Friday, August 31, 2007

M-o-1: Does this explain Tuesday's announcement?

PS: This blog is dedicated to Kenya's business environment, but business can't operate and grow unless the political arena and GoK operates and creates a clean environment free from corruption. One where every Kenyan is knowledgeable enough and given unequal and an impeded opportunity to realise their potential.

Please bear that in mind as you read this attachment mostly from the work done by Kroll. The Guardian has a summarised version as does Wikileaks.

Kroll are so trusted in the West that virtually every financial and consultancy business uses them to vet incoming employees.
Although some of the information is based on hearsay, note there is also a large % based on factual evidence e.g. property/loan records that is easily verifiable. Its also a useful record for Kenyans who pay taxes, but rarely get to know how its spent.

Wednesday, August 29, 2007

What if...

D&B didn't win a GoK IPO, would they trash the stock?
Kibz /Raila/Kalonzo/ANO took a paycut on their first day in the job next year?
A Kenyan bank decided not to charge customers for opening and having curent accounts?
NSE investors boycotted the bourse for a week to weed out fraudulent brokers?
Moi found a lady companion ala Mandela and lived a normal life?
NSSF made a good investment?
Aga Khan withdrew his busines ventures from kenya?
Kenya had 210 new MPs next year?
Kenya had a decent national footbal team like the athletes?
We had a meritocratic employment system in Kenya?


Thats how we do it!

More Interims

NMG's numbers are strong and bode well for the 2nd half when it should see an election uplift. Interestingly, its EAst African paper is doing very well too. Scangroup a fellow competitor for advertising had a solid first half. Scangroup tend to perform very strongly in the 2nd half as many companies will be advertising for the Xmas season and the coming year. Cash flow went into negative due to higher dividend payout and acquisition of RedSky. One thing I am not sure about is how well they are able to merge all these new companies they've been acquiring as well as grow regionally and into West Africa. The other concern is how well they will be able to keep the the account managers from RedSky.
Bamburi had a flat first half compare to last year. I am still not convinced they'll benefit (apart from scale) from their proposed merger with Portland. Construction industry will continue to be a growth industry, but they lack the agility and hunger for business that ARM have.
Express's PAT almost doubled in size and it looks as if their recovery is sustainable. The elephant in the room where they are concerned must be a rejuvenated Kenya Railway (RVR) which will be competing with them for the freight business from Mombasa to the rest of the country and to especially to UG. Jubilee had a fairly disappointing half. and i suspect that their reliance on investment income will continue to haunt them unless they can start focusing on the bread and butter insurance business. On the contrary, their rival PanAfrica had a strong half with all its insurance lines seeing strong growth, but had investment losses from associate wipe out all the gains. Perhaps they may benefit by hiving off this business?

Tuesday, August 28, 2007

Is economic growth the panacea to our ills?

An analogy to start with. You are in Nai earning Ksh110k per month and are able to save/invest 10k of that. Your pay rise goes up by between 5/6% pa (assumption is that you are a performer). However due to a mixture of prices of the goods you consume and your increased spending you find that total expenditure has gone up by 5%/6%. Thus you are unable to save more. Being ambitious, you want your own home and nice car-probably a compressor and obviously current spending and investing/saving rate doesn't allow that. So you borrow to finance both and pay using your salary.  The house is not new and neither is the car so both require running repairs. Pretty soon Kamau finds that he has having to run after pyramid schemes and mitumba loans to make ends meet.

Our economy i s growing at 5/6% which equivalent to the above salary increase and we have enormous problems that need to be resolved. 60% of Nairobians live in makeshift housing with no social amenities to speak of. This is a microcosm of the rest of the nation with probably a lower % with piped water-one of the key indicators of raised standards of living. Yet what are we doing with increased tax revenues?
Increasing salaries for public servants without real concomitant performance gains.
MPs-here you go a blank cheque for you to fill in required amount.
KACC and other associated and equally inept anti-corruption bodies- here you go a blank cheque for you.
A house for the veep-here is a blank cheque for a construction of your choice.
Police cars-here is a blank cheque. Etc etc.
Until the important and critical cornerstones of our economic growth get forgotten. A focused road building programme is actually cheaper (you create a pool of qualified experienced engineers, project managers, public finance accountants,  you create a pool of experienced road builders, source the material cheaply). This will employ some of these idle young bloods who will in turn go and spend keeping the likes of Uchumi in business and thus its employs more Kenyans who then go and spend. Its the multiplier effect. Its not difficult, but unless difficult choices are made, economic growth will just be a number...

Thursday, August 23, 2007

KCB back in London?

According to Uncle Moody, KCB will likely restart its banking interests in UK/US. They used to have a representative office in London up mid 1990s which they closed as things went downhill.

The question is
  1. Is there a critical mass in terms of customers for them to open a branch? There are around 64-100,000 Kenyans (including children) in the UK and they would all have to be operating an account to make it worthwhile in terms of the bank being to meet its overhead, staff, regulatory and utility costs. And to justify the £2.5m capital required to be able to start taking deposits.
  2. Could pass they the regulator's heavy hand? UK banks are heavily regulated and in the case of those with overseas banks, this is extended to the parent bank. In effect KCB would be expected to show that its liquid enough to support its entity in the UK. And to pass the test on a host 8 other criterion.
In any case, hope they can make it. Equity tried in 2004, but probably found the FSA's expectations too much.

Tuesday, August 21, 2007

Renaissance Capital gets seat, but...

As blogged awhile back, this is a good move because it will help bring in more foreign investors into the bourse which will hopefully be +ve in terms of getting:
  1. Greater transparency in reporting of company information
  2. Some serious compe for some of the duds currently in the bourse ghosting as brokers...

Its however disappointing that the incumbents remain scared of the local competition. RenCap will take a while to get going and will in any case probably be targeting foreign investors and institutions.

As mentioned by others, having Old Mutual would definitely have meant that a market-mover was also able to recruit stock clients.

I was however, looking forward to having NIC Capital as a broker. NIC the bank has a history of innovating and despite not having many branches, they probably have a wider distribution than any of the brokers/investment banks. And really it won't take much to be better than D&B (who can't even protect their website-mara its Universal Corporation mara its myspace) never mind all the to-ing and fro-ing for orders to be executed.

Anyway, come next year when NSE demutualises, we'll hopefully faster entry into the exchange. On that pt, hopefully you have been acquainting yourselves with NSE annual reports-they made 3 times as much from transactions compared to 2005, but a Ksh100mn profit between 18 brokers isn't a lot . Given what the three were willing to pay, I don't know where you make the money from.

More about KCIG in business daily

More about Kenya Capital Investment Group in todays business daily,

Monday, August 20, 2007

Safaricom;storms or passing clouds ahead

As some of us prepare our hard earned cash to own part of this upcoming crown jewel, safaricom others are preparing to go to court over it whilst others are rushing to sell it.

So what’s ahead for Safcom?

Some facts;

Formed in 1997 as a fully owned subsidiary of Telkom Kenya. In May 2000, Vodafone group Plc, acquired a stake in it.

IPO Amount:

25% before the end of 2007

Current ownership:

Telkom Kenya Ltd. - 60%

Vodafone PLC - 35%

Mobitelea Venture - 5%

Estimated worth:

As of 2006 safcom was worth about $2 billion (240 billion Kshs).


In March 2007 the company declared pre-tax profit of 17.19 billion shillings, up 40 percent on the previous year.


Many questions are flying around on Whom, How, What, Why, When this mysterious company Mobitelea acquired the 5% which was previously 10%.

A quick background check on Mobitelea reveals that it is registered in Guernsey under 2 nominee companies. Talk about identity protection. Just wonder whether a travel down to this tax haven would reveal much more?

My concern is that having pulled through the Goldenberg and Anglo-leasing scandals, this may be another one in the making. More details are also available here marsgroupkenya .

  1. What can the government do to address these contentious issues?
  2. Should the IPO go ahead as planned?

Friday, August 17, 2007

From the do I say not as I do free-market school

Its take a lot, but today was eyebrow raising. That bastion of free-wheeler-dealing market capitalism (US) broke one of the golden rules of economics and finance. While most if not all central banks do occasionally intervene in money markets through OMO (open market operations), its rare to intervene through the weapon of interest rates as happened today with the Fed rate. And the the intervention is basically nonsensical.

Back in 1991, George Bush Snr was Prezzo and just about to go into election with the economy in doldrums. He lost to the charisma kid aka serial trouser dropper from Arkansas with his "its the economy stupid" slogan. Then came the era of low interest rates (read cheap credit), Internet driven and Chinese/Japanese/Korean-funded US growth. Times were good as house prices went up and money rolled in. Banks had so much money that (like Kenyan banks today), they had to start lending to the common US low income earners. Some got mortgages that they won't have had in a million years. To help the banks , hedge funds came along and bought the mortgages off the banks who then could go back and lend some more funny mortgages. On the corporate-side, we had private equity groups borrowing from (yes you guessed it), banks to do highly leveraged company buy outs. That why we are where we are today. Basically, irresponsible lending.

The Fed cut US interest rates despite worries about inflation-hence my nonsensical comment above.


The handbook contains year on year fundamental analysis and in addition chairman's commentaries of all the companies listed in the NSE.

For investors who rely on companies fundamentals to make their decision, this is a must have.

If you are interested in obtaining a copy, please let me know.

Vision 2030; feasible?

Launched on 29/10/06 by the president, the vision 2030 objectives are to transform Kenya into an economic powerhouse with a sustainable growth rate of 10 per cent by 2030 thus becoming a middle-income, prosperous country. The goals are to wipe out:
-Absolute poverty
-Mass unemployment and
-Preventable deaths from malaria and water-borne diseases.
The vision also aims to build a democratic political system, rule of law and protect the rights and freedoms of every individual and society.

The president mandated the National Economic and Social Council which was formed in 2005 to steer the vision implementation and monitoring.

There are nonetheless skeptical views on whether this is achievable amongst them are that, the fight against corruption has stagnated if not headed towards the wrong direction as exemplified by the failure to prosecute the Goldenberg and Anglo-Leasing economic crimes. This is made worse by having majority of past, current and future economic criminals littered all over the political and elite systems.

One also cannot fail to notice that reform on governance looks bleak as illustrated by the bizarre mutation of political parties and the registration of world’s highest number of political parties i.e. 250 and still counting.

Others will point at the challenges in implementing the Economic Recovery Strategy for Wealth and Employment Creation (ERS). Such as the, high unemployment amongst the youth, inequality in wealth and income redistribution, rapid urbanization about 6 % annually, low saving ratio of about 16% compared to needs. There is also the high cost of production occasioned by poor infrastructure and escalating cost of power and fuel.

Conspicuously, some within and outside the government will not fail to see vision 2030 as a NARC manifesto implemented from top to bottom rather than the opposite which means it will be constrained by lack of consensus. Without clear funding others will term it as unachievable fantasy.

On a continental level, skeptics will draw on the ineffectiveness and failures of the AU and the toothless underachieving NEPAD to transform Africa into an economic giant despite her enormous resources. This is because it is hard to see Kenya transformation outside that of Africa as a whole.

Globally there are other challenges outside the government control such as globalization, global warming which will adversely impact on the agricultural output as well as the brain drain.

Optimist on the other hand, will argue that the over 1 billion dollar a year remittance by the diaspora community into Kenya will speed the 2030 achievement. Also on its way is the fibre optic cable that will transform the science and technology plus bring down ICT cost.

On the political front, implementation of CDF will help redress the inequitable distribution of resources. This involves the government commitment to allocate 5 per cent of the total revenue to finance development in all the 210 constituencies in the country with the poor constituencies receiving more money than richer ones.

There is also an attempt on regional integration of East African and COMESA which will help expand the Kenyan market and competitiveness.

Other strides towards achieving 2030 vision include the implementation of free primary education and from next year subsidizing of the secondary school education and health care system.

My take
There is an urgent need for a statutory framework to support vision 2030 otherwise it may lack the political goodwill of successive governments. Least one forgets similar visions were launched during Kenyatta’s and Moi’s Era of which some of the current leaders were then the key architects either, in government, civil society or in the private sector.

In Kenyatta's era; there was the Sessional Paper No. 10 of 1965 on African Socialism and its Application to Kenya. This laid down the development policies aimed at correcting regional imbalances and removing poverty, ignorance and disease. The key authors included none other one than the current president who was then a fresh graduate from the London School of Economics. However, over 40 years later, the noble aims of the paper have not been achieved. Instead majority of what came out was entrenched political patronage and the skewed distribution of resources to the high productive areas whilst marginalizing low potential areas. It is also evident that poverty and tribalism eradication remains a mirage whilst the gap between the rich and the poor continues to widen.

Out with kenyatta and in with Moi’s Sessional Paper No.1 of 1986 on Economic Management for Renewed Growth. This set out to renew the economic recovery and growth through liberalization and far reaching reforms on fiscal and monetary policy as well as institutional and structural programs. Instead what came out of this attempt was heavy capital flight into secret international accounts by the politically correct individuals. This also gave birth to the Goldenberg financial scandal preceded by suspension of external aid and political unrest and intolerance. During this period the economy experienced stagnation and decline with growth rates averaging less than 2 per cent. The United Nations termed it as the lost decade, which continued up to 2002.

These two Era’s draws the point that many of our so called leaders are known for generously talking the walk whilst outmost being economical with walking the talk. Therefore anything they promise must be closely scrutinized.

And, yes, it is feasible to attain the noble aims of 2030 vision and beyond. Paradoxically, this will have little to do with the politician yet it significantly should. The speedily achievement will be driven by a strong civil society, independent media, the private sector and the overly optimistic and hardworking peace loving mwananchi; i.e. me and you. Inclusive of this should be a strong appraisal and review framework to hold the government into account.

Sunday, August 12, 2007

Can Kenya afford a 40 car entourage for the President?

  1. Does the fact that UK 's PM uses 3 cars (there were questions in parliament when there was a 20 minute traffic hold up while he was passing) make him less important?
  2. Positive discrimination, great idea, but why do we need to create an additional 50/60 seats (total cost circa k360m) when we can easily accommodate them within the 210 constituencies? We could instead use this cash to hire additional judges/magistrates to clear the 1 million backlog of cases. Or even computerise Kenya's land map.
  3. Each province has a PC, several DCs, several DOs, several chiefs, several sub chiefs. You also have several mayors, councillors and MPs. Since they all get paid, what do all these people do?
  4. 34 ministers and a full GoK made up of 84 ministers some who have nothing to do taking home Ksh100m+ per year in pay alone? I my missing something?

My guka (grandpa) a man ahead of his time in many ways,used to say that Kenya should advertise for a CEO who would have a rolling two year contract to fix our economy and politics. Do you have a better idea given the array of aspiring leaders (in the loosest sense) we have?

Friday, August 10, 2007

Hongera Dr Manthi

Not only are we the cradle of mankind, now we are also leading the world in telling the tale on the evolution of mankind.

Thursday, August 09, 2007

Looks expensive, feels expensive , must be expensive

Easy money has made fools out of many. Now even the best financial Algorithmists in Western markets have been caught out as money lent in haste and cheaply to subprime mortgage borrowers has started going bad threatening the mega profits of the bulge bracket investment banks.
From US (Bear Stearns has had to close down two hedge funds  and both it Lehmans have seen share prices go down by almost 30% this year) , the panic has spread to Europe with the European Central Bank pumping (breath in) €95bn into the money markets today on fears of a liquidity crunch.

From the housing market, to hedge funds then private equity funds...even our own NSE may yet feel the chill spreading throughout the more "developed" markets with emerging market funds of the large investment banks pulling back to safer financial markets.


Egalite, Liberte, fraternité. You can wax lyrically about these all day, but without transparency in governance, nothing will happen that will equate to a leap into real democracy. Where we have undeclared wealthy declarations in Kenya, in Missouri, all state spend is now on the internet so you can tell what all your hard earned money is being spent on. Its a sign not just of democracy but confidence in one's ability/competence to be able to say to the taxpayer, this what I am doing with your money and this is how I am doing it.

Because many of our civil servants/ politicians couldn't get to those positions in a meritocratic (transparent) government system, they have a lot to hide.

Tuesday, August 07, 2007

Banks H1 Results-a detailed look

Now that several banks have announced their H1 07 results with KCB, Equity and NIC meeting expectations and BBK just below, I thought I would do a deeper dig to understand what are their key drivers. These banks (plus DTK which I'll include once it announces), serve very different strata of the economy and the questions are which is getting more bang for its capital, which one has a sustainable strategy.

  1. Interestingly BBK doesn't (prudently in my opinion) accrue interest from NPLs. This masks your bad debt problem and is in effect a P&L ticking bomb should you be unable to recover the loans. This interest and other unexplained anomalies also serve to distort the net interest margin calculations for both Equity and NIC.

  2. The F&C ratios look higher for Equity because although in practice this income is based on accounts held, I have used customer deposits (in the absence of customer data for BBK, KCB & NIC). In the current absence of a fees price war, Equity seems to have found a strong and sustainable income stream that is of course not subject to interest cycles.

  3. Despite having different loan maturity profiles, BBK and Equity have almost similar loan loss provision rates. NIC's loan loss provision rate is worryingly low.

  4. KCB has deferred tax so does that mean they are still carrying losses from previous years? Equity gets 20% tax rate due to its having listed last year.

  5. NPLs and insider loans account for 28% of KCB's loan book no surprise if it was lending to the likes of Mugoya.

  6. NIC's capital is threadbare (hence recently announced recap exercise). BBK is the other extreme and this may explain the loan hawking and branch opening in such unlikely places as River Road.

In other news, Sameer recovered; Standard Group beat expectations with a bumper first half but its P/E ratio looks ridiculous compared to NMG. EA Portland and Bamburi have suggested it might be a good idea to merge so they can be a world beater (or Africa one anyway). So where does that leave Athi River Mining?

Monday, August 06, 2007

Diaspora Act 2007: Your views

Above was highlighted by Lee Karuri, during the KDIF in December 2006 as one of the goals to be achieved by Kenya Private Sector Alliance of which he is the chairman.

As pointed out by bankele the idea still seems to be alive and at infancy stage.

Would be interesting to hear/read peoples views on the formulation of the above bill which is meant to make it possible for Kenyans in the diaspora to invest back home with ease.

Will be posting more details.

The diaspora site gives some details of the proposed act

Friday, August 03, 2007

Follow up: M-pesa launch in U.K

More details of the M-pesa story carried on this site sometimes back.

Wednesday, August 01, 2007

NSE and Other African Stock Markets

Many say that when a stock market starts getting press in the West its time to get out. Not NSE and more widely, Africa stock markets. Getting positive coverage such as this article in the FT today, means we get more players of the Goldman Sach's calibre who will in time ensure we get progress on:

  • online real time trading

  • reporting standards

  • regulation

  • liquidity

  • company performance and

  • corporate governance


25 years ago today, somewhere in Kieni, I was coming from Sunday school with my beste. We got to a place called ha Wanja (literally Wanja's place) and she was sitting outside mouth agape listening to the Voice of Kenya telling peeps to stay at home. This was around 11am and they played "safari ya Japan" after that so the coup was already an attempted coup.

The next thing I remember is m-o-1 coming on in the evening and quoting that song that goes something like "ukibitia wegine usinibite"

If it was today, you can imagine the amount of misinformation that would be spread around via sms...