CEOs see 2011 as year of growth

As Kenyans resume their everyday activities after the December festivities, economic analysts and business leaders say that 2011 is a year pregnant with great hopes but equally fraught with many risks.

With an impressive third quarter economic growth of 6.1 per cent, there is optimism that the country is on course to returning a 7.1 per cent growth realised in 2007, before the effects of post-election violence applied screeching brakes on it to 1.7 per cent in 2008.

The country is also basking in favourable rating by Standard & Poors, which revised Kenya’s international credit rating to B+, reinforcing previous grading by Fitch Rating and the World Bank Country Policy and Institutional Assessment.

With hindsight, however, players in the economy know that politics could easily spoil the party.

This year is likely to witness a lot of political drama as the International Criminal Court begins proceedings in earnest should its prosecutor, Mr Luis Moreno Ocampo, secure the nod to sue the six suspects in March.

“All indicators are positive but it is difficult to predict if they will be sustained. Holding all things equal and with politics and weather enabling, there is hope of increased economic growth in 2011,” said Mr Job Kihumba, a stock market analyst.

In 2010, there was marked growth in most of the sectors including construction, agriculture, tourism, information and communication technology, and retail and wholesale sectors.

According to the latest figures released by the Central Bank of Kenya (CBK), energy consumption grew by 20 per cent in 2010, while agriculture made gains after two years of depressed growth. Consumption of cement also increased by 20 per cent, indicating growth in the construction sector.

Farmers in the tea and coffee sub-sectors received the highest payments in recent times rekindling hopes in a sector that contributes 25 per cent to the national wealth as measured by GDP.

The stock market registered 35 per cent growth in 2010, after a two-year period of a bearish run due to the post-election chaos and the global financial crisis. Market analysts expect growth to be sustained into the new year.

Financial analysts say that commercial banks are expected to post better profits in 2011, with expansion of economic activities. Stakeholders interviewed by Smart Company said they expected growth to be accelerated this year.

Buoyed by that experienced last year, some of the leading local companies are toying with regional expansion into the East African Community. Private sector players would, however, want to see the government enhancing a level playing field for investors through reforms in this New Year.

There was, however, a surge in oil prices at the international market which touched Sh7,280 ($91) per barrel last week. Some analysts are predicting that this could rise to Sh8,000 ($100) per barrel this year, which is cause for worry to manufacturers.

“The economy will continue to expand although there are issues ahead of us like the international criminal court process, which could bring uncertainty,” said Mr Manu Chandaria, an industrialist.

He said manufacturers will continue to grapple with high energy costs, while policy reforms adopt a snail’s speed, with the potential of pushing some of the firms to neighbouring countries.

According to the Meteorological Department, the country will experience drought in 2011, which is likely to dim growth in the agricultural sector with possible food shortages.

Construction industry is expected to maintain growth with signs that most of the imports through Mombasa port in 2010 were clinker, a major component in the manufacture of cement and steel.

“I am positive about the economic forecast for 2011 and also predict another strong year for Housing Finance and the industry. We, however, hope that the two principals will keep to the constitutional promises and entrench laws that will bolster business growth,” said Housing Finance managing director, Mr Frank Ireri.

Players in the insurance industry are sending mixed signals with some not so optimistic about the prospects of better growth during the year.

“Generally, good things will happen in the economy, but I fear the insurance industry might be left behind. There are fundamental changes that are required and a shake-up in leadership,” said an industry player who requested not to be named for fear of antagonising the industry regulator, Insurance Regulatory Authority (IRA).

Mr Ben Wairegi, British American Insurance Company MD expects his firm to register further growth aided by expansion in the economy.

“We expect better growth in 2011 for both our insurance and asset business than in 2010 due to positive economic projection,” said Mr Wairegi.

He was, however, quick to add a rider to the optimism; “we are cognisant of risks that could affect overall growth. Some of the business factors to look out for are the global financial crisis in a number of European nations which could impact on investment in the stock market, the anticipated drought, and rising interest rates could restrict ability of small and medium enterprises to access credit and political risks instability due to ICC prosecutions.”

IRA chief executive officer Sammy Makove recently said that 2011 will be the year when reforms which the government has been undertaking take root in the industry, spurring growth.

On the retail market front, Nakumatt Holdings managing director Atul Shah said they will establish branches in Tanzania and Burundi.
Its rival, Uchumi Supermarket will also open a branch in Tanzania as the local market becomes crowded.

“The year 2011 is going to be definitely better than 2010, which was a base year in terms of reforms. Government infrastructure development is going on, which will bring in more income and spending, which is good for business,” said Uchumi supermarket CEO, Mr Jonathan Ciano.

He said political reforms being undertaken were expected to reduce uncertainty of the past, while good harvests witnessed in last two years will mitigate any effects of the drought in 2011.

Players in the tourism sector are also hopeful that the number of visitors will continue to grow with indicators that 2010 figures will be above those registered in 2007.

“There is going to be further growth in tourism in 2011 with the marketing done since 2008 starting to bear fruit. We expect more conference tourism and with Kenya Airways increasing flights to the Coast, domestic tourism is expected to grow further,” said Mr Mike Macharia, Kenya Association of Hotel and Caterers CEO.

Players in ICT sector are also bracing for accelerated growth, with predictions that there will be a shift in the ‘price wars’ in the data market.

“We have spent the last few years laying fibre optic cables and are now faced with saturation in major towns like Nairobi and Mombasa. Companies will be faced with a squeeze to reduce prices further, particularly in the data market,” said Mr Geoffrey Shimanyula, the vice-president of Spacecom in East Africa, an Israel based telecommunications company.

Though concerned over volatility of the world metal prices and the challenge posed by China’s current more than 30 per cent consumption for its domestic economy, East African Cables MD, Mr George Mwangi said the firm had its strategy focused on regional expansion.

“For East African Cables, 2011 is sure looking very bright on all the business facets now that we have successfully managed to set the base for growth,” said Mr Mwangi.

He said they will commission a new production line and launch new products to increase the company’s cash streams.

The motor vehicle assemblers like Kenya Vehicle Manufacturers, General Motors East Africa and Association of Vehicle Assemblers are expected to increase their business with more of the public service vehicle owners seeking to upgrade to higher capacity carriers in line with government policy.