1 kenya’s investment opportunities recent economic developments and the next steps: vision 2030...
TRANSCRIPT
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KENYA’S INVESTMENT KENYA’S INVESTMENT OPPORTUNITIESOPPORTUNITIES
RECENT ECONOMIC DEVELOPMENTS AND THE RECENT ECONOMIC DEVELOPMENTS AND THE
NEXT STEPS: VISION 2030NEXT STEPS: VISION 2030
By:By:
Hon. Amos KimunyaHon. Amos Kimunya
MINISTER FOR FINANCEMINISTER FOR FINANCE
[email protected]@treasury.go.ke
March 2007March 2007
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Format of PresentationFormat of PresentationRecalling the three ERS Pillars and progress under each of them;
Next Steps After The ERS: Vision 2030
Medium-Term Prospects Macro-framework Structural Reforms
Conclusion
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Recalling ERS ObjectivesRecalling ERS Objectives
Under the ERS, the Government Development Strategy is built around three pillars:Pillar I: Rapid Economic growth
underpinned by macro-economic stability;Pillar II: Enhancing equity and poverty
reduction; and Pillar III: Improving governance to support
the other two pillars of growth and poverty reduction
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Progress Under Pillar I: Recent Progress Under Pillar I: Recent Economic Performance Economic Performance
Significant progress has been achieved under each Pillar of the ERS, over the last 4-years.Let me start with the first pillar which focuses on macro-economic stability and rapid but sustainable economic growth.Prudent fiscal and monetary policies have resulted in: A steady decline in interest rates; A broadly stable underlying rate of inflation; and A strengthened shilling exchange rate.
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Progress Under Pillar I - Macro-Economic Progress Under Pillar I - Macro-Economic Variables: Inflation, interest, X-rateVariables: Inflation, interest, X-rate
Inflation and Interest Rates
3.33.7
5.5 5.6
4.45.1
8.4
1.5
8.0 8.1
6.6
5.6
-1.02.03.04.05.06.07.08.09.0
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
(In p
erce
nt)
Underlying Inflation 91-days T-Bill
Exchange Rate
79.5
76.0
79.8
73.173.9
70.0
64.0
66.0
68.0
70.0
72.074.0
76.0
78.0
80.0
82.0
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
(Ksh
s. p
er D
olla
r)
Exchange Rate
6
Progress Under Pillar I Cont.. Progress Under Pillar I Cont..
Reflecting this stable macro-environment, real GDP growth has
accelerated sharply
0.6
3.0
4.9
5.8 6.0
01234567
2002 2003 2004 2005 2006
(In p
erce
nt)
This has resulted in a marked increase in growth of per capita income from
minus 1.6% to plus 3.8%
0.8
2.7
3.6 3.8
-1.6
-2
-1
0
1
2
3
4
5
2002 2003 2004 2005 2006
(in p
erce
nt)
7
Progress Under Pillar I Cont.. Progress Under Pillar I Cont..
Growth in real GDP has been broad based: Agriculture production has
shown a steady improvement...
2.61.6
6.7
-3.0
-4
-2
0
2
4
6
8
2002 2003 2004 2005(in p
erce
nt)
...as has the manufacturing Sector .
0.1
6.0
4.55.0
0
1
2
3
4
5
6
7
2002 2003 2004 2005
(in p
erce
nt)
8
Progress Under Pillar I Cont.. Progress Under Pillar I Cont..
With lower interest rates, increased remittances, construction has picked
up substantially.
1.0
4.0
-1.9
7.2
-4
-2
0
2
4
6
8
2002 2003 2004 2005
(in p
erce
nt)
After dipping in 2003, the hotels and restaurants sector has recovered strongly.
4.7
-20.3
38.8
13.3
-30
-20
-10
0
10
20
30
40
50
2002 2003 2004 2005(in p
erce
nt)
9
Progress Under Pillar I Cont.. Progress Under Pillar I Cont..
The transport and communication sector shows significant momentum going
forward.
9.1
3.6
6.7
8.3
0
2
4
6
8
10
2002 2003 2004 2005
(in p
erce
nt)
The wholesale and retail trade sector also shows signs of sustained growth over the
medium-term
1.7
8.5
6.5
-2.5
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
2002 2003 2004 2005(in
per
cen
t)
10
Progress Under Pillar I Cont.. Progress Under Pillar I Cont..
Reflecting confidence in the economy, the NSE index had increased by over
350%-before the recent correction
1,351 1,363
2,738 2,946
3,973
5,642
-
1,000
2,000
3,000
4,000
5,000
6,000
2001 2002 2003 2004 2005 2006-Nov
(Jan
196
6=10
0)
As a result, market capitalization has increased by over 745%--or a
compounded rate of 53% a year.
86 112
318 306
462
727
0
100
200
300
400
500
600
700
800
2001 2002 2003 2004 2005 2006-Sept.
(Ksh
. b
n)
11
Progress Under Pillar I Cont.. Progress Under Pillar I Cont..
Reflecting fiscal discipline and low inflation, bank lending rates have
trended downwards
19.518.3
13.512.3
13.2
0
5
10
15
20
25
2001 2002 2003 2004 2005
(In
Per
cen
t)
After initially declining due to high lending rates, overall investment has picked up in line w ith lower
interest rates.
185174
160171
218
-
50
100
150
200
250
2001 2002 2003 2004 2005
(co
nst
ant
2001
pri
ces,
K
sh.m
n)
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Progress Under Pillar I —Balance of Progress Under Pillar I —Balance of Payments (Cont.)Payments (Cont.)
Total exports have almost doubled...
1,962
2,3222,530
2,994
3,3853,637
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
(in M
n. U
S$)
Coffee receipts are expected to have doubled by 2006/07
85 85 83
112
146
167
0
20
40
60
80
100
120
140
160
180
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
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Progress Under Pillar I Cont.. Progress Under Pillar I Cont..
The tea sector has experinced strong growth although adversley affected by
drought in early 2006
421 433 452
513
610643
0
100
200
300
400
500
600
700
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Horticultural exports have continued to perform well.
241
296
390425
454
504
0
100
200
300
400
500
600
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
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Progress Under Pillar I Cont.. Progress Under Pillar I Cont..
Reflecting the improved exports and capital inflows, international reserves
have more than doubled
1,1371,260
1,3991,587
2,3532,635
0
500
1,000
1,500
2,000
2,500
3,000
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
(US
$ m
illi
on
s)
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Progress Under Pillar I Cont.. Progress Under Pillar I Cont..
In sum over the last 4 years, most if not all key macro-economic indicators have moved in the right direction: Interest rates, exchange rates and inflation rates have
either declined or stabilized; while Real GDP and per capita income have increased, as have
international reserves and market capitalization.
Some have argued that the recent growth momentum is due to a change in the way GDP has been calculated. This cannot be supported by facts.A longer term perspective on growth, based on the same method of calculating GDP, shows that growth has indeed accelerated over the past 4 years.
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Growth Pillar—A Longer-term Growth Pillar—A Longer-term PerspectivePerspective
Average growth of real GDP over the 3-year period to end-2005 has more than doubled
compared with the earlier periods
1.9 1.8
4.5
0.0
1.0
2.0
3.0
4.0
5.0
1997-2002 2000-02 2003-05
Average Average Average
(in p
erce
nt)
This has implied that growth real GDP per capita, assuming a population growth of
2.2%, has turned from negative to positive2.3
-0.3 -0.4
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
1997-2002 2000-02 2003-05
Average Average Average
(in p
erce
nt)
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Growth (Cont..)-Agric/ManuGrowth (Cont..)-Agric/Manu
Average growth of agriculture production in 2003-05 has accelerated
compared with the immediate previous 3 years.
3.0
2.1
3.7
0.0
1.0
2.0
3.0
4.0
1997-2002 2000-02 2003-05
Average Average Average
(in p
ecen
t)
We have also seen a rapid growth in the manufacturing Sector
0.9
5.2
-0.2
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1997-2002 2000-02 2003-05
Average Average Average
(In p
erce
nt)
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Growth-Tourism/ConstructionGrowth-Tourism/Construction
Reflecting increased tourist arrivals, the hotels and restaurants sector has rebounded.
3.8
10.6
-3.7
-6.0-4.0
-2.00.0
2.04.0
6.08.0
10.012.0
1997-2002 2000-02 2003-05
Average Average Average
(in p
erce
nt)
Construction, which registered negative growth in the period 2000-02 has increased
sharply in line lower interest rates and increased confidence in the economy.
2.5
4.1
-1.2
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
1997-2002 2000-02 2003-05
Average Average Average
(in p
erce
nt)
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Growth-Trans/Commu/TradeGrowth-Trans/Commu/Trade
The transport and communication sector continue to register strong growth--the rapid growth in 2000-02 reflected the coming on
stream of Safaricom
5.0
9.7
6.2
0.0
2.0
4.0
6.0
8.0
10.0
12.0
1997-2002 2000-02 2003-05
Average Average Average
( in
perc
ent)
After decelarating in 2000-02, the wholesale retail trade sector has made a noticeable
turnaround.
1.60.9
5.5
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1997-2002 2000-02 2003-05
Average Average Average
(in p
erce
nt)
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Progress-Pillar II: Reforms for Progress-Pillar II: Reforms for Poverty Reduction--FiscalPoverty Reduction--Fiscal
Under the ERS’s Pillar II, fiscal reforms have focused on creating fiscal pace through tax and expenditure efficiencies in order to ensure expenditures:
are pro-poor –providing for increased spending on core-poverty programs, including increased funding under education, health and water provision
are pro-growth -ensuring ample resources are directed toward key priority sectors such as agriculture and infrastructure; and are
consistent with a sustainable increase in domestic debt and that government does not crowd-out the private sector by driving up interest rates.
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Progress-Pillar II: Reforms for Progress-Pillar II: Reforms for Poverty Reduction—Fiscal Cont..Poverty Reduction—Fiscal Cont..
Revenue collection has almost doubled despite a reduction in VAT
from 18% to 16% and lower EAC customs duties
198 211
255
290311
377
-
50
100
150
200
250
300
350
400
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
(in
Ksh
. bill
ion
s)
Domestically funded capital expenditure has increased almost six-
fold
10.9 12.8
21.2 22.6
40.5
58.5
-
10
20
30
40
50
60
70
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
(in
Ksh
. b
illi
on
s)
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Progress-Pillar II: Reforms for Progress-Pillar II: Reforms for Poverty Reduction—Fiscal Cont..Poverty Reduction—Fiscal Cont..
Including foreign financing, total Capex is set to increase by 3.8 times
26.3
34.738.3
44.8
63.6
100.9
0
20
40
60
80
100
120
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
(in K
sh. b
illio
ns)
89.5
10.5
87.7
12.3
87.3
12.7
86.3
13.7
84.5
15.5
78.7
21.3
0.0
20.0
40.0
60.0
80.0
100.0
(In p
erce
nt)
2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Changing shares of Recurrent and Capital Expenditures in total expenditure
Recurrent Expenditure Capital expenditures
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Progress-Pillar II: Reforms for Progress-Pillar II: Reforms for Poverty Reduction—Fiscal Cont..Poverty Reduction—Fiscal Cont..
Agricultural expenditures are now more than double what they were in 2001/02.
7.9
10.1
12.211.3
16.3
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
2001/02 2002/03 2003/04 2004/05 2005/06
(in
Ksh
. bill
ion
s)
Meanwhile, health expenditures are now 114 % higher per year, or more
than 2 times what they were in 2001/02.
15.2 14.015.3 15.6
32.6
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2001/02 2002/03 2003/04 2004/05 2005/06
(in
Ksh
. bill
ion
s)
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Progress-Pillar II: Structural Progress-Pillar II: Structural Reforms for Poverty ReductionReforms for Poverty Reduction
The strong rebound in growth of the agricultural sector has impacted positively on rural incomes where most of the poor Kenyans live.Reforms in the agriculture sector have included: Rehabilitating the rice irrigation schemes Enhancing the regulatory capacity of the Coffee Board to address
governance and encourage coffee production Restructuring the pyrethrum Board, the cotton and sugar sub-sectors,
resulting in strong rebound in output growth Restructuring the dairy industry –which resulted in 125% increase in milk
sold between 2001 and 2005 thus improving farmers’ earnings Improving governance in the cooperative sector thus making credit
accessible to farmers, improving farm productivity, output and income earnings
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Progress-Pillar II: Structural Progress-Pillar II: Structural Reforms for EquityReforms for Equity
Strengthened management of LATF to improve service delivery countrywide Increased disbursements from KShs.9.2 bn in FY00/01-
02/03 to KShs.14.2 bn in FY03/04-05/06 - a 52% growth
Introduced CDF for poverty reduction and regional developmentCDF increased from KShs.1.2 bn in FY03/04 to
KShs.10.0 bn in FY06/07. Each constituency now receives KShs.120 million of
devolved funds to implement poverty reducing developments and boost local rural economies.
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Progress-Pillar III: Governance Progress-Pillar III: Governance ReformsReforms
Reforms under governance and anti-corruption have aimed at: Improving efficiency in public service; and Creating an enabling environment for business development
Therefore, Government has: Introduced several pieces of legislation aimed at fighting corruption;
and enhancing public ethics, public financial management, public procurement and oversight on public finances
Taken administrative actions to reduce corruption in public sector Strengthened capacity for investigations and prosecutions Created anti-corruption awareness through education Privatized/restructured SOE to enhance, transparency, accountability
and efficiency As a show of his commitment to fight corruption, H.E. has subjected
himself to a review by his peers under the APRM
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THE NEXT STEPS: VISION 2030
We have accomplished what we set out to do under the ERS, and the challenge now is how to consolidate these gains and set the stage for much higher rates of growth.The Question then is – “What Next” and this is where Vision 2030 comes inThe Vision 2030 process was officially launched by H.E. late in 2006. It has been developed in such a way that: All Kenyans can identify with it; All Kenyans can believe in it; and All Kenyans can rally to it; and Therefore, it must be inclusive of Kenyans diverse cultures, religion,
races and geographic areas of interestFor these reasons, the Vision should be devoid of political and sectarian interests
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THE VISION 2030
A globally competitive and prosperous nation with a high quality of life by 2030
Overarching vision
Economic
To maintain a sustained economic
growth of 10% p.a over the
next 25 years
Social
A just and cohesive society
enjoying equitable social
development in a clean and secure
environment
Political
An issue-based, people-centered, result-oriented,
and accountable democratic
political system
Strategy
Plans and implement
ation
Vision
Strategy
Master Plan
Implementation
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A highly participative supervision being followed to develop the Vision
National Steering CommitteeMade up of NESC Members and Chaired by
H E the PresidentMeeting once every 4-6 weeks
Operations CommitteeMade up of Reps from the Private Sector & PSs from Key Ministries & Chaired by the
Head Of Public ServiceMeeting once every 3-4 weeks
Core/Technical TeamMade up of several Key mangers from the Public
sector & external experts as neededMeeting Continuously
Ministerial Vision 2030 CommitteesMade up of Approx 5-7 Top Ministerial
Officers & 5-7 relevant Ministerial Stakeholders & Chaired by PSs
Meeting as necessary
Exe
cuti
onE
xecu
tion
Supp
ort
Supp
ort
Dec
isio
n
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THE PROJECT APPROACH
Phase I High level diagnostic &
benchmarking:
•Understanding the implication of the vision and the key success factors to realise it.
•National & sector diagnostics to isolate key indicators for comparison with Kenya’s peers & aspirational Countries.
•Aim is to identify major barriers to national & sectoral devt & how to overcome them.
•Identify key sectors with possibilities of quick wins.
Phase II High level strategies:
•Devt of major objectives and priorities by key sectors based on their competitive advantage, unique competencies & possible inter-sectoral linkages for vision 2030.
•Followed by devt of strategies for each key sector based on a thorough analysis of the external environment as well as the internal capabilities of each.• Strategies able to move the country to the targets envisaged by Vision 2030.
Phase III Master plan & Communication:
•Devt of implementation plans incl activities, roles & responsibilities.
•Critical to detail resources needed to realize vision 2030 targets, a communication strategy for buy in & an M&E system with clear milestones for effective control of project.
•Last, piloting of consultants’ recommendations in a few sectors before full rolled out. The consultant will detail how to do this.
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Vision 2030 Growth Profile
Vision 2030: Possible Real GDP Growth Scenario
6.0 6.7 7.4 8.1 8.9 9.4 9.9 10.4
19.120.8 22.1 23.4
25.1 26.5 27.9 29.3
16.3 17.9 18.7 19.3 19.9 20.5 21.9 23.3
3.2 3.1 3.0 2.9 2.8 2.8 2.8 2.8-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2006 2007 2008 2009 2010 2011 2012 2013
(In p
erce
nt)
Real GDP Grow th (Vision 2030) Invesment GDP ratio
Domestic Savings ICOR
Real GDP Growth
1.9 1.8
4.5
6.17.0
10.4
-
2.0
4.0
6.0
8.0
10.0
12.0
1997-2002 2000-02 2003-05 2006-2010 2006-2010 2013
Average Average Average Average Average (V2030)
(in p
erce
nt)
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Medium Term Structural Reforms
Achieving the Vision 2030 growth targets will be underpinned by various structural reforms to increase Total Factor Productivity (TFP) in the following areas: Public expenditure management and public financial reforms to
enhance efficiency and effectiveness in use of resources Financial sector reforms to improve efficiency and enhance access
to credit for private sector dev. Private sector development aimed at improving business
environment and encourage private sector dev Privatization and restructuring of parastatals to enhance
accountability and efficiency in their operations Increased efficiency and effectiveness in public service delivery
—Kenya’s public sector reforms (performance contracting) have been recommended for an award by the UN.
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ConclusionConclusion
The Kenyan government has been successful in implementing the economic and structural reforms stipulated in the ERS.In terms of the way forward, we will : Sustain macro-economic stability and deepen structural
reforms in areas such as: Accelerate development of Infrastructure Reform the financial sector Reduce the cost of doing business Privatize/restructure public enterprises; and Develop ICT.
Creating a conducive business environment for both foreign and domestic investors will be critical to achieving the levels of investments required to achieve V2030 and the MDGs.
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Conclusion Cont..Conclusion Cont..
Investors, including especially Kenyans in the Investors, including especially Kenyans in the Diaspora, are therefore encouraged to take Diaspora, are therefore encouraged to take advantage of emerging investment opportunities in advantage of emerging investment opportunities in Kenya in the areas of:Kenya in the areas of: Agriculture and agro-processingAgriculture and agro-processing Manufacturing for export into the regionManufacturing for export into the region BPO/ICT developmentBPO/ICT development Banking and insuranceBanking and insurance Tourism development;Tourism development; Educational and health care provisionsEducational and health care provisions Infrastructure development, including roads construction, Infrastructure development, including roads construction,
energy development; port developments, among othersenergy development; port developments, among others
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THANK YOUTHANK YOU