The document provides an overview of the construction and infrastructure industry in Kenya. It outlines the objective to conduct research on the construction market in Kenya and opportunities in the insurance sector. The methodology involves secondary research using sources like company websites, reports, and news publications. It then covers Kenya's geo-political and macroeconomic environment, key sectors, investment rationale, and segments of the construction market like office, retail, industrial, and residential.

1. Construction and Infrastructure Industry in Kenya

2. Foreword
Objective
– To conduct research on construction (infrastructure and real-estate) market in Kenya and insurance/re-insurance
market opportunity
Scope
– To gain insights into overall construction market size, structure and segmentation, competitive intelligence, sector
trends, challenges, opportunities and threats, major projects, historical and projected investment (including FDI) over
2 years, macro/micro economic, geo-political and regulatory/policy environment that will support/obstruct growth in the
sector.
– Insurance/re-insurance market opportunity in construction sector and market entry strategy
Methodology
– Secondary research
Information sources
– Company websites, Analyst Reports, online Database such as Factiva, UNCTADSTAT, World Economic Forum, etc
– News publications and magazines
Limitations
– Since the sources of information used for this study are secondary in nature, there might be certain gaps in the
understanding of certain parameters. This is mainly due to limited availability of information on secondary sources.
2

3. Table of Content
Country Overview – Kenya
 Geo-Political Scenario
 Macro Economic Scenario
 Investment Rationale
Construction and Infrastructure Industry
Market Scenario
Market Structure
Market Segments and Key Regions
Market Trends by Segments
Foreign Direct Investments
Competitive Attractiveness
Drivers and Barriers
Proposed and Ongoing Projects
Market Scope for Insurance Sector in Construction and Infrastructure Industry
Market Overview – Insurance Sector
SWOT Analysis
Market Opportunities
Market Assessment
Market Entry Strategy
3

4. Geo-Political Scenario
Kenya is governed by a coalition party since 2002 with Mr Mwai Kibaki as President and
Mr Raila Odinga as Prime minister
• Kenya is a constitutional democracy with a unicameral parliament and an executive president
directly elected by voters
• Cabinet portfolios are shared between the PNU and the ODM, which have roughly equal
representation in parliament.
Political
Political • The new constitution, promulgated in August 2010 following a referendum, will retain a
Structure
Structure presidential system but with new checks and balances, including the devolution of some
power to the county level and the creation of an upper house of parliament.
• The new dispensation will come into force after the 2013 election.
• The coalition government intends to push ahead with economic reforms, including trade
liberalization, privatization and deregulation, in order to improve business environment,
Political
Political thereby boosting growth and reducing poverty.
Structure
Structure • However, developemnt on these reforms will depend on 2013 elections
• Kenya and the IMF agreed a new three-year programme in January 2011 that will focus on
fiscal consolidation and structural reforms, but high-level corruption remains a key policy
challenge that successive governments have failed to rectify.
• Kenya's rate of corporation tax is 30% for resident companies and 37.5% for non-resident
Taxation companies, but the overall tax burden rises to about 50% of gross profits with the inclusion of
Taxation
labor and other taxes.
• Buoyant imports will maintain the current-account deficit at an estimated 9.6% of GDP in 2012.
Foreign trade • However, the deficit will narrow gradually in 2013-17 because of stronger export earnings,
Foreign trade
services inflows and remittances.
Source: Economist Intelligence Unit
4

5. Macro-economic Scenario
Kenya’s growth in 2010/11 was driven by good performance across key sectors and
stable macroeconomic environment
East Africa Economic Overview
East Africa Economic Overview
• The East African Countries of Kenya, Tanzania, Uganda and Rwanda experienced modest GDP growth rates of
5.6% to 7% in 2010/11
• Significantly, with the exception of Kenya, all the other three countries experienced reduced growth rates
compared to 2009/10
• Kenya recorded a GDP growth rate of 5.6% in the 2010/11 financial year, more than double the growth realized in
2009/10
− Growth was primarily driven by positive performance across all the key sectors of the economy
− Stable macroeconomic environment due increased lending to the private sector, low inflation rates, stable interest rates were also
factors to the growth
Comparison of East Africa Macro-economic Indicators
Comparison of East Africa Macro-economic Indicators
Indicators Kenya Tanzania Uganda Rwanda East Africa Total/Avg
Population (mn) 39.8 43.7 31.8 10.7 126.0
GDP Current Price (USD mn) 32,187 23,104 16,567 5,964 77,822
GDP Growth Rate (%) – 2010/11 5.6 6.5 6.3 7.0 6.1
GDP per Capita (USD) 808.7 528.7 521.0 532.1 617.6
Inflation Rate (%) 4.1% 6.3% 11.3% 3.9% 6.3%
Total Public Debt (USD mn) 13,417 11,241 4,300 946 29,404
Trade Deficit as % of GDP current price 21.0 9.5 13.8 17.2 15.8
Source: KPMG
5

6. Macro-economic Scenario
The agriculture and manufacturing sector performed exceptionally well compared to
other sectors during FY 2010/11
Key Sector Performance in Kenya
Key Sector Performance in Kenya
Agriculture
•Improved weather conditions, provision of affordable fertilizer
and seeds to farmers were key in reversing the fortunes of the
key agricultural sector which recorded growth of 6.3%.
•The key cash crops recorded mixed performance with tea
production growing by 27% while coffee production declined by
22%.
•The horticultural sector lost approximately KES 9 bn due to
traffic interruptions caused by the volcanic ash eruptions in
Iceland
Manufacturing
•The manufacturing sector managed to shake off the adverse
effects of high energy costs and the influx of cheap imports to
record increased growth of 4.4%.
•This is attributed to the good rains leading to an increase in
availability of raw materials and stable power supplies
Telecommunication
• Mobile subscriptions passed the 50% mark for the very first time.
• The calling rates fell significantly with the entry of new players, However, the fall in ARPU has forced the industry players
to come up with innovative product offerings.
• Kenya is now a world leader in mobile phone money telephony.
Financial Services
• Money supply grew by 21.6%, with lending to the central government increasing by 62.7% to KShs 347.4 billion.
• The increase in lending to government shows Kenya’s continued dependence on domestic borrowing to finance the budget
deficit.
Source: KPMG
6

7. Macro-economic Scenario
Tea and Industrial Suppliers are leading products and markets in terms of exports and
imports, respectively; China and India constitute for over 25% of total imports by country
Major Exports by Products 2011
Major Exports by Products 2011 Major Imports by Products 2011
Major Imports by Products 2011
Leading Markets by Country 2011
Leading Markets by Country 2011 Leading Suppliers by Country 2011
Leading Suppliers by Country 2011
Source: Economist Intelligence Unit
7

8. Investment Rationale in Kenya
Kenya is regarded a regional hub for trade and finance in East Africa, and many large
corporations have their Africa headquarters in Nairobi
• Kenya boasts advanced markets and high market adoption rates, also resulting in significant technological
advances
• Social Media is playing a key role in revolutionizing the increasing interaction with customers and
stakeholders
• Infrastructure remains one of Kenya’s biggest challenges.
– In order to achieve the goal of transforming Kenya into a middle-market economy, infrastructure development is essential.
– Significant infrastructure projects are underway – many of which are financed through China.
• Governments within East Africa are coming together for economic development in the region
– There is a renewed commitment by the EAC governments to make the free movement of goods, people and commerce
easier.
– The private sector has also shown significant support.
• Corruption levels have come down significantly in the country
• Key investment areas continue to be tourism, agriculture and technology.
– Oil has recently been discovered in Kenya and is likely to become an important investment area.
• The Kenya Government has planned a transformation program – Vision 2030 with an aim to achieve sustained
growth of 10% per annum from 2012
– The tenets of Vision 2030 are aligned with Millennium Development Goals (MDGs).
– The pillars of Vision 2030 provide a rallying focus point – all aspects of the economy are attuned to achieving these goals.
• Public Private partnership are essential for make Kenya an attractive destination for business investment.
Source: KPMG
8

9. Table of Content
Country Overview – Kenya
 Geo-Political Scenario
 Macro Economic Scenario
 Investment Rationale
Construction and Infrastructure Industry
Market Scenario
Market Structure
Market Segments and Key Regions
Market Trends by Segments
Foreign Direct Investments
Competitive Attractiveness
Drivers and Barriers
Proposed and Ongoing Projects
Market Scope for Insurance Sector in Construction and Infrastructure Industry
Market Overview – Insurance Sector
SWOT Analysis
Market Opportunities
Market Assessment
Market Entry Strategy
9

10. Market Scenario
The real estate and construction sectors are one of the key drivers of economic growth
in Kenya for the last five years
• The Kenyan construction industry contributes 5% to the country’s GDP and employs more
than one million people
Significant
Significant • According to report by Kenya National Bureau of Statistics (KNBS), economy of Kenya
sector in the grew by 4.9% in the first quarter of 2011 mainly due to improved productivity in the
sector in the construction industry
economy
economy − The industry added KES 12.6 bn to the country’s GDP in Q1 2011
− Growth was supported by large road infrastructure projects currently under way across the county.
− Growth was also reflected in cement consumption which rose to 779.3 million tonnes up from 667.1
million tonnes consumed in Q1 2010
• Rapidly expanding population has further fuelled increase in investments in the
construction industry to capitalize on the demand for decent housing
− Opportunities for investment are immense particularly in the manufacture and supply of construction
Increase in materials and components, construction of middle and lower income housing as well as in the area
Increase in of upgrading informal settlements.
Investment
Investment
• The transport sector also offers huge investment opportunities especially in the
renovation and rehabilitation of transport infrastructure
Growth opportunities for the construction industry primarily lies in:
• Road construction and rehabilitation
• Construction of the rail link to South Sudan
Opportunity
Opportunity • Rehabilitation of airports
Areas • Development of Lamu Port
Areas • Construction of geothermal and wind power generation plants
• Urban housing development by private and public sector to meet the rising housing demand
Source: News Releases
10

11. Market Scenario
However, the slowing economy in 2012 has adversely affected the growth of the sectors
• According to Kenya National Bureau of Statistics, real estate and construction have witnessed
slowdown in growth compared to the same period in 2011.
Slowdown in
Slowdown in • The construction sector only grew by 1.4% in Q2 FY2011, as compared to 5.1% during the
the Sector
the Sector same period in 2011.
• However, the sector is expected to grow faster towards the end of the year as commercial banks
continue to lower lending rates.
− According to the Financial Stability report for 2011 released by the Central Bank of Kenya, during the
year ended 31st December 2011, the real estate sector had 23, 157 loan accounts with gross loans to
the sector totaling KES146.4 bn.
• The building and construction sector had 11, 580 loan accounts and loans of up to KES 41.2 bn
• In H1 FY2012, credit growth's sharp slowdown negatively impacted activity in sectors most
exposed to credit including trade, real estate and construction sectors that hold 17%, 12% and
Decrease in
Decrease in 5%, respectively, of total credit extended to the private sector.
Credit Growth
Credit Growth
• According to analyst firm Renaissance Capital, growth in construction activity slowed significantly
to 2.2 per cent year on year in 1st half of 2012, from 6.0 per cent YoY in 1H11.
− This is reflected in the marked slowdown in cement production's growth to 3.8 per cent YoY in the year
to May, compared to 13.0 per cent YoY a year earlier
Source: News Releases
11

12. Industry Structure
The construction industry is structured in a manner wherein all the main players are
interconnected to each other
Construction Industry Structure
Construction Industry Structure
Small scale, medium scale Public sector and
and large scale contractors private sector
handling projects upto USD Professions organizations,
1 mn, USD 1-10 mn, > USD individuals
10 mn, respectively
Contractors Clients
CONSTRUCTION
INDUSTRY
Banks and
Financial Resources
Institution
Equipment
Manufacturers Input manufacturers
for construction
materials, machinery
and Transport
Source: Study on Construction Industry Value Chain
12

13. Market Segments and Key Regions
The office market has witnessed a steady rental rates while the retail market has
benefitted from the growing middle class population
• Proliferation of the new constitution led to a recovery in confidence and improved optimism about
the future from both local and international investors.
• Major decentralized office nodes of Westlands, Upperhill, Riverside, Karen and Gigiri continue to
Office Markets
Office Markets witness considerable amount of prime office development, notably 14 Riverside, Delta Corner
and KMA Centre
• New accommodation has been let at a steady rate and Grade A office rents have increased.
• Nairobi continues to be home to the most modern shopping malls in the country, with new
entrants being Galleria Shopping Mall and Greenspan.
Retail Markets
Retail Markets
• Mombasa and Kisumu have also witnessed retail developments including the new City Mall in
Nyali, Mombasa (currently under construction) and United Mall and Mega City in Kisumu.
• Retail sector has benefitted from a resilient economy and a growing middle class population.
Kenya prime rents and yields
Kenya prime rents and yields
Prime Rents Prime Yields
Office USD 10 per sq m per month 9%
Retail USD 31 per sq m per month 11%
Source: Frank Knight
13

14. Market Segments and Key Regions
Industrial Markets growth is fuelled by development of business parks; development of
out-of-town integrated communities are being witnessed in the residential market
• Increased development of business parks targeting light industrial users, including BPO and Call
Centers
Industrial
Industrial • Notable projects which have been completed include Sameer Business Park, Tulip House and
Markets Royal Business Park, all on the Mombasa Road.
Markets
• The government has acquired 1,000 acres along Mombasa Road, where it intends to construct
an ICT hub to attract both internal and external investment and enhance the ICT sub-sector
• Market in both the mid and high end sectors is vibrant and prices have recovered from the
impact of the global economic crisis and the post-election clashes of early 2008.
Residential
Residential • Houses in gated compounds and apartments have seen greater demand than single stand-alone
Markets homes.
Markets
• The current trend is to develop out-of-town integrated communities, targeting mainly the middle
class; examples include Fourways Junction and Thika Greens.
Kenya prime rents and yields
Kenya prime rents and yields
Prime Rents Prime Yields
Industrial USD 3.6 per sq m per month 13%
Residential USD 4000 per month* 7%
* 4 bedroom executive house – prime location
Source: Frank Knight
14

15. Market Trends by Segments
The office market is driven by relocation and upgrades; International retailers taking
advantage of Kenya’ increasing consumerism
• Nairobi’s growing preference as East Africa’s commercial hub continues to attract multinational
corporations, raising demand for grade A commercial space and propping up rental prices
• Supply of decentralized grade A & B office space has continued on an upward trend since the
mid 2000s, with about half of it being located in Westlands.
Office Markets
Office Markets • Demand for Grade A office space in these locations is driven by
− Local tenants relocating as a result of a desire to move from the CBD
− Tenants maturing into formal office space from informal space such as converted houses, and new
tenants coming into the market as FDI
• Situation expected to improve with the proposed rail transport link connecting Embakasi and the
CBD, and the completion of the Southern by-pass linking Mombasa Road tothe Nakuru Road.
• Growth of the Retail market is primarily attributable to:
− Increasing consumer spending power and recent real estate and infrastructure boom;
− Kenya being a key financial, transportation and logistics hub, and a relatively stable economy in
comparison to other East African countries
Retail Markets
Retail Markets • Retail sectors leading the expansion are hypermarkets, convenience stores and specialty
retail.
• Leading retail chains plan to increase their investment significantly.
− KFC has opened three stores in 2012 while Nairobi Java House which dominates the café and
restaurant trade is undergoing an aggressive regional growth strategy.
− Major international chains such as Walmart’s, Game Stores, and Edgars plan to enter the market in
2014
• Between 2012 –2014, Kenya is estimated to have additional 7 ultra modern retail centers of
approx 150,000 Sq M located within the outskirts of Nairobi and Mombasa.
Source: Frank Knight
15

16. Market Trends by Segments
Industrial markets growth has been fuelled by development and investments in private
sector while Residential Markets has been hampered by increasing interest rates
• The industrial market, which has largely been dominated by owner occupiers, has seen
increased activity since 2009 with the development of speculative business parks targeting light
industrial users such as Business Processes Outsourcing and Call Centers.
− Kenya’s connection to the submarine fibre optic cable giving the country true broadband capability is
Industrial
Industrial cited as a key reason for the increase in demand
Markets
Markets • Conversely, the appetite for investment in this sector increased in the private sector.
• Demand for warehousing close to JKIA has slightly increased due to improved accessibility &
connectivity resulting from the opening up of the Eastern & Northern Bypass.
• The high end rental market in Nairobi has remained vibrant in the first six months of 2012.
• Demand for high end houses in gated community compounds has increased due to communal
security and shared facilities.
Residential
Residential • The sales market has been somewhat subdued in the Q2 FY 2012, mainly due to:
Markets
Markets − High interest rates (20 –24%) against the central bank maintenance of the CBR rate at 18% in 2012
− High returns being offered on fixed deposits 9% and short term investments such as Government
securities ranging from 20% in January to 10% in June 2012
• The interest rates are expected to drop in case the central bank reduces the base rate
− Some banks are already advertising mortgage rates at 16.9%; 110 basis points below the CBR base
rate.
Source: Frank Knight
16

17. Foreign Direct Investments
The Foreign Direct Investments stock has grown at a CAGR of 8% during the period
2007 – 2011; expected to increase further due to rising interest shown by China
Foreign Direct Investments
Foreign Direct Investments
• Substantial increase in FDI in 2011 defied
the general perception among foreign
investors to reduce investments during
2,618 election period
− Enactment of new Constitution in August
2,283 2010 is cited as a key reason for
confidence among foreign and local
1,989 2,105 investors due to guarantees of political
1,893 stability
• Investments have continued to increase
both in the infrastructure sector,
financial services, the stock market, oil
exploration and prospecting sector as
well as in the transport and
communication front
• Investments are set to further increase
due to the rise in Chinese interest in the
country as well as the discovery of oil
and gas in Kenya.
• China’s FDI in Kenya is also spreading
away from construction and
manufacturing, to communications and
Total FDI investment by medium-size enterprises
in interior décor, construction, hotels
and restaurants
Source: UNCTADSTAT, News Releases
17

18. Foreign Direct Investments
Kenya is expected to continue to be one of the preferred destination for foreign
investments in East Africa, however political lapses could have an adverse effect
• The government’s effort in improving infrastructure coupled the country’s strategic position
within the Eastern Africa region with a sound financial services sector, highly skilled workforce,
mineral discoveries have been biggest attractions for foreign investors
Preferred FDI
Preferred FDI • The economy of Kenya is among the fastest growing in the world, attracting investors from
Europe, America and other more developed countries
Destination
Destination
• According to Foreign Direct Investments (FDI) 2012 report published by FDI Intelligence, a
specialist research agency of the Financial Times, Kenya received 55 projects in 2011,
compared to 31 projects in 2010
• Some of the global and regional giants have moved their operations to Nairobi:
− South Africa’s multinational retail giant Massmart is looking to set up shop in Kenya by 2014 through
its subsidiary Game, with its first store to be hosted at a mall to be called Garden City along the Thika
Superhighway
− General Electric is to move their corporate headquarters from South Africa to Nairobi.
− Pfizer has unveiled plans to set up a Nairobi office as the regional hub while food and beverage giant
− Pepsi-Cola intends to build a KES 2.4 bn manufacturing plant at Nairobi’s Ruaraka area.
• Political risks and slow business reforms continue to affect the investment outlook
• Delays in setting up crucial governing bodies under the Constitution enacted in 2010 are
dampening investor confidence in the country.
− Failure to set up the new National Lands Commission (expected to be setup in 2012) resulted in a
Political Risk
Political Risk hold-up in the renewing of land leases
• Policy and institutional lapses can impacted Kenya’s standing as East Africa’s most attractive
destination for foreign investment
− Under serious threat from neighboring states, who are cashing in on the country’s lengthy licensing
procedures and sluggish commercial dispute settlement to sharpen their competitiveness
Source: News Releases
18

19. Competitive Attractiveness
Kenya faces stiff competition in terms of FDI attractiveness from neighboring like
Rwanda, Tanzania and Uganda
Global Competitiveness Index
Global Competitiveness Index
Countries Score Ranking Ranking Change in
(2012 – 2013) (2011 – 2012) Ranking
Rwanda 4.24 63 70 +7
Kenya 3.75 106 102 -4
Tanzania 3.6 120 120 No Change
Uganda 3.53 123 121 -2
• Rwanda remains East Africa’s most attractive investment destination, with a recent survey by the World Economic
Forum putting it at the top of the region’s rankings in competitiveness, at position 63 globally, moving up seven places
from 2011
• Kenya came second in the East African region at position 106, followed by Tanzania at 120, Uganda at 123 and
Burundi at 144
• In terms of the financial value of investments, Uganda and Tanzania lead the region in attracting FDI
− In 2011, Tanzania attracted FDIs worth USD 1 bn, focused largely on its offshore gas fields
− Uganda received USD 792 mn in investment, while Kenya drew in USD 335 mn
• Kenya’s vibrant private sector, advanced infrastructure and skills base have been its main selling points in the global
investment market, but red tape, corruption, fears of political instability and a restrictive labor market remain key
drawbacks
Source: The Global Competitiveness Report 2012–2013: World Economic Forum, News Releases
19

20. Drivers and Barriers
Growth in construction and real estate sector would be driven by Government’s
initiative to develop infrastructure and thereby create opportunities for other sectors
• Vision 2030 envisages a massive upgrading and • Political risks and slow business reforms coupled
extension of the country’s infrastructure with slow growth rate
• Interest shown by Government to improve the • Red tape, corruption, fears of political instability and
country’s infrastructure and attract foreign a restrictive labor market remain key drawbacks
investments
• Rising inflation rate leading to banks increasing
• Major infrastructure projects undertaken across the lending rates could hamper the buying and
country with a vision to have no “remote” areas in the repayment capacity of the middle class population
coming years
• Increasing competition from neighboring countries
• Rising middle class population has resulted in the like Rwanda, Tanzania and Uganda
increasing demand for residential housing
complexes and townships
• Interests shown by multinational companies in the
Nairobi region can lead way to other companies
opening operations in the country
• Increased development of business parks targeting
light industrial users, including BPO and Call Centers
20

21. Proposed and Ongoing Projects
As part of its effort to improve infrastructure, the Kenya Government has awarded large
projects to multinational companies across the globe
Recent Projects Details
Substation Project • The Kenya Electricity Transmission Company Ltd (KETRACO) signed a power transmission project with a
Spanish construction company, Iberdrola Ingenieria y Construccion S.A.U for the construction of the
220kV ring around the Nairobi Metropolitan area, which is expected to boost reliability of power in the
capital.
• The deal size is estimated to be USD 59 mn
Water Project • China State Construction Engineering Corp. Ltd (China Construction) signed an EPC Commercial
Contract with Regional Development Authorities of Kenya on High Grand Falls Multipurpose Water
Project in Kenya
• Contract value is estimated to be USD 1.75 bn
Water Supply • Dutch construction company Royal BAM Group (AMS:BAMNB) signed a USD 658,000 contract to
Infrastructure participate in the design of water supply infrastructure in Northern Kenya.
• The order was awarded by Kenyan government authorities and half of the costs for the development
phase will be paid by the Dutch Facility for Infrastructure Development, or ORIO.
Kisumu Airport • Kenya Airport Authority invested KES 1.9 bn in Phase Two of the construction of Kisumu Airport
• The construction will include expansion of the airport s runway shoulders, formation of additional cargo
aprons, more approach lights in the lake, parallel taxiway and an additional parking
Carriageway • Kenya Government contracted China Wu Yi Construction Company for construction of a dual
extension of carriageway extension of Langata Road from Kenya Wildlife Service gate to Bomas of Kenya Junction.
Langata Road • The project, which includes lighting and a footbridge at the KWS gate, is fully funded by the government
and is estimated to complete within 15 months
Loruk-Barpelo road • Punj Lloyd Limited entered into a joint venture with Intex Construction for executing the Loruk-Barpelo
project road project.
• The project worth INR 2.85 bn was warded by the Kenya Highways Authority is expected to be completed
in 30 months
Source: News Releases
21

22. Table of Content
Country Overview – Kenya
 Geo-Political Scenario
 Macro Economic Scenario
 Investment Rationale
Construction and Infrastructure Industry
Market Scenario
Market Structure
Market Segments and Key Regions
Market Trends by Segments
Foreign Direct Investments
Competitive Attractiveness
Drivers and Barriers
Proposed and Ongoing Projects
Market Scope for Insurance Sector in Construction and Infrastructure Industry
Market Overview – Insurance Sector
SWOT Analysis
Market Opportunities
Market Assessment
Market Entry Strategy
22

23. Insurance Sector - Overview
The Insurance sector in Kenya has been successful despite the economic and socio-
political issues prevailing in the country
Total Premiums (2009 ––2014)
Total Premiums (2009 2014) Overview
• In spite of Kenya’s economic and socio-political
issues, non-life insurance penetration has risen
to around 2% of GDP – a high figure considering
the overall income level in Kenya.
=
R
AG %
C 8 • Non-life insurers have been innovative and are
1
able to understand the needs of the clients
− Eg: Agricultural risk products that cover farmers
against the impact of natural disaster, facilities to
pay premiums via mobile phones and takaful.
• Kenya’s life insurers have managed to develop a
segment that accounts for about a third of all
premiums written in the insurance sector as a
whole.
• Development of the segment is not entirely
driven by multinational giants
− South Africa’s Metropolitan Life has a subsidiary in
Kenya.
− Sanlam, another South African major, has a
strategic relationship with Pan Africa, as well as its
own subsidiary in African Insurance.
− Local life companies have also been key players in
the segment’s evolution
Source: Business Monitor International
23

24. SWOT Analysis
Though the Kenyan insurance sector is projected to grow at a rapid pace, it is still
subject to the socio-economic and political environment of the country
Strengths Weakness
• Development of local life insurance industry, which • Absence of large insurance companies resulting in lesser
accounts for about a third of total premiums. economies of scale
• Representation by a well organized trade body and • Limited involvement of foreign insurers due to past
overseen by a relatively new and empowered regulator restrictions and challenging business environment in a
• Entry of non-life segment in other insurance other than small economy
motor insurance. • Poverty and lack of awareness
• Development of micro-insurance products • Over dependence on traditional products and distribution
• Consolidation among insurance companies to build channels
economies of scale
Opportunity Threats
• Wider acceptance of insurance products leading to higher • Fraud and corruption
grower rates in the coming years • Deterioration of political conditions could hamper the
• Consolidation could lead to further economies of scale development of the insurance sector.
• Growth in micro-insurance products market • High inflation represents a challenge to the long-term
• Formation of East Africa Community (EAC) could provide development of the life segment.
opportunities for Kenyan insurers • Change in economic situation could impact foreign
• Development of takaful products may open up a investment
previously untapped market.
Source: Business Monitor International
24

25. Market Opportunities in Infrastructure Sector
Infrastructure and construction companies prefer taking Political Risk Insurance to
insure themselves from non-payment of dues and any political disturbance
• General products like medical and accident insurance are the most widely accepted product among
companies in Kenya
• Additionally, infrastructure and constructions companies prefer taking political risk insurance in order to protect
themselves from damages and losses incurring from non-payment of dues or any political disturbance
• Some of the political risk insurance covered by African Trade Insurance Agency (ATIA) for infrastructure
projects include:
Project Project Details Insurance Risks Covered
Type
Construction • The project supports the government’s drive to accelerate Political Risk Non-payment of invoices
of infrastructure projects and strengthen public services and Insurance and certificates by
Government support local firms in a bid to increase capacity. Government of Kenya
buildings • To complete the works, the government contracted a
Kenyan firm with a successful track record in the region on
infrastructure and engineering projects within the public
and private sectors.
Residential • 105 residential apartments in a Nairobi suburb was Political Risk Embargo; expropriation;
housing awarded to a contractor with an international financial Insurance damage or business
backer. interruption due to war
• The lender purchased ATI’s Political Risk Insurance to and civil disturbance;
alleviate potential risks that may impact on the project, arbitral award default and
which is targeted for completion in 2010. currency transfer
restriction
Source: Press Releases, ATIA website
25

26. Market Opportunities in Infrastructure Sector
Considering the Government’s initiative to push infrastructure development, demand for
Engineering Insurance is expected to increase
• With many infrastructure projects underway, infrastructure and construction companies are looking at protecting
themselves from any damage caused by possible breakdown, explosion and loss resulting from operations of plant
and machinery
• Some of the common engineering insurance covers include:
Insurance Cover Policy Details
Machinery • Policy provides, indemnity in respect of unforeseen and sudden loss or damage to the specified
Breakdown machinery whilst at work or at rest or while being dismantled.
Computer & • Policy covers sudden and unforeseen physical loss of or damage to the computer equipment,
Electronic software and re-compilation of data lost or damaged.
Equipment • The policy also covers increased cost of working occasioned by loss of or damage to the computer
equipment.
• The insurance covers the risk of explosion and collapse of any boiler or pressure plant in the course
of ordinary working. There is also cover for own surrounding property and also third party liability.
Contractors All • The insurance provides indemnity for damage to specific contract work. Indemnity is also available
Risks Insurance for construction plant / equipment, site materials, injury to employees and third party liability.
• Erection All Risks Insurance provides cover against risks associated with Erection, testing and
commissioning of machinery, plant and equipment during the construction stage.
Consequential Loss • Indemnity for loss resulting from interruption or interference to the business insured. The loss may
- Machinery be direct loss of profits during the period of interruption. Insurance cover for deterioration of goods
Breakdown held at a constant temperature is provided under deterioration of stock policy. The consequential
loss follows breakdown of refrigeration equipment
• Loss of profits following sudden accidental and unforeseen damage to machinery covered.
Source: Press Releases, Eagle Africa Website
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27. Market Assessment – Insurance in Infrastructure/Construction Industry
The insurance market in the Infrastructure/Construction industry has an potential
opportunity to grow if companies are made aware of the benefits of insurance
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis
Bargaining Power of Suppliers Intensity of Rivalry
•Lower acceptance of insurance among •The insurance sector is currently fragmented with
companies does not allow insurers to sell the mix of local, South African and multinationals
premiums at a higher price present
•Lack of knowledge is primary reason for lower •Consolidation of companies can lead to increase
acceptance in competition
Bargaining Power of Buyers
•Infrastructure/construction are yet to identify the
potential for insurance covers
•Lack of options to reduce risk from socio-economic
and political disturbance lowers the bargaining power
Barriers to Entry Substitutes
•Lack of awareness of insurance products has led
•Government has keen interest in increasing
to dependence on traditional products and
foreign investments
distribution channels
•With elections in next year, any deterioration of
•Presence of substitutes is highly unlikely given the
political conditions could hamper the development
current situation
of the insurance sector.
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28. Market Entry Strategy
Insurance/Re-insurance companies can look at entering the infrastructure/construction
market through either partnership with local insurer or through acquisition
• For a insurance/re-insurance company to cater to the infrastructure sector in Kenya, following parameters needs to be
considered:
– Government is keen on developing its infrastructure in order to attract foreign investments
– As the insurance industry is fragmented, there is lack of economies of scale. However, consolidation could lead to increase
in economies of scale
– Lack of knowledge and awareness or appetite for insurance balances the bargaining power between
infrastructure/construction and insurance sector
• Considering the above points, it will be risky for a new insurance/re-insurance company to enter the market on their
own, however should look at alternatives like joint ventures, partnerships and M&A
• Multi-national insurance/re-insurance companies can enter into a joint venture or partnership with
a local player
Joint Ventures
Joint Ventures • MNCs and local players can enter into an agreement wherein the former provides financial
& Partnerships backup and the latter uses its knowledge of the region to cater to customers
& Partnerships
• MNCs can also look at introducing their own products & services with the local players being
resellers
• Multi-national insurance/re-insurance companies can acquire a major stake in a local company
Mergers & and make the latter its subsidiary
Mergers &
Acquisition
Acquisition • Acquisition will give direct access to the local market without any investments in setting up
operations
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29. Thank You