Wednesday, December 31, 2008

2008 Blogging Highlights and others

2008 for us Kenyans started off nightmarishly and disappointingly us bloggers retreated into our tribal cocoons or kept quiet as our nation tore itself apart. So from a Kenyan blogging point of view, its difficult to pick any blogger.
It was the year bankers proved they were human and there was no better blogger at explaining how human than Robert Preston. This is a compelling read of the week the whole UK banking system was a hanging off a cliff.

Thank you to Koffi Annan (I am sure at the end he must have beeen thinking how do Kenyans cope with these guys?) and Kikwete for the peaceful solution.
And to ”our cousin” Obama for another positive.
There were also positives for Kenya in the sporting arena with Harambee and our runners at the Olympics.

From a personal pt of view, the 2nd half of 2008 was fairly challenging. I lost some close relas and a friend. My employer went bankrupt. I know many others went thru far far more challenging circumstances so as I look back on the full yr, I thank God for being in my corner kabisa and bringing us thru…

As a blogger, I am sure there are ways that I could improve the blog and I really welcome any suggestions/topics from readers...

2009 is shaping up excitingly for me

I want to wish you all a happy, prosperous & adventurous 2009.

2008 at the NSE: Contrasts

2008 Investing Highlights

This was me end of June, this is me today:

Sold: In the money (NMG, TPS, ARM, NIC) & Out of the money (BBK, EA Cables)

Reduced: KCB

Switched to: Equity, Cash

Hold: Equity, AK, miniscule KCB (2,500 shares) & Safcom & Cash

Bought: Dar es salaam Community Bank

Bought: Pamodzi Hotel

Theme has been to move from diversification of risk to concentration of gains. Has it worked? Yes and would have been even more fruitful if I had kept to one of my golden rules of never adding more shares unless the price of the said stock is lower than my average cost so far. I got punished for buying AK at Ksh33.50 thus driving my average for it to early 20s and Equity at Ksh301 and Ksh250 thus driving average to mid 120s.

Overall for the year: average i.e. below 30% gain. Had to rush out of BRIC nations just to stay in the money and NSE has been so-so but thankfully my offloads were all in July/Aug time.

Other investment decisions:
Good ones: Missed out on SIB’s private placement. Having opened a trading account and just about to send the funds to buy some shares at Ksh120, I once more request ed a copy of its accounts. Still not received even today. In the meantime, I now hear that the initial placement failed and subsequently the shares were retailing at ksh30!

Tough ones: After sweating to set up the investment club, I decided to move on because of strategic differences. So why I my still blogging as KCIG? Investment club changed its name.
Bad ones: Hesitated when was Equity was Ksh116…

Investing resource: Thanks Aly Khan for the live prices streaming. Some of my last minute price adjustments relied on the live feed.

Key learnings: Self-discipline, early bird mentality and thereafter liquidity and investors confidence are the key ingredients that turn good company/market fundamentals into investor bounty.

Tuesday, December 30, 2008

Equity's large share trade today

A big Ksh2.5bn worth of Equity stake exchanged hands today. Based on mystocks live stream , it almost certainly looks like one of its foreign shareholders selling to a domestic shareholder. Helios I believe has a 3-5yr lock-down clause. So that leaves either Africap (which is no longer bound by the initial 2yr lock-down) or some others who were scooping up those shares sold in batches oif around 800k around the time of the August lock-down.
The transaction equates to 15m of Equity shares or 3.88% of its total shareholding which I believe falls under the 5% threshold upon which Equity is obliged to lay bear the details.
It'd however be of interest to the shareholders and I am sure the NSE at large, if the details of the transaction were to be made public. For the FTSE, I think the threshold is something like 1% before this information is revealed.

Several other shares also saw foreigners exit for what I believe are year-end book closure purposes.

Saturday, December 27, 2008

NSE catch up: Co-op lands makes a splutter

A mild short week at the bourse with all eyes now on Feb/March results season. It was thus a good time for Co-op to list. Funny games as always. The stock was under-subscribed and the minute it lands, you have investors buying Ksh11, 10 i.e. above the Ksh9.50 price. Does it make sense? As mentioned last week, real price will be discovered in the next two months as the immobilised (exchanged from certificates) shares find their way into the market. Most were bought or valued at the equivalent of Ksh1.10 earlier this year...

In other news, NIC is going into TZ. It has put in a bid to acquire
51% of Savings & Finance, a medium sized bank in TZ. A word about TZ banks. Most tend to belong either to community groups or certain locales. They therefore rarely have the extensive branch network that one will see with Kenyan banks (only three have more than 10 branches). S&F only has 3 branches but these are in the main towns. NIC becomes the 3rd Kenyan bank to step into TZ after DTB and KCB.

The battle for the
Mutomo coal deposits continues. Why do investments such as these which will provide much-needed employment take so long to get off the ground?

And finally: Xmas away from Kenya tends to be a fairly downbeat affair especially when as I did I spoke to relas back home who were just finishing some mutura. So its just as well that Mr & Mrs Muiru have made sure Kenyans can at least get some of their favourite foodstuffs locally via their Wahu Foods shop. Wishing them much success...

Monday, December 22, 2008

Merry Xmas

Enjoy your goat responsibly,,,

Why I blog about Africa

The nairobi banker has tagged me on why I blog about Africa...

I blog about Africa or more accurately Kenya, because despite living in the UK for 10+ yrs, I am the quintessential homebody. You can take me out of Kenya but you can't take Kenya out of me. So today I blog about Kenya and Africa because its one of the best cures for homesickness that I know.

I blog about Kenya and Africa because I want to strongly counter the negative vision of Africa that the West and its media likes feeding us. Some of it maybe true, but there is much more positive stuff that they could also report on, but don't have the gumption to.

  • What about the Kenya/Africa that has produced Mpesa the first of its kind in the world?
  • Or even Equity, a bank that has literally turned Kenyan banking upside down so that banks are now genuinely interested in the low working class?
  • How about the upcoming fibre optic cable and consequent explosion in internet penetration?
  • The rejuvented economies of Ug, Angola, Mozambique
  • The peaceful, democractic and prosperous Botswana
  • Or the fact that for every Kenya/Zim election fiasco, there is a Ghana/Zambia election pass?

I blog about Africa because it’s the future, most other places have already peaked and we are just building up...

I also blog as a way of networking with fellow Kenyans/Africans and specifically those interested in investing and growing our economies.

And now I pass the button to:

friend and fellow blogger, Ssembonge;
missing in action Pesa-tu/Realist;
And new comers Hatua and Huduma Bora

Saturday, December 20, 2008

NSE Catch up: Pre CO-OP Listing

If you bought:
Centum on Monday-you'd have made 15%
Sasini (12%)
Rea Vipingo would have lost you 12%

Does this mean NSE recovery is underway? Well, maybe-ish (I know, i couldn't get more ambiguous than this). I have noticed a recent trend in IPOs that just before they are listed to trade, the NSE always goes up. Some of this upward trend might be circular trading which is meant to generate cash to allow investors to buy into the newly listed share. Fundamentals are also looking a bit more stable but only if we assume that recent gova moves of reducing banks cash reserve ratio and to contain inflation by lowering the cost of feeding on ugali and also lowering electricity costs will work meaning that investors can be a little bit more positive about 2009 earnings. Volumes remain patchy illustrating the fragile confidence of majority of investors.

Sasini posted very "good" numbers. Until you took a closer look and notice the biological assets pick-me-up. One of the reasons that many financials were/are against IAS39 is because by forcing them to mark to market various assets, your P&L goes up and down like yo-yo especially in the transition year from boom to bust as 2008 has done for Sasini. IAS41 which governs agriculture companies has a similar effect. The best solution would be to do the mark to market but put the appreciation in their revaluation account which has the same impact on capital anyway. Something in your financials has to reflect what you did for a given period and an asset revaluation doesn't.

Isn't it time KenGen stopped its annual whining about its ksh75m AGM costs and just emailed investors the annual reports?

Still don't understand why the Mpesa audit and court is happening now?

Co-op: Lands on Monday. Recalling Everready pre-Xmas IPO two years ago, I don't expect violent movements either way though sellers may try to force the issue. The interesting play will be when class B shareholders can immobilise their shares and start profit-taking in earnest...

Joint venture opportunity: I am looking for somebody with knowledge or working experience of doing credit ratings or credit scoring to work with on a joint venture. And you are currently based in East Africa.

Tuesday, December 16, 2008

So was Goldman Sachs wrong on oil?

Earlier this yr, Arjun Murti an oil analyst at GS was said to be as a strong driver of oil prices as OPEC's Secretary General mainly because GS had a very strong commodities business but specifically strong reputation in oil futures and derivatives. So when he predicted oil prices rising to $150-200 when they were $100 in March, what did investors do? Dived in and by May, GS was comfortable to put a duration on its prediction i.e. between 6months-2 years. The net effect was that oil prices did gallop on their way towards $200 as speculators now threw themselves in in order to pick up $40/50 lost in equities.

In June, everybody recognised that the credit crunch was real and here to stay. Suddenly some of the fundamentals that underpinned the initial rise in the price didn't look so strong. These were BRIC's growing middleclass and possible Middle East escalations. Then the speculators starting having to find funds to support capital requirements for losses elsewhere and of a sudden we had a drop off the cliff.

However, what does the future hold for oil prices? The price direction will in my opinion depend on the following:

i) Substitutes (ii)Reserves (iii) New oil fields (iv) Drilling technology
(v) Political dynamics in the ever exciting ME (vi) expectations of BRIC recovery
(vii) OPEC production decision

Bottomline: The current price is below the equilibrium if you look at the average price in the last couple of years (I believe the prices prior to April 2007 accurately reflected fundamentals). As such, I'd expect prices to go back upto to $60+ by Q1 of 2009.

Monday, December 15, 2008

Acting GM confirmed as CEO at EA Cables

George Mwangi has been confirmed as the CEO to replace (the irreplacable?) Mugo Kibati. One thing at least he has some experience of EA Cables and of the seat having been in acting capacity for a while. I wondered why the share has been gaining in recent days... Copper prices have improved of late, so I expect better Q4 than earlier quarters where EA Cables was rescued by it regional reach.

Pyramid scheme: Wall Street style

When they caught the owner of this company he didn't even deny it wasn't a Ponzi. He had been promising a guaranteed return of 11% per year which in itself should have raised a nonsense alarm bell because you can't guarantee gains in a stock market.

Appropriately for his name, he has really Mad (e)off with his clients money. The list of his victims reads like the who is who in banking:

  • Santander-one of the few strong European banks, has been buying up falling UK banks on the cheap
  • BNP Paribas
  • HSBC-May yet have to do rights issue if this carries on
  • RBS- now knowns as UK National Bank
  • Unicredit-Italian bank
  • Nomura-now known variously as Lemura or Nohman after buying half of Lehman Brothers
  • Man-One of the largest futures brokers and investment managers in the world
  • Reichmuth & Co-Among other Swiss private banks that gave Madoff $4bn+
  • Any self-respecting new yorker who was filthy rich and wanted hedge fund blagging rights

Its been the kinda of year that would make any self-respecting banker keep schtum about how he earns a living. The key learning for any stock market investor in anything apart from govt paper. Avoid anything you don't understand. If it looks like gold, glitters like gold-its still not gold...

James Mworia, youngest CEO of a listed NSE firm

At 30, he has achieved what many dream of achieving in a lifetime. He starts today at Centum at a time of great uncertainity in the economy/NSE. Kenya's economy will either enter a period of sustained growth driven by technology, our strong human resource base and good leadership or remain mired in mediocrity. Should it take the former route, companies like Centum and the NSE generally, will do well. Or vice versa.

Centum does (in my humble opinion), need to reduce its NSE holding and diversify to the rest of the East Africa region.

Wishing him all the best in his new role.

Saturday, December 13, 2008

Is this 1980s in Kenya or 2008?

Picture courtesy of Daily Nation

Are we regressing? Again

  • This is wrong. Next we'll get arrested for wearing t-shirts saying we can't stand Kibaki and internet sites will be banned.
  • Media bill: GoK has tried to bring in this for a few years and its finally had it passed in bunge by 27 mps this week. Std raids and the like will now become common under guise of national security (which incidentally is the words Michuki used in 2006). Hidden under there is a piece allowing Posta to open your letters.
  • No tax paying MPs: Ksh 600m generated from this tax revenue could now have been used to fund the so called "ugali" subsidy. Yes they've not been paying taxes for eons, but given the credit crunch, they can for once be like common wananchi. And please, don't tell us about how they've invested to get to Parliament. Parliament should be about serving the people who elected you not getting a return on your outlay.
  • 42 cabinent ministers: And we are surprised we have a budget deficit?
  • "Ugali" subsidy: Who will willingly pay ksh72 when they could pay Ksh52 for the same packet of ugali? I haven't seen a worse "bandage" fix.
  • Mau: Very sad that this has even become a point of contention.

NSE catch up

Slight recovery this week or taking of positions before Co-op is downloaded on 22nd? Unless investors are reacting to the lowering of cash ratios and anticipated drop in inflation, its hard to see where a recovery is coming from. The other reason could be investors buying early before the expected rise in the March results season.
Other themes:
  • Brokers in trouble: This is not breaking news but lower volumes are now manifesting themselves in brokers laying off staff and being massively in the red. Licence renewals are due shortly so lets wait and see how many Stella Kalonzo witholds.
  • Everready not ready: Profits down by 118% due to lower sales. Cash flow looks better though still positive and it'll be helped by lower Zinc prices. Why doesn't just sign an agreement to do distribution of Chinese batteries? Centum still has a stake...
  • Kenya Pipeline is finally contemplating listing. Good news... Though the 2008 numbers aren't making good reading, the dividend is something else.

Macro thoughts: I was puzzled by CBK's move last week given its rosy pictures and also current inflation levels. Jimnah's widely publicised article now makes the CBK action add up. The economy as I've intimated is in trouble. Some of his ideas make sense (expansion of public works), others are just self-serving and hypocritical (he was lead broker/advisor et al on Safcom IPO) and others don't make sense (controls on offshore investing). Bottomline, gova is broke so opening t-bills to a wider audience makes sense. Inflation remains a concern because there is no real evidence that agricultural supplies are improving and oil prices do remain sticky. I expect the economy in 2009 to grow at a similar to this year.

Friday, December 12, 2008

Happy 45th B'day Kenya:

Not much to cheer about this year, but we thank God we still have a nation called Kenya. Better times to look forward to hopefully.

Thursday, December 11, 2008

Credit Bureau regulation to grow credit in Kenya

The passing of the Credit Reference Bureau regulations earlier this year went largely unnoticed for some inextricable reason. When it comes into force from Feb 2009, it'll allow the setting up and licensing of credit bureaus as well as formalising the mandatory requirement for all credit (loans and overdrafts to you and me) providers in Kenya to share information on borrowers. If used to its full effect, it will help weed out serial borrowers and defaulters i.e. those who borrow from B to pay A and from C to pay B and A. It'll also make it easier for banks to distinguish or classify borrowers via their credit profile and therefore hopefully make competitively loan pricing a reality in Kenya. The end game will be if you as a borrower don't have a credit profile, you'll be charged higher interest rate.

As of now, I am only aware of one strong credit bureau (CRB Africa) which seems to already have been accepted by banks and has had a foothold in Kenya and several other African countries. Ug recently kicked off the process but given its banking industry is some years behind Kenya's, it remains to be seen how useful it'll be.
The other important service which will hopefully grow out of this regulation is credit rating of potentially-listing companies, saccos, local councils and important but not listing companies e.g. Uchumi, RVR, Kenya Pipeline etc.

Wednesday, December 10, 2008

CBK lowers t-bill minimum:another investment option

CBK has decided to join other financial entities and mass-target the lower pyramid levels in our society. Its decision to lower the minimum amount required for investing int-bills from ksh1m to Ksh100k will give access to the likes of you and me. It is an excellent savings mobilisation idea but will impact:
  • Banks:who offer next to nothing for fixed deposit accounts.
  • NSE: With a guaranteed 7% per year, some investors might run away from the choppy waters of the NSE
  • Real estate: Possibly especially when one takes into account initial outlay

However, its not an investment option for those wanting to grow their funds aggressively but only for safety purposes.

You'll need to open a CDSC account with CBK , you can buy t-bills once a week (I think its every Thursday) and you get interest paid every 3 months.

Want to know more? Go here...

Food security: some ideas

The second part of this post looks at some ideas on bringing about food security. And their pros and cons:
  1. Paying farmers market prices or improved prices: The two are not necessarily the same but, we can't expect that farmers will farm at a loss for even 2 or 3 years in a row without abandoning the whole thing altogether and joining their brethren in the slums. In particular, young generation who are naturally drawn to lights will have fewer reasons to choose agriculture over urban setting if the industry doesn't pay. The milk industry wasn't revived by writing off debt, but by paying famers for their milk on time and decent prices. From getting ksh9 per litre every 3/4 months, they now regularly get late teens or early 20s per litre paid at the end of the month.
  2. Encourage the growth/stabilisation of co-operatives: 3 words. Economies of scale.
  3. Commodities exchange: There is nothing special about a tea/coffee exchange/auction market. We should also have one for any other agriculture commodities that we deem important for our economy. Starting with maize...Probably not useful for perishable goods but can be captured as a signal. Would be useful in meat/milk sectors.
  4. Streamline the industry: the mushrooming middlemen phenomena will lead to a fragmented agriculture sector. Economies of scale is no respecter of industry. If farmers can't or don't want to grow together, they will be brought down separately.
  5. Growth of traditional foods: knowhow of how and when to grow is still there. However, there are reasons they've been abandoned. As an example, growing up, sweet potatoes and arrows roots were in abundance. No so today because arrowroots for example perform best in near swampy conditions which have dried up. Cash has also played a role. So why not create an active market for these crops. I've never seen Uchumi, Nakummat stock traditional foods (millet, sorghum, ndengu (until recently), arrow roots, cassava). This despite the fact that so many like these foods as shown by their love of traditional (tribe) nights at Pan Afric and elsewhere.
  6. Promote Kenyan crops: cookery programmes that show peeps how to cook certain crops will encourage their consumption
  7. R&D: Kenya has 20% of land that is arable i.e. farmable without significant intervention in form of irrigation and the like. To feed Kenyans, we must produce more per acre at a rate that keeps up with our population growth. We are not doing that. We are doing the opposite in fact. KARI was setup in recognition of the role of agriculture in our nation. Who evaluates KARI? What it its success rate in developing and disseminating the following to farmers:
    -drought resistant crops and animals
    -higher yielding crops that require less fertiliser
    -fast growing trees that don't require the water uptake of such trees as blue gum, but give the country the same resource i.e. rain capture, usage potential
    -all year round crops that feed the nation. Maize can't be grown unless in the rain season or harvested unless its hot. Any way of reversing this?
    -popularising traditional crops
    You'd be surprised that a lot of the above are in its targets, but I didn't see the corresponding side i.e. what has been delivered?

Monday, December 08, 2008

Safaricom brings Mpesa to the UK: but thru Western Union

After almost 18 months, Safcom has presumably given up going its own and will now deliver the service via the rather expensive Western Union service. We can currently send money via Western Union to its various partners and agents in Kenya. Now we'll be able to send cash to our relas’ mophos direct.

For experimental purposes, once the service comes to London (I've no idea why they chose some elementary place like Reading), I'll send some chumus to somebody huko mashinani to see how well it works.

I believe, the direct route was opposed by banks who know they can't compete. Most charge no less than £18 per transaction (Western Union even more e.g. £21 for £200!) forcing many of us to find ingenious ways of getting remittances home. My favourite is opening an account I don't need for a rela home and giving them the card. Exchange rate is lousy but otherwise its free!

Presumably Safcom will get a cut of the fees, with majority being shared between WU and Vodafone.

The economy & married life

Apart from the obvious and expected adverse economic impacts, a recession or even a credit crunch has adverse impacts on families. For example, it’s generally acknowledged that the downtimes in our Kenyan economy especially in the 1990a really messed up families with either spouses have to emigrate to greener pastures. Likewise in the UK, marital counsellors are saying they've seen numbers go up by 50% since last year. Although there might be other reasons for this, the most likely reason will be the credit crunch followed by the current recession. Job losses and reduced financial flexibility do put pressure on all of us, but for families this can be augmented by the fact that one also has children to take into account. They rarely understand downtimes! Saw what are some good practices to reduce such stress:

  • Financial lifeline: Where possible look to save/invest 6 months worth of salary when employed. This should be over and above regular savings and investments. This applies to anybody that is dependant on employment for 95% of their income so not just families. Having such financial back up will cushion the shock of suddenly losing your job or even having your breadwinner pass away.
  • Practice financial transparency: Many of us know of families where the passing away of the breadwinner has lead to financial hardship because the said breadwinner kept financial dealings secret from his/her spouse. What about cases where one of the spouses is suddenly discovered to have amassed debts running into millions or thousand of pounds? It also lightens the decision-making when situations are critical i.e. job loss or death if whole financial situation is known.
  • Insure big ticket items: Big ticket items is an Americanism that means items that take up a high proportion of your monthly/annual income. For us Kenyans, medical expenses can turn out to be a huge expense. Insure your family and your parents if you can afford. In the UK/US, building stuff can turn out to be expensive e.g. heating systems, building repairs. One should also vet insurers wisely to avoid lengthy claim period.
  • Make a will: It may never happen, but we all know of cases where somebody has passed away very unexpectedly and leaves a financial mess because coupled with financial (or other) secrets, he/she didn't assign beneficiaries to her/his financial estate. It does not have to be detailed, just name the beneficiaries.
  • Long-term financial plan: Having some goals for the next 10/20/30 years e.g. type of house, education, leisure activities, work/life balance will help you as family figure out how much and when to invest/save. It reduces the impact of the unexpected on your financial life.
  • Loans: For consumption are to be avoided. I'd go as far saying that loans for anything apart from your home are to be avoided. Unless the margin is guaranteed.
  • Save aggressively in good times: Bears repeating, but if you are aiming for (1), you will have to.
  • Financial knowledge: You don't have to know eps, p/e, but it would help if you knew the implications of a cut in interest/mortgage rates on your financial situation.
  • Record your expenses: And Income: If you've ever gone to a decent/good bank for any form of credit, it'll ask you to provide income and expense summary. The reason is simple. Knowledge is power.
  • Live within your means: Goes without saying it, but if you are used to dressing in Burberry, Calvin Klein funded by your 15 credit cards when times are good, things will be very thick for you when the economy heads downhill. Saving well means you are living within your means by default.
  • Additional sources of income: if you are employed, look for consultancy work or start your own business. If you are in business, diversify.

Saturday, December 06, 2008

NSE catch up: ATS hitch defies orthodoxy, new IPO, macro changes

Unlike most recent ATS hitches, the one this week hasn't led to the NSE shooting up immediately. However several shares that normally rise after such an event did so, saw I do expect a little rise in the earlier part of next week.
DPL Festive (yes, same question I asked) plans to do a small ksh500m IPO in Q1 of 2009. The bakery firm is planning to use the proceeds to expand and apparently posted 40% rise in profit before tax for its last financial year. One of WB's rules is that you should at least have sampled or know the products of the share you are about to buy... And read the prospectus when it comes out.

Mumias did its usual song and dance excuses after profits fell again. I am sure its an excellent share with great potential, but I'll change my mind about it when I at least see lower costs.

9 month CFC Stanbic results are now available and shows PBT at Ksh746m. Apparently, it was very difficult to get the separate 9 months numbers for CFC and Stanbic and add them together to give us the comparative year on year piece.
Olympia saw PBT fall as it moves to re-position itself. Yet again.

Macro view: Several developments this. Inflation is now upto 29.4%. Despite this, CBK lowered banks' reserve ratio (to effectively give banks room to lend more to the wider economy) earlier in week! If you recall, inflation was running at allowed 12% in 2007 and at that time the issue was money supply. The only reason I can think of CBK doing this is it anticipates inflation dropping drastically in 2009...Oil prices are down and so is electricity and food, but will inflation drop that quickly especially now more money will be circulating in the economy?

Friday, December 05, 2008

BoE rate cut: Economy welcomes it

With interest rates down to 2% and assuming banks pass some of the rate cut down especially to mortgage holders, this might well slow down the UK's slide into the economic abyss.

Its unlikely that banks will pass the whole cut because of concerns about
  • margins
  • the need to attract savers to offset the freeze in the wholesale market
but if they can pass even half of the two recent rate cuts (i.e. 125 basis points), that would still be of sopme benefit to the economy.

Those who are likely to benefit from the rate cut are
  1. Businesses with variable rate loans whose cost will be reduced therefore easing the pressure on profitability from lower sales
  2. Homeowners whose mortgages have interest rates that are variable, discount variable, and those that track BoE rate. Average house prices are just £200k, so somebody may save around £200 per month. Some of this will go into consumption.
  3. Business mortgage holders. Ditto
  4. Credit card holders. Uk gova is already mouthing off about many credit card providers who have been increasing APR despite interest rates going the other way. Any cut here will again feed through into consumption
  5. Weaker £ will help exporters.
Thank you BoE. It feels like a pay rise. For maybe 1 yr?

Thursday, December 04, 2008

Electricity: Time to utilise HEP for businesses only

Unless we suddenly discover oil, we are headed for crunch time in electricity consumption. We've so far muddled along on the believe that just keeping ahead of the demand for electricity will do us good. Hydro-electricity power has so far been our largest source of electricity (60%) but its not looking promising given changing weather patterns and our inclination to burn charcoal from every piece of forestry. And its dependency on oil for production.

Let us be honest about geothermal electricity. This has been talked about for a decade now. The reason for non-implementation is largely due to the large initial capital outlay that is required. Given competing priorities for bond funding, KenGen may struggle to raise well-priced sufficient funds via this route.

KenGen says it has around 18% spare capacity at any given time. The spare capacity is the gap between its generated units and those bought by KPLC. Lets agree two things:

-electricity demand won't fall, rather it'll rise as economy, households grow

-but supply may fall if rains fail

Other sources being explored are:

- from neighbours one being an EAC agreement so we can source from Tororo (but note Ug had rationing issues this year) and the other from Ethiopia. Not security issues given their being prone to instability

-the expensive Ibeafrica option

Without industry, we can't grow. My proposition is that given 65% consumption of the electricity is by industry (as per chart), let gova pass a law that every house (new or old) will need to source all its electricity requirements from solar power. I am aware that this will be difficult especially for apartment dwellers, but this is not a green exercise. Its a needs-be exercise. For the rural areas, it removes the constraint on consumerism (even a lower middle class), taking off due to dependency on RE programme. Downside is the initial cost, but note every household currently pays Ksh35k connection fee to KPLC for an interment product


The impact on KPLC's bottom-line might actually be negligible. Although this it’s fastest growing customer sector, its probably the most expensive to administer.

Wednesday, December 03, 2008

Another day, another "ATS" hitch @ the NSE

It'd be to easy for the cynic in me to say “plus ca change, plus ce la meme chose”. Or new CEO, same old NSE bs. In any case, I've confidentially been informed that the ATS has a trigger mechanism that refuses any share orders that lead to the NSE falling below 3,100 (joke).
As an investor, you need to be aware of this important buying point. Yes there was a power cut, but this is a Ksh0.8trn business so there is no excuse. It should have a business continuity plan that among other contingencies, takes into account what happens when there is a black-out, terrorist attack, floods etc. It may never happen, but it can happen and if value your business you need to plan for those once-yr/decade events.

The other broader issue, is that it seems that ATS never underwent a robust user testing. Because its a processing system, you'd expect it to have been tested for huge volumes (such as Safaricom which led to a break), low volumes, certain NSE levels, certain price inputs (this would void the almost monthly price "funnies").

Unusually, the hitch didn't result in a hike in the NSE so maybe the previous coding that breaks the ATS at NSE levels below 3,100 has now been fixed.

PS: Like I said here, the NSE is very straight forward business. Its a a bit like our tourism, be supportive of it and peeps see the potential and attractions. Mess it around and all over sudden it becomes a curiosity rather than Kenyans' calling point for their investments and savings.

Food security policy: Should it be a priority?

It's said that no nation that can't feed its people will ever develop. Singapore (and Japan to some extent), maybe exceptions to this, but fundamentally, without food security, Kenya will be even slower to develop.

Food security is simply a state where food is easily and adequately available and there is no fear of hunger or starvation at any time.

Why is having food security policy important?
  • If we produce more food, food prices will go down and Kenyans will be able to spend a lower proportion of their income on food. This will in turn mean more disposable income for among other things investing in businesses and stock markets; setting aside savings which banks can tap to loan and grow the economy. As consumers, we'll also move to higher value goods again growing the economy.
  • Livelihood. In this post I mentioned that one of the rural push factors was farming poverty i.e. a state where farming can't progress you. As a farmer you therefore move to urban areas to earn a living. Its clear that even with only 35% of Kenyans in urban areas, we can't cope going by the proportion that is residing in slums. If Kenyan farmers can make a living from farming, it'll slow down urban migration giving the economy time to provide adequate housing and utilities for the urban population.
  • Economy motor: There are countless examples where agriculture has become an important motor of economic growth.
  • Gova expenditure: A large portion of contigency funding is now going towards buying imported maize and other foods. This could be spent on development projects in a scenario where we had food security.
  • Balance of payments and foreign exchange. If we have to spend our fx earnings on food imports, that adds further pressure on shilling which has impact on imports as an example. The opposite and more compelling would be where we had grown enough to export. Note that given the state of our neighbours, we can easily be providers of the aid food.

In another post, I'll talk about some of the ideas that could form our food security policy.

Tuesday, December 02, 2008

"Reckless caution" and other terms of the era

Having seen off the era of irrational exuberance where anything labelled asset moved fiteen fold in value, we (investors, bankers et al) in danger of asphyxiating the economy due to our reckless caution.

In the UK, banks lent £459m in Ocotber in mortgage loans, compared to £1.5bn in September and £8bn in October 2007. They are now in danger of strangling the housing market completely. And next? Will come repossessions which will then prolong the recovery of the housing market without which consumer won't spend meaning economy recession lasts longer.

Stock investors are being so cautious that markets are now finding new lows on a weekly rather than monthly basis.

Still you get the occcassional "foolish optimist" who calls every new market low as the bottom. Some even have new theories about markets being 6 months ahead of real recovery.

Market will only reach bottom when the housing market does.