Analysis Report on Kenya From Business/Economic and Security/Political Perspectives

Analysis Country Report on Kenya From Business/Economic and Security/Political Perspectives
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Analysis Country Report on Kenya From Business/Economic and Security/Political Perspectives
Introduction
Over the last decade, Kenya, a country located in East Africa has witnessed significant economic and political strides that have resulted in sustained economic development, political stability, and social development. Nevertheless, inequality, poverty, climate change, corruption, weakening of the private sector, and increased economic vulnerabilities to both external and internal shocks remain key development issues impacting its growth (The World Bank, 2022a). The country has a population of more than 50 million and boasts a leading economy in Sub-Saharan Africa. According to the International Trade Administration (ITA) (2021), although Kenya’s economy is currently witnessing a slump, analysts predict a modest recovery in key sectors such as education, healthcare, construction, and information communication technology (ICT). On the trade statistics and economic indicators, the ITA perceives Kenya as a market-based economy and a logistic, financial, commercial, and economic hub of the East Africa region. The country also has a growing population of young, educated, and tech-savvy English-speaking populace. Besides, Kenya has continued to improve the ease of business operations and has a robust bilateral tie with the United States that promotes investment and trade. Kenya is notably the first Sub-Saharan African country to enter the Free Trade Agreement (FTA) negotiation with the U.S with bilateral trade between the two countries standing at $940 million in 2020 (ITA, 2021). Nevertheless, these figures were lower compared to the previous year of $1.1 billion before the Covid-19 pandemic (ITA, 2021). This analysis of the country Report on Kenya from a business/economic perspective provides details for foreign investors to be mindful of the current and future business instability and maintain strategic dexterity.
As one of the East African countries bordering Ethiopia, Somalia, and Sudan, the three countries historically known for multiple internal crises, Kenya’s security is under threat. There are ongoing tensions between Sudan and Egypt over the Nile water and the Ethiopian ambitious Grand Ethiopian Renaissance Dam project that is likely to result in a geopolitical war. Somalia, a country neighbouring Kenya to the east is also currently facing electoral impasse that would threaten Kenya’s decade of efforts to restore political stability in the area. The country has also been embroiled in a maritime boundary dispute with Kenya, an indication of fraying relationship between the duo. Kenya’s neighbour, South Sudan has frail governance and this is a pointer to an endemic instability in the region. Uganda, another Kenya’s neighbour to the west has perennially been battling with flawed elections with President Yoweri Museveni retaining the presidency since 1986 to date (Gavin, 2021). To the south of Kenya is Tanzania, which though a calm neighbour, the terrorist groups in norther Mozambique have penetrated her territory and this has raised fears over the security of the east African coast. Besides, the regional turmoil and sophisticated internal politics have particularly raised alarm among the country’s allies such as the United States that is a close security and economic partner. Political analysts have called for Washington to find ways of helping the country navigate through the security and political issues through sound leadership and deft diplomacy (Gavin, 2021). This Country Report on Kenya provides information about the country from the security and political perspectives and determine the overall safety of its citizens and visitors.
Kenya’s Economic and Business Overview
Kenya’s economic growth in 2019 hit an average of 5.7 percent placing Kenya the third fasted advancing economy in Sub-Saharan Africa after South Africa and Nigeria (Gov.UK, 2022). These results were realized with the country’s economic expansion partly due to positive confidence among investors, a stable business environment, and a resilient service industry. Since the COVID-19 pandemic, the country’s economy has demonstrated greater resilience with its economic growth in 2021 surpassing the pre-pandemic era. Kenya’s real gross domestic product (GDP) rose by 5.3 percent year-on-year during H1 2021 after contracting by 0.3 percent in 2020. These indicators were largely supported by industry rebounds, particularly in the service sector. Nevertheless, the country experienced a drop in agricultural output by 0.5 percent in H1 2021 after a robust performance in the previous year in part due to low rainfall. In terms of demand, recovery efforts in the country have been supported, thanks to the revival in private consumption (Gov.UK, 2022). This was against a backdrop of reviving household incomes and improving the levels of employment.
Kenya has maintained strong trade partnerships with the UK, US, and other countries around the world. As the country pursues its 2030 Vision, it has often looked to the UK as a resource center for expertise and investment (Embassy of the Republic of Kenya in Japan, 2022). The UK is also one of the country’s most important and largest international investors, with many British firms in Kenya counting as the largest taxpayers (Kenya Institute of Public Policy Research and Analysis (KIPPRA), 2020). It is estimated that Kenya is home to 150 British companies where more than 250,000 Kenyans have direct employment and this generates about GBP 1.4 billion or KES 210 billion (Gov.UK, 2022). These companies are spread across various industries, including agriculture, finance, infrastructure, and education, where they directly or indirectly contribute to the growth of Kenya’s economy. Ratified in 2021, the UK-Kenya Economic Partnership Agreement (EPA) has ensured that UK companies in the country continue the pre-Brexit duty-free access benefits to the British market to support economic growth and employment creation in Kenya. During the 4 quarters of 2021, trade between the two countries was GBP 1.1 billion and UK exports to Kenya were GBP 518 million with imports from Kenya recorded at GBP 557 million (Gov.UK, 2022). UK imports coffee, cocoa, tea, vegetables and fruits, crude vegetable and animal materials, mechanical power generators, and other miscellaneous products while Kenya imports from the UK products such as cars, mechanical power generators, pharmaceutical products, beverages, and paper.
The U.S-Kenya partnership has also been vibrant with the USAID partnering with the Kenyan government, the private sector and citizens in advancing economic growth. The United States is particularly partnering with Kenya in trade, agriculture, finance, and the energy sectors. Between 2010 and 2018, the USAID notes that Kenya was one of rapidly expanding economies in the entire Africa with a GDP of $95 billion, which is a growth of 5.9 percent (USAID,2022). These trade partnerships between Kenya and the UK and the US, as well as other countries have seen the country grow a strong economy in Sub-Saharan Africa after South Africa and Nigeria. Kenya has particularly had diplomatic relations with the United States since 1964 following its gaining of independence from the UK in 1963. The two countries have always enjoyed a cordial relationship particularly following a democratic transition in 2002 and the civil liberty improvements. In august 2018, the Kenya’s President Uhuru Muigai Kenyatta and his United States counterpart President Donald J. Trump elevated this relationship to a strategic partnership by establishing a corresponding annual strategic dialogue. Antony Blinken, the U.S Secretary of State travelled to the Kenya’s capital, Nairobi in November 2021 to hold the second U.S.-Kenya bilateral strategic dialogue that prioritized important pillars to enhance the Kenyans’ welfare. These involved economic travel, prosperity, and investment; democracy, civil security, and governance; defence cooperation; public health cooperation, and multilateral and regional issues (State.gov, 2022). These cooperation shows the breath of Kenya and the United States in bilateral issues.
Kenya has been battling with financing issues with the public debt surging up to 72 percent of the country’s GDP in 2020. This is a 61 percent increase from the previous year during the pre-pandemic period. However, the African Development Bank (AFDB) (AFDP, 2022) attributes this increase to the increased public investment in the country, the COVID-19 pandemic, and challenges related to debt management. According to the International Monetary Fund (IMF), Kenya is now considered a high credit risk country and addressing the debt vulnerabilities and emerging risks, which will require the country to institute growth reforms, refinance and restructure its debts, seek for concessional credit, and solicit for external financial aid. The adoption of growth-friendly reforms could involve revenue-related processes in improving tax compliance, formalizing its informal sector, widening its tax net through the review of the list of tax-exempt and zero-rated items, deepening its domestic and financial market in supporting both the public and private sector credit growth, and ensuring that the public expenditure reaches reach of its intended beneficiaries. The real GDP growth, real GDP per capital growth, CPI inflation, budget balance, and current account percentages between 2019 and 2022 are shown in Fig 1 below (AFDB, 2022). Nevertheless, the growth of Kenya’s economy is positive with prospects of growth by 5.9 percent in 2022. The rebound assumes that the country’s growth will normalize following the full reopening of the economy and the successful implementation of the Economic Recovery Strategy. Kenya has also capitalized on an expected improvement in external liquidity an...