Africa Market Update - April 2015

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MARKET UPDATE – AFRICA | March 2015 01. Kenya 2 | StratLink Africa Ltd. www.stratlinkglobal.com
MARKET UPDATE – AFRICA | March 2015 POLITICAL OUTLOOK Wanton Corruption: Blight on Kenya’s Profile Kenya’s institutional and governance reform profile is confronting headwinds after it emerged, from the country’s top anti-graft watchdog, that a number of state officers have been involved in misappropriation of public funds. Further, suspension of the Parliamentary Public Accounts Committee’s sittings over alleged corrupt dealings by members with a view to influencing the outcome of a matter under investigation comes as a blow to Kenya’s war on corruption. Allegations of corruption are also reported to have marred parliament’s Agricultural Committee’s investigation of the state of sugar manufacturing company, Mumias. Whereas the President has taken bold steps to purge the government of corruption in the recent past, only decisive action going forward will help tame pilferage of resources from state coffers. Corruption: Undermining Optimal Resource Allocation In the last decade, Kenya has been on an aggressive reform agenda that has played a critical role in improving investor perception of the economy. If left unaddressed, allegations of corruption against top watchdog bodies and state officers are bound to pour cold water on these efforts. Kenya is estimated to lose up to USD 750.0 Million 1 (1.4% of GDP 2 and twice the construction cost of the 50.0km Nairobi-Thika Superhighway) to corruption annually. Tanzania Experience: Development Partners Backlash In the last two quarters of 2014, alleged involvement of state officials in a corrupt deal to the tune of USD 124.0 million saw development partners withhold donor funding from Tanzania. This impacted the country’s risk profile negatively as it occasioned challenges in financing budget needs. Official Development Assistance as a ratio of Kenya’s annual budget stands at about 22.0%, having risen from 17.0% in 2009/10 3 and 1 Institute of Certified Public Accountants 2014 2 Gross Domestic Product 3 National Treasury Data, Official Development Statistics Data could pose similar risks if development partners take similar action as they did in Tanzania. University Attack Dwarfs September 2013 Westgate Siege Despite a period of relative calm, the April 02nd, 2015 Al Shabaab attack on a university in Garissa which is reported to have claimed 148 lives points at unmitigated fragility of the country’s security risk profile. Coming on the back of a shake-up in the top brass of the country’s security apparatus, the attack exposes institutional gaps in the anti-terror strategy which has been on the spot following recurrent incidences in 2014. The attack came barely a week after the British High Commission had issued a travel advisory highlighting risk in particular parts of the country, further raising questions BUSINESS ENVIRONMENT Standard Chartered Bank Touts Kenya Kenya is estimated to lose up to USD 750.0 Million (1.4% of GDP and twice the construction cost of the 50.0km Nairobi-Thika Superhighway) to corruption annually. Multinational, Standard Chartered Plc, has touted Kenya and Nigeria as the two countries in Africa presenting the best opportunities for business expansion in 2015. Coming barely one month since Kenya was ranked by Fortune Magazine amongst the seven economies best poised to succeed the BRICS as a growth frontier, it is likely to elevate further investor perception of the country. Nigeria’s Uncertainty Bodes Well for Kenya Uncertainty over Nigeria’s investment climate in the shortterm in view of the March 2015 election cycle and depressed oil prices is bound to prop Kenya further in investor consideration. Further, unlike Nigeria, Kenya has a much larger Middle-Class Population as % of Total Population Source: Africa Development Bank, StratLink Africa middle-class population 4 (a popular target market for investors eyeing frontier markets) as a proportion of the entire population. This suggests Kenya has higher potential for consumer demand compared to Nigeria in the medium to longterm thereby pitching it in more favourable sight. 4 The population that consumed between USD 2.0 and USD 20.0 per month www.stratlinkglobal.com StratLink Africa Ltd.| 3
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Africa Market Update - April 2015

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