Report Price: US$ 1250 (Single User) Future of the Kenyan Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2020

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1 Report Price: US$ 1250 (Single User) Future of the Kenyan Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2020

2 Summary Future of the Kenyan Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2020 report offers the reader detailed analysis of the defense budget over the next five years. Alongside it offers insights into the market opportunities and entry strategies adopted by foreign OEMs (original equipment manufacturers) to gain a market share in the Kenyan defense industry. The report provides detailed analysis of the current industry size and growth expectations during , including highlights of the key growth stimulators. It also benchmarks the industry against key global markets and provides detailed understanding of emerging opportunities in specific areas. Key Findings With an armed force that is considered to be one of the most powerful in East Africa, Kenya has consistently procured a large amount of military hardware over the last couple of years, including small arms, armored vehicles, helicopters, rocket launchers, and aircraft, which drove defense expenditure between 2011 and The country s defense budget increased at a CAGR of XX%, with an investment of US$XX billion in 2011 and US$XX billion in 2015.The government s well-defined military modernization plans along with its efforts to counter domestic and foreign terrorist attacks, and the country s active and consistent participation in the various peacekeeping missions are expected to stimulate the expenditure over the next few years. Over the forecast period, the country s defense budget is projected to increase from US$XX billion in 2016 to US$XX billion in 2020, at a CAGR of XX%. Key Features and Benefits The report provides detailed analysis of the Kenyan defense industry during , including the factors that influence the military expenditure. It provides detailed expectations of growth rates and projected total expenditure. It provides the manufacturers with insights on market opportunities along with industry structure and dynamics prevalent in the country. In addition, the report focuses on the regulations governing the Kenyan defense industry and the potential market entry strategies with an expert analysis of the competitive structure. 2

3 Defense Expenditure (US$ Billion) Defense expenditure growth rate (%) Future of the Kenyan Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to Market Attractiveness and Emerging Opportunities 1.1. Defense Market Size Historical and Forecast Kenyan annual defense expenditure expected to grow at a CAGR of XX% over Between 2011 and 2015, Kenya s defense expenditure, which also includes the expenditure of the National Intelligence Service, increased from US$XX billion in 2011 to US$XX billion in 2015, reflecting a CAGR of XX%. The government s efforts to fortify its armed forces along with its focus on military hardware modernization and participation in peacekeeping missions has been, and is expected to drive the country s defense budget over the forecast period. In the last few years, Kenya has imported advanced military hardware such as BRDM-3 reconnaissance vehicles, F-5E combat aircraft, P-400 patrol craft, Z-9 and Mi-17 helicopters, and Puma M-26 carrier for its military. The budget is projected to be US$XX billion in 2016 and increase to US$XX billion in 2020, registering a CAGR of XX%. The following table and figure show the Kenyan defense expenditure during the historic period: Table 1: Kenyan Defense Expenditure (US$ billion), Year Defense expenditure (US$ bn) Defense growth percentage Ministry of Finance, Kenya and SDI analysis CAGR Figure 1: Kenyan Defense Expenditure (US$ billion), % % 15% 10% 5% 0% -5% Defense Expenditure (US$ bn) Defense expenditure growth % -10% Ministry of Finance, Kenya and SDI analysis 3

4 Defense Expenditure (US$ Billion) Defense expenditure growth rate (%) Future of the Kenyan Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2020 The following table and figure show projected defense expenditure of Kenya over the forecast period: Table 2: Kenyan Defense Expenditure (US$ billion), Year Defense expenditure (US$ bn) Defense growth percentage Ministry of Finance, Kenya and SDI analysis CAGR Figure 2: Kenyan Defense Expenditure (US$ billion), % % 6% 5% 4% 3% 2% 1% Defence Expenditure (US$ bn) Defense expenditure growth % 0% Ministry of Finance, Kenya and SDI analysis 4

5 Defense Budget Split (%) Future of the Kenyan Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to Analysis of Defense Budget Allocation Share of revenue expenditure to comprise the majority of the defense budget Over , Kenya s defense budget allocation towards capital expenditure increased from XX% in 2011 to XX% in 2015, as the country executed a number of defense equipment procurements deals during this time. Over the forecast period, the nation s capital expenditure share is expected to increase further on account of internal and external security measures and modernization programs. During , the share of capital expenditure is expected to average XX%, while the remaining XX% will be assigned for revenue expenditure that will continue to comprise the majority of the nation s defense budget. The following table and chart display Kenya s defense budget share of capital and revenue during the historic period: Table 3: Kenya s Defense Budget Split Between Capital and Revenue Expenditure (%), Year Capital Expenditure Share Revenue Expenditure Share Source: Ministry of Finance, Kenya and SDI analysis Figure 3: Kenya s Defense Budget Split Between Capital and Revenue Expenditure (%), % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Capital Expenditure Revenue Expenditure Source: Ministry of Defense and SDI analysis 5

6 Defense Budget Split (%) Future of the Kenyan Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to 2020 The following table and chart display Kenya s defense budget share of capital and revenue expenditure over the forecast period: Table 4: Kenya s Defense Budget Split Between Capital and Revenue Expenditure (%), Year Capital Expenditure Share Revenue Expenditure Share Source: Ministry of Finance, Kenya and SDI analysis Figure 4: Kenya s Defense Budget Split Between Capital, Revenue and Other Expenditure (%), % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Capital Expenditure Revenue Expenditure Source: Ministry of Defense and SDI analysis 6

7 Homeland Security Expenditure (US$ mn) Growth rate (%) Future of the Kenyan Defense Industry Market Attractiveness, Competitive Landscape and Forecasts to Homeland Security Market Size and Forecast Homeland security budget projected to increase during the forecast period Kenya s homeland security (HLS), which lies in the hands of the National Police Service, stood at US$XX million in 2011 and increased to US$XX million in 2015, at a CAGR of XX%. The growth was driven by the government s efforts to combat arms smuggling, human trafficking, and drug smuggling. The country has allocated US$XX million from the 2014 budget for the procurement of new police vehicles and US$XX million for the recruitment of 10,000 police officers to enhance security operations and patrolling. The budget is expected to increase from US$XX million in 2016 to US$XX million in 2020, reflecting a CAGR of XX%. The table and chart below show Kenya s homeland security expenditure during the historic period: Table 5: Kenyan Homeland Security Expenditure (US$ Million), Year Source: Ministry of Finance, Kenya and SDI analysis Homeland expenditure (US$ mn) Growth Rate (%) Figure 5: Kenyan Homeland Security Expenditure (US$ Million), % % 5% 0% -5% -10% Homeland Security Expenditure (US$ mn) Growth Rate (%) -15% Source: Ministry of Finance, Kenya and SDI analysis 7

8 2. Industry Dynamics - Porter s Five Forces Analysis Figure 4: Industry Dynamics Porter s Five Forces Analysis Barrier to Entry Bargaining Power of Supplier Intensity of Rivalry Bargaining Power of Buyer Threat of Substitute Source: SDI analysis 8

9 Report Methodology SDI s dedicated research and analysis teams consist of experienced professionals with a background in industry research and consulting in the defense sector. The following research methodology is followed for all databases and reports: Secondary Research The research process begins with exhaustive secondary research to source reliable qualitative and quantitative information related to the defense market. The secondary research sources that are typically referred to include, but are not limited to: Industry associations National government documents and statistical databases Company websites, annual reports, financial reports, broker reports, investor presentations Industry trade journals and other literature Internal and external proprietary databases News articles, press releases, and webcasts specific to the companies operating in the market Primary Research SDI conducts hundreds of primary interviews a year with industry participants and commentators in order to validate its data and analysis. A typical research interview fulfills the following functions: Provides first-hand information on market size, market trends, growth trends, competitive landscape, and future outlook Helps to validate and strengthen secondary research findings Further develops the analysis team s expertise and market understanding Primary research involves interactions, telephone interviews, and face-to-face interviews for each market category, division, and sub-division across geographies The participants who typically take part in such a process include, but are not limited to: Conventions Industry participants: CEOs, VPs, business development managers, market intelligence managers, and national sales managers External experts: investment bankers, valuation experts, research analysts, and key opinion leaders specializing in defense markets Currency conversions are performed on the basis of average annual conversion rate format calculations All the values in tables, with the exception of compounded annual growth rate (CAGR) and compounded annual rate of change (CARC), are displayed to one decimal place; therefore, due to this rounding method, growth rates may appear inconsistent with absolute values The forecasted values are projected on the basis of nominal values; the inflation was not taken into account 9

10 TABLE OF CONTENTS 1. Introduction What is this Report About? Definitions Summary Methodology SDI Terrorism Index About Strategic Defence Intelligence Executive Summary Market Attractiveness and Emerging Opportunities Defense Market Size Historical and Forecast Kenyan annual defense expenditure expected to grow at a CAGR of 3.94% over Border security, terrorist group threats, peacekeeping missions, and the need to modernize outdated defense equipment to drive Kenya s defense expenditure The country s defense expenditure as a percentage of GDP is expected to average 1.2% over the forecast period Analysis of Defense Budget Allocation Share of revenue expenditure to comprise the majority of the defense budget Capital expenditure budget projected to increase at a CAGR of 5.53% during the forecast period Kenyan defense revenue expenditure expected to be US$4.8 billion cumulatively over Per capita defense expenditure expected to increase during the forecast period Homeland Security Market Size and Forecast Homeland security budget projected to increase during the forecast period Human trafficking, and drug and arms smugglings form the major components of homeland security expenditure Kenya is at some risk from external and internal threats Benchmarking with Key Global Markets Kenyan defense expenditure expected to be low compared to other African nations Kenya s military expenditure to be US$1.2 billion by Kenya allocates a low percentage of GDP to defense Kenya faces some risk of terrorism Market Opportunities: Key Trends and Growth Stimulators Cyber security Trainer aircraft Armored Vehicles Helicopter Defense Procurement Market Dynamics

11 4.1. Import Market Dynamics The initiative to modernize the country s armed force will drive defense imports Jordan was the leading supplier of arms to Kenya during Aircraft accounted for the majority of defense imports during Export Market Dynamics Kenya does not export arms due to its under-developed domestic arms industry Industry Dynamics Five Forces Analysis Bargaining power of the supplier: high Bargaining power of the buyer: low Barrier to entry: medium to high Intensity of rivalry: high Threat of substitution: medium to high Market Entry Strategy Market Regulation Kenya does not disclose any offset obligations imposed by the country Foreign direct investment (FDI) is determined on a case to case basis Market Entry Route Equipment manufacturers enter the market through government-to-government deals Key Challenges Corruption and lack of transparency characterize the Kenyan defense industry Low defense budget to act as obstacle for foreign investors Competitive Landscape and Strategic Insights Competitive Landscape Overview Foreign suppliers manufacture defense systems overseas and deliver to Kenya Key Domestic Companies Kenya Ordnance Factories Corporation: overview Kenya Ordnance Factories Corporation: products and services Rosoboronexport: overview Rosoboronexport: products and services Rosoboronexport: recent contract wins Grob Aircraft: overview Grob Aircraft: products and services Grob Aircraft: recent contract wins Business Environment and Country Risk Demographics & Social Statistics Total Rural Population

12 Total Urban Population Number of households Economic Performance GDP Per Capita GDP, Current Prices Exports of goods and services (current USD Bn) Imports of goods and services (current USD Bn) Gross National disposable income (USD Bn) Manufacturing Output (USD Bn) Consumer Price Index Local Currency Unit per US Dollars Local Currency Unit per Euro Lending Rate Deposit Rate Real Interest Rate (%) Market capitalization of listed companies (USD Bn) Market capitalization of listed companies (% of GDP) Total Government cash surplus/deficit (LCU Bn) Government cash surplus/deficit as % of GDP (LCU) Goods exports as a % of GDP Goods imports as a % of GDP Goods balance as a % of GDP Services imports as a % of GDP Service exports as a % of GDP Services balance as a % of GDP Foreign direct investment, net (BoP, current US$ Bn) Net foreign direct investment as % of GDP International reserves, including gold External Debt as % of GDP Energy and Utilities Conventional Thermal Electricity Net Generation Hydroelectricity Net Generation Conventional Thermal Electricity Installed Capacity Electricity Imports Petroleum Consumption Total Non-Hydro Renewable Electricity Net Generation (Billion Kilowatts) Infrastructure Quality and Availability Air transport, freight

13 8.5. Minerals Mining, Manufacturing, Utilities Output Technology Patents Granted Telecommunication Telephone Lines Telephone Lines Penetration Rate Appendix About SDI Disclaimer

14 LIST OF FIGURES Figure 1: Kenyan Defense Expenditure (US$ Billion), Figure 2: Kenyan Defense Expenditure (US$ Billion), Figure 3: Kenyan Defense Expenditure (KES Billion), Figure 4: Kenyan Defense Expenditure (KES Billion), Figure 5: Kenyan GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, Figure 6: Kenyan GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, Figure 7: Kenyan Defense Budget Split Between Capital and Revenue Expenditure (%), Figure 8: Kenyan Defense Budget Split Between Capital and Revenue Expenditure (%), Figure 9: Kenyan Defense Capital Expenditure (US$ Million), Figure 10: Kenyan Defense Capital Expenditure (US$ Million), Figure 11: Kenyan Defense Capital Expenditure (KES Billion), Figure 12: Kenyan Defense Capital Expenditure (KES Billion), Figure 13: Kenyan Defense Revenue Expenditure (US$ Million), Figure 14: Kenyan Defense Revenue Expenditure (US$ Million), Figure 15: Kenyan Defense Revenue Expenditure (KES Billion), Figure 16: Kenyan Defense Revenue Expenditure (KES Billion), Figure 17: Kenyan Per Capita Defense Expenditure (US$), Figure 18: Kenyan Per Capita Defense Expenditure (US$), Figure 19: Kenyan Homeland Security Expenditure (US$ Million), Figure 20: Kenyan Homeland Security Budget (US$ Million), Figure 21: Kenyan Homeland Security Budget (KES Billion), Figure 22: Kenyan Homeland Security Budget (KES Billion), Figure 23: SDI Terrorism Heat Map, Figure 24: Benchmarking with Key Markets vs Figure 25: Defense Expenditure of the World s Largest Military Spenders (US$ Billion), 2015 and Figure 26: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), Figure 27: SDI Terrorism Index, Figure 28: Kenyan Defense Import Trend, (TIV values) Figure 29: Kenyan Defense Imports by Country (%), Figure 30: Kenyan Defense Imports by Category (%), Figure 31: Industry Dynamics Porter s Five Forces Analysis Figure 32: Kenyan Rural Population (In Millions), Figure 33: Kenyan Urban Population (In Millions), Figure 34: Kenyan Number of Households (In Millions), Figure 35: Kenyan GDP Per Capita, Figure 36: Kenyan GDP, Current Prices (US$ Billion), Figure 37: Kenyan Exports of goods and services (current USD Bn), Figure 38: Kenyan Imports of goods and services (current USD Bn), Figure 39: Kenyan Gross National disposable income (USD Bn), Figure 40: Kenyan Manufacturing Output (USD Bn), Figure 41: Kenyan Consumer Price Index, Figure 42: Local Currency per USD, Figure 43: Local Currency per Euro, Figure 44: Lending Rate (%), Figure 45: Deposit Rate (%), Figure 46: Real Interest Rate (%), Figure 47: Kenyan Market capitalization of listed companies (USD Bn), Figure 48: Kenyan Market capitalization of listed companies (% of GDP), Figure 49: Kenyan Total Government cash surplus/deficit (LCU Bn), Figure 50: Kenyan Government cash surplus/deficit as % of GDP (LCU), Figure 51: Kenyan Goods exports as a % of GDP, Figure 52: Kenyan Goods imports as a % of GDP, Figure 53: Kenyan Goods balance as a % of GDP, Figure 54: Kenyan Services imports as a % of GDP,

15 Figure 55: Kenyan Service exports as a % of GDP, Figure 56: Kenyan Services balance as a % of GDP, Figure 57: Kenyan Foreign direct investment, net (BoP, current US$ Bn), Figure 58: Kenyan Net foreign direct investment as % of GDP, Figure 59: Kenyan International reserves, including gold (US$ Billion), Figure 60: Kenyan External Debt as % of GDP (%), Figure 61: Kenyan Conventional Thermal Electricity Net Generation (Billion Kilowatt hours), Figure 62: Kenyan Hydroelectricity Net Generation (Billion Kilowatt hours), Figure 63: Kenyan Conventional Thermal Electricity Installed Capacity (Million Kilowatts), Figure 64: Kenyan Electricity Imports (Billion Kilowatt hours), Figure 65: Kenyan Petroleum Consumption (Thousand Barrels Per Day), Figure 66: Kenyan Total Non-Hydro Renewable Electricity Net Generation (Billion Kilowatts), Figure 67: Kenyan Air transport freight (million ton-km), Figure 68: Kenyan Mining, Manufacturing, Utilities Output (US$ Billion), Figure 69: Kenyan Patents Granted, Figure 70: Kenyan Telephone Lines (In Million), Figure 71: Kenyan Telephone Lines Penetration Rate (Per 100 People),

16 LIST OF TABLES Table 1: Kenyan Defense Expenditure (US$ Billion), Table 2: Kenyan Defense Expenditure (US$ Billion), Table 3: Kenyan Defense Expenditure (KES Billion), Table 4: Kenyan Defense Expenditure (KES Billion), Table 5: Kenyan GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, Table 6: Kenyan GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP Growth, Table 7: Kenyan Defense Budget Split Between Capital and Revenue Expenditure (%), Table 8: Kenyan Defense Budget Split Between Capital and Revenue Expenditure (%), Table 9: Kenyan Defense Capital Expenditure (US$ Million), Table 10: Kenyan Defense Capital Expenditure (US$ Million), Table 11: Kenyan Defense Capital Expenditure (KES Billion), Table 12: Kenyan Defense Capital Expenditure (KES Billion), Table 13: Kenyan Defense Revenue Expenditure (US$ Million), Table 14: Kenyan Defense Revenue Expenditure (US$ Million), Table 15: Kenyan Defense Revenue Expenditure (KES Billion), Table 16: Kenyan Defense Revenue Expenditure (KES Billion), Table 17: Kenyan Per Capita Defense Expenditure (US$), Table 18: Kenyan Per Capita Defense Expenditure (US$), Table 19: Kenyan Homeland Security Expenditure (US$ Million), Table 20: Kenyan Homeland Security Budget (US$ Million), Table 21: Kenyan Homeland Security Budget (KES Billion), Table 22: Kenyan Homeland Security Budget (KES Billion), Table 23: Benchmarking with Key Markets vs Table 24: SDI Terrorism Index Table 25: Kenya Ordnance Factories Corporation Product Focus Table 26: Rosoboronexport Product Focus Table 27: Rosoboronexport Recent Contract Wins Table 28: Grob Aircraft Product Focus Table 29: Grob Aircraft Recent Contract Wins