Banks must seize ‘Big Four’ opportunities

Kenya is a stable and growing lower-middle-income country and the East African economic power.

To boost the country’s economic growth and transformation, the government has embarked on the ‘Big Four’ agenda, which is anchored on four pillars: Sustainable food security, affordable housing, bolstering manufacturing and universal healthcare.

Under this bold and ambitious plan, the government plans to increase investments, such as securing $1 billion (Sh100 billion) worth of new investments in the iron and steel mining industry, and raising the health spend from Sh61 billion to Sh73 billion by 2022.

Positive spill-over effects will include employment creation across other economic sectors.

Although implementation is at an early stage, the plan presents great opportunities for financial institutions such as commercial banks.

AGRICULTURAL INSURANCE

During the Global Index Insurance Conference two years ago, governments were encouraged to support agricultural insurance markets through public-private partnerships. That followed the recognition of Kenya as one of Africa’s most promising insurance markets with an annual growth forecast of 6 per cent.

Considering that banks can reach 75 per cent of Kenyan adults through digital technology, they can, certainly, support uptake of insurance via their infrastructure and scale.

Product partnerships between insurers and banks within an enabling regulatory environment can, therefore, support the ‘Big Four’, notably in healthcare and food security.

The same approach can be used in manufacturing and housing, where the government plans to build at least 500,000 affordable units.

PRODUCTIVITY

There is also a critical need to boost the productivity of the manufacturing sector as a driver of economic growth. The government expects that the sector will generate a million jobs in the next 10 years.

The World Bank estimates that Kenya’s infrastructure has a deficit requiring annual expenditures of $4 billion (Sh403 billion), or 20 per cent of GDP, per annum. Demand for credit from the public and private sectors will, therefore, continue to increase over the medium term, particularly, at the county level.

Policy roadblocks

As the government engages with the private sector on financing plans to drive the ‘Big Four’, it is instructive to recognise the critical role that commercial banks will play in it. Policy roadblocks such as interest rate caps — which curtail innovation and access to much-needed capital — should hence be addressed sustainably.

FINANCIAL PRODUCTS

It is also important to align policy and financial products to attract investors to the manufacturing sector for it to grow to the targeted 15 per cent of GDP from 9 per cent to support Kenya’s economic growth and boost its regional competitiveness.

Most of the traded goods between countries in the region have relatively low value addition and technological sophistication. It is, therefore, important to direct capital to value addition and efficiency.

Skilled labour, adequate energy and transport infrastructure are priority elements for manufacturing. Therefore, further investments, facilitated by commercial banks, are essential.

Challenges in the regulatory environment notwithstanding, it is crucial for commercial banks to design strategies and position themselves for the immense opportunities presented by the ‘Big Four’. Optimising their involvement in the plan will translate into closer public-private partnerships, which would demonstrate the value that commercial banks add to economic growth and development in Kenya.

Mr Manjang is the chairman of Kenya Bankers Association (KBA) and regional CEO of Standard Chartered Bank. [email protected]