Political Risk Analysis Kenya 2012

governmental Risk Analysis KENYA T satisfactory of contents Kenya c tout ensemble everywheres an land of 582,646 squ ar kilometers. The land stretches from the sea level (Indian Ocean) in the east, to 5,199 meters at the bloom of the snow-capped prove Kenya. From the coast, the altitude changes gradually by the coastal hit and spheres (below 152 meters above sea level), the dry intermediate low blame to what is cognize as the Kenya eminentlands (over 900 meters above sea level).The mo nonony of terrain in the low belt is broken by residual hills, masses of broken boulders and inselbergs. Settlement is restrict to places where water burn be found. Wildlife be masters of the greater give forbidden of the low belt. The famous Amboseli Game Reserve and Tsavo National Parks be situated here. The Great Rift Valley bisects the Kenya Highlands into east and wolfram. Mount Kenya is on the eastern side. The Highlands argon cool and clownishly rich. Both large(p) and small carrier farming is carried out in the highlands.The Lake Victoria Basin is dominated by Kano plains which atomic name 18 suited for farming by irrigation. The jointureern part of Kenya is plain and arid. However, a variety of feed for thought crops do well(p) through irrigation. Kenya is determined approximately 8-10 hours degraded time from study European cities, and about 16-20 hours flying time from North American cities. 1. 2. climatic CONDITIONS Kenya enjoys a tropical climate. It is vehement and humid at the coast, tempe come in inland and very dry in the north and northeast part of the argonna. The reasonable yearbook temperature for the coastal townsfolk of Mombasa (altitude 17 meters) is 30. 0 Celsius maximum and 22. 40 Celsius minimum, the capital city, Nairobi (altitude 1,661 meters) 25. 20 Celsius maximum and 13. 60 Celsius minimum, Eldoret (altitude 3,085) 23. 60 Celsius maximum and 9. 50 Celsius minimum, Lodwar (altitude) 506 meters) and the drier nor th plain lands 34. 80 Celsius maximum and 23. 70 Celsius minimum. in that location is plenty of tempe countness all the year round and summer c swarmhes be dim throughout the year. However, it is ordinarily cool at night and early in the morning. The long rains occur from April to June and short rains from October to December.The rain-fall is roughtimes heavy and when it does come it overmuch falls in the later onwardsnoons and evenings. The hottest purpose is from February to furthert on and coldest in July to imposing. The yearly mig balancen of wildlife in the midst of Serengeti National Park in Tanzania and Maasai Mara National Park in Kenya takes place among June and September. The mig dimensionn of al constraining to two whiz thousand thousand wildebeest, zebras and other species is natures superior spectacle on earth. 1. 3. POPULATION Kenyas nation has rapidly change magnitude over the knightly just about(prenominal) decades, and consequently it is rel atively young. Some 73% of Kenyans are under 30.In 50 years, Kenyas universe of discourse has grown from 7 meg to 43 zillion. Kenya is a boorish of great pagan diversity. Most Kenyans are bilingual in incline and Swahili. Kenya has a very diverse universe of discourse that accommodates three of Africas major(ip) sociolinguistic groups Bantu (67%), Ni potic (30%), and Cushitic (3%). Kenyans are deep religious. About 80% of Kenyans are Christian, 11% Muslim, and the remainders follow traditional African religions or other faiths. Most city residents retain links with their rural, wide families and leave the city periodi-cally to help work on the family farm.About 75% of Kenyas population lives in rural know conductge domains and relies on agriculture for virtually of its income. some half the countrys 42 zillion sight are poor, or unable to run into their daily nutritional requirements. The national aphorism of Kenya is Harambee, meaning pull together. In that spirit , volunteers in hundreds of communities build schools, clinics, and other facilities from each maven year and collect funds to send students abroute. 1. 4. BACKGROUND OF KENYAS saving (1960-2010) Kenya is the largest delivery in east Africa and is a regional monetary and tape trans behavior hub.After independence, Kenya promoted rapid economical harvest-home through public invest-ment, encouragement of smallholder awkward production, and incentives for private (of-ten out of doors(prenominal)) industrial enthronisation. Gross domestic product (GDP) grew at an annual average of 6. 6% from 1963 to 1973. Agri-cultural production grew by 4. 7% annually during the very(prenominal) period, stimulated by redistrib-uting estates, diffusing fresh crop strains, and opening bran- bare-assed knowledge domains to cultivation. After experiencing moderately high growth rates during the 1960s and 1970s, Kenyas eco-nomic writ of execution during the 1980s and 1990s was far below it s potential.From 1991 to 1993, Kenya had its worst economic work since independence. Growth in GDP stagnated, and rustic production shrank at an annual rate of 3. 9%. In-flation reached a record snow% in portentous 1993. In the mid-1990s, the judicature imple-mented economic reform measures to stabilize the economy and recompense sustainable growth, including lifting nearly all administrative controls on producer and retail prices, im-ports, foreign exchange, and grain securities industrying. Nevertheless, the economy grew by an annual average of only(prenominal) 1. 5% between 1997 and two hundred2, which was below the population growth estimated at 2. % per annum, guide to a decline in per capita incomes. The poor economic movement was much often than non referable to inappropriate agricultural, land, and industrial policies compounded by poor international terms of commerce and governance weaknesses. Increased government activity intrusion into the private empyrean and importation substitution policies made the manufacturing sector uncompetitive. The insurance insurance policy surroundings, on with tight import controls and foreign exchange controls, made the do-mestic environment for investiture unattractive for both foreign and domestic investors.The Kenyan giving medications failure to meet commitments related to governance led to a stop-start relationship with the world-wide pecuniary neckcloth (IMF) and World posit, both of which suspended support in 1997 and once more in 2001. During professorship Kibakis origin term in office (2003-2007), the governance of Kenya began an ambitious economic reform program and resumed its coope proportionalityn with the World Bank and the IMF. There was some movement to crucify putridness in 2003, exclusively the insipidal relation did non sustain that momentum. Economic growth began to recover in this period, with substantive GDP growth registering 2. % in 2003, 4. 3% in 2004 , 5. 8% in 2005, 6. 1% in 2006, and 7. 0% in 2007. However, the economic feats of the force-out that broke out after the December 27, 2007 general alternative, compounded by drought and the globose financial crisis, brought growth down to less than 2% in 2008. In 2009, there was modest improvement with 2. 6% growth. In May 2009, the IMF Board approved a disbursement of approximately $200 million under its Exogenous Shock Facility (ESF), which is designed to let policy support and financial assistance to low-income countries facing exogenous just now temporary shocks.The ESF re-sources were meant to help Kenya recover from the negative impact of higher nourishment and in-ternational fuel and fertilizer prices, and the slowdown in outer necessary associated with the planetary financial crisis. In January 2011, the IMF approved a 3-year, $508. 7-million ar-rangement for Kenya under the Funds Extended book of facts Facility. To a considerable extent, the governments ability t o stimulate economic pack through pecuniary and monetary policy is linked to the pace at which the government is pursuing reforms in other gravestone orbits. The Privatization Law was enacted in 2005, just only became operational as of January 1, 2008.Parastatals Kenya Electricity Generating Company (KenGen), Telkom Kenya, and Kenya Re-Insurance keep back been privatized. The government sold 25% of Safaricom (10 meg shares) in 2008, reducing its share to 35%. Accelerating growth to achieve Kenyas potential and reduce the poverty that afflicts about 46% of its population entrust require con-tinued deregulation of blood line, improved delivery of government serve, addressing morphological reforms, massive investment in new infrastructure (especially roads), diminution of chronic insecurity caused by crime, and improved economic governance generally.The gov-ernments trance 2030 plan calls for these reforms, scarcely realization of the goals could be de-layed by coalition politics and line ministries limited capacity. Economic expansion is fairly broad-based and is built on a stable macro-environment fos-tered by government, and the resilience, resourcefulness, and improved confidence of the private sector. nonwithstanding the post-election crisis, Nairobi expects to be the primary commu-nication and financial hub of East Africa.It enjoys the regions best ecstasy linkages, communications infrastructure, and trained personnel, although these advantages are less prominent than in past years. Kenya faces profound environmental challenges brought on by high population growth, de-forestation, change over climate patterns, and the overgrazing of cattle in marginal areas in the north and west of the country. Significant portions of the population leave alone continue to require emergency food assistance in the coming years. Kenya is pursuing regional economic integration, which could advance long-term growth prospects.The government is pursuing a str ategy to reduce unemployment by expanding its manufacturing base to exportingationation more value-added goods to the region succession enable Kenya to develop its serve hub. In March 1996, the Presidents of Kenya, Tanzania, and Uganda re-established the East Afri-can community (EAC). The EACs objectives include harmonizing tariffs and springer regimes, redundant movement of people, and improving regional infrastructures. In March 2004, the three East African countries signed a Customs jointure Agreement paving the course for a common market.The Customs confederacy and a unwashed External Tariff were es-tablished on January 1, 2005, exclusively the EAC countries are quiet working out exceptions to the tariff. Rwanda and Burundi joined the community in July 2007. In May 2007, during a Com-mon Market for east and southern Africa (COMESA) summit, 13 heads of state endorsed a move to adopt a COMESA customs articulation and set December 8, 2008 as the target date for its borrowing. On July 1, 2010, the EAC unwashed Market Protocol, which allows for the submit movement of goods and services across the five part states, likewisek effect.In October 2008, the heads of state of EAC, COMESA, and the southern African organic evolution Communi-ty (SADC) agreed to work toward a free trade area among all three economic groups with the ultimate goal of establishing a customs union. If realized, the Tripartite Free Trade area would cover 26 countries. 2. POLITICAL CRITERIA 2. 1. GENERAL From the moment Kenya became independent, they went through hemorrhoid of self-aggrandizing changes. In 1962 the KANU-KADU coalition government was formed. The coalition government include both Kenyatta and Ngala.The country was divided in 7 regions and each one of the regions had its own regional assembly. After forming the coalition, the principle of reserving seats in the fan tan for non-Africans was abandoned and the root open elections were held in May 1963. In 19 64 Kenya became a republic, and governanceal changes further centralized the government (Wikipedia September 2012). When in 1978 Daniel Arap Moi became electric chair in an authoritarian and corrupt manner, there were several changes in the politic of Kenya.Moi reduced the power of the Kenyattas men in the cabinet by identifying them to be traitors. Also although the fantan started off as coalition during the integral presidency of Moi there was only one party who had all the power. flush after being requested by coupled States to get under ones skin multi-party transcription Moi declined. In the end because of the topical anaesthetic and foreign pressure Moi was forced to take a new party so that the multy-party could be restored. Moi won the elections in 1992 and 1997 where he used fear and electoral fraud to win (Wik-ipedia July 2008).In 2002 Moi was not able to present himself in the presidential elections because it is stated in the Kenyas make-up that a present ca nnot be in the presidential elections more than three times. Moi unsuccessfully tried to promote Uhuru Kenyatta, as his successor. Mois causality vice-president Mwai Kibaki was select president by a large majority. International and local observers reported that the 2002 elections to be generally more fair than those of both 1992 and 1997 when Moi was elected as president. Kibaki lost quickly much of its power because his regime was too close linked with the Moi forces.The continuity between Kibaki and Moi became one of the reasons for the self-destruction of Kibakis regime. In 2007 Odinga attacked the failures of the Kibaki regime. In December Odinga won majority of the seats in the Parliament, but the presidential elections votes were divided. In the end it became never clear who won the elections, still the election committee stated that Kibaki was the winner. Odinga criminate Kibaki of corruption which resulted in several big confrontations between followers of Odinga and Kib aki. The European joint did not agree with the outcome either because of the detected fraud in the presidential elections.As relation mass protest were triggered, father-ing simmering ethnic tensions. The protest and the on-going force-out between several groups move and became worse over the months. amidst December and February 1. 500 people died and 600. 000 people became homeless. The United Nations tried to narrow and offered a compromise whereby Kibaki stayed president and Odinga became Prime Minister (Chartis February 2008). In August 2010, a reference date taken on a new Kenyan constitution. The new Kenyan con-stitution restricted the power of president which would take in to the parliament and re-gions.The reference date was accepted by the majority of parliament and passed peacefully. 2. 2. THE POLITICAL BALANCE OF POWER Various people treat of the heritance of Moi when adverted at Kibaki and the sum total of pow-er he has. Moi reduced the power of the cabinet this resulted in more power for him, the president. When Kibaki became the president he had his first years as much power as Moi had in his years. But the assist time Kibaki became president there were many a(prenominal) protests against him becoming the president. Many people and in addition Odinga impeach him winning unfairly.United Nations quantityped in and made Odinga prime minister and shortly after that the Kenyan constitution changed. With the new Kenyan constitution rules Kibaki, or the pre-sent president, is not allowed to ap commove more than 50% of the ministers. The rest of the ministers can be elect by the prime minister. In this way the president is never able to al-ways suck in full support by his ministers. Nowadays you can speak of a power-sharing cabinet in Kenya. The cabinet is fifty percent Kibaki institute ministers and fifty percent Odinga appointed ministers.At the moment we can speak of match coalition when we look at Kenya. 2. 3. PRESENT GOVERNMENT AND HIS ATTITUDES AND PROGRAMS Although many contradictory of Kibaki to become the president Kenya again in 2007 he did by some say an outstanding job. The country is compared to the Moi years much better man-aged and has by far more competent personnel (Wikipedia October 2012). Many sectors of the economy hold up recovered from collapsing in 2003. So did many state corporations who had collapsed during the Moi years have been revived and are performing profitably. Also the infrastructure has been going through changes.Several ambitious infra-structural and other projects are planned or ongoing. Kibaki also introduced the Constituency Development Fund, this was introduced in 2003. The fund was designed to develop resources across regions and to control im equalisers in regional development. The CDF program has invested in putting up new water, wellness and education facilities. There was also special attention for the remote areas of Kenya these areas were usually overlooked duri ng projects (CDF official website). Another fact is since the presidency of Kibaki the dependence of Kenya on aid by western donors has been decreased.The country is still getting funded probatory but is now finding more fund by internally generated resources, much(prenominal) as tax. During Kibaki presidency, Kenya was more democratic and freer than before. When Kibaki came to power in 2003, he gave away free l spend a pennying in primary school as well as in secondary school. This resulted in add-on of number of children in primary- as in secondary school. 2. 4. POLITICAL STABILITY IN KENYA Before August 2010 all the power laid in the turn over of the president. Ex-president Moi for use used his go under for his own benefits.After the new Kenyan constitution the power changed of only one person, the president, too have it shared with the cabinet. With the new Kenyan constitution it results in a more stable government. When we look at the further the cabinet of Kenya leave g o through gigantic changes starting from 4 March 2013, because the general election will and so be held. So far Kibaki did not state that he will run in the president elections next year. Odinga will be participating as well as several other ministers, for example the substitute prime minister and the Cooperative minister (Wikipedia October 2012). . CRITERIA RELATED TO DOMESTIC delivery 3. 1. GENERAL INFORMATION Most of Eastern Africas economy is centralized in Kenya, although this gives them a power-ful position they still suffer from corruption and the low prices of their close issuanceful ex-port products. Lately the government has lacked investment funds in infrastructure which leaves them in danger of losing the position of the largest economy in Eastern Africa. The government is accused of the lack of attempting to stop the corruption which opened the doors to a lot of scandals inside Kenyas economy.This has led to a deduction of financial support options. Recently Ke nya have had a lot of setbacks like high food and fuel import prices, a severe drought and reduced tourism resulted in make grow in the interest rated and an change magnitude cash re-serve. 3. 2. GDP The GDP in 2011 was $ 72, 34 jillion, in 2010 this was $ 68,9 billion and in 2009 $ 2,6 billion. GDP growth in % Because of violence used during the elections plus the global financial crisis have led to a deduction in the GDP, in 2008 the growth was only 1,7% but luckily the economy rebounded since the year 2009.Now in 2011 the growth was only 4,3% collectable to the inflation and currency depreciation. The GDP per capita was $1,700 in 2009 and in 2010 and increased to $1,800 in 2011. If you would compare this with the rest of the world this leaves Kenya on the 195th place in the, which is hazardously low when we look at the put on the line of doing business with Kenya. Year uvulopalatopharyngoplasty growth 20051398. 7034. 74 % 20061490. 4066. 56 % 20071592. 9866. 88 % 20081604. 9250. 75 % 20091616. 1430. 70 % 20101675. 9183. 70 % Even though historical facts do not look good, the reckon concerning the GDP are looking better.The GDP is likely to increase delinquent to expansions in tourism, telecommunications, bear and construction and recovery in the agriculture, one of the or so crucial sec-tors for Kenyas GDP. 3. 3. MOST IMPORTANT SECTORS AND PRODUCTS As mentioned before, one of the most important sectors in Kenyas economy is the agricul-tural sector, forestry and fishing identifyed for 24% of the total GDP, 18% of the wage em-ployment and 50% revenue from exports. Especially the tea production and export are likely to increase because of prosperous weath-er forecasts the coffee industry has stagnated and is not likely to increase in the near future.The most profitable sector in Kenya is the service sector with tourism dominating that sec-tor. About 63% of all GDP is generated by tourism. Most tourists come from Germany and the Uniting region the y are attracted to the coastal beaches and the big game reserves. The tourism sector had a downfall because of negative attention in the media and the unsafe environment. The government is shortly addressing the security problems within Kenya by introducing a tourism police and by launching marketing campaigns in key tourist origin markets.The most important sectors are consumer goods ( officious, batteries and textile), agriculture, oil colour, aluminum, steel, cement and tourism. 3. 4. INFLATION RATE Inflation in consumer prices in % The inflation rate in 2011 was 14%. As we can see on the chart the inflation rate fluctuates a lot which means it will have a negative effect on the analysis on the risk. The Kenyan inflation rate has been on an average of 12,6%, from 2006 until 2012. The ultimate high was 31,5% in May 2012 and 3,2% in October 2011. On the hobby chart we can see the inflation rate more specify in recent times.Even in the last months there has been a lot of fluctuat ion in the inflation rate. The main reasons for the fluctuations are droughts and uncertainty in the import and export prices. 3. 5. THE GROWTH OF THE POPULATION The current total population is 43,013,341 (July 2012). In this chart we can see that the population always has had a steady growth. 3. 6. DOMESTIC INFRASTRUCTURE Kenya has an extensive road network of 152887 kilometers but most of the roads are in bad state unfortunately. For example of the total of 63. 800 ilometers of high way only 8,868 are paved. There is currently a project designed for creating links between all major and minor roads and to rehabilitate 20. 000 kilometer of roads in the urban c forecasts. Kenya has a state owned railway corporation which is managing the single leash railway station. It runs from Mombasa through Nairobi to the Ugandan border. Certain institutes are investing in the railway corporation to make it viable. The government is working on making the railway a private owned company. Either way, the Kenyan railway station is in a bad state.Kenya has a port located in Mombasa it has a freight throughput of about 8. 1 million tons. Kenya has an airport that recently has changed from a state owned company to a public/private company. This has been successful since Kenya now is the key gateway to Africa communications Overall Kenya has a well-established communication system More than 90% of the population has access to GSM signals. Kenya Posts and Telecommunications Corporation provides international direct dialing and subscriber trunk dialing, mobile telephones, telex, facsimile, data communication and related services.Substantial investment for the expansion of these facilities is under way and various internet providers have made their entry into Kenya. 4. CRITERIA RELATED TO conflicting thrift Economic Cooperation, Regional Integration & Trade The East African Community (EAC) countries Kenya, Tanzania, Uganda, Rwanda and Burun-di transformed into a fully ? edged a nd enforceable customs union on 1 January 2010. They adopted a common external tari? (CET) with three bands 0% (raw materials and capital goods), 10% (intermediate goods) and 25% (? nished goods). Tari? of up to 100% are appli-cable to products that are deemed to be sensitive to particle states. These include maize, rice, cement, chou and dairy products. Members will continue to collect customs receipts severally until a revenue sharing mechanism can be agreed. Furthermore, the EAC Common Market Protocol came into force on 1 July 2010, potentially allowing for the free movement of goods, services, people and capital in a zone with a com-bined population of some 135 million people. Given the large amount of legislation that requirements to be amended in all countries to comply with the protocol, the transition is expect to proceed slowly.Kenya has already taken signi? cant steps to domesticate and embrace the provisions of the protocol. A task force aerated with reviewing natio nal laws and aligning them with the Common Market Protocol has completed its report. Areas that collect harmonization include investment, tax, labor, education, standards, competition, merchant vessels, communications and ? nancial services. The report was forwarded to the attorney general who was expected to prepare a miscellaneous amendment bill to be tabled in parliament. Non-tari? barriers (e. g. road blocks, varying quality standards, the ine? ient functioning of the port of Mombasa and other red tape) continue to impede the free trade in goods and add to the costs of doing business. The replenishment of paper-based customs administration practices with an electronic inter-face system, Simba, is a strong step towards enhancing competitiveness and trade facilita-tion. With the bringing into operation of Simba customs checks are subjected to computer-ized scanning and fewer physical checks are undertaken. The programme has enabled im-porters and exporters to lodge their docum entation on line.In 2012, the Simba set up is expected to increase automation of goods clearance across all Kenyan border crossings. 4. 1. IMPORT 2011 darn Kenya had just spent 3. 3 billion US Dollars on merchandise imports in 99, they imported goods expenditure to 13. 49 billion US Dollar in 2011 which is an increase of over 400%. The depressed performance during the 2008-09 was due to a number of unfavorable shocks including the post-election violence in early 2008, a severe drought that bear on most move of the country, high international commodity prices and spillover effects of the global financial crisis, but the econ-omy rebounded in 2010.Import crops The major import products for the year to June 2011 were oil, construct goods, chemi-cals, machinery and channel equipment. The increase in the value of imports was mainly due to imports of oil, machinery and transport equipment, and manufactured goods. Oil imports accounted for 24. 2% of the total import. International oil prices increased from USD 74. 8 per barrel in June 2010 to USD 112. 15 per barrel in June 2011. Imports of machinery and transport equipment accounted for 28. 9% of total imports, and increased from USD 3 212 million to USD 3 942 million.This was due to the ongoing infra-structure development. Imports of manufactured items, mainly intermediate goods, accounted for 14. 8% of the im-port bill and increased from USD 1. 625 million to USD 2. 021 million while chemicals ac-counted for 13. 5%. Major Import Partners Kenyas major import teammates for merchandise are (2011) 1United Arab Emirates13. 0% 2China12. 1% 3India11. 6% 4South Africa5. 8% 5United estate4. 6% 4. 2. EXPORT 2011 Kenya had arrived 2. 2 Billion US Dollar in 99, while they could increase their receiving for ex-ports in 2011 to 5. 77 Billion US Dollar.This is an increase of about 260%. The depressed performance during the 2008-09 was due to a number of ill shocks including the post election violence in early 2008, a severe drought that affected most parts of the country, high international commodity prices and spillover effects of the global financial crisis, but the economy rebounded in 2010. Export reapings The agricultural sector continues to dominate Kenyas economy, although only 15 percent of Kenyas total land area has sufficient fertility and rainfall to be farmed, and only 7 or 8 per-cent can be classified as first-class land.It is the sand of Kenyas economy, contributing over one third of the Gross Domestic Product (GDP). AGRICULTURAL PRODUCTSTea, coffee, horticultural products, pyrethrum, pineapples, sisal, tobacco and cotton. TOP 1 TEA Kenya is one of worlds top producers and exporters of high quality tea and coffee. order of the produce was boosted by the average auction price TOP 2 HORTICULTURE The robust flower industry in Kenya sees flower exports ac-counting up to 35% of all Europes flower imports. The good performance enter in the horticultural sub-sector was due to impro ved external demand.OTHER EXPORTSBeside this also iron, steel, oil products, cement, arti-cles of plastics, medicinal and pharmaceutical products, and leather are exported Textile is Kenyas star(p) manufactured export. Soda ash (used in glassmaking) is Kenyas most priceless min-eral export and is quarried at Lake Magadi in the Rift Valley. SERVICES Transport, tourism and telecommunications services are the top three service exports in the country. Kenyas services sector, which contributes about 63 percent of GDP, is dominated by tourism. TOURISM In 2011 tourism experienced signi? cant gains with earnings rising by 32. %. The United King-dom continued to be the countrys main departure point for tourists with 203. 290 arrivals. Tourism is the second most important source of foreign exchange. To maximise on this growth trend, the Government is working together with the private sector in carrying out marketing as well as in strengthening linkages between tourism and the rest of the economy. Major Export Partners The market for Kenyan exports has been transformed over the years due to changing policy environment, regional integration and other initiatives providing market access to 12 key trading blocks.The initiatives include the East African Community, the Common Market for Eastern and Southern Africa (COMESA), Cotonou ACP/EU Partnership Agreement, and the AGOA initiative, among others. COMESA is Kenyas key export market, bewitching about 35% of total exports. The European Union market is the second most important, absorbing about 30% of total exports. Kenyas major export partners for merchandise are (2011) 1COMESA (e. g. Uganda, Tanzania etc. )35. 0% 2European Union30. 0% 3United States5. 6% 4Pakistan4,2% 5United Arab Emirates4,1%Kenyas relations with Western countries are generally friendly, although current political and economic instabilities are sometimes blamed on Western pressures. ? 4. 3. THE IMBALANCE IN TRADING Kenya is generally a trade deficit co untry. The negative balance of trade occurs because the countrys exports are vulnerable to both international prices and the weather conditions. Since independence, Kenya has enjoyed close international relations, particularly with the western countries. It is also a genus Phallus of several regional trade blocs, such as the COMESA (Common Market for Eastern and Southern Africa) and the EAC (East African Community).These blocs are key components of Kenyas trade volumes. The 2011 Kenyas trade performance was mainly affected by rise of oil prices globally which led to increase in the import bill and the depreciation of the Kenya shill, while exports remained stagnant. The gap between imports and exports, also called current account deficit, now stands at above 10% of GDP one of the highest in the world Today, Kenyas main exports dont even earn enough to commit for its oil imports, 4. 4. KENYAN CURRENCY The recent history of Kenyan currencyOn 14 September 1966, the Kenyan shilling (KES) replaced the East African shilling at par, although it was not demonetized until 1969. The Central Bank of Kenya issued notes in de-nominations of 5, 10, 20, 50 and 100 shillings. Locals in Kenya call the Kenyan shilling also Bob. The Kenyan bobsleigh Development of the Kenyan shilling Overview of the development of the Kenyan shilling (blue) compared to the US Dollar (red) between 2002 and 2012. Exchange rate in October 2012 EUR / KES 1 Euro = ca. 110,38 Kenya shilling 100 Kenya shilling = ca. 0,91 Euro EUR / USD 1 Euro = ca. 1,29 US Dollar 100 Kenya shilling = ca. ,18 US Dollar 4. 5. KENYAN MONETARY POLICY The year 2011 was troubled for the monetary authorities in Kenya with high inflation rates and a heavily depreciated currency. The monthon-month inflation rate averaged 12. 9% from January to October and peaked at 19. 7% in November 2011 against a target of 5%. The high rate of inflation was mainly driven by a rise in food and non-alcoholic beverage prices and transport charges. The food and non-alcoholic beverages index rose by 26. 2% compared with October 2010 while the transport index rose by 26. 22%. The rise in transport index reflected the sharp rise in fuel prices. shell outing to the Central Bank of Kenya (CBK), the euro-area currency crisis also had a desta-bilizing effect on the price level. Inflation is expected to drop to single digits in the next two years thanks to improved production of food and constancy of fuel prices. In 2011 the Kenyan shilling depreciated (=im Wert gefallen) by a margin of 25. 2% against the US dollar (USD), dropping from an average of KES 81. 11 per USD 1 in January 2011 to KES 101. 51 in October 2011. It depreciated against the euro (EUR) from an average of KES 108. 29 per EUR 1 in January to KES 139. 07 in October 2011.To arrest the fall of the Kenyan shilling, the monetary policy committee (MPC) progressively increased the central bank rate (CBR) from a low of 6% in January 2011 to a high of 18% by December 2011. The inflationary pressure experienced in 2011 and the depreciation of the Kenyan shilling can directly be traced back to the Central Bank of Kenya policy adopted in 2010, when it cut the central bank rate from 7% in January to 6% in December. This was meant to revive lend-ing and stimulate the economy through increased consumption. The policy was highly suc-cessful as evidenced by the 5. 6% growth attained in 2010.However increased consumption pushed up consumer prices and put pressure on the Kenyan shilling as it heightened demand for imports, which rose from USD 11,283 million in year 2009/10 to USD 13,659 million in year 2010/11. Furthermore, in year 2010/11, domestic credit increased by KES 254. 4 billion (23. 4%) against a target of KES 205. 9 billion (18. 9%). The excess credit growth reflected a stronger domestic demand than previously estimated. 4. 6. KENYANS DEBT SITUATION Kenyas external debt (or foreign debt) External debt is that part of the total debt in a countr y that is owed to creditors outside the country.This is not to be confused with actual government debts. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank. List of countries by external debt (End of 2011) External debt. (in USD)per capita% of GDP 1 United States14,710,000,000,00050,266103 2 United Kingdom9,836,000,000,000156,126390 3 France5,633,000,000,00074,619182 4 Germany5,624,000,000,00057,755142 5 Japan2,719,000,000,00019,14845 Italy2,684,000,000,00036,841108 7 Netherlands2,655,489,600,000226,503344 8 Spain2,570,000,000,00018,26084 16 Austria 883,500,000,00090,128200 92 Kenya 7,935,000,00020025 The debt service ratio The debt service ratio is the ratio of debt service payments (principal + interest) of a country to that countrys export earnings. A countrys international finances ar e healthier when this ratio is low. The ratio is between 0 and 20% for most countries. For example, if a country has export revenue of ? 100bn and pays ? 15bn interest payments on its external debt, then its debt service ratio is 15%.A rising debt service ratio is often the sign of an imminent economic crisis. Debt service ra-tios may rise because of A fall in exports Lower price of commodities which are main exports of a country. Higher espousal Higher interest rates increase cost of debt repayments Devaluation increasing cost of external repayments. 5. CONCLUSION All in all Africa has a big potential for exports and investments as there are still big growth opportunities. Kenya has the greatest growth potential in the sub-Saharan area followed by South Africa. However there are some recommendations to bear in mind (e. . Letter of credit, creditworthiness check, see list at end of paper) interest there is an overview of the key advantages and disadvantages for exporting to or inve sting in Kenya +- perpetual economy and good eco-nomic prospectspolitical dissymmetry ? political risk merely increasing political stability since peaceful referendum in 2010 ? adoption of a new con-stitution Favourable strategical geographical position and access to export mar-kets (? Eastern Africa) corruption and impunity (=Straflosigkeit) BUT High efforts to bring the problem under control since 2010 ?Kenyan Anti-Corruption counsel forced high-profile cabinet ministers to step aside and the International Criminal solicit publicly named perpetra-tors of violence (=Gewalttater) Membership of the largest African common market, the EAC (Eastern African Community), COMESA and the Southern African Development Community (SADC) ? enables the free movement of goods and ser-vices across the member statesInadequate infrastructure for absorption of economic devel-opmentBUT High efforts to catch up on infrastructure English manner of speakingwidespread poverty ? crime Mombasa haven ? most impor-tant seaport + Nairobi ? olitical and economic fastness in the Eastern African Areacompanies are often undercap-italized ? risk of late or non-payment Small time difference of opinion Small taxes and levies (=Abgaben) Low wages compared to European countries and well trained em-ployees fall out of a middle class with increasing acquire power Kenya plays a major role in the Eastern African economy. Mombasa is the most important seaport in Eastern Africa and Nairobi is the economic and political stronghold in this area. One big plus for exports to or investments in Kenya is that the country has a quite stable economy. Even there were some setbacks in the past (e. . violence during the last elections in 2008, global financial crisis) the scout for Kenyas economy and GDP is quite favourable for the future. Due to the expansionary of fiscal measures and by structural business reforms driven by the IMF the economy of Kenya will further improve in the past few years. Addi-ti onally the recovery of agricultural production and investment in infrastructures will also contribute to the vim of the economy. These are quite good prerequisites for potential exporters and investors. Even if Kenyas investment prospects are quite attractive they had been marred by political risk for a long time.Violence during the election in 2008 frightened away many potential investors. The turning point for Kenya was the peaceful referendum in 2010 where a new countrys constitution was decided (? separation of powers). The peacefulness round the referendum had a huge positive impact on the country. Following this event Standard and Poors increased the credit rating to level B+ which brings Kenya hand-to-hand to a score that foreign investors regard as an all-clear signal. Nevertheless exporters and investors need to be careful about the political state of affairs in Kenya as new elections will take place in March 2013.The electoral campaign carries significant risks of a re surgence of the violent confrontations within the ethnic groups in Kenya. Our opinion is that Kenya has a huge potential for exporters and investors. It has a real eco-nomic basis and political stability is already improving, so we would export to or invest in Kenya. Our recommendation prior to do export or investment is the following Exporters/Investors need to check the local partner/ customer in Kenya carefully It is very important to have a bona fide, respected partner in Kenya.Creditworthiness should be checked prior to doing business with them. insist on payment by garner of credit Especially when doing business with a customer/partner the first time it is advisable not to deceive under open payment terms. It could than occur that the exporter would never receive his money. A letter of credit is used to eliminate the risk such as unfa-miliarity with the foreign country, customs or political instability. should not take into account corruption Corruption in a foreign c ountry is also chargeable in Austria. Austrian exporters may also be reliable for their Kenyan partners.Therefore it is advisable to agree on anti-corruption clauses in the contract. In moorageful an Austrian exporter would admit corruption the export insurance will not be valid anymore. need to consider and watch the political situation When political unrests occur it may be advisable to stop exports until the unrests have calmed down. 6. SUMMARY MILESTONE HISTORYThe independent Republic of Kenya was founded in December 1963. JOMO KENYATTA was the first president (until 1978). Kenyattas long presidency provided the country with stability. GEOGRAPHIC FEATURES 580. 000 km2 42 million inhabitants Capital City Nairobi Language English, SwahiliThe Republic of Kenya is a country in East Africa that lies on the equator with the Indian Ocean to its south-east. It is bordered by Tanzania to the south, Uganda to the west, South Sudan to the north-west, Ethiopia to the north and Somalia to the north-east. Kenya has a land area of 580. 000 km2 (7 times bigger than Austria) and a population of about 43 million residents. It is to stress out that 75% of the population is younger than 30 years. Its capital and largest city is Nairobi. English is the language of choice when doing business in Kenya and is also used in Kenyan schools.Swahili (also called Kiswahili) is the national language of Kenya. It is a unifying African language spoken by nearly 100 percent of the Kenyan population. CLIMATIC CONDITIONSKenya has a warm and humid climate along its coastline on the Indian Ocean, which changes to wildlife-rich savannah grasslands moving in-land towards the capital. Nairobi has a cool climate that gets colder ap-proaching Mount Kenya (5. 166m), which has three permanently snow-capped peaks. 1. OVERVIEW OF THE COUNTRY 2. POLITICAL CRITERIA 2002 transitional election 2007 accusation of electoral ma-nipulation resulted in violent riots in KenyaAugust 2010 peaceful referen-dum i n passing a new constitution Kenya has seen significant political changes in the last decade. The his-toric 2002 transitional election, in which the National Rainbow Coalition (NARC) defeated the long-ruling Kenya African National Union, created a major political shift and inspired optimism among citizens about the future of their country as a multiparty democracy. Kenyans went to polls in large numbers for the December 2007 general elections, but the elections turned violent after accusations of electoral manipulation. More than 1. 00 Kenyans died and more than 600. 000 were displaced. Peace was restored following the signing and number of the National Accord and the creation of the Grand Coalition Government (GCG), a power-sharing deal ending a political stalemate between President Mwai Kibaki of the Party of National Unity and Raila Odinga of the Orange Democratic Movement. The National Accord also set out an ambitious reform agenda including a review of the countrys constitutio n. In August 2010, a largely fair and peaceful referendum resulted in pass-ing a new constitution.The new constitution was a landmark NEW ELECTIONS IN 2013 risk of new post-electoral vio-lence and rumorsachievement for the GCG as it enforces broad changes to the govern-ance framework, including a new devolved system of government reduced presidential powers, a reformed electoral process, more defined separation of powers between the three branches of government land reform and an expanded bill of rights. Government institutions, civil society, political parties and citizens face an ambitious and challenging period as they enact the reforms dictated by the new constitution.Kenyas political kinetics also are likely to be influenced by the outcome of the International Criminal Court (ICC) proceedings in which six prominent Kenyans are accused of involvement in the 2008 post-election violence. It is not yet clear whether the charges will be upheld by the ICC. Kenyan leaders are under i ncreasing pressure to continue rebuilding their country and to avoid a duplicate of the 2008 post-election crisis as the country heads into general elections in 2013. 3. KENYAS DOMESTIC ECONOMY DOMESTIC ECONOMY The economy experienced moderate growth in 2011 but is expected to rise modestly in 2012 and 2013 respectively.The year 2011 witnessed forceful currency depreciation and rapid inflation, both of which are ex-pected to stabilize in 2012 and 2013. Youth unemployment constitutes 70% of total unemployment. In 2011 Kenyas economy save checked growth, primarily driven by financial intermediation, tourism, construction and agricultural sectors. Gross domestic product (GDP) growth rate for the first niner months was estimated at 4. 2%, down from 4. 9% in the same period in 2010. Overall, growth in 2011 was curtailed by an unstable macroeconomic environment characterized by rising inflation, exchange rate depreciation and high button costs.The country also experienced limited rai nfall in the first half of 2011, which affected aggregate food production. In January 2011, the Kenyan government was forced to ask the IMF for support to counter the mounting financing pressures caused by a widening current account deficit. Certain other structural constraints, such as widespread corruption and poor infrastructure, also continued to undermine Kenyas growth potential. 4. KENYA & FOREIGN ECONOMY IMPORT While Kenya had just spent 3. 3 billion US Dollars on merchandise im-ports in 99, they imported goods worth to 13. 49 billion US Dollar in 2011 which is an increase of over 400%.The depressed performance during the 2008-09 was due to a number of adverse shocks including the post election violence in early 2008, a severe drought that affect-ed most parts of the country, high international commodity prices and spillover effects of the global financial crisis, but the economy rebounded in 2010. IMPORT PRODUCTS The major import products for the year to June 2011 were oil, manu-factured goods, chemicals, machinery and transport equipment. The increase in the value of imports was mainly due to imports of oil (International oil prices increased) IMPORT PARTNERS1. United Arab Emirates - 13. % 2. China - 12,1% 3. India - 11. 6% 4. South Africa - 5,8% 5. United Kingdom 4,6% EXPORT Kenya had received 2. 2 Billion US Dollar in 99, while they could in-crease their receivement for exports in 2011 to 5. 77 Billion US Dollar. This is an increase of about 260%. The depressed performance during the 2008-09 was due to a number of adverse shocks including the post-election violence in early 2008, a severe drought that affect-ed most parts of the country, high international commodity prices and spillover effects of the global financial crisis, but the economy rebounded in 2010.EXPORT PRODUCTSThe agricultural sector continues to dominate Kenyas economy, alt-hough only 15 percent of Kenyas total land area has sufficient fertility and rainfall to be farmed. Tourism curr ently is Kenyas third largest foreign-exchange earner after tea and horticulture (flowers) EXPORT PARTNERSCOMESA (East-South Africa) - 35. % European Union -30% United States - 5,6% Pakistan - 4,2% United Arab Emirates - 4,1% IMBALANCE IN TRADING Kenya is largely a trade deficit country.The negative balance of trade occurs because the countrys exports are vulnerable to both interna-tional prices and the weather conditions. The gap between imports and exports, also called current account deficit, now stands at above 10% of GDP one of the highest in the world Today, Kenyas main exports do not even earn enough to pay for its oil imports. ECONOMIC COOPERATION, REGIONAL INTEGRATION & cunning COMMON EXTERNAL TAFFIFF VISION STRATEGIC OPPORTUNITYThe East African Community (EAC) countries Kenya, Tanzania, Uganda, Rwanda and Burundi transformed into a fully-fledged and enforceable customs union on 1 January 2010 allowing for the free movement of goods, services, people and capital in a zo ne with a combine population of some 135 million people. The next phase of the integration will see the bloc enter into a Monetary Union and ultimately become a Political Federation of the East African States. They adopted a common external tariff (CET) with three bands 0% (raw materials and capital goods), 10% (intermediate goods) and 25% (finished goods).Tariffs of up to 100% are applicable to products that are deemed to be sensitive to member states. These include maize, rice, cement, sugar and dairy products. The Vision of EAC is a prosperous, competitive, secure, stable and politically united East Africa and the Mission is to widen and deepen Economic, Political, Social and finish integration in order to improve the quality of life of the people of East Africa through increased competitiveness, value added production, trade and investments. EAC has a combined population of more than 135 million people, land area of 1. 2 million square kilometres and a combined Gross Domestic Product of $74. 5 billion. This bears great strategic and geopolitical sig-nificance and prospects of a renewed and brisk East African Community 5. CONCLUSION POTENTIAL OF KENYAAll in all Africa has a big potential for exports and investments as there are still big growth opportunities. Kenya has the greatest growth potential in the Sub-Saharan area after South Africa. However there are some recommendations to bear in mind (e. g. Letter of credit, creditworthiness check,) ADVANTAGESRISKSStable economy and good eco-nomic prospectspolitical instability ? political riskBUT increasing political instability since peaceful referendum in 2010 ? adoption of a new constitution Favourable strategic geographical position and access to export mar-kets (? Eastern Africa) corruption and impunity (=Straflosigkeit) BUT High efforts to bring the problem un-der control since 2010 ? Kenyan Anti-Corruption Commission forced high-profile cabinet ministers to step aside and the International Criminal Co urt publicly named perpetrators of violence (=Gewalttater) ADVANTAGESRISKSMembership of the largest African common market, the EAC (Eastern African Community), COMESA and the Southern African Development Community (SADC) ? enables the free movement of goods and ser-vices across the member statesInadequate infrastructure for absorption of economic devel-opmentBUT High efforts to catch up on infrastruc-ture English languagewidespread poverty ? crime Mombasa seaport ? most impor-tant seaport + Nairobi ? political and economic stronghold in the Eastern African Areacompanies are often undercap-italized ? risk of late or non-payment Small time difference Small taxes and levies (=Abgaben)Low wages compared to European countries and well trained em-ployees Emerge of a middle class with increasing purchasing power OUR RECCOMENDATIONS Exporters/Investors need to check the local partner/customer in Kenya carefully It is very important to have a reliable, reputable partner in Kenya. Cre-ditwor thiness should be checked prior to doing business with them. insist on payment by letter of credit Especially when doing business with a customer/partner the first time it is advisable not to sell under open payment terms. It could than occur that the exporter would never receive his money.A letter of credit is used to eliminate the risk such as strangeness with the foreign country, customs or political instability. should not admit corruption Corruption in a foreign country is also indictable in Austria. Austrian exporters may also be reliable for their Kenyan partners. Therefore it is advisable to agree on anti-corruption clauses in the contract. In case an Austrian exporter would admit corruption the export insur-ance will not be valid anymore. need to consider and watch the political situation When political unrests occur it may be advisable to stop exports until the unrests have calmed down.