Economic review Alykhan Satchu. 2009 Deloitte Touche Kenya: From Hero To Zero To Hero? A Birds Eye...

Economic review

Alykhan Satchu

© 2009 Deloitte & Touche

Kenya: From Hero To Zero To Hero?A Bird’s Eye Perspective

Aly-Khan Satchu www.rich.co.ke

2 2009 East Africa Budget

http://www.rich.co.ke/


GDP overview

• GDP has shown above trend growth in the immediate post-Independence phase and again during the coffee boom years of 1976,1977 and then the steady rise which peaked at 7.1% in the fourth quarter of 2007.

• It is clear that in order to stand still (because of the demographic surge) we need to be growing at a rate of above 3.5%.

• The picture the GDP paints is of a high beta economy.



GDP overview



New income streams

• Remittances• Privatization Receipts• Better Revenue Capture and Collection by Kenya Revenue

Authority



Privatization receipts



Collection by Kenya Revenue Authority



Historical income streams

• Agriculture remains a mainstay of the economy.• It is a fact that our yields are in line with the Sub-Saharan

averages which, in turn, are materially below worldwide averages.• Malawi (with 3 consecutive surplus harvests in excess of

1.2 million tones) has proven that it is not rocket science that is required but small holder access to subsidized or credit extension fertilizer at the start of the planting season.



Recorded marketed production in agriculture and horticulture



Tourism

• Tourism crested a wave coincident with GDP which peaked in the fourth quarter of 2007 and has substantially slowed down.

• The multiplier effect is difficult to model but is obviously material.



Tourism earnings



Tourism

• There is debate over the exact skew between development and recurrent expenditure in the Kenyan Economy.

• What is clear is that the recurrent expenditure side has put a massive squeeze on development expenditure.

• Given this internal dynamic Kenya exhibits high beta GDP correlation.

• In effect these short spikes (1964-1967, 2002-2007) whilst welcome have not been of long enough duration to ignite and embed above trend growth for a significant time.



Near term landscape

• It is now self-evident that the Frontier Markets Theory (lack of correlation to developed markets) has been disproved.

• Two key pillars where this has been disproved are floriculture and tourism and that the impact on our economy is actually an outsize one given our small size.

• One would be hard pressed to find any income stream that has managed to hold its own(apparently avocadoes have).

• The near term landscape is putting unprecedented pressure on the Budget.



Near term landscape

• For example: The Government of Kenya is seeking to borrow KShs 109 billion from the domestic market . The lemon is being squeezed and it is unclear how much more squeezing it can take.

• This is reminiscent of the Dutch boy, his 10 Fingers and the Dyke.• In order to reignite growth we need to square the circle. That

circle being a KShs 109 Billion plus overdraft plus finding $ 2-2.5 Billion of new money to inject into this economy.



Kenya bets big on ICT

• The under sea cables represent an outsize bet by Kenya on ICT.• It is currently possible to model the positive GDP outcome but

I expect it to be in the region of 3% annually from 2010.• This might well be a catalyst for returning to trend growth and

entirely fortuitous.



Political analysis

• Massive and quite recent urbanization.• A demographic skew where 60% of the population is under

18 signal a very fragile dispensation.• We need to create jobs, slogans are not enough.



Breakthrough thinking

• In order to accelerate convergence we need to regain above trend growth in the order of 7-10%.

• A sustained infrastructure/development spend of $2 billion equivalent per year for the next 5 years is required.

• How do we do this?• Today from East to West the talk is of infrastructure and its

multiplier effect.• We fell far behind Singapore from the time of our Independence

but just as the cables have landed in the year 2009 we now have an opportunity to leverage the catch-up.



Where do we source this new money?

• We need to do Infrastructure Bond Issues totaling $10 billion over the next 5 years.

• We need to create a layer of smart IT which can measure in real time traffic flows and deliver this data to our bondholders.

• We need to segregate toll receipts and this was done in the 90s by the Italian government ( which used to fall every month) - Autostrada Bonds.



Conclusion

• Impossible is Nothing.• Talk is Cheap.• We need to execute and execute now.


Economic review Alykhan Satchu. 2009 Deloitte Touche Kenya: From Hero To Zero To Hero? A Birds Eye...

Documents

Transcript of Economic review Alykhan Satchu. 2009 Deloitte Touche Kenya: From Hero To Zero To Hero? A Birds Eye...