Kenya's green dream

Kenya reopened to oil exploration and development a decade ago. The country imports all its requirements in petroleum products, particularly from the United Arab Emirates and other countries in the Middle East. Mombasa's only refinery closed in 2013. Kenya distributes internally the products it imports through the oil pipeline that connects Mombasa to the hinterland. The port of Mombasa is a strategic regional hub of imports for all the inland countries, primarily Uganda, Rwanda and South Sudan, but also the eastern part of the Democratic Republic of Congo. The goal is to strengthen the oil infrastructure. 

The demand for petroleum products in Kenya is the highest in East Africa (110 kbld), and 70 percent is absorbed by the transport sector. Fossil fuels satisfy 19 percent of consumption, while natural gas is not part of the current energy mix due to a lack of infrastructure. Here too, the restrictions to curb the spread of Covid-19 have caused a contraction in demand.  

In Kenya, the British company Tullow Oil made some significant discoveries (600 million barrels of oil in situ), but the high density and the location 1,000 km from the coast mean there are critical technical and economic issues in terms of development and production. The Tullow Oil project includes plans for new refineries in the long term on the Lamu coast or in the Turkana region.  

The development of the electricity sector in Kenya is considered a success story. The reforms launched in the 1990s under the aegis of the World Bank generated a flow of private investments in electricity generation but, to date, there are insufficient investments in the electricity grid, which needs to be expanded and modernized. In 2010, just 19 percent of Kenyans used electricity. In 2019, 85 percent of the population had access to electricity and the government is aiming towards infrastructure development to extend access, by 2022, to the eight million Kenyans who are still without. The biggest challenges in the sector concern per capita consumption, which remains low - 178 kWh per person in 2017 compared to a global average of 3,138 kWh - and the partial liberalization of the market: distribution is monopolized by the giant Kenya Power and Lighting Company (KPLC). 

As underlined by the Irena World Energy Transition Outlook, renewables play a fundamental role in the decarbonization process. Supporting the boom in African electrification through clean energy is a global issue. Renewables count for 85 percent of electricity generation in Kenya (2019) with a significant contribution from geothermal (44 percent) and hydroelectric (26 percent). Kenya is also home to the largest wind power plant on the continent, the Lake Turkana Wind Project (310 MW), which has been operational since 2019. Up to now, however, the development of solar power has mainly concerned the off-grid sector.

While renewables are an already widely developed energy source in the electricity sector, 15 percent of electricity is produced from fuel oil; yet the public electric power generation company KenGen has launched a tender to conduct a series of operations, including a feasibility study for the import, storage and regasification of LNG and the development of a gas power plant. 

With a population of 49 million, Kenya's economy is one of the most dynamic in sub-Saharan Africa. Following growth of 5.4 percent in 2019, GDP in 2020 fell by 0.1 percent: this is the most recent estimate of the International Monetary Fund, which however foresees a return to growth rates higher than those seen pre-coronavirus by 2021 (+7.6 percent) and in the following five years (+6 percent annual average). Despite the repercussions of the global recession, especially in the sectors of tourism (which counts for 20 percent of GDP), services and horticulture (a key sector for the economy and exports), the country has withstood the impact of the crisis caused by the health emergency thanks to the diversification of its economy and limited dependence on raw materials. 

Kenya is the economic and financial hub of East Africa. The capital Nairobi is a crossroads of trade. However, there are certain contradictions. According to the World Bank definition, Kenya is considered a low-middle-income country, with an average per capita income of around USD 5,000 at purchasing power parity in 2019. Thirty-six percent of the population lives below the poverty line. Yet, although the poverty rate is among the lowest in East Africa and Sub-Saharan Africa, it is considered high compared to other low-middle-income countries. 

There are three main factors that contribute to sustained economic expansion, according to the World Bank: a stable macroeconomic environment; positive investor confidence; the resilience of the service sector. Agriculture, traditionally one of the strongest sectors in Kenya, representing over a third of GDP and absorbing 54 percent of employment, has been hard hit by the crisis. The flow of foreign direct investments was significant, with total stock of USD 15.7 billion dollars in 2019. China is Kenya's largest creditor after the World Bank: in 2018, Chinese loans to the country totaled USD 9 billion. In the 2019 Doing Business Report, the World Bank ranks Kenya in 56th place among 190 countries in terms of ease of doing business.

The Kenyatta administration is pursuing the Vision 2030 program launched in 2008 with the aim of accelerating the country's transformation into a middle-income industrialized nation by 2030. President Kenyatta has identified the Big Four, i.e. the four priority areas in which to achieve significant development by the end of his mandate: manufacturing industry; health and welfare; housing services; food safety.  

There have been steps forward, explains the World Bank. Reforms, especially in the last decade, have driven sustained economic growth and a certain degree of social development. Significant challenges remain to be faced: poverty; inequalities; climate change; an inadequate level of investment in the private sector; the vulnerability of the economy to external shocks; corruption in the public sector (which costs the government USD 5 billion a year). 

Managing Covid-19, developing infrastructure and debt are the other issues at the top of the political agenda. The World Bank and the IMF have offered support to Kenya towards health expenditure, with a first emergency loan of USD 739 million and then, at the beginning of 2021, a loan of USD 2.4 billion through a three-year Extended Credit Facility, plus access to USD 285 million in Special Drawing Rights (SDRs). Financial institutions continue to invest in infrastructure and energy but concern over debt stabilization weighs heavily.  

Until the next presidential elections, power is likely to remain in the hands of the Jubilee Party of Kenya (JPK), led by President Kenyatta. However, different factions exist within the JPK: the faction of Kenyatta (Kikuyu ethnicity) and the faction that refers to the number two, Vice President William Ruto (Kalenjin ethnicity). The divergence between the two began when Kenyatta, in 2018, allied himself with the opposition leader, Raila Odinga (Luo ethnicity), to end a period of political impasse and violence following the 2017 elections (annulled by the Supreme Court in a historic ruling and repeated a few months later with the boycott of the opposition). The alliance between the two historical rivals, Kenyatta and Odinga, and their promise to commit to mitigating ethnic and political inequalities in the country through a revised constitution, met with the hostility of Ruto, worried that a possible restructuring of the government could limit the future powers of the Presidency, to which Ruto himself aspires.  

The development of Kenya is part of a complex geopolitical environment. The Horn of Africa is crossed by internal vicissitudes that historically unite all the countries that are part of it ('narrow' Horn: Somalia, Ethiopia, Djibouti, Eritrea; 'wider' Horn includes Kenya, Uganda, South Sudan and Sudan). Since the outbreak of war between the Ethiopian federal government and the northern region of Tigray in November 2020, alliances in the region have begun to shift. Kenya finds itself increasingly opposed to the triple alliance formed by Ethiopia, Eritrea and Somalia, which seek to limit the economic and political influence of Kenya. The diversity between these countries is measured in terms of the inequality of their respective state systems, which are the result of different historical paths. In particular, the long-standing maritime disputes with Somalia are awaiting ruling by the International Court of Justice. 

The area is also at the center of global competition between major powers, the US, China, Europe and the Gulf powers. The country has an undeniable role in regional integration. Kenya's bilateral approach to trade negotiations with third countries (such as the US and the UK) is perceived by its neighbors as contrary to the spirit of regional integration - which foresees joint negotiations with third parties for members of the Regional Economic Communities, such as the Community of East Africa. Furthermore, the assignment to Kenya of a seat on the United Nations Security Council - supported by the transatlantic alliance - risks creating new divisions with neighboring countries.  

Diversification is also the key word in external relations. In fact, Kenya aims to reduce its dependence on international aid, with an attitude that is increasingly open to trade and private investment. In doing so, it is also changing its alliances, with a less casual posture towards China, which nevertheless remains a strategic partner, and greater openness to the United States and Europe.