BusinessPeople Daily

Key sectors likely to boost economic growth in 2016

Steve Umidha @steveumidha and Fred Aminga @faminga

What is the investment landscape going to look like in 2016? Judging by the recent market trends, key sectors including information technology, tourism, real estate, energy and transport as well as banking are likely to carry momentum into this year.

Energy

Kenya will continue to open its doors for investors with more companies expected to take part in the ambitious expansion plans in the energy sector with the target to generate at least 5,000 megawatts (MW) to boost current installed power.

Renewable energy will drive the expansion as the government seems to be giving priority to  geothermal power to boost generation in an effort to bring down the cost of electricity for consumers, especially the large power users such as industries.

Power generator KenGen, for example, is targeting the installation of an additional 766MW by the year 2020, of which 676MW will come from geothermal sources. The utility firm last year commissioned 268MW—248MW from geothermal and 20.4MW from wind—boosting its total installed capacity to 1,611MW as at June 2015.

KenGen currently accounts for 70 per cent of the national installed electricity capacity. Kenya presently has about 2,200 MW of installed capacity, according to figures from the Energy ministry.

It is estimated that around two thirds of the current installed power into the national grid comes from renewable energy such as hydro, geothermal and wind power, while the remaining is generated by plants that run on fossil fuels such as diesel.

Electricity demand across the country has shown an upward trend over the last decade when peak demand hit 899MW, and rose to 1,512MW as at December 2014, while the number of customers connected has more than doubled to close to four million.

Construction activities will persist in 2016, according to the latest projections, and further demand will be driven by the growth of industrial parks, iron and steel industries, railway as well as the development of the Lamu Port-South Sudan-Ethiopia Transport Corridor project.

Given these developments, peak electricity demand is projected to grow to 3,400MW this year and 5,359MW by 2018, according to the Energy ministry. KenGen confirmed in December it had already delivered 375MW out of the 844MW contribution to the government’s plan to add 5,000MW to the grid; of this, geothermal accounts for the largest share with 330.6MW, 24MW of hydro and wind 20.4MW.

Geothermal energy is currently the dominant source of electricity, accounting for about 50 per cent of the national energy consumption requirements while the commissioning of Olkaria 280MW recently has propelled Kenya to the eighth position in geothermal power production in the world and the top position in Africa.

Tourism

Several changes have taken place in the tourism industry, initiated by both the government and the industry stakeholders in an effort aimed at improving the battered sector. The return of Najib Balala to the Tourism ministry from the Mining portfolio was wildly celebrated by industry players following a Cabinet reshuffle last November that saw former bearer Phyllis Kandie shifted to the Labour ministry.

In the changes, President Uhuru Kenyatta hived off the Tourism ministry from the larger EAC docket and handed it over to Balala, who heads it as a stand-alone ministry—much to the delight of stakeholders in the industry.

In a telephone interview with People Daily, Kenya Coast Tourism Association (KCTA) chairman Mohamed Hersi said Balala’s return to the ministry looks certain to boost the sector’s fortunes.

Kenya’s tourist numbers dropped by 25 per cent in the first five months of 2015, with British visitors—the biggest source market—having fallen by an even steeper 35 per cent, caused by factors such as travel advisories and terrorism scares.

Thus, 2016 could be a better year for the industry, according to most analysts, if the additional allocation of Sh10 billion in the budget for the sector’s recovery, lifting of travel advisories by some western countries, visits by US president Barack Obama, Pope Francis and the World Trade Organisation conference in December are anything to go by.

Real estate

The demand for real estate across the country and especially in Nairobi is poised for robust growth this year following an impressive 2015 which saw property prices soar on the back of rapid developments.

Counties such as Kiambu and Kajiado have seen an uptick in activity as developers look to channel funds into satellite towns and growth in urbanisation will further create demand for high-quality commercial and residential houses.

Nairobi is ranked the eighth most expensive retail space in Africa and the prices of advertised land in the city’s nine fastest-growing suburbs have equally increased five-fold over the last eight years, according to the Hass Property Index.

Prices in Upper Hill and Kileleshwa soared by 789 per cent and 614 per cent in 2015, with Upper Hill now the most expensive in the city, averaging Sh470 per acre.

Recent development raises the hope that Kenya is gradually returning to its status as an attractive retail space with a growing industrial property market coupled with the growing middle-class who have the money to own new homes as well as affordable mortgage plans by commercial banks.

Modern shopping malls have also been mushrooming across the country and are likely to boost the sector as well—such as Thika Road Mall, Garden City and Two Rivers, among others. Multinational companies are also coming into the Kenyan market in the hope of setting up bases and offices for their operations and this will certainly trigger real estate growth in 2016.

ICT and cashless economy

The mobile payments sector is a new growth area, with Kenya having been feted as the home of M-Pesa, the revolutionary money transfer service.

Despite a slow uptake a cashless system by the multi-billion-shilling transport sector, the robust matatu sector could blossom this year after the government gazetted regulations that will outlaw the use of cash for fare payments. This transformation is aimed at upgrading the security and regulation of the country’s more than 22,000 public transport vehicles.

The Kenyan ICT sector registered substantial growth in 2015, thanks to major changes introduced in most market segments by the industry regulator, the Communications Authority of Kenya, that increased the number of sector players.

As expected, the shift to digital migration reduced concentration of broadcast media ownership in the hands of a few, significantly changing the broadcast industry landscape.

TV broadcast licenses have become readily available because digital technology has higher spectral efficiency and entrepreneurs have taken advantage of technological convergence to deliver content.

Citizen journalism has also emerged, where a person armed only with a smartphone can now capture and file images and stories for publishing or broadcast.

With the industry developing rapidly in Kenya, the media will continue to come under pressure to meet the changing needs of its audiences.

The service providers represent a significant investment in the economy, a big employer and major contribution to national development.

Transport

The transport sector grew by 8.7 per cent in the last quarter of 2015, an indication of increased demand for freight transport and a fall in oil prices.

Consequently, the consumption of light diesel, a key indicator of the sector, increased from 449.3 thousand tonnes in the third quarter of 2014 to 556.6 thousand tonnes during the same period in 2015.

Anchoring growth on the robust construction sector gives the transport industry impetus in 2016—the ongoing construction of the Standard Gauge Railway will particularly have a huge impact on the sector.

Show More

Related Articles

Close