Ticket to East Africa

An Expert's View about Business Environment in Kenya

Posted on: 30 Sep 2012

Kenya accounts for 40 per cent of the aggregate GDP of East Africa and one-third of the region’s total population. Some 38 million Kenyans also boast the highest per-capita GDP in that region, giving their country the economic heft and industrial reach to be East Africa’s largest economy.
While Kenya is not the most populous or the fastest-growing country in East Africa, its liberalised external trade system follows a distinctive British tradition of hands-off government. It certainly represents a trading market Hong Kong companies can ill-afford to ignore.
Notably, Kenya’s sizeable private sector has made it East Africa’s hub for financial, communication and distribution services, especially for the 140 million-strong East African Community (EAC).
For infrastructure, the Port of Mombasa, located in the southeast, is regarded as the most significant sea hub for goods moving in and out of East and Central Africa, especially for such landlocked countries as Ethiopia, the Democratic Republic of Congo, Rwanda, South Sudan and Uganda.
Jomo Kenyatta International Airport in the capital Nairobi is a regional air hub from which Kenya Airways flies to more than 40 destinations across the African continent, including daily flights to Guangzhou or Hong Kong via Bangkok.
A per-capita GDP of more than US$800 is a natural indicator of Kenya’s more established economic credentials in East Africa. It’s also an important yardstick for traders to ascertain the consumer potential in the country, where the use of consumer finance such as credit cards and other unsecured loans is not yet commonplace. Given the presence of a sizeable informal market, it is believed that actual purchasing power in Kenya is considerably higher than official figures.
Demographically, Kenya, similar to other African countries, is a young country with nearly 80 per cent of its population under the age of 35. On the back of growing incomes, Kenya is a potentially lucrative consumer market for Hong Kong companies, trading in a wide variety of products catering to the youth segment.

Accommodating Trade Regime
Serving as the trade hub for East and Central Africa, Kenya embraces an accommodating trade regime. With its open economy and steady growth, Kenya’s trading relationship with the world has strengthened in recent years.
The country’s external trade soared 51 per cent between 2007 and 2011 from US$13 billion to US$20 billion (despite a brief recessionary dip in 2009), indicating a compound annual growth rate of about 11 per cent, as well as a healthy trend in the face of a volatile global economy.
Imports surged by 55 per cent in the period 2007 to 2011, while exports grew by only 42 per cent. Kenya’s ready acceptance of imports, in particular those from the Chinese mainland, makes it attractive to Hong Kong traders. Hong Kong can also act as a platform for Kenyan exporters who seek to move up the value chain by branding and diversifying export markets to the mainland and other Asian countries.
As the region’s economic engine and a major access point to the sea for East and Central Africa, Kenya has been supplying its neighbours, including Uganda, Tanzania and Rwanda, with a wide variety of products ranging from food and beverages, to industrial supplies and consumer goods.
Given Kenya’s limited domestic production of consumer products, many of the items are re-exports from Asian suppliers. Kenya has a strong history with the United Kingdom, along with the European Union-African-Caribbean-Pacific Cotonou Agreement, and the subsequent European Union-East African Community Economic Partnership Agreement (EU-EAC EPA, also known as a Framework EPA). Europe, therefore, remains one of the country’s major export markets, with the UK and the Netherlands ranking high on its export roster.
The African Growth and Opportunity Act (AGOA) has also provided Kenya with preferential market access to the United States since 2000, making this one of the nation’s top-five export markets. As a member of the EAC and the Common Market for Eastern and Southern Africa, Kenya has duty-free access to 19 African markets, including Egypt.
In addition to exporting to the regional trading hub in the United Arab Emirates, Kenyan exporters are expanding their reach to such Asian markets as Pakistan and India, thanks partly to the strong local presence of Indian companies. China is not yet a key market for Kenyan exports, but it is the country’s number-one source of imports, surpassing India with year on-year growth of nearly 60 per cent in 2010.
Mega-infrastructure development projects fuelling imports of construction machinery are among the major underlying reasons for the speedy growth, while the supply of electronics, vehicles, textiles and other consumer goods is also on the rise.

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Posted: 30 September 2012

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