The Cost of Kenya’s New Visa-free Status - Money Weekly News

It is that time of the week again when we look at the news headlines over the last seven days and dissect those that can affect your money. 

Welcome to yet another edition of Money Weekly.

The Holiday month is here with us. This week, we had the Jamhuri Day celebrations - President William Ruto led the nation in celebrating 60 years of independence. 

To start with, starting in 2024, Kenya will be a visa-free country. However, to enter the country, one will need electronic verification. The move is expected to cost the government over Ksh5 billion in foregone visa-related fees annually.

Additionally, Hustler Fund savings will now earn a 12% interest, higher than the average industry earnings of between 5% and 10%.

The vulnerable will now receive their national social security stipends through M-Pesa agent shops nearby. Meanwhile, as announced by President Ruto, retirement fund beneficiaries will not have to wait 82 days to receive their money. Instead, they will wait only ten days.

In banking, the sector is experiencing a challenging period with loan defaults expected to hit 17% by the end of the year. Banks are expected to allocate nearly Ksh1 trillion to cover anticipated high loan defaults.

The Nairobi Stock Exchange (NSE) is also not doing very well with Express Kenya Limited issued a profit warning making it the 12th firm to issue a profit warning at the NSE.

Kenya to Lose Ksh5 Billion in Visa-Free Regime

Kenya stands to lose over Ksh5 billion annually after President William Ruto announced that the country would waive visa requirements for all foreign travellers, regardless of nationality, from 2024. 

“Kenya is the home of humanity, a scientific fact that fills us with pride and underscores our rich heritage. It is with great pleasure, as President of this extraordinary country, to make a historic announcement of the decision of the Government of Kenya. Beginning January 2024, Kenya will be a visa-free country,” said President Ruto.

His announcement during Jamhuri Day came after the Ministry of Immigration and Foreign Affairs proposed increasing visa fees to boost the government's revenue.

In the Finance Budget 2023/24, the Treasury had projected that the government would raise Ksh5.7 billion before slowing down to Ksh4.9 billion the following year.

Last year, the President had promised that Kenya would be visa-free to all African nations, but he has since accommodated the entire world.

This move has had its fair share of pushback, with critics highlighting that opening the country’s borders could make it even more susceptible to terror attacks. However, the President said everyone would be cleared electronically before entering the country.

“To implement this new policy, we have developed a digital platform to ensure that all travellers to Kenya are identified in advance on an electronic platform. All travellers will obtain electronic travel authorization,” said Ruto.

The President expects the move to positively impact the country’s tourism sector, whose number of visitors increased 77.9 percent to 1,465,175 in 2022, up from 823,312 in the previous year but yet to hit the pre-pandemic levels of 1,862,572.

Read More: How a Visa-free Kenya Will Look Like 

Hustler Fund Interest to Hit 12.5%

In other news, the President promised increased interest rate payments to those saving with the Hustler Fund to 12.5%.

This is a relatively higher rate compared to industry averages of between 5% and 10%. The announcement came after the Central Bank of Kenya raised interest rates from 10.5% to 12.5%. This meant that bank interest rates could rise above 21%, which would lock many people out of access to credit.

The hustler fund is a government-backed credit facility aimed at providing financial assistance to Kenyans locked out of the traditional financial system due to lack of capital or collateral. 

The President reported that the fund has disbursed Ksh42 billion to 21 million Kenyan borrowers since inception over a year ago. He said the repayment rate was at 75%, while savings stood at Ksh2 billion. 

Social Protection Funds to Be Disbursed via M-pesa Agents

In the same Jamhuri Day speech, the President announced that the government had partnered with Safaricom to disburse social protection funds for the elderly, orphans, and those with severe disability through M-Pesa agent shops. He noted that the beneficiaries of these funds spend a lot of money on logistical expenses. 

The government has allocated an additional Ksh2 billion for newly enrolled beneficiaries to the social protection fund, which provides a monthly stipend of Ksh2,000 to alleviate hunger and poverty.

The new National Social Security Fund (NSSF) contribution model has enhanced monthly contributions by 4.5 times. According to the President, NSSF will raise an additional Ksh400 billion in the next five years, tripling the fund's value from Ksh300 billion to over Ksh1 trillion by 2027. 

Retirement benefits are now released within ten days as opposed to initially 82 days, According to President Ruto. The head of state announced the target was to take the waiting period down to just one day by next year and expand coverage to 15 million Kenyans in informal industries.

The Shilling Depreciation and Expected Relief at the Pump

Central Bank of Kenya (CBK) Governor Kamau Thugge says the shilling has been overvalued, citing declines in exports, tourism receipts, and foreign direct investment indicators.

He criticised previous interventions that he said kept the shilling overvalued, leading to significant losses for the CBK, impacting public debt and fiscal consolidation, and prompted the rate hike.

The CBK has implemented one of the steepest increases in its benchmark lending rate in 11 years, raising it to 12.5% from 10.5% to address inflation and stabilise the shilling's decline.

As the Governor works to stabilise the shilling, Kenyans are looking for relief at the pump, seeing that the Murban crude prices have reached a six-month low. Murban crude prices are the benchmark the Energy and Petroleum Regulatory Authority (EPRA) uses for its pricing cycles.

The expected relief comes even after Energy Minister Davies Chirchir warned Kenyans to brace for tough times due to geopolitical factors such as the war between Israel and Hamas. 

EPRA is expected to announce the pump prices for super petrol, diesel and kerosene for the December-January pricing cycle later today (December 14, 2023). 

Bank loan defaults to hit 17% by end of year

Global credit ratings agency Fitch Ratings predicts a rise in bad loans for Kenya's commercial banks to 17% by the end of 2023 due to delayed government contractor payments and expensive repayments.

However, Fitch notes that the banks have sufficient capital buffers to absorb these impairments. Hence, Kenyan banks may have to allocate nearly Ksh1 trillion to cover anticipated high loan defaults. 

The CBK's recent benchmark lending rate increase to 12.5% raises default risks and consumer pressure. Additionally, several banks, including Equity, KCB, Co-operative Bank, Stanbic Bank, and I&M Bank, increased provisions for loan loss to Sh65.1 billion.

The Central Bank asserts that the banking sector remains stable and resilient.

Nzoia Sugar Company Resumes Operations

Over 67,000 sugarcane farmers can now sigh relief after the Nzoia Sugar Company resumed operations. 

The factory had halted its operations following a government directive and a lack of cane. The factory is expected to revive the local economy after a 21-month hiatus.

The county leaders also called upon the management to verify the Ksh1.6 billion debt and work towards reviving the company.

On the other hand, the government owes tea farmers Ksh5 billion in fertiliser subsidy fees, according to the Kenya Tea Development Agency (KTDA).

The government pledged Ksh4.4 billion in 2022 for subsidised fertiliser, but only Ksh1.4 billion has been released, and an additional Ksh1.8 billion was promised for this year but remains unreleased.

Ruto Outlines Government’s Employment Plan

During the Jamhuri Day celebrations, President William Ruto reiterated the government's plans to address the current employment crisis, especially for young people.

The National Housing project is a big part of the government's approach to creating jobs. The president claimed that the 33 ongoing constructions employed over 120,000 people. Thirty-one more sites are expected to begin next month, he said.

The government also wants to capitalise on the digital revolution to empower the youths to access digital jobs. The President has since signed an amendment to the National Government Constituency Development Fund (NGCDF) act to create ICT hubs in all 1,450 wards to expand digital superhighway infrastructure. 

Additionally, the President said his administration has issued 23,000 computers to young people and was in conversation with county governments for vocational centres to accommodate ICT Hubs to enhance the digital job footprint in Kenya. 

As for the creatives, the President said Meta - Facebook’s parent company - has committed to helping creators in Kenya make money. 

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“Following a pilot programme with eligible creators in the country, Meta will be expanding monetisation opportunities and allowing more creators to earn a living doing what they love,” President Ruto said. 

Profit Alerts Hit 12 at the NSE

The listed logistics firm, Express Kenya Limited, has issued a profit warning for the year ending December. The firm anticipates earnings to be at least 25% lower than the previous year, not above Ksh56.1 million.

Slowed economic activities and reduced demand for warehousing operations have been cited as the reason for the low performance.

This announcement comes after Kakuzi Plc also issued a profit warning, bringing the total issued warnings to 12, including Sameer Africa, Crown Paints, and Nation Media Group.

Nonetheless, Credit Bank is still keen to list on the Nairobi Securities Exchange (NSE). 

"Despite the ongoing challenges experienced by publicly listed companies, we remain optimistic about the strategic advantages of listing Credit Bank shares on the Nairobi Stock Exchange. The board remains dedicated to upholding exemplary corporate governance and financial inclusivity," the bank said in a statement.

Additionally, progress is still being made in the SME and startup ecosystem. 

Kenya Industrial Research and Development Institute (KIRDI) has been designated the technical advisor to 90 SMEs aiming to refine their products for the mass market. This is under the Kenya Industry and Entrepreneurship Project (KIEP) that the World Bank is funding to the tune of $50 million.

Furthermore, twelve Kenyan startups focused on advancing innovation in education have secured $1.2 million in funding through the Edtech Fellowship Programme by MasterCard Foundation and iHub. Each firm will receive $100,000 to scale their enterprises over the next three years, addressing learning challenges from early learning to working skills.

Other News in a SnapShot

• A new bill, the Affordable Housing Bill, has been introduced in Kenya, proposing fines of up to three percent for employers failing to remit housing levy deductions. The bill aims to regularise housing levy deductions after a previous court ruling deemed them unconstitutional. The proposed legislation expands the tax bracket to include incomes other than monthly salaries. 
• On to the holidays, despite tough economic times, Kenyans have defied high commodity prices and reduced disposable income to book holidays over Christmas and New Year. Hotels, especially in the Coast region, a popular beach holiday destination, reported high bookings, with domestic tourists accounting for over 80% of December bookings. 
• According to the Kenya Coast Tourism Association, there has been a 20% increase in bookings compared to last year. Facilities in parks, including Maasai Mara, Amboseli, and the Mount Kenya circuit, also reported booming business ahead of the festive season. Domestic tourism remains crucial for the sector.
• A new poll by TIFA Research shows 87% of Kenyans have reduced their expenditure as a way of dealing with the soaring cost of living. Reductions across expenditure categories include 15% on transportation , 9% on clothing and 8% on entertainment expenses.