Wednesday, June 1, 2011


KONZA where Africa's silicon Savannah begins!

This is the slogan for the marketing video of this small Kenyan town south of Nairobi that is about to be transformed into a "new African City". Kenya, now publicly considered as one of the new high growth economies, is marketing itself as the new technology hub in Africa.  Konza is envisioned to be a 2,000 hectare technology city that is modern, inclusive and sustainable.

It is projected that in the next two decades Kenya will be a middle-income country with a sizeable middle class with robust retail, industry and technology centers. This is all thanks to the submarine cables and fiber optic networks. The government is using this platform to attract new investors, particularly ICT investors. The projected GDP growth-goal is 10%.

The development blue print spearheading this process is the VISION 2030 manifesto which is geared to transform employment markets, improve the infrastructure as well as build institutions.

Masai Mara Lions

Kenya, well known for its wildlife safaris, the Masai and its cash crops (coffee, tea etc) experienced rapid growth in the first few years of this century but it slumped in 2008/2009 following the volatile 2007 presidential elections. Projected 2011 GDP growth is expected to be 5% which is unacceptable for an economy with a young, fast-urbanizing population.

Masai Moran

The Economist ran a series last month called Petri-dish economies. These are economies that exemplify global trends. Kenya was featured as one of those economies that is revving up the pace. Kenya, unlike most African nations, does not have natural wealth like minerals or oil for export. It is clear that the economy cannot be sustained by its agricultural exports and the tourist market is not dependable. So far, growth gains have come from macroeconomic stability and deregulation but the government's macroeconomic policies have been shaky and inflation has accelerated. In the meantime, the budget deficit is running above 6% of GDP. These factors stagnate economic growth and so the idea of a export-led manufacturing economy was developed and embraced by the leaders. Kenya has the right geography to adopt this East Asian economic model. The country has a coastal location with a quick sea route to Europe as well as reasonable proximity to India and other fast-growing Asian markets. Thus VISION 2030.

Sunset in the Savannah

Vision 2030 is the governments strategic development plan that sees the country becoming a manufacturing hub. Although there has been some success, the country has poor infrastructure especially at the port in Mombasa. The power supply is unreliable, corruption is rife and labor costs relative to productivity is quite high.  This is no surprise to any Kenyan or entrepreneur living in the country.

The more promising short-term route is regional trade integration. Kenya continues to boast the biggest economy in the East African Community (EAC) - which is a trading bloc.  The EAC has a market of 130 m people and a combined GDP of more that $70 billion. Trade between its members is tariff-free and labor mobility is imminent. 45% of Kenya's trade is now with other African countries and that share is growing fast. But again, infrastructure and red tape are a curse.

The manufacturing share of the economy will stagnate until there is suitable and reliable infrastructure. However, one area of the economy that has been soaring is the service industry led by information and communications technology. It has been growing at a rate of 20% a year! This is largely because of the impressive mobile-money revolution, a technology that has not taken root in the Western economies yet. Kenya has one of the highest rates of mobile-phone penetration and dominated by M-PESA, by far the largest network of mobile-phone-based money transfer. According to the World Bank, Kenyans transferred $7 billion, the equivalent of 20% of GDP, via their mobile phones in 2010.

Mobile Banking in Kenya
The Konza plan has been made possible because of the recent arrival of submarine cables and the fiber optic network that has seen a collapse in the price and increase in the speed of data connectivity. All manner of services are now flourishing from independent television stations to one of the region's biggest call-centers. This move towards a service economy is reshaping Kenya's whole economy. One big question is whether that will be enough.

I also wonder how successful this Konza plan will be in the midst of a culture of rampant corruption and greed. There is a need for a new breed of visionary leadership that can steer this country into a middle to high income economy. Is this truly feasible?

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