Understanding the emerging economy of Kenya

Kenya is among Africa’ s emerging economies that present numerous opportunities in retail and distribution expansion.. In less than 10 years, seven Sub- Saharan Africa n countries including Kenya, Tanzania, Ethiopia, the Democratic Republic of Congo, Nigeria, Egypt and South Africa will be ho me to half of Africa’ s population. The World Bank ease of doing business…

Kenya is among Africa’s emerging economies that present numerous opportunities in retail and distribution expansion.

The country’s changing demographics and improved business environment are among factors contributing to increasing consumption. Continent-wide, this consumption is predicted to hit US$2.5 trillion by 2030.

In less than 10 years, seven Sub–Saharan African countries including Kenya, Tanzania, Ethiopia, the Democratic Republic of Congo (DRC), Nigeria, Egypt and South Africa will be home to half of Africa’s population. Of this, an estimated 43 per cent of Africans across the continent will be in the middle or upper classes.

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With rising incomes, there will be increased demand for goods and services which should encourage the introduction of products and services to these emerging economies.

Kenya offers lucrative opportunities for investment especially in production and delivery value chains. The best sectors to invest in include fast-moving consumer goods (FMCG), luxury goods and online retail or e-commerce.

In the FMCG sector, the advantage is that Kenyans are largely dependent on low-cost products with a short shelf life that are constantly in high demand. Thus, this sector presents an opportunity for existing brands to strengthen their consumer base by ensuring availability, reliability and expanded distribution.

The World Bank ease of doing business 2020 ratings saw Kenya move up five positions to 56 from 61 in 2019 out of the 190 countries on its list.

In comparison to its neighbours, the nation’s social and physical infrastructure is well–developed making the market-based economy with a governmentalized external trade system and a few state enterprises a prime destination for investors.

The country’s major industries are agriculture, mining, energy, tourism and financial services. Coming behind Nigeria and South Africa, Kenya was the third-largest economy in Sub-Saharan Africa in 2020.

Having suffered the consequences of the Covid-19 pandemic, and especially with the disastrous fall in tourism revenues, the International Monetary Fund (IMF) predicts in its latest estimates that the country’s economic growth will hit 7.6 per cent in 2021. However, this growth is subject to post-pandemic global economic recovery.

The World Bank notes that the country’s major development challenges remain poverty, inequality, climate change and the continued weak private sector investment. Kenya also remains vulnerable to internal and external economic shocks.

Kenya is among countries that have a relatively youthful population calling for investments in the demography which is a runway for economic take-off in the East African nation.

If the government finds the correct formula to harness the creativity, entrepreneurship and energy that young people have, it could be the opportunity that could create the emerging economy of Kenya especially with the effects of the Covid-19 pandemic.

The youth are an economic force that cannot be ignored since they can both create demand and the drive for goods and services, especially with the growing digital economy.

In addition, the youth population which remains a key component in growing the country’s economy should get favourable terms to accessing finance which will enable them to tap into investment opportunities that come up.

Kenya’s emerging economy is heavily dependent on accelerating manufacturing, food security, building affordable homes and affordable healthcare which can directly benefit young people since investments in these sectors have the ability to create multiplier jobs and opportunities for the burgeoning youth population.

There is a direct impact where creating jobs in manufacturing will result in a demand for food and housing while young families will automatically require healthcare services that can meet their needs.

Technology linkages

Enter the luxury goods sector.

As the economy grows, more Kenyans will get into the category of affluent or middle-class. Growing incomes will translate into higher demand for high-quality goods. With urbanization, there will be increased competition for formal retail centres leading to an increased market share for luxury goods.

To create jobs in Kenya’s emerging economy, the key connection is technology.

Kenya is hailed as Africa’s Silicon Savannah and an emerging economy should harness the myriad offerings of tech to meet the ever-changing demands in the country of 50 million. Kenya has been at the forefront of Africa’s emerging tech landscape and has rapidly attracted international business due to the economic potential in its innovative ICT sector.

Read: IMF Revises Africa’s Economic Growth Forecast

A motorbike courier. Kenya’s emerging economy will be driven by technological advances. [Photo/Digitally Fit Top]As one of the fastest-growing economies in Sub-Saharan Africa, Kenya has an ambitious plan to become an upper-middle-income country by 2030. The country’s urban population that sets trends is young and well-educated. This group of Kenyans is good at communicating their needs and thus dictating how their needs should be met.

The 2017 Africa Wealth Report noted that Kenyans were among the wealthiest people in the continent thus their purchasing power is much higher in comparison to other countries. This spending power means that the nation must increase the diversity of its industries as well as create strong trade links with neighbouring countries since Kenya is naturally a platform for foreign companies.

Kenya serves as the entry point to the larger 300 million-people East African market which places the country at a vantage point when it comes to determining how its emerging economy should turn out.

Agriculture enhancement

One of the areas the country must focus on is agriculture and its market systems.

The agricultural sector contributes approximately 33 per cent of Kenya’s Gross Domestic Product (GDP) and employs more than 40 per cent of the total population. In rural areas, 70 per cent of the population makes a living from the sector.

Over the years, agricultural productivity has stagnated and in some cases dwindled with value addition remaining limited. This has seen many smallholder farmers held down in a poverty cycle with limited access to competitive markets, finance and improved technology.

As an emerging economy, this East African nation should prioritise the agricultural sector to ensure enhanced agriculture-led economic growth.

Growing the small business

The reality is that many small and medium enterprises (SMEs) in Kenya do not easily access finance to help them grow. This means that most of these SMEs take a long time to grow from their initial stages.

With greater investment in SMEs, the country could reap the benefits of a greater economic boost by the majority youth population since adequate and timely funding could propel growth faster. This translates to financial institutions tapping into the emerging economy that Kenya will be even with the pandemic still slowing down economic activities in other sectors.

Getting the energy sector right

Energy remains key to any investment’s success and with increased supply and access to reliable, affordable, and sustainable electricity, the country’s emerging economy could thrive and help the nation make up for the losses caused by the pandemic.

Kenya’s power sector is one of the most developed in Sub-Saharan Africa, and with abundant renewable energy resources including geothermal, wind, and solar, the country’s economy is already primed for growth. Sustainable power is needed for strong economic growth and this has the potential to provide increased opportunities through improved private sector participation with reliable power.

So, what does Kenya’s emerging economy look like?

To know how the economic future of East Africa’s investment hub will look like even with the pandemic continuing, we need to understand that the key drivers of the economy are no longer what used to be before the advent of the internet.

Kenya has the world’s 14th-fastest mobile internet speed and with a mobile penetration of over 80 per cent, the country is better placed to shifting to what technological advances have to offer. This means that an economy of the future for this East African nation will be pegged on digital technology and its adoption into daily life.

The online retail or e-commerce sector is also expected to grow as incomes increase and with this, the demand for products online. Kenyans spend a good part of their days online with information and communications technologies (ICTs) providing new avenues for consumer spending and marketing. As purchasing power grows, increasing mobile phone and internet usage means that online retail and e-commerce offer an important market opportunity.

The futuristic economy for Kenya is likely to be less person-to-person contact but with more tech–ingrained product and service delivery. As such, any investor who wants to tap into the emerging economy for this nation should understand the digital consumption habits of Kenyans before launching any product or service.

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