Friday, July 31, 2009

Mau squaters shouldn't get compensation

Cast your mind back to 2004. Infront of the Daily Nation is a picture of the then Minster for Roads, Public Works, et al one Raila Odinga skipping over mud as he went to inspect the newly demolished millionaire properties that are making way for one of the Nairobi bypasses. At the time, everybody cheered him on. Nobody mentioned compensation for these victims of forced removals. Quite the opposite, there was a demand that the ex-owners of the said properties should pay for the machinery and manhours spent demolishing their properties.

What makes the Mau squatters special? Is it because they are worth a few more votes? Is it because its all the politically connected who can local youths to cause?

Thursday, July 30, 2009

Be part of "Enough is enough"

Wangari Maathai launches her "enough is enough" campaign this weekend. The campaign is aimed at reclaiming wetlands which are necessary for Kenyans to be able to continue getting spring water that flows into the some of the dams that water Nai.
So rather than whining about lack of water, this is a good opportunity to go and do something about helping ensure supply returns next year. Was reading an article about how Kagame pioneered such a scheme successfully in Rwanda and it has helped reclaim wetlands.

Wednesday, July 29, 2009

BRIC nations to provide us with the next bubble

Ever since the credit crunch crunched its way thru investor holdings, many have gone thru

(a) initial state of denial

(b) a renewed determination to avoid equities as an investment vehicle

(c) a reality check as interest rates touched decade lows

d) tentative search for alpha in other markets and initial tentative steps

(e) current deluge of funds flowing into the BRIC countries on hope that their economies will really motor over the next 2/3 years while they await return to normalcy in the US and western economies.

Result-taking China as the prime example? The Shanghai Indices and the proxy Hand Seng have all doubled in value since last September.

So how does that equate to a bubble scenario? Well, the rise is too sudden and when you think that China's main trading partners are US and Japan, is probably not supported by fundamentals. Finally, the monetary/fiscal side of the equation has weighed heavily in favour of a liquidity overhang in the economy.

The other BRIC nations have also seen first snap backs in equity market due to commodity price rise. Are the price rises sustainable?

Monday, July 27, 2009

Investing with 2012 in mind

As I have said before, as a longterm NSE investor, my plan is normally to invest within the presidential cycles i.e. buying and selling either the year of elections or the one before elections. I broke that rule for Equity in 2007, but that was the exception.

2012 will be different however. Assuming that all the current known crop of aspirants will be standing, I aim to be reducing my stake such that I am all out by the time the interims are announced in 2011.

That is unless Kibz positively endorses RAO to succeed him. IMHO, this will not only make for an interesting election, but will guarantee we have peace in 2012 itself and beyond. This is not because RAO and his supporters will bring us bloodshed if otherwise, but because it should and will close the chapter on 2008 PEV. 2ndly and imho, only RAO and Karua of the current aspiring crop have anything positive to offer Kenya.

Saturday, July 25, 2009

KDN's Solar Energy

I think this is just awesome and I hope other Kenyan companies can copy it. Its cost Ksh7.4m and will more than meet KDN's energy needs. Are Kenyan manufacturers watching?

Capitalism- in the real world. Making it work for Kenya/Africa

Even without ever have met me, I'm sure you would not imagine that I'm the sort of fella who ever give Usain Bolt a run for his money. So just think of a situation where I was told that from now hence-forth I'd have to earn a living by competing against the likes of Usain!

That in a nutshell is what free market adherents and their neo-con friends believe economies around the world should use as their operating theory and model.

I like what capitalism can do for economies and society at large.

My worry is that many including the majority of its cheerleaders don't understand capitalism.

Capitalism = arbitrage. As long as an individual, a firm a country is able offer a distinctive

  1. product
  2. service
  3. skill
  4. experience

and do so at a mark up to cost with people willingly paying, a profit will be made.

The two key words are distinctive and able. Going back to the running example, the distinctive offering is a skill to able to outrun a cheetah. I don't have, so what happens to me. Secondly, I may have the distinctive advantage of being to run that fast , but how'd reach the pinnacle of my career if I am located in Mathira?

The obvious point is that capitalism can only work if it has strong institutions to backfill all the gaps that exist in terms of people who don't distinctive something or the ability have vis a vis others in the same society.

In Africa especially, its vitally important to recognise the role that private sector can play in transforming industries and therefore economies, but be prepared to mid-wife those industries and societies until they are in a position to be able to compete.

Wednesday, July 22, 2009

The coming campaign money tsunami

My baseline guest-estimates is that between last year when the grand collision came into effect and mid 2011, PNU and ODM will each have raised Ksh2bn+ in preparation for 2012. The main ways this will be;

1. Kickbacks on large projects and especially roads building. Note this doesn’t have to be done upfront merely inflation of costs.

2. Obscure and uncontrolled projects such as those aimed at liberating Vijana and Wanawake from poverty. With fairly undefined rules.

3. Financial pledges for services rendered. Catch all but includes business connections abroad and at home


Monday, July 20, 2009

US and Kenyan Ibanks/Brokers

The only major difference is that the US ibanks and brokers are for most part listed entities. Otherwise the similarities abound:

  • · Deal-making: primarily done on connection basis. Its only in the US where the govt could create a system like thru TARF and then get the ibanks to advise , consult and run most of it. GS gets a lot of international type of business because it places its alumni into positions of influence in the US govt. In Kenya, D&B pretty much has gotten all the Kibz era GoK IPOs/OFS. It’s no coincidence since Jimnah cultivated the NARC assiduously and still has close connections with the mishmash GoK
  • · Regulatory capture: Regulatory capture is a fancy term for when industry regulators become the dogs that are wagged by the tails they are meant to regulate. Ibanks and brokers set the pace for the regulators in both countries. In good times, ibanks and brokers come up with fancy products and ways of doing things and then ask regulators to regulate them or rivals out of compe. A classic- pal who works with an ibank tells me that in 2007 he approached his his firm’s regulator to get clarification on how the regulator wanted his firm to calculate regulatory capital to be set aside for his firm’s credit default swap business. The regulatory had no clue. Apparently, reporting requirements on SIVs and SPVs were to start this year! At the NSE, CMA has been used to keep compe in or out of the NSE. BBK’s application to list a bond in 2003/4 was refused but agreed to last year when NSE needed the business. Look at the tied agent system being introduced. Its retrogressive in that most countries no longer use it. Its meant to keep out compe given the product is only one-Access to shares at the NSE-
  • · No boundaries between business and politics: NSE has remained a protected enclave despite the scandals et al because of its symbiotic relationship with the GoK of the day. Even in the 80s when no Kikuyu business was immune from m-o-1’s pruning ways, the NSE remained intact and reached its highs in the early 90s. Two or three CEos of ibanks/brokers have actually stood as MPs. Eerily, most of the big changes have taken place in an otherwise very friendly environment. Expect this to continue. In the US, it is absolutely no coincidence that Hank Poulson oversaw the decapitation of 3 of the top 5 ibanks during his short stint’s as Treasury Secretary. Goldmans Caschs got $12bn from AIG’s rescue and is the main beneficiary of the demise of its 3 rivals especially in fixed income. Hank Poulson is immediate former CEO...@ Goldman Sachs.

Wednesday, July 15, 2009

Institutions, institutions, instutitions

Over the last 9 or so months, water companies in London have been digging up the roads to replace (not repair) water pipes. The water pipes date from Victorian times i.e. they are over 100years old. Beckham's great-great grandfather who was scavenger in the city would have gotten water from the same pipes as his more illustrious seed.
We can have a new constitution, a different president or prime minister, majimbo et al, but unless we build institutions that can last, we are unlikely to see progress in the governance of Kenya. And it has to start by Kenyans learning to obey the laws. Equally.

Thursday, July 09, 2009

Short selling shares at the NSE

Since the NSE is afraid of introducing market-makers to provide a bit more liquidity into the bourse, and brokers are broke, why not allow shorting of shares formally?

I figure looking at some of the past trade patterns that this already happens anyway. Kichini chini, Kenya-style.

Briefly, short selling works like this. I go to JM and borrow 1m HFCK shares paying him Ksh1 per share as borrowing fee. We agree I'll return them in 4 weeks time. I then sell them immediately say at Ksh17.50 per share. I sit back having (a) surmised that my trade won't go unnoticed or (b) had some inkling that HFCK was due release some nasty news. And buy back the shares at Ksh15. I give JM his shares back. JM makes a Ksh1m and I make something similar.

It would be a winner for all.

  1. Brokers-would get their usual commission per transaction.
  2. Long-term investors get to earn something while awaiting their horizon to mature.
  3. Bourse has increased activity and interest.
  4. Short-term investors get interested in the market.
  5. Even lawyers get a bit of the crust in creating and signing off contracts although in most occasions the broker can facilitate.

So where is the problem? Are Kenyans only ever to be interested in the NSE when we have an IPO or a bull run?

Tuesday, July 07, 2009

The journey of life

Its not where you started, its where you finish. Ergo, its not how you started, its how you finish.

Monday, July 06, 2009

NSE sectors stock pick for July and the 2nd half of 2009

As a generic comment, NSE is now some 35% higher than its low of in March. Therefore, value for money stocks are gone. 2ndly, I suspect that given foreign interest of late (posting net inflows and I think almost accounting for 57% of units dealt), a correction of around 10-15% is on the cards between now and October in keeping with the worldwide correction. Finally, we are not going back to last June's 5,000 level in a hurry. Idea should be to look at price over the last 9 months and compare to today. The nearer today's price is to peak over the period, the less the potential gain. Why? Fundamentals in Kenya are worse now than they were 9months ago.

Agriculture sector: Tea companies will benefit from current dry spells in pretty much every South Asia country especially India and Sri Lank (Kenya's tea rivals). Primarily, will benefit from valuation of biological assets. Your pick is from Kakuzi, Kapochuria and Williamson (the latte two are one and the same and I am not sure why they haven't merged). All three have already been noted and have hence been rising steadily. Best time to buy is once they are xd and well before the annual results are announced. I'd normally class Mumias as an agri stock but the power co-generation changes matters somewhat. Pick is Kapchorua, although it'd have been Kakuzi whose operations I'm very familiar with but it has corporate governance issues for days.

Commercial and services sector: Easy one. Safcom. I think it has 30% upside over the next 12 mo0nths. Compe in the mobile telephony market is in disarray once more with Zain up for sale, Orange changing CEOs and Econet, being well, Econet. Interestingly its trying to buy up programming and software capacity. Expect multi-media offerings. And of course, MJ is leader of TEAMS. I won't MPESA as this remains on licence to Vodafone, its parent. AK is now the most expensive share on NSE, otherwise would have been my pick at Ksh20 or lower. ScanGroup will suffer from Zain and others slowing down and general macroeconomic conditions. Pick Safcom.

Finance sector: Equity is till the stand out stock in this sector. It has lead market share at the NSE, will be very competitive in Ug and is expanding into Rwanda and South Sudan. DTB has a similar strategy in TZ especially as does KCB in the same countries as Equity as well as TZ. What distinguishes Equity from the other two is
· Strongly capitalised
· Historically nimble and able to grow from a low base (necessary regionally).
The other banks share to look out for is Stanchart. It has just completed purchase of First Capital (additional fees income loan arranging and any M&A activity) and will mostly certainly benefit from the forthcoming bond glut without any potential downside from bad debt write offs. Added benefit is its high dividend yield.

Industrial and Allied: Sector in a tricky time (fuel costs higher, anaemic export and domestic market). Stocks that will do well have already appreciated or stayed fairly steady during the bearish period. This sector is probably the hardest to gauge. Clearly, its hurting because of the perfect headwind combination of fuel/localised inflation and the macro conditions (anaemic export and domestic demand). Look for utility or utility like operators. But do note that KPLC and KenGen will suffer from the short rains=lower power generation=power rationing spell. So EABL is a utility-like monster with deep pockets and looking to expand regionally. It does look expensive on the basis of the last 9 months though. Maybe EA Cables, but it had issues as early as January. Mumias and co-gen? Maybe, but I have been unconvinced for a long period.

Avoid sector: Olympia should be fairly self-explanatory. I think it might another Uchumi in the making. Except it has no redeeming qualities. KQ, please google Virgin and BA to understand the dire straits this industry is in. I think oil prices will stay at current and lower prices over the next 12 months mainly because of the wider economy.

Wednesday, July 01, 2009

First they came for the poor...

In crime as in other facets of Kenyan life, it would seem that Pastor Martin Niemoller's poem is coming true to life for the uber rich. For a long time you could talk dismissfully about how crime had infected the slums moved to Eastlands. Some years back, I was talking to somebody about the street kids in Nai and the unfortunate attitude we all have towards them. Clearly they would grow up one day. They'll have grown in harsh conditions but seeing how those fortunate than them live. They would naturally want what the well-off had. So at the time, I was saying to him that the choice was either to work to change their lives when they were young (act as a guardian and provide access to schooling), perhaps reunite them with their families. Or to wait to be confronted with a gun 10yrs later. We are now 10 years later and crime is catching with us all. Private security guards with their rungus are no match for gun-totting fatalistic youngsters.

Crime is one facet.

The others are water: in towns, this will of course manifest itself in water rationing in urban areas. Do note however that there are plenty of private water distributors. In rural areas, we have situations building up everywhere. Having grown up around a self-help water project now sadly defunct due to too many disputes, I saw first hand how a community project could easily degenerate to one for himself and to hell with others kind of situation. How about where pastoralists meet subsistence farmers?

Electricity: no rains, no water. As per KenGen's 2008 annual report, 72% of the power it generates is hydrology-based (water to you and me). Very sobering...Especially when we have some much of our economic growth pegged on growing usage of electricity

Land: Say no more. Except as desertification becomes and issue, arable land shrinks. The 60-70% agriculture population is going where.

Hope we'll avoid the fate of the frog that was chilling out in the sufuria as the heat was turned up.