Future of the Kenya Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2022

Table of Contents

1. Introduction 7

1.1. What is this Report About? 7

1.2. Definitions 7

1.3. Summary Methodology 9

1.4. About Strategic Defense Intelligence 10

2. Executive Summary 11

3. Market Attractiveness and Emerging Opportunities 13

3.1. Current Market Scenario 14

3.1.1. Primary Threat Perception 14

3.1.2. Military Doctrine & Strategy 16

3.1.3. Military Fleet Size 18

3.1.4. Procurement Programs 21

3.1.5. Social, Political and Economic Environment & Support for Defense Projects 22

3.1.6. Political and Strategic Alliances 22

3.2. Defense Market Size Historical and Forecast 23

3.2.1. Kenyan defense budget to grow at an estimated CAGR of

3.70% during 2018-2022 23

3.2.2. Border security, terrorist group threats, peacekeeping missions, and the need to modernize outdated defense equipment to drive Kenya’s defense expenditure 25

3.2.3. Defense budget as a percentage of GDP will remain at an average of

1.4% over the forecast period 27

3.3. Analysis of Defense Budget Allocation 29

3.3.1. Share of capital expenditure is expected to increase during the forecast period 29

3.3.2. Capital expenditure is anticipated to record a CAGR of

3.36% during the forecast period 31

3.3.3. Kenya’s per capita defense expenditure is expected to increase during the forecast period 33

3.4. Homeland Security Market Size and Forecast 35

3.4.1. The homeland security market in Kenya is expected to grow at a CAGR of

4.60% during the forecast period 35

3.4.2. Human trafficking and illicit drugs trade to drive homeland security expenditure 37

3.4.3. Kenya falls under “highly affected” category in the terrorism index 38

3.4.4. Kenya faces high level of threat from terrorist organizations 39

3.4.5. Kenya has a terrorism index score of

6.6 41

3.5. Benchmarking with Key Global Markets 42

3.5.1. Kenyan defense expenditure expected to remain low compared to leading spenders 42

3.5.2. Kenya will continue to remain as a small contributor in the global arms market 44

3.5.3. Defense budget as a percentage of GDP is expected to increase over the forecast period 45

3.6. Market Opportunities: Key Trends and Growth Stimulators 46

3.6.1. CBRN Detection Equipment 46

3.6.2. Armored Vehicles 47

4. Defense Procurement Market Dynamics 48

4.1. Import Market Dynamics 49

4.1.1. Defense imports increased during the period 2011−2015 49

4.1.2. Weapons manufactured in Spain comprised the majority of imports to Kenya 50

4.1.3. Aircraft, Missiles, and Air defense systems accounted for a total share

88.8% in Kenyan defense imports 51

4.2. Export Market Dynamics 52

4.2.1. Kenya defense exports were negligible during 2013−2016 52

5. Industry Dynamics 53

5.1. Five Forces Analysis 53

5.1.1. Bargaining power of the supplier: high 54

5.1.2. Bargaining power of the buyer: low 54

5.1.3. Barrier to entry: medium to high 54

5.1.4. Intensity of rivalry: high 54

5.1.5. Threat of substitution: medium to high 54

5.2. Market Regulation 55

5.2.1. Kenya does not disclose any offset obligations imposed by the country 55

5.2.2. Foreign direct investment (FDI) is determined on a case to case basis 55

5.3. Market Entry Route 56

5.3.1. Budgeting Process 56

5.3.2. Defense procurement process 56

5.3.3. Equipment manufacturers enter the market through government-to-government deals 57

5.4. Key Challenges 57

5.4.1. Corruption and lack of transparency are the factors which hinder the growth of the Kenyan defense industry 57

5.4.2. Low defense budget to act as obstacle for foreign investors 57

6. Competitive Landscape and Strategic Insights 58

6.1. Competitive Landscape Overview 58

6.1.1. Foreign suppliers manufacture defense systems overseas and deliver to Kenya 58

6.2. Key Domestic Companies 59

6.2.1. Kenya Ordnance Factories Corporation: overview 59

6.2.2. Kenya Ordnance Factories Corporation: products and services 59

6.2.3. Rosoboronexport: overview 60

6.2.4. Rosoboronexport: products 60

6.2.5. Rosoboronexport: recent contract wins 60

6.2.6. Grob Aircraft: overview 61

6.2.7. Grob Aircraft: products 61

6.2.8. Grob Aircraft: recent contract wins 61

7. Business Environment and Country Risk 62

7.1. Economic Performance 62

7.1.1. GDP per capita at constant prices (US$) 62

7.1.2. GDP at current prices (US$) 63

7.1.3. Exports of goods and services 64

7.1.4. Imports of goods and services 65

7.1.5. Gross National disposable income (US$ Bn) 66

7.1.6. LCU per US$ (period average) 67

7.1.7. Market capitalization of listed companies (US$ billion) 68

7.1.8. Market capitalization of listed companies (% GDP) 69

7.1.9. Government cash surplus/deficit as a percentage of GDP (LCU) 70

7.1.10. Goods exports as a percentage of GDP 71

7.1.11. Goods Imports as a percentage of GDP 72

7.1.12. Services imports as a percentage of GDP 73

7.1.13. Services Exports as a percentage of GDP 74

7.1.14. Foreign direct investment, net (BoP, current US$ billions) 75

7.1.15. Net foreign direct investment as a percentage of GDP 76

7.1.16. Mining, Manufacturing, Utilities Output (LCU Bn) 77

8. Appendix 78

8.1. About SDI 78

8.2. Disclaimer 78

List of Tables

Table 1: Kenya Ground Forces Strength 18

Table 2: Kenya Air Force Strength 19

Table 3: Kenya Navy Strength 20

Table 4: Kenya – Ongoing Development and Procurement Programs 21

Table 5: Kenya – Future Procurement Programs 21

Table 6: Kenyan Defense Expenditure (KES billion& US$ billion), 2013-2022 23

Table 7: Kenyan GDP Growth and Defense Expenditure as Percentage of GDP Growth, 2013-2022 27

Table 8: Kenyan Defense Budget Split Between Capital and Revenue Expenditure (%), 2013-2022 29

Table 9: Kenyan Defense Capital Expenditure (KES Billion &US$ Billion), 2013-2022 31

Table 10: Kenyan Per Capita Defense Expenditure (US$), 2013-2022 33

Table 11: Kenyan Homeland Security Expenditure (KES billion& US$ billion), 2013-2022 35

Table 12: Terrorism Index, 2017 39

Table 13:Benchmarking with Key Markets – 2013-2017 vs. 2018-2022 42

Table 14: Bangladeshi Budget Formation Timetable 56

Table 15: Competitive Landscape of the Kenya Defense Industry 58

Table 16: Kenya Ordnance Factories Corporation- Product Focus 59

Table 17:Rosoboronexport- Recent Contract Wins 60

Table 18:Grob Aircraft- Recent Contract Wins 61

List of Figures

Figure 1: Kenyan Defense Expenditure (KES Billion), 2013-2022 24

Figure 2: Kenyan Defense Expenditure (US$ Billion), 2013-2022 24

Figure 3: Kenya GDP Growth and Defense Expenditure as Percentage of GDP Growth,2013-2022 28

Figure 4: Kenyan Defense Budget Split Between Capital and Revenue Expenditure (%),2013-2022 30

Figure 5: Kenyan Defense Capital Expenditure (KES Billion), 2013-2022 32

Figure 6: Kenyan Defense Capital Expenditure (US$ Million), 2013-2022 32

Figure 7: Kenyan Per Capita Defense Expenditure (US$), 2013-2022 34

Figure 8: Kenyan Homeland Security Expenditure (KES Billion), 2013-2022 36

Figure 9: Kenyan Homeland Security Expenditure (US$ billion), 2013-2022 36

Figure 10: Terrorism Heat Map, 2017 38

Figure 11: Terrorism Index, 2017 41

Figure 12: Benchmarking with Key Markets, 2013-2017 vs. 2018-2022 43

Figure 13: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2017 and 2022 44

Figure 14: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2017 45

Figure 15: Kenya CBRN Detection Equipment (US$ Million), 2017-2025 46

Figure 16: Kenya Armored Vehicles (US$ Million), 2017-2020 47

Figure 17: Kenya Defense Import Trend, 2012-2016 (TIV values) 49

Figure 18: Kenya Defense Import by Country, 2012-2016 (TIV values) 50

Figure 19: Kenyan Defense Imports by Category (%),2012-2016 51

Figure 20: Industry Dynamics Porter’s Five Forces Analysis 53

Figure 21: Kenya’s GDP Per Capita at Constant Prices (US$), 2015-2025 62

Figure 22: Kenya’s GDP at Current Prices (US$ Billion), 2015-2024 63

Figure 23: Kenya’s exports of goods and services (LCU Billion), 2005-2014 64

Figure 24: Kenyan Imports of goods and services (LCU Billion), 2005-2014 65

Figure 25: Kenya’s Gross National Disposable Income (US$ Billion), 2005-2013 66

Figure 26: Kenya’s KES per US$, 2015-2024 67

Figure 27: Kenya’s market capitalization of listed companies (US$ Billion), 2005-2012 68

Figure 28: Kenya’s market capitalization of listed companies (%GDP), 2005-2012 69

Figure 29: Kenya−Government cash surplus/deficit as % of GDP (KES), 2005-2012 70

Figure 30: Kenya− Goods exports as a % of GDP (%), 2005-2014 71

Figure 31: Kenya− Goods imports as a % of GDP (%), 2005-2014 72

Figure 32: Kenya− Services imports as a % of GDP (%), 2005-2014 73

Figure 33: Kenya− Services exports as a % of GDP (%), 2005-2014 74

Figure 34: Kenya− Foreign direct investment, net (BoP, current US$ billion), 2005-2014 75

Figure 35: Kenya’s Net foreign direct investment as % of GDP, 2005-2014 76

Figure 36: Kenya’s Mining, Manufacturing, Utilities Output (LCU Bn), 2005-2014 77