Kenya's Government Finances Have Been Boosted By Falling Oil Prices, But For How Much Longer? 2

A diversified economy

Kenya is a bit of an anomaly when it comes to African countries. Whereas most of the countries from the continent are dependent on commodity exports, Kenya remains quite diversified. According to the Observatory of Economic Complexity, tea, cut flowers, refined petroleum, and coffee were the chief exports of Kenya in 2015, forming 46% of the total value of exports for the year.

While talking on the subject, the Governor of the Central Bank of Kenya, Patrick Njoroge, during an interview with The Wall Street Journal Africa Bureau Chief Joe Parkinson, attributed Kenya’s economic diversity and resiliency to the decline in crude oil prices to “a very robust and dynamic private sector.”

This diversity makes Kenya stand out and also makes it attractive to investors.

Another aspect which makes the country alluring is its financial innovation.

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From e-payments to mobile bonds

Even though Kenya is classified as a frontier market by index provider MSCI, it continues to set an example for more industrialized nations when it comes to financial innovation.

Due to a weak banking infrastructure and exceptional poverty levels, a majority of the population did not have access to banking services. To improve the situation, it introduced a mobile payment platform – M-Pesa – in 2007. It allows users with basic mobile phones to make payments and transfer money without the need of a bank account.

Recently, Kenya debuted another pioneering development: it sold government bonds via mobile phones.

The economic diversity and financial innovation make Kenya stand apart not only in Africa but in most of the developing world as well.

Negatives outweighing positives?

In the previous article, we had look at aspects and issues ailing the East African nation. If we compare those to the positives outlined above, it seems that at least for now, the negatives are outweighing the positives.

In fact, the non-dependence on oil prices, which has been a positive for the country in the past, can also work against it now due to the fact that Kenya is a net importer of oil. A rise in oil prices will put pressure on government finances.

The graph above shows the country’s energy imports including crude oil, petroleum products, and residual petroleum products as a percentage of total imports. Notice the decline in the past two years, which shows the impact of falling crude oil prices. A rise in prices will increase fuels’ share of total imports, thus increasing government expenditure.

It is here that its peer Nigeria may actually become more attractive as an investment destination given its dependence on oil.

In the next article, we will weigh-in on the attractiveness of the Kenya stock market.

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