Marriage and Kenya's economic wellbeing/future

This article got me thinking about something that is an increasing phenomena in Kenya, but is rarely talked about amid all our many other problems. To what extent does the increase in divorces and single-parenthood impact our ability to forge forward as an economy? Although no real data is readily available on divorce rates in Kenya or even trends, anecdotally, its obvious that this has increased as has separation/desertion. As afar as singleparenthood goes, available data suggests this around 25% of all families which is not as bad as USA (34%).
Sheer economies of scale would suggest that stable married/come-we-stay couples would be able to earn more and create an environment under which children would flourish and be successful. The inverse is not always the case i.e. that single parent families and divorce couples don't lead to successful children, but it does mean that the success path for the children is much more difficult.
The question is, is Kenya supportive of marriages?

HFCK Rights Issue-its turning point?

If this piece in the East Africa is true, HFCK's rights issue due next month will be the event that clearly tells us what the future holds for the mortgage lender. As the only standalone mortgage lender in Kenya, HFCK has struggled to hold on to its market share as stronger more liquid banks continue to enter the mortgage market. The fact of the matter is that, HFCK has no future as a standalone entity given its low profitability, ongoing NPL burden and of course a more competitive market.
Last year's aborted takeover move by the G29 drew investors attention to its potential as a takeover candidate. Potential suitors would be other banks with interest in gaining entry into this sector notably;

1. Equity-but it might prefer to grow its own mortgage business organically
2. KCB-perhaps to build on its S&L venture, however unlikely given its own expansion plans
3. G29-given the share price is almost back to the level when they applied, and their reasons for wanting to buy HFCK remain valid, they might do so now. Of note, is that Jimnah Mbaru, one of their founding members holds 7.32% of the HFCK according to most recent data from Hasinet.
4. Foreign bank-not sure what would be the rationale unless to access HFCK's branch network and customer base as there are banks with either a wider network or larger customer base.

In any case, if the worst case scenario does occur i.e. rights issue are not taken up by its largest shareholders (CDC, govt (NSSF), shareholders should only look out that they don't get stampeded as they exit the share...

What next for Kenyan roses & greenbeans?

Kenya is the 2nd largest exporter of flowers in the World and the 2nd largest supplier of vegetables to the EEC. Horticultural products now account for more of our agricultural exports than coffee and only second to tea. The industry employs over 135,000. See more here and there.

Watching the BBC the other day it occurred to me that Kenyans could find that they are no longer able to export agricultural produce to the EEC and other western markets. The multi-pronged attack on our horticulture exports is being done by three seperate but powerful lobby groups. The environment green team who have now coined the carbon footprint to signify the environmental impact of human activity. In the case of horticulture produce, they are saying that transporting this produce from Kenya by air has a serious and detrimental impact on environment. Then there is the Soil Association which has just sent out a consulting document arguing that Kenya's fresh greenbeans among others should not be classified as organic because the length and distance over which they are transported means they can't be organic. Organic produce is any produce that is grown by natural means i.e. sans fertiliser or modification and such earn a premium price because is seen as being more healthy.The final lobby group are the UK farmers who are saying that these produces can be grown in the UK and hence supermarkets should be promoting UK grown over the foreign export. Never mind that the reason the UK produce is to do with higher production costs.

The question is who is fighting the corner for our produce? Not our ambassador Muchemi who I have never seen being interviewed when Kenya has featured. The only lobby group that seem to be doing anything are anti-poverty NGOs like Oxfam, who correctly argue that if the issue is reduction of CO2 emulsions, putting a light bulb off saves more than foregoing fresh greenbeans from Kenya and is in any case counterproductive as it has impact on poverty reduction mechanisms. In the absence of effective politicians, lobbyists and the media have now become the drivers of change in countries like the UK, US and some of their EU brethren. Isn't it time for Kenya/Africa to create a lobby group that will fight our interests in western capitals?

Portfolio Management

What is portfolio management? What constitutes a good portfolio? A portfolio in my opinion constitutes any form of investment or savings that is geared towards generating returns and or income today or in the future. Portfolio management should then be the alignment of your investments with your financial goals over your chosen time horizon. One’s approach to share trading (if its part of their share-trading), should generally inform how you manage your portfolio. As with share trading, defining and getting basic essentials is a must. So for example, ask yourself;

• What do I want to buy?
• What is my risk/reward appetite i.e. what risk will I take to get my required income/capital growth?
• Why this investment-i.e. do I understand it sufficiently?
• At what price?
• I my after growth or and income?
• How do I maximise this growth/income?
• What proportion of my disposable income do I want to put in this investment?
• What are the opportunity costs if any, of this investment compared to others?
• For how long, when/why/how do I sell the investment?

One can then use this when considering various classes of investments, so for:

1. Savings: Ask yourself, what do you want to save for, how much do you need to save and for how long? You then need to look at rates on offer, accessibility (most banking industries will put a premium on a long-term saver who doesn’t require short-notice access to their funds). In some banking industries (notably UK), rates on savings are available tax free and thus taxation comes into the equation. Finally, choosing to save may mean that you miss out on higher returns in shares, thus there is an opportunity cost.
2. Bonds: Unless they are inflationary-linked, bonds (and especially gilts) are no different from savings. Again the key here will be length, amount of disposable income that you need to tie-in to this type of investment and rates offered (corporate bonds will generally offer higher but riskier returns). Because of the minimum amounts that one has to commit for bonds, the inflation risk, the opportunity cost in terms of alternative forms of investment is higher.
3. Unit trusts: These are funds that invest in a variety of shares (usually listed ones), economic sectors, countries or other tradable commodities and instruments. By their nature, they are allow you to diversify your risk, give you access to markets that you won’t otherwise be able to access and for the cash rich, time poor or otherwise financially illiterate, manage your cash. One buys into a unit trust thus getting units based on the price at the time of the investment. Before buying, look at the UT's costs and returns over say year to date or last calendar yr against similar UTs or other investments. UTs are off course risky even when investing in a cross-section of instruments (including fx, commodities, bonds and shares) and will often have a minimum amount that one has to invest. The opportunity cost is thus higher given losses can be incurred and that one might be better off investing in specific shares. Certain UTs will also entitle you to periodical dividends, tax free capital gains and these will need to be taken into account. Further, UTs also have entry and exit fees as well annual management fees that will in certain countries account for as high as 10% of original amount invested and this thus needs to be borne in mind because it will in most cases mean one has to stay longer to be able to make the returns. UTs are generally recommended for giving one access to forms of investment that one can’t ordinarily access.
4. Shares: Primarily will generate capital gains as well as dividends. These are covered elsewhere in this blog. However, there are opportunity costs, should one invest in a particular share as opposed to another, is this time better than 6 months from now, are money markets/bonds a better opportunity? Should one go for dividend yield, absolute dividends, capital gains or a mixture?
5. Land/Plots: This will apply more to Kenya than elsewhere. Prime issues to consider are liquidity (will depend on location), holding period, usage (farming, holding asset, future real estate development, own home), legal constraints e.g. on subdivision or certain developments. The opportunity cost of buying land will be driven by these issues e.g. if land is bought on an illiquid locale with intention to build future own home, price appreciation will be low and it maybe better to invest the cash elsewhere. Where the land/plot is used for farming again are there better more liquid alternatives?
6. House Ownership/Mortgage: Yes liquidity is important to note, but whether in a developing or developed economy, house ownership of any form remains a lucrative albeit capital consuming investment. Where there is sufficient capital to build one’s own home, or where paying a mortgage for the same, the opportunity cost is broadly the same. Taking into property appreciation (annualised) plus intangible benefits such as the comfort of owning your place, does this more than outweigh annual mortgage/rental costs? For those developing real estate (to generate rental income and capital appreciation) as a form of investment, are there better returns in more liquid and less involving forms of investment?
   Overall, portfolio management requires that every formof investment you undertake gives you the best returns in that class and that you consider liquidity, investment horizon and opportunity costs.

Worth Sh30m per year?

Classic from the STANDARD!

Stocks View

Accumulate/Buy:
Equity: Has now become a byword for perennial overachiever. Both income streams (NII and Commissions and Fees) looked strong from Q1 07. More than ever, the bank is eyeing the saccos market share and engaging it intelligently. One may get queasy about resultant non performing loans, but that depends on term over which you will hold onto the share and 2ndly, Equity has a more conservative definition of non-performing loans than required thus is able to pick up problem loans earlier-in theory. P/E may look too rich at around 32, but would only be around 20 if one was extrapolate the Q1 results to the full year. Downsides: How many of its principal shareholders will divest some of their holding come next July/Aug when the 2-year holding period ends?
NMG: Is now an East African media house in all but name tetchy govts notwithstanding. The Business Daily has been received far better than initial scepticism suggested. In saying that, I still think that it’s missing a vital constituency-namely, the NSE investors. Why not for example do monthly profiles of each of the 51/2 listed companies; interviews of key players in our economy-this is the only reason I read the Financial Post and I am sure there are others who would want to know more? NMG has a fat DPS; note that its P/E is far more sensible than that of Standard and one can feel a bonus share issue coming from next year. Downside: M7 is not Kibaki and will willingly crackdown on any perceived negativism, ditto TZ.
TPS: Yes another Aga Khan company. Tourism boom is now on and TPS are recapitalising, going regional and refreshing the brand and their hotels in earnest. Downside: usual terrorism/security advices are the main one.
Hold or Upgrade to Accumulate/Buy…
CFC: The universal banking concept means that it will continue to do well as a standalone entity albeit in need of rejig-a bank with no online proposition today needs searching questions about age and strategic aims of its management. As a standalone entity, one can hold onto its shares for the mid-long-term. However, with Stanbic on board, I believe the new entity will be the corporate bank of choice for East Africa and as such investors need to get on board.
KCB: The bad times should be behind it…Q1 was solid if unexciting though it’s getting higher fees now from increased lending. It’s another one expanding its reach beyond Kenya and successfully at that. The hold is to wait for the demobilisation of the share spilt. Downsides: Is GoK non-interference behind us (i.e. this is a politically sensitive stock in mind and thus 2007 elections represent t some uncertainty)?

Underweight/Sell:
KenGen: Once you get GoK 's incompetence being played out publicly as some kind of experiment, you know you shouldn't touch that share until govt stake is reduced. You can't commit legally to something that you can't or shouldn't do and then seek to dress as some kind of intelligent and well thought-out rescue from fiasco.

KPLC: Whole host of problems:

1. Bad debts,
2. Probably too wide a remit (I think rural electrification needs to go a smaller company with none of KPLC’s history);
3. Leakages-25% of its electricity wasted this way
4. A large unionised workforce (apparently some are paid more than their line managers)…
5. and finally the ropey margins.

Upsides: Demand for electricity will get insatiable in at current or higher economic growth rates.
Mumias: Please see previous post and comments…nothing has/will change

A cost-benefit approach in Kenya?

Recent initiatives by the GoK have led to some head scratching. Free secondary tuition fees is to some a missed opportunity to re-look at the Education needs of a growing economy e,.g. why not put this cash into a state of the art ICT university? Spending upto Sh10bn to upgrade JKIA may be more expensive than say upgrading one of the smaller airports and thus enhancing air transport within and out of the country. So how does GoK arrive at decisions?-probably it’s all about affordability. Cost benefit approach is not just about the monetary aspect but the macro-economic, social, political and environmental impacts. So for:
Constitution changes: We've spent sh8-10bn and 15years+ of agitation and still have nothing to show for it. However, if the original question had been what are the socio, economic, political, legal and environmental consequences of updating our constitution through incremental changes rather than one large overhaul maybe halfway to some achievements.
Anti-corruption drive: The impact of the failed drive to bring down corruption and convictions in major corruption cases is enormous in monetary terms, but also socially (it becomes an acceptable form of achieving your aspirations in life); politically (the corrupt want to get in power so they can continue to be corrupt, once in power don’t want to leave because of fear); environmentally (willy-nilly allocation of land and other resources thus no Ngong/Karura forest, Nairobi dam is a sewer).
Million political parties: Failure to create thresholds for forming political parties means politics becomes a way of life for many, it’s commercialised, no ideas-parties.
Lack of separation of powers: Means judiciary and its decisions are compromised and outcomes of cases have social impacts (e.g. bribing a judge to favor you in a marital dispute case), politically (e.g. politically-instigated corruption cases); economically (commercial decisions).
Stalled power sector reforms: As China, South Korea and others have found out, its far harder to increase energy generation capacity, institute conservation measures once your economy id in full throttle. Continued subsidisation of energy generation will eventually slowdown economic growth, as will the slow implementation of a separate rural electrification company
Urban policy: 50% of Nairobians live in slums and this may continue in other large towns as well. To a large extent, this is due to no urban policy looking at issues such as urban economic push (i.e. developing rural-based industries to slowdown rural-urban migration), services, housing policy and will have social (insecurity, social breakdowns); economic (concentration of wealth-generation in Nairobi conurbation) and environmental impacts (smog, polluted rivers, air quality etc).
And such an approach need not been lengthy or be costly, cabinet ministers meet every week and we do have an economic planning ministry.