Kenya: How Gulf investors can benefit from opportunities in Obama's African fatherland

US president Barack Obama’s recent visit to Kenya drew welcome attention for one of Africa’s emerging leaders as it strives to attract foreign direct investment, particularly from the Gulf.
Kenya: How Gulf investors can benefit from opportunities in Obama's African fatherland
By Courtney Trenwith
Sat 01 Aug 2015 02:41 PM

Driving to the Jomo Kenyatta International Airport in Nairobi, my Kenyan driver gestures out his right-side window and says: “That’s the stadium where Obama will be speaking tomorrow”.

Indeed, 60,000 Kenyans swarmed into the Kasarani Stadium on 25 July to hear US president Barack Obama address his father’s homeland. His two-day visit was front page news every day for more than a week prior, while American flags and posters of the president were adorned across the country — from rural villages to the chaotic streets and slums of Nairobi.

Such was the hype over the first visit of the black American president, your correspondent had to head to the airport five hours early, thanks to an ill-timed flight out that coincided with Obama flying in and the consequential roadblocks.

But Kenyans appeared only excited by the presence of their most famous kin. During the stadium speech, Obama praised Kenya for having “come so far in just my lifetime”, highlighting the fact Kenyans no longer needed to leave their native country to seek higher education, while it hosted for the first time the Global Entrepreneurship Summit, coinciding with his visit.

Kenya has the fourth-largest economy on the continent, elevated following a recalculation two years ago to take into account sectors such as communications and property, which saw its gross domestic product (GDP) increase by 25 percent.

The World Bank now considers Kenya as a middle-income country, rather than a low-income one, and the improved economic position has seen the country enjoy flourishing attention from investors, including from the Gulf.

“Increasingly, you see that companies now when they make a decision where they want to position their [African] headquarters it’s either South Africa, Nigeria or Kenya, period,” Cabinet Secretary for the Ministry of East African Affairs, Commerce and Tourism, Phyllis Jepkosgei Kandie, tells Arabian Business. “[The recalculation of the economy] gives us a huge advantage, both in terms of potential investors and our standing in Africa.”

Kenya’s GDP grew by an estimated 5.3 percent to $60.94bn in 2014, according to the African Development Bank. That compares to the continent’s largest economy, Nigeria, with a GDP of $568.5bn. Angola (which has a GDP of $131.4bn) is Africa’s third-largest economy.

Often referred to as the capital of the East African economy, Kenya is expected to grow at an even faster pace this year — between 6 percent and 6.5 percent — according to various economists, among the highest projected economic growth figures globally for 2015.

Kandie says the economy has been significantly boosted by Kenya’s membership in an East Africa bloc that also includes Tanzania, Uganda, Burundi and Rwanda.

“East Africa is one of the best integrated regional blocs in the world, growing at 6 percent, so it’s getting a lot of interest,” Kandie says. “We are investing in infrastructure in five countries, so our projects are huge.”

Those infrastructure projects — including an inter-country railway, roads, a new port, upgraded airports and hotels — are receiving particular interest from Gulf investors, Kandie says.

“[Gulf investors] will be very essential,” she says. “Obviously they have the financial capacity. Second, we have a history with the Middle East, [due to] our link with Oman and our history with her [Oman ruled Kenya’s coast during multiple periods between 1698 and 1887].

“Third, Kenya is only four hours away. Dubai is a transport hub and we’re also positioning Nairobi as a transport hub, so it’s very easy to use Nairobi or Kenya as a gateway to these other countries.”

Work on upgrading the railway line between Mombasa on the coast and Nairobi from narrow gauge to standard gauge has already started. The 610km link is expected to cost $3.8bn. It has been 90 percent funded by the Chinese government, a move that has attracted some concern over transparency of contracts.

The rail network is planned to extend to Uganda, Rwanda, Burundi, Tanzania and Ethiopia, helping to open up access to some of the world’s newest oil and gas discoveries and cut freight costs from 20 cents per metric tonne per kilometre to as little as 8 cents, according to the East African Community.

“We’re also seeing [The Democratic Republic of] Congo getting interested… so we’re getting a lot of traction in terms of interest,” Kandie says.

Kenya also is building 10,000km of new roads and a new port with connecting roads linking to Ethiopia and Sudan that will see it act as a gateway for  both nations' imports and exports.

An extension of Jomo Kenyatta International Airport — which had been struggling as the capital grew in regional importance — has increased capacity to 6 million passengers and is planned to more than treble to 20 million when it is completed. That also should help Kenya Airways, which has said its own expansion plans have been thwarted by airport congestion.

“This is the kind of investment that’s attracting investors from the Middle East,” Kandie says. “There’s a new transformation going on in East Africa, which the world is paying attention to, and Kenya has positioned itself as an entry point to all these other [East African] countries.”

The government also has established a one-stop investment centre to help facilitate ease of doing business, helping investors access facilities such as power, education, visas and licences.

“Increasingly, the government is focusing on facilitating new business into the region … [and] on improving the business environment,” Kandie says.

“Kenya has a huge business community; we’re not only catering for international business but our own businesses. We’re aware that expanding the market for businesses gives an advantage for investors to come to Kenya so we’re very active.”

Qatar has signed several long-term leases for agricultural land to improve its food security, and Kandie says Kenya is pushing itself as a key exporter to the Gulf.

Gulf investors also are keen to get a handle on Kenya’s tourism industry, one of its largest contributors to the country’s GDP.

Saudi hotelier Kingdom Hotel Investments led a consortium including Fairmont Hotels & Resorts that bought five properties for a reported $60m in 2005.

“We’re seeing interest [from Gulf investors] in hotels because if they come and invest in a chain of ten hotels to cater to their own tourists they’ll be in a better position to give a better experience for the [Gulf] tourist,” Kandie says.

Tourism accounts for a huge 12 percent of Kenya’s GDP, according to the World Travel and Tourism Council. But despite its still crucial contribution, the industry has suffered enormously in the past 18 months due to several terrorist attacks that have rattled the country’s security and seen tourist numbers dive by about 30 percent. The coast has been the most affected, with about 20,000 direct jobs cut, Kandie says. The sector directly employs a total of 250,000 people.

Mercy Omoro, the general manager of Mzima House at Diani Beach, the most southern coastal town affected by travel advisory warnings, says occupancy levels have shrunk to just 30 percent and rates have halved. Occupancy had been averaging 60 percent and reached 100 percent during the 2012 seasonal peak.

Now coastal hoteliers are relying on locals from Nairobi and neighbouring countries to fill the few beds being booked. Obama’s visit — nicely timed over a weekend — caused a spike in reservations.

“Obama coming here will show people that if a superpower can come to this country and be safe then everybody else can be safe,” Omoro says. “His presence here will be a  good push.

“Obama should be coming every month — let him just stay here,” she jokes.

But the reality is far from a joke and Omoro still lacks confidence for the rest of the year.

“A lot of people are saying we’re seeing it pick up but we’re not seeing the numbers. For August, September, October were 50-50 [about the prospects]; we should be sure by now,” she says.

“Most of our bookings are based on weddings. But it’s still not good, before we did two or three weddings per month. I haven't seen anyone say they have good numbers.”

In June, the UK revised its travel warning, removing Diani Beach and Mombasa from its no-go zone and Kandie says she is hoping other countries will follow suit.

“It’s the negative perceptions… Really, the reality is totally different and that’s a tragedy, which is why we’re going out of our way to run a global campaign to reverse that negative perception,” she says.

“The larger part of Kenya is safe; where we have a problem is near the border with Somalia but you don’t choose your neighbours. The government is working around the clock to ensure we give comfort or we change these negative perceptions.

“It’s not the first time [Kenya has had] trouble with these travel advisories, they always come and go. The only problem we had with this one is the length of time was a bit long, to the extent that we had huge job losses.”

Jobs, obviously, are crucial to the advancement of Kenya’s 40 million people, who generate an average GDP per capita of $1,340, placing the country in the lower end of the middle income bracket, according to the World Bank.

While most of the continent is emerging as a businessman’s dream, Kenya is among the countries leading the way in entrepreneurship.

“It’s a huge priority for the government,” Kandie says. “Compared to our neighbours, for example, we have a big business community that’s already there. They’re very engaging. The government, and specifically the president has made it his business to meet the private sector and ask them ‘what are the challenges they’re facing?’

“This has really helped because it means they’ve then been able to reduce a lot of barriers. For example it’s easy now to transport your goods from Mombasa all the way to Kampala [the capital of Uganda]. It used to take 21 days, now it takes four days, just from political will. Ministers meet the business community every month and the pressure is there, because we realise with all these markets we’re opening up, we [need to] engage the business community so we can facilitate them better, we need to understand what the issues are. We’re very much involved and very engaged; I think we can see the fruits of that effort.”

Kenya also is one of 26 African countries involved in the new Tripartite Free Trade Area (TFTA) — a treaty signed in June to create a free trade zone from Cairo to Cape Town, encompassing 600 million people and more than half of the continent’s GDP.

Establishing a common framework for preferential tariffs among member states, the treaty is intended to ease the flow of goods but it still requires the parliamentary approval of each country.

Kandie says Kenya is particularly well positioned to take advantage of the deal.

“We’re centrally located,” she explains. “Kenya is right across the equator; if there’s any company that comes to set up in Kenya, you have access to the north and the south, so that’s one big advantage.

“Number two, we are at the forefront in promoting investments in infrastructure and that will bring down the cost in doing business, not only in Kenya but in the whole region. There’s a whole corridor that we’re investing in infrastructure for, which will cater for about three or four countries. So I think Africa is in the right place right now and Kenya will be the right place to position your headquarters.

“But having said that, we’re willing to showcase East Africa as one destination, we have an East Africa community visa which allows potential investors to come in and visit the whole of East Africa. We’re looking at the whole community as a market, but Kenya as the entry point.”

Kandie says the East Africa bloc — revived in 2000 — has been particularly beneficial to the region’s economies. As well as a shared visa, the five countries have a common customs protocol and are working on a monetary union.

“It’s huge for us, we’ve seen a lot of traction in the past year; I think the world has been convinced it’s actually working,” Kandie says.

“I can say we’re confident, we’re doing the right thing, we’re seeing a lot of traction, especially for the US market. So I can say it’s really worked for us, better than if we’d marketed Kenya as 40 million people.”

But the US still has its reservations. Obama warned Kenya’s true prosperity would never be reached until the “cancer” of corruption was treated. Corruption was costing 250,000 jobs, he said, calling for high-profile prosecutions and for ordinary Kenyans to take a stand and quit their habit of paying bribes.

Transparency International ranks Kenya an embarrassingly low 145 out of 174 countries on its corruption perception index — behind the majority of Africa despite its economic advancement.

Kandie claims corruption fears have not affected investment in the country and insists the government is on top of the issue.

“It has not had any effect on the FDI; FDI is still coming into Kenya. The president [Uhuru Kenyatta] himself has tackled corruption head on. As we speak he has openly talked about supporting agencies that are expected to prosecute anybody that’s suspected of corruption and those cases are already in court, including very senior government officials,” she says.

Obama also called for other political and social reforms, such as a greater tolerance for minorities and women and girls.

But while encouraging Kenyans not to be “weighed down by the old ways” and traditions that “are holding you back”, Obama managed to inspire.

“You are poised to play a bigger role in this world,” he told the stadium audience. “Now is time for us to do the hard work of living up to that inheritance.”

There is no mistaking the fact that the atmosphere in Kenya — for citizens and investors alike — is hotting up.

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