Uncategorized

Great Prospects for the Kenyan Economy But…

Good news for the Kenyan economy: The latest Kenya Economic Update (KEU) by the World Bank projects the country’s growth to rise from 5.4 per cent in 2014 to up to 7 per cent between 2015 and 2017.

This would place Kenya among the top five fastest-growing economies in Sub-Saharan Africa, with growth rates rising to between 6 and 7 per cent over the next 3 years.

GDP Growth Rate

Positive ramifications are expected from the falling oil prices and increased public investment in infrastructure, the standard gauge railway to be precise, which is expected to strengthen growth at least in the medium term.

However for the economy to perform at the required level, some trends have to be reversed. Chief among them is in the manufacturing sector where its contribution to overall GDP has been abysmal. It is common knowledge that expanding economies thrive on a strong manufacturing sector that not only improves the balance of trade by contributing to exports but provides employment as well.

In Kenya though, the sector’s contribution has has been minimal and has been threatening to fall even farther.

manufacturing sector

As Maria Paulina Mogollon, the World Bank Group’s private sector development specialist puts it, “Kenya needs to increase the competitiveness of its manufacturing sector so that the country can grow, export, and create much needed jobs.”

 

Small Businesses: Registration and Taxation

The country has around nine million (Business Daily, 17th July, 2013) small and medium-sized enterprises (SMEs).
Following a recent study we conducted in Nairobi and Mombasa, there is a large amount of traders in different sectors that are not registered. While most claimed that they are unfamiliar with the process of registration, some thought that the process was expensive and unnecessarily long.

Such a big number not being registered is clearly a disadvantage to the Kenya Revenue Authority. If you’re a VAT registered business then you are essentially an unpaid tax collector. You have to add VAT at the appropriate rate to everything you sell (usually at 16%). This additional income isn’t for your business though; you’re collecting it on behalf of KRA.

When your business makes sales, you don’t charge VAT to your customers unless you’re registered. Since most of these small businesses’ customers are members of the general public we’d almost understand why they are not registered. Registering your business could mean having to bill your customers prices that are higher; which bad for business (if you ask me). Why? The customers will move to the cheaper supplier, that’s just how business transactions work.

Most of these businesses would rather get a permit from the county government to run their businesses because it makes transactions cheaper hence higher customer retention.
The county government only requires traders to pay a small amount of money daily or after a particular period of time and although this has been the case, with the new financial bills in the counties, tax regulations are becoming harder for businesses as evident from the closing down of some businesses in Nyeri County:

Screen Shot 2015-03-04 at 11.08.32 AM

That does not mean all hope is lost for KRA and the tax collectors; if they could fully utilize the established channels to educate the traders on importance of proper tax compliance, simplifying registration of businesses would enable majority of the small business operators to comply with tax payment.

Data to Information – The missing piece.

Not all potential data users have the ability to understand what data means. There needs to be an interpretation mechanism that turns data into information that is more relevant and applicable to the every day user, within their context and ability.

No Intermediaries:

When Citizens are left with the responsibility of understanding data that is released and made available to them in its raw format, the most common reaction is to repel the data. If they cannot relate to the data as is, they will have no interest in demanding for more or using the existing data.

info1

With intermediaries:

In a more informed society, there should exist mediators who take the role of interpreting data into information that is more relevant to the citizens.

The media and civil society are the best-suited groups for this role.

info

Falling Oil Prices: What it Means for Kenya

For the 4-year period between From 2010 until mid-2014, world crude oil prices have been static at around $110 per barrel but that quickly changed over the last 7 months from $107 per barrel in June 2014 to less than $70 in January 2015 – a 44% drop!

That astonishing statistic immediately leads to 2 questions: Why the fall? And; What are the ramifications for Kenya?

Causes

I find it impossible to attribute this decline to one thing but the following factors may have played a fairly significant role in this:

1. Increase in supply

There has been an increase in oil production, especially in the US. While America may not be an exporter, it is the world’s largest importer of oil. Increase in production in the US effectively means less importation by the biggest player and therefore more oil available in the global market.

2. Geo-political reasons

Organization of the Petroleum Exporting Countries, OPEC, is charged with the stabilization of prices in international oil markets. Saudia Arabia, though, among the world’s largest producers with close to 10 million barrels a day which translates to a third of the OPEC total, has refused to take any action to help stop the price fall such as say cutting down on production.

A possible connivance with the US to economically clip oil-dependent adversaries like Russia (where the Rouble is languishing in record lows), Venezuela and Iran, maybe?

3. Reduced demand

It looks like environmental conservation campaigns are starting to yield rewards with more switching to alternative energy.

This, alongside the gradual improvement in production efficiency by organizations over time and a sluggish world economy which is consuming less oil in total, are slowly reducing the overall demand for oil.

Effects

1. Food security

Oil prices are co-related to food prices. Higher oil prices make agricultural production expensive leading to higher food prices, therefore this fall may be a good thing in that it enhances food security not just in Kenya but globally.

2. Transport

Lower oil prices will make driving less expensive with Kenya’s Energy Regulatory Commission, ERC, already announcing considerable pump price deductions. This will mean more vehicles on the already strained Kenyan roads and a subsequent rise in average time taken for commuting, especially within the 4-million-crowded Nairobi.

3. Kenya as an oil importer

According to Fitch Ratings, this plunge in oil prices could boost Sub-Saharan Africa’s growth to 5 percent in 2015 from 4.5 percent in 2014 since most of SSA countries — Kenya included — are oil importers rather than exporters. Compared to an exporter like Nigeria whose falling stock market index that has gone down 24% since the fall begun, Kenya’s stocks have surged by 9.4%.

4. Kenya as future oil exporter

Although an oil-importing country at the moment, and as such gaining from current fall in oil prices, Kenya is set to become an oil-exporting country in the near future as a result of recent oil exploration projects. Falling oil prices may reduce the expected profitability of investments in the oil sector and should effectively serve as a deterrent against having an economy heavily dependent on oil.

 

Was 2014 Really That Dangerous for Air Travel?

When doing a year review of 2014, the biggest headlines over the year would include the following at the very least:

March 8 – Malaysian Airlines Flight 370 goes missing with 239 aboard.

July 17 – Malaysian Airlines Flight 17 is shot down in Ukraine killing all 298 aboard.

July 23 — TransAsia Airways Flight 222 crashes in Taiwan killing 48 of the 54 aboard.

July 24 — Air Algerie Flight 5017 crashes in Mali killing all 116 aboard.

December 28 — Indonesia AirAsia Flight 8501 goes missing with 162 aboard (wreckage later found in the Karimata Strait, recovery ongoing).

Crashes by continents

The chart above represents the total number of crashes by continent excluding crashes on international waters since the ’40s.

Sticking to 2014, the severity (and frequency?) of these occurrences over the year – most notably the 3 crashes within a single week of July 2014 — have led to a debate on whether air travel is getting more dangerous and if 2014 was in fact the most unsafe year with respect to aviation safety. But is this really true?

Crashes over time

A look at number of plane crashes per year from 1950 would suggest that that is not true, and if anything, air travel is getting safer over time with 2013 easily the safest year for air travel in recent times albeit with a slight increase over 2014. This increase in 2014 is almost insignificant in that it does not affect the overall trend which is going down.

This is even more fascinating considering that air traffic has been growing over time indicating that the ratio of crashes per departures should be falling even steeper.

I have left the number of fatalities because that would depend more on the size of the planes involved than the number of crash incidents.

An interesting observation, though, would be that looking at distribution of crashes by the phase of flight, most crashes –25%– occur during landing than when the plane is cruising.

Crashes by phase of flight

This assertion may not be popular but the data says air travel has never been safer than it’s been in recent times and factors like more media coverage and better connectivity than at any other time in history may have had a factor in creating the perception that 2014 was that bad for air travel.