Kenyan executives peg 2015 growth on falling oil, improved security

Kenyan chief executives are pegging economic prospects this year on improved security, cheaper fuel and a lower rate of inflation.

Most corporate executives say that if the government curbs insecurity, which particularly spooked investors last year, then overall economic growth is likely to be strong, creating thousands of new jobs.

The level of interest rates, which determines the cost at which companies and the Treasury borrow money, is also cited as a major determinant of growth in the next 12 months.

Industry captains are also pre-occupied with the strength of the shilling, with most of them predicting a further weakening of the currency.

A weaker shilling is expected to make imports more expensive but help exporters by making Kenyan goods more competitive.

The Business Daily team interviewed a cross-section of company chief executives to get a feel of their expectations for 2015.

Stephen Mbithi, Fresh Produce Exporters Association chief executive

Expectations of the horticulture industry are positive, better than 2014 which was a difficult year. For one, we have finally signed the trade agreement with the EU, so the trading environment is predictable — the exports will be duty-free.

READ: Kenya gets duty-free access to Europe for Christmas

Second, regulations on minimum residue levels on pesticide use have been with us for a year and a half now so we are much more experienced and know how to be compliant. Lastly, the weather has been good.

John Gachora, NIC Bank MD

As we embark on our 2015-2017 strategy, we will concentrate on growing our retail and SME business in 2015, while investing more in our advisory and securities businesses – that is NIC Capital and NIC Securities.

With an expanded capital base, we are now better positioned to support our corporate customers and continue investing in our subsidiaries in Uganda and Tanzania.

Rohan Patel, Sankara Hotel Group MD

We expect the industry to continue to be challenging in 2015. We are hopeful of a normalisation of demand in the Nairobi market in the short term, with gradual growth in the medium to longer term.

READ: No recovery for Kenya tourism until 2018

On the supply side, we expect a surge in new hotel openings towards the end of 2015. The result of this will mean constrained occupancy rates and average room rates in the short term in general.

Bob Collymore, Safaricom CEO

We expect to see more mergers and acquisitions in the sector, mainly driven by firms that want to grow their footprint.

Samuel Kimani, Jamii Bora Bank CEO

Interest rates are likely to stay high in 2015. We will see lending rates remain at around 16 per cent. Treasury bill rates are likely to also remain at round eight per cent, slightly above the inflation rate expected at around six per cent.

Lower fuel prices for most of 2015 will help but will be negatively impacted by the exchange rates which could go to 95 units to the dollar due to decreased inflows from tourism, agriculture and decrease in production and price of tea and coffee. 

Betty Maina, Kenya Association of Manufacturers CEO

Two key pillars of our economy, which are tourism and tea, suffered this year and are yet to recover. Unless something is done to improve these two sectors, the government’s gross domestic product forecasts of 2015 could really be dampened. In tourism, not much can be done in the short term to reverse the situation since most reservations are done a year or so in advance.

This means that 2015 bookings have already been made and, going by the current trend in this very important industry, those numbers might not be that promising.

If in 2015 oil prices change significantly further from what they are now, and stay low for several months, only then should we expect real changes to inflationary pressures.

Overall, I think consumption in the country is growing fast and commendably due to increased purchasing power. However, the production industry is not keeping up. Kenyan companies need to urgently look beyond the East African region, which currently constitutes their main export market.

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Jonathan Ciano, Uchumi supermarkets CEO

Investor confidence in the local retail market is very high. But security remains a key issue and there is that fear of visiting the malls among some people. But I think a lot has been put in place by the government to remedy the situation and it’s an issue that is manageable.

Pradeep Paunrana, ARM Cement CEO and Chairman of Kenya Association of Manufacturers

I expect 2015 to be a good year for business. The government has committed to zero rating of imports of spare parts that currently attract a 25 per cent duty. VAT refunds to manufacturers exporting their products is also expected in mid-January. We urge the government to ensure materials for major projects like the standard gauge railway are sourced locally to support Kenyan firms.

Darshan Chandaria, Chandaria Industries Group CEO

There is no doubt that Kenya and Africa at large is the next frontier. We have seen the entry of a large number of multinationals in the last two years and a growing international interest in Kenya and East Africa.

The growing middle class and urbanisation across African countries will be a major catalyst for increased consumer demand of various products and services, making Africa the most financially lucrative destination for business in the coming years.

Coupled with this is the fact that the US and European markets are performing poorly at the moment. This suppressed consumer demand is creating a push factor for these companies to look for new markets. This will inevitably mean that competition across Africa will intensify further. 

Kwame Owino, Institute of Economic Affairs CEO

If the shilling loses ground to the dollar, prices of imported goods will be higher. However, exports will be in a better position. It may also be a good boost to tourism, as Kenya will come out as an affordable destination especially for those buying tickets in dollars abroad.

Economic growth will depend on what the government does and what it will spend the budget on. The big retail banks have made money in the last three years and we expect them to maintain the momentum. The food security situation will depend on proper rains in 2015. Overall, I see sustainability with the GDP growth remaining at 4-5 per cent.

Zarak Khan, DT Dobie CEO

I’m bullish about the new year. Our plan at DT Dobie is to be a major player in the new motor vehicle market. We look forward to our relaunch of the Volkswagen franchise.

Habil Olaka, Kenya Bankers Association CEO

Pressure on interest rates will come down in 2015 if all factors remain constant. A number of actions taken by the government are beginning to show impact, like the externalising of borrowing for key infrastructure projects and the action by the Central Bank of Kenya to keep inflation under control.

READ: Kenya banks set for another year of record profits

Credit will be available and affordable if all factors remain constant. If the cost of credit goes down, banks will see an increase in their credit portfolio.