I have just returned from visiting Kenya and Tanzania. Kenya is modernizing and as its people move away from subsistence farming into salaried employment they start having the same investment challenges as Westerners with a few extra African ones.

Since the challenges are the same the answers are as well. At this point I need to add the standard caveat

• This is not personal advice each person has different needs so if in doubt consult a licenced financial advisor.

The problem with this advice is that even in the UK licenced financial advisors try to cheat people if they don’t know much about finance. I got good advice from one but when I recommended him to my mother he charged her excessive fees to maximise his commission.

The solution to this is to have a really solid understanding of finance. Then you can easily spot scams and bad advice.

First a word about currency and inflation

The most important currency in the world is the United States Dollar because food, fuel, cement and steel are sold in dollars. Therefore Kenyans need to be keenly aware of how many dollars their shillings are worth. This chart shows that there is trend for the Kenyan shilling to be worth less each year.

This means that if you invested 1000 shillings 10 years ago you would need that investment to be worth 1400 shilling today to have the same purchasing power.

Why does the Kenyan shilling decline in value? The simple answer (and there are very complicated answers that are more accurate) is that the Kenyan Government (like many others) spends more money that it raises in taxes and therefore prints more. If there are more shillings in circulation each shilling is worth less.

African governments do not have history of wise economic management and therefore Kenyan investors must carefully consider how much they trust their government and its currency.

What rate of return can I expect?

The best investors in the world hope for a real return of between 5 and 7 percent a year in USD when investing over a 10 year period. Investors using Kenyan shillings will demand a higher return because of the currency risk and so you might get a 10-12% return over the long term.

5% does not sound like much but if you compound it over 10 years it soon adds up as the calculator from the monevator.com blog shows us,

I don’t want to wait 10 years! Is there any way to get rich quick?

No. There is no way to get rich quick any anyone who tells you different is a scammer.

To understand why it is useful to think about a horse race. A scammer could tell you he knows that a 100-1 outsider will win. If you give him all your money then you might make 100x the next day. However, it is much more likely that the horse will lose and you never see the scammer or your money again.

Understanding “Assets”

Investors buy assets and hope to get a return from them. Here are some assets,

• A house and land you live in
• A bank account
• House or land you rent
• Cash deposit accounts
• Shares
• Mutual funds
• Bonds
• Gold
• Bitcoin

The most important of these is the house and land that you live in because if everything goes wrong you can still live on maize/pot noodle. In the West those in regular employment can get loan from a bank called a mortgage, these are available in Kenya as well but may be difficult to get if you don’t work for a well-known employer like the Government.

The pots of money you need

Emergency Fund

As soon as you start earning you need to start an emergency fund. This should cover at least 3 months family expenditure. If you can’t rely on family, friends and employer to support you if you become ill then you should consider covering 6 months or more.

This emergency fund should be in cash – shilling or USD in a bank account.

Drop Dead Life Insurance

Both men and women can die unexpectedly and both should be insured. If you have dependents buy cheap “drop dead” life insurance. This the best sort because the insurance company has to pay out. They can’t argue whether you are dead or not (don’t get eaten by a crocodile).

Make sure that you have written a will and people know where it is stored.

House Fund

If you have a mortgage you will be paying it off each month. If you are saving to buy a house you will need to work out a target date based on your income. I address this in the next section,

Saving for a date

You might need a pot where you save for a date in the future,

• To buy a house
• To pay school fees
• To support yourself in retirement

How you save depends on how long you want to invest for,

• Less than 1 year – a bank deposit account
• 1 to 3 years – a “term” investment which locks up your cash exchange for higher interest rates
• 3-5 years – a lower risk bond fund
• 5-10 years – an equity (shares) fund
• 10+ – higher risk equity

Choosing an investment partner

Kenya has many banks and they don’t seem to steal or mislay customers’ money so it is not difficult to find options for investing cash.

It is not a good idea to buy individual shares because if the company goes bust (it happens) you lose all you money. It is better to buy into a “mutual fund” that buys lots of different shares to spread the risk.

It is much more difficult to find a mutual fund provider in Kenya but Standard Chartered.

• https://www.sc.com/ke/investments/mutual-funds/

looks like a good choice. They are a British bank (good – British banks don’t steal your money) that has been working in developing countries for over 100 years.

They offer a range of funds with different risk ratings and the ones that we are interested in have risk rating of 3 and 4. They are designed for investors with a 5 to 10 year investment timescale.

I note that fees (2.5% one-off and 1.5% per year) are very high compared to Europe and the USA but I assume that is because there is not much competition in Kenya. This reduces the return on investment from the 7% a European might get to ~ 5%. However you are earning in USD and the shilling will probably be falling.

Standard Chartered seem to be responsible bankers, this is from their website,

“Does one need an account with the Bank to invest in Mutual Funds?

You need to be an SCB Kenya A/C holder. Once this is done, your relationship manager will proceed with profiling you and then show you a list of offshore mutual funds that match your risk profile. You can also use the SC Mobile App to complete the investment risk profile. Once you have completed the profiling process, you will be able to view the fund options aligned to your risk rating. Alternatively, you can also submit a mutual funds subscription form in case you are unable to submit a mutual funds transaction order digitally, your relationship manager will guide you through this process.”

This assessment of the risk profile is something that should be done and the important thing to remember is that you don’t have to buy anything if you are not comfortable with what the salesperson is saying. Always stop and think.

pole, pole

Death and Taxes

Make sure that you fill in any next of kin forms and have a will. You will need to understand the effect of tax on your investment returns.

Please make comments

If you know about investing in Kenya please add a comment and links to relevant pages. It would be great to build up this page as a useful resource.