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Kenya’s economy is becoming more dynamic. For businesses seeking to expand, it could be the perfect stepping stone into the region.
When telecoms company Safaricom launched M-Pesa in 2007, it had no idea just how revolutionary the mobile payments service would become.
Giving customers the ability to transfer money using just a mobile phone, with no bank account necessary, M-Pesa today has close to 20 million accounts in its home country.
Far from being an innovation from an established tech cluster like Silicon Valley, M-Pesa came out of Kenya and is duplicating its success in Tanzania, India, Afghanistan and Eastern Europe.
It’s a typical example of how Kenya’s technology sector is innovating to leapfrog challenges presented by the developing world such as the lack of physical banking and transport infrastructure.
It’s also a sign of how dynamic the country is becoming. Grant Thornton’s Global Dynamism Index scored 60 leading economies on their dynamism in five key areas – business operating environment, economics and growth, science and technology, labour and human capital, and the financing environment. Scores under 33 rank as ‘poor’ while 33-66 counts for ‘modest’ and scores above 66 are considered ‘good’.
Figures for 2015 reveal Kenya’s overall score has grown by 10 points since 2013, when it was first ranked. Now standing at 48, it matches the regional score for the Middle East and Africa.
Kenya’s biggest leap has been in science and technology where it jumped from 16 in 2013 to 42 in 2015. This is well ahead of the regional 2015 average of just 32. The country, increasingly referred to as ‘Silicon Savannah’, has shown strong improvements on spending on ‘research and development as a percentage of GDP’, ‘total IT spending growth’ and ‘growth in broadband subscriber lines’.
And with top quartile GDI scores in real GDP growth, private consumption per head and percentage of population under 30, a ready market of consumers and employees will almost certainly be an attraction for potential inward investors.
There are plenty of areas crucial to an attractive investment environment that still need attention, such as the quality of the overall financial regulatory system and the corporate tax burden, Despite these hurdles, says Grant Thornton Kenya managing partner Kamal Shah, ‘there is a strong political will to increase investment and development in the nation’.
New laws allow for any kind of capital investment in special economic zones to qualify for tax breaks for 10 to 12 years. Parag Shah, a tax partner at Grant Thornton Kenya, says the environment for businesses looking to invest in Kenya is friendly. ‘There are no restrictions on foreign investment … [and] the set-up process is quite fast,’ he explains.
‘There is [also] a lot of investment in infrastructure. In the coming years the government has committed to build 10,000 kilometres of new roads and increase the available power to 5,000 megawatts.’
This will be crucial to further strengthening Kenya’s status as a gateway to East Africa. Kenya Airports Authority already runs one of the busiest hubs on the continent and now funds are being invested in major transport projects that include the Mombasa-Nairobi railway and new ports at Kisumu on Lake Victoria and at Lamu on the Indian Ocean coast.
Kenya-watchers such as Standard Bank economist Yvette Babb say that all this makes the country “a more obvious choice as a regional base than Dar es Salaam in Tanzania, or Kampala or Entebbe in Uganda”. And as with M-Pesa’s expansion into Tanzania, businesses that base themselves in Kenya can use the country as a springboard into the rest of East Africa.
To find out more about investing in Kenya as a stepping stone into East Africa, contact Kamal Shah via the Grant Thornton Kenya website.
Parts of this article first appeared in Volume 6 2015 of Grant Thornton UK’s Strategies for growth magazine.