Kenya looks to break free of its emerging market status

Hoping to break free of its “emerging market” status, Kenya is positioning itself as a bridge between the East Africa region and the Indian Ocean rim countries. According to Kenya’s President, Uhuru Kenyatta’s essay, “What We See When We Look East”, one third of the world’s population lives near the Indian Ocean coastline and includes countries which are among the world’s fastest growing economies and megacities.

The country is indeed working towards moving away from “emerging” to “middle class” and is being helped by its adoption of technological advances such as a strong mobile payments network. This network, M-PESA, was launched in 2007 by Safaricom, the country’s largest mobile-network operator. It is now used by over 17m Kenyans and about 25% of the country’s gross national product flows through it. Among the reasons why this has become so successful in Kenya is because of the exceptionally high cost of sending money by other methods. The availability of a reliable mobile-payments platform has also resulted in a host of start-ups in Nairobi, whose business models build on M-PESA’s foundations. As such, the potential for e-commerce is great in Kenya particularly as it is estimated that 10m people have internet access. This will likely spur consumer spending as a middle class evolves.

However, like many emerging markets, Kenya’s infrastructure is in need of expansion. Indeed, several projects are underway. For example, construction is underway on a railway network connecting the port of Mombasa to the capital city of Nairobi and with future plans to extend into Uganda, Rwanda and South Sudan. With a $13.8bn investment from China, the railway connecting the port to Nairobi is expected to be operational by 2018.

Other projects include airport expansion, upgrading the Mombasa port and development of road and pipeline networks.

Its move away from emerging market status may be hindered by its government. According to the World Bank, Kenya’s economy is expected to grow at a good clip, 5.1%. While this is a good growth rate, this was revised down from a 6.0% projection earlier this year due to an expected slower growth momentum in second and third quarters of 2013. Even though the economy is expected to grow, its government still has work to do. For example, the World Bank noted that weak governance was “the greatest single constraint preventing Kenya from reaching its economic and social potential”. The country is also down seven places in the World Bank’s 2014 Doing Business survey, which notes that investor protection, electricity supply and business registration have all got worse.