What happened in the Kenyan business sector in 2015?
Analysts at FocusEconomics say that despite suffering a setback in its tourism sector during the first quarter of 2015, Kenya’s recorded economic growth ticked up in the second quarter of 2015. This is due to robust performances across several sectors, including construction, agriculture and financial services. Earlier in the year, the Kenyan government pledged to step up efforts to improve the business environment for the country’s position in the World Bank’s Ease of Doing Business Index for 2015.
According to FocusEconomics, although a tight monetary policy, currency weakness and a weakening external and fiscal position pose risks to a growing GDP, Kenya’s economy will likely pick up the pace in 2016 on an expansionary fiscal stance, infrastructure development and solid household spending. The panelists project a GDP growth of 6.0 percent for the country in 2016.
In 2015, Kenya’s business sector recorded some losses and gains, although they cannot all be featured here, these are a few business events you may have missed.
Minimum core capital increase
In June 2015, Kenya’s Treasury Cabinet Secretary Henry Rotich said the presence of many banks is hindering the government’s efforts to tame spiraling interest rates, which were choking private sector investments. In light of that, the country proposed a significant increase in the capital requirement for commercial banks in a bid to increase the financial sector’s competitiveness. Under the proposed re-capitalization programme, Kenyan lenders will be required to increase their shareholders’ funds to $20.21 million by December 2016, then $35.38 million by December 2017 and finally $50.54 million by December 2018. East African reported that many banks competing for a share of the deposits market increased the cost of funds, making it difficult for lenders to reduce the borrowing costs. “We expect mergers to happen and have a reasonable number of banks able to compete effectively and drive down interest rates,” Mr. Rotich said.
Following the 3 billion Kenyan Shillings profit Java House recorded in 2014, the coffee house franchise revealed plans to expand its reach across Nigeria, Tanzania, Ghana and Zambia earlier this year. The business decision had a lot to do with an increase in the demand for coffee. Java House is, however, not the only flourishing coffee endeavor in the country, in May 2015, coffee farms in the country were voted the best in the world. Daily Nation Kenya reported that the Rainforest Alliance released the detailed scores at its bi-annual “cupping for quality” event that featured 49 coffee samples from Colombia, Ethiopia, India, Kenya and Rwanda. Gachatha Coffee Factory with 1,086 farmers each with an average 200 coffee trees, scored 88.68 points. Gicherori Coffee Factory scored 85.25, Kamwangi Coffee Factory scored 85.25 and Ngerwe Coffee Factory scored 84.89, all coffee farms being indigenous to Kenya.
Kenyan shilling weakness
Due to the incessant terror attacks going on in Kenya at the time, the Kenyan media, in April 2015, reported that the Shilling dropped to its lowest since 2011, after the al-shabab attack on Garissa University, which left 147 people dead and several injured. According to mgafrica.com, the FTSE NSE Kenya 25 Index, the country’s benchmark stock gauge, decreased by 0.9 percent to 229.47, on April 2, the biggest one-day decline since March 3, and pared its gain this year to 6 percent. The Shilling reportedly weakened for a seventh day to 92.80 per dollar on the 3rd of April, when local markets were closed. It had declined 3.8 percent over the past six months and could drop to 94.4 over the next year. However, in May 2015, the Kenyan government revealed plans to prop up the shilling with International Monetary Fund (IMF) loans. Prior to this, the IMF had approved a $688.3 million emergency loan for Kenya, a one-year arrangement of 497.1 million US dollar Stand-By Arrangement and a 191.2 million US dollar Stand-By Credit Facility.
Kenya emerged third most improved on the World Bank Ease of Doing Business Report 2016
In October 2015, Kenya ranked 108 out of the 189 countries featured on the list. The country moved 28 positions down from position 136 in the previous year’s ranking. The World Bank reported that 47 economies in sub-Saharan Africa implemented certain policies that aided the improvement of the business sector in those countries. Kenya launched government service centers offering company pre-registration services in major towns, as a way to reduce the time required to start a business by 4 days. According to the report, the same effort took 54 days, ten years ago, but now, it takes just 26 days less than the regional average.
Insurance sector lost Sh324.7 million to fraudulent claims
A report released by the Insurance Fraud Investigation Unit (IFIU) indicated that the insurance sector lost Sh324.7 million to falsified insurance claims, the figure increased from a reported Sh102.7million in 2014. According to the IFIU head, Bridget Kanyai, theft by agents’ cases were observed to have been perpetrated by both General Life and Life Insurance Agents. The agents are alleged to have been entrusted with premiums by the policy holders but failed to remit the same to the insurance companies.
In July 2015, Kenya’s Westgate Mall was reopened for business. The mall had been shut down due to the mall attack perpetrated by Al-Shabaab militants in September 21, 2013. According to the Daily Mail, thousands of people turned up when the doors reopened on Saturday morning while stores and restaurants across the complex were crowded with patrons. Also, major western brands, including Subway, KFC and Converse, have outlets in the new mall along with Kenyan companies such as Nakumatt, a high-end supermarket chain. The new mall came prepared with extra security precautions like explosive detectors, luggage X-rays, scanners to check underneath cars, bollards to prevent car bombs and bullet-proof guard towers.
Global Entrepreneurship Summit 2015
We cannot mention the business sector without talking about the historic Global Entrepreneurship Summit which took place in Nairobi between the 25th and 26th of July, 2015. The event featured top business leaders and high level government officials including the President of the United States, Barack Obama. The summit, which has taken place in several countries prior to Kenya, is committed to fostering the spirit of entrepreneurship among individuals around the world. Here over 100 countries had the opportunity to network with each other and interact with officials from established start-ups. 1,500 entrepreneurs reportedly participated in the historic summit.
The Rise of Kenya’s most decorated entrepreneur
After four years of being an entrepreneur, Kelvin Macharia came into the consciousness of the world in 2015 as Kenya’s most decorated entrepreneur. He fights against car theft through Sunrise Tracking. The service offers innovative security solutions for both vehicles and buildings. Some of its products include car tracking, fleet management system, fuel management system, car alarm and CCTV surveillance services. Kelvin Macharia has been listed by Forbes among top 30 most promising entrepreneurs in Africa. He is also among Top 40 men Under 40 to watch in Kenya, according to Business Daily. He has also been recognized as East Africa regional winner in the SME sector of CEO Global’s Titans – Building Nations 2015-2016 Awards.
American Tyre Company, GoodYear in bribery scandal
In February 2015, the Daily Nation reported that the Securities and Exchange Commission (SEC) fined Treadsetters Tyres Limited in Kenya Sh136 million ($1.5 million). The fine came as a result of the bribes paid out by the management of the company between 2007 and 2011. The Daily Nation went further to state that the report implicates unnamed employees of the Armed Forces Canteen Organization, the Kenya Ports Authority, Nzoia Sugar Company, the Kenya Air Force, the East African Portland Cement Company, Telkom Kenya, Ministry of Roads and Ministry of State for Defence in the corruption scandal. The tyre firm was also accused of falsifying its books of accounts, financial records and internal regulations to make the payments, which contravened the US Foreign Corrupt Practices Act.
First phase of Garden City Mall sells out
In May 2015, Kenya opened the doors of the Garden City Mall, which is the first integrated residential, retail and office (mixed-use) development. The project which was developed by the United Kingdom based equity firm, Actis, offers over 400 apartments, duplexes & family villas, an international shopping mall, 60,000 square metres of office space, a modern business hotel and state-of-the-art medical centre. Garden City Village gives the best of all worlds: a lush, green escape from the urban hustle and bustle but with an array of entertainment and leisure activities at the mall. However, in September 2015, three men were arrested at Garden city with mall IEDs, the police handled the threat swiftly and there was no loss of life.
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