The Kenyan tech scene is in a frenzy after several tech giants set up or announced plans to set up their African offices in Nairobi.
In today’s edition of Money Weekly, we look at how the entry of these tech giants will affect the local tech scene. We’ll also look at other important money news like the looming basic commodities shortage, the growing preference for government securities by investors, and the IMF’s projected inflation rate for Kenya in 2022.
Let’s get right into it.
Multiple global tech giants have announced plans to set up offices in Nairobi, boosting prospects for local software engineers, IT experts, and the economy in general.
Earlier this week, Google announced that it will set up its first-ever Africa Product Development Center in Nairobi. The tech giant says that it will use the product development hub to develop transformative products and services for the African and global markets and create job opportunities. Already, the firm has announced that it is hiring engineers, UX designers, and product managers.
Meanwhile, another American tech giant, Microsoft, opened a new Ksh3 billion office and lab in Nairobi’s Westlands. The new office will be the hub for Microsoft’s African Development Center.
These two are not the only global tech firms that have set up shop in the country. Earlier this month, global digital payments processor Visa set up an innovation studio in Nairobi, the company’s first such hub in Africa. Amazon Web Services (AWS), the cloud computing wing of the global e-commerce giant Amazon, has also set up an office and data center in the Kenyan capital.
While the entry of these global tech giants into the country will create massive job opportunities for tech talent, it might also trigger a talent war that could starve local tech startups of talent. The global tech firms generally have bigger budgets to spend on talent and offer better perks, so some top talent will inevitably abandon local startups and move to the tech heavyweights.
Kenya has a thriving tech scene with hundreds of startups. This year, so far, Kenyan startups have raised over Ksh25.8 billion ($223 million) in venture capital, putting Kenya behind only Nigeria, which is top of the continent. Nigerian startups have raised over Ksh42 billion ($364.6 million).
Among the Kenyan startups that have attracted a considerable amount of funding in 2022 include Tushop (Ksh345 million), Apollo Agriculture (Ksh4.5 billion), MarketForce (Ksh4.5 billion), BasiGo (Ksh389 million), Amitruck (Ksh454 Million), Copia (Ksh5.6 Billion), Poa Internet (Ksh3 billion), and Lipa Later (Ksh1.36 billion).
The low supply of dollars in the country could lead to a shortage of basic commodities in the market and further push up the already high cost of living in the country. The situation has been worsening at an alarming rate such that some commercial banks are capping the amount of dollars a single person can buy at $1,000. Other banks have stopped selling dollars altogether.
With dollars so hard to come by, businesses that rely on imported goods are afraid that they won’t manage to restock on time. Others have been forced to buy dollars from forex bureaus which are taking advantage of the situation to over-quote the dollar, with some demanding as much as Ksh118 for a unit of the green buck.
The Kenya Association of Manufacturers has also complained that the lack of access to dollars is making it difficult for them to settle obligations with their international suppliers. This is straining their working relations with suppliers at a time when there’s increased global demand for raw materials.
Demand for the dollar by importers has been steadily rising since late last year, pushing the shilling to its lowest levels against the dollar. Today, the US dollar is trading at Ksh115.54, compared to Ksh114.99 on 1st April.
However, the Central Bank of Kenya (CBK) has downplayed the depreciation of the shilling, claiming that the local currency is still stable against major regional and international currencies.
The amount of domestic debt held by small investors (self-help groups, religious institutions, individuals, and other non-financial institutions) grew 35% in the last year as the investors went after the high returns that come with government securities.
Data from the CBK shows that small investors held Ksh268.96 billion (6.44%) of domestic debt at the start of April, a Ksh74 billion increase compared to a similar time last year. The amount held by small investors in T-bills and bonds also rose by Ksh22.98 billion in the same period.
This increase indicates the growing popularity of government securities as other asset classes like real estate and listed equities suffered from declining returns over the last two years due to the Covid-19 pandemic and the ongoing Russia-Ukraine war.
T-bills and bonds have returns of between 7.4% and 13% respectively, depending on the security’s duration.
Data from the recently published International Monetary Fund (IMF) World Economic Outlook (WEO) shows that the IMF predicts the inflation rate in the country across 2022 to average at 7.2, pushing up the already high cost of living.
The WEO also shows that the high living costs are unlikely to ease in the medium term, with average inflation for 2023 projected at 7.1 percent. The projected inflation will be the highest since February 2020, when the country rebased the consumer price index. Before the rebasing, the average inflation stood at 7%.
Currently, the inflation rate in the country stands at 5.6%, but it is expected to soar by the end of this month due to high prices of fuel and foodstuffs like maize flour, wheat, milk, and eggs.
Aside from pushing up the cost of living, the high inflation rate will also affect your savings. Depending on where you keep your savings, the high inflation could diminish the value of your savings, so it’s a good idea to find a savings vehicle that delivers higher yields than the annual inflation rate.
Here are some of the average interest rates for different savings vehicles:
Note that inflation reduces the purchasing power of the money you have. While you may have the same Ksh1,000 in December, if inflation by December has risen to 10%, then you will be able to buy only 90% of what a Ksh1K note can buy you today.
Last October, President Uhuru Kenyatta directed the Ministry of Energy to cut the cost of electricity by 30%. The reduction was supposed to happen in two phases, a 15% reduction in January and a further 15% in March. In January, the ministry implemented the first phase, lowering the cost of 200 units of power to Ksh4,373 in February, down from Ksh5,185 in December.
The March deadline for the second phase has since passed, yet the Energy Ministry has remained mute about its plans to cut power bills by a further 15%. This comes following the failure of the government to complete negotiations with independent power producers, who have been partially blamed for the high cost of electricity in the country.