Chairman's Blog

Kenya economic outlook 2020 - opportunities

By Vipul Shah, Chairman & Founder, Grant Thornton Kenya

Kenya has been experiencing depressed economic activity attributed mainly to its debt burden which some have called unsustainable. Current indications are that this will continue for the foreseeable future due to the Covid-19 pandemic. Measures taken by the Government of Kenya including, reducing the VAT rate from 16-14 per cent and expanding the PAYE bands will cushion the economy from the worst of it. Nevertheless, opportunities abound as the global economy undergoes what is now known as the “Great Reset”.

The way we do business has forever been changed. Businesses that accept this change, keep an open mind and create value in the new economy will lead in this new dispensation. New roads of opportunity are cutting their way into all our lives. Are you resilient enough to survive this new environment right now? Are you adapting to your new environment? Are you ready to take embrace new business models as others slip and slide?

Kenya’s tax policy is seen as unpredictable and based on the whims of the government to serve their needs. The taxation measures announced every year come off as elitist and not in tune with the situation on the ground. It is counterproductive to tax fledgling companies more than legacy companies just because they have a unique service offering. A level playing field is what draws investors into Kenya. They could just as easily set up elsewhere. Tax changes such as the 1 per cent tax on revenue may hurt our economy through capital flight. Other changes which drive up consumer spending are good and need to be retained even after their time period elapses (14 per cent VAT).

Public policy regarding public health and safety is likely to create new markets for new products and services. Opportunities exist in professional services and consultancy to comply with new guidelines or laws.

With regards to public debt, we are likely to see reduced uptake of public debt and more emphasis on taxation in the medium term.

Foreign investment will favor those in the technology industry and organizations that leverage technology for better service delivery going forward. Social distancing favors those organizations that embrace technology. We are likely to have a permanent cultural shift where social distancing globally becomes the norm. Capital will seek out white water in unlikely places. Opportunities will show up in global shifts in supply chains, in service delivery, technology (app and content development) education and in healthcare – preventive and curative.

The Covid-19 pandemic has shown us that it is possible to effect wholesale change in our organizations in technology, culture, supply chain and governance.

Who would have thought that technology that we use to meet, organize, track and measure performance would go mainstream in a matter of weeks? That we can meet our prospects on TEAMS or Zoom and convert them without ever having to meet them. Our reluctance to accept these tools as part of our day to day was hidden in our inability to adapt to change. We had conformed to a life of endlessly rushing from one meeting to another in unbearable traffic. A life filled with physically moving ourselves around to every meeting.

Our future is now set in virtual presence and online collaboration. We can now have leaner teams spread out over a wider geographic area – even internationally. Teams can be more productive with more time dedicated to core functions and not travelling.

For a long time, work-life balance was just a theoretical concept. The name itself implies some sort of 50:50 arrangement where your time is split equally between work and their personal lives. Further, the conversation around what your appearance should be in the office has yielded a more casual style of dressing across the board. We need to ask ourselves whether our professional lives still need to be defined by a formal appearance or amount and quality of output. Organizations are realizing that they have the power to set their own rules. Covid-19 has forced us to look within to find that our culture is fluid and it is up to us. We act because we have the power to and not because others acted before us.

Manufacturing is going back to its roots. The over reliance on foreign manufacturing to support demand is no longer feasible. Supply chains are fragile and are not as predictable or cost effective as they were previously. Industries are being set-up closer home to support local demand. There was a push towards local manufacturing sparked by the China-US trade war and the APAC region’s risen wages which has now gotten its own legs. It makes business sense to manufacture locally or at least regionally. On dealing with higher wages, technology such as robots, artificial intelligence and 3D printing means manufacturing is not as labor-intensive as it used to be. Shorter supply chains will be the norm. Governments are also more inclined to promote this type of activity.

Organizations are forced to be more transparent and to communicate more with their shareholders and consumers than ever before. Technology breaks down closed doors and exposes organizations to more risk. All events related to your operations are open to scrutiny all over the world at a moment’s notice. Social media interactions that are seemingly innocuous could turn into significant turning points in your history. This calls upon you to carry yourself as a responsible global citizen at all times. Business continuity plans are needed now more than ever. The business of governance must also continue even if it means having a shareholders conference on Zoom.

The Covid-19 pandemic has exposed a lot of flaws in what we called normal. Changes that should have been implemented years ago are now urgent and essential for business to run. Those who had embraced technology in their organizations have weathered this storm better than those who did not have technology as a priority. The “Global Reset” dictates that you consider that you may need to go back to basics and rethink your business model. The reset has to come down to the basics of how you run your business. Your ability to build a stand-out business in this new environment is now is within your reach – more than at any other time in recent times.

Chairman's Blog Kenya Economic Outlook 2019