capital to risk weighted assets, which to the private sector rose marginally from 3.0 percent in is the ratio of a bank’s capital to its risk - was about 18.2 H1 2017 to 4.2 percent in H1 2019. Furthermore, liquidity percent relative to a statutory requirement of about 15 segmentation in the banking system and intermittent percent. Both measures of profitability (return on assets- volatility in the interbank market have further constrained ROA and return on equity-ROE) were at 2.8 percent and the supply of credit to the private sector. For example, the 23.8 percent, respectively. This is comfortably above the difference in quoted interbank rates on the same day has regulatory thresholds of 2 and 20 percent, respectively. ranged between 0.8 and 6.0 percent in 2019, with small Nonetheless, high levels of non-performing loans (NPLs), banks facing much higher borrowing rates (Figure 26). at 12.7 percent in June 2019, continue to constrain lending (Figure 27). NPLs span across trade, personal & 1.5.4. The repeal of interest rate caps law (if households, manufacturing, and real estate. The asset approved) is a welcome development that should be quality for the small and medium banks is especially accompanied by complementary reform measures. On poor with average NPLs higher than 15 percent and well October 16, 2019, the president returned the Finance above statutory guidelines of 5 percent or less. Thus, risks Bill to Parliament with a memorandum that calls for the are inherently high for the medium and smaller banks repeal of section 33B of the Banking (amendment) Act of whose business model is facing significant challenges 2016. The removal of interest rate caps should eliminate in the context of interest rate caps. Net exposure to what has been a powerful disincentive for banks to lend foreign exchange risks is high (at 15.2 percent) relative to to SMEs29 and in addition should restore the potency of statutory requirements of 5 percent (Table 2). 28 Mackinnon and Shaw 1973. 29 The private sector still accounts for the largest share of total bank’s credit and Kenya ranks favorably (4th in WB Doing Business Report 2020) in ease of access to credit mainly due to implementing a functional secured transactions system. The new law regulates functional equivalents to loans secured with movable property, such as financial leases and fiduciary transfer of title. This is made possible by the Movable property security right act. No. 13 of 2017 that was assented into law in 2017. 30 STAWI is a mobile loan application that offers unsecured financing to small and medium scale enterprises (SMEs) in Kenya. It is managed by NCBA bank, Cooperative Bank of Kenya, Diamond Trust Bank (DTB), KCB Bank. October 2019 | Edition No. 20 15 The State of Kenya’s Economy Table 2: Financial soundness indicators (FSI) show a stable banking system Statutory Direction to be Value(%) Weight requirement stable as at Jun-19 Capital Adequacy Total capital/RWA (CAR) 20 15 ≥ 18.2 Asset Quality NPLs (gross)/Total loans 5 5 ≤ 12.7 NPLs-provinsional)/capital 10 25 ≤ 18.9 Profitabilty ROA (after-tax) 15 2 ≥ 2.8 ROE (after-tax) 15 20 ≥ 23.8 Liquidity Liquid assets/total assets 10 30 ≥ 39.6 Liquid assets/short-term liabilities 10 50 ≥ 50.6 Sensitivity to Market Risk Net FX exposure/capital (abs) 5 5 ≤ 15.2 Source: Central Bank of Kenya Note: Assets Quality category excludes FX loans/Total loans Figure 27: Non-performing loans (NPLs) are higher for the Figure 28: Current account balance improves medium and small banks 25 NPLs/Total Loans (%) 15 10 20 5 Percent of GDP 15 0 Percent -4.9 -4.0 -5 -6.7 -6.2 -5.0 -8.8 10 -10.4 -10 5.0% -15 5 -20 0 -25 Feb-18 May -18 Aug -18 Nov -18 Feb -19 May -19 Aug -19 2013 2014 2015 2016 2017 2018 2019-Aug* NPLs/Total Loans NPLs/Total Loans (large) Services trade Goods trade Current Account NPLs/Total Loans (medium) NPLs/Total Loans (small) Income Net Errors and Omissions Source: Central Bank of Kenya Source: Central Bank of Kenya 1.6. Lower imports bill and strong remittance commercial production is not expected until 2023. This inflows have contributed to a narrower reflects a recent diversification of Kenya’s exports along current account deficit product space. Nonetheless, Kenya’s manufacturing 1.6.1. The current account deficit has narrowed exports to the EAC and other regional markets have to a manageable level and is adequately funded. In contracted by 4.8 percent in H1 2019. The weakness in the year to August 2019, the current account deficit the trade balance was mitigated by a strong surplus in narrowed to 4.0 percent of GDP (from 5.4 percent in the secondary income account due to a steady rise in August 2018) (Figure 28), driven by lower imports (food remittance inflows (Figure 29). and SGR related imports), stronger diaspora remittance inflows and strong receipts from tourism. The cumulative 1.6.2. The current account deficit was financed by value for remittances is approximately US$ 2.8 billion official borrowing and private investment inflows. (or 3.0 percent of GDP) (Figure 29). In August 2019, Capital flows to Kenya have been strong, with the surplus Kenya exported its first crude oil (200,000 barrel at US$ in the financial account expanding to 7.3 percent of 12 million-or 0.2 percent of total merchandise exports GDP in August 2019, compared to 6.6 percent of GDP in in 201831) under the Early Oil Pilot Scheme, although August 2018 (Figure 30). Capital flows comprised of 1.9 31 Total merchandise exports in 2018, was about US$6,105 million (KNBS,2019 Economic Survey). 16 October 2019 | Edition No. 20 The State of Kenya’s Economy percent of GDP in net foreign direct investment (FDI), 1.2 million, among others. Consequently, official foreign percent of GDP in portfolio investment, and 4.2 percent reserves increased by 6.5 percent to US$9.6 billion in of GDP in net other investment (official borrowing and August 2019 (or 6.0 months of import cover) (Figure 31), corporate borrowing from abroad). Programmed official and continue to provide a comfortable buffer against borrowing included issuance of Eurobond III in May 2019 external short-term shocks. of US$2.1 billion and an IDA budget support of US$ 750 Figure 29: Remittance inflows at an all-time high in H2 2019 Figure 30: Capital inflows have financed the current account deficit 3,000 16 2,500 12 12- month cumulative (US$ miillion) Percent of GDP 2,000 8 1,500 4 1,000 0 500 -4 2013 2014 2015 2016 2017 2018 2019 -Aug* 0 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 Jun-19 Aug-19 Direct Investment Portfolio Investment Rest of World Europe North America Total Remittance Net Errors and Omissions Other investments Source: Central Bank of Kenya Source: Central Bank of Kenya Figure 31: Gross official reserves represent a comfortable buffer 7 9000 6 Months of Import cover 8000 Reserves (US$ million) 5 7000 4 6000 5000 3 4000 2 3000 1 2000 0 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 May-18 Oct-18 Mar-19 Aug-19 Reserves (US$ million) Months of Import cover (Average of last 3 years) Source: Central Bank of Kenya 2. Outlook, Risks, and Policy Options 2.1. Kenya’s growth prospects remain positive the anticipated global slowdown. Favorable weather over the medium term conditions should support growth of agriculture and 2.1.1. Despite a less favorable external trade industry (at an average of 4.5 and 5.6 percent, respectively environment, growth prospects in Kenya remain for 2020-21). The macroeconomic environment is positive over the medium term. In 2019, GDP growth expected to remain stable, with low inflation and a is estimated at 5.8 percent before rising to 6.0 and manageable current account deficit. However, partially 5.8 percent, respectively for 2020 and 2021 (Table 3). mitigating growth prospects is the drag from fiscal The growth outlook is predicated on normal weather consolidation and sub-optimal private sector credit conditions, authorities’ staying the course in planned growth and relatedly weak private investment. fiscal consolidation, and limited spillover effects from October 2019 | Edition No. 20 17 The State of Kenya’s Economy Table 3: Medium term growth outlook (percent, unless otherwise stated) 2016 2017 2018 2019 e 2020 f 2021 f Real GDP growth, at constant market prices 5.9 4.9 6.3 5.8 6.0 5.8 Private Consumption 4.8 7.6 5.9 6.1 6.6 6.6 Government Consumption 5.6 5.1 1.0 6.6 5.6 5.2 Gross Fixed Capital Investment -9.2 6.4 4.6 5.7 5.1 4.1 Exports, Goods and Services -2.2 -6.8 4.0 4.5 4.6 4.4 Imports, Goods and Services -3.4 8.7 2.6 5.9 6.0 5.8 Real GDP growth, at constant factor prices 5.9 4.6 6.3 5.8 6.0 5.8 Agriculture 4.7 1.9 6.4 4.3 4.5 4.6 Industry 5.9 3.8 5.3 5.5 5.6 5.6 Services 6.4 6.0 6.7 6.6 6.8 6.4 Inflation (Consumer Price Index) 6.3 8.0 4.7 5.7 5.9 6.1 Current Account Balance (percent of GDP) -4.9 -6.2 -5.0 -5.3 -5.4 -5.7 Net Foreign Direct Investment (percent of GDP) 0.3 0.5 0.5 0.6 0.7 0.5 Fiscal Balance (percent of GDP)/1 -7.1 -9.1 -7.4 -7.7 -6.2 -5.3 Debt (percent of GDP) 53.8 57.6 59.1 62.3 61.3 61.0 Primary Balance (percent of GDP) -3.9 -5.6 -3.6 -3.7 -1.9 -1.2 Source: World Bank and National Treasury Notes: e = estimate, f = forecast. Note: (1) Data in fiscal years, i.e. 2016=2015/16, 2017=2016/17 etc. 2.1.2. Growth performance in the services sector GDP per capita is expected to expand to 3.4 percent over is projected to remain stable. The services sector is the medium term (Figure 32). This should also result in projected to grow at an average rate of 6.6 percent over a projected reduction of extreme poverty ($1.9/per day) the medium term. With double-digit growth in the last from about 34.4 percent in 2018 to 31.8 percent in 2021 five years (2014 -2018), the ICT sector is expected to (Figure 33), contingent on continued support for pro-poor continue expanding and catalyze growth in financial and inclusive growth policies over the medium term. services, health, housing, transportation and agribusiness sectors. Strong growth of the ICT sector over the 2.2. Private consumption and investment are medium term is driven by growing access to 4G mobile expected to support growth technology and mobile money services, e-commerce, 2.2.1. Private consumption is expected to remain and internet penetration. In the special focus section, supportive of growth. The baseline assumes that detailed analysis of growth opportunities for the sector favorable agricultural harvests, low inflation, and a steady is undertaken, including a policy proposal for leveraging pick-up in credit to the private sector lends support the digital economy as a pathway for economic growth to strong private consumption. In addition, since and jobs creation. With the projected growth trajectory, growth in the global economy remains positive (amidst Figure 32: GDP per capita growth Figure 33: Trends in extreme poverty (percent) 4 3.7 100 90000 3.5 90 3.3 3.3 80000 80 70000 GDP per capita growth (real $) 3 70 60000 60 50000 50 40000 2 40 30000 30 20 20000 1 10 10000 0 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 0 International poverty rate Lower middle-income pov. rate 2018 2019e 2020f 2021f Upper middle -income pov. rate Real priv. cons. pc Source: World Bank Source: World Bank 18 October 2019 | Edition No. 20 The State of Kenya’s Economy rising risks for global recession), remittances inflows Private Partnership (PPPs) in roads infrastructure - should to Kenya are projected to be stable, thereby lending help boost private sector investment.32 further support to household consumption. Private consumption is expected to complement moderate 2.2.3. The authorities have committed to reducing government consumption (salaries and wages, goods and the fiscal deficit over the medium term - which is services, transfers), translating to overall growth in final critical for fiscal sustainability and promoting private consumption. Nonetheless, on the downside, the pass- sector led growth. The overall fiscal deficit is projected through effect of recent tax measures - VAT (of 8 percent) to decrease from 7.7 percent of GDP in FY2018/19 to 6.2 on petroleum products and excise taxes (mobile, data, percent of GDP in FY2019/20, and to 5.3 percent of GDP financial services, kerosene, tobacco and alcohol) - on in FY2020/21 (Figure 35).33 This also implies a reduction domestic prices could dampen real household income, in primary balance (the debt-creating component of moderating the lift to private consumption over the fiscal deficit) from 3.7 percent of GDP in FY2018/19 medium term. to 1.2 percent in FY2020/21. Fiscal consolidation is underpinned by improving efficiency of spending, 2.2.2. A nascent recovery in private investment is reducing wastages through measures to strengthen underway and could potentially strengthen over the public financial management systems and renewed anti- medium term. With positive business sentiment and corruption measures. Domestic revenue mobilization is private credit growth, the baseline outlook assumes a also expected to respond positively to recent marginal gradual pick-up in private investment in 2019 and over the adjustments to tax policy (implementation of an 8 percent medium term (Figure 34). The baseline also assumes the VAT on petroleum products, the new income tax bill, and government will pursue its planned fiscal consolidation, additional excise tax measures). If implemented with which should reduce government domestic borrowing, success, these initiatives should ease debt refinancing lower yields on government securities, thereby risks and return the public debt trend to a downward incentivizing commercial banks to lend to the private path from 62.3 percent of GDP in 2019 to 61.0 percent in sector. Public sector investment will continue to be 2021 (Table 3). guided by the need to complete ongoing projects and alignment of new projects to the Big 4 agenda. The 2.2.4. The external sector position is expected to completion of major infrastructure projects (e.g. SGR), remain favorable and supportive of macroeconomic ongoing reforms to improve the business regulatory stability. Exports are projected to improve marginally environment, and government efforts to attract private over the medium term, growing on average by about 4.5 sector participation in the Big 4 - for example Public percent - assuming steady demand from Kenya’s trading Figure 34: The share of private and public investment, 2019-21 Figure 35: Fiscal consolidation is expected to be sustained over (in percentage points of GDP) the medium term 0.7 2016/17 2017/18 2018/19* 2019/20f 2020/21f 2021/22f 2022/23f 0 0.6 -2 0.5 Percent of GDP Percentage points 0.4 -4 -4.0 0.3 -4.5 -5.3 -6 0.2 -6.2 0.1 -7.4 -8 -7.7 0.0 2018 2019e 2020f 2021f -9.1 Government Investment Private Gross Fixed Investment -10 Source: Central Bank of Kenya and World Bank Source: The National Treasury Notes: * = preliminary, f = forecast 32 With a medium-term growth forecast of about 5.9 percent in 2020/21 and an average incremental capital output ratio of about 3.7, this requires an investment to GDP ratio of about 21.8 percent for Kenya. 33 These projections are contained in the latest Budget Review and Outlook Paper (BROP) in October 2019. The forecasts fall short of the 3 percent of GDP budget deficit targeted by the East African Monetary Union’s convergence criteria set for 2021. October 2019 | Edition No. 20 19 The State of Kenya’s Economy partners for its tea, coffee, and horticultural exports. exports and remittance inflows. The baseline assumes Exports to Uganda (manufacturers) and Pakistan (tea) are a steady demand for Kenya’s main exports (tea, coffee, expected to increase in line with projected expansion of and horticulture) as well as orderly adjustment in capital these economies.34 Receipts from tourism are expected to inflows to finance the current account balance. However, continue uninterrupted in 2019 (due to forward planned in recent months the probability for global recession has tours) but to marginally decrease with weaker growth increased and the risk of capital outflows from EMDEs in prospects in advanced economies. Imports are projected search of safer havens is more apparent. With continued to expand in line with Kenya’s projected real GDP growth, jitteriness on global growth prospects, emerging and barring any unanticipated shocks in food or oil import frontier markets including Kenya remain vulnerable to prices. Although the current account deficit is projected changing sentiments. These vulnerabilities could intensify to widen from 5.3 percent in 2019 to about 5.7 percent of given large external financing requirements for Kenya. GDP in 2021, it is adequately funded by continued access Nonetheless, given a comfortable buffer in the stock to international financial markets (both official and non- of foreign exchange reserves (that could cushion the official debt) and portfolio inflows. economy against short term shocks) and a commitment to fiscal consolidation, this risk is also assessed low. 2.3. Downside risks dominate the balance of risks 2.3.4. On the upside, several factors not considered 2.3.1. Downside risks include a recurrence of drought, in the baseline could surprise, adding to projected which could further weaken agricultural output, and growth. These include fast-tracked structural reforms fiscal slippages that could derail containment of rising in support of the Big 4 agenda (including building public debt stock and further alienate private sector led momentum for speedy implementation), stronger than growth. The projections assume that Kenya will receive anticipated recovery in credit to private sector and normal rains for 2019 and over the medium term, which private investment. The proposal to repeal interest rate should auger well for expansion in agricultural activity caps, if approved, could increase access to credit and and output. However, if severe drought conditions recur, raise growth. Previous research indicates that lifting that poses a downside risk to agricultural output and of interest rate caps could result in additional real GDP GDP growth. Nevertheless, the risk of this occurring is growth of between 0.25 and 0.75 percent.35 Furthermore, assessed low based on recent forecast for normal weather coordinated global policy response to prevent the global conditions by the Kenya Meteorological Department. economy from sliding into recession could also maintain a favorable external environment. Were any of these to 2.3.2. Fiscal slippages from the projected materialize, they could positively add to growth beyond consolidation pathway could derail containment of projections contained in this October 2019 update. public debt and further crowd out private sector led growth. The baseline assumes that the government will 2.4. A balanced policy mix to sustain economic adhere to its planned medium-term fiscal consolidation growth targets. However, fiscal slippages present a significant 2.4.1. Confronted with a less favorable external downside risk to the outlook because continued environment, Kenya needs to enhance its government borrowing is likely to outcompete the macroeconomic policy buffers. Fiscal policy could focus private sector in access to credit, adversely impacting on enhanced domestic revenue mobilization, improving private sector investment. It could also lead to costly efficiency of public expenditures, and improving debt servicing of government debt (imposing fiscal pressures) management. Creating fiscal space should provide the and reducing flexibility for countercyclical policy. government some leg-room in responding to shocks in the future through countercyclical measures and 2.3.3. On the external front, unanticipated spillover reversing accumulation of public debt stock. Within the effects from ongoing trade and technology conflicts is monetary policy space, although there are some green a key risk. This is also intensified by likely effects of weaker shoots of recovery in private sector credit, demand than expected global growth on demand for Kenya’s pressures remain subdued (as evidenced by very low 34 Top five export destinations for Kenya in 2018: Uganda, Pakistan, USA, United Kingdom, and the Netherlands. 35 See IMF(Article IV of October 2018), Central Bank of Kenya, and KEU16. 20 October 2019 | Edition No. 20 The State of Kenya’s Economy core inflation). With inflation expectations remaining well 2.4.4. Expenditure rationalization measures are also anchored, there is room for continued accommodative needed to support a return to fiscal consolidation monetary policy to respond to the slack in the economy. path. While the new management at the National The presidential memorandum to Parliament on repeal of Treasury has embarked on expenditure rationalization the interest rate caps law is expected to allow monetary measures (cutting travel expenses and reducing policy to intervene for liquidity management and aiding wastages), as well as ensuring that pending bills the economy out of subdued demand pressures. are cleared, having a clear quantification on fiscal savings expected from these cuts will go a long way 2.4.2. To sustain fiscal consolidation, authorities in improving the credibility of the fiscal consolidation require a step change in domestic revenue pathway. Expenditure allocations assigned to the mobilization. In the short-run, the elasticities and tax Big 4 would need to be contained within a fiscally bases used to project tax revenues need to be reviewed sustainable resource envelope and should seek to and updated to better reflect the changed economic reduce inefficiencies in spending in order to maximize structure. Such updates would introduce much-needed impact. In the short-run, the government could adhere realism in revenue projections which are needed to to the policy of prioritizing completion of ongoing better anchor spending decisions over the medium term. investment/development projects and clearance of Further, a review of the numerous exemptions and zero pending bills and arrears owed to suppliers. rating of domestic sales is required to safeguard erosion of the VAT tax base and ensure that remaining ones 2.4.5. Strengthening the institutional framework are consistent with intended objectives of promoting for cash management is critical to increase the level private sector activity and creating jobs. Similarly, lower of budget execution in line with policy priorities. income tax receipts are a key contributor to the decline Some of the constraints explaining lower absorption in tax revenue. There is need to fast-track the enactment include limited capacity in the implementing units, lack of a new income tax law as announced in FY2019/20 of synchronized planning and budget execution, and budget. This is expected to streamline and rationalize slower release of funds by the exchequer. Addressing generous deductions, accelerated depreciation, and weak implementation capacity and putting in place other preferential rates to stem revenue loss through mechanisms for faster disbursement of funds, while exemptions. Regarding PIT, a review of recent rate improving planning and budgeting, remains key in raising adjustments and special relief measures may be absorption. A better linkage between cash management warranted to gauge their impact on revenue and to and budget execution could help relieve fiscal pressures, contain further revenue loss. enhance transparency for in-year budget operations, and defend approved budget from discretionary variation. 2.4.3. There is need to review how and where the The government is making progress in this direction. digital economy should be taxed given the growing It has established an institutional framework for cash shift in the digital transformation. The digital economy management.36 A circular on preparation of cash plans is extremely broad and there is no consensus on and adherence to this has been issued to MDAs. This definition and measurement of the various business lines is expected to address the challenge of pending bills, underlying the sector. It is also challenging to categorize delayed exchequer releases and improved budget the sector into various segments or economic actors execution. for purpose of taxation. Authorities could invest more time and more resources to understand the underlying 2.4.6. Modernization and improving transparency in economic transactions, its implications for tax policy debt management can strengthen fiscal sustainability. and compliance, and supporting growth of the digital Concerns over debt accumulation have been amplified by economy. The digital economy also provides opportunity recent fiscal slippages , which have led to an accelerating for innovative technologies to help the Kenya Revenue debt to GDP ratio. Authorities could also adopt measures Authority (KRA) enforce cross-border compliance and to improve debt transparency such as electronic trading collection of revenue. 36 Comprising of directorates of the Public Debt Management Office, Accounting Services and Quality Assurance, and Budget, Fiscal and Economic Affairs. 37 This could involve exchange of a two-year fixed rate bond for a new five-year bond, a three-year extension of maturity (Makoff, G. 2015). October 2019 | Edition No. 20 21 The State of Kenya’s Economy of government securities and reporting on state owned materializes. This could be done for example by ensuring enterprises’ debt. Authorities could also modernize a competitive exchange rate (to cushion the economy and reinforce measures to improve debt transparency from price shocks) and reducing overdependence on including in the trading of government securities, as well international markets for external financing. Sustaining as reporting on State Owned Enterprises’ debt. A strategy fiscal consolidation could potentially de-risk fiscal of rebalancing the mix of expensive and shorter maturity operations and contain rising public debt stock, commercial debt is critical to reduce fiscal pressures including the need for recourse to international markets associated with debt service obligations. Finally, with for debt refinancing. Furthermore, with likely slowdown 43 percent of domestic debt expected to mature within in demand from some of Kenya’s trading partners (US, UK, one year, policies to call on creditors to remain in the and the EU), pressure to diversify destination markets for game for longer as a lender (through reprofiling) could exports is ever urgent. Kenya could continue to champion be explored. Reprofiling is a particular type of debt re- regional integration initiatives (including creation of a organization focused on extending the maturity of short- single digital economy in the EAC) and implementation dated liabilities37 and potentially ease fiscal pressures in of the AfCFTA. The recent debut in the international oil the context of narrow fiscal space. export markets is another positive addition to its product space and lessons from this pilot scheme could be 2.4.7. Restore the potency of monetary policy in used to fast track commercial production. Finally, close responding to shocks emanating from changes to monitoring and making requisite arrangements to help the business cycle, and support growth by helping the private sector adjust to new trade relationships lift the economy out of subdued demand pressures. between the UK and the EU seems warranted.38 While recent data release indicates some green shoots of recovery in private sector credit, demand pressures 2.4.9. Further structural reforms are needed to lift remain subdued. With very low core inflation, well productivity durably. A greater appetite for structural anchored inflation expectations, there is ample room reforms could help crowd in the private sector, lift growth for accommodative monetary policy to respond to and create jobs over the long term. Structural reforms the slack in the economy if needed. The presidential could include easing barriers for SMEs growth (e.g. memorandum to Parliament on repeal of the interest access to credit39 and adoption of modern technology), rate caps law (if approved) is expected to allow monetary improving quality of education, skills development policy to intervene for liquidity management and aid and training at all levels of education, educating and the economy out of subdued demand pressures. In empowering women (to check high fertility rates), addition, micro reforms seeking to ease barriers to access supporting R&D, digitalization, and technology adoption. credit among SMEs and solution to the broader range The latest World Bank’s doing business report ranks of factors that led to the imposition of the interest rate Kenya 56 out of 190 economies with a DB2020 score of caps, including through addressing consumer financial 73.2 up from 71.0 in DB2019. Kenya is performing very protection concerns, measures that strengthen credit- well in protecting minority investors, getting credit, information sharing and promoting transparency in and resolving insolvency. The report points areas for pricing of credit. The success of innovative products such continued improvement to include starting a business, as STAWI should also be supported. registering property, and trade across borders. Within the Big 4 development agenda Table 4 contains key policy 2.4.8. On the external front, policy could be geared reforms whose implementation could tilt the scale in towards building buffers against short-term external favor of the private sector’s contribution to achievement shocks in the event a global economic downturn of objectives under the Big 4. 38 Kenya has a stake in the ongoing discussions on eventual trade relationship between the UK and the EU. The final deal or no deal will affect Kenya’s trade not only through tariffs but also by raising the cost of doing business. 39 The private sector still accounts for the largest share of total bank’s credit and Kenya ranks favorably (4th in WB Doing Business Report 2020) in ease of access to credit mainly due to implementing a functional secured transactions system. This is made possible by the Movable property security right act. No. 13 of 2017 that was assented into law in 2017. 22 October 2019 | Edition No. 20 The State of Kenya’s Economy Table 4: Progress in the structural reform agenda to advance the Big 4 Progress on Policy and Institutional Reforms that can crowd Incomplete Completed in the private sector Progress Limited Progress Affordable Housing Enact the Physical Planning Bill-Allow changes to restrictive zoning X laws that prevent construction of multi-story buildings Enact the Built Environment Bill-a basis for building regulations X Issue the National Building Regulations (“the building code”) X Agriculture Establish the Warehouse Receipt Council to operationalize the X Warehouse Receipt Act Align the strategic grain reserve function of National Cereals and X Produce Board (NCPB) to Warehouse receipt System (WRS) Through CMA, submit to Parliament a regulatory framework for the X Commodities Exchange and enable licensing. Issue regulations for implementation of the Irrigation Act X Roll out the e-voucher subsidy program to at least 15 counties and X cover over 70,000 farmers Issue regulations implementing the Fisheries Management and X Development Act Submit to Parliament the livestock bill X Universal Health Care Approve Health Financing Policy X Implement action plan to reduce NHIF administrative costs X Increase the Share of Manufacturing Approve the Kenya Investment Policy X Legal framework for Micro Small Enterprises Authority X Submit to Parliament regulations implementing the Special Economic X Zones (SEZ) Act 2015 Finalize and enact the National Waste Management Bill 2017 and the X National Water Policy Source: Various documents from the Government of Kenya (GoK) including the Third Medium Term Plan (MTP III) October 2019 | Edition No. 20 23 Part 2: Special Focus Accelerating Kenya’s Digital Economy Photo: © Sarah Farhat/The World Bank Special Focus 3. Accelerating Kenya’s Digital Economy 3.1. Digital transformation as a driver of 3.1.3 Although Kenya’s digital revolution is already Kenya’s growth a significant success story, to stay ahead much more 3.1.1 The digital economy is propelling Kenya’s remains to be done. As an early mover and leader of the economic growth, driven by mobile telephony, digital revolution across the African continent, it would rising internet usage and uptake of e-commerce and be all too easy for Kenya to rest on its laurels. But as the digital services. Unburdened by legacy infrastructure pace of technology innovation and growth of the global and empowered early on through forward-looking digital economy continue to accelerate, Kenya’s citizens, regulation and policy, Kenyans have rapidly embraced businesses and the government will need to run even mobile communications technologies and have become faster just to keep pace. Building and maintaining a lead a world leader in adoption of digital payments. An will require even greater determination and a team effort. entrepreneurial and innovative spirit and supportive business environment have spawned a wide range of 3.1.4 This special focus highlights the key findings digitally enabled startups and investments by leading and recommendations of the Kenya Digital Economy multinational tech companies, burnishing the country’s Assessment, carried out by a multi-disciplinary team of reputation as the “Silicon Savannah” and driving service- World Bank experts and based on primary research and led growth. consultations with stakeholders across government, private sector and civil society. The assessment analyzed 3.1.2 The Government of Kenya is eager to five key foundations for success in the digital economy: position the country as a hub for information and (i) Digital Infrastructure; (ii) Digital Skills; (iii) Digital communication, e-commerce and digital services. Platforms and Services; (iv) Digital Financial Services; With 10.8 percent average annual growth since 2016, and (v) Digital Entrepreneurship. Building strong digital the information and communications technology (ICT) foundations will be critical to Kenya’s long-term success sector has been an important source of economic in harnessing the potential of the digital economy as a dynamism and job creation in its own right. More driver of its economic growth, job creation and service importantly, development of the ICT sector has had delivery while ensuring that no one is left behind. significant spillover benefits across nearly every sector of the economy, creating opportunities to adopt more 3.2. A Snapshot of Kenya’s Digital Transformation efficient, digital-centric business models and practices. Digital technologies and communications are likewise a 3.2.1 Mobile penetration continues to rise – key enabler of the ‘Big 4’ Agenda, playing a catalytic role in providing access to digital communications, and enhancing productivity and service delivery by both the increasingly to the internet. As of March 2019, the number of active mobile subscriptions in the country public and private sectors in agriculture, health care, and was 47.0 million, while mobile penetration was at 90 manufacturing. Recent World Bank research40 suggests percent (Figure 36: The near universal adoption of mobile that digital transformation in Sub-Saharan African phones reflects multiple SIM ownership by individual countries can increase growth by nearly two percentage consumers). An estimated 46 percent of citizens had points per year and reduce poverty by one percentage access to broadband connectivity at the end of 2018,41 point per year. This effect can be doubled if paired with with mobile broadband being the predominant means stronger investments in human capital. Recognizing of internet access. Mobile broadband is both relatively this potential, Kenya has ramped up investment in ICT affordable and readily available in many parts of the infrastructure and digital skills development programs, country, but the uses are somewhat constrained due with the aim of transforming Kenya into a knowledge- to bandwidth limitations. Meanwhile, use of fixed based economy and society. broadband (which is typically provided to businesses and 40 “Africa’s Pulse, No. 19: Analysis of Issues Shaping Africa’s Economic Future” (April 2019), World Bank, Washington, DC. Doi: 10.1596/978-1-4648-1421-1. License: Creative Commons Attribution CC BY 3.0 IGO.. 41 Kenya Communications Authority. 26 October 2019 | Edition No. 20 Special Focus homes) provides greater bandwidth and higher returns and internet service providers to offer broadband services to productivity, but uptake is still very limited due to to retail customers at significantly higher speeds and relatively high pricing and limited deployment outside of lower prices. The arrival of high-speed internet has also dense urban centers. been linked to a significant increase in the employment rate and firm productivity in Kenya.44 Figure 36: Mobile penetration and internet subscriptions 120 3.2.3 Investments in “middle” and “last mile” 98 100 networks have helped more Kenyans to get online, 100 94 95 90 but broadband infrastructure and market bottlenecks 80 persist which reduce coverage, speed, reliability and Percent affordability of services. Approximately 85 percent of 60 the population is now covered by a 3G or higher signal.45 41 42 Both government and private sector have rolled out 40 36 31 33 fiber backbone networks connecting submarine landing 20 stations, population centers and neighboring countries Sep-17 Dec-17 Mar-18 Jun -18 Sep-18 (the “middle mile”). Network routes are often duplicative, Mobile penetration Internet subcription with multiple links serving the main population centers, Source: CA, statistics, 2018 providing competition and protection against service disruption if a line is cut. In contrast, rural areas are 3.2.2 Kenya has a robust and competitive typically served by a single fiber provider (predominantly international connectivity infrastructure (“First Mile”). government owned), leading to less competitive pricing Kenya is connected to the global internet infrastructure and lower service reliability. Often, small towns are by four submarine cables, with total bandwidth capacity not served with a fiber connection at all, resulting in growing nearly 200 percent between 2015 and 2018 slower end user speeds due to reliance on microwave alone (Figure 37 and Figure 38). As a result of competition backhaul. Last mile connections to the end user are between these cables and increased network capacity, predominantly provided by the major Mobile Network wholesale international transit pricing has fallen Operators as well as some internet service providers, from about US$7,500 Mb/s per month in 2007 when ranging from high speed direct fiber connections to connectivity was provided primarily via satellite42 to as the home and businesses in urban areas to lower cost, low as US$10 in 2018.43 This has allowed mobile operators lower performance wireless solutions in rural areas. Figure 37: Internet bandwidth has increased Figure 38: Kenya has the second fastest internet speed in Africa 5000 Madagascar 24.9 4500 Kenya 10.1 4000 South Africa 6.4 3500 Cabo Verde 3.2 3000 Zimbabwe 2.9 2500 Ghana 2.9 2000 Burundi 2.6 1500 Namibia 2.6 1000 Rwanda 2.6 500 Uganda 2.4 Sep-2015 Sep-2016 Sep-2017 Sep-2018 0 5 10 15 20 25 30 SEACOM TEAMS EASSY LION2 SATELLITE Mbps Source: Communications Authority-Statistics Source: Cable.co.ke https://www.infodev.org/infodev-files/resource/InfodevDocuments_1108.pdf 42 43 Based on consultations with market stakeholders – not officially verified. http://ibread.org/bread/system/files/bread_wpapers/519.pdf 44 45 ITU June 2019 (2018 data). October 2019 | Edition No. 20 27 Special Focus While coverage and uptake continue to grow, market 83 percent in 2019 46 (Figure 39) while the number of concentration and an increasing tax burden seem to those excluded from the system has reduced from 42 be holding back the full potential of reaching more of percent in 2006 to 11 percent in 2019. The gender gap the unconnected and achieving the goal of reaching in financial inclusion has also narrowed to just about 6 universal broadband access by 2030. percent in 2019 (Figure 40). 3.2.4 Rapid innovation and adoption of Digital 3.2.5 Access to financial services has enabled Financial Services (DFS) has propelled Kenya’s digital Kenyans to alter their production and employment economy and has contributed to financial inclusion. choices, thereby helping them transition out of The widespread uptake of mobile money services has poverty47. By providing a convenient platform for increased financial inclusion for the unbanked and sending and receiving money and short-term credit, promoted digital transactions across government, private mobile money has become a key mechanism for poverty sector and consumers. Mobile money has quickly reduction in Kenya. The value of mobile money transfers evolved from a simple means of sending and receiving has increased by 9.5 percent from Ksh.3,638 billion in cash, to full transactional services. This has empowered 2017 to Ksh. 3,984 billion or 44.7 percent of annual GDP citizens to pay, save, borrow, and invest through digital in 2018. Furthermore, mobile money wallets are used as means. Consequently, the number of Kenyan adults transactional accounts rather than simply providing a with a financial account (including bank or mobile means of receiving cash (Box 3). money etc.) has increased from 29 percent in 2006 to Figure 39: Usage of formal and informal financial solutions Figure 40: Gaps in inclusion by gender (percent adults (percent adults 2006-2019) 2006-2019) 100 100 83 86 80 80 80 63 62 60 60 Percent Percent 41 40 40 33 29 20 20 20 11 0 0 2006 2009 2013 2016 2019 2006 2009 2013 2016 2019 Formal Informal Excluded Men Women Source: FinAccess, 2019 Source: FinAccess, 2019 Box 3: The transformational impact of mobile money on poverty reduction and women’s empowerment The impact of digital financial services on the economic prospects and opportunities available to Kenyans has been remarkable. A 2016 study on the long-term impact on Kenyan households found that increased access to M-PESA agents significantly reduced both extreme poverty (income lower than US$1.25 per day) and general poverty (US$2). A study published in the journal Science48 estimated that the product has “lifted 194,000 households, or 2 percent of Kenyan households, out of poverty”. The effect was greatest in female-headed households, where consumption grew by 18.5 percent over the course of the study period. Using DFS helped 185,000 women in the study to switch from relying on subsistence farming into starting small businesses as their main occupation and reduced their reliance on multiple part-time jobs. The research concluded that: ‘For many women, greater financial inclusion through DFS can help them to manage the financial resources they already have in a better way to help them escape poverty’. 46 See FinAccess Survey, 2019. 47 Burgess and Pande, 2005. 48 Suri, Tavneet, and William Jack (2016). 28 October 2019 | Edition No. 20 Special Focus 3.2.6 Development of the digital economy has also falling among aspirational and regional peers with49 contributed to recent growth in jobs and holds scope quickly digitizing economies and may also reflect falling for future job growth in Kenya as more businesses prices for ICT goods such as smartphones and tablets. and individuals adopt digital technologies, build digital skills and transact over digital platforms but 3.2.7 Kenya’s Digital Startup scene is one of the more needs to be done to harness this potential. The most vibrant on the continent. The story of tech services sector routinely accounts for about a half of entrepreneurship in Kenya is often linked to the growth in Kenya’s GDP and of total GDP. Nonetheless development of MPESA, a mobile money service launched its share of total employment is only about 35 percent, in 2007. Over 38 startup incubators and accelerators are which is lower compared to economies with the same currently in operation, clustered around Nairobi and level of GDP per capita, such as Senegal (SEN), and Côte several secondary cities (Figure 43). It is estimated that d’Ivoire (CIV) (Figure 41). Looking ahead, digitally enabled for every 32 start-ups, there is at least one incubator or services are expected be the fastest growing segment accelerator. Innovative companies such as Twiga Foods of the global services economy. Increased investment and Sendy have demonstrated the potential of digitally could help harness this potential in Kenya, boosting anchored business models to fuel rapid growth, job digital services driven growth and job creation. One creation and have a transformative impact across a range potentially worrying sign is that import of ICT goods has of sectors. These early success stories, building on the recently decreased, which could reflect reduced demand favorable underlaying conditions, have helped grab the for these products or weakening investment (Figure 42), attention of potential investors and continue to inspire though this will require further research as the volume is a new generation of innovators and entrepreneurs. For Figure 41: Service employment as a share of total employment Figure 42: ICT goods imports as percentage of total goods in Kenya relative to peers imports to Kenya is decreasing 80 14 Services employment (% of total employment) WSM JOR BLZ 12 CPV PSE SWZ 60 STP UKR SLV DZA PHL GUY GMB YEM SEN KGZ NGA NIC MDA BOL TMN TUNMNGMNA ARM 10 EGY AZE GTM GHA HND IDN TGO CIV LKA AFG GEO IBT LBR KHM COG DJI AGO ALB LMY 40 HTI BFA BEN CMR BGD IDB TLS LMC SDN MAR EAR PSS TON 8 UZB SLE ZMB PRE PAKKEN FCS MRT MMRIDA TSS SSF SSA VNM BTN TJK IDX SAS TSA VUT IND HPCLDC COM SLB MLI PNG LIC GIN TZA ZWE MDG RWA GNB LSO LAO 6 20 SOM CODUGA MWI MOZ CAF UGA ETH NER NPL TCD BDI 4 0 0 1000 2000 3000 4000 5000 2009 2010 2011 2012 2013 2014 2015 2016 2017 GDP per capita Kenya Regional Peers Aspirational Peers Source: World Bank, WDI Source: World Bank, WDI Figure 43: The number of incubators and accelerators is Figure 44: A large proportion of start-ups are low-productivity increasing in support of tech-startups in Nairobi microbusinesses in Nairobi relative to Bangalore India 25 100 90 By 2016, 0ne local support 21 20 organization had been 80 launched for every 32 software Other Firms Other Firms companies operating in 70 15 15 60 Percent 50 40 10 30 Low-Productivity Microbusinesses Low-Productivity 5 20 Microbusinesses 5 10 0 0 0 Companies Job Creation Companies Job Creation 2007 2010 2013 2016 Nairobi Bangalore Source: Endeavor insights Source: Endeavor insights 49 Aspirational peers: Vietnam, Thailand, India, and South Africa; Regional peers: Tanzania, Uganda, Rwanda, Ethiopia, and Ghana. October 2019 | Edition No. 20 29 Special Focus example, as of 2016, approximately 661 entrepreneurial continent, Kenya still has huge untapped potential for software companies had been established in Nairobi. expansion. Few SMEs are utilizing e-commerce platforms However, not all are able to scale quickly - about 350 of to reach new customers and markets. A majority of the these companies are low-productivity microbusinesses leading e-commerce platforms in Kenya are foreign- with less than three employees (Figure 44). owned and uptake and trust in digital services and e-commerce remains low overall, pointing to both 3.2.8 Multinational tech firms see Kenya as the constraints and opportunities to improve the ecosystem logical entry point for the East African market, attracted and to capture more value creation domestically and by the digital talent, infrastructure and strategic within the region. location. Over the years, Kenya has been home to multiple African regional corporate hubs, including IBM’s 3.2.11 Digital technology is enabling agricultural first African Research Lab, Google’s second Sub-Saharan productivity and boosting farmer’s income in Kenya. Africa office, after South Africa, and General Electric’s Applying digital technologies in the agriculture sector Africa headquarters. These private sector interventions can help increase Kenyan farmers’ productivity, efficiency have contributed to a positive spill-over effect driving and competitiveness, facilitate access to markets, further innovation in the entrepreneurship ecosystem. improve nutritional outcomes and enhance resilience to climate change. A number of digital innovations 3.2.9 Despite its dynamism, Kenya’s digital are disrupting the status quo in Kenyan agriculture by entrepreneurship ecosystem still faces key constraints providing significant benefits to smallholder farmers in achieving a wider impact. While some tech hubs are and agribusinesses (Box 4). While digital agricultural emerging in second tier cities, most are still concentrated technologies have demonstrated early signs of creating in Nairobi. While Kenya has the highest number of an impact, adoption still lags, with the reach of the women entrepreneurs in East Africa (49 percent), they leading platforms and technologies ranging from 1,000 face significant barriers, reflected in the low percentage farmers to over 600,000, suggesting a reasonable uptake of firms where women actually own a majority stake (9 but also significant scope to expand. percent). Digital innovation is still at the margins of more traditional industries, such as manufacturing, which lag 3.2.12 Kenya has made concerted efforts to embed behind in their technology adoption and innovation digital skills in the national education system, but absorption. Bottlenecks in the business enabling access to key enablers still hamper the quality of environment and gaps in enabling inputs, such as the basic and intermediate level digital skills training. inaccessibility of appropriate growth-oriented financing Policies and programs promoting the use of ICT for or the limited supply and pipeline of digitally skilled teaching and learning are formally in place, including talent, present further hurdles to the expansion of digital a competency-based framework that features digital entrepreneurship. Entrepreneurs and businesses are also skills. Flagship initiatives such as the Digital Literacy constrained by a lack of timely and relevant data made Program (DLP) have sought to boost the integration of available to them. As a result of these barriers, too few ICT in education, with initial roll-out targeting early-age startups turn into major employers. education. Nevertheless, gaps in access to adequate teacher training, digital content, as well as digital devices 3.2.10 E-commerce has high growth potential in and connectivity beyond primary-level adversely affect Kenya, but it has yet to fully take off. Growing access training delivery and skills attainment. An impressive to mobile devices, broadband and adoption of mobile 93.4 percent of public primary schools have now been money provides a strong foundation for e-commerce. In covered by the DLP (providing connectivity, devices and 2017, there were estimated to be some 21 million online electricity etc.) and yet only 36 percent of schools are shoppers across Africa, with Kenya ranking third on the using the equipment as intended. Secondary schools fare continent, behind Nigeria and South Africa, with between far worse in terms of access to connectivity and devices, 2.6 and 3.3 million online shoppers. Despite being among and the curriculum currently fails to offer digital skills as a the e-commerce and digital services leaders on the stand-alone compulsory course. 30 October 2019 | Edition No. 20 Special Focus Box 4: Examples of promising Kenyan agritech startups Promoting agricultural productivity Digital Green uses a video approach to Farmers Pride leverages technology DigiCow provides extension services Precision Agriculture for amplify extension providers’ and franchising to break down to farmers using an innovative mobile Development provides low-cost e ectiveness to improve farmers’ barriers that have limited success of phone solution. They provide training mobile agronomic advice to farmers livelihoods. They partner with existing farmers. They provide a one stop through a mobile app in which that is accessible, relevant, and extension o cers to provide videos with village level online mobile app/web farmers can also chat and share ideas. customized to boost yields. highly localized content, human platform popularly known as Voice-based training coupled with mediators to reinforce key messages and DIGISHOP that ensures access to all SMSs is provided to farmers without use near real-time data and feedback the necessary inputs, services and access to smartphones. from farmers to inform adjustments on information farmers need. the content of the videos. Creating market linkages along the value chain M-shamba is a Nairobi based Start-up that has TruTrade is a social enterprise that digitizes value Tulaa is a marketplace for smallholder farmers in been working with farmers across East Africa to chain transactions making rural agricultural Africa. Using mobile technology and arti cial e ectively deploy farming technologies among markets work better for farmers, aggregators and intelligence, Tulaa provides quality inputs like smallholder farmers using basic mobile phones. buyers. TruTrade’s service provides farmers with fertilizer on credit, tailored advice, and access to The innovation focuses on the use of simple reliable routes to market and fair prices as well as reputable buyers to smallholder farmers. phones commonly known as feature phones to agribusinesses and wholesalers with traceable deliver vital information to the smallholder produce to meet their quality speci cations. farmers even in remote areas. Farmer nancial inclusion ACRE is a service provider that links farmers to Arifu is a social enterprise making it possible for Agri-wallet is a platform that enables nancial insurance products so that they can con dently the least served people to access the knowledge inclusion of all value chain actors around invest in their farms. ACRE automates weather risk they need on nancial services from the smallholder farmers. modeling, payments and communication through organizations they trust on any mobile phone. SMS and USSD platforms, claims calculations, and Arifu provides both an education technology disbursement through mobile money. platform and a content digitization service. Data analytics and intelligence Astral Aerial is a drone operator. O ers up to date, Oakar’s solution package o ers farmers and other UjuziKilimo provides a simple and fast way for problem-speci c data to farmers using drones stakeholders access the latest knowledge, training, smallholder farmers to monitor soil fertility. (a drone covers 1000 acres per ight, with sensors practices, data and mechanization best suited for UjuziKilimo’s proprietary Sensor technology SoilPal to detect crop health at an a ordable price). them. Oakar’s Analytics platform incorporates is a GPS and internet enabled device with sensors dynamic datasets that can provide market that is used in farms to monitor the levels of macro information and facilitate easy links between nutrients, weather, soil pH and moisture content producers and markets. which directs water, lime and fertilizer nutrient application rates based on local requirements. Source: World Bank, 2019 (Kenya Digital Diagnostic Report) October 2019 | Edition No. 20 31 Special Focus 3.2.13 While a handful of Kenyan Technical and policy tools and a more proactive oversight stance is Vocational Education and Training (TVET) institutions needed to promote further investment and innovation, and Universities offer advanced level IT-related courses, ensure competition and protect consumer interests and low enrollment in Science, Technology, Engineering safety. Complacency risks eroding the early comparative and Mathematics (STEM) fields, low completion rates advantage that has driven much of Kenya’s digital of related courses and weak quality and relevance of economy success story to date. related training limit the pipeline of digital talent with advanced or high-end digital skills. Many universities 3.3.3 To take an illustrative example, many often teach outdated coding languages and focus on critical telecoms regulations have been pending theory rather than application – reflecting broader issues promulgation for over three years. These include: radio of quality in the Kenyan higher education sector. This has communications and frequency spectrum; compliance resulted in large gaps in professional and advanced digital monitoring, inspection and enforcement; fair competition skills training, subsequently yielding a limited supply of and equality of treatment; interconnection and provision ‘work-force-ready’ graduates who are equipped with the of fixed links; access and facilities; tariffs; consumer skills required by employers. Several informal education protection; and licensing and equality of service. programs (e.g. coding bootcamps and industry-led Artificial Intelligence (AI) learning programs, etc.) run 3.3.4 A more agile, empowered and independent by the private sector, have successfully helped address Communications Authority and streamlined this skills mismatch and have thus been more successful procedures for adoption and enforcement of new at placing graduates. However, these initiatives are regulations would help ensure that Kenya is building restricted to major cities and struggle to scale given the the enabling environment to propel deployment and restrictive accreditation requirements and processes in adoption of the next generation of digital technologies place, which do not align well with these more dynamic and to mitigate potential downside risks to consumers. operating models. In parallel with longer term efforts toward institutional reform and capacity building, there is a need to act with 3.3. Securing Kenya’s Digital Future: Critical urgency to promulgate and enforce the suite of pending Reforms and Investments regulations which have already been developed. 3.3.1 Kenya’s digital transformation has been nothing short of remarkable; Yet, much more remains Key Message 2: Move from startup to growth to be done to build a digital economy that is dynamic, 3.3.5 Kenya will need to prepare the inclusive and safe and embraces opportunities entrepreneurship ecosystem today to capitalize arising from larger regional markets. Several binding on gains in the world of tomorrow. The impressive constraints will need to be addressed in the short term performance in churning out innovative new startup alongside forward-looking investments and reforms to stage digital ventures needs to be matched with a higher build the foundations needed for every Kenyan to thrive success rate of graduation to growth stage – generating in the economy and society of the future. Several key the enterprises that will have a big impact on overall messages arise from the analysis of the current state and economic growth and job creation. The Government long-term potential of Kenya’s digital economy. of Kenya has taken significant steps to address some weaknesses in the digital entrepreneurship landscape Key Message 1: Regulation and policy needs to keep through programs to provide greater market linkages, pace with rapid market evolution increase innovation capacity and promote digital 3.3.2 Kenya’s telecoms regulatory environment has talent development, including the Kenya Industry and struggled to keep pace with evolving market dynamics Entrepreneurship Project, the Presidential Digital Talent and emerging technologies. Kenya was an early mover Program, Ajira and other initiatives, but more can be toward liberalizing the telecoms market – unlocking a done. As entrepreneurship ecosystems are fast changing, wave of private investment and innovation in mobile it would be important for Kenya to incorporate flexible technologies. However, as the market has matured and support and policy frameworks to stay ahead of the curve. grown in complexity, a new suite of regulatory and A formalized and routine engagement process with tech 32 October 2019 | Edition No. 20 Special Focus ecosystem players can provide real time feedback to be offer more opportunities to digital startups, it still reflected in policymaking. Key government datasets can primarily caters to larger firms due to the general size of be made available for commercial re-use. The overall the contracts. Further, delays in government payments, competitive landscape can be boosted by strengthening present cashflow challenges to SMEs. the Competition Authority and supporting increased adoption of digital technologies by “traditional” Key Message 3: Human capital is fundamental to industries. Digital entrepreneurship support networks growth of the digital economy and empowerment of and services currently concentrated in Nairobi can be the next generation expanded outward to secondary cities through PPP 3.3.8 Building a digitally-savvy workforce is models to provide wider access. key to harnessing emerging opportunities in high growth sectors, supporting relevant and productive 3.3.6 Addressing accessibility of capital for early employment, and job growth. Technology is quickly stage enterprises and opening alternate funding transforming industry, including manufacturing, and channels can address the funding gap in the market. changing the way business is done. The unemployment While there appears to be an adequate supply of rate in Kenya is estimated to be roughly 11.4 percent venture capital available within Kenya and especially (based on figures from 2018), with rates much higher for globally, accessibility is a considerable constraint, due to youth. In this rapidly changing technology landscape, information asymmetry between investors and investees. which threatens to make many existing jobs obsolete International Venture Capitalists often misunderstand and eliminate traditional pathways to mass employment the Kenyan and wider African market and Kenyan such as manufacturing, it will be critical to both empower entrepreneurs don’t understand how to develop business new job market entrants with the skills demanded by plans and pitch in a way that attracts global venture the market and to enable continuous learning of those funds. As a result, great ideas go unfunded. Government already employed to grow and become more productive agencies and other non-governmental bodies can play in their current positions and to be ready for the jobs active role in addressing this market failure through of the future. It is estimated that up to 52 percent interventions such as de-risking such ventures or of work in Kenya may be susceptible to automation investing in information and awareness campaigns for moving forward.51 As it stands, a mere 18.4 percent of all investors and investees. employment in Kenya occurs in occupations with high ICT intensity.52 However, as more and more jobs are expected 3.3.7 There is a need to review existing taxation to become increasingly ICT-intensive, broadening the and procurement policies, which do not cater to start- digital skills base will be key to protecting jobs and ups whose business models differ from traditional facilitating access to new ones. Moving forward companies. Business registration processes could be the requirement for basic digital skills is likely to further streamlined and digitized to reduce the current become ubiquitous. cost of registration in terms of time spent on follow up and relationship management with relevant authorities. 3.3.9 There is substantial potential for job creation, Taxation policies need to be reviewed to consider the stemming from greater technology adoption across unique needs of the start-up ecosystem in the digital all sectors and skills categories. In fact, the adoption of sector. There is scope to stimulate public sector demand technology has proved to have a more positive impact for innovative ICT solutions, especially those coming on job creation for unskilled and lower-educated workers from local Kenyan innovators and their technology in low income countries than in most higher income SMEs to enable them to get a foothold in the market countries.53 Equipping Kenya’s future and existing from which to demonstrate their experience to other workforce with digital skills will thus open doors to new customers and expand. While the Access to Government forms of employment – notably, in the emerging services Procurement Opportunities (AGPO) initiative50 could and ‘gig economy’, where Kenya has already sought to 50 AGPO mandates 30 percent procurement from groups such as youth, women, and persons with disabilities. Access to Government Procurement Opportunities, online at https:// agpo.go.ke/, accessed at 06/03/2019 51 WEF (2017), The Future of Jobs and Skills in Africa. Preparing the Region for the Fourth Industrial Revolution 52 World Bank (2016), World Development Report 2016: Digital Dividends. Washington DC: World Bank. 53 World Bank (2019), The Future of Work in Africa: Harnessing the Potential of Digital Technologies for All, Washington DC: World Bank. October 2019 | Edition No. 20 33 Special Focus position itself as a hub for global digital business process “crowding in” the private sector in more areas pertaining outsourcing (BPO) through government promotion to digital skills development and at all digital skills levels, schemes like Ajira. However, at present, a mere 7,000 including in areas such as content creation, curriculum Kenyans currently work in BPO job compared to over one design and through performance-based contracting and million in Philippines.54 An estimated 286,000 workers formal industry-academia partnership, yet the current are employed by Kenya’s burgeoning digital services accreditation regime and public private partnership platforms, in areas such as transport, logistics and regulation pertaining to education is not proving e-commerce.55 conducive to doing so. 3.3.10 While Kenya ranks as a top-performer in terms Key Message 4: Improving digital public services of digital skills in Africa, widespread gaps in basic offerings and trust in online transactions can drive digital skills still limit wider usage and application of digital adoption digital tools and services, and gaps in more advanced 3.3.12 Offering more efficient digital public services digital skills limit business development. A weak supply can drive digital adoption - creating a compelling of digital talent emerges as a key constraint for the incentive for more Kenyans to invest time and money development of new, innovative and home-grown digital to build their digital skills, acquire digital devices and services and business-models. According to the World internet services. Kenya has made significant strides Bank 2018 STEP survey as well as a similar study undertaken in providing citizens with more and more government by the World Economic Forum (WEF), employers in Kenya services online through the e-Citizen portal, including struggle to recruit ‘work-ready’ graduates and new hires business registration, civil registration (birth, death, with the requisite technical skills, practical experience marriage), driving licenses, land searches and clearances, and ‘soft’ skills needed in the information/service passport and visa applications among many others. economy. The basic education system is not equipping Yet, uptake it still relatively low. To improve the value school leavers with basic digital skills competencies, nor proposition to the point where more individuals are are tertiary education or supplementary programs (such willing to step out of their comfort zone and carry out as coding boot camps) producing the requisite number their transactions online, it is imperative that services are of graduates with advanced digital skills. designed with a user-centric, digital-first mindset. This includes reforming the underlying business processes 3.3.11 Developing human capital will be instrumental prior to digitization and eliminating or automating low in enhancing growth of the digital economy and value processing steps to improve efficiency. Services efforts to improve digital skills should be supported must likewise be fully digital from start to finish. A by both government and the private sector. There is service which is 90 percent digitized or automated, need for government to ensure basic digital literacy but still requires an in-person visit at some stage, is for all citizens through reforms and investments in the significantly less valuable to the user than one which lets formal education system. Government should equip all you skip the trip to a service center altogether. Finally, schools and teachers with the requisite tools to embed better integration of services and registries across all applied basic and intermediate digital skills training in arms of government can significantly improve the user the curriculum, improving and broadening the coverage experience, facilitated by a unique digital ID for every of existing initiatives such as the DLP in basic education. resident, avoiding the need for duplicate data entry and Advance level digital skills training will also need to potential for errors or fraud. improve, to keep pace with technology development and be more attuned to the needs of industry, as part of 3.3.13 Encouraging more Kenyans to go online will wider efforts to improve the quality of higher education likewise require increasing confidence that their digital in Kenya. Alternative learning methods such as private communications, transactions and personal data are sector led training and certification schemes can also safe and secure. Enforcement of the Kenya Information be used to bridge the skills gap, and as a complement and Communications (Cyber Security) Regulations is to formal education. There is considerable scope for weak, while the Data Protection Bill of 2018, which 54 A.T. Kearney (2016). http://researchictafrica.net/wp/wp-content/uploads/2018/12/DInfo_V11.pdf 55 34 October 2019 | Edition No. 20 Special Focus establishes data rights, regulates the processing of Kenya Telecommunications Competition Study carried personal data, creates data-related offences and sets up a out in 2018 such as infrastructure sharing in select rural Data Protection Commissioner, is still pending approval. areas, imposition of retail price controls for operators Digital ‘values’ and awareness among the public on how assessed to be market dominant, prohibition of on-net to act and protect themselves online is important in discounts and prohibition on surcharges or other barriers the digital economy. All players in the digital economy which discourage cross-platform mobile money transfers. ecosystem need work together to create a robust trust Figure 45: Market share of mobile market connections among environment that instills confidence among users of retail operators (Q1 2019, percent) digital platforms and services and that promotes safe 100 and responsible usage. Government is encouraged to 80 act as a convener, supporting the development of shared principles and approaches to consumer protection and 60 Percent cybersecurity together with the private sector, education 40 providers, civil society among other players. 20 Key Message 5: Address growing market concentration 0 Burundi Kenya Rwanda South Sudan Tanzania Uganda 3.3.14 Increasing market concentration across Operator 1 Operator 2 Operator 3 Operator 4 Operator 5 Operator 6 Operator 7 Operator 8 multiple market segments including mobile communications, mobile money and digital Source: Global System for Mobile Communications Intelligence Note: Total unique SIM cards (or phone numbers, where SIM cards are not used), infrastructure ownership may create a challenge to including Licensed cellular IoT, that have been registered on the mobile network at the end of the period. Licensed cellular IoT enables mobile data transmission between two long term dynamism of the digital economy and a drag or more machines and excludes computing devices in consumer electronics such as e-readers, smartphones, dongles and tablets. on investment, innovation and consumer welfare. An increase in market concentration will normally result in Key Message 6: There is need to close the digital divide higher prices and lower consumer welfare, as it reflects the degree of competition or lack thereof in the market. 3.3.16 Every individual, business and government As an example of such concentration, the leading institution in Kenya needs access to affordable and mobile service provider in Kenya retains a market share high-quality broadband connectivity and the skills to of 63.6 percent in mobile communications (Figure 45) use it in order to participate in the digital economy, and 82.4 percent in mobile money and is expanding access public services and information, and have into e-commerce and other digital platforms. Due to a voice in an increasingly online society. Despite network effects, market dominance in one segment impressive growth in investment and uptake of digital reinforces the others as it is difficult for users to operate technologies, too many Kenyans remain at risk of being and exchange between different platforms. This can lead left behind. The significant social and economic benefits to higher prices, reduced innovation and investment that accrue to digitally engaged individuals, could further relative to more competitive markets in three of the key deepen inequality if the digital divide persists. A digital foundations of the digital economy: digital infrastructure, divide is also bad for business because the prospects digital platforms and digital financial services. for e-commerce and digital entrepreneurs depend on growth of a digitally active customer base to create the 3.3.15 Proactive efforts are needed to increase market scale needed for success. competition. Kenya has made strides in increasing competition through regulatory interventions such as 3.3.17 Kenya’s rural population, its poorest citizens, reductions in mobile termination rates, launch of mobile women and other marginalized groups need to be number portability and licensing of mobile virtual network better served and included in the digital economy. operators (MVNOs). However more effort is required to Three quarters of the population live in rural areas, but increase market competition in order to maintain the broadband access is limited outside of urban centers, pace of investment, innovation and consumer cost- which affects both access and use of digital services. reduction. For example, the Communications Authority According to a 2014 Gallup survey, 44 percent of Kenya’s could enact some of the key recommendations of the urban population reported using internet on a weekly October 2019 | Edition No. 20 35 Special Focus basis, but this rate drops to only 17 percent for the rural sector to facilitate rollout, affordability and access in population (Figure 46). Even where network coverage is rural areas and among the most geographically, socially available, affordability of broadband and digital devices and financially vulnerable populations. In the context of (smartphones, computers, tablets) continues to lock limited fiscal space, however, such investment needs to out the poor. On average, 1GB of data costs 4 percent be undertaken using a phased approach and within a of GNI per capita, more than double the 2 percent sustainable resource envelope. Priority could be placed target established by the Alliance for Affordable Internet on investments to extend the reach of the national optic (A4AI). Kenya also ranks slightly behind neighboring fiber infrastructure to more rural areas and to connect Uganda, Rwanda and Tanzania in the 2019 A4AI Internet key public service locations such as schools, health Affordability rankings, despite having higher GDP per centers and public Wi-Fi hotspots. This would enable capita.56 Evidence from GSMA suggests that women in private sector internet service providers to leverage the Kenya are 39 percent less likely than men to have access backbone infrastructure, lowering the cost to rollout to mobile internet are 23 percent less likely to own a last mile network to reach rural areas and serve poorer smartphone and are also less likely to participate in communities which may not offer sufficient commercial the digital workforce.57 Access to opportunities to build returns in the absence of public intervention. In addition digital skills, support services and networks are clustered to public infrastructure investments, the government in Nairobi, with a limited presence in secondary cities. could be deploying a range of policy tools and The move toward a cashless society and digitized public complementary investments in digital literacy, digital services likewise create risks for those without a digital services and electrification to ease the path of connecting wallet or broadband access. Tackling this urban-rural the unconnected. digital divide, as well as the divides along income levels, gender, age and disability is required to ensure that all Key Message 7: Review taxation of the digital Kenyans benefit from investments in digital infrastructure economy with an eye toward enabling wider access and services. while prioritizing revenue opportunities from downstream economic activities enabled by access to Figure 46: Weekly internet use urban versus rural (percent) the internet and digital financial services 3.3.19 While the government’s immediate priority 80 is to enhance tax revenue mobilization in support of ongoing fiscal consolidation, there is need to review 60 17 how and where the digital economy should be taxed, 10 balanced against the long-term benefits of financial 22 Percent 40 inclusion and internet access. In the digital economy 2 era, internet access and a means to pay electronically 20 43 44 3 34 are now an essential enabler of downstream economic 23 15 growth, job creation and access to services and markets 0 similar to roads and electricity. Recent tax measures Cote d'Ivoire Ethiopia Zimbabwe Nigeria Kenya Urban Rural to boost collection from excise revenue levied on the Source: CA 2018, Gallup, Africa Online, 2015 telecoms sector (including excise on mobile airtime, data and financial services transactions) are likely to contribute 3.3.18 Investment and innovation by the private to improved revenue collection in the short term but sector alone, while critical, will not be sufficient to could also lead to unintended outcomes of slowing or close the digital divide. The private sector has been reversing gains in internet access and financial inclusion and must continue to do the bulk of the heavy lifting and the downstream benefits they bring in terms of to build and upgrade Kenya’s network infrastructure, economic growth, job creation, access to services and offer innovative new services and create lower cost poverty alleviation. delivery models. However, there is a role for the public 56 Alliance for Affordable Internet, 2019, The Affordability Report 57 GSMA, 2019, the Mobile Gender Gap Report. 36 October 2019 | Edition No. 20 Special Focus 3.3.20 Over the medium term, tax and regulatory Figure 47: East Africa is the 9th largest global market by population fee structures should be reviewed with an eye toward 1400 creating a more balanced regime that incentivizes 1200 consumer access and affordability as well as private Population (Millions) 1000 sector rollout of digital infrastructure and services 800 in rural areas and among low income communities. 600 East Africa Rather than concentrating revenue collection at the 200 M 400 access level of the digital economy, authorities could 200 examine opportunities for improved revenue collection 0 downstream from the resulting economic activity. China India E27 USA Indonesia Brazil Pakistan Nigeria East Africa Bangladesh Russia Mexico Japan Phillipines Tanzania Kenya Uganda South Sudan Rwanda Burundi This could include studying the framework for digital economy taxation under development by the OECD 58 which proposes a means of taxation for firms that Source: A Single Digital Market for East Africa, World Bank, 2018 sell goods and services online which may not have a physical presence in Kenya and would cover digitized 3.3.22 An integrated East African Digital Market transactions and economic activity which is often hard would be the 9th largest in the world – with significant to quantify and geolocate, rendering traditional tax benefits to Kenya’s digital firms and to consumers. A assessment and collection practices difficult. more deeply integrated and competitive regional market would provide a ‘friendly’ space for Kenya’s digital firms to Key Message 8: Think Regional and Global scale and mature before launching into the continental and global markets. It would attract significant new 3.3.21 The long-term prospects for Kenya’s digital investment in digital infrastructure, expand domestic economy require a view outside its borders. Success and cross-border digitally enabled services and goods in the digital economy requires economies of scale trade, stimulate development of locally relevant and network effects. Digitally enabled companies and digital content, and inject greater competition innovators need large, seamless markets to rapidly across the region. The World Bank estimates that scale. Digital platforms become exponentially more implementing a ‘Single Digital market’ (SDM) in valuable the more users and data they generate, East Africa 59 would create an additional US$1 to US$2.6 often locking in a first-mover advantage. Likewise, billion boost in GDP and between 1.6 to 4.5 million investments in core digital infrastructure such as new jobs across the region. Expanding the SDM to the broadband networks and data centers need sufficient wider Horn of Africa region, particularly Ethiopia given scale and demand to make the business case for the recent moves toward digital market liberalization and investment. The benefits of a large domestic market large population would further multiply these benefits. give countries such as the US, China and Nigeria a Digital market integration would also help to close the natural advantage in the digital economy. By leading digital divide, with the biggest benefits accruing to those digital integration efforts among its East African at the bottom of the pyramid that are able to participate neighbors, Kenya can help level the playing field and in the digital economy for the first time due to falling expand digitally enabled trade in goods and services. costs of telecoms services and availability of more locally The One Network Area (ONA) initiative, which removed relevant content and services in the larger market. roaming surcharges and capped prices for mobile calls across participating East African countries in 2015, 3.3.23 Creating a Single Digital Market will require paints a picture of what is possible. The ONA resulted efforts to develop three interrelated sub-markets: in a nearly 1000 percent increase in calls between Rwanda and Kenya in just a few months. Expanding º A single connectivity market, which would remove the ONA concept to more countries and to more barriers to regional telecoms infrastructure and services such as mobile money could have an equally services deployment to encourage investment, transformative impact, eliminating one of the biggest improve performance, eliminate pricing and quality barriers to cross-border e-commerce. differentials between coastal and landlocked countries, as well as expand access to connectivity to all. 58 https://www.oecd.org/tax/beps/public-consultation-document-secretariat-proposal-unified-approach-pillar-one.pdf 59 East Africa is defined as the six member states of the East African Community – Kenya, Burundi, Rwanda, South Sudan, Tanzania and Uganda. October 2019 | Edition No. 20 37 Special Focus º A single data market, which would enable secure must include everyone – ensuring that all Kenyans are exchange, storage and processing of data across empowered with the opportunities and capabilities to borders to support regional deployment and access to meaningfully participate and benefit from the digital data-driven services and innovation. economy. º A single online market, which would allow 3.4.3 Achieving this future will require vision, government, firms and citizens to access and deliver leadership and mobilization of public and private both public and private services online, as well as make resources that match this level of ambition and an online purchases of goods and services seamlessly urgent modernization of the policies, regulations and from anywhere in the region. institutions underpinning the digital economy. Some of the reforms and investments required will take significant 3.4. Conclusion political will to overcome vested interests and traditional 3.4.1 As a leader in digital transformation on the ways of working and thinking. It will require nimble, continent, Kenya has a lot to celebrate and be proud responsive institutions able to quickly adapt in the face of. The country is punching well above its weight in of accelerating technological change. It will also require terms of early digital adoption and innovation, as well as a view beyond Kenya’s borders – removing the barriers in thinking beyond national borders to promote bigger to digital trade and the transmission of ideas, talent and digital markets. But to prepare its citizens and businesses data across the region and across the globe to provide for the economy, society and jobs of the future, much new markets for Kenya’s digitally enabled firms and remains to be done. access to global information and cutting-edge services for all Kenyans, while appropriately mitigating risks in 3.4.2 By taking bold, decisive action, the terms of data protection and cybersecurity. The launch of Government, in partnership with the private sector, the Government’s new Digital Economy Blueprint, recent can help build a digital future for the country; A adoption of the National Broadband Strategy, increasing future in which seamless and efficient public services emphasis on ICT infrastructure and skills investments in are available at the touch of a button, where individuals the national budget, and championship of the digital are equipped with the technology and soft skills to find agenda by top leadership are positive steps in the right meaningful employment in a knowledge- and services- direction. Looking ahead it will be critical to build on this driven economy, and where Kenyan businesses and momentum and maintain focus on implementation of entrepreneurs are pushing the frontiers of innovation, this high-level vision. 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(2019). “Global Economic Prospects: heightened tensions, subdued investment”, 4 June 2019 : https://www. worldbank.org/en/publication/global-economic-prospects October 2019 | Edition No. 20 39 References World Bank. (2019). “Kenya Economic Update. Unbundling the Slack in Private Sector Investment”, Edition 19. http:// documents.worldbank.org/curated/en/820861554470832579/Kenya-Economic-Update-Unbundling-the-Slack-in- Private-Sector-Investment-Transforming-Agriculture-Sector-Productivity-and-Linkages-to-Poverty-Reduction. World Bank Group. World Bank. 2017. “Kenya Economic Update. Poised to Bounce? Reviving private sector credit growth and boosting revenue mobilization to support fiscal consolidation. Edition 16. 40 October 2019 | Edition No. 20 STATISTICAL TABLES Statistical Tables Table 1: Macroeconomic environment 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019e GDP growth Rates (percent) 8.4 6.1 4.6 5.9 5.4 5.7 5.9 4.9 6.3 5.8 Agriculture 10.1 2.4 3.1 5.4 4.3 5.3 4.7 1.9 6.4 4.3 Industry 8.7 7.2 4.2 5.3 6.1 7.3 5.9 3.8 5.3 5.5 Manufacturing 4.5 7.2 -0.6 5.6 2.5 3.6 3.1 0.5 4.2 Services 7.3 6.1 4.7 5.4 6.0 6.4 6.4 6.0 6.7 6.6 Fiscal Framework (percent of GDP)/1 Total revenue 19.1 18.7 19.2 19.2 19.0 18.7 18.8 17.9 17.9 20.2 Total expenditure 23.8 23.7 25.1 25.6 28.1 26.9 28.1 25.2 25.8 26.1 Grants 0.6 0.4 0.5 0.5 0.5 0.4 0.4 0.3 0.2 0.4 Budget deficit (including grants) -3.5 -4.5 -5.7 -6.1 -8.1 -7.3 -7.1 -9.1 -7.4 -7.7 Total debt (gross) 43.1 40.6 42.1 47.8 48.8 55.5 53.8 57.6 59.1 62.3 External Account (percent of GDP) Exports (fob) 13.1 13.9 12.3 10.6 10.3 9.7 8.4 7.3 7.0 6.4 Imports (cif ) 28.7 33.8 30.8 29.2 28.3 23.3 19.5 20.2 18.8 17.2 Current account balance -5.9 -9.1 -8.3 -8.8 -9.8 -6.7 -4.9 -6.2 -5.0 -5.3 Financial account -8.1 -8.2 -11.0 -9.4 -12.4 -6.4 -6.4 -6.7 -7.5 -7.3 Capital account 0.6 0.6 0.5 0.3 0.5 0.4 0.3 0.2 0.3 0.2 Overall balance -0.4 2.1 -2.4 -0.7 -2.4 0.4 -0.2 0.2 -1.2 -0.8 Prices Inflation 4.0 14.0 9.4 5.7 6.9 6.6 6.3 8.0 4.7 5.7 Exchange rate (average Ksh/$) 79.2 88.8 84.5 86.1 87.9 98.2 101.5 103.4 101.3 Source: Kenya National Bureau of Statistics, National Treasury, Central Bank of Kenya and World Bank End of FY in June (e.g 2017 = 2017/2018) 42 October 2019 | Edition No. 20 Statistical Tables Table 2: GDP growth rates for Kenya and EAC (2012-2019) 2014 2015 2016 2017 2018 2019e Kenya 5.4 5.7 5.9 4.9 6.3 5.8 Uganda 5.9 6.4 4.8 3.9 6.2 6.1 Tanzania 6.7 6.2 6.9 6.8 5.4 5.6 Rwanda 6.2 8.9 6.0 6.1 8.6 7.8 EAC 5.9 5.9 5.9 5.3 6.0 5.9 Source: World Bank Note: “e” denotes an estimate Table 3: Kenya annual GDP GDP, GDP, 2009 GDP/capita, Years GDP growth current prices constant prices current prices Ksh Millions Ksh Millions US$ Percent 2012 4,261,370 3,444,339 1,137 4.6 2013 4,745,090 3,646,821 1,210 5.9 2014 5,402,647 3,842,186 1,316 5.4 2015 6,284,185 4,061,901 1,337 5.7 2016 7,022,963 4,300,699 1,411 5.9 2017 8,144,373 4,509,822 1,568 4.9 2018 8,904,984 4,794,833 1,711 6.3 Source: Kenya National Bureau of Stastics and World Development Indicators October 2019 | Edition No. 20 43 Statistical Tables Table 4: Broad sector growth (y-o-y, Percent) Year Quarterly Agriculture Industry Services GDP Q1 5.3 9.4 5.4 6.1 Q2 6.8 6.9 8.0 7.5 2013 Q3 5.8 6.2 6.7 6.4 Q4 3.6 -0.6 4.8 3.5 Q1 4.2 5.8 5.5 5.2 Q2 4.4 9.9 5.5 6.0 2014 Q3 7.1 3.5 4.2 4.6 Q4 1.8 5.3 6.9 5.6 Q1 7.8 6.4 4.6 5.7 Q2 4.4 7.0 5.6 5.6 2015 Q3 4.0 9.1 5.8 6.1 Q4 4.5 6.6 5.5 5.5 Q1 3.6 4.7 5.8 5.3 Q2 7.6 6.6 5.4 6.2 2016 Q3 2.1 6.2 5.8 5.7 Q4 5.2 6.2 8.1 6.3 Q1 4.1 4.4 6.1 4.7 Q2 0.7 3.9 6.3 4.7 2017 Q3 2.7 2.6 5.6 4.7 Q4 -0.7 4.4 7.3 5.4 Q1 7.5 4.9 6.7 6.5 Q2 6.5 5.4 6.8 6.4 2018 Q3 6.9 5.7 6.4 6.3 Q4 3.9 5.5 6.6 6.0 Q1 5.2 4.2 6.3 5.6 2019 Q2 4.1 5.3 6.3 5.6 Source: World Bank, based on data from Kenya National Bureau of Statistics Note: Agriculture = Agriculture, forestry and fishing Industry = Mining and quarrying + Manufacturing + Electricity and water supply + Construction Services = Whole sale and retail trade + Accomodation and restaurant + Transport and storage + Information and communication + Financial and insurance + Public administration + Proffessional administration and support services + Real estate + Education + Health + Other services + FISIM + Taxes on products 44 October 2019 | Edition No. 20 Table 5: Contribution by Broad sub-sectors (percentage points) Industry by sub sector contribution Service by sub sector contribution Agriculture Quarterly contribution Industries Accommo- Information Services Mining and Electricity and Transport and Financial and to GDP Manufacturing Construction dation and Real estate and communi- Other Statistical Tables quarrying water supply storage insurance restaurant cation Q1 1.4 0.2 1.0 0.1 0.4 1.7 -0.5 -0.6 0.3 0.4 0.6 1.5 1.8 Q2 1.7 -0.2 0.8 0.2 0.4 1.3 0.0 0.1 0.3 0.3 0.6 1.7 3.0 2013 Q3 1.1 0.0 0.6 0.2 0.4 1.2 0.2 0.2 0.4 0.4 0.4 1.3 2.8 Q4 0.7 -0.1 0.1 0.1 -0.1 -0.1 0.0 0.7 0.4 0.5 0.3 0.7 2.5 Q1 1.1 0.1 0.5 0.1 0.3 1.1 -0.3 0.2 0.4 0.4 0.4 1.4 2.5 Q2 1.1 0.2 0.8 0.1 0.7 1.8 -0.3 0.4 0.4 0.3 0.4 1.4 2.6 2014 Q3 1.4 0.0 0.1 0.2 0.4 0.7 -0.4 0.6 0.5 0.6 0.5 0.7 2.5 Q4 0.3 0.2 -0.3 0.2 0.9 1.0 0.0 0.3 0.5 0.7 0.6 1.6 3.7 Q1 2.0 0.1 0.3 0.2 0.6 1.2 -0.1 0.5 0.5 0.3 0.6 0.6 2.3 Q2 1.1 0.1 0.3 0.3 0.6 1.3 0.0 0.6 0.5 0.2 0.5 1.0 2.9 2015 Q3 0.8 0.2 0.5 0.2 0.8 1.7 0.0 0.7 0.6 0.2 0.7 1.1 3.4 Q4 0.8 0.1 0.4 0.1 0.7 1.3 0.1 0.4 0.7 0.3 0.4 0.8 2.7 Q1 1.0 0.1 0.2 0.2 0.4 0.9 0.1 0.5 0.7 0.4 0.5 0.8 3.0 Q2 1.8 0.1 0.5 0.3 0.4 1.3 0.1 0.4 0.7 0.3 0.4 1.0 2.9 2016 Q3 0.4 0.1 0.4 0.2 0.5 1.2 0.1 0.3 0.7 0.3 0.4 1.3 3.1 Q4 1.0 0.2 0.2 0.1 0.7 1.2 0.2 0.6 0.7 0.5 0.4 1.4 3.8 Q1 1.1 0.1 0.2 0.2 0.4 0.8 0.3 0.4 0.5 0.5 0.2 1.0 2.9 Q2 0.2 0.0 0.0 0.2 0.5 0.7 0.1 0.4 0.5 0.4 0.2 1.3 2.9 2017 Q3 0.5 0.0 0.0 0.2 0.3 0.5 0.1 0.4 0.5 0.4 0.2 1.3 2.9 Q4 -0.1 0.0 0.0 0.1 0.7 0.8 0.1 0.7 0.5 0.5 0.1 1.8 3.7 Q1 2.0 0.0 0.4 0.2 0.3 0.9 0.2 0.5 0.4 0.5 0.3 1.2 3.1 Q2 1.5 0.0 0.5 0.2 0.3 1.0 0.1 0.6 0.4 0.4 0.3 1.6 3.3 2018 Q3 1.3 0.0 0.5 0.2 0.4 1.1 0.2 0.7 0.3 0.4 0.3 1.4 3.3 Q4 0.7 0.0 0.3 0.2 0.5 1.0 0.3 0.7 0.2 0.6 0.4 1.3 3.7 Q1 1.4 0.0 0.3 0.2 0.3 0.8 0.1 0.4 0.3 0.4 0.3 1.2 2.9 2019 October 2019 | Edition No. 20 Q2 1.0 0.1 0.4 0.2 0.4 1.0 0.1 0.5 0.4 0.4 0.4 1.3 3.1 Source: World Bank, based on data from Kenya National Bureau of Statistics 45 Note: Other = Wholesale and retail trade + Public admistration + Proffessional, admistration and support services + Education + Health + Other services +FISIM 46 Table 6: Quarterly growth rates (percent) Agriculture Industry Services GDP Year Quarter Four Four Four Four Quarter- Year-on- Quarter Quarter- Year-on- Quarter Quarter- Year-on- Quarter Quarter- Year-on- Quarter on-Quarter Year Moving on-Quarter Year Moving on-Quarter Year Moving on-Quarter Year Moving Average Average Average Average Q1 49.8 5.3 5.3 -0.5 9.4 9.4 -1.8 5.4 5.4 8.3 6.1 6.1 Q2 -8.9 6.8 6.0 -2.8 6.9 8.1 2.0 8.0 6.7 -1.8 7.5 6.8 2013 October 2019 | Edition No. 20 Q3 -22.7 5.8 6.0 3.7 6.2 7.5 5.7 6.7 6.7 -1.7 6.4 6.7 Q4 -1.8 3.6 5.4 -0.8 -0.6 5.3 -0.9 4.8 6.2 -1.1 3.5 5.9 Q1 50.7 4.2 4.2 5.9 5.8 5.8 -1.2 5.5 5.5 10.1 5.2 5.2 Q2 -8.7 4.4 4.3 0.9 9.9 7.8 1.9 5.5 5.5 -1.0 6.0 5.6 2014 Q3 -20.8 7.1 5.1 -2.4 3.5 6.4 4.5 4.2 5.0 -2.9 4.6 5.3 Q4 -6.7 1.8 4.4 0.9 5.3 6.1 1.6 6.9 5.5 -0.2 5.6 5.4 Q1 59.6 7.8 7.8 7.0 6.4 6.4 -3.4 4.6 4.6 10.3 5.7 5.7 Q2 -11.5 4.4 6.2 1.4 7.0 6.7 2.9 5.6 5.1 -1.2 5.6 5.7 2015 Q3 -21.1 4.0 5.6 -0.4 9.1 7.5 4.7 5.8 5.3 -2.5 6.1 5.8 Q4 -6.2 4.5 5.3 -1.4 6.6 7.3 1.2 5.5 5.4 -0.7 5.5 5.7 Q1 58.3 3.6 3.6 5.2 4.7 4.7 -3.0 5.8 5.8 9.8 5.0 5.0 Q2 -8.1 7.6 5.5 3.3 6.6 5.7 2.6 5.4 5.6 -0.1 6.2 5.6 2016 Q3 -25.1 2.1 4.5 -0.8 6.2 5.9 5.0 5.8 5.7 -3.4 5.2 5.5 Q4 -3.3 5.2 4.7 -1.4 6.2 5.9 3.4 8.1 6.3 1.2 7.2 5.9 Q1 56.5 4.1 4.1 3.4 4.4 4.4 -4.8 6.1 6.1 7.8 5.2 5.2 Q2 -11.1 0.7 2.5 2.8 3.9 4.1 2.8 6.3 6.2 -0.9 4.5 4.8 2017 Q3 -23.6 2.7 2.5 -2.0 2.6 3.6 4.4 5.6 6.0 -3.4 4.5 4.7 Q4 -6.6 -0.7 1.9 0.2 4.4 3.8 5.0 7.3 6.3 2.0 5.3 4.9 Q1 69.5 7.5 7.5 3.9 4.9 4.9 -5.3 6.7 6.7 9.1 6.6 6.6 Q2 -11.9 6.5 7.0 3.3 5.4 5.1 2.9 6.8 6.7 -1.0 6.4 6.5 2018 Q3 -23.3 6.9 7.0 -1.7 5.7 5.3 4.0 6.4 6.6 -3.5 6.4 6.5 Q4 -9.2 3.9 6.4 0.0 5.5 5.3 5.2 6.6 6.6 1.5 5.9 6.3 Q1 71.6 5.2 5.2 2.6 4.2 4.2 -5.6 6.3 6.3 8.8 5.6 5.6 2019 Q2 -12.9 4.1 4.7 4.4 5.3 4.8 2.9 6.3 6.3 -1.0 5.6 5.6 Statistical Tables Source: World Bank and Kenya National Bureau of Statistics Statistical Tables Table 7: Growth Outlook Annual growth (percent) 2017 2018 2019e 2020f 2021f BASELINE GDP Revised projections 4.9 6.3 5.8 6.0 5.8 Revised projections (KEU 19) 4.9 5.8 5.7 5.9 6.0 Revised projections (KEU 18) 4.9 5.7 5.8 6.0 Private consumption 7.6 5.9 6.1 6.6 6.6 Government consumption 5.1 1.0 6.6 5.6 5.2 Gross fixed capital investment 6.4 4.6 5.7 5.1 4.1 Exports, goods and services -6.8 4.0 4.5 4.6 4.4 Imports, good and serveices 8.7 2.6 5.9 6.0 5.8 Agriculture 1.9 6.4 4.3 4.5 4.6 Industry 3.8 5.3 5.5 5.6 5.6 Services 6.0 6.7 6.6 6.8 6.4 Inflation (Consumer Price Index) 8.0 4.7 5.7 5.9 6.1 Current Account Balance, % of GDP -6.2 -5.0 -5.3 -5.4 -5.7 Fiscal balance, % of GDP -9.1 -7.4 -7.7 -6.2 -5.3 Debt (% of GDP) 57.6 59.1 62.3 61.3 61.0 Primary Balance (% of GDP) -5.6 -3.6 -3.7 -1.9 -1.2 Sources: World Bank and the National Treasury Notes: “e” denotes and estimate, “f” denotes forecast * Fiscal Balance is sourced from National Treasury and presented as Fiscal Years October 2019 | Edition No. 20 47 Statistical Tables Table 8: National Fiscal position Actual (percent of GDP) 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19* Revenue and Grants 19.7 19.1 19.7 19.7 19.5 19.1 19.2 18.2 18.1 Total Revenue 19.1 18.7 19.2 19.2 19.0 18.7 18.8 17.9 17.9 Tax revenue 18.0 17.1 17.2 18.1 17.7 17.2 17.1 16.0 16.1 Income tax 7.9 7.8 8.3 8.9 8.7 8.4 8.2 7.5 7.4 VAT 5.0 4.4 4.1 4.6 4.5 4.3 4.4 4.2 4.4 Import Duty 1.3 1.3 1.3 1.3 1.3 1.2 1.2 1.1 1.2 Excise Duty 2.3 2.0 1.9 2.0 2.0 2.1 2.2 2.0 2.1 Other Revenues 1.5 1.6 1.7 1.3 1.3 1.2 1.1 1.2 1.0 Railway Levy 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Appropriation in Aid 1.1 1.7 2.0 1.1 1.3 1.5 1.7 1.8 1.9 Grants 0.6 0.4 0.5 0.5 0.5 0.4 0.4 0.3 0.2 Expenditure and Net Lending 23.8 23.7 25.1 25.6 28.1 26.9 28.1 25.2 25.8 Recurrent 16.9 16.3 18.1 14.8 15.4 15.4 15.7 15.8 16.1 Wages and salaries 5.7 5.5 6.1 5.5 5.1 4.6 4.4 4.6 4.5 Interest Payments 2.3 2.1 2.7 2.7 2.9 3.2 3.5 3.8 4.0 Other recurrent 8.9 8.8 9.3 6.6 7.3 7.7 7.7 7.5 7.5 Development and net lending 6.8 7.4 6.8 6.3 8.8 7.3 8.4 5.5 5.9 County allocation 0.2 3.8 3.9 4.1 4.0 3.8 3.9 Contigecies 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0 Parliamentary Service 0.4 0.4 0.3 0.0 0.0 0.0 Judicial Service 0.3 0.2 0.2 0.0 0.0 0.0 Fiscal balance Deficit including grants (cash basis) Financing -3.5 -4.5 -5.7 -6.1 -8.1 -7.1 -9.1 -7.4 -7.7 Foreign Financing 3.5 4.5 5.7 6.1 8.1 7.1 9.1 7.4 7.7 Domestic Financing 0.8 2.8 3.8 4.0 3.7 4.0 5.0 4.2 4.4 2.7 1.6 1.9 2.1 4.3 3.0 4.0 3.2 3.3 Total Public Debt (gross) External Debt 43.1 40.6 42.1 47.8 48.8 53.8 57.5 59.1 62.3 Domestic Debt 21.0 19.6 18.7 22.4 24.4 26.8 30.0 30.0 32.4 22.2 21.5 23.3 25.3 24.4 27.1 27.6 29.1 29.9 Memo: GDP (Fiscal year current market 3,448 3,994 4,503 5,074 5,832 6,710 7,658 8,525 9,317 prices, Ksh bn) Source: 2019 Budget Review and Outlook Paper (BROP) and Quarterly Budgetary Economic Review (Second Quarter, Financial Year 2019/2020), National Treasury Note: *indicate Preliminary results 48 October 2019 | Edition No. 20 Table 9: Kenya’s Public and Publicly Guaranteed Debt, June 2014 to June 2018 KShs. Millions Jun-14 Sep-14 Dec-14 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-19 Sep-18 Dec-18 Mar-19 Jun- 19* TOTAL PUBLIC DEBT (Net) 2,217,315 2,103,447 2,275,952 3,448,699 3,675,734 3,972,526 4,048,978 4,217,515 4,304,497 4,488,204 4,639,062 4,834,759 5,021,658 5,301,645 Statistical Tables Lending (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) (5,701) Government Deposits (199,815) (239,554) (298,879) (373,016) (364,909) (428,774) (432,113) (350,924) (573,884) (545,075) (501,404) (432,049) (398,223) (501,728) Total Public Debt (Gross) 2,422,831 2,348,702 2,580,532 3,827,417 4,046,344 4,407,001 4,486,793 4,574,140 4,884,082.0 5,038,981.0 5,146,167.0 5,272,509.0 5,425,582.0 5,809,074.0 External Debt 1,138,504 1,087,828 1,272,583 1,896,443 2,101,391 2,294,736 2,310,198 2,353,795 2,512,431 2,560,199 2,605,333 2,723,734 2,721,598 3,023,138 Bilateral 289,914 278,547 389,083 641,763 689,119 724,823 742,064 782,588 800,912 816,119 812,545 894,046 916,572 996,059 Multilateral 597,340 608,022 612,353 781,256 806,922 841,899 842,814 841,847 836,766 820,966 877,730 874,680 846,587 914,394 Commercial Banks 234,799 185,163 255,188 458,122 594,140 712,100 708,231 712,274 858,062 906,389 898,349 938,151 941,763 1,095,753 Suppliers Credit 16,451 16,096 15,959 15,302 11,210 15,914 17,089 17,086 16,691 16,725 16,709 16,857 16,676 16,932 Domestic Debt 1,284,327 1,260,874 1,307,949 1,930,973 1,944,953 2,112,265 2,176,595 2,220,345 2,371,651 2,478,782 2,540,834 2,548,775 2,703,984 2,785,936 Central Bank 65,700 63,580 58,286 85,528 85,316 55,061 79,201 96,797 93,583 110,782 90,209 118,196 90,264 109,607 Commercial Banks 617,221 601,426 649,940 947,030 975,803 1,141,889 1,148,296 1,124,950 1,226,866 1,266,404 1,315,464 1,289,564 1,402,668 1,414,431 Non Banks & Nonresidents 601,406 595,868 599,723 898,415 883,834 915,316 949,098 998,598 1,051,202 1,101,596 1,135,161 1,141,015 1,211,052 1,261,899 (%) of Total public debt (gross) External Debt 47.0 46.3 49.3 49.5 51.9 52.1 51.5 51.5 51.4 50.8 50.6 51.7 50.2 52.0 Domestic Debt 53.0 53.7 50.7 50.5 48.1 47.9 48.5 48.5 48.6 49.2 49.4 48.3 49.8 48.0 % of External debt Bilateral 25.5 25.6 30.6 33.8 32.8 31.6 32.1 33.2 31.9 31.9 31.2 32.8 33.7 32.9 Multilateral 52.5 55.9 48.1 41.2 38.4 36.7 36.5 35.8 33.3 32.1 33.7 32.1 31.1 30.2 Commercial Banks 20.6 17.0 20.1 24.2 28.3 31.0 30.7 30.3 34.2 35.4 34.5 34.4 34.6 36.2 Suppliers Credit 1.4 1.5 1.3 0.8 0.5 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.6 % of Domestic debt Central Bank 5.1 5.0 4.5 4.4 4.4 2.6 3.6 4.4 3.9 4.5 3.6 4.6 3.3 3.9 Commercial Banks 48.1 47.7 49.7 49.0 50.2 54.1 52.8 50.7 51.7 51.1 51.8 50.6 51.9 50.8 Non Banks & Nonresidents 46.8 47.3 45.9 46.5 45.4 43.3 43.6 45.0 44.3 44.4 44.7 44.8 44.8 45.3 Source: National Treasury (Quarterly Economic Budgetary Review, February 2019) Note: *Provisional October 2019 | Edition No. 20 49 50 Table 10: 12-months cumulative balance of payments BPM6 Concept (US$ million) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019-Aug A. Current Account, n.i.e. (1,701) (2,423) (3,921) (4,391) (5,427) (6,442) (4,303) (3,387) (4,868) (4,349) (3,703) Merchandise A/C (4,948) (6,234) (8,354) (9,314) (10,220) (10,775) (8,388) (7,666) (10,201) (10,238) (9,959) Goods: exports f.o.b. 4,530 5,230 5,835 6,213 5,870 6,155 5,970 5,745 5,792 6,106 5,887 Goods: imports f.o.b. 9,479 11,464 14,189 15,527 16,089 16,929 14,358 13,411 15,994 16,344 15,846 October 2019 | Edition No. 20 Oil 2,192 2,673 4,082 4,081 3,838 4,026 2,500 2,087 2,728 3,386 Services 1,091 1,710 1,893 2,429 2,318 1,676 1,317 1,432 1,556 1,613 1,911 Services: credit 2,914 3,789 4,131 4,990 5,130 5,023 4,636 4,164 4,648 5,477 5,669 Services: debit 1,822 2,079 2,239 2,561 2,813 3,347 3,319 2,732 3,092 3,865 3,758 Income 2,156 2,101 2,540 2,494 2,475 2,657 2,769 2,847 3,778 4,277 4,346 B. Capital Account, n.i.e. 261 240 235 235 158 275 262 206 184 262 219.6583366 C. Financial Account, n.i.e. (3,782) (3,252) (3,425) (5,565) (5,204) (7,398) (3,914) (4,429) (5,287) (6,551) -6702.912983 Direct investment: net (1,452) (1,117) (1,364) (1,142) (920) (746) (382) (523) (1,019) (1,460) (1,702) Portfolio investment: net (81) (156) 1 (218) (273) (3,716) 156 350 789 (627) (1,106) Financial derivatives: net - - - - - - - 5 (0) 2 - Other investment: net (2,249) (1,979) (2,062) (4,205) (4,011) (2,936) (3,688) (4,255) (5,057) (4,464) (3,896) D. Net Errors and Omissions (1,227) (894) (635) (186) 434 221 (128) (1,112) (767) (1,418) (2,461) E. Overall Balance (1,115) (174) 896 (1,223) (369) (1,453) 255 (131) 163 (1,044) (751) F. Reserves and Related Items 1,115 174 (896) 1,223 369 1,453 (255) 131 (163) 1,044 751 Reserve assets 1,322 154 246 1,455 859 1,333 (361) 40 (241) 885 Credit and loans from the IMF 199 (34) 284 193 177 (119) (107) (91) (77) (160) Exceptional financing 8 13 858 38 312 - - - - - Gross Reserves (USD Million) 5,064 5,123 6,045 7,160 8,483 9,738 9,794 9,588 9,646 11,516 13,170 Official 3,847 4,002 4,248 5,702 6,560 7,895 7,534 7,573 7,332 8,231 9,596 Commercial Banks 1,217 1,121 1,797 1,458 1,923 1,843 2,259 2,015 2,314 3,286 3,574 Imports cover (36 months import) 3.9 3.9 3.7 4.3 4.5 5.1 4.8 5.0 5.0 5.4 6.0 Memo: Annual GDP at Current prices 37,022 39,337 42,993 49,554 54,978 59,735 61,497 68,763 78,998 87,055 (USD Million) Source: Central Bank of Kenya Statistical Tables Statistical Tables Table 11: Inflation Year Month Overall Inflation Food Inflation Energy Inflation Core Inflation January 7.8 12.7 2.9 5.4 February 7.1 10.8 1.7 5.4 March 6.5 9.4 2.1 5.4 April 5.3 6.8 2.0 5.2 May 5.0 6.6 1.8 4.7 June 5.8 8.9 1.4 4.5 2016 July 6.4 10.8 0.9 4.4 August 6.3 10.9 0.1 4.6 September 6.3 10.9 0.2 4.6 October 6.5 11.0 0.1 4.6 November 6.7 11.1 0.6 4.7 December 6.3 11.2 0.1 3.8 January 7.0 12.5 0.7 3.3 February 9.2 16.7 3.0 3.3 March 10.3 18.8 3.3 3.3 April 11.5 21.0 3.7 3.5 May 11.7 21.5 3.5 3.6 June 9.2 15.8 3.4 3.5 2017 July 7.5 12.2 2.9 3.5 August 8.0 13.6 3.1 3.4 September 7.1 11.5 3.3 3.2 October 5.7 8.5 3.0 3.2 November 4.7 5.8 4.8 3.4 December 4.5 4.7 5.4 3.6 January 4.8 4.7 6.1 4.0 February 4.5 3.8 6.2 4.2 March 4.2 2.2 8.2 4.1 April 3.7 0.3 10.2 4.1 May 4.0 0.3 11.4 3.9 June 4.3 0.9 11.9 4.0 2018 July 4.4 0.5 12.4 4.1 August 4.0 1.2 14.2 4.3 September 5.7 0.5 17.4 4.5 October 5.5 0.5 16.5 4.7 November 5.6 1.7 14.3 4.4 December 5.7 2.5 13.8 4.0 January 4.7 1.6 12.1 3.4 February 4.1 1.1 11.4 3.1 March 4.35 2.8 8.8 3.1 April 6.58 8.2 7.5 3.1 2019 May 5.49 6.3 6.7 3.0 June 5.7 7.0 6.3 2.9 July 6.27 8.5 6.2 2.7 August 5 7.1 4.0 2.3 September 3.83 6.3 1.3 2.1 Source: World Bank, based on data from Kenya National Bureau of Statistics October 2019 | Edition No. 20 51 Table 12: Credit to Private Sector Growth (%) 52 Total Private Transport Manufactur- Building and Finance and Mining and Private Consumer Business Other Year Month sector annual Agriculture Trade and commu- Real estate ing construction insurance quarrying households durables services activities growth rates nication January 16.6 17.3 15.9 28.4 25.3 30.2 12.2 9.1 -9.3 14.6 12.8 13.8 4.1 February 15.5 21.0 18.7 25.4 20.5 27.7 11.1 10.2 1.7 12.0 7.3 16.2 -3.8 March 15.2 18.6 20.6 21.8 23.2 22.6 10.8 15.0 12.5 10.1 10.0 13.4 -8.6 April 13.2 15.5 15.2 21.8 23.1 20.5 13.4 13.4 5.3 10.2 7.5 7.8 -15.5 May 10.7 20.2 12.2 18.1 16.1 16.9 8.1 10.1 3.2 7.8 9.5 8.5 -18.7 June 8.9 13.7 13.3 12.3 13.2 14.1 9.1 11.9 -1.6 5.7 2.5 5.1 -11.8 2016 July 7.0 6.1 12.5 13.8 9.2 12.4 13.5 8.8 -4.5 3.1 4.3 -4.4 -12.9 October 2019 | Edition No. 20 August 5.3 1.8 -0.3 16.4 8.3 16.8 -2.5 9.4 -32.8 7.2 9.2 -11.1 -17.1 September 4.4 -0.5 -2.0 15.2 1.3 13.6 2.7 8.9 -33.7 10.5 5.6 -10.2 -24.3 October 4.6 0.4 -4.3 12.8 -4.9 14.7 1.2 9.3 -36.4 10.1 10.1 -2.0 -20.1 November 4.2 3.5 -4.1 15.7 -5.3 16.1 0.1 8.8 -21.3 10.6 10.6 -11.7 -30.6 December 4.1 0.9 -2.4 15.9 -2.8 14.9 16.7 11.0 -19.1 19.7 11.3 -34.8 -27.0 January 3.9 -2.6 -6.8 13.4 -0.8 10.2 -0.6 10.3 -17.5 14.7 11.1 -13.0 -31.3 February 3.5 1.4 -8.6 10.1 8.3 8.0 -4.6 9.7 -25.5 15.6 11.1 -13.7 -29.2 March 3.0 -7.7 -7.8 11.6 0.6 9.6 -9.2 12.4 -34.0 13.3 10.1 -15.5 -23.5 April 2.2 -8.8 -6.8 8.0 -2.3 7.6 -11.9 13.2 -34.2 10.4 11.9 -15.1 -19.8 May 1.9 -12.6 -5.2 8.8 2.5 5.6 -2.8 11.8 -39.5 9.8 11.3 -21.8 -20.0 June 1.5 -12.3 -7.1 10.7 -0.7 3.2 -4.4 10.1 -37.8 10.9 7.5 -15.8 -25.0 2017 July 1.4 -11.6 -6.6 9.0 0.5 0.6 -8.5 11.8 -41.0 12.1 3.3 -10.8 -28.1 August 1.6 -7.6 3.3 4.3 -1.5 -2.3 5.4 9.7 -7.6 6.2 -1.6 -6.5 -27.4 September 1.7 -2.0 6.1 6.9 1.8 -4.9 -1.4 8.9 -0.8 1.9 -0.5 -6.4 -28.6 October 2.0 -1.1 10.2 11.5 4.0 -8.2 -1.3 10.0 9.2 2.9 0.1 -19.2 -35.0 November 2.7 -7.7 10.6 10.0 3.1 -8.0 1.5 9.3 -3.2 2.7 -0.4 -7.6 -23.1 December 2.4 -7.9 13.0 9.0 4.8 -7.2 -4.3 8.6 -5.5 -1.5 -1.6 -6.4 -7.5 January 1.9 -7.6 12.0 5.1 5.4 -10.9 -1.3 8.2 -6.7 -1.4 1.4 0.0 -10.6 February 2.2 -12.9 13.1 6.8 4.8 -13.9 4.9 8.4 -6.7 -2.7 2.3 -0.3 -2.2 March 2.1 -6.2 11.2 5.4 12.6 -18.4 11.6 4.5 -2.7 -0.7 4.7 -0.5 -6.3 April 2.9 -4.4 10.1 5.0 14.3 -17.8 10.1 3.6 -4.4 2.6 5.0 2.8 -2.2 May 3.9 -3.3 12.1 6.8 9.2 -14.9 2.6 3.7 -3.5 3.8 5.5 11.0 -7.5 June 4.3 -4.7 12.2 8.5 13.3 -12.7 3.8 3.8 -9.1 2.9 7.8 6.7 -7.9 2018 July 4.3 -6.5 11.5 6.5 13.5 -10.7 8.5 4.3 0.2 2.9 9.1 3.3 -5.8 August 4.3 -4.3 13.2 6.9 14.7 -11.0 3.5 0.9 -9.1 2.7 11.5 6.5 -4.6 September 3.8 -6.0 11.9 3.2 11.1 -9.1 6.6 1.7 -15.5 5.1 7.8 4.3 2.7 October 4.4 -5.6 14.8 4.0 7.1 -7.7 9.1 1.2 -11.6 5.1 7.6 12.1 -12.4 November 3.0 -0.1 10.6 3.2 8.9 -10.7 5.3 -1.1 -10.6 5.4 8.9 9.5 -23.4 December 2.4 -2.0 6.5 2.9 1.8 -9.4 17.5 -0.5 -10.7 6.8 11.0 8.0 -34.8 January 3.0 -0.2 6.5 6.6 1.4 -6.5 15.4 -2.6 -14.5 5.6 15.4 0.0 -27.2 February 3.4 -2.6 7.7 6.4 2.6 -0.7 13.1 -2.9 -13.4 6.6 16.1 0.3 -33.1 March 4.3 0.2 7.2 8.7 -7.0 5.7 10.2 -0.1 -11.4 8.0 13.9 -0.4 -31.7 April 4.9 2.5 7.9 8.4 -6.5 6.4 13.3 -0.7 -12.5 7.9 16.4 1.1 -29.6 2019 May 4.4 2.7 6.5 7.6 -4.1 6.2 6.7 -0.5 -7.9 7.8 18.0 -1.2 -32.0 June 5.2 3.9 11.4 5.5 -6.3 5.8 4.7 1.0 -4.3 7.6 21.3 -3.2 -22.6 July 6.1 7.6 10.3 8.0 -5.4 6.4 5.3 0.5 -13.5 7.1 23.6 1.6 -17.2 August 6.3 6.6 7.5 8.4 -6.0 5.8 8.2 2.4 -10.8 8.6 23.0 -0.1 -14.4 Statistical Tables Source: Central Bank of Kenya Statistical Tables Table 13: Mobile payments Number of Number of Value of Year Month Number of Agents customers transactions transactions (Millions) (Millions) (Billions) January 146,710 29.1 95.5 243.4 February 148,982 29.5 101.0 257.2 March 150,987 30.7 107.9 273.6 April 153,762 31.4 105.5 269.8 May 156,349 31.3 107.8 277.9 June 162,465 31.4 106.3 271.0 2016 July 167,072 32.3 110.5 281.9 August 173,774 32.8 114.2 296.9 September 173,731 33.4 112.6 283.9 October 181,456 34.0 122.5 292.1 November 162,441 34.3 120.9 291.2 December 165,908 35.0 126.3 316.8 January 152,547 33.3 122.0 299.5 February 154,908 33.3 117.5 279.4 March 157,855 33.9 133.3 320.2 April 160,076 34.3 128.9 297.4 May 164,674 34.2 132.5 315.4 June 165,109 34.2 125.9 299.8 2017 July 169,480 34.6 128.1 308.9 August 167,353 35.3 120.6 286.3 September 167,775 35.5 128.5 300.9 October 170,389 36.0 134.2 299.0 November 176,986 36.4 131.7 299.0 December 182,472 37.4 139.9 332.6 January 188,029 37.8 136.7 323.0 February 192,117 38.4 132.3 300.9 March 196,002 39.3 147.5 337.1 April 201,795 40.3 142.1 313.0 May 202,387 41.7 141.0 329.0 June 197,286 42.6 137.4 317.7 2018 July 200,227 42.6 143.1 332.4 August 202,627 43.6 149.5 348.9 September 203,359 44.3 146.0 327.7 October 211,961 45.4 155.2 343.2 November 206,312 46.2 153.2 343.9 December 205,745 47.7 155.8 367.8 January 201,336 40.3 154.2 368.0 February 212,252 50.0 144.5 328.2 March 226,957 50.4 161.4 368.4 April 230,220 52.0 155.8 360.2 2019 May 224,825 52.2 153.3 364.3 June 222,484 46.8 149.7 346.8 July 222,087 53.9 153.0 366.4 August 222,479 54.8 151.8 368.5 Source: Central Bank of Kenya October 2019 | Edition No. 20 53 Statistical Tables Table 14: Exchange rate Year Month USD UK Pound Euro January 102.3 147.5 111.1 February 101.9 145.9 113.0 March 101.5 144.2 112.6 April 101.2 144.8 114.8 May 100.7 146.3 114.0 June 101.1 144.3 113.7 2016 July 101.3 133.4 112.1 August 101.4 132.9 113.7 September 101.3 133.2 113.5 October 101.3 125.4 111.9 November 101.7 126.3 110.0 December 102.1 127.7 107.7 January 103.7 128.0 110.2 February 103.6 129.5 130.4 March 102.9 126.9 109.9 April 103.3 130.4 110.7 May 103.3 133.5 114.8 June 103.5 132.5 116.2 2017 July 103.9 134.9 119.4 August 103.6 134.2 122.2 September 103.1 137.1 122.9 October 103.4 136.4 121.6 November 103.6 136.8 121.4 December 103.1 138.2 122.0 January 102.9 141.9 125.4 February 101.4 141.7 125.3 March 101.2 141.2 124.7 April 100.6 141.9 123.7 May 100.7 135.7 119.0 June 101.0 134.2 118.0 2018 July 100.7 132.6 117.5 August 100.6 129.7 116.2 September 100.8 131.7 117.7 October 101.1 131.6 116.2 November 102.4 132.1 116.4 December 102.3 129.7 116.4 January 101.6 130.8 116.0 February 100.2 130.3 113.8 March 100.4 132.3 113.5 April 101.1 131.8 113.6 2019 May 101.2 130.1 113.2 June 101.7 128.8 114.7 July 103.2 128.8 115.8 August 103.3 125.6 115.0 September 103.8 128.2 114.4 Source: Central Bank of Kenya 54 October 2019 | Edition No. 20 Statistical Tables Table 15: Exchange rate (Index January 2016 = 100) Year Month NEER REER USD January 100.0 100.0 100.0 February 100.1 100.4 99.6 March 100.0 100.4 99.2 April 100.6 100.6 98.9 May 99.8 99.6 98.5 June 100.0 99.1 98.9 2016 July 99.5 98.3 99.0 August 100.1 99.2 99.1 September 100.1 98.8 99.0 October 99.1 97.9 99.0 November 98.7 96.9 99.4 December 98.1 95.6 99.8 January 99.8 95.9 101.4 February 100.1 94.9 101.3 March 99.5 93.0 100.5 April 100.3 92.3 101.0 May 100.8 91.9 100.9 June 101.6 93.9 101.2 2017 July 102.4 95.9 101.5 August 103.1 96.5 101.2 September 103.1 98.4 100.8 October 102.7 98.0 101.1 November 102.8 98.7 101.2 December 102.8 97.9 100.8 January 104.1 97.3 100.6 February 103.4 95.9 99.1 March 103.1 94.1 98.9 April 97.5 89.1 98.3 May 96.5 87.6 98.4 June 96.2 88.4 98.7 2018 July 99.3 91.5 98.4 August 98.4 90.9 98.3 September 98.4 91.0 98.6 October 98.1 91.0 98.8 November 94.9 89.4 100.0 December 95.1 88.9 100.0 January 94.8 87.4 101.6 February 98.0 89.2 100.2 March 98.2 88.4 100.4 April 98.8 86.2 101.1 2019 May 98.9 86.4 101.2 June 98.9 87.3 101.7 July 100.3 89.7 103.2 August 103.3 September 103.8 Source: Central Bank of Kenya and World Bank October 2019 | Edition No. 20 55 Statistical Tables Table 16: Nairobi Securities Exchange (NSE 20 Share Index, Jan 1966=100, End - month) Year Month NSE 20 Share Index January 3,773 February 3,862 March 3,982 April 4,009 May 3,828 June 3,641 2016 July 3,489 August 3,179 September 3,243 October 3,229 November 3,247 December 3,186 January 2,794 February 2,995 March 3,113 April 3,158 May 3,441 June 3,607 2017 July 3,798 August 4,027 September 3,751 October 3,730 November 3,805 December 3,712 January 3,737 February 3,751 March 3,845 April 3,705 May 3,353 June 3,286 2018 July 3,297 August 3,203 September 2,876 October 2,810 November 2,797 December 2,834 January 2,958 February 2,894.2 March 2,846.35 April 2,796.84 2019 May 2,676.92 June 2,633.32 July 2,627.81 August 2,467.88 September 2,431.97 Source: Central Bank of Kenya 56 October 2019 | Edition No. 20 Statistical Tables Table 17: Central Bank Rate and Treasury Bills Year Month Central Bank Rate 91-Treasury Bill 182-Treasury Bill 364-Treasury Bill January 11.5 11.2 13.0 14.1 February 11.5 10.6 12.8 13.7 March 11.5 8.7 12.6 12.3 April 11.5 8.9 11.7 11.8 May 10.5 8.2 10.7 11.6 June 10.5 7.3 10.2 10.8 2016 July 10.5 7.4 9.9 10.9 August 10.0 8.5 10.8 11.7 September 10.0 8.1 10.8 11.0 October 10.0 7.8 10.3 10.4 November 10.0 8.2 10.3 10.8 December 10.0 8.4 10.5 10.6 January 10.0 8.6 10.5 11.0 February 10.0 8.6 10.5 10.9 March 10.0 8.6 10.5 10.9 April 10.0 8.8 10.5 10.9 May 10.0 8.7 10.4 10.9 June 10.0 8.4 10.3 10.9 2017 July 10.0 8.2 10.3 10.9 August 10.0 8.2 10.4 10.9 September 10.0 8.1 10.4 10.9 October 10.0 8.1 10.3 11.0 November 10.0 8.0 10.5 11.0 December 10.0 8.0 10.5 11.1 January 10.0 8.0 10.6 11.2 February 10.0 8.0 10.4 11.2 March 9.5 8.0 10.4 11.1 April 9.5 8.0 10.3 11.1 May 9.5 8.0 10.3 11.1 June 9.5 7.8 9.9 10.8 2018 July 9.0 7.7 9.3 10.3 August 9.0 7.6 9.0 10.0 September 9.0 7.6 8.8 9.8 October 9.0 7.6 8.5 9.6 November 9.0 7.4 8.3 9.5 December 9.0 7.3 8.4 9.7 January 9.0 7.2 8.9 10.0 February 9.0 7.0 8.6 9.6 March 9.0 7.1 8.3 9.4 April 9.0 7.4 8.1 9.4 2019 May 9.0 7.2 7.9 9.3 June 9.0 6.9 7.6 9.2 July 9.0 6.6 7.4 8.8 August 9.0 6.4 7.1 9.2 September 9.0 6.4 7.1 9.6 Source: Central Bank of Kenya October 2019 | Edition No. 20 57 Statistical Tables Table 18: Interest rates Short-term Long-term Average Overall Interest Year Month 91-Treasury Central weighted Interbank Bill Bank Rate deposit Savings lending Rate rate rate Spread January 6.4 11.2 11.5 7.6 1.6 18.0 10.4 February 4.5 10.6 11.5 7.5 1.4 17.9 10.4 March 4.0 8.7 11.5 7.2 1.4 17.9 10.7 April 3.9 8.9 11.5 6.9 1.5 18.0 11.1 May 3.6 8.2 10.5 6.4 1.6 18.2 11.8 June 4.9 7.3 10.5 6.8 1.6 18.2 11.4 2016 July 5.5 7.4 10.5 6.6 1.7 18.1 11.5 August 5.0 8.5 10.0 6.4 1.7 17.7 11.2 September 4.9 8.1 10.0 6.9 3.8 13.9 7.0 October 4.1 7.8 10.0 7.8 6.1 13.7 5.9 November 5.1 8.2 10.0 7.6 6.5 13.7 6.0 December 5.9 8.4 10.0 7.3 6.4 13.7 6.4 January 7.7 8.6 10.0 7.2 6.1 13.7 6.5 February 6.4 8.6 10.0 7.7 6.8 13.7 6.0 March 4.5 8.6 10.0 7.1 5.9 13.6 6.5 April 5.3 8.8 10.0 7.0 5.7 13.6 6.6 May 4.9 8.7 10.0 7.1 5.9 13.7 6.6 June 4.0 8.4 10.0 7.2 5.6 13.7 6.5 2017 July 6.8 8.2 10.0 7.4 6.4 13.7 6.3 August 8.1 8.2 10.0 7.7 5.9 13.7 6.0 September 5.5 8.1 10.0 7.7 6.4 13.7 6.0 October 7.8 8.1 10.0 8.0 6.9 13.7 5.7 November 8.9 8.0 10.0 8.1 6.9 13.7 5.6 December 7.3 8.0 10.0 8.2 6.9 13.6 5.4 January 6.2 8.0 10.0 8.3 7.0 13.7 5.4 February 5.1 8.0 10.0 8.3 7.0 13.7 5.4 March 4.9 8.0 9.5 8.2 6.8 13.5 5.3 April 5.4 8.0 9.5 8.2 6.7 13.2 5.1 May 4.9 8.0 9.5 8.1 6.6 13.2 5.2 June 5.0 7.8 9.5 8.0 6.6 13.2 5.2 2018 July 4.8 7.7 9.0 8.0 6.5 13.1 5.1 August 6.6 7.6 9.0 7.8 6.5 12.8 5.0 September 4.5 7.6 9.0 7.8 6.3 12.7 4.9 October 3.5 7.6 9.0 7.6 5.7 12.6 5.0 November 4.1 7.4 9.0 7.4 5.4 12.6 5.1 December 8.0 7.3 9.0 7.4 5.1 12.5 5.1 January 3.3 7.2 9.0 7.3 5.1 12.5 5.2 February 2.5 7.0 9.0 7.3 5.2 12.5 5.2 March 3.7 7.1 9.0 7.2 5.1 12.5 5.3 April 4.2 7.4 9.0 7.2 4.7 12.5 5.3 2019 May 5.6 7.2 9.0 7.2 4.7 12.5 5.3 June 3.0 6.9 9.0 7.2 4.8 12.5 5.3 July 2.3 6.6 9.0 7.0 4.8 12.4 5.4 August 3.7 6.4 9.0 6.9 4.5 12.5 5.6 September 6.4 9.0 Source: Central Bank of Kenya 58 October 2019 | Edition No. 20 Statistical Tables Table 19: Money aggregate (Growth rate y-o-y) Year Growth rates (yoy) Money supply, M1 Money supply, M2 Money supply, M3 Reserve money January 10.9 10.8 11.1 9.1 February 9.9 10.0 9.3 9.2 March 10.9 10.7 11.2 16.1 April 10.6 9.9 9.5 9.0 May 12.8 9.8 8.6 7.6 June 13.4 9.2 8.1 4.9 2016 July 9.4 7.8 6.9 4.3 August 9.5 6.9 6.8 6.8 September 26.1 8.8 8.0 4.3 October 24.3 6.8 6.8 -7.4 November 25.3 6.2 6.2 0.5 December 28.1 4.8 3.7 4.8 January 21.9 5.3 5.2 5.1 February 23.7 4.5 5.4 2.9 March 22.1 5.7 6.4 3.2 April 23.6 6.3 7.1 9.0 May 21.8 6.2 6.7 5.2 June 22.5 5.4 6.0 2.9 2017 July 24.6 7.5 8.3 5.0 August 22.5 7.5 7.7 7.7 September 11.6 7.5 7.7 8.1 October 9.5 7.0 7.9 3.8 November 7.8 7.4 7.8 6.2 December 6.7 7.5 8.9 6.7 January 7.2 8.9 8.8 8.3 February 7.6 9.0 7.9 6.3 March 3.5 6.2 5.9 0.8 April 3.2 6.0 5.5 2.7 May 3.1 6.5 7.5 5.5 June 2.5 8.1 10.4 7.4 2018 July 3.9 8.4 10.1 2.1 August 3.0 7.2 9.1 6.6 September 0.6 6.2 8.5 6.0 October 3.8 7.6 9.1 7.4 November 2.4 6.5 8.4 9.0 December 6.6 8.0 10.1 12.1 January 7.4 8.4 10.5 5.4 February 5.6 7.3 10.3 4.7 March 11.7 10.8 12.5 9.1 April 6.8 8.7 10.7 8.3 2019 May 6.7 8.3 8.7 12.1 June 10.5 9.8 9.2 2.5 July 5.3 6.9 7.0 -1.2 August 6.0 6.1 6.5 -6.5 Source: Central Bank of Kenya and World Bank October 2019 | Edition No. 20 59 Statistical Tables Table 20: Coffee production and exports Exports value Year Month Production MT Price Ksh/Kg Exports MT Ksh Million January 3,432 462 2,449 1,184 February 5,220 486 3,277 1,636 March 6,835 437 4,169 2,206 April 4,513 340 4,804 2,540 May 4,735 263 4,814 2,170 June 1,747 268 4,983 2,369 2016 July 569 324 3,987 1,798 August 3,723 431 3,719 1,637 September 3,284 437 3,173 1,399 October 1,573 410 3,116 1,489 November 2,374 468 3,929 1,691 December 1,666 514 2,886 1,252 January 5,190 590 3,214 1,553 February 6,081 606 3,868 2,094 March 5,460 507 5,447 3,231 April 4,563 299 4,201 2,698 May 1,639 276 5,424 3,117 June - - 4,443 2,501 2017 July 762 420 3,598 1,971 August 2,319 443 2,649 1,311 September 2,465 457 3,134 1,516 October 1,619 409 2,335 1,121 November 2,310 419 3,196 1,566 December 1,320 453 1,955 775 January 5,112 527 2,509 1,286 February 5,832 577 2,834 1,612 March 4,913 478 3,936 2,237 April 4,194 305 4,550 2,822 May 4,620 217 5,573 3,209 June - - 4,649 2,664 2018 July 1,221 357 4,683 2,457 August 2,235 337 2,973 1,547 September 2,299 289 2,520 1,141 October 2,493 321 3,521 1,467 November 2,334 368 4,619 1,730 December 1,577 404 2,312 921 January 4,167 453 3,469 1,499 February 5,724 449 4,567 1,903 March 4,057 298 4,351 2,256 April 5,307 203 4,552 2,501 2019 May 4,084 200 5,490 2,700 June 2,021 192 4,549 1,964 July 672 197 5,115 1,713 August 1,647 217 Source: Kenya National Bureau of Statistics 60 October 2019 | Edition No. 20 Statistical Tables Table 21: Tea production and exports Exports value Year Month Production MT Price Ksh/Kg Exports MT Ksh Million January 50,308 279 36,575 11,013 February 43,969 253 43,292 12,200 March 45,330 234 37,571 9,887 April 37,571 214 39,313 9,517 May 36,573 223 44,901 10,658 June 35,603 243 52,175 12,613 2016 July 29,285 246 42,751 10,679 August 29,462 234 39,673 9,993 September 36,785 236 33,528 8,454 October 41,342 243 29,656 7,548 November 39,903 273 41,138 11,123 December 45,103 273 39,396 10,811 January 32,991 316 46,434 14,072 February 22,605 317 33,898 10,880 March 34,498 300 33,662 10,693 April 31,458 297 32,091 9,991 May 38,822 304 39,329 12,354 June 40,538 325 42,370 13,485 2017 July 31,565 310 41,437 13,442 August 32,693 300 29,628 9,269 September 38,386 305 43,469 13,570 October 43,420 316 41,173 13,147 November 45,374 309 39,128 12,713 December 47,507 285 44,413 13,634 January 40,834 304 48,447 14,964 February 27,939 302 47,357 14,657 March 30,987 284 34,488 10,471 April 44,580 268 33,565 9,830 May 43,356 263 42,533 11,703 June 43,299 257 45,182 12,463 2018 July 35,278 251 45,242 12,226 August 37,433 241 38,023 9,919 September 42,531 243 40,268 10,479 October 49,284 244 43,894 11,327 November 45,649 242 44,108 11,015 December 51,830 236 38,681 9,781 January 48,386 234 48,623 11,831 February 31,445 216 41,027 9,638 March 26,462 214 42,457 9,910 2019 April 26,131 228 36,884 8,631 May 37,759 242 36,994 9,293 June 42,425 219 29,355 7,154 July 31,458 205 33,657 7,788 Source: Kenya National Bureau of Statistics October 2019 | Edition No. 20 61 Statistical Tables Table 22: Horticulture Exports Exports value Year Month Exports MT Ksh. Million January 20,160 10,927 February 22,337 10,151 March 24,314 11,140 April 25,931 8,611 May 21,260 7,004 June 20,157 10,293 2016 July 17,981 5,577 August 19,650 7,293 September 20,924 6,659 October 23,327 8,312 November 22,772 7,641 December 22,294 7,906 January 27,045 11,559 February 27,461 10,942 March 27,892 9,094 April 25,658 8,977 May 30,549 10,292 June 26,271 9,395 2017 July 22,179 8,660 August 23,357 9,237 September 23,818 8,962 October 24,337 9,059 November 21,676 8,275 December 23,905 10,871 January 27,131 14,899 February 29,603 16,457 March 32,994 12,617 April 29,654 12,875 May 27,657 14,557 June 21,513 9,639 2018 July 21,237 7,734 August 27,054 15,121 September 28,992 11,857 October 28,396 12,041 November 26,259 15,001 December 22,198 11,913 January 28,390 12,951 February 33,180 14,020 March 33,751 12,446 April 30,935 13,674 2019 May 29,311 12,318 June 24,399 11,086 July 24,839 9,481 August 24,320 11,150 Source: Kenya National Bureau of Statistics 62 October 2019 | Edition No. 20 Statistical Tables Table 23: Leading Economic Indicators year to date growth rates (Exports MT, Percent) Year Month Horticulture Coffee Tea January 11.0 -13.9 -10.7 February 9.6 0.0 -2.7 March 11.3 -1.2 -0.3 April 13.9 5.2 7.4 May 13.3 6.3 16.5 June 14.2 8.5 21.5 2016 July 12.8 7.5 23.8 August 13.7 5.6 25.8 September 9.4 4.3 22.9 October 8.9 0.5 17.1 November 9.6 3.3 16.6 December 9.7 3.9 14.1 January 34.1 31.2 27.0 February 28.3 23.7 0.6 March 23.3 26.6 -2.9 April 16.5 13.8 -6.8 May 21.6 13.5 -8.1 June 22.9 8.6 -10.3 2017 July 22.9 6.0 -9.2 August 22.5 2.0 -11.1 September 21.5 1.7 -7.4 October 19.7 -0.5 -4.0 November 17.3 -2.1 -4.1 December 16.5 -4.1 -2.7 January 0.3 -21.9 4.3 February 4.1 -24.5 19.3 March 8.9 -25.9 14.3 April 10.5 -17.3 12.2 May 6.1 -12.4 11.3 June 2.2 -9.6 10.4 2018 July 1.5 -4.8 10.2 August 3.1 -3.5 12.0 September 5.0 -4.9 9.6 October 6.1 -1.5 9.3 November 7.2 2.1 9.6 December 6.1 2.8 7.4 January 4.6 38.3 0.4 February 8.5 50.4 -6.4 March 6.2 33.5 1.4 April 5.8 22.5 3.1 2019 May 5.8 15.6 -0.2 June 6.8 12.2 -6.5 July 7.9 11.7 -9.4 August 1.2 Source: World Bank, based on data from Kenya National Bureau of Statistics October 2019 | Edition No. 20 63 Statistical Tables Table 24: Local Electricity Generation by Source Hydro KWh Geo-thermal Thermal KWh Wind KWh Total KWh Year Month Million KWh Million Million Million Million January 322 392 93 808 February 297 392 95 784 March 335 383 112 830 April 303 394 102 800 May 334 403 92 830 June 348 342 113 803 2016 July 337 393 110 842 August 364 345 138 850 September 349 335 137 824 October 357 364 135 862 November 315 369 158 848 December 299 371 158 836 January 252 380 197 7.0 837 February 214 354 182 7.5 758 March 234 388 230 6.3 858 April 212 381 223 6.6 822 May 229 394 224 3.5 849 June 180 376 274 3.1 834 2017 July 193 402 271 1.5 867 August 251 415 159 3.3 829 September 239 403 213 3.6 859 October 217 416 224 4.3 861 November 305 411 153 7.1 877 December 250 436 184 7.3 879 January 223 430 242 3 900 February 193 387 249 7 837 March 248 448 202 4 903 April 317 428 139 3 887 May 386 447 83 2 918 June 401 430 82 1 914 2018 July 420 438 87 2 947 August 417 427 117 3 964 September 392 440 85 7 925 October 365 432 87 77 962 November 340 398 80 133 957 December 283 423 92 133 939 January 279 417 114 148 966 February 254 374 99 146 880 March 283 445 99 144 979 April 192 398 181 142 921 2019 May 243 427 110 164 952 June 272 413 146 92 932 July 269 440 133 125 975 August 251 425 132 151 968 Source: Kenya National Bureau of Statistics 64 October 2019 | Edition No. 20 Statistical Tables Table 25: Soft drinks, sugar, galvanized sheets and cement production Soft drinks litres Galvanized sheets Year Month Sugar MT Cement MT (thousands) MT January 50,502 41,348 21,330 533,490 February 45,237 41,440 20,102 531,813 March 58,038 48,865 20,120 541,438 April 44,429 42,148 23,109 568,253 May 43,189 36,874 21,980 585,929 June 39,191 36,202 20,180 547,238 2016 July 42,393 32,158 18,320 575,193 August 39,331 38,508 24,190 591,612 September 48,884 40,291 21,045 528,494 October 46,131 43,203 18,328 573,034 November 41,877 40,141 19,143 584,780 December 52,185 49,966 19,431 545,956 January 50,409 53,071 26,230 565,440 February 43,353 49,094 22,994 491,307 March 50,623 42,238 22,574 570,522 April 46,399 26,230 23,225 535,061 May 40,742 15,246 23,081 482,762 June 45,875 16,113 15,424 513,313 2017 July 41,980 17,882 22,640 553,631 August 41,217 10,892 15,296 451,651 September 40,221 21,649 24,188 498,167 October 45,275 32,296 21,312 498,374 November 45,073 43,175 24,357 483,956 December 66,378 49,240 21,438 518,410 January 52,062 62,819 23,919 494,709 February 49,685 53,833 21,890 490,020 March 52,580 49,148 22,048 476,730 April 45,690 36,682 21,434 474,740 May 41,482 28,933 22,271 452,034 June 44,827 28,320 21,434 454,322 2018 July 43,725 30,105 23,252 465,575 August 48,795 35,646 22,630 473,861 September 45,956 37,652 23,509 460,546 October 46,546 45,324 23,906 470,524 November 50,201 38,768 22,877 460,967 December 54,021 38,268 21266 461,922 January 52,062 53,060 25390 485178 February 50,806 46,139 25480 470146 March 51,419 45,418 24451 507037 April 54,515 34,521 23198 503722 2019 May 51,210 35,257 22480 486903 June 48,736 28,544 24663 481985 July 25,097 499945 August 32,705 Source: Kenya National Bureau of Statistics October 2019 | Edition No. 20 65 Statistical Tables Table 26: Tourism arrivals Year Month JKIA MIA TOTAL January 65,431 9,407 74,838 February 62,856 9,983 72,839 March 49,996 8,551 58,547 April 51,311 3,869 55,180 May 59,294 3,578 62,872 June 64,451 4,182 68,633 2016 July 81,729 7,832 89,561 August 87,141 9,817 96,958 September 67,249 8,381 75,630 October 63,229 9,015 72,244 November 61,224 7,990 69,214 December 67,602 10,267 77,869 January 67,876 11,482 79,358 February 62,659 7,809 70,468 March 65,095 8,406 73,501 April 63,842 4,128 67,970 May 65,711 2,678 68,389 June 75,049 5,072 80,121 2017 July 97,955 7,284 105,239 August 79,053 10,729 89,782 September 78,329 9,111 87,440 October 56,034 7,557 63,591 November 61,617 10,956 72,573 December 90,745 15,117 105,862 January 105,262 14,533 119,795 February 98,532 12,792 111,324 March 100,441 11,024 111,465 April 94,236 5,205 99,441 May 93,730 4,735 98,465 June 114,097 5,157 119,254 2018 July 141,763 9,025 150,788 August 145,231 9,589 154,820 September 114,539 9,916 124,455 October 115,597 9,343 124,940 November 103,229 8,391 111,620 December 115,856 18,403 134,259 January 112,460 15,658 128,118 February 107,060 12,864 119,924 March 94,632 20,388 115,020 April 102,981 4,744 107,725 2019 May 98,081 3,572 101,653 June 121,484 6,615 128,099 July 149,994 8,520 158,514 August 148,816 10,988 159,804 Source: Kenya National Bureau of Statistics Note: JKIA (Jomo Kenyatta International Airport, MIA (Moi International Airport) 66 October 2019 | Edition No. 20 Statistical Tables Table 27: New Vehicle registration All body types Year Month (numbers) January 14,652 February 12,771 March 10,280 April 13,699 May 11,855 June 22,428 2016 July 23,442 August 18,288 September 18,527 October 13,018 November 27,286 December 27,431 January 23,889 February 20,748 March 27,720 April 23,074 May 24,720 June 24,509 2017 July 29,346 August 22,422 September 21,137 October 18,889 November 22,954 December 23,264 January 23,676 February 24,123 March 23,290 April 21,920 May 23,729 June 21,011 2018 July 24,232 August 28,649 September 23,134 October 28,466 November 27,713 December 26,991 Source: Kenya National Bureau of Statistics October 2019 | Edition No. 20 67