Why Energy, ICT CEOs are Most Optimistic

In Inspiration, Leadership
TIFA Research Director Maggie Ireri, and Kepsa CEO Carol Kariuki and Kepsa head of policy Victor Ogalo

Chief executives in Kenya’s Energy and ICT sectors are the most optimistic according to a new survey.

The survey done by TIFA Research and Kenya Private Sector Alliance shows that  the Energy and ICT are the most optimistic sectors of the economy at 67 and 63 index points respectively.

The Business Confidence Index was generated to measure the level of confidence that CEOs of various sectors have with the economy.

The sectors with lukewarm confidence are financial consulting services, tourism and manufacturing sector. In addition, the survey findings point out the least optimistic sectors as banking, MFIs and transport sectors.

The relatively optimistic Energy Sector at 67 index points can be attributed to the ongoing activities that are meant to improve the sector such as; plans to increase electricity connectivity to the national grid from 28% to 65% by 2022, introduction of the Scaling-Up Renewable Energy Program (SREP), among others.

Zero-rated import duty

More factors driving the bullish sentiments could be the zero-rated import duty and VAT exemption equipment and accessories for entities producing electricity via solar energy.
The forecast for Kenya’s ICT Sector is extremely favourable. With strong support from the government, the ICT industry in Kenya is expected to grow by 20% by 2017. In 2014, this sector grew with an impressive 13.4% and this shows a consistent upward growth trajectory.

RELATED: Risks and Opportunites in Year of Elections

Growth in the sector has mainly been driven by the mobile segment. M-commerce is expected to grow as it matures from Person to Person (P2P) transactions, to more business transactions.

There was also a 25% increase in internet connectivity within the country over the last 3 years, with fiber optics accounting for close to 97% of all ground internet connections.
The Tourism Sector has an average confidence index of 50 points.

In the periods approaching past election years, prospects of the sector tended to dim due to fears of political violence and ethnic conflicts and general unrest, thus keeping away tourists and conferences.

The aftermath of the spats of terror attacks on Kenyan soil did affect the sector adversely.


Throughout 2017, Tourism is expected to thrive on domestic and conference tourism. Despite being an election year, a raft of international conferences have been scheduled to be hosted in Kenya.

The list includes the African Ports Expansion Conference, the Africa Mobile and Digital Banking Summit, the 2nd East Africa Education Conference, the East Africa Islamic Economy Summit, the Power and Energy Summit Kenya, the Solar Africa Summit, the Oil and Gas Kenya conference, Africa Internet Summit and expos such as the Auto and Mine Expos.

In addition to the rise of Nairobi as a hotbed of international conferences, there has been steady rise in the number of residential units targeting tourists, especially new hotels and serviced residences. There is a likelihood that eight new hotels will open in 2017 in the country.

These include Royal City in Kisumu, Pullman Nairobi in Westlands, City Lodge at the Two Rivers, Lazizi Premiere next
to Jomo Kenyatta International Airport (JKIA), Hilton Garden Inn also near the JKIA, Park-Inn in Westlands and Best Western Premier. Others include the Alba, Wyndham Amboseli Golf Resort and Spa at the Amboseli.

The confidence index of the Manufacturing Sector is at 49 index points. This index is considered relatively optimistic considering the levels of growth of the sector in the past two years and projections ahead.

In 2015, the manufacturing sector contributed 10.5% to country’s GDP in 2015 and the sector grew by 3.5%. However, the sector during 2016 had a downward trajectory with a 1.9% growth rate recorded for the last quarter of 2016.

RELATED: Hope for Young Businesses in New Year

The sector’s performance is way below the targets set in the Medium-Term Plans of 2012-2017 for the sector to grow by 8.7% and remains a damper on the hopes of achieving the expected industrial developments in sync with vision 2030.

Manufacturing in Kenya is largely composed of processed food products (at 43%), beverage and tobacco (8%). These constitute more than half of the sector’s output.

Other subsectors include textile and apparels, chemicals, fabricated metals, rubber and plastic, furniture, printing and mediaproducts etc.

Its heavy linkage with the agriculture sector implies a direct negative effect on the manufacturing consistent with the poor performance in the agriculture sector. High production costs due to increased power bills and the high cost of raw materials (especially, agriculture-based) are some of the sources of low optimism in the sector.

The maize millers for example have felt the brunt of poor weather conditions where the yields decreased and they have been pushed to acquire the raw materials at very exorbitant prices.
The least optimistic sectors are Transport and Banking & MFIs. Since the enactment of the Banking Amendment Act 2016 that Caps the interest rate, the banking sector has been forced to reduce overheads and staff costs.

Banks have been forced to close some of their branches and also lay off staff. This move is expected to result in a reduced Cost-To-Income ratio which should in turn positively impact the bank’s profitability.

The Transport Sector’s less optimism combines the perception of a composite of four sub-sectors: land transport, seaport transport, air transport and other transport including postal and courier activities.

The poor prospects for air transport appears to be the factor weighing down the scales of optimism in the whole industry while the postal and courier activities have the buoyant effect on the sector.
A review of industry data indicates that the sector is the 3rd largest contributor to GDP. In 2015, it contributed 8.4% after manufacturing’s 10.3% and agriculture’s 30%.

It is also one of the fastest growing sectors in the country having improved from a real GDP value of Ksh.240 billion in 2013 and growth of 4.6% to reach Ksh270billion in 2015 and 7% growth.

In the first 3 quarters of 2016, the sector recorded accelerated growth of 8.4%, 8.8% and 10.3% respectively compared to 6.7%, 6.8% and 9.4% growth recorded in the corresponding periods in 2015.

With the ongoing expansion of Mombasa port, Port throughput grew by 7.3% in the 3rd quarter of 2016 with imports through the port of Mombasa growing by 10.2%.

However, performance of the air transport sub sector declined
marginally (0.8 per cent) during the 3rd quarter mainly due to operational challenges experienced by the national carrier.

Over the next few years, the sector is expected to continue improving as the upgrade in infrastructure takes shape and new features e.g. the SGR are launched and operationalized in June 2017.

It could be concluded; therefore, that the less optimism reflected in this survey is more of a transitory event rather than a defining factor in the medium-term. This is perhaps because of the expected reduction in movement of people and goods from one place to the other during the coming six months as businesses in other sectors requiring transport adopt a cautious strategy.

Post-election violence

The Context of Kenya’s Economic and Political Climate In December 1991 the Kenyan Constitution changed allowing for multi-party democracy. Since then, Kenya has had four general elections: 1992, 1997, 2002, 2007 and 2013. Apart from the 2013 one, all of them have had a common factor of post-election violence (PEV).

This violence has an impact on the economy either on the actual year or the one following the election. The most adverse PEV was experience early 2008 and the GDP growth rate declined from 7.1% to 1.7%.

The economic projections indicate that Kenya has enjoyed a stable macro-economic environment with the GDP growth rate slowly rising from 5.3% in 2014 to 6.0% in 2016. The World Bank has upheld Kenya’s growth projection for this year at 6%, largely unchanged from an estimated 5.9% in 2016.

Considering Kenya’s past and rising political uncertainty regarding presidential elections, the business community is apprehensive about the economy.

As a result of this, the business community is likely to take a wait and see attitude and delay investment decisions.
Overall, political stability is important for the business environment and the business community are keen on peaceful elections.

Moderate Hiring and Capital Expenditure Outlook On the jobs front, 30% of the CEO’s surveyed expect to see hiring increase in the next six months, while 52% indicate that hiring will remain unchanged and 18% expect hiring will decrease.

In regard to capital expenditure, 40% of the CEO’s expect to see increase in expenditure, whilst, while 39% say it will remain the same and 20% expect it to decrease.

More than half of the firms in the ICT and energy sectors are more likely to increase staff as compared to the others sectors. On the contrary, the highest job cuts are expected to be in the
banking & MFIs, and transport & infrastructure sectors.

Hiring outlook

Similar to the hiring outlook, more firms in the energy and ICT sectors are likely to increase their capital expenditure over the next 6 months.

About the Study The CEO Confidence Survey seeks to gauge the economic outlook of CEOs, determining their concerns for their businesses, and their view on where the economy is headed.

CEOs are considered to have a helicopter view of the economy and their assessment of their industry and the overall economy would be a good indicator of the near future economic performance.

CEOs are regarded as having the power to make large investment decisions that can impact the economy as a whole. CEO Confidence Surveys can provide investors and entrepreneurs with valuable insight into current and future economic conditions.

The target population for this study was the business community operating from the central business district. A total of 90 business leaders participated in this study including. The data was collected between November 2016 to January 2017.

You may also read!

Rockstar Entrepreneur Elon Musk on Ending Traffic Jams

At a recent TED Talk Musk was asked if he truly believed the part about ending traffic jams


Less than 30% of African E-commerce Startups Profitable

The report finds that the African e-commerce space is growing at an exceptional pace


Sendy Raises Sh200m to Expand Operations

The startup is still seeking further funding


Leave a Reply

Mobile Sliding Menu

error: Content is protected !!
%d bloggers like this:
Skip to toolbar