Kenya Presented by MAJ Fergal OReilly MAJ Jason

Kenya Presented by MAJ Fergal O’Reilly MAJ Jason Farmer MAJ Gabe Austin NS 4301 17 AUG 2015 1

Outline • • Country Background Economic History Economic Data Social/Governance Data Vision 2030 Assessment Recommendations 2

Country Background • Official Name: Republic of Kenya • Population: 45, 925, 301 (0 -14 years: 41. 56% 15 -24 years: 18. 66%) • Ethnic Groups: Kikuyu 22%, Luhya 14%, Luo 13%, Kalenjin 12%, Kamba 11%, Kisii 6%, Meru 6%, other African 15%, non-African (Asian, European, and Arab) 1% • Languages: English (official), Kiswahili (official), numerous indigenous languages • Religions: Christian 82. 5% (Protestant 47. 4%, Catholic 23. 3%, other 11. 8%), Muslim 11. 1%, Traditionalists 1. 6%, other 1. 7%, none 2. 4%, unspecified 0. 7% (2009 census) • Government: Executive(President, Cabinet), Legislative (Bicameral Parliament), Judicial • Location: Eastern Africa, bordering the Indian Ocean, Ethiopia 867 km, Somalia 684 km, South Sudan 317 km, Tanzania 775 km, Uganda 814 km • Climate: varies from tropical along coast to arid in interior. • Terrain: low plains rise to central highlands bisected by Great Rift Valley; fertile plateau in west. 3 • Natural Hazards: recurring drought; flooding during rainy seasons

Political Economic History I • • • • 600 – 1830’s: Early Arab trade settlements on coastal area. 1895: Formation of British East African Protectorate. 1920: Crown colony of Kenya established - administered by a British governor. 1944: Kenyan African Union (KAU) formed to campaign for African independence w/ Jomo Kenyatta as leader. 1952 – 1956: Mau uprising. British official death toll - Kenyans: 11, 000 – Kenyan Human Rights commission death toll: 90, 000. Up to 160, 000 detained for years in camps. 1963: Independence - Jomo Kenyatta as prime minister. 1964: Republic of Kenya formed. Kenyatta becomes president. Odinga as vice-president /early rapid economic growth through public investment, encouragement of smallholder agricultural production, and incentives for private (often foreign) industrial investment. 1963 to 1973: Gross domestic product (GDP) grew at an annual average of 6. 6% w/agricultural production growth at 4. 7% annually. 1969: Political unrest - Assassination of government minister Tom Mboya sparks ethnic unrest. KPU banned and Odinga arrested. 1974: Daniel arap Moi succeeds Kenyatta as president, stays in office until 2002 1980 s and 1990 s: Economic potential far below potential 1982: Kenya officially declared a one-party state by National Assembly. 1987: Opposition groups suppressed. International criticism of political arrests and human rights abuses. 4

Political Economic History II • 1991: Forum for the Restoration of Democracy (Ford) formed by six opposition leaders, including Odinga. Party outlawed and members arrested resulting in creditors suspending aid to Kenya amid fierce international condemnation / Ruling party KANU agrees to introduce a multi-party political system / Approximately 2, 000 people killed in tribal conflict in the west of the country / Multi-party elections. Moi and Kanu win strong majority. • 1991 to 1993: Kenya has its worst economic performance since independence / Growth in GDP stagnates and agricultural production shrank at an annual rate of 3. 9% / Inflation reaches a record 100% in August 1993. • mid-1990 s: Government implements economic reform measures to stabilize the economy and restore sustainable growth lifting nearly all administrative controls on producer and retail prices, imports, foreign exchange, and grain marketing / The economy grew by an annual average of only 1. 5% between 1997 and 2002, which was below the population growth estimated at 2. 5% per annum, leading to a decline in per capita incomes / The poor economic performance was largely due to inappropriate agricultural, land, and industrial policies compounded by poor international terms of trade and governance weaknesses / Increased government intrusion into the private sector and import substitution policies made the manufacturing sector uncompetitive. • 1997: Demonstrations call for democratic reform. World Bank withholds disbursement of $5 bn in structural adjustment credit / Governance issues result in International Monetary Fund (IMF) and World Bank suspending support in 1997 / Moi wins again in widely-criticized elections. • 1998: Al-Qaeda operatives bomb the US embassy in Nairobi killing 224 people and injuring thousands. 5

Political Economic History III • 1999: Moi appoints opposition leader Richard Leakey to head government drive against corruption. • 2001: Leakey appears in court to face charges of abuse of power and perverting the course of justice / International Monetary Fund (IMF) and World Bank suspend support again due to governance issues / Ethnic tensions and riots in Nairobi's Kibera slum district. • 2002 Al-Qaeda terror attack on Israeli-owned hotel near Mombasa kills 10 Kenyans and injures three Israelis. A simultaneous rocket attack on an Israeli airliner fails / Elections. Kibaki wins a landslide victory, ending Daniel arap Moi's 24 -year rule and Kanu's four decades in power. • 2003 -2007 Government begins ambitious economic reform program and resumes cooperation with the World Bank and the IMF. There was some movement to reduce corruption in 2003, but the government did not sustain the momentum. Economic growth began to recover with real GDP growth registering 2. 8% in 2003, 4. 3% in 2004, 5. 8% in 2005, 6. 1% in 2006, and 7. 0% in 2007 / Government bill proposes anti-corruption commission International Monetary Fund (IMF) resumes lending after three-year gap, citing anti-corruption measures / Moi granted immunity from prosecution on corruption charges. • 2005 Corruption takes center stage when it is claimed that graft has cost Kenya $1 bn under Kibaki / Parliament approves a draft constitution after days of violent protests in Nairobi over aspects of the draft which demonstrators say leaves too much power to in the president's hands. 6

Political Economic History IV • 2005: Voters reject a proposed new constitution in what is seen as a protest against President Kibaki. The president replaces his cabinet; some nominees reject their appointments. • 2006: Beginning of year - drought in North leaves four million people needing food aid / President Kibaki unveils the 2030 development plan / High level government corruption scandals / China begins prospecting for oil off Kenyan coast / End of year - Regional flooding renders thousands homeless. Some 100, 000 Somali refugees cut off by floodwaters in the north-east are supplied by air drops. • 2007: Common Market for Eastern and Southern Africa (COMESA) summit endorses move to adopt a COMESA customs union / Ethnic based violence after disputed presidential election - 1, 500 die. • 2008: Violence and unrest results in significant downward economic effects which are compounded by the drought and the global financial crisis - growth down to less than 2% / The government and opposition come to a power-sharing agreement / Parastatals Kenya Electricity Generating Company (Ken. Gen), Telkom Kenya, and Kenya Re-Insurance are privatized. 25% of Safaricom sold, reducing government share to 35%. • 2009: At least 10 million people, or one third of the population are in need of food aid / The IMF Board approves a disbursement of approximately $200 million under its Exogenous Shock Facility (ESF), which is designed to provide policy support and financial assistance to low-income countries facing exogenous but temporary shocks / The government says it will co-operate with the International Criminal Court (ICC) to try key suspects in post-election violence. 7

Political Economic History V • 2010: The EAC Common Market Protocol allows for the free movement of goods and services across the five member states / Remittances are $640 million; however, the actual number may be as high as $1 billion / US suspends $7 m of funding for free primary schools in Kenya until fraud allegations are investigated / Kenya joins its neighbors in forming a new East African Common Market, intended to integrate the region's economy / New constitution designed to limit the powers of the president and devolve power to the regions approved by referendum. • 2010: Tea is Kenya’s top export, accounting for $1. 15 billion. Fresh horticulture exports are $718 million, well short of the record high of $1. 12 billion in 2007, in part due to unfavorable global weather conditions that affected air transportation. Tourism rebounded from the drop experienced in 2008 after the post-election violence, bringing in $807 million in 2009, an increase of 19% from 2008. • 2010: the Kenyan Ministry of Tourism recorded nearly 1. 1 million tourists–an all-time high–and an 18% revenue growth in local currency terms. Africa is Kenya’s largest export market, followed by the European Union (EU). Kenya benefits significantly from the African Growth and Opportunity Act (AGOA), but the apparel industry is struggling to hold its ground against Asian competition. Approximately 90% of Kenya’s AGOA exports in 2010 were garments, and Kenya’s garment exports under AGOA totaled $202 million in 2010 (a slight increase over 2009 but still well below the 2006 level of $265 million). • 2011: The IMF approved a 3 -year, $508. 7 -million arrangement for Kenya under the Fund’s Extended Credit Facility / East Africa hit by worst drought in 60 years / Al Shabab raid Kenyan coastal resorts and a refugee camp, targeting foreigners / Kenyan troops enter Somalia to attack Al-Shabab who are accused of the kidnappings of foreigners on Kenyan soil. • 2012: International Criminal Court rules that several prominent Kenyan politicians must stand trial over the 2007 post-election violence / Oil discovered / Launch of Lamu port project which is to become South Sudan's oil export outlet / More than 30 injured in al-Shabab attack on a Nairobi shopping center / More than 100 people are killed in communal clashes over land resources - Coast Province / Troops rampage in the town of Garissa, near the Somali border, after gunmen shoot dead three Kenyan soldiers serving in the 8 African Union mission in Somalia.

Political Economic History VI • 2013: Uhuru Kenyatta, the son of Kenya's first president, wins presidential election with just over 50% of the vote. A challenge to the results by his main rival, Prime Minister Raila Odinga, is rejected by the Supreme Court / International Criminal Court (ICC) drops charges against Francis Muthaura, a co-accused of Mr Kenyatta, over the 2007 election violence / Deputy President William Ruto pleads not guilty at the International Criminal Court to crimes against humanity charges over the 2007 postelection violence / al-Shabab militants seize the Westgate shopping mall in Nairobi and kill more than 67 people, saying they want Kenya's military to pull out of Somalia. • 2014: Several countries issue travel warnings following several attacks by al-Shabab /48 people die after Islamist militants attack hotels and a police station in Mpeketoni, near the island resort of Lamu / Kenya revises the way it calculates growth, making the economy 25% bigger than previously thought – and the fourth biggest in sub. Saharan Africa / Prosecutors at the International Criminal Court drop charges against President Kenyatta over the 2007 post-election violence, citing insufficient evidence • 2015: Al-Shabab militants carry out a massacre at Garissa University College in northwest Kenya, killing 148 people / Four Kenyans and a Tanzanian charged with terrorism offences over the Al-Shabab Garissa attack / Barack Obama praises Kenya's progress as he make his first visit to his father's homeland. 9

Economic Headlines • • • Regional hub for trade and finance in East Africa Most industrialized country in East and Central Africa Natural entry point to the region and Transportation hub Market-based economy with a liberalized foreign trade policy Regionally important and relatively well diversified economy • Challenges: – – – High degree of ethnic diversity with varying access to land resources Corruption High reliance on external flows Economy is vulnerable to weather conditions Large informal sector Source: Rabobank; DKin. KY; CIA World Factbook 10

Econ Data: GDP I Growth in $Bn since independence 11

Econ Data: GDP II Growth in $Bn from 2006 -2015 12

Econ Data: GDP III GDP Annual Growth Rate 13

Econ Data: GDP IV GDP Compared in Region 2012: 6. 9%; 2013: 5. 7%; 2014: 5. 3%; 2015: 6. 5% (p) 14

Econ Data: Econ Structure • By GDP Sector: – Agriculture: 29. 3 % – Industry: 17. 7% – Services: 53% • Labor: – Agriculture: 75% – Industry and Services: 25% • Unemployment: – 2007: 12. 7% – 2011: 40% • Standard of Living: – GDP per Capita: $649 – GDP PPP: $2776 • Pop Below Poverty: – 45% Source: CIA World Factbook; tradingeconomics. com, 15

Econ Data: Trade Export • Main Export Partners: – – – – Uganda 13%, Tanzania 8. 9%, Netherlands 7. 1%, US 6. 6%, UK 6. 3%, UAE 5. 9%, Pakistan 4. 6%, Egypt 4. 1% Source: CIA World Factbook; tradingeconomics. com; Rabobank • Main Export Products: – – – Tea 20% horticultural products 19% Coffee 5% petroleum products 4% fish & fish preparations 1% cement 16

Econ Data: Trade Export • Main Import Partners: – – India 19. 9%, China 17. 8%, UAE 8. 8%, Japan 5% • Main Import Products: – – Source: CIA World Factbook; tradingeconomics. com; Rabobank Industrial supplies 30% Machinery & capital equipment 18% Transportation equipment 12% Food and Beverages 7% 17

Social/Governance Data I Human Development Index (rank) Source: UNDP; 147/187 18

Social/Governance Data I Human Development Index (rank) 147/187 United States South Africa Kenya Nigeria Tanzania & Uganda Ethiopia Niger Source: UNDP; 19

Social/Governance Data II Ease of Doing Business (rank) 136/189 15 th in Sub-Saharan Africa Source: World Bank Group; 20

Social/Governance Data III Global Competitiveness Index (rank) Source: WEF; 90/144 21

Social/Governance Data IV Corruption Perception Index (rank) Score: 25 36 th in Sub-Saharan Africa 145/175 Top 10 in Sub-Saharan Africa Source: Transparency. org; 22

Social/Governance Data V Press Freedom Index (rank) Source: World Press Freedom; Freedom house 100/180 23

Social/Governance Data VI Legatum Prosperity Index (rank) 109/142 Among Top 10 most improved in index Top 10 in Sub-Saharan Africa Source: Legatum Prosperity Index 2014 24

Social/Governance Data VI Legatum Prosperity Index (rank) Source: Legatum Prosperity Index 2014 109/142 25

Recent Developments I Non-Renewable Diversity Among 3 Nations with Advantages necessary for long-term growth without being penalized for short-term fall in raw materials prices. Source: Sunny in the East, Cloudy in the Center 26

Recent Developments II • Sound Macroeconomic Policy • New Constitution 2010 • Rebasing GDP 2014 – first East African country to move from low-income status to middle-income status • Eurobond 2014 – $2 Billion – Largest in SSA • Vision 2030 27

Kenya Vision 2030 The Vision: “To Create a Globally Competitive and Prosperous Nation with a High Quality of life by 2030” Projects: Flagship projects form the foundation of Medium-Term 5 year plans. • Road, infrastructure, and irrigation construction. • Building and deepening capital markets. • ICT infrastructure and backbone. • Policy reforms: land reform, human rights, judicial system, etc. Economic Tourism Agriculture Trade Manufacturing ICT Financial services Oil and Gas Social Education & Training Health Environment Population Gender Culture Political Constitutional & Legal Reforms Leadership, Ethics, & Integrity National Cohesion & Integration Legal Aid & Awareness Criminal Justice System Judicial Transformation “DEPLOYING WORLD CLASS INFRASTRUCTURE FACILITIES & SERVICES 28 The economic, social and political pillars of Kenya Vision 2030 are anchored on macroeconomic stability; continuity in governance reforms, enhanced equity and wealth creation opportunities for the poor. ”

Assessment I Ø 2 Five-year Medium Term Plans (MTP). Ø On paper, Vision 2030 address trouble areas from the Global Competitiveness Index. Ø 1 st MTP (2008 -2012): Ø Promote national reconciliation Ø Projects to repair damaged property Ø Assistance to Small Scale Business Ø IDP relocation Ø New constitution, increased school enrollment Ø Increased road, internet, and power generation capacity. Ø 2 d MTP (2013 -2017) increases and pace of KENYA GCI OVERscale TIME development through infrastructure development and emphasis 106 on priority 106 sectors. 102 Ø Stable environment, 99 macroeconomic 98 96 infrastructure 93 development, grow 90 88 manufacturing, agriculture, and service sectors. 2006 2007 2008 2009 2010 2011 2012 2013 2014 Ø Tourist resorts, irrigation, Ø Challenges remain. Kenya 29

Assessment II • Fundamental issues at the heart of Kenya’s political, social, and economic challenges stem from great divides along ethnic lines and a dynamic, volatile political landscape. Without equality, equal access to resources, education, and infrastructure development, lack of ethnic and spatial inclusion will suck the life from Kenya’s economy. – New Constitution and stronger democratic institutions – Devolution of government— 47 counties • • Corruption and difficulty of doing business Large informal sector reduces productivity and predictability, keeps wages low, and lowers government revenue. – Capture and formalize the informal sector—land reform, rule of law, judicial system. • Structural Twin Deficits (current account deficit and fiscal deficits) force reliance on external flows of capital and investment. – – – Import / Export Wage Bill Attempts to mitigate through increased FDI, remittances, and public-private partnerships. Budget deficits reduce funds available for spending on infrastructure and prevent the government from stimulating growth. Lower than expected performance of the Eurobond. May discourage investment. Source: 2014 Rabobank Country Report. Kenya Economic Report 2013. 30

Assessment III • Reliance on and sensitivity to rainfall patterns and climate variations – Affects output in agriculture, agro-processing industries, and energy production (hydroelectricity). – Higher prices for food and fuel = currency inflation. • Imports / Export Imbalance – Imports predominantly non-food industrial supplies and capital goods. – Exports predominantly food-based. – Recently, import growth has outstripped exports and caused deterioration in Kenya’s external trade balance. • T & T (Terrorism and Tourists) – Increasing number of attacks over time by al-Shabaab militants in Kenya negatively impact tourism sector. – Potential impact on nascent oil and gas industry. – Impacts on investment and investor perceptions of doing business in Kenya. • If government revenue drops because of downturns in tourism and agriculture sectors (terrorists and rain), then consequent inability to fund infrastructure projects will further stagnate growth and hinder rapid economic growth. Source: 2014 Rabobank Country Report. 31

Wait…. . I’ve got the answer… • Kenya is making many of the right decisions, but some fundamental, deep-rooted social, economic, and political issues have been holding it back since independence. • Good choices regarding manufacturing, agriculture, and governance are necessary to achieve the rapid economic growth of Vision 2030 – Increase participation in the economy • Rural: Build greater agricultural infrastructure; connect more of the 75% of population working in agriculture to the formal economy; provide wider ethnic access to land resources and political process • Urban: Formalize the informal economy; grow manufacturing jobs to provide employment for growing youth demographic – Increase productivity in (non-food) manufacturing sector – Decrease corruption 32

Questions? 33