Kenya Economic Outlook 2015 Diving deep

Transcription

1 Kenya Economic Outlook Diving deep

2 Disclaimer This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or its and their affiliates are, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. None of Deloitte Touche Tohmatsu Limited, its member firms, or its and their respective affiliates shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

3 Preamble Our publication incorporates changes in legislation introduced by the Budget speech and other subsidiary legislation. It also includes references to changes in the practice of the Kenya Revenue Authority where they are significant. Some changes may arise when the Finance Bill and subsequently the Finance Act are published. This publication constitutes only a brief guide and is not intended to be a comprehensive summary of the Tax law and practice. While all reasonable care has been taken in the preparation of this guide, Deloitte and its associates accept no responsibility for any errors it may contain, whether caused by negligence or otherwise, or for any loss, however caused, or sustained by any person that relies on it. June Economic Outlook 3

4 Kenya Economic Review Political overview The Kenyan political environment has improved over the past year, though there continue to be choppy waters ahead. The Jubilee government has settled in and counties are coming to terms with processes and regulations around devolution. Devolution is clearly the right way for the country to go forward, and counties and their administrations are slowly coming to terms with what is expected of them. We are also seeing counties begin to develop regional blocks, which is a positive step. Kenya's next election are scheduled for 2017 or 2018, which in itself is creating confusion. Th opposition continues to push for a national referendum, seeking to disband the Independent Electoral and Boundaries Commission, strengthen devolution, and arrest insecurity. The uncertainty as a result of the ICC cases at The Hague, has now cleared significantly as a result of the termination of the case against the current head of state Uhuru Kenyatta. Although confidence has not fully been restored in the integrity of the leadership from an international perspective, increased international dialogue continues to improve relations. Security risks associated with terrorism are growing, which has had a marked impact on the tourism sector in the country. Changes to the institutional framework under the new constitution are fueling turf wars between the various arms of government. Economic Overview Overall, the current market sentiment on the Kenyan economy remains upbeat. It is widely expected that the GDP growth rate may even hit the 7% mark later in the year. A World Bank press release dated 5 March stated that Kenya s growth is projected to rise from 5.4% in the same period in to 6-7% over the next three years (-2017), making it one of the fastest growing economies in Sub Saharan Africa. The Kenya Economic Update (KEU), a publication of the World Bank, noted that external and internal balances are expected to improve significantly due to falling oil prices. In addition, public investment in infrastructure (energy and the Standard Gauge Railway) will likely strengthen this trajectory. Despite this the IMF has downgraded real GDP growth to 6.2% with it increasing to 7.2% in Released on 15 December the Africa Macro Report by the Standard Chartered Bank attributes Kenya s projected growth to lower oil prices in the near term given the sizable contribution of oil to its total imports. Rising geothermal energy will also drive down electricity prices helping to keep inflation in check. According to the study, geothermal energy production should reduce reliance on imported oil even further. The government has a plan to expand power generation with great reliance on geothermal. In terms of sector contribution to the economy, agriculture decreased to 14.5%, while construction, financial services and Informational Communications technology continue to play an increasing role contributing 11.1%, 9.1% and 8.4% respectively. 4 Economic Outlook

5 Chart 1: Kenya s annual GDP growth rate (%) Chart 2: Kenya s infaltion rate (%) Inflation According to the Kenya National Bureau of Statistics, the inflation rate in Kenya has shown an upward movement in recent months. The inflation rate in Kenya was recorded at 7.08% in April up from 6.31% in March and 5.61% in February. The most recent numbers (April) indicate that inflation is at an eight month high. This is mainly attributed to a jump in food prices. The most important categories in the CPI (Consumer Price Index), which is what the calculation is based on, are food and non-alcoholic beverages (36% of total weight).the biggest price increases were reported for housing, water, electricity and gas (2.81%); clothing and foot wear (4.44%); furnishing and household equipment (4.48%); miscellaneous goods and services (4.23%); hotels,cafes and restaurants (5.10%). On the other hand, downward pressure came from transport cost falling to 0.81%. Unemployment Though fairly consistent since 2011, at 40% the current unemployment rate has risen to its highest since Mar Apr May Mar Apr May Economic Outlook 5

6 Stock Market All stock market indicators maintained the vibrant trend that began in mid-2013 through early, however declined through April due to increased sale of stock by foreign institutional investors looking to reap higher returns in the Nigerian Market, as well as the new Capital Gains Tax introduced in January. (The Budget Speech stated that the Capital Gains Tax would be revoked and replaced with a more manageable levy, however implementation of this is yet to be seen). Monetary and fiscal policy The monetary policy remained largely unchanged through to June, whereby the Central Bank increased the CBR by 150bp to 10 percent. Kenya raised $2.75 in Eurobond sales in. According to JP Morgan Chase, Kenyan companies may follow the already established trend among their peers in South Africa and Nigeria with bond offerings in. This was the country s first effort to raise capital from European and American investors, and was widely belived to be extreamely successful. It is expected to boost employment. Exports, Imports and Balance of payments Exports increased to KES 47,707 million in March of from KES 42,646 million in February of having been on an upward trend since quarter 4 of. Imports were reported by the CBK to have increased to KES 114,862 million in March of from KES 113,143 million in February of. Consequently Kenya recorded a trade deficit of KES 67,156 million in March of. The trend has been upward since September of when it was at an all-time low of KES 119,463 million. Exchange rates The Kenya Shilling (KES) declined for the fourteenth consecutive month in March, against the United States Dollar (USD), the lowest rate for nearly three years. This was driven by factors including declining tea prices (Kenya s main commodity export) and low tourism inflows owing to security risks and concerns. EIU predicts that, the KES will remain vulnerable to monetary tightening in the US, which is putting downward pressure on several emergingmarket currencies. This in consideration, the increase in the CBR will likely create more stability for the shilling. Chart 3: Kenya s exchange rates USD Euro GBP Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 6 Economic Outlook

7

8 Contacts CEO Advisory Tax Sammy Onyango Graham Dawes Nikhil Hira Audit Fred Aloo Graham Dombodzvuku Eshak Harunani Norbert Kagoro Iqbal Karim Anne Muraya David Nchimbi Fred Okwiri George Opiyo Gebru Tekeste Bernadette Wahogo Joe Wangai Joe Eshun Harveen Gadhoke Solomon Gizaw Rodger George George Hapisu Getu Jemaneh John Kiarie Doreen Mbogho Rose Mwaura Kimani Njoroge Julie Nyang aya Martin Oduor-Otieno Mark Smith Fred Omondi Offices Burundi 42 Boulevard de la Liberté B.P 6444, Kinindo Bujumbura Tel: Ethiopia 5th Floor, Mina Building Ethio-China Friendship Avenue Addis Ababa Tel: Kenya Deloitte Place Waiyaki Way, Muthangari Nairobi Tel: or th Floor Imaara Building, Kizingo Opposite Pandya Memorial Hospital Off Nyerere Road Mombasa Tel: or Rwanda 1st Floor, Umoja Building KN3 Road Kigali Tel: Tanzania 10th Floor, PPF Tower Corner of Ohio Street & Garden Avenue Dar es Salaam Tel: or Uganda 3rd Floor Rwenzori House 1 Lumumba Avenue Kampala Tel: or Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a more detailed description of DTTL and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte has in the region of 200,000 professionals, all committed to becoming the standard of excellence. Deloitte & Touche