Captains of industry gaze into the 2021 crystal ball

Mohamud A. Mohamud Chief Executive Officer Kenya Deposit Insurance Corporation (KDIC) (PHOTO: WILBERFORCE OKWIRI)

What kind of year will 2021 be? Last year broke the crystal ball, and Kenyan captains of industry have become more guarded in their predictions about the New Year.

However, consensus remains that the pandemic will finally be tamed following the expected roll-out of a vaccine in the first quarter of the year, giving the economy a much-needed boost, although challenges remain.

KCB Group Chief Executive and Kenya Bankers Association (KBA) Chairman Joshua Oigara said the current healthcare crisis occasioned by Covid-19 still remains a big risk to business operations and economic recovery efforts.

"The concerns of 2020 are perhaps, however, giving us new strength to fight to build our businesses and for the economy to grow,” Mr Oigara told Financial Standard.

He predicted a positive outlook in the next 12 months, going by the momentum witnessed in the last quarter of last year.

"The economy has been in a rebound since the beginning of the last quarter of 2020, setting the stage for strong growth in 2021. There are signs of recovery in the real economy, with catalytic sectors like trade, transport, and manufacturing witnessing a significant level of vibrancy following the easing of the lockdown measures,” said Oigara.

"The banking sector is well primed to support the renewed economic activity and to enable the country to emerge out of a most turbulent period."

Isuzu East Africa Managing Director Rita Kavashe expects a positive year, with the only blip being heightened political activity expected in the third quarter.

"We anticipate a better year than 2020 because of the good news around the vaccine. There has been some level of reduced restriction on movement. When restrictions were reduced last year in June, we started to see some activity and growth and demand for products," said Ms Kavashe.

She projected an over 10 per cent growth in the business compared to 2019’s performance.

Kenya Deposit Insurance Corporation (KDIC) Chief Executive Mohamud Mohamud described the promise of a vaccine as a “ray of hope.”

He, however, noted that the positive outcome in terms of recovery might not be witnessed until the second quarter of the year.

"In the first quarter, we might still be coming out of the pandemic, but towards the second quarter, we might see some positive outcome,” he told Financial Standard in an interview.

"I am sure our banks now have come up with effective strategies on how to manage some of the downturns on their business."

Mr Mohamud said most businesses have remained resilient throughout the pandemic, adding that the virus was a “wake up call” on how businesses respond.

He said Covid-19 had also redefined the risk assessment framework in the country.

"Businesses have realised the importance of putting in place business continuity and succession plans," said Mohamud.

KDIC in 2020 suspended the implementation of the risk-based premium model by one year owing to the pandemic as part of market interventions.

This will now come into effect in July this year when Mohamud predicts a recovery is likely in quarter two.

Currently, member banks fund KDIC's Deposit Insurance Fund at a flat rate of 0.15 per cent of total deposits per year.

But key financial sector players, including Treasury and the Central Bank of Kenya (CBK), agreed on a new payment system that profiles the risks of individual banks.

The Deposit Insurance Fund is structured to compensate depositors of failed banks.

For the property sector, 2020 was the harshest year yet. This was amid a property slump over the recent years that was worsened by the Covid-19 pandemic.

A report by the CBK and other regulators noted that the demand for property was subdued due to slow economic growth, especially for middle and high-income earners.

"The supply and uptake of property have been affected in the past by slow economic growth, general elections’ uncertainties, banking industry instability and interest rate controls that constrained lending to the real estate sector,” said the report.

Estate agency, residential and commercial property consultancy Knight Frank Managing Director Ben Woodhams is cautious about the recovery of the sector in 2021, noting that it is tied to the performance of the economy.

Mr Woodhams has two "contrasting theories" about 2021.

The first one is that the virus might be controlled and things normalise, paving the way for a recovery in 2021 and growth in 2022. This is as the economy fully opens up.

His second theory is that taming the virus might be slower than expected, hurting the recovery of the economy.

Woodhams also expects a build-up of an election fever to further disrupt things.

"The other scenario is that recovery is slower because it takes longer to tame the virus, and there’s also the election which is disruptive when we’re just getting back on our feet; we’re looking at a recovery in 2023,” he said.

For other business leaders, the pandemic has made them more introspective and philosophical as they run through all their strategies.

Housing Finance (HF) CEO Robert Kibaara noted that the pandemic has provided a “masterclass” on leadership.

“For me as a CEO, I’ve seen that no matter what strategy you have for a company, you always have to come up with an alternative plan. You can have the best of strategies but face situation where they become useless,” said Mr Kibaara in a recent interview.

“We have to keep reimagining our strategies,” he added.

However, Kibaara put on a brave face over what the future holds, saying he loves challenges.

“I love challenges, and I thrive in uncertainty. I’ve not really been worried,” he said.

Two years since his appointment, he has been charting a new path for Kenya’s premier mortgage lender founded in 1965. Traditionally, HF has been a mortgage lender with a property development arm.

Kibaara now says this is about to change, with the company looking to diversify into retail banking.

At the start of last year, HF had about 52 projects, but the prevailing market conditions have forced it to exit some. These include Komarock Heights, Clay City and Precious Gardens. He said the coronavirus pandemic had disrupted a “nice trajectory” for HF. “All of a sudden the rules totally changed. We are now rethinking how to get the business moving back again,” said Kibaara.

He, however, noted that the acceleration of technology has been the silver lining during the pandemic, which has even seen 25,000 more customers turn to the lender’s digital channels.

Households, added the CEO, have also learnt the importance of saving for a rainy day.

Absa Country Director Moses Muthui said the pandemic has made him more philosophical on the role institutions should play in society.

He further noted that the pandemic had made banks more humane and marked a turning point in their relationship with clients — operating with an ideology that ensures they “profit with people and not from people.”

"Moments like this question your relevance as an organisation and as a business leader,” said Mr Muthui.          

“Questions worth asking are why do we matter and how do we make people feel? Is our true value in share price, size of our asset or how people perceive us?”

According to Muthui, banks are the solution out of the current situation that began as a health crisis. 

“As competitors, we can compete for profits, but there’s also a space for purpose and protection of livelihoods,” he added.

Bidco Africa Chairman Vimal Shah said 2020 was a learning experience, and 2021 will be more practical and action-oriented for many businesses, with the economy still not yet out of the woods.

"I expect a tough year. But it is going to be interesting because we have learnt a lot about the pandemic, and it is up to us to make it better,” said Mr Shah.

"We have realised that social distancing is, and it is going to be a permanent thing. Masks are the only vaccine we have. At the same time, we have done well overall and as such, I expect a good year as compared to last year."

Bamburi Cement Chief Executive Seddiq Hassani said if businesses keep the momentum in the second half of last year, there is every reason to be optimistic going into the New Year.

"The cement and the construction sectors are mainly driven by individuals building homes, which is about 70 per cent of the market, with the balance mainly driven by the big projects. There was a positive trend among individuals building homes or undertaking such projects over the second half of 2020,” said Mr Hassani.

He, however, called for caution, saying the jury is still out over whether the vaccines would prove successful in containing the spread of the virus.