Kenya's Economic Stability & Investment Climate: Central Bank Chairman Andrew Musangi on Currency, Inflation & Africa's Future
Sicuro Conversations - Episode 3
Understanding Kenya’s economic fundamentals is critical for investors navigating Africa’s most dynamic market. In this episode of Sicuro Conversations, host Sheila Kamande sits down with Andrew Mkita Musangi, Chairman of the Central Bank of Kenya and seasoned advocate and business leader across Africa, for an in-depth discussion on the forces shaping Kenya’s investment landscape.
From the dramatic stabilization of the Kenyan shilling—which dropped from 165 to 129 against the dollar after overcoming speculation-driven volatility—to the nuanced regulation of cryptocurrency and digital lending, Chairman Musangi provides rare insights into the mechanisms protecting Kenya’s economy and investors’ capital.
This conversation goes beyond headlines to explore practical investment opportunities: why the Nairobi Stock Exchange remains underutilized, how public-private partnerships are transforming infrastructure without adding to national debt, and why Africa’s young, growing population represents an unmatched consumer market for the next three decades.
Key Topics Covered:
- The truth behind Kenya shilling stability and speculation myths
- How Kenya prepaid its Eurobond and restored investor confidence
- Cryptocurrency regulation: protecting consumers while enabling innovation
- Digital lending oversight and the pending regulatory framework
- Infrastructure PPPs: lessons from the Nairobi Expressway success
- Banking fraud prevention and biometric security measures
- Agricultural export opportunities: avocados, horticulture, and China’s market
- Why African Continental Free Trade Area will transform regional commerce
- The stock market opportunity most Kenyans are missing
- Africa’s demographic dividend and China’s strategic focus on the continent
Full Transcript:
Sheila: Welcome to Sicuro Conversations. We are really happy that you’re here. My name is Sheila Kamande and on this podcast we talk and engage with business leaders, policymakers, and market shapers. Today we are honored to have Andrew Mkita Musangi, the Chairman of Central Bank of Kenya. He’s a seasoned advocate and a business leader across Africa. Karibu sana.
Andrew Musangi: Yeah. It’s a pleasure to be here.
Sheila: Let’s begin with a big picture of Kenya and what is on everyone’s mind—the Kenyan currency. We have had some turbulent times in the past, and perhaps maybe the last one year we’ve managed to stabilize the Kenya shilling against the dollar. So can we trust that this is long-term? What would you say to investors looking to come into the country and invest? Maybe comment on the Kenyan shilling stability in that sense.
Andrew Musangi: Okay. Yeah. I think in making comments about it, you have to go back to our history. I’m talking about recent history, but also longer term. The Kenya shilling is a free-floating currency. It is not controlled by any central bank, which is part of their core mandate—to take measures such as using tools like interest rate setting to stabilize the economy. The other thing the Central Bank does is it always manages reserves. Now the idea of having reserves is to make sure that you have enough access to foreign currency to meet your national needs.
If you look at our history around the time there was a lot of speculation about the Kenya shilling—and I call it speculation deliberately—a lot of people were worried about our upcoming bond repayments and they were saying “oh, we’ll never manage to pay our bond repayments, we won’t have enough money.” So what did people start doing? The hype began snowballing, starting with social media, mainstream media: “Oh, we’ll never raise money,” blah blah blah. And sentiment started driving speculation on the shilling.
Now the shilling is not Bitcoin. You don’t just buy dollars because you want to hold dollars because you think we will not make a bond payment. The way governments manage debt is you do what’s called debt pooling. You know what payments are coming due, and you can also do debt management—which is, for example, if you’re getting to the end of a loan of 100 million and you know you still need 80 million, you can refinance.
All these stories were never in the media. What was coming in the media is “we expect the shilling to reach 200, we expect it to reach 300.” And we’re like, what had fundamentally changed in Kenya at that time economically? We were still farming, still receiving tourists, were still receiving diaspora remittances which were still going up every year. We were still collecting taxes domestically. We were still exporting flowers, exporting fresh produce. What had changed? The answer is nothing except for speculation.
Now the lesson I hope the country has learned is that you can’t just treat your currency as a tool of speculation. You don’t gamble with it. Sentiment went so high the dollar got to 165. What happened in February and January of 2024 was the country decided to raise a bond for early redemption of the June bond. That bond was oversubscribed, if I recall correctly, by up to I think 240%—international money. So while Kenyans were saying “we’ll never be able to pay,” the international financiers had such confidence in Kenya that they were happy to lend. We only raised 1.5 billion from the international markets. We quickly prepaid the bond and said “let’s do an early redemption so that you can cool off market pressures.”
Another intervention was the oil program. Every month we were having heavy pressures on the dollar because all your concentration of your monthly acquisition of our oil needs was coming towards the 20th all at once. The government at the time put in place a scheme where they would receive the oil in advance on credit, buy it in bulk, pre-buy and defer your payment cycle so that it would be a continuous payment cycle. The details of the structuring were made public. I think at the time only one bank had the confidence to back the government in this. But with hindsight today, I can tell you at least four of our major banks or five are participating in the scheme because what it does is allows you to pre-plan your oil purchasing and do your cash flow at a gradual sort of payment mechanism.
But what was most important is when we raised the bond in February, suddenly people thought “oh, we’re not going to default. And out there there is enough confidence to fund Kenya with international money. Why should we be panicking locally?” Banks had very hefty dollar deposits. There was no shortage of dollars. You could buy dollars to pay for oil, to pay for imports. That’s because the dollars were now sitting in accounts that people were holding onto because “the dollar will reach 200.”
When they released that money, what happened? From 165, it immediately dropped down—that’s supply and demand pressure. Suddenly the money was available. This dollar—unfortunately I have very sad tales of people who bought a lot of dollars at 165 and promptly lost 20% of their wealth when that dollar came down to 129. You realize it dropped very steeply. It had been climbing gradually as speculation built up. But when people saw the confidence, the drop was very steep and sudden.
But what is most important is not so much a strong shilling. What you really want is a stable shilling. Now stability you have to show over a longer period of time. What does that do? It shows people that there’s confidence that if you bring in 200 million you can get it out because (a) the dollars are available and (b) you get them out at a stable rate. That means foreign direct investment can come in and go out freely. That means manufacturers can buy raw materials at a predictable price and set the price of their final products with confidence, knowing that “my inputs are going to be at 129 to the dollar”—not “I wonder whether it’ll be the same tomorrow.”
If you look at inflation, the indicators have been between the 3 to 4% mark over that same period of time. Why? Because when your currency is also stable, your factors of production by extension also stabilize. So all these factors have now come together hopefully to prove to Kenyans that we are a stable economy.
We love looking at this glass as half empty. It’s half full of water. That’s the lesson I hope people take out of this: don’t speculate against your own currency. You can only get burned because the people who are speculating are not economists. Even I rely on the Monetary Policy Committee for specialist advice. We do not pretend to be economists. I’m a lawyer. I’ll take the experts’ advice. But when everybody who writes a newspaper article is saying “Oh, it’s going to be this price,” you’re like “where did you get that information? What’s your background?”
Sheila: So would you say—and “they” here means I guess that includes CBK—there’s a 5% growth projected to come along even into 2026. Is that true? Can we trust that? I think we as Kenyans, we have this trust deficit as someone else called it.
Andrew Musangi: What has your growth been in the past? What has it been in the past? Actual growth.
Sheila: I don’t know. Maybe you can tell me that.
Andrew Musangi: Growing at 4.7, 4.2, 4.5. Why shouldn’t you achieve five? It has been steadily rising. And in my businesses I’m involved in, if your business targets do not involve growth at 5%, why are you in business? Why are you in business? What do you plan for in your own life? Do you plan for growth or do you plan for contraction?
As an economy, as more and more production comes into different sectors—look at construction, look at manufacturing—obviously you set a target and say “we project that we can grow at this rate, all factors remaining constant.” Of course, wild cards, black swan events like COVID can come and throw all your projections out of the window. But all factors remaining constant, we are seeing economic growth.
You take data from Kenya National Bureau of Statistics, you take data from KAM, you take data from KRA, and you can see the indicators. We can also see the liquidity circulating in the market. We can also see things like diaspora remittances which have crossed the 5 billion mark. By far—I think the growth was probably closer to 12 or 14%—and consistent. So all that money is coming into your economy. What is it coming to do? It’s coming to produce. And if it grows at that level, you can already by extension see production also growing because nobody comes to put that money under a mattress. This money comes to work, whether somebody is building a house for his grandmother or mother back in the village—that money is circulating into hardware, it’s circulating into labor.
Look at things like affordable housing. You look at one site like Mukuru perhaps and see that you’ve deployed 3,000 workers on one site. Those are people who are going to consume. They’re going to spend every day. We’re launching more and more of these schemes every day. Can you tell me the construction sector will not grow? It will provide cement. The “jua kali” guys on Gikomba Road who are providing windows and doors—I don’t know if people know this but every input into the affordable housing scheme is locally sourced, all of them. That’s mandatory under that housing scheme. So those are thousands and thousands of jobs being created.
When you look at all that, look at tourism—the numbers are coming back, growing again. Tourism is a major foreign exchange earner. Look at the indicators. So this 5%—to me we should surpass it.
Sheila: Okay. And against the inflation, would you say it will even out? Because there will be growth, but then there’s also inflation.
Andrew Musangi: Now, the good thing—and I’ll touch any wood I have around—is we’ve had a relatively low inflation environment. The Monetary Policy Committee has been easing. What has that done? It has reduced interest rates significantly. Once you reduce interest rates to the level where we’ve gotten to, you enable access to credit. Once you enable access to credit, you enable businesses to thrive.
When somebody invests and is able to go to ABSA or any other bank—KCB, Equity—and say “I want to borrow,” that borrowing is for production again. And remember, at the bank you’re not only beating inflation, you have to also beat the interest that you’ve borrowed at. So people having that level of confidence means that they’re looking for inflation-beating returns. Ultimately you need to beat inflation to get to that level of economic growth. But interest itself coming down also means inflationary pressures will reduce once interest rates are down.
Sheila: So with CBK there are many avenues as a central bank that you offer for a local person or even an international investor to invest in—T-bills, T-bonds, all those other avenues that you’ve mentioned. Where else can we—where else do you see Kenyans can plug in to just also participate and also plow back their money into the economy to also grow their confidence in the country? Because if you have a piece of your cake in there, you will want the economy to grow outside of T-bills and government bonds.
Andrew Musangi: For CBK, that’s our playground. You see, our line stops there. But for the general investment climate, if you look at the foreign direct investment, it’s not just coming in for our Eurobonds, our T-bills, our bonds. A lot of the foreign direct investment is actually private equity money coming into businesses. You find people coming to buy banks, they come to buy insurance companies, they come to set up or buy into manufacturing entities. That’s where general investment is.
Now I appreciate those may not be widely accessible at a private equity level to the average Kenyan, but I will tell you something that a lot of people don’t speak about a lot in this country: our stock exchange. Our stock exchange is one of the most vibrant places people can invest in. What I’ve seen historically is, especially as interest rates come down, look at the market this year. You’ll find the stocks—let me give an example: Safaricom, 12 shillings yesterday it was 29, 30. Can you name another place in this country where even your mother in the village can put 100,000 shillings and just wait for a year, and at the same time you’re also getting dividends?
Everybody is using their phones, whether it’s for financial transactions or voice calls or data—they are all on their phones. So why not avail yourselves of these opportunities? Of course, private investment is still there. There are people constructing apartments every day in this city, houses for sale. Look at the affordable housing schemes. You can buy into those assets. All of those are asset classes that people can access, and widely available.
Even if you don’t have large amounts of money, your entry point to the stock exchange as a tool for saving and growing wealth is so low. I mean, you go there with 500 bob, start. Because you’re saving. The day you need it, you have the opportunity also to say “let me exit this asset. Maybe I’ve built up to a level where I can put a deposit on something else and change or diversify my portfolio.” There’s no one place to put money. But there are several opportunities in this country.
Sheila: Okay. So if we are using all those avenues that you’ve mentioned, and one of the major areas that we’ve concentrated on in the past is horticulture, what else can we export? What do you think would do well as Kenyans—commodities as well as non-commodities?
Andrew Musangi: I’m not claiming to be the number one farmer in the country, but I know for a fact that we are now one of the largest avocado exporting countries. But I don’t want to focus on exports—even domestically people are doing a lot of big things in agriculture because food production is another one where you’re guaranteed your market. There’s no place food will go to waste in this country. No place. You will feed Nairobi if you want. I know people who are very big in dairy farming and they just supply the cities. That’s it. We supply one of the big dairies in this country.
We have focused on flowers. Flowers has gone down. In fact, I read something in one of the dailies yesterday that over the last 5 years, we’ve probably gone down 30% on cut flowers. But what people are also saying is while that is happening, the horticulture markets have opened up. Kenya now has open access to China. They’re a huge market. China has 7% arable land—7%. That’s a huge country. They will buy food from Africa and that’s our future. We know we can supply food to all these countries.
So if you think about it, we always talk about the balance of trade. China will send us manufactured goods and our people will say “look, the balance of trade is heavily tilted in their favor.” But we have an opportunity because we know there’s about 1.4, 1.5 billion mouths to feed. How about getting into heavy food production? Do whatever value addition you need to do and export it to China. The Chinese may not be the biggest buyers of roses—those are probably Western cultures rather than Eastern culture. But I also believe in the West, if push comes to shove, it’s not mandatory to buy roses because people don’t eat roses, but food—food people will eat.
So there’s a great opportunity and we are an agricultural economy. If we build in the necessary efficiencies into agriculture, the opportunities are there. I think Kenya is now in the top 10 countries globally for avocado production. A lot of people don’t know that. There are huge opportunities—macadamias, high-value agriculture, banana production. We know of companies that have done huge business in this country supplying just domestically.
I was talking to somebody who set up in Congo. I was looking at the Congolese market and they said they have massive palm oil plantations. We import a lot of our palm oil for our cooking oil. They have massive plantations. Congo does not export even a drop of cooking palm oil—all for local consumption. 30,000 acre farms, all for local consumption. They cook with it. Just think about those as opportunities that we have. I don’t think we are scratching the surface yet with high-value agriculture. And of course you have the traditional crops—the teas and coffees where we always play at the top end of the market.
Sheila: We’ve—Kenya has always been innovative and I think M-Pesa is one of our greatest case studies across the world, and thanks to CBK—without CBK I don’t think it would have existed. But even as times are evolving, there’s a lot of new money, new ways of exchange like cryptocurrency, and they’re being adopted worldwide. So what would you say—how is CBK adapting to the new age of money exchange and what’s your position on crypto?
Andrew Musangi: Okay, there are two things—mediums of exchange. You’re quite right. We had a Finance Minister then and Minister John Michuki. Had they been naysayers, mobile money would not exist as a concept in Kenya today. There were a lot of people who said why this shouldn’t happen, shouldn’t be allowed to happen. “It’s a security risk, money laundering risks, God knows what”—every excuse was put on the table. But those two looked and listened and said “you know, this is not a bad thing. It’s innovation.”
You can choose to say no to innovation and no and no and no and then you miss the whole bus, and then later on you look at it and say “I wish we had thought of this differently when you look at life later.” In business we like to call it Kodak Color moments. You’re sitting there with your camera and the film and say “everybody will take pictures with my camera forever.” One day you wake up and we take pictures on our phones. And the biggest marketplace in the world is in your phone today—new innovations.
Look at how we are dealing with artificial intelligence. You can fight it. You can wrestle with it. You can ignore it. You can wish it away. It’s not going. And I think it’s the same with cryptocurrency, with a caveat. Out in the world today, they are probably—at my last count, because I spoke about this at a conference not long ago—17,200 cryptocurrencies. Now add to that people selling what they call non-fungible tokens. I mean 80, 90%, maybe 98% of people out there are pulling a scam.
Somebody launches a currency. He throws it out there. He says “the value is this.” “Can I scan your eyes, can I do this?” and “I tell everybody this is the value.” I mean you can do that tomorrow. How about you launch yours? They’re just saying “okay, Sheila’s coin, each coin is going to be worth a million dollars” and you move. So what has to happen with CBK is our view is you won’t fight innovation, but the market is going to have to be semi-regulated in the sense that you must also protect your consumer from the scams.
Now this will mean licensing of exchanges and also having a locus of responsibility sitting somewhere so that when things go wrong with an asset, there’s an element of either assurance or risk awareness in the market. If you look at something like Bitcoin, there’s no company issuing Bitcoin. Bitcoin, you mine, you create. The algorithm says you can only create 21 million of these things. There’ll be splits happening after every so many years, and that’s also built into an algorithm.
But the assurance the market has is there’s nobody called Fred Wanyama sitting somewhere just issuing Bitcoin like sweets. Now, what happens when an asset is rare like gold? There’s only a finite amount of gold—it can appreciate in value. So the question then arises: are people going to treat Bitcoin as a store of value or as a medium of exchange? And that still has not been answered globally per se. We’re still in—some elements there’s a little bit of both.
In the US, I know there are two organizations—people are wondering is it a tradable asset or is it a medium of exchange, in which case who’s regulating? But there’s nobody to regulate. There are no annual accounts of Bitcoin that are published anywhere. You just know from the blockchain that this is how many are out there. I can trade with you. I can trade with anybody else. We can exchange the value according to what the market perceives to be the value. But people will have to agree and appreciate and understand that it’s a volatile asset. It can go up, it can go down. As long as you enter there with open eyes, you’re fine.
Then there’s another category of cryptos that are called stablecoins where they tell you “okay, whatever Ethereum, for example, is pegged one to one to the dollar, so it’s a digital dollar.” When you exchange M-Pesa, I send you money digitally, right? But you know you received a shilling because your phone screen pops up and says “you’ve received 100 shillings from Kamande” and you know you have 100 shillings because you can walk anywhere and withdraw that 100 shillings from any agent. Your shilling in M-Pesa is backed shilling for shilling in Safaricom under M-Pesa, and it’s backed. So that money is actually in a bank. So we’ve got digital money already. We are way ahead of the world in the conversation about digital money.
The difference here is this: if you start then dealing in let’s say Ethereum and they’ll tell you “your dollar is backed dollar for dollar,” there’s nobody who audits and says “by the way, where are these dollars in Ethereum?” Until it’s backed—assets as well as actual dollars. So maybe about 70% of that is dollars. The rest of it is actually in other crypto assets and different types of assets. That’s number one.
Number two, I keep asking the market this. I said “so, the person who has those dollars that I’ve put in there, who issued Ethereum, what are they doing with the money?” Because remember, I’m holding it. You’re trading. I can do anything. But at the end of the year, my Ethereum is still worth a dollar for me. But for that guy, not really. He’s made money, right? And he doesn’t have to account to me because my Ethereum does not have an interest rate of 5%.
Sheila: That security though, the fact that it’s not going down.
Andrew Musangi: Absolutely. But if I come and tell you “by the way, I guarantee you, Sheila, give me 100 million shillings. At the end of the year, I guarantee you I’ll give you back your 100 million. You’re secure.” But would you give me the money?
Sheila: No.
Andrew Musangi: Why?
Sheila: Because I want to grow it myself.
Andrew Musangi: You’ve answered your question. You’re right. I thank you for your security, but how about I keep my money and it grows for me? Why should I give you 100 million? It’s like putting money in a hole in the ground, building a big fence around it and saying “I’m sure my 100 million is here.” Yes, it will still be there. But it hasn’t grown. If it’s worth 100 million at the end of the year, bring back that old animal of yours called inflation. Is it really 100 million? No. It’s not 100 million anymore, is it? No.
So some interesting questions about crypto. But I have to always tell people at the end of the day, out of those 17,000 cryptos out there, we’ve got to have a sane market to say: are you allowing everybody into the show and saying “let it be the wild West” or are you putting some guardrails on that crypto sector and saying in Kenya you’ll allow it to X point or Y point through licensed exchanges that can then be accountable for the products that are on their market?
Sheila: I was just asking you whether CBK has approved any of the cryptocurrency companies.
Andrew Musangi: We haven’t approved anyone because we don’t have a virtual assets framework yet in place, because that act will need to be in place giving us regulatory mandates over the people being in cryptos. Now in this case it’s particularly targeting exchanges so that you have a licensed group of exchanges where people can go and buy and sell crypto.
But you and I also know that Central Bank cannot also make something illegal. There also has to be a law making something illegal. What the CBK did many years ago in the early days of crypto adoption was to caution people saying “this is a new asset class that is not regulated, so proceed at your own risk.” Some have done very well with different cryptos—look at Bitcoin over the years. Others have collapsed and disappeared without a trace across the world. And that data is out there.
So at this stage people have to be cautious about what you select. The good thing is we’ve built quite a track record and you can also see certain countries like the US where you have exchange-traded funds which are exposed to crypto assets. You have big players like the BlackRocks of this world who have put part of their portfolio in Bitcoin. You have people like Michael Saylor who are Bitcoin evangelists who are of note. They are bigger than S&P 500 companies. So if you look at that sort of track record, you can also judge for yourself who is a Johnny-come-lately who has just launched and might be trying to cash in on the trend and who is actually worth investing in. But that judgment call is not being made by CBK at this level.
Sheila: Well noted. You had earlier mentioned about consumer protection, and recently the CBK approved digital credit providers. We all know them. But even with that, there’s been a lot of harassment from these digital credit providers. They’re not held up to a lot of accountability as much as the commercial banks, so to speak. Especially on defaulters, there’s a lot of harassment. How’s the CBK protecting consumers in that sense?
Andrew Musangi: There’s a bill that is currently under public participation. I don’t know if you know about it for digital credit providers of all genres. But let me give you context. The digital lenders themselves have realized that this is quite the minefield if allowed to also become the wild West. In fact, there’s a very strong association called the Digital Lenders Association of Kenya. The other day I received a copy of their public participation memorandum. It’s 102 pages. They were very thorough about it because they’ve had a lot of experience in this sector.
I think recently we just licensed another 27, taking them to 126. There’s been a lot of thought going behind the licensing regime and who should or should not be allowed to play in this sector—a lot of thought going behind it like your minimum capital, your license fees, what should they be? And I’ll tell you what provoked this. While you’re seeing us licensing 27, we have about 500 pending applications. 500. Now, you tell me if that whole flood is released into the market, I will need about a thousand regulators to be going around the market every day at CBK. The Governor would have no other work to do. He would be overseeing this regulation day and night.
Now there are different categories of lenders. So part of the plan with the regulations is to make sure you have small lenders—that “mama” or the lady lending to her chama through her mobile phone and they have a small structural arrangement—she does not need the same regulatory oversight that a large-scale company lending to boda boda riders would need. So we also have to sift the levels and we might actually get to a level where you have simply got a certain category of lenders that are approved and a certain category that are actually licensed to which you provide oversight. Because telling that lady in Makueni that you must have a board of directors, you must have annual accounts audited—how will that work for her? Those compliance imperatives will be too much for such a person. So there needs to be a segmentation of the sector to bring sanity to it.
And of course from the consumer protection side, you need several things. Awareness—people are aware of their rights. You need this bill to be passed so that there are regulations on what you can and cannot do in terms of moderating behavior in the market. And then of course finally the market itself will vote with their feet. Because when this credit is available, it’s a good thing for the economy as long as it’s not at loan shark rates and it does not encourage loan shark behavior. Then it’s okay because at the end of the day, credit is a dangerous thing if not well managed.
Those are the thoughts that are currently there, but look at the bill that’s been published. You’ll see a lot of good innovations and it’s been industry-informed. It’s consultative with proper public participation and we anticipate hopefully in the next couple of months that act is passed and we have a much more stable environment for digital credit.
Sheila: Wonderful. So maybe still on the consumer protection, there’s been a lot of electronic fraud in bank accounts and we cannot say that it has stabilized. I don’t know, maybe you have the facts, but how is CBK ensuring that both banks and the actual consumers who are the ones who have bank accounts—I know there’s a unit that deals with that in CBK—how are they tightening the bolts to make sure that they’re catching up with the very innovative defrauders?
Andrew Musangi: Very interesting question. We chase them. But who are the biggest victims of this? The banks themselves. Because inevitably they end up having to pay their clients when the fraud has been perpetrated on their watch. You will see nowadays SMSs coming to your phone every day to build awareness: “Do not give your OTP. We will never call you to ask for these things.” I mean we’ve all gotten that. If you’re a victim, you know.
But these guys, as you well know, they get smarter and smarter and smarter by the day. But one of the biggest conversations going around now is you need to be sure—and this comes with our Communications Authority—you need to be sure who’s holding every single phone in this country. It’s such a big security risk having phones out there that are being used like burner phones. You hear of people saying “oh, they are sitting in Juja GK prison or a place called Mulot which is very famous on the way to Narok and there are some very smart Gen Zs out there with digital skills.” And constantly hundreds of phones making calls. You’ve seen the raids. They come and find 200 phones in one place and they’re just used to make calls. As soon as they’re done with the phone, they ditch it.
Did we invent all this? No. It’s huge in Asia. Huge. So what we’ve done is you have to make sure one, there’s a robust investigative agency. This has gone all the way to DCI because banking fraud is not even strong enough to deal with all that. It happens in Nakuru. It happens everywhere. It’ll happen in some remote corners. At the end of the day, all it takes is a phone call. And when you move M-Pesa, it has moved. It could be in Bungoma and withdrawn at an agent.
So this framework we’re really looking at it and also trying to say how do you have a very robust framework where every phone is properly identified and that data is available? Because if you knew the phone, there’s no way it’s going to be anonymously out there. That’s one. But the second thing is also a more robust control framework at the point of withdrawing digital money. In other words, you must have a mechanism that has a validation that Sheila was actually here and took the money. And that is something we are having a lot of conversations with—the telcos. Who is the person who’s actually there? And there are many ways to address it, including tools like biometrics. So these are conversations that are ongoing.
Sheila: Great. Kenya’s biggest opportunities remain in infrastructure and I think the government has been pushing for public-private partnerships. And if you were talking to an investor looking to plug in, what would you say is—how would they participate in these projects, just by plugging in in one of those big infrastructure projects that we have?
Andrew Musangi: PPPs are something I’m very passionate about, and I’ll tell you why. We have borrowed up to here. And it will sound controversial in some ways, but the fact of the matter is the most efficient way to deliver especially infrastructure—it might not be the case for a lot of other things which are social goods like education and whatever which you don’t really want to commercialize, that government provides as a social service. But let me take infrastructure as a case in point and I don’t need to go far—the expressway.
The Nairobi Expressway was built by I believe it was CRBC Corporation. And they formed a company here called Moja Expressway, wholly owned, and said “we will deliver this road at our cost.” The way the road will be paid for is over 30 years they will collect the tolls and pay themselves plus pay the profit. What happens when private sector get into a development? They come with the efficiencies of the private sector. In other words, we’re not going to have a tender scandal because it’s me building and I have to build efficiently and within budget and on time to ensure that I can begin monetizing my project. The second thing is that over the 30-year span, their contract includes maintenance to a set standard of the expressway. What does that mean? I’ll build well so that my maintenance is low, at a minimum, and it’s mitigated.
Today when I drive to the airport, I leave the western side of Nairobi where I live and I get to JKIA in 17 minutes from my house. All of us have had that history of you’re trying to get to the airport, you miss a flight because you’re in that jam for two hours. Or an investor comes into Kenya in the morning, lands on a plane from London which has taken 8 hours, and then you take another 3 hours from JKIA to Westlands for a meeting—that is wasted productive time.
Now you tell me, today when you enter that expressway, is there a sign saying here that it belongs to the Chinese? No. If the expressway does not make enough money to pay the Chinese, are we on the hook for any debt? No. There’s no sovereign guarantee on it. You take commercial risk on your debt. The third thing is if they were ever not making money and they’re saying “we’re unhappy, we’re tired of this expressway, it’s costing us too much money,” can they pick it up and take it away? No.
So now let me take you to the global experience because I travel a bit. I’ve been to airports across this world. Lisbon Airport belongs to a French company called Vinci. They own the property. Heathrow Terminal 5 belongs to a company called Global Infrastructure Partners. Doesn’t belong to the government. Gatwick Airport in the UK belongs to Global Infrastructure Partners. I drove on some highways in Italy and you get to the start of the highway, you just tap your credit card. It logs you in. When you get to the end of the highway, you tap your credit card again, bills you and logs you out. Those highways belong to private companies—big massive motorways.
So I keep asking people, we’ve had a lot of challenges in this country from perception again and sometimes from the noise we make. Everything is half empty. I concede the first thing you must do is ensure you launch your PPPs transparently. It’s very important because you have to carry the public along with you. But in our act there is actually a provision for privately initiated proposals. And you asked me how people can plug in. In this country, an investor by law can come in and say “by the way, I’ve walked around Nairobi and I think I can build this for you from here to here. Use my money and we can commercialize it in A, B ways over 30 years and I’ll pay myself back without you removing a shilling.”
Now what’s wrong with that? The commercial risk is somebody’s. All you need to do is structure and make sure that the way they have levied their charges is not prohibitive to the economy of Kenya. But I can assure you anybody who comes to your country and wants to put in $2 billion—because infrastructure is huge, these are not $2 million, these are petty projects, these are massive infrastructure projects—and they tell you “I’ll put my two billion and I’ll be ready to risk and wait for 30 years”—where that person might not even be alive, the one who starts the project—there’s got to be merit in considering those projects.
Now, our politics gets in the way of the actual merit of the project because the politics takes front page, the logic takes page 10. If you think about an airport, for example, an airport is a bus stop for airplanes. That’s all it is. Passengers drop, passengers climb, and you go where you’re going. So what does government provide in an airport? Four things, I’ll answer my own question: immigration, customs, security—that’s customs—and air traffic control. That’s the government’s function. Air traffic control because you have to know who’s in your airspace. Customs because you want to collect taxes on imported goods coming through the airport. Immigration because you have to know who comes through.
The government has no business managing shops. “Oh, we are signing a lease for duty-free.” But you’re not a landlord. You’re a government. Cleaning windows—is that the government’s job? Not necessarily. Somebody else can do that. Generators—which we all know when government launches them, you have two brand-new generators sitting there which were not working. So my friends at the Kenya Airports Authority are running a business. But should they be running a business?
Sheila: So in your opinion what was wrong in the—you brought up the airport, giving it—was it a PPP just another example?
Andrew Musangi: An example of a good project that did not do well in terms of how it was communicated. To my understanding it was privately initiated. Where we go wrong as a country is trying to shroud things in secrecy. If somebody woke up and said “are you considering a PPP for the airport?” and I’m sitting up there, I should say “Yes, I’m considering a PPP and I’ll give the merit and I’ll say there’s been a proposal received.” You have a PPP secretariat. Publish it and say “we’ve received a proposal.”
Why don’t you let Kenyans know? Because this is not anybody’s private airport. It’s everyone’s. And you say “we’ve received a proposal.” And remember when you receive a privately initiated proposal, you don’t have to accept line A to line Z. You can say “oh A to E up to G is fine but C we prefer these other terms.” You negotiate. Then you negotiate and reach a commercially acceptable point. But after you’ve done that, proceed.
I don’t remember anybody televising and telling guys “these are the commercial terms for the expressway” because that Chinese guy or group of people came with their money. Did they build it? Yes. Did they build it on time? Yes. Did they build it within that 82 billion budget that they said? Yes. Is it open? Yes. Is it a good road? Yes. Is it helping the economy? Yes. So once you can tick those boxes, what is the issue?
And let’s go back to the beginning of this conversation. We cannot borrow $2 billion to do the airport. We can’t. First of all, if you’re given 2 billion, you’ll be given 2 billion at 8, 9%, adding to your already bloated debt portfolio. And your children’s children will still be paying for this debt. I would rather some other guy comes, puts his money and pays himself. It’s not on our national stock of debt.
If anything goes wrong with the deal and he says “oh, I didn’t calculate well. Things are not working very well for me. Can you pick up the airport and take it anyway?” No, you leave it. You walk out. Those are the terms of your deal. Pay yourself back.
Sheila: But what I’m getting from you is we are not transparent enough because we are yet to see some of these documents even in past projects. So is that—
Andrew Musangi: And there’s two levels of transparency. Declare the project when you’re starting. Then after that you can proceed as government into negotiations for the terms. But it doesn’t mean every week the minister will be on TV saying “oh yesterday we discussed this with the investor and we are now negotiating for this.” No, not that. Those are confidential things. There’s some level of things that you don’t need to disclose. But when the final deal is now being carved out, then you publish and say “this is what we’ve signed” so that the whole country knows “this is who’s going to be running A, B, C, D at the airport and these are the terms.”
Just like now we know the expressway is contracted for 30 years. Everybody knows it’s 30 years. Do you think there are people who go to the expressway every day and look at it and say “hey, when is our 30 years up?” No. You get in, you drive, you enjoy it. The asset is there. It’s yours to enjoy. The same as my airport. If I walk into Kenya and I see a beautiful airport, the kind that Qataris are building in Rwanda today, I’ll be proud. But if I come to the airport and they say “oh, the generator didn’t go on, then it rains and we’re all being showered,” are you proud of that? I mean, that’s the point. Tourists enter your country. That’s the first impression an investor gets of the Republic of Kenya. The first contact with Kenya is the airport. How can the airport be an embarrassment? That’s the first place an investor comes.
Sheila: So if we were to do this again, would you think it would be best if it was initiated from the government side or from someone who’s just willing? Because as a government we already can see, or as a people of Kenya we can see that the airport is not in its best form, or maybe utopia.
Andrew Musangi: In utopia, I will put out the PPP as a government tender and attract interested bidders in the airport sector and hope—the reason I say utopia and hope—that after all the noise we went through that there will actually be somebody interested. Because a lot of people saw what was happening in Kenya and said “hey, that place, you know what I mean.” But they know us and they are still interested and there are still some. And that’s why I’m saying I hope. And hope because the beauty is now we’ve been able to see what the deal structure can look like. And the beauty with having a template to work with is you are not reinventing the wheel, right?
You can go and say “there’s a bid being invited. We’re asking these three major construction companies across the globe if they’re interested” and you say by invitation—they’re going to invite five, six big infrastructure bidders to say “are you interested?” People who have a track record because don’t forget even the guy we chased away from here—New Delhi is his, Mumbai Airport is his, a city of 30 million people where we’re 55 million Kenyans. So it’s not like he hasn’t done it before but he’s happy to proceed with what is big. And I’m not only briefing for him.
Tomorrow it can be a big Chinese construction company like CRBC who may say “by the way, we’d be happy to bid for this.” And then you tell people “in your bids give us five parameters”—commercial parameters—”or 10 or 20. Fill in the boxes and say I will pay the government X amount per year while running the airport. I’ll deliver this kind of revenue over the 30 years.” Everybody puts their business proposal within the same parameters. Then we compare apples with apples and pick the best. That would be the perfect way to do this airport. And the good thing is now we have a template to work with.
Sheila: Perfect. All right. But sooner rather than later.
Andrew Musangi: I think so. I think so.
Sheila: We were earlier talking about collaboration between African countries and we mentioned South Africa and a few other countries. So with the implementation of the African Continental Free Trade Area and with Kenya’s position on the EAC, where do you see the collaborative efforts taking us in the next 5 years across Africa?
Andrew Musangi: It will be very interesting to see. But one of the things I’m hearing more and more about re-emphasized which I like is firstly we must trade a lot more with each other. And break the barriers because we’ve been left even regionally—people want to operate in silos. You agree on one thing, one country goes and does something totally against the spirit of what you’ve agreed.
And in Africa, we have to break those barriers. And one of the ways that has been advocated for is to say: why do we want to trade in dollars in Africa? You have two ways of approaching this. The Euro guys got it right. They said “we have our own common currency across the Eurozone.” But in Africa we can trade with Uganda—I do a Uganda trade deal in Kenya shillings and vice versa, the buyer pays in Uganda shillings. You must have frictionless movement of currencies.
The next thing you need is we need our own settlement system. Today we are all too reliant on SWIFT. If I want to pay somebody in Egypt, it goes, bounces through SWIFT, goes to another office in Europe somewhere, and then bounces to the guy in Egypt. Are you telling me in this day and age of technology, we can’t have an intra-continental settlement system for our trade with each other? A trusted central resource for settlement that you still have to rely on something somebody created for themselves as a business because SWIFT don’t do it for free. They’re not a charity. They charge. So everything we pay, even me to a Ugandan shilling, is making somebody else money in Europe. Why?
Then I have to look for the currency of another guy in North America to settle with a Ugandan. Ask yourself why. So we have to also break ourselves from the yoke of the colonized mindset that anything that is to be trusted must belong to someone else offshore. It’s almost economic colonization. You look at our debt—when we keep saying that debt is provided on more onerous terms because Africa has something called a risk premium. What is that?
The reason we are where we are today is our colonial history. Large part of it is. And we can’t keep blaming and looking back in the rearview mirror. That’s not what I’m saying. I’m saying at a certain point you must look at why can’t Kenya borrow at the same rate as the UK or the US? If you told Kenyans today “go and get a mortgage at 5%,” how many people in this country would be enabled to do business, to develop housing, have a decent home? 5%. That’s what people are paying in the Western world.
Sheila: So when you say that, does that mean African Union, being the one body that really brings the entire continent together, should they move towards one currency for the continent or what can be done at the African Union level to ensure that that is realized?
Andrew Musangi: That should be an end target. But even if you just start by having your own trade conducted in your currencies on the continent, that’s already freeing yourself of the need to source for dollars that are in somebody else’s control. The other thing about our African leaders that they hold in the palm of their hands is the ability to say “let’s come together and have policies that break the borders.”
Let everything move within our continent. If it is—you don’t have California taxing products from Dallas. Yet you have somebody say “oh, I want to protect my market in Zimbabwe from Zambia next door.” What are you protecting? Our population is 55 million. Ethiopia is 135. Add Tanzania, add Uganda. You look at the addressable market just in the EAC. If we allowed things to move within this economy and you suddenly are talking about 300 million people instead of just 55, that economy is huge for everyone. For everyone. Even if you’re just selling toothpicks, you have 300 million people to sell them to, as opposed to strangling—”oh, they’re taxing me at the border for this, taxing me for that.” No.
Sheila: Okay, fair enough. So as we come to a close, most of our listeners are global investors who are looking to invest one thing or another in Africa. Perhaps as a parting shot you can speak to them and maybe for someone who’s looking to make their first major investment in Africa from either a legal standpoint or a financial standpoint or investment standpoint. You can maybe encourage them to make their investment here.
Andrew Musangi: Yeah. I would definitely start—legal and everything will work itself out because it’s a very good stable market in terms of the legal structures, especially in Kenya. From an investment standpoint, Africa’s story is very simple. We have a very young population in Africa. These young people are going to be consumers of goods and services. So if one is investing in Africa, you’re actually taking an investment horizon that’s quite long. You don’t have an aging population or a shrinking population like some countries that are suffering from depopulation.
We have a growing population. Now that growing population is also going to be increasingly productive. And with that increasing productivity, you’re talking about opportunities for every type of investor looking at Africa. I was in Singapore about 3 weeks ago and I met some Chinese businessmen and one of them is pretty well set up in China and he said in their equivalent of KEPSA, their business community sentiment, they have a roundtable with President Xi Jinping and he’s telling everybody in China “Africa is the frontier. You should be focusing”—constantly drumming it into them. Africa, Africa, Africa.
Now look at what’s happening around the world. Across other parts of the world, people are imposing tariffs as barriers to trade and weaponizing them potentially against countries that are not so popular. But if you are the size of China with 1.4 billion people and producing at an economy that’s the second largest in the world and growing exponentially, you can withstand a lot of those battles. And any Chinese person would tell you the US will account for 15% of their global trade.
But why do they focus on Africa? It’s what I said earlier. Food will be a huge trade item. The young population will be a huge consumer market and the Chinese will do everything from supplying you that water dispenser to coming to build the expressway. They want to come and do business. And why is the Belt and Road Initiative so important for them? They want to build connectivity across the globe so that there’s frictionless movement of goods and services. They are targeted—whether it’s rare earth minerals, the high-value minerals in the Congo, whether it’s what they’re looking at—saying “how can we make it easier for things to move back and forth?”
And the lesson with the global politics is people are now trying to make sure you’re not over-concentrated on one side such that if there’s a shock here, you collapse. You make sure you are present everywhere. Anybody who’s looking at Africa now, my message to them is you’re talking about fertile ground for investment.
Sheila: Fantastic. Kenya is open for business. Africa is open for business.
Andrew Musangi: Wonderful. Thank you. Thank you so very much.
Sheila: Yes, it’s been a pleasure. Thank you so much.
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