Wednesday, 17 December 2014

East Africa primed to grow further, faster

EAST AFRICA, the fastest growing region in Africa, is slated for further rapid growth. Economic conditions favour such a growth say economists. The region has rebased it GDP which found that the economies of Uganda, Tanzania and Kenya were larger than previously estimated.

 The region’s wealth is 24 per cent larger than previously estimated. Currently, it is US$ 23.4 billion higher.  Before rebasing, the regional wealth stood at US$98 billion as at the end of last year. Now it stands at US$122 billion. And going by the fact that economic growth rates were found to have been higher than previously estimated, it is expected to be higher than previously estimated by the end of the current year.

 Kenya is still the leader as her total national wealth was $55.2 billion at the beginning of the year. This forms 45.3 per cent of the total regional wealth. Tanzania is second commanding 35 per cent (US$42.5 billion) of the regional wealth while Uganda is third at 20 per cent (US$24.6 billion).

As a consequence of the growth in regional wealth, the regional debt to GDP ratio has declined from an average of 47.6 per cent to an average of 39.1 per cent. Uganda was the more cautious borrower of the three with a national debt to GDP ratio of 39.8 per cent before the rebasing of the GDP accounting year to 2009/10.

 After rebasing this ratio decline to 29.2 per cent- a huge decline by any standards.  It was Uganda’s cautious borrowing approach that dragged the GDP-debt ration down both before and after rebasing. Tanzania was an aggressive borrower with a GDP-debt ratio of 53 per cent which declined to 42 per cent after rebasing. Kenya on the other hand had GDP-debt ratio of 50 per cent which decline to 46 per cent after rebasing.

The implication here is the debt ratio is comfortable and the countries can even borrow more to finance their development projects especially in the high impact infrastructure development. If spend prudently, any new debt will be manageable in future for the projects developed will generate further growth. Uganda is still grappling with  how to raise US$8 billion to build her section of the Northern Corridor Standard gauge Railway running from Kenya’s port of Mombasa to Kigali in Rwanda via Uganda.
  Kenya and Tanzania need additional funds to finance their infrastructure projects in transport and energy sectors. Kenya is the first off-the blocks having borrowed an estimated US$3 billion this year alone through sovereign bonds. The money will be used to finance energy and logistical infrastructure. Tanzania is revving to float a US$1 billion Eurobond next year.

 Another potential gain from rebasing the economy is the signal that each country can generate more domestic taxes to finance their budgets. The GDO tax ration has fallen from an average ratio of 19 per cent before rebasing the economies to 15 per cent after the rebase. Again Uganda was more cautious. Her GDP-Tax ratio stood at 13 percent before rebasing shrinking to 11.8 per cent after rebasing. Her neighbours were both in early 20s. This means that the governments should widen the tax next to generate more taxes internally to finance their budgets. This would mean further independence from meddling donors.

The three countries will finance on average, 76.5 per cent of the current budget from domestic sources. This is a major leap compared to 10 years ago when the region financed only about 55 per cent of their US$11 billion budget. Only Kenya, the largest economy in the block could finance her 2004/05 $6.7 billion budget from the domestic sources. Tanzania, whose budget in 2004/05 stood at $2.5billion, could finance only 59 percent of her budget from domestic revenue. Ten years later, Tanzania will finance to 61.4 per cent of a budget that is five times larger. The current budget stands at US$12 billion while domestic revenue will stand at US$7.4 billion.
Uganda, which financed 54 per cent of her budget estimated at US$1.8 billion ten years ago, will finance 82 per cent of the 2014/15 budget which is three times larger. The current budget stands at US$ 5.8 billion while the domestic revenue will stand at $4.8 billion.

Kenya for her part will finance 86 per cent of her US$20 billion budget from domestic revenue. This is to say she will raise some $17.7 billion from domestic revenue. This is a decline from the previous level where she funded 96 per cent of her budget which was a third of the current budget. The budgets are a confirmation that East African economies have been on a growth trajectory over the past decade creating opportunities for economic players, putting more money in people’s hands and reducing poverty.

 Now, east Africa can finance a larger proportion of their budget from domestic sources which will ensure prompt project delivery.  Donor funding is the cause of under development in Africa because the funds pledged are not delivered on time to complete the projects in question.


Coupled with the new ability to borrow more, the new larger tax base will ensure rapid development in the region if prudently managed.

Sunday, 23 November 2014

Weak Kenya Shilling: should we mourn or pop the champagne?


THE KENYA SHILLING  has weakened against the US dollar in the recent weeks shaving of nearly five per cent in just about two months. Now the exchange rate stands at 90.25 to the US dollar buying down from KES 86.21 in January this year, a 4.7 per cent decline.

It is a decline that sparked off a debate on whether Kenyans should mourn or cheer the weakening the shilling; is a weak shilling a bad thing or a good thing? It is a bit of both.

 But first let’s understand why we need more shillings to buy the US dollar. And the first question we should ask is; which is changing, the shilling or the dollar? And what are the implications.

 Our thesis the shilling has not weakened; it is US dollar that has strengthened against other major currencies including our dear old shilling. The Dollar has been strengthening against other currencies including the Euro and the British Pound.  It has gained by more or less the same rate against the Euro and the British Pound as the Kenya shilling, that is, 4.7 per cent.This is why the shilling has gained against the the British Pound Sterling and the euro. Therefore there is no reason to panic.

 The  trend of the shilling then means that the effect on the economy could be neutral.  It may not strengthen or weaken our balance of payments position.  Exports may not be higher cheaper where In Euro zone  against whose  currency the shilling has strengthened. 

Let’s look at the import side first. Kenya’s imports are largely Crude oil which constitutes 25 per cent of our annual import bill. Oil is an inflationary import in our basket and the price of crude oil is shrinking. Over the last six months crude oil price has declined 24 per cent from US$ 97.5 a barrel in Mid-June to $74.25 a barrel in Mid-November. This has translated into low pump prices which are expected to continue declining.

 Such declines mean savings for the motorists and manufacturers. We therefore expect a lower price regime next year since the price of electricity is also down 25 per cent since August and is still declining as more geothermal power comes on stream. So inflation, one of the potential results of a weak shilling, will not happen.

 If anything inflation is likely to fall even further. In fact, according to Leading Economic Indicators published by the Statistics office, Inflation declined from 8.36 in August to 6.6 in September declining further to 6.43 in October. Low general prices mean more money for consumers to spend setting the stage for economic growth.

 On the export side, Kenya’s largest export is Tea whose price has shrunk in the recent past. However, a weak shilling will increase the amount of shilling per kilo. Again this will put more money in pockets of our farmers, increasing their capacity.

  Kenya, as a tourist destination will become competitive as a result of the weak shilling. However, tourism benefits will depend on whether the hot heads at the coast cool down or the government manages to neutralize them.  For now tourism is not on the radar as Kenya economic driver.

Don’t pop the champagne yet neither should you sing the dirge for the shilling. However, the Horizon does not look bad. Keep the lid on you may need to pop it in the first quarter next year. For those to whom Christmas means anything, this may not be a miserable Christmas.


Thursday, 13 November 2014

Where will Tanzania’s per income per worker be in 2030?

 IF NOTHING CHANGES, the average annual earnings per worker will rise from US$1 200 a year to US$ 1,900 a year. That is the current annual income level per worker in Senegal.  That is hardly the kind of progress that Tanzanians expect in the next 15 years, says the World Bank. Yet, with the right policies, one can expect Tanzania to become the Vietnam, Indonesia or even the Thailand of tomorrow, it concluded.

In 2012, the average working Tanzanian earned the equivalent of $1,200 per year, one of the lowest earning levels in the world. Most workers, about 85%, are employed in traditionally low-productivity areas such as agriculture, retail trade, and small-scale mining where the output per worker is averaging only $700 per year. By contrast, output by worker averaged $4,500 in emerging industries.

 There is no denying that Tanzania has performed well over the past decade. Her economic growth has been  7% per year or thereabouts. This growth was driven by a few strategic areas such as communication, finance, construction, and transport.

However, this remarkable performance is not enough to provide productive jobs to a fast-growing population that will double in the next 15 years. With a current workforce of about 20 million workers and an unemployment rate of only 2%, the challenge for Tanzanians clearly does not lie with securing a job. Rather, it is to secure a job with decent earnings.

By 2030, Tanzania’s workforce will grow to 40 million workers who will need productive jobs. International experience suggests that the workforce will have to shift from traditional toward emerging businesses to create them. In Thailand, for example, agriculture represented 80% of the employment force in 1990, while it was only 50% by 2005. In Indonesia, the share of agriculture in total employment declined by almost 20 percentage points between 1990 and 2010.

Can Tanzania implement necessary structural shifts in the next 15 years and become a middle income industrialized economy? The response is NO if the economy continues on its recent trajectory. Indeed, at current growth rates, the share of the population employed in emerging industries will marginally increase from 14 to 22% between 2012 and 2030. Perhaps not so bad, but the average annual income per worker will only increase to $1900 by 2030 says the a world Bank in a document titled  Country Economic Memorandum

This modest structural transformation of the Tanzania employment force is not explained by the lack of dynamism in emerging businesses. Their average annual growth rate has been close 10% per year since 2008, which is higher than rates reported by Indonesia (8%) and Thailand (6%) during the same period. Arguably, it will be difficult for Tanzania to do much better in the foreseeable future.

It will take simply longer for Tanzania to increase her share of the labor force working in emerging businesses, where currently, only 15% of Tanzanians are employed. The starting point was more than 20% and almost 40% in Thailand and Indonesia. Another explanation is that the rapid growth of modern businesses has not been accompanied by a similar increase in jobs. This is expected for low-labor intensive areas such as finance and communication, but it also happened to some extent for construction and tourism. While growth in the construction industry surged at a cumulative rate of more than 50% in the last five years, employment in this sector only increased by 25%.

Tanzania needs to raise productivity in traditional areas, which will continue to employ the majority of Tanzanians in the coming years. In parallel, the economy will need to extent and diversify toward new industries and markets. This is the gist of the World Bank’s recent Tanzania Country Economic Memorandum: Productive Jobs Wanted (CEM).

These two objectives will require a combination of actions that are detailed in the CEM, as well as many examples of concrete actions based on international best practices and Tanzania’s relevant experiences.

While cross-cutting actions are central, policy-making might require some degree of specificity – otherwise there is a risk of diluting implementation and wasting scarce public resources. For this reason, the Country Economic Memorandum also attempts to identify some industries on the basis of the country’s comparative advantage, their potential for growth, and for their ability to create multiple jobs. Along those lines, the movie industry, or ‘Swahiliwood,’ can create multiple jobs in the right environment. Short-term opportunities also exist in the leather industry, high-value vegetables and tourism. Such drive can be encouraged by a focus on quality (raising standards and skills), improving access to regional and global markets (port efficiency), and possibly pro-active promotion policies in selected areas. 


Let’s assume that the implementation of the CEM action plan will lead to an increase in additional productivity of 1-2% per year compared to historical rates. In that case, the average income per worker will reach almost $3,000 (in 2012 dollars) by 2030 or close to the levels reported by Vietnam today. If Tanzania can generate additional productivity gains in the range of 5%, over the recent historical trend, the average income per capita will reach $6,000 by 2030! This is Thailand today. Such goal might appear very ambitious but possible if the above mentioned action plan is implemented with a sense of urgency and the country adequately manages its resources derived from natural gas. Such performance was achieved by China over the past decade and by other emerging economies during shorter of periods of time. Of course, to replicate these successes, Tanzania’s will not just need to be good, but very good.

By World Bank

Sunday, 9 November 2014

Africa Oil to reduce stake in Kenya by early 2016


AFRICA OIL which has a 50 percent stake in Kenyan fields where commercial reserves of crude have been found, wants to offer part of its holding by early 2016 to a new partner that can help it fund development, the chief executive said.

Africa Oil and its existing partner Tullow Oil, which holds the other 50 percent, have found more than 600 million barrels of recoverable reserves. A final decision to develop the fields is expected in the first quarter of 2016.

The discovery is part of a string of oil and gas finds stretching from Uganda and along Africa's east coast that have made the region one of the world's hottest untapped hydrocarbon provinces. Output could reach global markets in 2018 or 2019.

"Before project sanction in 2016, we probably would like to have a partner," Africa Oil CEO Keith Hill told Reuters, although he said the plan was "not carved in stone" and the company could finance development itself if needed.

The Toronto- and Stockholm-listed firm aimed to reduce its stake via a so-called "farm down" deal that would leave Africa Oil with a smaller share. As payment, the new partner would reimburse costs of Africa Oil's exploration to date and commit to pay future development costs until first production.
Asked what stake Africa Oil would keep, Hill said at the firm's Nairobi offices: "That'll be the biddable item. We'd love to stay in at about 25 percent."

“I think the window is going to be between 20 and 30 percent,” he said of the amount the firm was likely to be able to retain. "A lot depends on how our drilling campaign goes on."

Tullow, the operator of the Kenyan concessions, and Africa Oil plan to drill up to eight wells to open up new basins in 2015 in the search for extra reserves.

Hill said Kenya's plans announced in September to impose a capital gains tax on energy firms, possibly as high as 37.5 percent on foreigners, could deter new investors in Kenya. But he said he did not believe the tax would impact a "farm down" deal as there would be no recorded capital gain.

A government official has said the capital gains tax was still a subject of debate. As it stands, the law is due to be implemented from Jan. 1. A withholding tax that could have had an impact on the "farm down" deal is being scrapped this year.

Kenya, Uganda and other partners still have to finalise plans for a pipeline that will connect the Ugandan and Kenyan fields with the coast at a cost of about $4.5 billion.

"Every day that we wait before settling the route is a day that we add on to first oil,” Hill said. But he said the route across northern Kenya and the commercial structure were expected to be agreed by the end of the first quarter of 2015.

Hill brushed off a fall of more than 25 percent in oil prices since the summer, saying it would not derail the project.

But he said the decline in oil prices had contributed to a drop in the firm's share price that could make it more expensive to seek additional funds, which it might do around mid-2015.

"As far as being able to raise money in the market if we need to, we are not that concerned about it,” he said, adding Africa Oil had $350 million in cash at the end of June 2014.


Africa Oil's shares have fallen from about C$7.30 ($6.40) at the start of July to below C$3.50 this week. As well as tracking the fall in crude prices over the period, the share price slid when Kenya announced its capital gains tax plans.

Tuesday, 4 November 2014

Tanzanian GDP is 28 per cent larger- sources

THE TANZANIAN economy is  larger than previously estimated, we can authoritatively report. The rebasing exercise, whose results are yet to be released, found that the economy was more than 27 per cent larger by the close of 2013.

Two weeks ago, this publication estimated Tanzania’s GDP to be higher than US$33 billion previously estimated. Now the actual size has been found to be almost 28 per cent higher. This puts the GDP at the end of last year to US$42.51 billion at the January’s exchange rate.

Re-basing of the national account series (which includes the GDP) is the process of replacing an old base year with a new and more recent base year. The base year provides the reference point to which future values of the GDP are compared.

Re-basing is meant to reflect recent developments in the economy and expand the basket of consumer goods to reflect changing tastes and preferences. Consequently, countries re-base their economy once in a decade although the UN recommends that re-basing be done every five years.

The structure of the Tanzania has changed dramatically since 2001 with new industries coming up especially in the mining sector. The services sector has also posted tremendous, discernible growth with the telecommunications sectors growing from an estimated 500,000 telephone lines in 2001 to nearly 28 million as at the end of March 2014.

 In 2001 internet communication was through cyber cafes and was expensive. To date internet is available on the majority of handsets. There was no mobile money transfer then, now it is diffuse.

Although there were some LNG resources at Sonko sonko, they were not fully exploited and the quantity of LNG available in Tanzania is estimated at 53tcf.

Concomitant with the elevation of GDP will be the rise in GDP per capita which will see the country move closer to achieving its target of being a middle income economy by 2020. Estimates based on the 2012 census place the population of Tanzania at 47 million. This works to a GDP per capita $904 compared to $708 in the current estimates.

 What are the implications of a larger GDP?  Several things come to mind. Among these is that Tanzania has to take a hard look at her taxation policy.  According to the current budget estimates, domestic revenue was expected generate US$7.4 billion, that is 65 per cent of the US$12 billion national budget estimates. Going by the same rates, that is 22.3 per cent of the lower GDP, then Tanzania should raise some US$9.46 billion from domestic revenue which is 79 per cent of the budget. In fact, Tanzania which is currently suffering withdrawal of donor support, can comfortably bridge the gap from domestic taxes.
  
The new larger economy means that Tanzania must start thinking big and invest big to support the larger economy.  She has to start investing in infrastructure, especially transport in order to support increased economic activity. Top on the agenda should be investment on the central corridor.
A report by the Africa Development Bank shows that the central corridor is scantly used due to the fact that much of it is not paved. 

 Consequently, average annual daily traffic on large sections of this corridor is less than 1000 vehicles only 40 per cent of the corridor boasts of an AADT of more than 1000 vehicles.  This compares negatively with the traffic population on the Northern Corridor where AADT is 3000.

The implication is that investment is needed on this corridor to make it a viable route. And now that Tanzania is investing in Bagamoyo Port, Investment in roads and Highways is urgent. Without these, investment in Bagamoyo port will be a white elephant.

With the rebased GDP, we expected the quarterly and annual growth rates to change. Economists say they will not be surprised if Tanzania has been posting double digit growth for a while now. A larger economy demands lots of support investments to keep it growing. Among these is the nation debt –GDP ratio.

 The national debt to GDP ratio which by end of April stood at US$17.853, say the Central Bank of Tanzania.  At the old estimates this amount of debt was the equivalent of 53 per cent of GDP.

 A debt ratio higher the 50 per cent of one‘s income is considered irrational. However the new base year will trim the debt ratio to 42 per cent of GDP. Tanzania will thus be comfortable to borrow US$1 billion in the Eurobond market; she can even take more to finance her infrastructure development

Tuesday, 21 October 2014

How large is Tanzania's GDP,how robust her growth?

 These questions will be robustly answered come the end of this month when Tanzania re-bases her GDP accounting period to 2007.

Tanzania will re-base her GDP accounting year to 2007 from 2001. The re-base will rope in new sectors is expected announce a new larger GDP. Economists estimate that Tanzania's GDP  is between 20 and 25 per cent larger than current estimates.

 According to Daily News, at the end of 2013, Tanzania’s GDP stood at US$33.26 billion. Economists therefore estimate the GDP to have been anywhere between US$39.5 billion and $42 billion by the end of 2013. This will confirmed at the end of this month when a new base year and new GDP are announced.

Re-basing of the national account series (which includes the GDP) is the process of replacing an old base year with a new and more recent base year. The base year provides the reference point to which future values of the GDP are compared.

Re-basing is meant to reflect recent developments in the economy and expand the basket of consumer goods to reflect changing tastes and preferences. Consequently, countries re-base their economy once in a decade although the UN recommends that re-basing be done every five years.

The structure of the Tanzania has changed dramatically since 2001 with new industries coming up .especially in the mining sector. The services sector has also posted tremendous, discernible growth with the telecommunications sectors growing from an estimated 500,000 telephone lines in 2001 to nearly 28 million as at the end of March 2014.

 In 2001 internet communication was through cyber cafes and was expensive. To date internet is available on the majority of handsets. There was no mobile money transfer then, now it is diffuse.

Although there were some LNG resources at Sonko sonko, they were not fully exploited and the quantity of LNG available in Tanzania is estimated at 53tcf.

Concomitant with the elevation of GDP will be the rise in GDP per capita  which will see the country move closer to achieving its target of being a middle income economy by 2020. Estimated based on the 2012 census place the population of Tanzania at 47 million. This works to a GDP per capita $894 compared to $708 in the current estimates.

 And given the new larger economy, the growth rates per quarter and per year will also change. Economists say, they will not be surprised if Tanzania has been posting double digit growth for a while now.

 There are benefits too such as the decline in national debt to GDP ratio which by end of April stood at US$17.853 at the end of April this year, say the Central Bank of Tanzania.  At the old estimates this amount of debt was the equivalent of 53 per cent of GDP.


 A debt ratio higher the 50 per cent of one‘s income is considered irrational. However the new base year will trim the debt ratio to 42 per cent of GDP. Tanzania will thus be comfortable to borrow US$1 billion in the Eurobond Market 

Thursday, 16 October 2014

Kenya the hottest oil scene in Africa?

THE FAST PACED NEWS  of oil discovery -after -discovery is making Kenya the hottest oil scene in Africa. And investors are trooping in. Not even the specter of a spillover of Islamic extremism from Somalia can dampen the atmosphere in Kenya, where commercial oil production is expected to begin in 2016 .

When it comes to new oil and gas frontiers, today it's all about Africa. And more specifically, it's all about the eastern coast, with Kenya the clear darling--not just because it's outpacing neighboring Uganda by leaps and bounds, but also because despite some political instability hiccups and the threat of militant al-Shabaab, it's still one of the safest venues in the region.

Six of the last 10 biggest finds have been in Africa, where—all told--there are some 130 billion barrels of crude oil waiting to be tapped by more than 500 companies, according to a recent report by PricewaterhouseCoopers.

Topping this list are Kenya's Anza and South Lokichar basins where the discovery and development news has been fast-paced.  Earlier estimates indicated that Kenya sits on 10billion barrel of crude. Read http://eaers.blogspot.com/2013/03/kenyas-oil-deposits-can-run-her-for-300.html  Now  that number appears small as more estimates keep coming in. 

In the last days of August, Tullow Oil—the British explorer behind Kenya's oil discovery debut in 2012—announced another oil find that will extend the already proven South Lokichar basin "significantly northwards."
Earlier this year, in May, Tullow and partner Africa Oil Corporation left a hefty impression on the market with the announcement of the country's first commercial oil discovery, worth $10 billion, in this basin.

And the next testing ground will be the neighboring Kerio Basin, which should get off the ground later this month, while there has been a flurry of attention lately surrounding the Ogaden basin where initial estimates are enough to send stocks soaring.

In the meantime, while bigger players such as Tullow and Africa Oil have benefited from the fame of their initial discoveries, they have also become burdened by the pressure of rising expectations for more discoveries. Not so the smaller players on this scene, who stand to benefit from the original discoveries and continued drilling—without the pressure. Investors will now be looking at who is poised to make the next discovery.

Africa Oil and Marathon are currently drilling an appraisal well on the Sala gas discovery in the Anza Graben Basin onshore Kenya, which will benefit other explorers with acreage just south of this, including UK-listed Afren Plc, UK-listed Tower Resources and Taipan Resources Inc, which has two onshore blocks in key basins. If these explorers come up with their own first find, it will be a superior risk-reward scenario.

In the Ogaden Basin, the market will certainly take notice of Afren's new estimates late last month that a large under-explored sub-basin, El Wak, contains up to 6.65 billion barrels of oil. If this estimate is accurate—and it comes in well above partner Taipan Resources' earlier estimates of about a quarter of that—they would be looking at the largest onshore target ever drilled anywhere in Africa. Later this year, Afren will be conducting seismic surveys to further define El Wak's potential, and investors will be watching closely.

The bigger picture, though, is of an East African country that has the advantage over its neighbors due to a convergence of add-on factors, including infrastructure aims, relative stability and what appears to be a smarter use of natural resources to generate more investment and economic growth, according to Jennifer Cooke of the Center for Strategic and International Studies.

Among other planned infrastructure projects of a massive scale, discussions are under way for a pipeline from neighboring Uganda, which would pass through the South Lokichar basin and come close enough to some of the prime drilling areas that could be the site of Kenya's next discoveries.
The World Bank's approval in July of $50 million for the Kenyan government to boost its management and distribution of natural resource revenues, with an eye on long-term sustainable growth, has provided further confidence for developments in the region. 

In the meantime, political stability has also been given a slight reprieve with the International Criminal Court's (ICC) indefinite adjournment of the trial against Kenyan President Uhuru Kenyatta due to lack of evidence that he organized post-election ethnic violence in 2007.

But the security situation with the regrouping of the Somalia-based al-Shabaab militant group and an uptick of the group's apparent attacks on Kenya continue to be problematic, even more so because no one seems to be sure whether the threat is emanating entirely from al-Shabaab.

While this remains a clear threat, it has not affected exploration and development—and it certainly has done little to scare foreign investors from this hydrocarbon frenzy that is expected to continue over the next five years, further boosted by relatively cheap exploration licenses. 

In this race, Kenya is the top contender, moving forward at double the speed of neighboring Uganda which discovered oil in 2006, six years before Kenya, but will lag a year behind the newcomer in terms of commercial production.
From Oil price.com


Tuesday, 7 October 2014

Kenya is Officially a middle income country

 
KENYA is now a middle income country.  Its GDP is US$55.2 billion, 25 per cent higher than the previous estimate of US$44.1 billion, says the national statistics office. The Office carried out a rebasing of the GDP accounting period from 2001 to 2009. The exercise established that the Kenya economy was larger than office data since 2006.

Further, the rebase established, the economy more than doubled in the eight year period to December 2013, rising from US$25 billion in 2006 to $55.2 billion in 2013- a 214 per cent increase.  The previous estimates indicated that the economy grew by 196 per cent over the same period from US$22.5 billion to US$44.1 billion.

 Consequently, the rebasing found that GDP per capita has risen to US$1246, catapulting the country into a middle income economy. The World’s bank entry into middle income economy is US$1035, meaning that Kenya has just passed the threshold.

  Although the findings of the rebasing vary from this publications' earlier  findings which stated that Kenya's per capita income has risen to US$1040.55 from US$991 last year. Go to  http://eaers.blogspot.com/2014/01/kenya-enters-middle-income-class.html, they are generally in tandem with the thrust of our reports. The rebase established that Kenya entered the middle income level in 2012. Our report had found that the rebase happened in 2013.

 The rebase also improved on another of our earlier reports which stated that Kenya’s GDP would be US$53 billion. That level was reached in 2012 and by December 31, 2013, the economy’s size was $55.2 billion. http://eaers.blogspot.com/2014/07/kenyas-gdp-to-shoot-to-53bn-on-rebase.html.

Following the rebase Kenya is now the 9th largest economy in Africa. Previously, it was number 13 in the continent while it’s GDP per capita has catapulted her to position 7 in the developing world. Previously it was in position 15.

 There were no spectacular changes in the structure of the economy. However, it established that some sectors were grossly under estimated. Among these is the real estate sector, which is a new entrant into GDP calculations. The sector now contributes 8.2 per cent of GDP. It was a sector, that was previously grossly underestimated the review established.

 Previously its gross value added estimates were just below a third of its real value. By 2013 for instance its GVA was estimated at US$941 million while the sector is nearly five times larger. The new data found that the sector’s GVA was US$4.2 billion, the fast growing ICT sector was also in this category. While it’s gross Value Added was estimated at just below one billion dollars, it is worth US$2 billion. Other sectors that were significantly under estimated included agriculture and financial service.

Due to the previous undervaluation even GDP growth rates were not accurate. For instance GDP is 2008 was estimated to have grown by 1.3 per cent. The rebased data shows that growth rate was 0.2 per cent.

But revised after rebasing, the GDP growth rate was higher than estimated in all the years between 2007 and 2013. In 2013 the new base shows, the GDP grew by 5.7 per cent compared to the old system which estimated the growth to have been 4.7 per cent. Consequently all quarterly estimates this year are inaccurate and will need to be revised.

The Kenyan economy is relatively diversified and resilient, even more robust than previously estimated. It has weathered a lot of storms. These include the Post- election violence that hit the country in 2007/08 that left the economy on its knees.  The violence was by followed a string of external shocks that slowed Kenya’s economic performance. These include the Oil shock of 2008 which at one point rose to $150 per barrel followed by the financial crisis in the West and a severe drought in 2010/11. 

Despite this unholy alliance, the economy has trudged along posting a 3.7 per cent growth in 2009, which peaked at 8.4 in 2010 before retreating to 6.1 per cent in 2011.  It edged up to 4.5 per cent in 2012 as fears of the political violence due to elections in 2012 held back economic activity. With elections out of the way, the economy grew by 5.7 per cent last year. And according to World Bank officials last week, poverty has declined to 25 per cent down from 43 per cent in 2009.


Sunday, 28 September 2014

South Sudan: Cry the beloved country

THREE YEARS AGO, South Sudan, then the world's youngest country, was born. It was a nation full of hope and whose prospects were bright. It had functioning oil fields which pumped 375,000 barrels per day, she also enjoyed the good will of the world.

Everything was going for her. Investors trooped into the country seeking for opportunities. Soon, South Sudan was receiving proposals for such mega project as the US$3 billion Juba-Lamu oil pipeline.

 All those prospects evaporated In December last year when a civil war broke out. The civil war pitted the government of President Salva Kiir against Rebels led by Riek Machar, his former vice president.

Oil wells have been damaged while the meagre revenue from the little oil available is being squandered on war. A nation that sits on Sub-Saharan Africa's third biggest reserves of crude is now a beggar nation staring at a potential famine.

Oil Output has declined to 165,000 bpd from 375,000 bpd before the war broke. With it, oil revenue have also shrunk and since oil is for now the only source of revenue for the economy, prospects are also turning grim.

Before the split in 2011, crude oil exports earned the then united Sudan US$20 billion a year. The split gave South Sudan 375,000 of that and thus 75 per cent of the revenue, that is, US$15 billion. For South Sudan, this was a windfall. Previously she used to share Oil revenue 50-50 with the North.

South Sudan, just like her neighbour Sudan, depends on oil revenue to funds 98 per cent of her budget.The fall in Oil revenue caused economic chaos in Sudan. Inflation there now stands at 46 per cent owing to lack of forex. The south is fast treading the same path: Oil Output down to 165,000bpd and still falling, oil revenues have plummeted to almost a third, that is, to US$5 billion a year at the highest. This works to US$417 million a month down from US$1.25 billion before the war.

The result, shortages all round: No forex, which leads to the weakening of the local currency. The official exchange rate for Pound is 2.95 to the US dollar. However, the black market rate is 5:1. This has restricted imports leading to domestic shortages and high prices of consumer goods.

At the last count in March 2014, inflation had crossed the 25 per cent mark. Now it is likely close to her neighbour’s level of  40 per cent. Poverty is becoming endemic as foreigners, who trooped in to south Sudan seeking for opportunities are reviewing their position.Soon they may troop out.

Business has contracted due to lack of funds to expand and also insecurity. Unemployment is high and rising. These pressures weigh heavily on the government which sometimes acts in a disoriented manner.

Last week South Sudan ordered all foreign workers to leave by October 15th. The order was however, modified and mutilated. Now I is not clear whether it shall be enforced. The government also has to cope with pressure to end the conflict, which is characterized by ceasefire agreements that no one obeys.


Monday, 22 September 2014

The Stanbic report is misleading, wrong

A REPORT published by the Standard Bank of South Africa last month is dishonest.  The report , Understanding the African Middle Class should be renamed Distorting the African middle class. It proposes that, nearly two decades of economic growth in Africa has had little effect on poverty reduction. 

This is the antithesis of the “Africa rising narrative,” whose thesis is that robust economic growth in the continent over the last two decades has reduced poverty and widened the middle income class. The Africa rising is an accepted narrative world- wide.

 The Understanding ….Africa report  states that, of the approximately 110 million households studied across 11 countries, 94 million (or 86 per cent) of them were located in the low-income category, suggesting poverty levels are as much as two times the figures shown in official records.

It defines Low-income people as those spending less than $5,500 in a year or $15 per day while the lower middle class spend up to $8,500 annually, or $23 per day. The middle class spends as much as $42,000 per year or $115 per day and the upper middle class spends more than $42,000 a year.  This contrasts the generally accepted definition of middle income class.

The study uses the Living standard Methodology. LSM is a census of one’s ownership of non-essential durable assets. This is the list of 24 variables we got from their so called LSM calculator Eighty20: Tap water in the house/plot, flush toilets, hot running water, built in kitchen sink, No domestic workers, home security service, 2 cellphones per household, 3 or more cell phones per household,  one or no radio, TV set,  Pay TV, Home theatre, Washing Machine, Microwave Oven, Deep-Freezer, air conditioning excluding fans, Swimming pool, Cars in Homestead, computer, laptop, telephone Landline, vacuum cleaner.
These are hardly basic necessities. necessities are defined to include, food, shelter, health, entertainment, clothes and education.

LSM was developed in South Africa by a foundation called South African Audience Research Foundation, SAARF.  It is a survey of assets held by households at the time of the census targeting high worth people for consumer good manufacturers.

 Needless to say LSM is a good example of a wrong policy tool as it ignores various variables employed in economic policy research. It relies on snapshots of wealth and income distribution at a given point ignoring changes that happen over time.  It also ignores completely the causes of changes in wealth and income distribution. It paints a picture of a caste system where one would remain stuck in in the same strata for life. According to LSM, the tool used in this study, being in the middle class is an event, not a process.

 This is in sharp contrast to a 2012 report by African Development Bank which established that there was significant mobility of the middle class to the upper class (rich) in the last two decades.  The AfDB report titled “The making of Middle class in Africa” found very little evidence of slipping back to poverty in Africa.  This is to say that robust growth has created employment and other income generating opportunities enabling the previously poor people to transit into lower middle income groups. This study presumes that being in the middle class is a process, with intercepts, mobility and further mobility.

The findings of this study which used the asset wealth status supports the findings of previous reports by the same institution using the consumption expenditure approach. The 2011 market briefing by AFDB, estimated the size of the Africa middle class to be 320 million people in 2011. The study, The Middle of the Pyramid: Dynamics of the middle class in Africa defines the middle class to be those between the 20th and the 80th percentile broken into three subclasses.  These are: floating class whose per capita consumption expenditure is between $2-$4; the lower middle $4-$10 and the upper Middle $10-$20. The rich are defined as those whose consumption expenditure per capita is $20 and over.

 It admits that the “floating class” comprising an estimated 194 million people was the largest sub-class. This class is vulnerable to exogenous factors, says the report.  Exogenous factors would include, economic slowdown, disruptions due to violence for instance and bad governance.  These have been few and far between. Consequently, owing to upward mobility, the few in this class have shrunk into poverty, if anything many have transited into higher levels.

Apart from the AFDB reports, other findings also put question the Stanbic Report. For instance Bloomberg in a recent review of Africa quoting various sources paints a rosy picture.  It shows a continent characterized by; robust economic growth, dominated by young people with a rising incomes which translates into huge and growing market for consumer goods including electronics, beverages, motor vehicles etc.

Such reports are in tandem with the World Bank’s report which credits Africa’s robust growth to strong domestic demand.  Last year, Sub-Saharan Africa’s GDP, excluding South Africa grew by 6 per cent. However, when the sluggish South Africa economy is included, GDP grew by 4.7 per cent says the World Bank’s Global Economic Prospects.

In the telecommunications, Africa is billed as the largest market for mobile phone handsets in the world. The continent also boasts high cell phone penetration rates. In east Africa for example mobile penetration has surpassed 60 per cent. In Kenya it is 78 per cent, in Tanzania it hovering around 65 per cent while Uganda has surpassed the 50 percent mark. These are indicators of a prosperous society.

 Other observed evidence also disputes the findings of Misunderstanding Africa. Traffic jams on our roads suggest a growing population of motor vehicles. Motor vehicles are purchased by a prosperous society.

 Two more issue with the Understand the African middle class report. It places no premium on education as an asset. The world over Middle class is defined as people with a tertiary education among other assets.


 And finally, its sample size was extremely large, 110 households in 11 countries. LSM is basically a survey of assets; did the researchers survey all households?  

Thursday, 11 September 2014

Kenya leads Africa in geothermal power generation

KENYA  is now the leader in geothermal power generation in Africa. Her capacity now stands at 400 MW and will  rise to 680 MW by the end of this year when KenGen, the state owned power generator commissions all 280 MW from its Ol karia wells.

 Such an increase will stamp further Kenya's position as the runaway leader in geothermal electricity generation in Africa. Since the new capacity will be used to retire the expensive thermal capacity, the cost of electricity is expected to decline by up to 47 per cent before the end of this year.

 This has raised expectations of a general price decrease come 2015. Already, the price of electricity is down 9 per cent on last month's prices following the commissioning of 140Mw geothermal power in July. The decline is expected to pick momentum after the commissioning of another 280MW of geothermal power later this month.

This will increase the supply of geothermal power to 680MW from 260MW just two months ago. Of these KenGen, the state owned power generating company owns 570MW and the rest 110 W are owned by OR power. The commissioning of the two plants will make geothermal the second largest source of power after Hydro which produces and estimated 786MW.

The government has indicated that it is targeting a 40 per cent price decline. While the 40 per cent decline may not be reached in the next two months due to technical issues, it will be felt in December, when the new geothermal capacity is expected to be fully deployed. The price of a KWH unit is expected to shrink from US$0.15 to US$0.09.
According to the World Bank, High electricity prices push the productions costs up thus also pushing up the consumer prices. Consequently, it stymies domestic demand and economic growth. Generally, Thermal power is expensive because it is driven by the price of crude oil in the world market.

Crude oil prices have remained above US$100 a barrel for hence the cost of diesel generated power is high. Thermal power is used to bridge shortfalls in hydro power which is subject to vagaries of weather.

Hydro power as a source of electricity is dwindling because the source has its limits. Rivers are not expanding to meet the growing demand. Consequently, new sources have to be brought on stream.

High prices stymie economic growth because it pushes consumer prices up and slows down domestic demand. The worst-affected industries are construction and mining and the quarrying sub-sectors which are heavy users of electric power.

Every Megawatt of Geothermal power produced, retires a megawatt of diesel powered electricity leading to price declines since fuel charge is a major component of in electricity prices. Currently for every dollar worth of expenditure on power, the cost of fossil fuel used to generate thermal power takes 35 per cent, energy consumption stands at 52.7 per cent, forex charge 5 per cent taxes take 2.7 per cent other charges take 2.8 per cent.

From this analysis, fuel index is a large contributor to power costs in the country. In fact, at 35 per cent, it is very low. Depending on the cost of crude in the world market, Fuel index sometimes rises up to 70 per cent of the total bill. Geothermal power will eliminate Fuels cost index from consumer's bills leading to low stable prices.

Low prices buoy economic activity as low prices encourage domestic demand. The low price of electricity, say economists, will be a shot in the arm for economic growth as it will push inflation down that sustaining domestic demand at high levels. Although the Economists do not expect to see a large fall in the price of manufactures this year, they expect the prices to start inching lower from the first quarter of next years.

Consequently many expect economic growth to exceed five per cent in 2015.

Tuesday, 2 September 2014

Kenya awards 1000MW Coal fired power contract

KENYA HAS AWARDED the first of several tenders for the development of coal fired power stations in the country. The Lamu coal fired project was awarded to a consortium led by the Oman based Gulf Energy LLC and Centum investment, a local investment firm.

The project will produce 960MW of coal generated power on 25 years power purchase agreement. Apart from being the first coal fired power generator in Kenya, the project is also the first major independent power producer in the country.

 It is thus a curtain raiser as far as PPP in power generation is concerned. It will increase the supply of electricity by almost 50per cent.  As of now the country produces 1668MW a majority of it is generated by Kengen, the largest generating company in Kenya.

 KenGen will add another 280MW to the national grid later this month thus raising the total capacity to 1948 MW. The Lamu project will add 960MW which is 49.3 per cent of the capacity at the end of September 2014.

The project, which will cost US$50 Million, is part of the government’s drive to increase the power supply to 5000MW in the next 40 months. Also in the pipeline is another 900-1000MW coal fired plant in Kitui County.

The Lamu power plant will initially use imported coal, and later convert to use local coal mined at Mui Basin, Kitui County.

 The government plans to cut the energy cost by 47 per cent for industrial consumers and by 37 per for domestic consumers.

 Power generation is a huge business in Kenya for the next 16 years or so. Government projections indicate that power demand will reach 15 000 MW by 2030.


To meet the demand, the country must raise the current capacity of 1 664 MW to 18 000 MW at a cost of US$20 billion, equivalent of the government’s budget for the 2014/15 Financial year. An estimated US$4 to 5 billion is needed to produce some 5000MW over the next three years. 

Friday, 29 August 2014

Kenya drills the biggest steam well in Africa

KENGEN, KENYA'S leading power generating company, has drilled o the biggest geothermal well in Africa and fifth biggest in the world. The well, christened Olkaria OW-921 has a production capacity of the 30MW of geothermal energy. 

The 3KM deep well is located at Ol karia and is one of the five largest geothermal wells in the world. It was completed in 46 days. The firm is the leading geothermal in Africa.

This new discovery firmly establishes Kenya as major geothermal power house in the world. It is also a major help in the realization of the goal to produce 5000MW in the next four years. The well will be connected to Olkaria IV power station. Ol Karia geothermal fields are located some 230 Kilometres North west of Nairobi, the capital city.

Meanwhile, KenGen will commission an additional 280MW of geothermal power next month. This will raise her generating capacity to 11462MW. The firm plans to produce another 30000MWby 2018 bringing her total capacity to more than 5000MW. For further reading Go to:  http://eaers.blogspot.com/2012/07/twenty-sixteen.html

Thursday, 21 August 2014

Ebola phobia: Bigger problem than Ebola itself

A Poster from CDC&P Nigeria
Don't eat bushmeat
Keep calm and carry on- The Economist


THE FEAR OF THE DREADED  disease, Ebola, what we shall call Ebolaphobia, is proving more disruptive and expensive than the disease itself. Although the numbers are not yet crunched, some indications are emerging. The affected parts of West Africa will suffer significant economic costs. For instance Liberia which has already lost $12 million so far and has already indicated that she will miss the projected GDP growth of 5.9 per cent in 2014 by significant margin.

Ebola will shave off two percentage points from Sierra Leone’s growth target. As of now, projections have been downgraded to 12 per cent this year from the projected 14 per cent.  It could shrink even further if the virus is not controlled soon.  In Nigeria, the economic cost of Ebola is tagged at $3.5billion dollars. Yet only 12 people have been confirmed to be infected so far, with two of them dead.  Although $3.5 of the colossal US$500 billion 

 In Kenya, Kenya Airways is the unfortunate victim of the fear of the disease. The airline has been forced to suspend flights to Sierra Leone and Liberia due pressure at home.

 Yet, all these costs are the consequence of fear of the disease –not the disease itself. So far, just about 2500 people are infected by the disease in three West African countries namely, Liberia, Sierra Leone and Guinea. Some 1350 people have succumbed to the disease since January. Given the low numbers of the infected, the colossal loses are irrational.  Why do they happen?

 A World Bank study shows that zoonotic diseases like Ebola cost economies anything between $500 million and $50 billion. The bulk of the costs, experts say, comprise of efforts to avoid infection such as reduced travel and discretionary spending. These account for 60 per cent of all costs. Illness and missed work account for 28 per cent of GDP losses, while mortality - and the resulting reduction in productivity - account for the remaining 12 per cent.

Explains the Economist, “The economic costs of epidemics are often out of proportion to their death toll. The outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003 is estimated to have caused over $50 billion-worth of damage to the global economy, despite infecting only about 8,000 people and causing fewer than 800 deaths. That is because panic and confusion can be as disruptive as the disease itself. Studies of past outbreaks have shown that lethal diseases that lack a cure tend to provoke overreactions. This is true even if the risk of transmission is low, as is the case with Ebola.”

So the cost of fear is way higher the direct cost of treating, managing and even the cost productivity caused by death. This fear has adversely affected critical sectors of the economy including; aviation, tourism and hospitality, trade, medicine and agriculture.

 In the case of Ebola, the World Health Organization stoked the panic by declaring the “epidemic an international emergency.” Reaction was swift; West Africa was isolated by careless pronouncement. Soon Airlines, led by British airways suspended flights to West Africa. Other countries with their own form of suspension including such comical ones as: Africans being barred from Bars in Korea, prostitutes in India were advised to avoid Africa clients and such other comical bans. Korean Air has also suspended flights to Nairobi which is a 10 -hour- flight from the epicentre of the epidemic in West Africa.

 Perhaps Korean Air was reacting to a statement by WHO that Kenya is a high risk location. This statement, given what is scientifically known about the transmission of Ebola was reckless, unprofessional and irresponsible.  The same organization has issued statements showing that Ebola cannot be transmitted through sharing a flight with an affected person.

 Ebola, although fatal, is not infectious.  It is transmitted through direct contact with bodily fluids of an infected person, or exposure to objects such as needles that have been contaminated with infected secretions," said Stephan Monroe, deputy director of the CDC's National Center for Emerging and Zoonotic Infectious Diseases.   It is highly unlikely to be transmitted in crowded places as trains and air planes since it is not air bone, nor it transmitted by neither water nor insects such as Mosquito.

This means that among the best preventive measures is to isolate the infected person and avoid burial ceremonies in case of death. The next measure, according to the Nigerian Centre for Disease control and Prevention is to avoid eating bush meat. 
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 Ebola’s natural host is the fruit bat. But other wild animals such as chimpanzees, gorillas, fruit bats, monkeys, forest antelope and porcupines are also carriers. Consequently, the disease gets into the human population after people come in close contact with the blood, organs or bodily fluids of infected animals.

  Given what is known about Ebola, it is easier to prevent perhaps than Malaria and difficult to catch if we do not create, by our own actions, the environment conducive to infection. The conditions include, hunting wild animals for meat and handling corpses of animals or man.  In fact, Ebola it seems is only a threat to the rural folk and medical personnel. These are definitely not urban dwellers and are not the kind of people air travelers come into contact with frequently.

The fear is irrational and Africa cannot afford the cost of Ebola phobia.  The Phobia has already cost us a tidy sum in terms if economic growth and business. We need to go easy on the rhetorric.

Saturday, 16 August 2014

New World Order but watch out for the pitfalls

Trade not aid is the new mantra
THANKS TO THE BIRTH of China as the leading developing economy, a new world order has been born. In the new order driven by the corporate sector, politics is taking a back seat as Corporate Moguls push the aficionado in the direction of opening new markets.

 In this new order, such fancy ideologies as “human rights,” civil society good governance and yes, democracy are being sidelined.  The new mantra and trade and investment-not aid. In the recent weeks, we have seen the West, which champions such lofty issues as gay rights tone down on such issues in favour of doing business with the developing world especially Africa.

 And the developing world, specifically Africa, has taken the centre stage in this new world order.  This is because the continent is in the second decade of robust economic growth and is headed for the pole position. A growth pole region is a region whose growth sparks growth in other regions.

In tandem with the changed circumstances, the economic narrative in the continent has changed from aid to trade and investment. In effect Africa has elbowed politicians out of its growth agenda. Instead economics has taken hold.

Consequently, all regions of the world are seeking a foothold in Africa, to be part of the growth.   This is why; According to Bloomberg 10 of the 15 fastest growing economies in the world are in Africa. Its middle class stands at 355 million people, slightly more than a third of its population and still counting.  The continent boasts of the youngest population in the world and by 2040, Africa will have the largest labour force in the world. 

The bulging middle class is driving growth of domestic demand and will drive it in the long run. Currently consumption expenditure in Africa stands at US$1.3 trillion a year and is expected to double by 2040. Now that is a region and a continent every business executive would like to have part in.

Adding vigor to the new world order is the Birth of the New Development Bank or the BRICS bank which will definitely disrupt the current world economic order.  The order currently dominated by the developed North, will now have to content with the reality of a major development financier in the South.

 Investment not aid is the new mantra 
This will lead to improved customer service as both banks vie for customers. The US-Africa summit in Washington last week is a good example.  Africa took home US$ 17 billion worth of investment commitments by the corporate America.  Little came from the US government itself but it also did not lecture Africa heads of state on governance and Human rights. In fact, such irritants to Africans as gay rights were swept under the carpet. They are likely to remain there for a very long time.

The developing countries themselves are likely to favour , NDB, as a welcome jolt to the existing world economic order which is deemed insensitive to their needs. No one expects the developing world to troop out of the Bretton woods institutions en masse or even at all. But the fact that they have one of their own lending to them could make it the lender of the first choice.

No one expects the World Bank and IMF to sit back and watch the new Kid on the block eat their lunch. Far from that, we expect them to compete for customers. That competition is what the developing world needs to leverage “to make hay while the sun shines.” We expect customer friendly attitudes and policies from both institutions. The Bretton woods institutions are seen as too intrusive in their lending policies, are expected to start softening their stance and become customer friendly.

A South - South Bank demonstrates one thing, that the developing world has come to grips with its agenda- development- and has identified its major handicap as finance.  The developing world’s major economic draw-back is poor infrastructure.  Currently, it seeks friendly financial support from China, which has responded generously. In Africa, China has offered US$30 billion over the next few years to develop infrastructure.

 It is expected the New Development Bank will focus heavily on infrastructure development- logistics, energy and water in order to improve the lives of their people and buoy economic growth.  These are also the areas that the BRICS countries are also focusing on meaning that they are in good company for other developing countries are desperate in need of funding for infrastructure projects.

Infrastructure, especially logistical and energy is currently the main focus of development in the developing world and it is expected to remain a major item on their agenda for a long time. This is a sensible move for the forward and backward linkages of infrastructure development in the developing world are massive. They open a world of opportunities.

 China has been very generous in funding infrastructure projects in the developing world. And this has rattled the West. And the West, fronted by Bretton woods institutions-the World and IMF and the European commission, have in the recent past been seen to copy China’s act, especially in the speed of approving projects. It is not clear whether the speed of disbursement is equally high.

Assuming the speed is equally high, then the developing world borrowers are spoilt for choice.
It is here that the developing world must be extremely alert regarding its development priorities so that they do not get swayed by marketing gimmicks.  Ready availability of credit is likely to temp some to overdo things, including investing in fantasy projects.

We are already beginning to see symptoms of over-investing which could lead to unnecessary debt.  A case in point is the proposed double decker highway in Nairobi, Kenya.  The World Bank has approved a US$260 million. The project is viewed an unnecessary since there is a dual carriage way Southern by-pass under construction. The 49 Km road will divert traffic from Mombasa highway and ease congestion on the existing Uhuru Highway and the City Centre.

 In addition there is also investment going on for a commuter Railway which is expected to further ease traffic on the road leading to the Jomo Kenyatta International airport. In fact the feeling is; the money should be diverted to other projects such water or irrigation schemes to improve food security.

China’s generosity in funding infrastructure projects in the developing world has jolted the West. It has attracted a lot of African countries towards China whose aid terms are considered reasonable. China will also be the lead partner in the new Development bank, given her status as the largest economy in the developing world and the second largest in the world. The new BRICS bank is therefore an additional feather in China’s cap.

Given that the bank’s terms are likely to mimic those of the shareholders, that is sympathetic to the needs of the developing world, the Bank is likely to attract a lot of developing countries desperate for funds to finance their infrastructure development programmes.

This has the west also crafting partnership strategies for the developing world in which they have upped their involvement with the developing world. For instance the World Bank has come up with a new partnership strategy with Kenya that will costs US$4 billion between 2014 and 2018, an average of US$800 million a year. This is quite a leap for the bank which over a ten year period between 1999 and 2012 committed a total of US$3.6 billion in the same country.  Already some US$50 million has been released to train Kenyans on management of the oil industry.

To sum up, the entry of NDB will create a new world order where development partners will be competing for attention in the developing world. Such competition could motivate some officials to over indulge. Let the developing world leverage the expected competition for its own benefit.