This is Africa, home to the world's youngest and fastest growing population, burgeoning cities and bold innovations in everything from fintech to clean energy. With its population set to nearly double by 2050, reaching 2.5 billion people, Africa stands as a beacon of opportunity for inclusive growth, leveraging its vast natural resources and abundant human potential to increase prosperity not only in Africa, but around the world.
As a result, many multinational corporations see a need to have a direct presence somewhere in Sub-Saharan Africa. Many such companies have already established a presence in Asia, particularly in Singapore, which is now increasingly popular as a business hub.
According to a report by the Economist Intelligence Unit, Singapore boasts the world's most favourable business environment for the next five years. However, the question arises, which African region might witness a similar surge in corporate presence? Unfortunately, Africa's biggest economies are struggling lately.
Nigeria's economy is heavily reliant on oil and has seen a decline in GDP per capita since 2015 due to plummeting crude prices. Infrastructure issues, power outages and inconsistent policies further compound its woes. Similarly, Angola, also oil-dependent, strives to diversify its economy amidst mounting debt, primarily owed to China.
In South Africa, challenges stem from crony capitalism, electricity shortages and inadequate investment, leading to its second recession in two years before the pandemic hit. Currently, these places are not positioned to become dominant Sub-Saharan economic hubs. In contrast, the one country in Africa that is making remarkable progress in major investments in three key areas institutions, integration and infrastructure is Kenya.
Kenya has come a long way in the last 20 years, from a country plagued by poverty and political turmoil to a rising economic power that at one point outperformed the regional average for eight consecutive years, with GDP growth above 5%. Kenya's economy is primarily market-driven, with some state-owned enterprises. It is classified as an emerging market and boasts average industrialization levels, leading among its East African counterparts.
Recently, Kenya even surpassed Angola to become the third-largest economy in Sub-Saharan Africa, trailing only Nigeria and South Africa. Kenya also has some geographical advantages, boasting an extensive coastline across the Indian Ocean. Studies suggest that landlocked countries tend to have poorer economic performance, while coastal nations find it easier to connect with the rest of the world.
Throughout history, Kenya's trade centers along the Tanzanian coast, known as the Land of Zanj, have facilitated exchanges with China, India, Indonesia, the Middle East, North Africa and Persia since ancient times, as far back as the 2nd century. Today, Kenya has relatively easy access to China and India, which are large markets and sources of capital. In the current geopolitical landscape, East Africa, including Kenya, is gaining increased attention from various sources compared to much of West Africa.
Looking at Singapore, it capitalized on its strategic location and dynamic policies earlier than other aspiring hubs in the region. Singapore is known for being welcoming to foreign businesses, making it one of Asia's leading financial sectors that attracts foreign investments. Many multinational companies have already set up shop in this small country.
Singapore's status as the largest foreign exchange center in the Pacific-Asia region and the third-largest globally is another major draw, thanks to its emphasis on promoting international trade through free trade agreements with surrounding major countries. Kenya could potentially follow a similar path.
In East Africa, Kenya stands as the economic powerhouse. It boasts the largest economy in the region, which is notably more dynamic compared to its neighbors. Kenya's economy is well connected to others in terms of investment and trade, making it the central hub for economic, commercial, financial and logistical activities in East Africa.
According to the World Bank's Ease of Doing Business ranking, Kenya is positioned 56th globally and 4th in Africa, reflecting its favorable business environment.
Moreover, Kenya is globally recognized as a hub of innovation, earning the nickname Silicon Savannah due to its rapidly growing technology and innovation ecosystems. Major players like Google, Microsoft and Intel have established their regional headquarters in Nairobi, with IBM even setting up its first African research lab in the city. Kenya's economic dominance in the region is driven by a robust private sector that has flourished under generally market-friendly policies since independence.
The country's relative political stability and consistency in policies have also contributed significantly to its economic dominance. In contrast, other East African nations have experienced more turbulent political histories. For example, Tanzania pursued a socialist ideology known as Ujamaa under President Julius Nyerere, which hindered private sector growth.
Such factors undermined the growth of the private sector in the other East African countries. Though these countries have undertaken substantive reforms and are now on a positive growth trajectory, Kenya is likely to hold onto its dominant position for the near to medium future.
In 2007, Safaricom, a major telecom company in Kenya, introduced M-Pesa, a mobile money service that quickly gained popularity in the Kenyan market. M-Pesa allows people to transfer money using their phones and has become the most successful service of its kind globally.
Initially, M-Pesa was created to enable repayment of microfinance loans through mobile phones, cutting down on cash handling costs and enabling lower interest rates. But it turns out that this simple system, initially built off of text messaging, with no smartphones or apps required, used for everything from paying electricity bills to school fees, makes a significant difference for poor families.
A study revealed that families living closer to a mobile money agent were less likely to be in extreme poverty, under $1.25 a day, or poverty, under $2 a day. Normally, poor families face consumption shocks, where they can't afford basic needs when income drops, but those with access to mobile money experience more stability, being able to save and receive transfers from friends and family provides a safety net.
Published in the 2016 issue of Science, the study estimates that since 2008, mobile money access has increased daily consumption levels for 2% of Kenyan households, lifting them out of extreme poverty, especially among female-headed households.
Back then, M-Pesa was seen as a prime example of how technology could revolutionise financial services and boost financial inclusion in developing economies by making it easier for Kenyans at every economic level to use their mobile phones to reliably and quickly pay each other, M-Pesa had also shown how quickly human behaviour could change when given a better alternative.
Today, M-Pesa Africa has become a major player in Africa's thriving fintech ecosystem. Operating in seven countries, it boasts over 50 million monthly active users. The company has recently introduced consumer and business super apps, along with features like Feliza for overdrafts and M-Pesa Global for remittances.
M-Pesa has emerged as the top choice for remittances into Kenya. Thanks to its skilled workforce, diverse economy and leadership in the region's information communication revolution, M-Pesa continues to innovate. Kenya benefits from a large pool of highly educated professionals, with a strong emphasis on IT literacy and innovation, particularly among the youth.
Kenya's population is about 57 million, with over 80% aged 35 years and below. It boasts a young, growing and educated English-speaking population, with high fluency in technology, benefiting from reliable internet access that ranks among the best in Africa. However, the affordability of internet remains a recurring debate.
Internet access has been a force behind economic growth, leading the government to develop the Digital Economy Blueprint. This framework aims to enhance Kenya's capacity for leapfrogging economic growth in the region. As the world shifts towards green energy, Kenya also has a positive story to tell.
Kenya is also a regional leader in clean energy development, with more than 90% of its on-grid electricity coming from renewable sources. Kenya has vast potential for geothermal power, capable of generating 10,000 megawatts, more than 10 times the amount it currently produces. Foreign companies looking to boost their green reputations might find Kenya an attractive destination.
That said, expensive energy, due in part to taxes and poor regulation, has been a growth drawback. However, Kenya's economic growth doesn't benefit everyone equally. A report from the McKinsey Global Institute reveals that while Kenya's GDP per capita grew by an average of 1.8% annually between 2000 and 2022, this growth varied widely across different regions.
Some areas experienced growth rates below 0%, while others saw rates exceeding 4%. Regions with the highest GDP and GDP per capita growth were often found in central, coast, and Nairobi provinces. Nairobi, the capital city, and surrounding countries like Kiambu had higher GDP per capita.
Coastal areas like Lamu or Mombasa also exceeded the national average GDP per capita of $4,500, while counties bordering Somalia and other internal areas like Baringo and Kakamega had lower figures. There are other elements of the case against Kenya. One issue is its struggle to attract foreign direct investment, even compared to other African countries.
Despite its size and level of development, foreign investments in Kenya are relatively low. According to a recent survey by the National Bank of Kenya, the main investors in the country are the United Kingdom, Mauritius, the US, South Africa, and France. Challenges such as poor infrastructure, skills shortages, instability related to terrorist risk, political, social, and ethnic divisions persist.
Moreover, issues like ineffective rule of law and corruption are significant concerns. Transparency International's Corruption Perception Index for 2022 ranked Kenya 123rd out of 180 economies, and in the 2023 Index of Economic Freedom, it ranked 135th out of 176.
Furthermore, Kenya's debt burden is on the rise. The debt-to-GDP ratio increased to 67.3% in 2022 from 63% in 2020. This surge in borrowing, fuelled in part by substantial increases in debt-financed public investments, is causing concerns about fiscal space and debt sustainability. The country's sovereign risk assessment remains at triple C, indicating significant risks due to a wide budget deficit and the growing cost of servicing external debt.
Projects like the Chinese-funded railway have contributed to Kenya's debt burden. This situation has drawn investor attention, especially as the country grapples with soaring energy and food import bills, as well as low foreign exchange reserves. Yet the robust growth driven by the private sector could aid Kenya's debt sustainability.
Given the limitations in fiscal and debt management, private investment will be crucial for driving growth. It is also possible that sub-Saharan Africa will not develop a single dominant corporate hub at all. The United Arab Emirates will continue to evolve into Africa's financial centre, Lagos will have the most start-up activity, South Africa will remain the dominant business centre in the south, and London, Beijing and India will play more important roles in Africa's economic future.
Nevertheless, Kenyans are deeply concerned about various development challenges facing their nation today. Government corruption, economic issues like unemployment and poverty, and crime top the list, with at least 8 out of 10 Kenyans considering each as significant problems. Despite these worries, there remains optimism for the future, particularly among the youth.
Education and healthcare are seen as key priorities by the public. It's crucial for both Kenya and the wider sub-Saharan African region that the country maintains the momentum it has built since 2000 and continues on the path towards achieving upper middle income status.
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