Our debut DBIA case on the digital transformation company Qhala gave us a glimpse into the dynamics of doing business in Kenya. Now, with our In Focus blog series, we are zooming out to explore some of the key social and economic dynamics shaping the Kenyan business environment.
By the numbers
Kenya is one of the fastest growing economies in Africa, with an annual average GDP growth of 5.9% between 2010 and 2018. Kenya further showed its economic might during the Covid-19 pandemic, when it proved more resilient than most other African countries. While the rest of the continent experienced an overall recession of 2.1% in 2020 followed by a 6.9% rebound in 2021, Kenya had a contraction of only 0.3% in 2020 and GDP growth of 7.5% in 2021. This is amidst a recent severe drought that has undermined food security among the Kenyan population and ravaged its agricultural sector.
Like most African countries, Kenya has a large youth population: at least 70% of Kenya’s 57 million people are below the age of 30. Although the country has an unemployment rate of only 5.7%, it is highest among the youth between the ages of 20-29. In addition, a higher proportion of women, at 18.2%, are unemployed, compared to only 9.2% of men.
The agricultural sector is the backbone of the Kenyan economy, accounting for 22% of GDP and employing approximately 40% of the Kenyan population and almost 70% of the rural population. Although agriculture remains a key sector of Kenya’s economy, construction and real estate emerged as two of the fastest growing sectors in 2021. The bulk of investments in these up-and-coming sectors has been driven mainly by the government in an attempt to improve public infrastructure and increase access to affordable housing.
An East African trade hub
As a member of both the East African Community (EAC) and Common Market for Eastern African and Southern Africa (COMESA), Kenya is an important trade hub in East and Central Africa. Kenya has also established strategic trade relationships and bilateral trade agreements with several economies outside the continent. For instance, as a member of the African Continent Free Trade Area (AfCFTA), Kenya directly benefits from the Commercial Cooperation Memorandum of Understanding, a trade and investment cooperation agreement between AfCFTA member states and the US. This is alongside other partnerships with the US, such as the Strategic Trade and Investment Partnership (STIP) and the US-Kenya memorandum of understanding. Both agreements aim to prioritise trade and the sharing of resources between the economies. Horticultural products (such as fruits, flowers, vegetables, fertilisers, and pesticides), tea, coffee, and textiles account for the largest percentage of Kenya’s total exports globally, while its main imports include petroleum products and crude palm oil.
A leader of inclusive tech
Kenya is also regarded as an innovation leader, earning the moniker of “Silicon Savannah”. The hub has particularly thrived in the Fintech and Agritech sectors – in fact, during the Covid-19 pandemic, the use of digital financial services increased by 44%. The pandemic also accelerated private and government interventions to segments that have previously struggled to access digital services for their livelihood. One of the outcomes of the emerging stakeholder cooperation is the National Payments Strategy (2022-2025), which aims to strengthen the digital ecosystem in the financial sector. The Kenyan Central Bank has identified this strategy as the first step towards aligning all finance sector stakeholders and creating a secure, inclusive and efficient payment system.
The Kenyan government has therefore identified the digital economy as a potential key driver for addressing its socio-economic challenges, especially the country’s 38% youth unemployment as of 2019. To facilitate the adoption of digital technology and narrow the divide in the local development of digitally-enabled ecosystems, the Kenyan government launched the Digital Economic Blueprint in 2019. One of the notable outcomes of this initiative has been the accelerated pace of digital transformation. For instance, mobile phone penetration grew from a mere 0.4% in 2000 to an astonishing 132% by 2021, accompanied by a 98% SIM ownership amongst the population. However, 54% of these users can barely afford to pay for an internet connection. A further 69% still require assistance when using basic digital services. Nevertheless, the country is making some impressive strides.
A haven for refugees
Kenya maintains an open-door policy for asylum seekers, with over 500,000 refugees, mostly from Somalia and South Sudan, living in the country. It has adopted a proactive and focussed approach to developing sustainable solutions towards providing decent opportunities for asylums. This is also serving as an additional strategy to funnel industry-relevant skills into the labour market. For example, the ILO PROSPECTS Partnership is a four-year program that the Kenyan government launched in partnership with the Netherlands. This programme creates employment prospects for refugees, asylum seekers, and vulnerable host communities under the four pillars of education and training, decent work, protection and inclusion and new ways of working. Some of the key local partners in this initiative include the TVET colleges and the private sector, through which refugees have successfully received training and job placements.
To learn more about the economic dynamics in Kenya, check out these resources:
- A subnational perspective on Kenya’s development
- World Bank Kenya Economic Update
- Kenya’s Digital Economy
- The Kenyan Startup Ecosystem Report 2022
- Angel investing in Silicon Savannah
- Kenya in East Africa Trade Corridor
by Thabile Bhengu