Why Africa, Why Kenya?
Ambassador Meg Whitman Keynote
The U.S.-Kenya partnership is strong, built on sixty years of shared values and interests. Our partnership has enhanced security, increased prosperity, and improved the lives of Kenyans and Americans.
Since I arrived in Kenya, my team and I have been laser focused on strengthening the U.S.-Kenya trade and investment relationship in coordination with the Kenyan government.
Why Africa, Why Kenya?
When I was a CEO – I’ll be honest – I probably thought of Africa about 1% of the time. Many of the businesses I managed were heavily invested elsewhere. But if I were back in the boardroom today, Africa would be on my radar for two simple reasons: supply chain diversification and net-zero emissions.
If the war in Ukraine and the COVID pandemic taught us anything from a business perspective, it is that single sourcing from any one country is not smart. Single sourcing is a recipe for supply chain disruption and shortage.
What the war in Ukraine and the pandemic did to spur supply chain diversification, climate change has done for energy use. Businesses are pushing for net-zero emissions to meet their climate change mitigation goals. Kenya currently generates 93% of its electricity from renewable sources and this percentage is only going up with increased investments in solar, geothermal, and wind. If you invest in Kenya, you will have access to ubiquitous green energy and you will be well on your way to meeting your company’s Scope 2 greenhouse gas emissions goals.
So, if you have not thought of investing or growing your business in Kenya, ponder these words from a CEO of a major consumer tech company I recently spoke with. He said, “supply chain diversification is now an essential element of our business and so is the need to be totally green. In that sense Kenya seems to offer us a one-two punch to success.”
Some of you may know that I love data and I often say to my team “let’s muck around in the numbers.” At the Embassy, we’ve been doing a LOT of mucking around in trade and investment data. What I’ve learned over the past nine months has been surprising and paints a much more dynamic business outlook for Africa than most Americans realize. Here are some data points I found particularly interesting.
By 2050, one in four humans, a quarter of the world’s population, and one in three working-age people, will live in Africa.
Africa is a young continent – the youngest in the world with 60% of the population under the age of 25.
Africa is the last, and largest, emerging market and offers the last big supply chain and consumer prospects with opportunities like Southeast Asia presented 20 years ago.
You now know Why Africa should be on your radar. But let’s zoom in on Why Kenya should be your target destination.
Here are some reasons:
- Kenya is the most stable democracy in East Africa,
- Kenya is the gateway to the East African market of almost 500 million consumers,
- Kenya is the regional logistics hub,
- Kenya is the leading regional financial hub,
- Kenya, with its Silicon Savannah and super smart engineers, is the region’s ICT hub,
- Kenya is a leading destination for foreign direct investment and venture capital,
- Kenya has a young, educated, entrepreneurial, and English-speaking workforce,
- Kenya generates over 90% of its energy from renewable sources, and,
- Kenya’s largest export market is the United States.
Let me repeat: Kenya’s largest export market is the United States. And we feel Kenya is ready for export lift off as it diversifies.
Let’s unpack a few of these areas:
I arrived in Kenya days before the August 2022 general elections. What I witnessed was nothing short of remarkable. Kenya held what many analysts and commentators say was the freest, fairest, and most credible election in Kenyan history. The elections were observed by international and local election organizations and the results upheld by the Kenyan Supreme Court. Power was transferred orderly and peacefully.
Gateway to East Africa
Kenya is the gateway to East Africa. Eighty percent of East African regional trade passes through Kenya’s Mombasa Port.
In addition, Jomo Kenyatta International Airport in Nairobi is the busiest airport in East Africa, served by 40 passenger airlines and 25 cargo carriers, including FedEx and DHL. Kenya also has some excellent infrastructure such as the standard gauge railway, a series of new roads, and modern ports.
Financial and Technology Hub
Kenya is already the regional financial hub for East Africa. Several international banks have been present in Nairobi for decades, and many global financial institutions like the World Bank and IMF have established their regional headquarters in Nairobi. The region’s leading stock market sits in Nairobi, and the city hosts the necessary legal, accounting, and consultancy services to preserve and accelerate this status.
Nairobi also has a vibrant technology community known as the Silicon Savannah and the Kenyan government is committed to establishing Nairobi as the premier destination for tech sector investment and innovation in Africa. Many leading U.S. companies are already in Kenya, including the names you see on the screen.
Emerging, but also hugely impactful tech companies, like Copia Global, Semiconductor Technologies Limited, Twiga Foods, Market Force, Power Financial Wellness, Kyosk, Odoo, and many electric vehicle startups are here too. I’ve met these companies, visited their operations, and what I see happening here has many of the critical components that make Silicon Savannah a reality.
At the nexus of finance and technology sits one of the most impressive companies I have ever seen: MPesa. MPesa mobile money was developed by Kenyan innovators in 2007, and by 2010, MPesa had become the largest mobile money network in the world.
MPesa has annual revenues of $1 billion U.S. dollars, $300 billion flowed through the platform last year, and it has an open API with 60,000 developers.
It solved one of the biggest challenges in the mobile money market sector: mobile, secure, ubiquitous, low-cost payments. MPesa has over 50 million customers in 7 countries, is involved in over 70% of Kenyan transactions, powers over 5 million businesses, and 59% of Kenya’s annual GDP flows through it. Let me tell you something: I know a little about this industry having bought and owned PayPal at eBay. I assure you MPesa is extraordinary. MPesa alone demonstrates the brilliant business minds at work in Kenya devising African solutions to global problems.
Foreign Direct Investment and Venture Capital
Kenya has attracted significant foreign direct investment and is a leading destination for venture capital on the continent. While venture capital flows decreased by 35% globally last year, total funding in Africa actually increased by 8%. Even more impressive, while venture capital to Nigeria was down 36% and essentially flat in South Africa, funding to Kenya increased by 33%, one of the highest growth rates on the continent.
Adjusted for GDP, Kenya receives significantly more venture capital than anywhere else on the continent, generating roughly triple the venture capital to GDP ratios of Nigeria, Egypt, and South Africa.
Unlike its continental competitors who attract predominantly fintech led investments, Kenya’s venture capital flows are more diverse, led by e-commerce and cleantech, followed by fintech, agritech, and enterprise investments.
And what’s even more unique for Kenya, in 2022, Kenyan women-founded startups raised $146 million in equity, again more than any other country on the continent.
More than 90% of Kenya’s on-grid electricity is currently generated from renewable sources, primarily geothermal, wind, and solar. And Kipeto, the second largest wind farm in Kenya, is proudly supported by the U.S. International Development Finance Corporation and PowerAfrica. It’s amazing that Kenya has committed to reaching 100% renewable energy by 2030 and is already close to achieving its goal.
From a workforce perspective, Kenya is English-speaking, has high literacy rates, and a strong primary, secondary, and tertiary education system. Every firm I have spoken with raves about the quality of the Kenyan workforce.
U.S. is Kenya’s Largest Export Market
In 2022, the United States became Kenya’s largest export market, edging ahead of neighboring Uganda. In total, Kenya exported about $890 million in goods to the United States last year.
In addition, the United States exported around $600 million in goods to Kenya. $1.5 billion in total U.S.-Kenya trade is fairly balanced and is expected to increase as the United States and Kenya negotiate a first-of-its-kind bilateral trade agreement. This agreement will be a model for the rest of the continent once signed.
TOO GOOD TO BE TRUE
So now you know why I am so enthusiastic about the Kenyan investment climate, but I will note, however, there is room for improvement. The Kenyan government has made great strides and is committed to creating a business-friendly environment. If it is to accomplish this goal the government will have to address the following items. And the first is taxes.
Kenya must have a consistent, transparent, and fairly administered national tax policy to attract and retain foreign direct investment and accelerate economic development. As you all know, more work needs to be done to establish a durable tax framework and the recent Finance Bill proposed many changes that will make Kenya more tax friendly.
Without a doubt corruption is also a critical issue and one that must be addressed for Kenya to reach its full potential in all areas of development. Corruption leads to misuse of public resources, slows economic growth and job creation, and damages the investment climate, as well as undermining equal participation in the prosperity of this country.
However, while corruption does remain a challenge in Kenya, as in other developing markets, third-party measures of corruption indicate positive trends and modest progress in recent years.
According to the U.S. Millennium Challenge Corporation’s country scorecards for 2023, Kenya’s score for “Control of Corruption” was 0.28 representing its third passing score in a row and highest score to date. To put this number in context, Kenya’s 0.28 was superior to India’s 0.18 and Vietnam’s 0.19.
In addition, President Ruto has cracked down on corruption, calling out government agencies that engage in unscrupulous practices, firing government ministers involved.
Debt to GDP
Kenya, like many developing countries, is burdened with high debt, limiting its ability to fund public services and infrastructure in line with its ambitions. According to the IMF, Kenya’s debt to GDP ratio is 69% but this number is not an outlier amongst regional averages. For comparison, Malaysia’s debt to GDP stood at 69% in 2021 while India’s ratio was 83% in 2022.
Another issue I often hear about is cargo clearance. Despite improving logistics infrastructure, the delivered cost of a container shipment to Kenya does remain significantly higher than for container shipments landing in Europe or Asia. While there is room for improvement on the cost, clearance times at the Port of Mombasa have been reduced from over 11 days in 2010 to 3.5 days in 2022. This reduction occurred despite cargo consistently increasing over the past five years, from 27 million metric tons in 2016 to nearly 35 million metric tons in 2021.
This is an excellent opportunity to put to rest the argument that Kenya is not a manufacturing country. True, Kenya has room to grow in this sector, but manufacturing is happening here. Let me give you a few examples of Kenya’s manufacturing prowess.
- Gearbox, a high-mix low-flow electronics manufacturer in Nairobi, runs a state-of-the-art surface-mount assembly line and in November 2022 began manufacturing Raspberry Pi’s Pico product for the African market. Gearbox’s production quality meets or exceeds that of Raspberry Pi’s other production sites in Wales and in Japan, producing a first pass yield of 99.6%.
- Semiconductor Technologies Limited (STL), a U.S.-owned semiconductor manufacturing and nanotechnology company domiciled in Kenya, is growing rapidly, and has hired more than 80 Kenyan engineers in the past two years.
- Kenya’s Revital Healthcare is one of the largest manufacturers of medical products in Africa, producing 48 devices and exporting to 28 countries.
- Isuzu has operated its East Africa assembly plant in Nairobi since 1977, selling more than 90,000 units with more than 15 models.
- There is also a robust and growing e-mobility manufacturing and assembly industry in Kenya. Kenya is the future for Africa’s two- and three-wheel e-vehicles and e-buses.
Lastly, when we talk about trade, we must talk about apparel and apparel manufacturing. Last year Kenya recorded its highest ever apparel exports to the United States, over $540 million, employing nearly 200,000 Kenyans, mostly young women. Leading U.S. apparel brands sourcing from Kenya include PVH, which includes Tommy Hilfiger and Calvin Klein; Kontoor, which includes Lee and Wrangler, and several more including Walmart and Levi’s.
And what we hear is these brands want more Kenyan apparel manufacturing, both because of the high quality of labor and Kenya’s leadership in renewable energy.
Brands are steadily moving production operations to Kenya from Sri Lanka, Bangladesh, Ethiopia, and China because of what Kenya has to offer. And more of this is on the way.
THERE’S SOMETHING HAPPENING HERE
There’s something happening here. It is abundantly clear to me, and I hope by now it’s clear to you too – Kenya is open for business.
Since President Ruto was elected last August, his administration has been implementing his campaign promises to improve economic conditions and create a business-friendly investment climate throughout the country. He ran on that pledge, and he is delivering.
Following months of deliberations and consultations with the business community, President Ruto announced the following reforms at the March AmCham Regional Business Summit:
- A simple, consistent, fair, predictable, and enduring tax regime that will remain in place for a minimum of three years.
- Alignment of Kenya’s data protection regulations with the multilateral Global Cross-Border Private Rules framework.
- A six-month deadline for KRA either to pay all verified tax refund claims or provide offsets.
- Elimination of the VAT on exported services.
- Elimination of the domestic equity requirement for ICT companies.
- Removal of tax on stock-based compensation for employees of start-ups.
- Commitment to adhere to the OECD two-pillar solution for digital services tax when it is finalized.
- Finally, commitment to revitalize Kenya’s Special Economic Zones to maximize their competitiveness.
And more reforms are in the pipeline.
As you can see there is so much potential in Kenya. In fact, these recent announcements from the Ruto Administration underscore the possibilities:
- In Agriculture, Del Monte, the largest private sector employer in Kenya, has invested $5.5 million dollars in a new state-of-the-art fresh fruit packing facility.
- Kentegra, a U.S.-Kenya company on the forefront of restoring Kenya as the leading producer of organic insecticide, is building a new $15 million dollar pyrethrum refinery in Nakuru, benefiting over 90,000 farmers.
- Regen Organics, a U.S. invested and innovative company – founded by young MIT graduates – turning waste into fertilizer, fuel, and animal feed, will expand their farm and organic waste collection, more than doubling their production of affordable, locally produced agriculture inputs benefiting 10,000 farmers. A new $7 million dollar factory will create about 500 jobs in Kakamega County.
- In Apparel, the industry that continues year-on-year expansion, new partnerships have been launched with several leading manufacturing companies including MAS and Mega, Coast Apparel and UAL, that will create at least 20,000 additional jobs and increase exports by $200 million in the next two years.
- Best Corporation will launch a new apparel manufacturing facility in Kenya in mid-2023 with plans to hire 2,400 new employees; and NexGen will build a state-of-the-art apparel label and packaging facility that has already broken ground and will be operational by September.
- In ICT and Innovation, CCI Global, the largest Business Process Outsourcing company in Kenya, is doubling its workforce to 8,000. In the next year, CCI will add 4,000 jobs in Kenya for American clients like United Airlines, Spirit Airlines, JetBlue, AT&T and Shipt.
- In Energy, Milele Energy, a U.S. company, just concluded a deal to acquire part of the Turkana Wind Power Project, one of the largest in Africa and producer of over 20% of Kenya’s electricity in 2022, with plans for expansion; and Symbion Power, another U.S. company, is closing in on a deal to develop a geothermal plant in the Rift Valley.
- And in the Medical/Pharma industry, the Government of Kenya and Moderna finalized an agreement to build a new $500 million dollar vaccine manufacturing facility in the Nairobi area. This will be the only such facility on the African continent and for Moderna, their first factory outside of the United States. Moderna’s investment will be a catalyst for the medical industry in Africa, producing over 500 million vaccines a year.
- And there are more exciting developments happening every day. American sports associations like the NBA, the NFL, MLB, MLS, and entertainment icon, The Grammys, are all currently looking for a foothold in Kenya.
- The television and movie industries are discovering Kenya too – just look at the fact that Kenya now has a Real Housewives of Nairobi!
OPEN FOR BUSINESS
These are many of the reasons why global businesses are considering, or should consider, Africa – and specifically Kenya – for trade and investment opportunities. To conclude, Kenya is OPEN for business. And to quote President Ruto: Kenya MEANS business. If your business is already in Kenya, you are ahead of the curve, and I hope you consider increasing your investment, partnership, and plans for expansion. If you are not, as is said in Swahili, Karibu Kenya – Welcome to Kenya!