Non-Financial Corporates – Kenya
Strong Economic Growth, Improving Corporate Governance to Drive
Ongoing Investment and Expansion
DOUGLAS ROWLINGS, ASSISTANT VICE-PRESIDENT, EMEA CORPORATE FINANCE GROUP
JULY 2016
Agenda
1. Economic growth to remain buoyant despite slowing growth elsewhere
in sub- Saharan Africa
2. Currently stable political and legal environment make Kenya an
attractive East African hub for corporates
3. Growing demand for consumer products and services drives
expansionary investment in many sectors
4. Infrastructure and property development will benefit building materials,
construction and engineering services companies
Non-Financial Corporates – Kenya, July 2016
2
1
Economic growth to remain buoyant
despite slowing growth elsewhere in
sub- Saharan Africa.
Non-Financial Corporates – Kenya, July 2016
3
GDP Growth Forecast Exceeds Historical Average
Forecast trend growth 2016-2020 vs historical average growth 2005-2015
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
-5.0%
-6.0%
Angola
(B1 NEG)
Ethiopia
(B1 STA)
Nigeria
(B1 STA)
Zambia
(B3 NEG)
Botswana
(A2 STA)
Uganda
(B1 NEG)
Ghana
(B3 NEG)
South Africa
(Baa2 NEG)
DRC
(B3 STA)
Kenya
(B1 STA)
Mozambique Côte d'Ivoire
(Caa3 NEG) (Ba3 STA)
Source: IMF World Economic Outlook April 2016
Non-Financial Corporates – Kenya, July 2016
4
Economy Diversified Across Wide Range of Sectors
Percentage contribution of each sector to GDP in 2014
Health
2%
Education
7%
Real Estate
8%
Public Administration
4%
Financial Services
6%
Information and Communication
4%
Transport and Storage
6%
Other
13%
Agriculture
22%
Mining and Quarrying
1%
Manufacturing
11%
Electricity and Water Supply
2%
Construction
5%
Wholesale and Retail Trade
8%
Accommodation and Restaurants
1%
Source: Haver Analytics, Moody's Investors Service
Economic resilience is the result of its diversification across a number of industry sectors with low
exposure to mining, oil and gas activity
Non-Financial Corporates – Kenya, July 2016
5
GDP Growth Has Outpaced Population Growth
Population (million) - left axis
GDP per Capita (PPP basis, US$) - right axis
3,500
50
45
3,000
40
2,500
35
30
2,000
25
1,500
20
15
1,000
10
500
5
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0
Source: IMF World Economic Outlook April 2016
Non-Financial Corporates – Kenya, July 2016
6
Working Population Grows In Numbers And Percent
Age 0-19
100%
Age 20-64
1 million
Age 65 and above
2 million
6 million
26 million
90%
80%
70%
21 million
28 million
51 million
60%
89 million
50%
40%
30%
24 million
20%
29 million
38 million
42 million
10%
0%
2015
2025
2050
2100
Source: IMF World Economic Outlook April 2016
Non-Financial Corporates – Kenya, July 2016
7
2
Currently stable political and legal
environment make Kenya an
attractive East African hub for
corporates
Non-Financial Corporates – Kenya, July 2016
8
Second Best Country For FDI In Sub-Saharan Africa
1,400
South Africa
57.3
No. of FDI projects 2007-2015
1,200
1,000
800
600
Kenya
14.9
400
Ghana
30.3
200
0
Nigeria
81.0
9.0
Botswana
4.2
Mauritius
2.8
0
Tanzania
Cote d'Ivoire 11.6
5
Uganda
19.4
10
Zambia
13.5
Angola
47.3
Mozambique
43.2
Ethiopia
13.1
15
20
DRC
10.2
25
30
AAI Ranking
Note: Bubble size reflects total amount of FDI 2007-2015
Source: Ernst & Young's Attractiveness Program - Africa 2016
Non-Financial Corporates – Kenya, July 2016
9
Ranks Strongly For Governance In Sub-Saharan Africa
20th19th18th17th16th15th14th13th12th11th10th 9th 8th 7th 6th 5th 4th 3rd 2nd 1st
2015 IIAG
Mauritius (Baa1 STA)
South Africa (Baa2 NEG)
Botswana (A2 STA)
Seychelles (unrated)
Namibia (Baa3 STA)
Rwanda (unrated)
Cabo Verde (unrated)
Kenya (B1 STA)
Senegal (B1 POS)
Ghana (B3 NEG)
Zambia (B3 NEG)
Lesotho (unrated)
Swaziland (unrated)
Gambia (unrated)
Mali (unrated)
Tanzania (unrated)
Burkina Faso (unrated)
Uganda (B1 NEG)
Benin (unrated)
Ethiopia (B1 STA)
0
10
20
30
40
50
60
70
80
Sustainable Economic Opportunity Score
Note: Vertical numbering indicates rank in sub-Saharan Africa
Source: Mo Ibrahim Foundation
Non-Financial Corporates – Kenya, July 2016
10
Ranks Relatively Low In Terms Of Economic Freedom
19th 19th 18th 17th 16th 15th 14th 12th 12th 11th 10th 9th 7th 7th 6th 5th 4th 3rd 2nd 1st
Index of Economic Freedom (2016)
Mauritius (Baa1 STA)
Botswana (A2 STA)
Cabo Verde (unrated)
Rwanda (unrated)
Ghana (B3 NEG)
Seychelles (unrated)
Namibia (Baa3 STA)
South Africa (Baa2 NEG)
Madagascar (unrated)
Côte d'Ivoire (Ba3 STA)
Swaziland (unrated)
Uganda (B1 NEG)
Benin (unrated)
Burkina Faso (unrated)
Gabon (B1 NEG)
Zambia (B3 NEG)
Tanzania (unrated)
Senegal (B1 POS)
Nigeria (B1 STA)
Kenya (B1 STA)
0
10
20
30
40
Heritage Overall Score
50
60
70
80
Note: Vertical numbering indicates rank in sub-Saharan Africa
Source: The Heritage Foundation
Non-Financial Corporates – Kenya, July 2016
11
Currency More Stable Vs USD Than South African Rand
USD:KES - left axis
USD:ZAR - right axis
17.0
107
16.5
106
16.0
105
15.5
15.0
104
14.5
103
14.0
13.5
102
13.0
101
100
8/3/2015
12.5
10/3/2015
12/3/2015
2/3/2016
4/3/2016
6/3/2016
12.0
Source: FactSet
Non-Financial Corporates – Kenya, July 2016
12
3
Growing demand for consumer
products and services drives
expansionary investment in many
sectors
Non-Financial Corporates – Kenya, July 2016
13
East African Breweries And Safaricom Have Higher And
Growing EBITDA Margins Than Global Rated Industry
2013
2014
2015
50.0%
45.0%
40.0%
Reported EBITDA margin
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Rated universe
Alcoholic Beverages
EABL
Rated universe
Safaricom
Telecommunications
Note: EBITDA margins are on a reported basis.
Source: Moody's Investors Service; Company Reports
Non-Financial Corporates – Kenya, July 2016
14
Mobile Internet Penetration Rates Have Soared But
Scope For Growth Remains
Mobile subscriptions (per 100 people)
Internet users (per 100 people)
80
70
60
50
40
30
20
10
0
2007
2008
2009
2010
2011
2012
2013
2014
Source: The World Bank Group
Non-Financial Corporates – Kenya, July 2016
15
M-Pesa Subscribers And Revenues Have Steadily
Increased
30-day active M-Pesa customers (million) - left axis
M-Pesa revenue (Kshs billion) - right axis
18
45
16
40
14
35
12
30
10
25
8
20
6
15
4
10
2
5
0
2010
2011
2012
2013
2014
2015
0
Source: Company reports
Non-Financial Corporates – Kenya, July 2016
16
Middle Class Growing But Small Percentage Of
Population
Actual 2014 vs 2030 Forecast
2014 breakdown
2030 forecast breakdown
Middle class 0.4m
4%
Upper middle
class 0.0m 0%
Lower middle
class 0.4m 4%
Middle class
1.1m 8%
Upper middle
class 0.1m 0%
Lower middle
class 1.4m 10%
Low income 9.2m
92%
Low income
11.9m 82%
Ranking household consumption/income
Low income
Lower middle class
Middle class
Upper middle class
Annual household consumption (USD constant, 2005)
Daily household consumption
Under $5,500
Under $15
$5,500 - $8,500
$15 - $ 23
$8,500 - $42,000
$23 - $ 115
$42,000 and above
$115 and above
Source: Standard Bank Research
Non-Financial Corporates – Kenya, July 2016
17
4
Infrastructure and property
development will benefit building
materials, construction and
engineering services companies
Non-Financial Corporates – Kenya, July 2016
18
Cement Consumption Continues To Increase
Month-on-month cement consumption in metric tonnes
600,000
500,000
400,000
300,000
200,000
January
February
March
April
May
June
July
August
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
0
2014
100,000
September October November December
Source: Kenya National Bureau of Statistics
Non-Financial Corporates – Kenya, July 2016
19
Road Network Is The Region's Most Extensive
14
12
Kenya
(B1 STA)
Paved road network ('000 km)
10
8
6
4
Uganda
(B1 NEG)
2
0
Tanzania
(unrated)
Malawi
(unrated)
Ethiopia
(B1 STA)
DRC
(B3 STA)
Rwanda
(unrated)
0
10
20
30
40
50
60
70
GDP (US$ billion)
Note: Bubble size reflects country surface area
Source: Moody's Investors Service, The World Bank Group, CIA Factbook
Non-Financial Corporates – Kenya, July 2016
20
Electricity Supply Is Among The Most Stable In East
Africa And Better Than The Sub-Saharan Africa Average
South Africa (Baa2 NEG)
Rwanda (unrated)
Kenya (B1 STA)
Uganda (B1 NEG)
Malawi (unrated)
Ethiopia (B1 STA)
Sub-Saharan Africa
Tanzania (unrated)
DRC (B3 STA)
Nigeria (B1 STA)
0
5
10
15
20
25
30
35
Number of electrical outages in a typical month
Source: The World Bank Group
Non-Financial Corporates – Kenya, July 2016
21
Douglas Rowlings
Assistant Vice President
+971.4.237.9543
[email protected]
Non-Financial Corporates – Kenya, July 2016
22
© 2016 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors
and affiliates (collectively, “MOODY’S”). All rights reserved.
CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES
(“MIS”) ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES,
CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND
RESEARCH PUBLICATIONS PUBLISHED BY MOODY’S (“MOODY’S PUBLICATIONS”) MAY INCLUDE
MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT
COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY’S DEFINES CREDIT RISK AS THE
RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY
COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS
DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET
VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY’S OPINIONS INCLUDED IN
MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S
PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK
AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. CREDIT
RATINGS AND MOODY’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR
FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT AND DO NOT
PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES.
NEITHER CREDIT RATINGS NOR MOODY’S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN
INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS AND
PUBLISHES MOODY’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH
INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY
THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.
MOODY’S CREDIT RATINGS AND MOODY’S PUBLICATIONS ARE NOT INTENDED FOR USE
BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL
INVESTORS TO USE MOODY’S CREDIT RATINGS OR MOODY’S PUBLICATIONS WHEN MAKING AN
INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER
PROFESSIONAL ADVISER.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO,
COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE
REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED,
REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN
WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY
PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.
All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and
reliable. Because of the possibility of human or mechanical error as well as other factors, however, all
information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary
measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However,
MOODY’S is not an auditor and cannot in every instance independently verify or validate information received
in the rating process or in preparing the Moody’s Publications.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives,
licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or
incidental losses or damages whatsoever arising from or in connection with the information contained herein
or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers,
employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such
losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or
damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned
by MOODY’S.
To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives,
licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any
person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any
other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any
contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents,
representatives, licensors or suppliers, arising from or in connection with the information contained herein or
the use of or inability to use any such information.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR
OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER
WHATSOEVER.
Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation
(“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds,
debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have,
prior to assignment of any rating, agreed to pay to Moody’s Investors Service, Inc. for appraisal and rating
services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain
policies and procedures to address the independence of MIS’s ratings and rating processes. Information
regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities
who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more
than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate
Governance — Director and Shareholder Affiliation Policy.”
Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian
Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399
657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as
applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section
761G of the Corporations Act 2001. By continuing to access this document from within Australia, you
represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale
client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or
its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001.
MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the
equity securities of the issuer or any form of security that is available to retail investors. It would be reckless
and inappropriate for retail investors to use MOODY’S credit ratings or publications when making an
investment decision. If in doubt you should contact your financial or other professional adviser.
Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency
subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a
wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency
subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”).
Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings
are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for
certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the
Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2
and 3 respectively.
MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and
municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as
applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for
appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000.
MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.
Non-Financial Corporates – Kenya, July 2016
23