Kenya turns oil price slump into a bonanza

THERE’S been nothing but trouble for much of Africa as the price of oil plummeted 55 percent during the past twoand-a-half years. But there’s a brighter side to the sub-Saharan region.

Unlike Nigeria, where oil accounts for more than 90 percent of exports, or South Africa, which never recovered from the 2008 financial crisis amid weak global demand for commodities, Kenya, the number three economy measured by gross domestic product, is turning the oil debacle into a bonanza. That’s because Kenya, like its neighbours Ethiopia and Tanzania, is making lower energy prices a relative strength.

Refined petroleum Kenya’s refined petroleum products almost tripled to 12 percent of exports from 4.5 percent in 2010. Agriculture, including tea, flowers, coffee and legumes, still represents the biggest share at more than 30 percent. Refined petroleum and related exports, meanwhile, have become the fastest-growing and second-largest share of what the country sells outside its borders.

There’s no indication the global slump in energy and commodities is letting up. Nigeria’s growth rate slumped to 2.7 percent last year from 11.3 percent in 2010 and South Africa gained just 1.3 percent of gross domestic product after only slightly better growth during the five-year period.

In contrast, Kenya’s $65 billion (R875bn) economy expanded 5.7 percent last year and is forecast to grow an average of 6 percent between 2016 and 2018.

Investors, meanwhile, have made the country’s stock market the darling of the continent.

The 67 firms in the Nairobi Securities Exchange all share index produced a total return (income and appreciation) of 5.4 percent during the past 12 months. By comparison, the 93 companies from 18 countries in the MSCI frontier market 100 net index were little changed measured in US dollars.

During the past two years, investors were paying an average 27 percent premium to buy stocks in Kenya compared with comparable frontier market shares on a price-toearnings basis.

The premium disappeared when their price-to-earnings ratios converged, which created an opportunity for profit in Kenya equities – most likely because earnings for firms in Kenya increased faster than the appreciation of the shares, according to Bloomberg data.

There’s a similar advantage with Kenya shares compared with those in emerging markets. Investors are buying Nairobi stocks with a 23 percent discount relative to emerging market shares, on a price-toearnings basis. Two years ago, they were buying those assets at a 38 percent premium.

Investors also have taken comfort in the stability of the Kenyan shilling, which remains the least volatile of the eight most-traded African currencies and among the continent’s best performers.

Since 2000, Kenya’s percentage of the population older than 65 years climbed to 2.9 percent from 2.6 percent. At the same time, people under the age of 15 declined to 40.9 percent from 42.4 percent.

Bottom line: People in Kenya are living longer, better lives. – Bloomberg