KENYA COUNTRY REPORT

Prince Muraguri, Simón Ortiz and David Soler

MARCH 2018
KENYA COUNTRY REPORT 2018

The Kenya Country Report is a publication by the Navarra Center for International
Development. The report is a collection of the major economic, social and political
indicators describing the Kenyan economy, obtained from reliable sources such as the
World Bank, The International Monetary Fund, the Central Bank of Kenya and others.
In-depth analysis is conducted by the researchers at the Center to provide a holistic
understanding of the opportunities and emerging trends in the highlighted indicators.
TABLE OF CONTENTS
1. KENYA COUNTRY OVERVIEW .......................................................................................... 5
2. ECONOMY OVERVIEW OF KENYA ................................................................................... 7
3. KENYA GROSS DOMESTIC PRODUCT .............................................................................. 9
3.1 Kenya GDP Analysis .......................................................................................................... 9
3.2 Outlook of Kenya´s Economic Performance in 2018 ....................................................... 14
4. POPULATION IN KENYA.................................................................................................... 15
4.1 Background of Kenya´s Population .................................................................................. 15
4.2 Analysis of Population trends in Kenya ............................................................................ 15
4.3 Age Structure .................................................................................................................... 17
4.4 Gender Structure in Kenya ................................................................................................ 18
4.5 Work and Employment ..................................................................................................... 20
5. KENYAN TRADE AND BALANCE OF PAYMENTS........................................................ 21
5.1 Background of Kenya´s Trade .......................................................................................... 21
5.2 Kenyan Exports ................................................................................................................. 22
5.3 Kenya Imports ................................................................................................................... 25
5.4 Balance of Trade ............................................................................................................... 26
5.5 International Liquidity ....................................................................................................... 29
5.6 Kenya Trade Outlook ........................................................................................................ 30
6. GOVERNMENT FINANCE IN KENYA .............................................................................. 32
6.1 Background of Government Finance................................................................................. 32
6.2 Government Revenue ........................................................................................................ 33
6.3 Government Expenditure .................................................................................................. 34
6.4 Public Debt ........................................................................................................................ 36
7. FINANCIAL MARKETS ....................................................................................................... 37
7.1 Background of Kenyan Markets ....................................................................................... 37
7.2 Capital Markets ................................................................................................................. 38
7.3 Money Markets ................................................................................................................. 39
7.4 Currency Market ............................................................................................................... 41
8. MOBILE FINANCIAL SERVICES IN KENYA ................................................................... 43
8.1 Background of Mobile Financial Services in Kenya......................................................... 43
8.2 Brief History on Commercial Banks in Kenya .................................................................... 44
8.2 Mobile Financial Services .................................................................................................. 47
8.3 Mobile Money ................................................................................................................... 47
 8.6 Agency Banking ................................................................................................................ 49
8.7 Mobile Banking ................................................................................................................. 51
9. EDUCATION IN KENYA ............................................................................................................. 53
9.1 General Statements............................................................................................................ 53
9.2 Attendance and literacy ..................................................................................................... 54
9.3 Role of the government in Education ................................................................................ 57
10. CORRUPTION ..................................................................................................................... 59
10.1 Analysis of Corruption in Kenya .................................................................................... 59
11. STATE OF DEMOCRACY IN KENYA .............................................................................. 61
11.1 Analysis of Democracy Indicators .................................................................................. 61
11.2 Impact of Ethnicity on Elections in Kenya ..................................................................... 62
11.3 FREEDOM OF EXPRESSION AND CIVIL LIBERTIES ............................................ 63
11.4 Extra-Judicial Killings..................................................................................................... 63
11.5 Security Cost ................................................................................................................... 64
11.6 Terrorism ......................................................................................................................... 65
BIBLIOGRAPHY ....................................................................................................................... 66
 1. KENYA COUNTRY OVERVIEW
Kenya, officially the Republic of Kenya, is a country in Africa and a founding member
of the East African Community (EAC). Kenya´s capital and largest city is Nairobi.
Kenya´s territory lies on the equator and overlies the East African Rift covering a
diverse and expansive terrain that extends roughly from Lake Victoria and further
south-east to the Indian Ocean. It is bordered by Tanzania to the south and southwest,
Uganda to the west, South-Sudan to the north-west, Ethiopia to the north and Somalia to
the north-east. Kenya covers 581,309km2 (224,445 sq mi), and had a population of
approximately 48 million people in January 2017.

The economy of Kenya is the largest by GDP in East and Central Africa. According to
the 2017 World Bank GDP rankings, Kenya is the ninth largest economy in Africa and
the fourth in Sub-Saharan Africa (World Bank Group, 2017). The capital, Nairobi, is a
regional commercial hub. Agriculture is a major employer in Kenya; the country
traditionally exports tea and coffee and has more recently begun to export fresh flowers
to Europe. The service industry is also a major economic driver. Additionally, Kenya is
a member of the East African Community trade bloc.

After attaining its independence in 1963, Kenya promoted rapid economic growth
through public investment, encouragement of smallholder agricultural production, and
incentives for private often foreign industrial investment. Gross domestic product (GDP)
grew at an annual average of 6.6% from 1963 to 1973 and 7.2% during the 1970s.
Agricultural production grew by 4.7% annually during the same period, stimulated by
redistributing estates, diffusing new crop strains, and opening new areas to cultivation.
Between 1974 and 1990, however, Kenya's economic performance declined. GSP
growth averaged 4.2% per year in the 1980s and 2.2% a year in the 1990s (Kimenyi,
Njuguna, & Mwega, 2016).

Kenya is a world leader in mobile money 1 and has made significant progress in
financial inclusion since 2007. Increasingly, Kenya has become a center of innovation
especially in mobile phone-based financial services, whose growth and employment
opportunities have ignited economic growth in the economy. Kenya has also been an
important player in the horticulture export market. The country has a youthful
population and is well positioned to reap the population dividend. In addition, the

1
Kenya is home to the world´s leading mobile money platform – M-Pesa.
country discovered oil in 2012 in the Northern Turkana region and it is likely to be an
oil exporter in the near future and will join Uganda and South Sudan. The Kenyan
economy serves five landlocked countries that are relatively resource-rich (Ethiopia,
South Sudan, Uganda, Rwanda, and Burundi). Therefore, Kenya´s comparative
advantage lies in improving its port facilities, road and railway networks, and transit
airports as trade routes for these five countries. Even more significant has been the
strengthening of the institutions of governance through the 2010 enactment of a
progressive constitution that radically altered the previous dominance of the executive.
At the core of the new constitutional dispensation is devolution of decision-making
powers to 47 county governments. All these factors augur well for continued strong
economic performance.

However, the country’s future growth faces several pitfalls even with the above set of
opportunities. Some of the risk factors include: first, the emerging terrorist attacks by
the Al-Shaabab group based in Somalia which has adversely impacted the country’s
economy; second and increasingly, although the country has recorded high rates of
economic growth, joblessness especially among the youth remains very high and a
likely source of instability; and third, poverty and inequality both at individual and
regional levels remain high and pose threats not only to sustained growth but also to
stability. In addition, internal institutional weaknesses and governance challenges
threaten the gains of the new constitution. These and other risk factors are of concern to
the country’s ability to sustain growth and retain its position as a dominant economy.
More recently, there have been growing concerns over the ballooning public debt and an
interest rate cap that has slowed down private sector credit growth.

This report seeks to analyze the main economic indicators of the Kenyan economy, to
provide a holistic understanding of the opportunities and emerging trends in various
economic sectors.
 2. ECONOMY OVERVIEW OF KENYA
Kenya´s economy is market-based with a few state-owned infrastructure enterprises and
maintains a liberalized external trade system. The country is generally perceived as
Eastern and central Africa's hub for Financial, Communication and Transportation
services. Major industries include: agriculture, forestry and fishing, mining and minerals,
industrial manufacturing, energy, tourism and financial services. As of 2016 estimates,
Kenya had a GDP of $70.53 billion. The GDP value of Kenya represents 0.11 percent
of the world economy, making it the 68th largest economy in the world (World Bank
Group, 2017). Per capita GDP was estimated at $1,455.36 in the 2016.

The government of Kenya is generally investment friendly and has enacted several
regulatory reforms to simplify both foreign and local investment, including the creation
of an export processing zone. The export processing zone has grown rapidly through
input of foreign direct investment. An increasingly significant portion of Kenya's
foreign inflows are remittances by non-resident Kenyans who work in the US, Middle
East, Europe and Asia. Compared to its neighbours, Kenya has well-developed social
and physical infrastructure..

Kenya´s real GDP growth has averaged over 5% for the last eight years. Since 2014,
Kenya has been ranked as a lower middle income country because its per capita GDP
crossed a World Bank threshold. Kenya has a growing entrepreneurial middle class and
steady growth.

Agriculture remains the backbone of the Kenyan economy, contributing one third of
GDP. About 75% of Kenya´s population of roughly 44.2 million work at least part time
in the agricultural sector, including livestock and pastoral activities. Over 75% of
agricultural output is from small-scale, rain-fed farming or livestock production.

Inadequate infrastructure and weak governance continue to hamper Kenya´s efforts to

improve its annual growth to the 8%-10% range so that it can meaningfully address
poverty and unemployment. The Kenyatta administration has been successful in
courting external investment for infrastructure development. International financial
institutions and donors remain important to Kenya´s economic growth and development,
but Kenya has also successfully raised capital in the global bond market. Kenya issued
its first sovereign bond offering in mid-2014, and recently raised an additional $2
billion in February 2018 Eurobond issue. Nairobi contracted a Chinese company to
construct a new Standard Gauge Railway (SGR) connecting Mombasa and Nairobi,
which was completed in May 2017.

The Central Bank of Kenya follows an inflation targeting monetary policy regime,
targeting an inflation range of 5% +/- 2.5%.Inflation pressures and sharp currency
depreciation peaked in early 2012 but have since abated following low global food and
fuel prices and monetary innovations by the Central Bank. Drought-like conditions in
parts of the country pushed inflation in 2017 above 8%. Chronic budget deficits,
including a shortage of funds in mid-2015, hampered the government’s ability to
implement proposed development programs, but the economy is back in balance with
many indicators, including foreign exchange reserves, interest rates and FDI moving in
the right direction. Underlying weaknesses were imposed in the banking sector in 2016
when the government was forced to take over three small and undercapitalized banks. In
2016, the government enacted legislation that limits interest rates that banks can charge
on loans and set a rate that banks must pay their depositors. This measure led to a sharp
shrinkage of credit in the economy.

Tourism holds a significant place in Kenya´s economy. A spate of terrorist attacks by

the Somalia-based group al-Shabaab reduced international tourism earnings after their
deadly 2013 attack on Nairobi´s Westgate mall, which killed 67 people, but the sector is
now recovering. In 2016, tourist arrivals grew by 17% while revenues from tourism
increased by 37%.
 3. KENYA GROSS DOMESTIC PRODUCT
3.1 Kenya GDP Analysis
Since attaining its independence in 1963, Kenya´s economic growth and expansion of
the Gross Domestic Product have experienced phases of growth and contraction based
on a number of factors. Kenya accomplished good economic performance in the 1960s
and early 1970s but contracted in the 1980s and 1990s due to limited economic
transformation. The economy expanded from 2000 to 2016 following a new political
regime, adoption of a new constitution and strengthening of institutions. Even so, a
number of factors have occasionally disrupted economic growth such as drought, post-
election violence of 2007 and low commodity prices. The Gross Domestic Product
(GDP) in Kenya was worth 70.53 billion US dollars in 2016. This GDP value of Kenya
represents 0.11 percent of the world economy (World Bank Group, 2017). GDP in
Kenya averaged 14.33 USD Billion from 1960 until 2016, reaching an all-time high of
70.53 USD Billion in 2016 and a record low of 0.79 USD Billion in 1961. In the long-
term, the Kenya GDP is projected to trend around 82.00 USD Billion in 2020.

Figure 1: GDP of Kenya: 1960 - 2016

Source: World Development Indicators 2017

Analyzing Kenya´s GDP growth rate over the years: In the 1960s, growth averaged 5.7
per cent, accelerating in the 1970s to 7.2 per cent. It declined in the 1980s to 4.2 per
cent and in the 1990s to 2.2 percent. In the new millennium, the economy has
experienced relatively strong economic performance compared to the Sub-Saharan
region and the global economy at large. In the period 2000-2010, GDP growth averaged
4.1 per cent and accelerated to 5.45% from 2011 to 2017 (World Bank Group, 2017).

Figure 2: Kenya GDP growth rate (1961 – 2017)

Kenya GDP Growth Rate (1961-2017; projections to 2022)

25

20

15

10
GDP Growth Rate (%)
5

-5

-10
65 70 75 80 85 90 95 00 05 10 15 20

Year

Source: World Bank Development Indicators 2017

The subdued economic growth of the 1980s was mainly due to the global recession,
commodity price decline, delayed structural adjustment policies, a political succession
in the country, as well as slow moving candidates such as institutional quality and
distributional policies (Ndulu, Bates, Chukwuma, O'Connell, & Collier, 2008).

Kenya ´s economy experienced sustained recovery and sound economic growth since
2000. This growth was consistent with the Africa Rising narrative of a resurgence of
economic growth in the region in the new millennium supported by the emergence of
strong institutions and increasing demand for political accountability. The rapid growth
in Africa has been attributed to a range of factors as discussed by Robertson (2013):

 better government finances and fiscal policies reflected in reduced debt and
general government expenditures ratios;
  booming commodity exports, especially to China, although the region runs a
trade deficit with the country
 increased FDI
 new discoveries of oil and other minerals
 increased role of telecoms
 ease of doing business reforms
 increased investments in education
 democratization of the continent

Figure 3: Kenya GDP Growth Rate in the recent age: 2000-2017

Kenya GDP Growth Rate (2000 - 2017)

9

5
Growth Rate (%) 4

0
2000 2002 2004 2006 2008 2010 2012 2014 2016
Year

Source: World Bank Development Indicators 2017

In 2000, the economy recorded an all-time low growth rate of 0.6 per cent, increasing to
3.8 per cent in 2001, but declining to 0.5 per cent in 2002. Following a peaceful change
of government in December 2002 from the Kenya African National Union (KANU),
which had ruled the country since independence, to the National Rainbow Coalition
(NARC) under Mwai Kibaki, the growth rate accelerated. The economy expanded
steadily from 2.9 per cent in 2003 to 5.1 per cent in 2004, 5.9 per cent in 2005, and 6.3
per cent in 2006, to reach a peak of 7.1 per cent in 2007, the highest in over two decades
and the only episode of five-year growth acceleration in Kenya´s independence history
(World Bank Group, 2014). The sound economic performance was bolstered by the
implementation of bold economic and structural reforms under the Economic Recovery
Strategy (ERS) and a favourable external environment. The ERS was a five-year
blueprint prepared to address Kenya´s macroeconomic vulnerabilities and structural
weaknesses.

The Kibaki government put in place economic policy and governance reforms that
enhanced economic performance. Kenya´s rankings in the World Bank Country Policy
and Institutional Assessment (CPIA), which rates 20 aspect of governance and policies,
generally improved in 2005-06 (from 3.52 to 3.58); declined in 2007-08 /to 3.55 and
3.52 respectively) as a result of the post-election violence, drought, and the global
financial crisis; and improved in 2009-13 (from 3.67 to 3.80). It has maintained at 3.8
till 2016.

Figure 4: Kenya CPIA scores: 2008 - 2016

World Bank CPIA Scores (2008 - 2016)

4.0

3.9

3.8

3.7
IDA Borrow ers Average
CPIA score 3.6
Kenya
3.5 SSA IDA average

3.4

3.3

3.2

3.1
2008 2009 2010 2011 2012 2013 2014 2015 2016
Year

Source: World Bank Country and Policy Institutional Assessment 2016

Kenya´s economic growth declined in 2008 as a result of post-election violence,

drought and the global finance crisis eroding the achievements of the previous half-
decade. Following counter cyclical demand management policies and favourable
weather conditions that improved agricultural performance, growth subsequently picked
up to 3.31 per cent in 2009 and to 8.41 percent in 2010.As a result of a surge in global
food and oil prices as well as a drought in the country, growth declined to 6.12 per cent
in 2011, to 4.45 per cent in 2012, 5.74 per cent in 2013, and was 5.3 percent in 2014.
The economy experienced slight recovery in 2015 (5.71 per cent) and also in 2016 (5.84
per cent) on the backdrop of heavy government spending on infrastructural projects
including the Standard Gauge Railway connecting the port city of Mombasa to the
capital city of Nairobi. In 2017, growth declined to 4.8 per cent. This was mainly due to
a prolonged election period during which Kenya had a repeat presidential election. Also
hampering economic growth in 2017 was weak private sector economic activity
following the adoption of legislation by the government in September 2016 where the
Government of Kenya set the lending and deposit rates to be charged by banks to
customers2. Private sector credit growth in Kenya slowed down to very low levels in
2017.

Figure 5: Slowdown in private sector credit growth

Growth in Private Sector Credit (2014 - 2017)

30

25
Percentage Growth

20

15

10

0
14 14 14 14 15 15 15 15 16 16 16 16 17 17 17 17
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q
Period

Source: Brookings Institution, obtained from Central Bank of Kenya

2
The Government of Kenya capped the commercial bank lending rates to 400 basis points above the
central bank interest rate. Deposit rates were set to 70 per cent of the central bank rate.
3.2 Outlook of Kenya´s Economic Performance in 2018
In 2017, Kenya´s economic growth was derailed by elevated uncertainty during the
prolonged election cycle, a crippling drought that damaged agricultural output, and the
government’s ongoing cap on lending rates charged by commercial banks. Economic
activity expanded again in January 2018 against a backdrop of political stability,
evidenced by a PMI reading above the 50-point threshold; the private sector returned to
growth in December 2017 following seven months of contraction. At the same time, the
economy’s public and external debt stocks have been piling up while revenue flows
have declined, eroding debt affordability. Data released by the Central Bank of Kenya
shows that both domestic debt and external debt jumped by double-digit figures over the
previous year in 2017. A deteriorating fiscal position led Moody’s to downgrade
Kenya’s credit rating from B1 to B2 on 13 February 2018. The agency views fiscal
trends worsening in the near-term, with greater reliance on commercial external debt.
However, it assigned a stable outlook, given the economy’s relatively diversified
structure, strong growth potential and mature financial sector.

In 2018, the economy is expected to expand more due to increased agricultural output,
supported by more favorable weather conditions; an expansion in construction activity
for planned infrastructure projects; and an upturn in investment should bump up growth
in 2018. That said, the government’s interest rate cap policy will continue to dent
growth. The economy’s rising debt levels may subdue growth in the medium term.
 4. POPULATION IN KENYA
4.1 Background of Kenya´s Population
Kenya is a multi-ethnic state, inhabited primarily by Bantu and Nilotic populations,
with some Cushitic-speaking ethnic minorities in the northern regions of the country.
Kenya has a very diverse population that includes most major ethnic, racial and
linguistic groups found in Africa. Bantu and Nilotic populations together constitute
around 97% of the nation's inhabitants.

Swahili and English are official languages. Swahili is compulsory in primary education,
and, along with English, serves as the main lingua franca between the various ethnic
groups.

According to the C.I.A World Factbook profile on Kenya, the main ethnic groups are as
follows: Kikuyu 22%, Luhya 14%, Luo 13%, Kalenjin 12%, Kamba 11%, Kisii 6%,
Meru 6%, other African 15%, non-African (Asian, European, and Arab) 1%. Since
Kenyan independence in 1963, Kenyan politics have been characterized by ethnic
tensions and rivalry between the larger groups. This devolved into ethnic violence in the
2007–2008 post-election violence.

The main religion in Kenya is Christianity, which is practised by 83% of the population.
Of the Christians, Protestant are 47.7%, Roman Catholics are 23.4% and Other
Christians are 11.9%. Islam religion in Kenya is practiced by 11.2% of the population.

4.2 Analysis of Population trends in Kenya

Kenya has experienced dramatic population growth since the mid-20th century as a
result of its high birth rate and its declining mortality rate. The last census to be
undertaken in Kenya was done in 2009, where the population was recorded at 38.6
million. The I.M.F World Economic Outlook 2017 database indicates that Kenya´s
population as of 2018 is estimated to be 48.03 million persons, and is expected to grow
to 53.52 persons by 2022.

Kenya has experienced dramatic population growth since the mid-20th century as a
result of its high birth rate and its declining mortality rate. More than 40% of Kenyans
are under the age of 15 because of sustained high fertility, early marriage and
childbearing. Kenya’s persistent rapid population growth strains the labor market, social
services, arable land, and natural resources. Although Kenya in 1967 was the first sub-
Saharan country to launch a nationwide family planning program, progress in reducing
the birth rate has largely stalled since the late 1990s, when the government decreased its
support for family planning to focus on the HIV epidemic. Government commitment
and international technical support spurred Kenyan contraceptive use, decreasing the
fertility rate (children per woman) from about 8 in the late 1970s to less than 5 children
twenty years later, but it has plateaued at just over 3 children today (Central Intelligence
Agency, 2017).

Figure 6: Kenya Population

Kenya Population (1980-2018; projections to 2022)

55

50
2010: 38.5 Million
45 2016: 45.4 Million
2022: 53.5 Million
40

Millions 35

30

25

20

15
1980 1985 1990 1995 2000 2005 2010 2015 2020

Year

Kenya is a source of emigrants and a host country for refugees. In the 1960s and 1970s,
Kenyans pursued higher education in the UK because of colonial ties, but as British
immigration rules tightened, the US, the then Soviet Union, and Canada became
attractive study destinations. Kenya’s stagnant economy and political problems during
the 1980s and 1990s led to an outpouring of Kenyan students and professionals seeking
permanent opportunities in the West and southern Africa. Nevertheless, Kenya’s
relative stability since its independence in 1963 has attracted hundreds of thousands of
refugees escaping violent conflicts in neighboring countries; Kenya shelters more than
300,000 Somali refugees as of April 2017.
4.3 Age Structure
Kenya has a vibrant young population. Approximately 60% of the Kenyan population is
under 25 years. This gives the country a great chance to build an educated and civic
community, together with having a growing market for manufactured good. The
youthful population also provides a wide tax base for the government, although
informal employment makes up the largest employment sector, making taxation more
difficult.

Table 1: Kenya Population Age Structure

AGE % of Total MALE FEMALE

Population
0-14 40.02% 9,557,274 9,497,870
15-24 19.15% 4,552,448 4,567,894
25-54 33.91% 8,170,264 7,976,751
55-64 3.92% 856,092 1,009,075
65 years and over 3% 614,751 813,320

Source: C.I.A World Factbook 2017

Figure 7: Population Pyramid in Kenya

Source: C.I.A World Factbook 2017

4.4 Gender Structure in Kenya
The gender structure in Kenya is fairly evenly distributed between the male and female
population. Data from the World Bank indicates that in 2016, there were 24,085,548
males in Kenya, and a fairly equivalent female population of 24,376,019.

Figure 8: Gender Structure in Kenya

Gender Distributio in Kenya (Male vs Female): 1960-2016

28,000,000

24,000,000
Male Population
Female
20,000,000

Persons
16,000,000

12,000,000

8,000,000

4,000,000

0
60 65 70 75 80 85 90 95 00 05 10 15

Year

Source: World Bank Development Indicators 2017

However, there are significant differences in terms of participation in the formal labour
force. As with many other African economies, there are more males in the formal
employment sector. This was mainly because of lack of access to education and
employment opportunities for girls, but since the introduction of free primary education
and abolishment of cultural malpractices, the situation has greatly improved.

Figure 9: Male and Female Workers in Employment

Kenya Wage and Salaried Workers as a percentage of total employment (Male vs Female)

60

50

40

% of total employment
30

20

10
92 94 96 98 00 02 04 06 08 10 12 14 16
W age and salaried workers, male (% of male employment)
W age amd Salaried W orkers, female (% of female employment)

Source: World Bank Development Indicators 2017

The 2016 United Nations human development report indicates that Kenya´s HDI was
recorded at 0.555 in 2015, placing Kenya 146th in the world. Kenya´s HDI position
places it in the medium human countries. Other African countries in this category
include Botswana, Gabon, Egypt and Ghana.

Figure 10: Kenya Human Development Index

Kenya HDI value

0.600

0.500

0.400

0.300

0.200

0.100

0.000
1990 2000 2010 2011 2012 2013 2014 2015

Source: United Nations Human Development Index Indicators 2016

The report states that the Life expectancy at birth in Kenya is 66.2 years. Other major
rankings in the 2016 report are as follows:

Table 2: Inequality Adjusted Human Development Index in Kenya (2016)

Inequality Inequality- Inequality- Inequality-

Inequality- Coefficient in life adjusted Inequality adjusted adjusted
HDI HDI Adjusted of Expectancy life in education Inequality income
Rank Value HDI Inequality (%) expectancy education index in income index
146 0.555 0.391 29.4 32.1 0.44 22.9 0.4 33.1 0.339

Table 3: Gender-Adjusted Human Development index in Kenya (2016)

The gender development index of the United Nations report notes the following:

Estimated
Gender Human Life gross national
Development Development Expectancy at Expected years Mean years income per
Index Index Birth of schooling of schooling capita

Value Value Years Years Years (2011 PPP $)

Male Female Male Female Male Female Male Female Male Female
0.919 0.577 0.531 60.3 64.1 11.4 10.8 7 5.7 3405 2357
4.5 Work and Employment
The World Bank reports employment to population ratio for ages 15-24 total % as
follows:

Figure 11: Kenya Employment to Population Ratio (Ages 15-24)

Kenya Employment to Population Ratio (1991-2017)
48

1997: 38.90%
44 2007: 31.40%
2017: 30.29%

40

% of population
36

32

28
92 94 96 98 00 02 04 06 08 10 12 14 16

Year

Source: World Bank Development indicators 2017

The CIA World Factbook reports the following indices regarding Kenya´s population:

Table 4: Kenya Population Summary - C.I.A World Factbook

INDEX VALUE
DEPENDENY RATIO (2015 est.)
Total dependency ratio 78.3
Youth dependency ratio 73.7
Elderly Dependency Ratio 4.6
Potential support ratio 21.7
MEDIAN AGE (2017est.)
Total 19.7 years
male 19.6 years
female 19.9 years
Country comparison to the world 200
POPULATION GROWTH (2017 est.)
Population growth rate 1.69%
Country comparison to the world 63
BIRTH RATE (2017 est.)
Birth rate 23.9 births / 1,000
population
Country comparison to the world 59
DEATH RATE (2017 est.)
Death rate 6.7 deaths / 1,000
population
NET MIGRATION RATE (2017 est.)
Net migration rates -0.2 migrants / 1,000
population
 5. KENYAN TRADE AND BALANCE OF PAYMENTS
5.1 Background of Kenya´s Trade
Kenya is the 107th largest export economy in the world and the 76th most complex
economy according to the Economic Complexity Index (ECI). Kenya has a relatively
well-developed agricultural sector and relies on it for a significant portion of its exports.
Kenya is different from most medium to larger African economies in that it has
significant intra-African trade and, conversely, while China is growing as an import
source, China does not figure as an export destination.

Kenya principally relies on agricultural products for its exports, with agriculture
contributing approximately 30 percent of the Gross Domestic Product in 2017. The
agricultural sector faces a number of challenges, one of which is having the Kenyan
population tripling over the past 30 years and a large problem of poverty (both urban
and rural); another is the severe droughts and flooding in recent years (Sandrey,
Mwanza, & Swarts, 2015). The main component if Kenya´s imports are machinery and
equipment primarily sourced from China and the Middle East.

In 2017, Kenya exported KES 549.178B ($5.49B) and imported KES 1,583.29B
($15.8B) resulting in a negative trade balance of KES 1,034.11B ($10.34B). This led to
expansion of the trade deficit from KES 854.51B in 2016 to KSh 1034.7 billion in
2017.There was a drop in the export to import ratio from 40.34% in 2016 to 34.69% in
2017. The terms of trade stood at 78.8% in 2016.
5.2 Kenyan Exports
Kenya´s exports to the rest of the world grew on average by 9.02% on a year-to-year
basis, from KES 134.53 billion ($1.3B) in 2000 to KES 549.18B ($5.49B) in 2017.
Figure 12: Total Kenyan Exports
Kenya Total Exports (1999-2017)
600,000

2017: KES 549.18B ($5.4B)

500,000 2016: KES 577.92B ($5.7B)
2015: KES 581.02B ($5.8B)

400,000
Ksh (Millions)

300,000

200,000

100,000
2000 2002 2004 2006 2008 2010 2012 2014 2016

Year

Source: Central Bank of Kenya & Kenya National Bureau of Statistics

Kenya´s principal exports are agricultural products. In 2017, tea contributed 45% of all
domestic exports, followed by horticulture which contributed 29.8%. Other export
products include coffee and fish, while re-exports to other African countries include
cement, chemicals and petroleum.
Figure 13: Value of Selected Domestic Exports

Source: Central Bank of Kenya & Kenya National Bureau of Statistics

Intra-African trade has been the leading destination of the Kenya´s exports. The Kenya
National Bureau of Statistics 2017 Economic Report highlighted that African exports
accounted for 40.6 per cent of total exports, with East African Community (EAC)
accounting for 21.1, from 2000-2016. During the review period, Europe and Asia
accounted for 24.5 and 24.3 per cent of the total exports, with European Union (EU)
and the Far East accounting for 21.0 per cent and 15.6 per cent, respectively (Kenya
National Bureau of Statistics, 2017).
Kenya’s major regional trading partners are Uganda, Tanzania, Somalia, D.R.C and
Egypt.
Figure 14: Kenya Exports to Selected African Countries
Kenyan Exports to Selected African Countries (2015-2017)

70,000

60,000

50,000

40,000

Ksh (millions)
30,000

20,000

10,000

0
2015 2016 2017

DRC Ethiopia Egypt

Other Rwanda S.Africa
Somalia Tanzania Uganda
Zambia Zimbabwe

Source: Central Bank of Kenya & Kenya National Bureau of Statistics

A working paper by the Trade and Law Center (TALAC) reports that recent Africa
trade liberalisation initiatives and reforms continue to foster intra-African trade, and this
has improved Kenya´s exports to the region. However, the report notes that in as much
as the results for tariff elimination on intra-African trade are promising, the real news is
in confirming that these barriers are not as significant as the various trade-related
barriers outside of tariffs (Sandrey, Mwanza, & Swarts, 2015). The report emphasizes
that over and above the Africa trade liberalisation reforms, the more traditional non-
tariff barriers to trade such as time in transit costs and reduction in the costs associated
with the particular African problem of transit-time delays at customs, terminals and
internal land transportation. The Government of Kenya is currently improving trade
prospects in Kenya through the construction of two transport corridors – the Kenya to
Uganda transport corridor and the Kenya, South Sudan and Addis Ababa transport
corridor.
The major non-regional destinations for Kenya´s exports are the member states of the
European Union, the United States, and Pakistan. After Uganda, the U.S.A have for a
long time been Kenya´s main international export markets. However, in 2017, Pakistan
grew to become Kenya´s leading export market. Pakistan mainly imports tea from
Kenya, importing 153.68 million kilogrammes of tea in December 2017 alone.
Figure 15: Kenya Exports to the Rest of the World
Kenyan Exports to The Rest of The W orld (2015-2017)

60,000

50,000

40,000

Ksh (Millions)
30,000

20,000

10,000

0
2015 2016 2017

Belgium France Germany

Netherlands Pakistan UK
USA

Source: Central Bank of Kenya & Kenya National Bureau of Statistics

5.3 Kenya Imports
Kenya´s imports from the rest of the world grew on average by 13.10% on a year-to-
year basis, from KES 247.803B ($2.5B) in 2000 to KES 1,583.28B ($15.83B) in 2017.
Figure 16: Total Kenyan Imports
Total imports in Kenya (1999-2016)
1,800,000

1,600,000
2017: KES 1.583 Trillion (USD 15.8 billion)
1,400,000 2015: KES 1.432 Trillion (USD 14.3 billion)
2013: KES 1.580 Trillion (USD 15.8 billion)
1,200,000

Ksh (Millions) 1,000,000

800,000

600,000

400,000

200,000

0
2000 2002 2004 2006 2008 2010 2012 2014 2016

Year

Source: Central Bank of Kenya

Asia accounted for 66.8 per cent of total value of imports in 2016 continuing its
dominance as the leading source of Kenya’s imports. The top 5 Import Partners to
Kenya are China, India, the United Arab Emirates, Saudi Arabia, and Japan. Imports
from China have continued to grow over the last five years making the country the
leading source of Kenya’s imports from 2015-2017. Kenya´s recent surge in imports
from China was related to the construction of the Standard Gauge Railway (SGR),
which was largely financed by China Exim Bank.
Figure 16: Kenya Import Partners

Imports from the Rest of the W orld (2015-2017)

400,000

350,000

300,000

250,000
Ksh (Millions)
200,000

150,000

100,000

50,000

0
2015 2016 2017

CHINA FRANCE GERMANY

INDIA ITALY JAPAN
S.AFRICA S.ARABIA U.A.E
U.K U.S.A

Source: Central Bank of Kenya

The main products imported to Kenya are non-food industrial supplies. Specifically,
machinery and equipment; fuel and minerals and manufactured goods constitute the
largest components of Kenya´s imports. The major commodities imported from China
include wind-powered generators, rails and signaling systems. Petroleum products were
the main items imported from the United Arab Emirates and Saudi Arabia.
Figure 17: Kenya´s Main Import Products

Kenya´s Main Import Products (2015-2017)

600,000

500,000

400,000

Ksh (Millions)
300,000

200,000

100,000

0
2015 2016 2017

Animal & Vegetable Oils

Beverages and Tobacco
Chemicals
Food and Live animals
Fuels and Minerals
Inaudible Crude materials
Machinery & Equipent
Manufactured Goods

Source: Central Bank of Kenya

5.4 Balance of Trade

For a long time, Kenya has sustained a balance of trade deficit. The volume of imports
is significantly higher than the volume of exports, leading to a worsening of the export-
import ratio. The trade deficit is exacerbated by a weakening Kenyan Shilling.

Figure 18: Imports vs Exports

Kenya Total Imports vs Total Exports (1999-2017)

1,800,000

1,600,000 Total Exports

Total imports
1,400,000

1,200,000
Ksh (Millions) 1,000,000

800,000

600,000

400,000

200,000

0
2000 2002 2004 2006 2008 2010 2012 2014 2016

Year

Source: Kenya National Bureau of Statistics

Figure 19: Balance of Trade

Kenya Trade Balance (1999-2017)

0

-200,000

-400,000

-600,000
Ksh (Millions)
2017: KES -1034.111 Billion (USD -10 Billion)
-800,000 2012: KES -858.959 Billion (USD -8.6 Billion)
2007: KES -330.525 Billion (USD -3.3 Billion)

-1,000,000

-1,200,000
2000 2002 2004 2006 2008 2010 2012 2014 2016

Year

Source: Central Bank of Kenya & Kenya National Bureau of Statistics

The recent worsening of the trade balance in 2017 was on the back of increased food
imports due to a drought that posed a major risk to people, livestock and wildlife.
Imports increased 20.93 per cent to KES 1,580 billion in November 2017 while exports
rose a measly 3.37 per cent to KES 549.18 billion. The widening deficit is piling
pressure on the Kenyan shilling against global currencies such as the dollar. The high
demand for the dollar to fund imports forces the Central Bank of Kenya to intervene,
depleting stock of foreign exchange reserves.

Figure 20: Export to Import Ratio

Kenya´s current account has mostly been in deficit. There had been sustained
improvement from 2000 to 2004 following the establishment of the Mwai Kibaki
administration where the country experienced its best record performance of year-on-
year GDP growth rate. However, the situation worsened from 2005 to 2014 as the
deficit became more sustained. The government of Kenya is currently implementing job
creation reforms to improve the deficit.

Figure 21: Kenya Current Account Balance

Kenya Current Account Balance (1980-20189

2

-1

-2
USD (Billions)
-3

-4

-5

-6

-7
1980 1985 1990 1995 2000 2005 2010 2015

Year

Source: IMF World Economic Outlook 2018

Figure 22: Current Account as a Percentage of GDP

Kenya Current Account % of GDP (1980-2018)
12

2016: -5.18
8 2017: -6.06
2018*: -7.62

% of GDP 0

-4

-8

-12
1980 1985 1990 1995 2000 2005 2010 2015

Year

Source: IMF World Economic Outlook

5.5 International Liquidity
The Central Bank of Kenya maintains a reserve position to enable it to hold
approximately 4-5 months of import cover.

Figure 23: Foreign Exchange Reserves

Central Bank of Kenya Usabe Foreign Exchange Reserves (2015-2017)

11,500

11,000

10,500

USD (millions) 10,000

9,500

9,000

8,500
I II III IV I II III IV I II III IV
2015 2016 2017

Source: Central Bank of Kenya

Figure 23: Foreign Exchange Rate

Kenya Shilling Exchange Rate against USD, EUR and GBP (1991-2018)

180

160

140

120

KES 100

80

60
EUR
40 GBY
USD
20
92 94 96 98 00 02 04 06 08 10 12 14 16

Year

Source: YahooFinance.com
5.6 Kenya Trade Outlook
Kenya continues to be a leading regional trade hub in East and Central Africa. The
Government of Kenya is currently undertaking major strides to aid transportation of
goods and services into the East African Region and to improve international trade. In
2017, the Government of Kenya completed the construction of the Mombasa–Nairobi
Standard Gauge Railway that connects Kenya's port city of Mombasa to Nairobi, the
nation's capital. The SGR was constructed to replace the parallel Uganda Railway that
was built during British colonial rule in the 19th century. The SGR is the country's
largest infrastructure project since independence. Under the East African Railway
Master Plan, the Mombasa–Nairobi SGR will link up with other standard-gauge
railways being built in East Africa. Phase 2 of the project will extend the railway to the
Uganda border by 2021. The SGR is expected to greatly improve trade between the East
African communities.

The second major infrastructure project currently being undertaken by the Government
of Kenya to improve trade in the East-African community is the construction of the
Lamu Port and Lamu-Southern Sudan-Ethiopia Transport Corridor (LAPPSET). This
will serve as the country´s second transport corridor, after the Mombasa-Uganda
transport corridor. The LAPSSET project is a combination of various components –
ports, pipelines, roads and railways. The LAPSSERT Lamu port is currently under
construction Lamu, a coastal town near Mombasa in Kenya. In addition to the port, a
standard gauge railway will be constructed from Lamu to Juba in South Sudan and
Addis Ababa in Ethiopia. This will be accompanied by a highway crude oil pipelines
from Lamu to Addis Ababa. The LAPSSET corridor will greatly improve intra-African
trade. China is targeting Kenya’s ports of Mombasa and Lamu in expanding its global
influence through trade and connectivity. The Chinese government lists the two ports as
important to its One Belt One Road (OBOR) Initiative, an ambitious programme meant
to create “a community of common destiny” from among 63 countries around the world
with about 4.5 billion people.

The East African member states of Kenya, Uganda, Tanzania, Rwanda and Burundi
recently launched an East-African e-passport. Kenya launched the passport in
September 2017, while Tanzania launched in February 2018. Uganda, Rwanda and
Burundi are yet to roll out the e-passport, but have reported various stages of progress.
The e-passport — also known as the biometric passport — complies with guidelines set
by the International Civil Aviation Organisation (ICAO), making it admissible globally.
The East African e-passport is set to increase trade between the East African Countries
over the coming years.
 6. GOVERNMENT FINANCE IN KENYA
6.1 Background of Government Finance
Since attaining independence in 1963, the Government of Kenya has taken significant
strides in improving its fiscal position. Kenya´s government revenues have improved
significantly in the 21st century, backed by innovations in mobile money that have
accelerated tax efficiency. Tax-based revenue constitutes a significant proportion of
Kenya´s tax revenue. However, majority of the Kenyan businesses are in the informal
trade sector, making tax collection a significant challenge as most businesses are not
registered and do not file returns.

Government spending in Kenya has also increased in line with improved revenues.
However, recurrent expenditure occupies the largest proportion of government
expenditure, taking up 71 percent of the total expenditure in Kenya. Given that Kenyan
expenditure has consistently been higher than government revenue, the government has
been financing its expenditure through domestic and external debt. The Kenyan treasury
raised $2 billion in 2014 through an international Eurobond. This was the highest bond
amount to be raised by an African economy in international bond markets then. In
March 2018, Kenya secured another $2 billion Eurobond. A proportion of these funds
will be used to finance maturing loans. Policy experts and development institutions such
as the World Bank and the International Monetary Fund have raised concerns about
Kenya´s ballooning public debt, which increased from 40.09 percent in 2013 to 52.76
percent in 2018.
6.2 Government Revenue
The government of Kenya has continued to improve its revenue collection mechanisms.
Revenue increased from $1.94 billion in 2001 to $14.01 billion according to Central
Bank of Kenya data.

Figure 24: Government Revenue in Kenya

Total Revenue in Kenya (2001-2017)

1,600,000

1,400,000
2017: $14.01B
1,200,000 2016: $12.22B
2015: $10.81B
1,000,000
Ksh (Millions)
800,000

600,000

400,000

200,000

0
2002 2004 2006 2008 2010 2012 2014 2016

Year
Source: Central Bank of Kenya

The composition of government revenue in terms of tax revenue and non-tax revenue is
as below. Tax revenue continues to be the key component of Kenya´s government
revenue, occupying approximately an average of 84% of total revenue from 2001-2017.

Composition of Revenue- Tax vs Non-Tax (2001-2017)

2001 2002 2003 2004 2005

2006 2007 2008 2009 2010

2011 2012 2013 2014 2015

2016 2017

Tax % Non Tax %

Source: Central Bank of Kenya

6.3 Government Expenditure
The Kenyan Government´s expenditure has been increased linearly with increase in
revenue. The Central Bank of Kenya data shows that government expenditure increased
significantly after 2015. This was mainly due major infrastructural projects being
undertaken by the government.

Figure 25: Total Government Expenditure in Kenya

Total Government Expenditure in Kenya (2001-2017)

2,400,000

2017: $21.38B
2,000,000 2016: $17.65B
2015: $15.87B

1,600,000

Ksh (Millions)1,200,000

800,000

400,000

0
2002 2004 2006 2008 2010 2012 2014 2016

Year

Source: Central Bank of Kenya

The largest component of government expenditure is recurrent expenditure. Many

stakeholders, including the International Monetary Fund, have raised concerns over the
prevalence of recurrent expenditure over development expenditure in Kenya. After the
adoption of a new constitution in 2010, Kenya created 47 new devolved units of
government, effective as of 2013. This greatly increased recurrent expenditure on wages
and salaries together with other county administration costs. As can be seen from the
chart, government expenditure increases significantly from 2013. In 2017, the
government undertook major infrastructural projects including the construction of a
standard gauge railway, also bringing up government expenditure in the same year.

Recurrent expenditure takes up the largest portion of expenditure in Kenya, occupying

an average of 76.6 of total expenditure between 2001 and 2017.
Composition of Government Expenditure - Recurrent vs Development Expenditure (2001-2017)

2001 2002 2003 2004 2005

2006 2007 2008 2009 2010

2011 2012 2013 2014 2015

2016 2017

Dev % Rec %

The creation of these new administrative posts greatly increased the wage bill in Kenya
leading to a significant part of the revenue collected to finance recurrent expenditure,
and also the repayment of maturing debt. In the Budget Policy Statement 2018/19, the
National Treasury of Kenya proposed that out of the $16.8 billion revenue, $6.8 billion
be allocated to servicing existing public debt (Standard Media Group, 2018).

Total Revenue vs Total Expenditure in Kenya (2001-2017)

2,400,000

2,000,000
Total Revenue
Total Expenditure
1,600,000

Ksh (Millions)
1,200,000

800,000

400,000

0
2002 2004 2006 2008 2010 2012 2014 2016
Year

Source: Central Bank of Kenya

6.4 Public Debt
Public debt in Kenya has increased in the past half-decade since 2013. Data from the
International Monetary Fund World Economic Outlook indicates that net debt increased
from $19.02 billion in 2013 to 48.23 billion in 2018. This is an increase of 153 percent
in a short span of five years. During the same period, debt to GDP ratio jumped from
40.09 percent in 2013 to 52.75 percent in 2018.

Figure 26: Total Public Debt in Kenya

Kenya Governent Net Debt (National Currency): 1998-2017; predictions to 2022

7,000

2016: KES 3384.72 Billion (Appx. $34 Billion)

6,000
2017: KES 4233.88 Billion (Appx. $42 Billion)
2020 estimate: KES 5691.53 Billion (Appx. $57 Billion)
5,000

4,000
Ksh (Billions)
3,000

2,000

1,000

0
98 00 02 04 06 08 10 12 14 16 18 20 22

Year

Source: IMF World Economic Outlook

Figure 27: Debt to GDP Ratio

Kenya net government debt as a percentage of GDP (1998-2018)

60

2014: 44.42%
55 2016: 47.28%
2018: 52.75%
50

% of GDP 45

40

35

30
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Year

Source: IMF WEO

 7. FINANCIAL MARKETS
7.1 Background of Kenyan Markets
A vibrant and well-functioning sound, efficient and stable financial system is a catalyst
for broad based sustainable economic growth and development. It mobilizes savings
and channels them to investors facing shortage of investible funds to support Kenya’s
development. Kenya´s financial markets are relatively well developed in the African
region. Kenya’s financial sector comprises of deposits-taking institutions (commercial
banks and mortgage finance companies, microfinance banks and deposit taking Savings
and Credit Co-operatives (SACCOs), non-deposits taking institutions (insurance
industry, pensions industry, capital markets industry, Development Finance Institutions
and several other entities) and financial markets infrastructure providers.

The financial sector in Kenya is well-regulated and supervised by five main regulators
responsible for different segments in this sector, namely the Capital Markets Authority
(CMA) regulating money and capital markets; Central Bank of Kenya (CBK) regulating
commercial banks and instituting monetary policy; Insurance Regulatory Authority
(IRA) regulating insurance and re-insurance companies; Retirement Benefits Authority
(RBA) regulating pension funds; and the Sacco Societies Regulatory Authority
(SASRA) regulating the Savings and Credit Co-operative societies in Kenya.

The banking subsector, which comprises of commercial banks, mortgage finance

companies and microfinance banks, accounts for more than 60 percent of total assets in
Kenyan financial sector. Kenya is therefore a bank-based economy, although capital
markets continue to develop in terms of liquidity and depth. For Kenya to develop to a
market-based economy, significant improvements need to be made in improving
liquidity of the capital markets. One of the strategies being undertaken by the Capital
Markets Authority is the introduction of mobile trading for individual investors to
access capital markets without the need for brokers. The government launched M-Akiba
in 2017, which enabled cititzens to buy government bonds using their mobile money
accounts.

Kenya´s financial system is fairly resilient and is able to sustain both domestic and
international shocks. The country has not experienced any major banking or financial
crisis in the past decade.
7.2 Capital Markets
Kenya´s capital markets are the deepest and most sophisticated in East Africa. The
Capital Markets Authority Financial Stability Report of 2016 states that sixty-seven
companies were listed on the Nairobi Stock Exchange for a total market capitalization
of KES 1,834 billion (approximately $18 billion) as of March 2017 (Capital Markets
Authority, 2017).

Figure 28: Kenya Equity Market Capitalization

Kenya Equity Market Capitalization (1993-2016)

30

25

20

Billions USD
15

10

0
94 96 98 00 02 04 06 08 10 12 14 16
Year

Source: World Bank Development Indicators 2017

The market capitalization as a percentage of GDP stood at 26%

Figure 29: Market Capitalization as a percentage of GDP

Kenya Market Capitalization % of GDP (1993-2016)

30

25

20

% of GDP 15

10

0
94 96 98 00 02 04 06 08 10 12 14 16
Year

Source: World Bank development indicators

The Kenyan capital market has grown rapidly in recent years and has also exhibited
strong capital raising capacity. The main index of the Nairobi Securities exchange is the
NSE 20, an index consisting of 20 of the major listed stocks in the Kenyan market. The
performance of the NSE 20 index is as below:

Figure 30: Kenya´s stock market NSE 20 index

Kenya NSE 20 Index (Dec 1997- March 2018)

6,000

5,000

4,000
Ksh

3,000

2,000

1,000
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Year

Source: Investing.com

7.3 Money Markets

Unlike the capital market in Kenya, the bond market, however, is still underdeveloped
and dominated by trading in government debt securities. Long-dated corporate bond
issuances are uncommon, leading to a lack of long-term investment capital.

The government of Kenya actively raises financing for a number of infrastructural

projects through domestic credit. Chief ownership of government bonds in Kenya is
done by commercial banks. The number of individual investors is low, given the high
trading margins required to buy government bonds. However, the government
introduced M-Akiba in 2017, a mobile traded government bond that enabled ordinary
Kenyans to buy government bonds for as low as $30.
The bond yields in Kenya are significantly higher than those in western economies,
offering investors higher yield to maturity. However, the portfolio flows in the Kenyan
stock market are quite volatile and react quickly to increases in interest rates in the
United States.

Figure 31: Kenya 3-month Treasury bond Yield to Maturity

3-month bond yield for KEN; US; JAP (2004-2018)

24
Japan Yield
20 Kenya Yield
USA Yield

16

12
Yield to Maturity
8

-4
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Year

Source: Investing.com

Figure 32: Kenya 10-Year Treasury bond Yield To Maturity

10-Year Bond Yields (KEN;US;JAP) 2005-2018

20
Japan Yield
Kenya Yield
16 US Yield

12

Bond Yield 8

-4
06 07 08 09 10 11 12 13 14 15 16 17 18
Year

Source: Investing.com
7.4 Currency Market
The official currency of Kenya is the Kenyan Shilling (KES / KSH). Since the early
1990s, the Central Bank of Kenya has pursued a flexible exchange rate regime.

The most popular Kenya Shilling exchange rate is the USD to KES rate. The
performance of the Kenyan Shilling in comparison to the United States dollar is as
below:

Figure 34: Kenya Shilling Exchange Rate

KSH/USD (Jan 1991 - March 2018)

110

100

90

80

70
Price

60

50

40

30

20
92 94 96 98 00 02 04 06 08 10 12 14 16

Year

Source: YahooFinance.com

Main Highlights: The exchange rate of the Kenyan shilling slumped dramatically in
mid-2011, from about 83 shillings per US dollar to about 100 shillings per US dollar at
late 2011. The depreciation was mainly due to a 25 basis points cut in interest rates by
the Central Bank in January 2011 from 6 per cent to 5.75 per cent, in over-hasty
recognition of good growth prospects, that backfired and boosted inflation. The Central
Bank increased interest rates from 6 per cent in June 2011 to a record high of 18 per
cent in December 2011. The depreciation ceased and the shilling resumed to previous
trends. The most recent depreciation of the Kenyan Shilling was experienced in 2015.
This was following the Chinese devaluation where the U.S dollar extended a further
upward global rally against all major currencies. Current-account deficit pressures also
put pressure on the Kenyan shilling during the same period.
Figure 35: Kenya Shilling Exchange Rate against major global currencies

Kenya Shilling Exchange Rate against Major Global Currencies (USD; EUR; GBP)

180

160

140

120

KES 100

80

60

40

20
92 94 96 98 00 02 04 06 08 10 12 14 16
Year
EUR GBY USD

Source: YahooFinance.com
 8. MOBILE FINANCIAL SERVICES IN KENYA
8.1 Background of Mobile Financial Services in Kenya
Kenya’s banking has been on a successful trend in recent years, exhibiting increased
levels of financial inclusion and financial deepening. The Financial Sector Deepening
Annual Report of 2016 notes that Kenyans excluded from any form of financial service
dropped from over 40% of adults to 17% between 2006 and 2016. Inclusion was driven
by largely by mobile money services, used by over 71% of adults, as well as mobile
banking services. Commercial banks in Kenya have adopted agency banking to provide
services to client. Just a few years after their introduction in 2012, mobile banking
services are already used by 17.5% of Kenyans and have become the most common
banking solution among youth aged 18 to 25.

Before introduction of mobile financial services, commercial banks in Kenya made

commendable progress in providing access to formalized financial services, although
they were mostly accessible to the middle, upper-middle and wealthy class of society.
The greater segments of the population could not access formal banking due to the
significant capital requirements needed to start and operate a commercial bank account.
The interest margins offered by commercial banks were also quite steep, and lending
rates were between 15 and 25 percent in most commercial banks The introduction of
mobile money provided an easy to access means of storing and transferring money and
became popular among the larger part of the population.
8.2 Brief History on Commercial Banks in Kenya
Kenya´s financial landscape has experienced tremendous growth over the past decade. The
Financial Sector Deepening annual report of 2016 notes that the percentage of Kenyans not
using any form of financial service declined from 25.1% in 2013 to 17.4% in 2016 (Financial
Sector Deepening, 2016).

Data from the International Monetary Fund Financial Access Survey of 2017 indicates access to
formal financial services in Kenya continues to improve commendably. The number of
commercial banks operating in the Kenyan market has been on a steady increase, providing a
variety of services to the Kenyan public. As of the 2017 FinAccess survey, there were 42
licenced commercial banks in Kenya, with over 1,514 branches countrywide. There are also a
number of international banks with representative offices in Kenya. These include: HDFC Bank,
Bank of China, JP Morgan Chase, Nedbank, CitiBank and FirstRand Bank.

Figure 36: Branches of Commercial Banks in Kenya

Branches of commercial banks in Kenya

1,600

1,400

1,200

No. of Branches
1,000

800

600

400
04 05 06 07 08 09 10 11 12 13 14 15 16
Year

Source: I.M.F Financial Access Survey 2017

The commercial banks were initially only located in major towns and urban centres, but have
expanded to have representation in all 47 counties in Kenya. The 2017 FinAccess survey reveals
that there are approximately 5 commercial bank branches per 100,000 adults. There are 3
branches of commercial banks per 1,000 km2, making Kenya a leader in financial inclusion in
the East African region.
Figure 37: Distribution of Commercial Banks in Kenya

Brances of Commercial Banks (2004-2016)

No. of Branches 3

0
04 05 06 07 08 09 10 11 12 13 14 15 16
Year
Branches of commercial banks per 100,000 adults
Branches of commercial banks per 1,000 km2

Source: I.M.F Financial Access Survey 2017

To complement the physical bank branches, Automated Teller Machines are well distributed in
most major and medium-sized towns around the country, with 9 ATMs per 100,000 adults. This
is three times more than the number of physical bank branches.

Figure 38: ATMs in Kenya

Automated Teller Machines (ATMs) per 100,000 adults (2004-2016)

10

No. of ATMs 6

1
04 05 06 07 08 09 10 11 12 13 14 15 16

Year

Source: I.M.F Financial Access Survey 2017

Following the increased availability of commercial banking services around the country, the
number of deposit accounts with commercial banks has been steadily increasing, with an
average year-on-year growth rate of 38% from 2004-2016. In 2004, there were just about
1,000,000 deposit accounts. Twelve years later in 2016, there were about 43,000,000 deposit
accounts with commercial banks. The Financial Sector Deepening report notes that the increase
in deposit accounts opened in commercial banks increased to 40.1 million in the third quarter of
2016 from 36.5 million in December 2015. This was mainly driven by accounts opened through
mobile phone platforms and increasing usage of bank agent networks.

Figure 39: Deposit Accounts with Commercial Banks in Kenya

Deposit accounts with commercial banks (2004-2016)

50,000,000

40,000,000

30,000,000

20,000,000

10,000,000

0
04 05 06 07 08 09 10 11 12 13 14 15 16

Year

Source: I.M.F Financial Access Survey 2017.

Outstanding loans and deposits have sustained increased growth, occupying a higher percentage
of the Gross Domestic Product over the years.

Outstanding Loans and Deposits as a % of GDP

45

40

35

% of GDP
30

25

20

15
04 05 06 07 08 09
10 11 12 13 14 15 16
Year
Outstanding deposits with commercial banks (% of GDP)
Outstanding loans with commercial banks (% of GDP)
8.2 Mobile Financial Services
Mobile Financial Services were developed in Kenya to aid in providing access to formal
financial services to all segments of the population in a convenient and easy manner.
The main mobile financial services in Kenya are Mobile Money, Mobile Banking and
Agency Banking.

8.3 Mobile Money

Kenya is a world leader in mobile money and mobile banking services. Kenya´s pioneer
mobile money platform, M-Pesa, was established in 2007. Mobile money is a service
that allows users to store cash (known as mobile electronic float) in their mobile phone
SIM cards. The users can send the electronic float to other users on the same network
using their mobile phones. To convert the e-float back to physical currency, the user
visits a mobile money agent shop and converts the e-float to physical currency at a fee.
Mobile money in Kenya has exhibited monumental growth since its establishment in
2007. The number of mobile money users increased from virtually NIL in 2007 to 37
million users by December 2017. Given that Kenya has a total population of 48 million,
this means that over 70% of the adult population in Kenya are actively subscribed to a
mobile money account.

Figure 40: Number of Mobile Money Accounts in Kenya

Number of Mobile money Accounts in Kenya (2007-2017)

40,000,000

35,000,000

30,000,000

25,000,000

Accounts
20,000,000

15,000,000

10,000,000

5,000,000

0
07 08 09 10 11 12 13 14 15 16 17

Year

Source: Central Bank of Kenya

The number of mobile money agents facilitating the mobile money services have also
exhibited accelerated growth. In March 2007 when mobile money was launched, there
were 307 agents. 10 years later in December 2017, there were 182,472 mobile money
agents. The agents are present in all counties, and even in the smallest towns where
commercial bank branches or ATMs cannot be established. The easy accessibility of
mobile money agents to process deposit and withdrawal transactions has been one of the
key factors promoting the success of mobile money in Kenya.

Figure 42: Number of Mobile Money Agents

Number of mobile money agents in Kenya (2007-2017)
200,000

160,000

120,000
Agents

80,000

40,000

0
07 08 09 10 11 12 13 14 15 16 17

Year

Source: Central Bank of Kenya

The volume and value of mobile money transactions in Kenya portray expeditious growth. In
2017 alone, the total value of mobile money transactions was KES 3,638 billion (approximately
$36 billion). This transaction value was far greater than that of any commercial bank in Kenya
during the same period.

Figure 43: Value of Mobile Money Transactions in Kenya

Monetary value of mobile money transactions in Kenya (2007-2017)

350,000

300,000

250,000

Ksh (Millions) 200,000

150,000

100,000

50,000

0
07 08 09 10 11 12 13 14 15 16 17
Year

Source: Central Bank of Kenya

8.6 Agency Banking
Following the success of the mobile money model whereby mobile money agents
facilitated all transactions regarding the deposit and withdrawal of funds into users´
accounts, a number of commercial banks in Kenya developed the agency banking model
be bring their services closer to their customers. The agency banking model is a
function of certain Commercial banks in Kenya that allows them to contract third party
retail networks as banking agents. Upon successful application, vetting and approval,
these Agents are authorized to offer selected products and services on behalf of the
Bank. This relationship creates an Agency Banking business model. The primary
services offered through agency banking include: (1) cash withdrawal, (2) bills payment,
(3) cash deposits, (4) funds transfer, (5) balance enquiry, (6) document collection for
debit and credit cards, loan applications and account opening forms, (7) collection of
bank correspondence and mail and, finally, (8) mobile banking services.

Agency banking became a successful model to carry out commercial banking in Kenya.
From its establishment in 2010, many commercial banks adopted agency banking and
contracted bank agents. The Central Bank of Kenya (CBK’s) annual supervision report
for 2012 showed that more bank customers were making cash deposits, withdrawals and
other transactions through agents, fundamentally changing their mode of interaction
with banks (Central Bank of Kenya, 2012). By December 2016, 18 commercial banks
and 5 microfinance banks (MFBs) had contracted 53,833 and 2,068 agents, respectively,
spread across the country (Central Bank of Kenya, 2016).

Figure 42: Number of Banking Agents in Kenya

Number of Banking Agents in Kenya (2011-2016)

60,000

50,000

40,000

No. of agents 30,000

20,000

10,000

0
2011 2012 2013 2014 2015 2016

Year

Source: Central Bank of Kenya

Over 87 percent of the approved commercial bank agents were concentrated in 3 banks with the
largest physical branch presence namely; Equity Bank Ltd. with 25,428 agents, Kenya
Commercial Bank Ltd. with 12,883 and Cooperative Bank Ltd. with 8,856. The number of
transactions carried out by bank agents increased considerably over the past 6 years.

Figure 43: Number of Agency Banking Transactions in Kenya

Number of Agency Banking Transactions (2011-2016)

120,000,000

100,000,000

80,000,000

No. of Transactions 60,000,000

40,000,000

20,000,000

0
2011 2012 2013 2014 2015 2016

Year

Source: Central Bank of Kenya

Figure 44: Value of Agency Banking Transactions in Kenya

Value of Agency Banking Transactions (2011-2016)

800,000

700,000

600,000

500,000

Ksh (millions)
400,000

300,000

200,000

100,000

0
2011 2012 2013 2014 2015 2016

Year

Source: Central Bank of Kenya

8.7 Mobile Banking
The success of agency banking model and improvements in mobile technology led to
yet another significant shift in banking service provision in Kenya - introduction of
mobile banking services. Mobile banking is a service provided by a bank or other
financial institution that allows its customers to conduct financial transactions remotely
using a mobile device such as a smartphone or tablet. Unlike the related internet
banking it uses software, usually called an app, provided by the financial institution for
the purpose. Mobile banking is usually available on a 24-hour basis. Unlike traditional
mobile money accounts, mobile banking accounts allow users to earn interest on
deposits and also process loans. The pioneer mobile banking platform in Kenya was M-
Shwari, a joint initiative by Safaricom and the Commercial Bank of Africa. M-Shwari
accomplished massive success following its introduction to the market and many other
commercial banks introduced mobile banking afterwards.

The agency banking and mobile banking models proved to be a strategic shift for
Kenyan commercial banks. They made it easier for customers to open and maintain a
bank account, and rapidly increased financial inclusion in Kenya. In 2017, KCB Bank
(Kenya´s largest Bank), reported that over 86 per cent of all the bank´s transactions
happened outside the physical bank branches (Kenya Commercial Bank, 2017).
Specifically, 51% of the bank´s transactions were processed through mobile banking
and 14% were processed through agency banking. Transactions processed through
Automated teller machines were 10% while the transactions carried out at the bank´s
physical branches constituted only 14%.

The Financial Sector Deepening 2016 report notes that mobile money stands as the
leading driver of financial inclusion by providing access to formal financial services to a
significant part of the Kenyan population, over and above commercial banks, savings
and credit cooperative societies and microfinance institutions.
Figure 45: Use of Various Financial Products in Kenya

Source: Financial Sector Deepening Annual Report 2016

Just a few years after their introduction, mobile banking services are already used by
17.5% of Kenyans and have become the most common banking solution among youth
(Financial Sector Deepening, 2016).

Figure 46: Comparison of Traditional Bank account and Mobile Bank account

Usage of Traditional and Mobile Bank Account by age group (2016)

40

35

30

25

% 20

15

10

0
18-25 26-35 36-45 46-55 >55

Mobile Bank account

Traditional banking services

Source: Financial Sector Deepening

 9. EDUCATION IN KENYA
9.1 General Statements
The national education system in Kenya has evolved over the years with the 7-4-2-3
structure in 1984 with a broad-based 8-4-4 (8 years of primary education, 4 years of
secondary and 4 years of university education for a basic degree). The system is set to
change with the implementation of Kenya Vision 2030. The new and actual structure is
2 years of Pre-primary, 6 years of Primary (3 years lower and 3 years upper), 6 years of
Secondary (3 years junior and 3 years senior), a minimum of 2 years of Middle Level
Colleges and a minimum of 3 years for University education. As a whole, this structure
will have two cycles; Basic Education cycle of 14 years which is free and compulsory,
and a Higher Education cycle.

There are both public and privately-run schools, technical institutions and universities.
The progression from primary to secondary education and from secondary to university
is through a competitive selection process based on performance in the national
examinations: The Kenya Certificate of Primary Education (KCPE) examination for
primary education and the Kenya Certificate of Secondary Education (KCSE)
examination for secondary education.

The government of Kenya introduced Free Primary Education (FPE) programme in

January 2003. Free Day Secondary Education (FDSE) was introduced in 2008 to
improve access to basic education.3

Figure 47: Education Expenditure in Kenya

Expenditure on education as % of total government

expenditure (%)
Source: Worldbank

25

20

15

10

0
2010 2011 2012 2013 2014 2015

3
Source: 2009 Kenya population and housing census, Analytical report on education, Kenya national bureau of statistics. Volume
IX March 2012
Figure 48: Government Expenditure as a percentage of GDP

Government expenditure on education as % of GDP (%)

Source: Worldbank

5.55
5.5
5.45
5.4
5.35
5.3
5.25
5.2
5.15
2010 2011 2012 2013 2014 2015

Since independence in 1963, the government has invested heavily in education. The
idea was to have a universal access to basic education. As we can observe in the graphs
the government invests 20% of total government expenditure (5,3% of annual GDP) in
education. It is impressive if we compare it to the world average by country (4.7% of
annual GDP). 4

Between 20 and 25 percent of total expenditure goes to education, that demonstrates the
awareness about the importance of education in the community, however, current
analysis indicates that the money is not efficiently used. Throughout the years the
Government of Kenya has changed the education structure several times looking for a
more productive system. Education policy experts are confident that with the “Kenya
Vision 2030” the education system in Kenya will provide more holistic outcomes.

9.2 Attendance and literacy

Net attendance rate %
2014
Source: Worldbank

100
80
60
40
20
0
Primary Secondary

4
WorldBank https://data.worldbank.org/indicator/SE.XPD.TOTL.GD.ZS
The main problem with education in Kenya is not access to education. Children start
primary education, however, most of them do not complete secondary education. There
is a gap between Primary and Secondary, most of the children do not proceed from
Primary to Secondary. This has been attributed to the inadequate number of secondary
education institutions to uptake the KCPE graduates.

An education report by the Brookings Institution states: “Africa has the world’s lowest
secondary school enrolment rates. Just 28 percent of youth are enrolled in secondary
school, leaving over 90 million teenagers struggling for employment in low paid,
informal sector jobs. Today, a child entering the education system of an Organization
for Economic Cooperation and Development (OECD) country has an 80 percent chance
of receiving some form of tertiary education. The comparable figure for sub-Saharan
Africa is 6 percent”5

Avoiding and eliminating the above issue is one of the aims of Kenya Vision 2030: two
projects in form of 560 school constructed or rehabilitated, bursaries and recruitment of
additional teachers, which we will mention later with the FDSE.

Figure 49: Net Attendance - Rural vs Urban

Net attendance rate %

2014
Soruce:Worldbank

100
90
80
70
60
50
40
30
20
10
0
Primary. Rural Primary. Urban Secondary. Rural Secondary. Urban

5
Brookings, “Too little access, not enough learning: Africa’s twin deficit in education” https://www.brookings.edu/opinions/too-
little-access-not-enough-learning-africas-twin-deficit-in-education/
Figure 50: Net Attendance – Male vs Female

Net attendance rate %

2014
Source: Worldbank

100

80

60

40

20

0
Primary. Female Primary. Male Secondary. Female Secondary. Male

Figure 51: Literacy Rate

Literacy rate, population 25-64 years %

2014
Source: Worldbank

85

80

75

70

65
Both sexes Female Male

In 2015, 9 out of every 10 children aged 6-13 years were enrolled in school. However,
on average, 31% of them were behind the level they should be at.

Although in past years the girl child in Kenya did not have access to education as the
boy child, the situation has improved in recent years - across the country, girls enrol
more and progress faster through school than boys, except in North Eastern region
where more boys are enrolled than girls. Children from less privileged households are
less likely to attend school and to progress in school compared to children from well to
do households. 6

6
Uwezo, “are our children learning? The state of education in Kenya in 2015 and beyond” http://www.uwezo.net/wp-
content/uploads/2016/05/05-16-Kenya-small-size.pdf
9.3 Role of the government in Education
The provision of education and training to all Kenyans is fundamental to the
government’s overall development strategy. These are the most important objectives for
Kenya in education:

 General access to basic education.

 Regional and gender equity in Education.

 Quality of education. 7

Reforms. The main reforms promoted by the government in education with the aim of
meeting these objectives mentioned previously are:

 Independence of Kenya (1963)

Kenya adopted a single system of education, the 7–4–2–3, which consisted of 7 years of
primary education, 4 years of secondary education, 2 years of high school and 3–5 years
of university education. The system was similar to the British system of education.

 Education reform 1984

The education structure was changed to 8-4-4 (8 years of primary education, 4 years of
secondary and 4 years of university education for a basic degree).

 Free Primary Education (FPE) 2003

The government implemented FPE with the aim of making primary education
accessible to all children without differences of their economic situations. However, as
we saw in the graphs before many children never attend to school or they leave it, one
of the main reason is the unforeseeable obstacles (lack of infrastructure and human
resources). Therefore, the deeper objective of FPE was to recognize education as a basic
right of all children; it was recognised later in the constitution of 2010. 8

 Free Day Secondary Education (FDSE) 2008

7
UNESCO, Development of education in Kenya, ministry of education science and technology, August 2004
http://www.ibe.unesco.org/National_Reports/ICE_2004/kenya.pdf
8
FREE EDUCATION IN KENYA’S PUBLIC PRIMARY SCHOOLS Addressing the Challenges, Fredrick O. Ogola. Organisation for Social
Science Research in Eastern and Southern Africa (OSSREA). http://www.ossrea.net/publications/images/stories/ossrea/ogola.pdf
The purpose of FDSE was the retention of the learners in secondary education to
complete the entire basic education required by every citizen.9

 Kenya Vision 2030

The general objective of Kenya 2030 is for Kenya to become a middle-income country
by 2030. The reform addresses different sectors of the economy, including education,
which experts agree is the most important for a prosperous future.

“Under education and training, Kenya will provide globally competitive quality
education, training and research to her citizens for development and enhanced
individual well-being. The overall goal for 2012 was to reduce illiteracy by increasing
access to education, improving the transition rate from primary to secondary schools,
and raising the quality and relevance of education. Other goals include the integration of
all special needs education into learning and training institutions, achieving an 80%
adult literacy rate, increasing the school enrolment rate to 95% and increasing the
transition rates to technical institutions and universities from 3% to 8% by 2012. Public
and private universities will be encouraged to expand enrolment, with an emphasis on
science and technology courses. Kenya intends to have international ranking for her
children’s achievement in mathematics, science and technology.”10

9
Factors affecting subsidized Free Day Secondary Education in enhancing learners retention in secondary schools in Kenya.
https://files.eric.ed.gov/fulltext/EJ1109168.pdf
10
Vision 2030 popular versión
https://drive.google.com/file/d/1GKPUPT7D_0odsg9Ba1URWldOOWBPZeZq/view
 10. CORRUPTION IN KENYA
10.1 Analysis of Corruption in Kenya
In the 2017 Transparency International Corruption Perception Index Kenya was ranked
143 out of 180 positions with a score of 28 points. Since 2012 the country has only
escalated one position in the table and is currently behind the average score of Sub-
Saharan Africa, which scores 32. Kenya scores halfway in the region, ranking 28 out of
49 countries.

The 2017 Mo Ibrahim Index of African Governance listed a very short advancement in
accountability, with no improvements in corruption in government and public officials.
Furthermore, although Kenya has improved in Corruption and Bureaucracy during the
last five years, it still bounces back during the last ten years. Corruption is the sub-
section where Kenya worst scores in accountability, ranking 33 out of the 54 African
countries.
The country has an Ethics and Anti-Corruption Commission since 2011, which
evaluates corrupt practices. In its 2016/2017 fiscal year they received 8,044 complaints
and allegations, a small increase of 1.5% since the year before. Since the first records in
2008, registered reports have doubled, reaching its lowest point in 2013, when 3355
complaints were received.

Only 46% of the cases were considered relevant and therefore studied. Bribery leads all
categories, accounting for 36% of the total allegations of corruption. The last National
Corruption and Ethics survey of October 2015 registered a significant drop in those who
paid bribe, from 68.5% in 2012 to 38% in 2015. However, the average bribe increased
to a record 5,648.58 KES (about 45€). Seeking medical attention, ID and birth
certificate were the three services were most bribes were demanded and the Kenyan
Police the department perceived to be more prone to corruption, followed by Traffic
Police.

It is worrying and worth noting that only a 5.3% of Kenyans report corrupt practices, in
a majority of the cases for lack of knowledge on where to do so. Nearly half of the
citizens believe the government, MPs and governs don’t do yet enough to fight
corruption.

Corruption is the main perceived problem to do business, over tax rates and access to
financing, with 17.8% of Kenyans listing it in the World Economic Forum, Executive
Opinion Survey 2016.

One reason for the drop of bribes is the wide increase in the use of mobile money
platform M-PESA, which allows people to pay for nearly everything, including school
fees, ID certificates and medical attention. With less cash in place, bribes reduce.

In 2013 Kenyatta pledged to fight corruption, but in late 2016 he blamed the judiciary
and other agencies for slowing the process and putting difficulties in fighting corruption.
 11. STATE OF DEMOCRACY IN KENYA
11.1 Analysis of Democracy Indicators

1.1 Analysis of
Source: The Economist 2017 Intelligence Unit’s Democracy Index
Democracy in Kenya

Kenya was given 5.11 points out of 10 and ranked 95 out of 167 countries in The
Economist 2017 Intelligence Unit’s Democracy Index. This means Kenya isn’t
considered a democracy, but rather a hybrid regime. This overall scores drops from a
record 5.33 last year and only a 0.03 points increase since 2006. Furthermore, Kenya
suffered a drawback in the electoral process and pluralism section, scoring only 3.50 out
of 10.

The drop comes after the August 2017 elections which were annulled and had to be
repeated, which also was a proof of corruption amongst high ranked institutions.
Kenya’s Supreme Court annuled the August 2017 elections after allegations that the
electoral commission hadn’t verified the results before announcing them. Whilst this
was considered as a landmark step forward in Kenya’s democracy and a proof of
separation of power, it also indicated a government maneuvering in the election process.
Furthermore, eight days before the redo, a senior official of Kenya’s electoral
commission fled the country saying the system didn’t meet expectations for a basic free,
fair and credible election. The main opposition leader, Raila Odinga, withdrew from the
elections complaining about a corrupt electoral commission and incumbent president
Kenyatta won the elections with 98% of the vote.

On a good note, Kenya is one of the only 12 African nations who’s had a leader that has
stepped down after its two mandates, as a study of the African Center for Strategic
Studies shows. President Daniel arap Moi did so in 2002, being the 4th to do it in Africa
and fueling the first change of political party in government.

11.2 Impact of Ethnicity on Elections in Kenya

Violence in elections is recurrent in Kenya. In 2007 more than 1.100 people were killed
after ethnic tensions arose. In 2017 37 were killed during the first election and 67 more
in re-election, as Human Rights Watch reports.

Ethnicity is still very present in Kenyan

politics. Deutsche Welle explains in this
piece how the 'big five’ tribes have
influenced who is elected, owing to their
numerical advantage. According to
Kenya's National Bureau of Statistics, the
largest native ethnic groups are the
Source: The World Factbook CIA, Kenya Kikuyu (6,622,576), he Luhya (5,338,666),
the Kalenjin (4,967,328), the Luo (4,044,440) and the Kamba (3,893,157). The majority
of Luos support opposition leader Raila Odinga, the Kambas are behind Kalonzo
Musyoka. The Kalenjins back Deputy President William Ruto, while the Kikuyus
support President Uhuru Kenyatta. For the 2017 elections Kenyatta and Ruto united,
meaning Kalenjins and Kikuyus majority of voters for the Jubilee Alliance. The
opposition was the National Super Alliance (NASA), with main opposition candidate
Odinga (Luo), supported by Wetangula (Luhya) and Musyoka (Kamba).
Odinga proclaimed himself as ‘people’s president’ on the 31st January 2018, weeks
after Kenyatta had won without the NASA participation on the re-run. However, in a
change of events Odinga and Kenyatta made a join statement on TV at the start of
March 2018 calling themselves ‘brothers’ and putting differences apart in order to reach
a new deal of government, as BBC reports.

11.3 FREEDOM OF EXPRESSION AND CIVIL LIBERTIES

Kenya is ranked as Partly Free by Freedom House in it’s Freedom in the
World 2018 report. The report includes Kenya as one of the countries
where a “dramatic decline in freedom” has happened over the last few
years. The country has dropped 10 points in its score in its last 10 years.
Kenya is alongside the average of freedom in Sub-Saharan Africa, as a 43%
of countries in the region are listed as Partly Free by Freedom House,
whilst 39% are Authoritarian and only 18% Free.

Despite ruling unconstitutional in April 2016 section 29 of Kenya’s

Information and Communication Act, which had 13 people prosecuted for
being “indecent”, freedom of expression in Kenya has been threatened for a long time.
Human Rights Watch reported at least 50 incidents that restricted freedom of expression
since president Kenyatta took power in 2013. These include 14 arrests, 17 incidents
were 23 journalists where physically assaulted and 16 direct threats against journalists
and bloggers by government related institutions, as well as two journalists dead in
strange circumstances. Furthermore, in the upcoming of the August 2017 elections at
least three journalists were arrested. Source: Freedom in the World 2018
graphics, Freedom House.
Whilst the Kenyan constitution guarantees freedom of expression, assembly and
protects freedom of movement, but movements curtailing civil liberties are on the rise.
In 2016 the NGO regulatory body cancelled the Kenya Human Rights Commission, but
the interior cabinet had to rectify.

11.4 Extra-Judicial Killings

In 2017, Kenya was the most affected in Africa in terms of extrajudicial killings, with
122 cases out of 177 reported by Amnesty International in its latest annual report.
Security forces carried out enforced disappearances, extrajudicial executions and torture
with impunity.
One of the most famous cases is that of Willie Kimani, Josphat Mwendwa and Joseph
Muiruri. Kimani, a lawyer with a legal aid charity, his client Mwendwa and their taxi
driver Muiruri, were abducted on 23 June at an unknown location. On 1 July, their
bodies were found dumped in a river in Machakos County, eastern Kenya; post
mortems showed they had been tortured. Josphat Mwendwa, a motorcycle taxi driver,
had accused a member of the Administration Police (AP) of attempted murder after the
officer shot him in the arm during a routine traffic check. The officer then charged him
with a traffic offence to intimidate him into dropping the complaint. The abduction
happened after Willie Kimani and Josphat Mwendwa left Mavoko law courts in
Machakos County after attending a hearing in the traffic offence case. On 21 September,
four AP officers – Fredrick ole Leliman, Stephen Cheburet Morogo, Sylvia Wanjiku
Wanjohi and Leonard Maina Mwangi – were found guilty of murdering the three men.
The officers were remanded in custody awaiting sentencing at the end of the year. The
killings of the three men triggered protests and mobilized human rights organizations,
the media and legal and other professional organizations across the country to demand
action against enforced disappearance and extrajudicial executions. These were just the
last of several high profile killings in the last year, as BBC reports.

This prosecution was named by Justice Lessit as “unique and the only one of its kind to
be prosecuted in Kenya’s judicial history”, as local newspaper Daily Nation reports.
This case shows that the judiciary is increasingly independent and has no fear in
prosecuting police for extrajudicial killings, which is is a proof of the separation of
power in the country.

11.5 Security Cost

The usage and cost of security services in Kenya have both increased between 2007 and
2013, as the World Bank 2013 Kenya Enterprise Survey shows. More firms pay for
security and they also pay more: 2% of total annual sales in 2007 vs. 4% in 2013.
Security expenses are higher in Kenya than in other countries at the same income level
and in all countries with ES data. And more firms in Kenya pay for security services
than everywhere else (82% of firms compared to an average of 60% for low income
countries). On the other hand, losses due to theft and vandalism as a percentage of total
annual sales have declined and are currently at par with other low income countries.
11.6 Terrorism
Kenya ranks as the 22nd country in the world where terrorism has highest impact in the
2017 Global Terrorism Index. It is also the 12th African nation, below Nigeria, Somalia,
Libya, Egypt, Algeria, D.R.Congo, South Sudan, Cameroon, Sudan, Central African
Republic, Niger. Although this might seem a very alarming number, Kenya ranks
behind Turkey, India and the Philippines and is just one spot ahead of France.
Furthermore, since 2014 it has only improved. Back then Kenya ranked as 12th country
with a highest impact of terrorism. Moreover, in the same index Kenya has a score of
6.17 out of 10. This is not that far away from other renowned countries such as China

(5.55), USA (5.43) or Russia (5.33).

The reason why terrorism is still a problem for security in Kenya is the presence of the
terrorist group Al Shabaab. Originally from Somalia, which ranks as the 7th country
globally with a higher impact of terrorism, this group is pledges alliance to Al Qaeda. In
total it has participated in 417 events in Kenya and it is most active in the eastern
regions which border Somalia, especially in Mandera County, as the Armed Conflict
Location & Event Data Project (ACLED) reports.

Al Shabaab’s attacks in Kenya can be explained due to numerous reasons, but mainly
they are possible due to the geographic proximity with Somalia and the porous border
between both countries. The terrorist group has an interest in Kenya as its president,
Uhuru Kenyatta, actively supports with Kenyan troops the African Union Mission In
Somalia (AMISOM), a peacekeeping mission which has as its first objective to “reduce
the threat posed by Al Shabaab and other armed opposition groups.
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