Kenya Capital Investment Group

Credit crunch- lessons for Kenyan banks' risk management

2012-01-09T06:00:00.003Z

Imho, the genesis of the current West financial crisis is the deregulation of financial services in 1970s and 1980s that allowed financial entities into activities they were previously barred from. As an example, Barclays could move from retail to investment banking. However, the skillset required to manage a retail vs. an investment bank is like chalk and cheese. Banks then started off-shoring risk in their banking or even trading books e.g. by bundling loans and offering them as collateral in exchange for loans from other financial firms. From the late 80s/early 90s financial firms then offered insurance against these bundled loans using credit derivative swaps. Infact, almost every type of risk was managed via an invented form of derivative. Factor in globalisation; the emergency of the APAC nations and a benign interest rate regime. All this took place within 20 years and risk managers and senior managers generally either couldn't or didn't keep pace with the changes although the generally bullish conditions presumably fooled some. Finally, too many banks exclusively relied on either international rules on risk (Basel accords) or what regulators stipulated. In other words, they outsourced risk management.

Risk management is very straightforward;

Based on your understanding of the business your entity undertakes, identify the risks it faces.
Measure these risks in terms of the potential monetary impact on your bank's capital/liquidity and profitability.
Monitor these risks.
Set up ways of controlling these risks. To be clear, banks as with other walks of life, will always face risks. Control entails expressing your risk limits/appetite and putting controls in place to keep within the said limits.

Where an entity doesn'tdo any of the above to a satisfactory degree, nothing (sophisticated VaR models, stress testing and scenario analysis; layers upon layers of risk management cadres) will prevent failure due to one type of risk or the other. Unwary risk management meant that Northern Rock and Lehman Brothers and others fell over whilst ticking all the boxes on capital adequacy as dedicated by Basel 2, whilst neglecting liquidity risk. Failure of risk/senior managers to keep pace with the changing dynamics of its fast growth, led to Northern Rock's failure. The complexity of Lehmans' business and legal structure meant a Tsunami was not seen in good time.

Similarly, lax risk management can also be in CBK's risk survey undertaken in 2010;

-30% of Kenyan banks didn't have a centralised risk function (so nobody apart from perhaps the CRO) knows the overall risks faced by their bank.

-to compound the above, 58% of the banks don't have a head of risk i.e. nobody to take senior responsibility for risk management.

-Just over half of Kenyan banks reviewed their risk management manuals annually. This in a very fast changing industry. Think mobile banking, internet banking, agency banking, branch growth, regional expansion, increased fx/interest rate risk, money laundering laws to name but a few.

-7 banks didn't have a dedicated MIS for risk and another 9 only collected risk MI on an annual basis. So 16 banks couldn't tell you what risks they faced at any given time.

-16 banks didn't think they needed to make any changes to their risk management practices...

When things are going well (straight growth in year on year profitability), its easy to take your eye of the ball, but remember, its only when the waves go out, that we know who is naked.

Kenya's transport system in transition

2012-01-07T08:02:00.000Z

How many roads has kibz govt built during his era? 1. The northern bypass. 2. if you can call expansion of Thika Road building rather than expansion. The remainder have been re-laying of roads that have been in existence. And yet the cost has been enormous; Ksh24bn for Thika Road; Ksh4.6bn+ for Nairobi to Nakuru; circa the same for Nakuru to Eldoret bit of the road and a similar amount or more for the rehabilitation of sections of the Mombasa road; Ksh2bn for Sagana to Nyeri rehabilitation half as much for Nyeri to Nyahururu repairs. And so on. It would not surprise, to see the figure exceeding Ksh100bn for so-called rehabilitation work. In comparison, repair work on parts of the Nyeri road will cost Ksh200m.

In the airport sector, same story, yes it has been expanded but Kisumu Airport (sorry International Airport) cost just over Ksh2bn to bring it into the late 20th century. Numerous other airstrips have also been snatched from cows who were using them as grazing fields. Rehabilitation...

In the rail sector, we've neglected this key channel for so long that the cost to update it (wholesale including tracks, trains et al), will be quite enormous. Another rehabilitation job.

The point. Let GoK create a special repair and maintenance budget portion which will be increased annually as we increase the number of roads, airstrips et al such that that there is a greater concentration on repairs rather than rehabilitation. Its cheaper. Secondly, we need to think around how we can maintain this transport system. Trailers are decimating the Northern corridor because they are carrying weight that should be borne by railtracks not a road. The type of inputs used to build/rehabilitate are also important. Mbagathi Way was built using concrete and has a 20yr life expectancy. Its costs were projected to only be 8% than tarmacking which lasts at most 2 years (3 months when done by a Kenyan contractor).

Unemployment in Kenya: the rural/urban divide

2012-01-05T13:53:00.002Z

Unemployment is a lot higher in urban areas in Kenya. Infact among the 15-30 age group, the unemployment is between 30-40%. There are many reasons, but ofcourse the key driver is that for the last 30 years, economic and population have competed for parity. Nationally, but in urban areas population growth has far outweighed economic growth. Its a problem that even China faces today, but its been growing at 9% compared to 2-3% for Kenya.

And yet. A friend tells of a situation where he recently hired some guys to build a stone wall for him. After spending the best part of an hour haggling over hat they'd get paid, the guys finished at 4.30pm without getting to where they had agreed. The next day, some of them turned up drank and reopened the discussion relating to the payment. In the end he had to fire the several of them including the foreman because he realised he won't get anything done. Its difficult to get people who are interested in doing sales in particular sectors for example, I know somebody who is struggling to get sellers of pcs/laptops partly because the roles are mostly commission-based.. Part of the problem is that people have lost a certain work ethic and yet desire the things that money brings. There is also certain desire for white-collar jobs which are not that many compared to their demand.

In most rural areas (specifically Central/ parts of RV), farmers are struggling with their farms because they can't farm labourers to take on various paid chores.

The question is how this bridge can closed. Firstly, is that farming needs to get more commercial such that farmers are in turn able to pay labourers living wages. Secondly, the stigma attached to educated doing farming jobs needs to be removed. In this vein, there is a school thought that says farmers need to start advertising for labourers...

NSE: what looks good for 2012?

2012-01-03T05:22:00.003Z

The NSE now actively trades both bonds and stocks and both are worth considering at any given time. In 2012, we ofcourse have the natural uptick in political risk which will probably go a notch higher due to the ICC (my head and heart tells me 2-4 will see charges levied). To the mix, add the Eurozone and oil prices. I expect that the Euro will reach some kind of cliffhanger once one o the smaller states has to withdraw. Although a lot of the risk has already prompted asset shifts, this withdrawal will unhinge markets further. Oil prices for me trend upwards this year (i.e. above $100) chiefly because Iran is the problem that is not being resolved fast enough.

In Kenya, inflation will trend southwards, though not as fast as economist opine. The rains that came in November/December have impacted the food regions differently and though food will be cheaper, it won't as cheap as opined. Finally, interest rates. Banks reacted naturally to avoid a massive npl problem and lengthened the repayment periods, but a Kenyan who had a loan in August now has more liabilities than he/she envisaged. For the tightening not to become another monetary policy screw up, its imperative that the governor and his MPC team reverse the interest rate increases by March at the latest.

Assuming the above holds, I expect the NSE not to trouble 3,500 with exception of the period between now and March reporting season. I will be looking at the following stocks:

Car & General-has an expansive product range and now has the regional coverage to cater for pretty the whole of EAC and the horn. Clearly, it does feel the pain of any fx volatility, but its products have a strong future as the regional economies all grow and consumption grows.
Centum, there are some who are sceptical about what James Mworia is doing, but I am convinced that by 2014, this stock will look very cheap compared to a Ksh12.50 entry price.
Crown Berger-as I have said elsewhere, real estate growth will resume next year with a vengeance and this paint seller is well placed in this market.
Equity remains a stand out in the banking sector. The agency banking model is still not being felt, but if you talk to saccos you get the idea that many realise what this model is doing which is to pitch the battle for deposits at their level. As a general comment, I think that if the credit spread control is brought, it will impact those banks that are heavily dependant on interest income. Equity still derives a bigger chunk from F&C compared to rivals.
Eagaads-only NSE that gives exposure to coffee. The crop is not being stolen because its become edible, but because the price per kg is now comfortably around Ksh130, For farmers. Eagadds is able to get a premium over this. Secondly, Eagadds has very good real estate in the sort after Kiambu county.

CMC: clear the fog

2011-09-17T08:06:00.002+01:00

It is said in war, the first casualty is truth/facts.

These are gaps in the information:

Peter Muthoka was selected chair in May and the BoD had all the information they have today, why didn't the conflict of interest issue arise then?
Why did Bill Lay announce he was retiring from GM whilst denying he was doing so to fill the vacancy at CMC? Why did he jump from a big player to a smaller player (in market share terms)?
If the apparent fraud is over-invoicing, why isn't the ex-FD and ex-CEO also in the dock here given that it is the responsibility of the payer to verify the invoice? Why isn't the auditor also in the dock since this would be part of its attestation?
If the fraud is charging above what other players in the market (say GM) are charged, (a) that is not fraud (b) his contract would presumably have been verified by the BoD (which has included among other Joel Kibe)...
Andy Forwarders (Peter Muthoka's business) also manages GM's supply chain and those of others, why would he charge CMC more? AFS has been supplying CMC for 17 years, why is the issue limited to 5 years?
If as rumoured, Peter Muthoka was opposed to Bill Lay's appointment, is this merely the continuation of boardroom wars.
If corporate governance is the issue, why not go all the way and require BoD to be composed of more independent directors instead of shareholders as it now is (with exception of the banks)?

CMC-a brief history:

Cooper Motor Co. started life as a retail outlet for Land Rovers/VW during the wabeberu days and today pretty much covers the whole upper class, settled middle class. During the Africanisation programme of the 1970s, it got some of the newly minted Kenyans on-board. In effect most of the plutocracy formed themselves into two chamas, Heri and Africa Liaison Company (Mwai and Moi were members as well as Njonjo). Overtime, Alico birthed other smaller entities among them Kingsway Nominees (which now know more as a Jeremiah Kiereni front). As with TCL today, the primary purpose of these chamas was to amass solid businesses such as CFC and CMC and also create some such as Heritage Insurance and so forth. Apart from their "financial nous", these elite gave their invesmens direct access to contracts. They'd then hire competent managers (usually a mzungu or mhindi) to manage the turnover and do the counting. Martin Foster joined as a Sales Director in 1978 stayed on and became CEO 8 years later and was virtually there until this year. The BoD effectively the bedrock on which Forster was pure old boys. Up until two or so years ago, everybody was over 60yrs.

However, over the last few years, they have all reduced their shareholding allowing the likes of Mobicom, Peter Muthoka to takeover the reigns and its apparent that this is a battle for who between Mobicom and Peter will control CMC. CMC currently holds just under 20% of motor sector market share behind Toyota and GM.

Simple guide to NSE's latest IPOs

2011-07-20T20:37:00.004+01:00

Firstly an analogy. I tend to compare IPOs to a ball being thrown in a pool of water. Generally, the deep the pool of water, the higher a ball bounces off the water. Assuming it’s a fully pressurized ball.

TC formerly known as G29. This entity inspired me to start an investment group and I believe the harambee spirit embedded in chamas will get us further than we have envisaged. At a listing p/e of 35 you can see why it was introduced despite requiring capital. In contrast, Centum, the other investing firm at the NSE traded a multiple of 10.3. the other downside of TC is a portfolio of underwhelming assets with only EA Cables as the pick stock. Verdict: terribly overpriced.

Britak is a firm I’ve long tried to figure out how to buy pre-IPO shares in, but the IPO is where my interest ended. Normally, insurance firms have very steady income unless there are catastrophic one-off events such as earthquakes or PEV in our case. Britak made losses in 2009, record profits in 2010 and is projecting 62% drop in profitability for 2011. Can Britak do better with your money than it has done with its own? It would like to take circa Ksh0.6bn from you. Verdict: fully priced, there is no meat remaining on the bone.

Finally, in the forthcoming bucket, there is Family Bank’s introduction to the NSE. Many of its shareholders including this senor think this is Family bank’s theme tune “we’ll list this year, we’ll list this year”. We will believe it when we see it. It is said that imitation is the sheerest form of flattery and Family bank has really really flattered Equity. The Japanese copied the US, forgot their prudence and their economy became a zombie, so cautionary tale right there. In commerce, you must chart your own way, though. That won’t happen at Family unless Kiondo is persuaded to retire and either give his son (he of the thin CV), the reins or reduce his attachment to the bank and let corporate governance take root hold without a gun being stuck into his ribs by CBK. Corporate governance would mean a strong CEO shepherded by strong anchor shareholders (maybe Equity?). Facts, facts. Kiondo opened the door in 1984, Munga in 1984. The both target the same market. In 2010, Family's PBT was a 1/20th that of Equity! Verdict: introduction will excite, but do note that it will be the least profitable bank at ze bourse.

NSE: Observe its cycle

2011-07-10T17:33:00.004+01:00

With the exception of the pre-multiparty years and the first Baba Jimmy era (as an aside I'm totally convinved that Baby Jimmy was told he'd be the 1st president never to have done 2 terms and he ahd to do 2 terms irrespective hence PEV), the NSE has always follows the same pattern. As soon as a General Election is concluded, investors of every hue and persuasion flood in. For the next 4 years and despite several ups, the NSE index maintains an upward trajectory. Then investors and their volumes flee the market in the year of general election.

Why is this and why was 2002-7 period the exception?

Quite simply because, despite a 40m population (60% barely plugged into the economy), we still eat, walk and sleep politics. In Kenya, good politics=good economy and not vice versa as you'd find in most developed countries. In 2007, Kenyans thought it'd be a walkover for Raila and as such everybody kept their money in the NSE or were too pre-occupied with the NSE bullrun.

Given PEV at the start of this 2008-12 political term and consequent political; the ongoing rain short-fall; the out of his depth CBK governor; relatively high oil prices, cycle will be followed to the t.

Charterhouse gate- Peter Odhiambo another unsung Kenyan hero

2011-07-08T06:31:00.001+01:00

If it wasn't for Peter Odhiambo, Charterhouse, moneylaunderer's bank would never have been closed back in 2006. If it wasn't for Peter Odhiambo, Harun Mwau, the drug KingPin would never have been recognised by the US of A for his efforts in distribution of illicit drugs.

If it wasn't for Peter Odhiambo, this article won't have been as revealing of our misunderstanding about white collar crime.

Today lets salute Peter Odhiambo, an unsung Kenyan hero. Hope Kenyans like him can day one resume their job of grwoing and building the nation without fear or favor.

145 acres at Maili Tisa for sale

2011-06-21T06:13:00.003+01:00

145 of freehold land is available for sale at Maili Tisa which is 2km from Namanga. The price is Ksh100,000 per acre. The owner doesn't want to subdivide but he is willing to sell to a group who can then subdivide among themselves. I am therefore looking for individuals who like me, are looking to get very good land at prices that is increasingly unheard of in Kenya.

You can use the land for dairy farming; wheat farming; tourist cottages or for speculative purposes as land become scarcer resource in demand.

Please email if you are interested ideally stating how many acres you are interested in.

mainatathotmaildotcom

Actions taken between 30-40yrs determine grandchildren's heritage

2011-05-30T18:51:00.002+01:00

Between 30-40yrs, most of us will have decided what we want to do with the rest of our lives based on skills an experience acquired; opportunities available and so forth. Most will have chosen their spouse and will either buy or build their first home as well as have children.

Economically, its the ideal decade to acquire assets that will set you in good stead when you retire. It is also the decade to set up businesses that may grow to be future NSE new kid on the block.

100% mortgages in Kenya.1st signal of the real estate buble

2011-04-19T05:43:00.004+01:00

Firstly, a 100% mortgage is when a bank lends you 100% of the mortgage loan you require. Usually, the mortgage loan will be pegged on the value of the property you are buying. In essence, the bank is betting that the property you are buying will rise in value so that should you default on the mortgage, it can realise the full value of the loan.

The bank has now become a property speculator rather than a keeper of your deposits.

Not clever banking and is a big part of the why the West has just had a huge credit crisis.

Hope Ndu'ng'u at CBK will slow down his policy of being supportive of the banking sector and "take away the punch bowl" (to quote Mervyn King) before banks/Kenyan economy binges on lofty credit.

Replace foreign aid with economic migrant quotas

2011-04-17T14:00:00.003+01:00

Remittances are now the largest foreign exchange earner in many developing countries. Fact.

So-called advanced economies are currently undergoing their most challenging economic times. Fact.

There is an ongoing, racial-tinged and tortured debate on how to tackle illegal immigration in the West.

Hopefully you can see the link I am drawing out.The west and other advanced economies are currently seeking to reduice their leverage by either government expenditure and or raising taxes where they can. To do so, they are seeking to cut back on ineffecient expenditures. As accurately described by Dambisa Moyo and others, there is none more inefficient than foreign aid to developing countries.

In almost all nations, immigrants to the West/advanced economies whether legal or illegal pay their way. That is they work, pay taxes and proportionately don't make use of public services more than the locals. Crucially, they send a significant portion of their income to their mother countries and so fulfil the trickle-down effect that most of the foreign aid is supposed to do. Simple really, the money they remit is reaches the hands of those is rural areas and even in slums.

The West can and should cut ineffective foreign aid/loans to developing countries and should replace it with smart programmes that allow graduates from developing nations to work for 2/3 years in developed countries. It is not an original idea. The UK has a discriminatory policy in place that gives 2 year working visa to all New Zealanders/Australians and South Africans (white) of under 30yrs of age.

2012 to do : vote in MPs can't be bought

2011-03-28T06:39:00.000+01:00

Something like 70% of MPs lost their seats in 2007. Kenyan voters can do change. Despite the high turnover, most of the current crop of MPs belong to a godfather. Most (95%) belong to these godfathers because they've been bought. Tenders for those who had cash in 2007; range rovers and runda homesteads for those who were poor in 2007. Their first call every morning is "mheshimiwa unaenda wapi leo?". This is corrosive behaviour because its difficult to build democracy and infact leads to the tribal politics we now have. There are ways we voters can spot and enable better leadership.

Stop supporting non-ideological parties: Easier said than done, but we must look for MPs and parties that will support a pure development agenda.
Party/candidate funding: Question or seek to understand how the political party is being funded. Looking at the big financial hitters in the 2007 general election, one could tell who was going to play the piper.
Stop demanding or accepting cash or other handouts: As soon as that MP candidate pays you, he has to be compensated and compensated profitably. His first priority as an MP will be to seeks ministerial post where he can eat. Failing that, they'll fall prey to a godfather.
Pre-general election wealth declaration: If candidates had to declare wealth as part of their election manifesto, it may weed out pharmacists and the like.

The 30 motorcade country-a sign of...

2011-03-25T06:47:00.002Z

Imagine Maembe is a younger relative of yours say by 10yrs. Like you, Maembe grew up in the village, poor with no shoes until he started secondary. He is/was bright and hence managed to get into a good high school. And there the similarities with you end.

By the time Maembe reached high school, you had finished campus (through many many harambees that started from the day you were called to Alliance) and had a fairly good job. You thus financed him all the way thru to Nairobi campus where he graduated with a good degree. Enough to enable him to get a decent private sector job.

With money to burn, Maembe seems to have taken a turn. Because of the condition of the roads in chagiis where his parents still reside, he owns a Range Rover sport, which is pretty top range. Recently, you received a call at 5.30pm telling asking you if you could buy him a spare tyre as his had punctured huko ushago. He lives in a servant quarter on Mucai drive (off Ngong Road). One drunken evening, you get a call at 2am. Maembe got into a heated discussion with his neighbour who also happens to be his landlord. The resultant uppercut has landed him at Kilimani where the negotiations are at ksh150k for him to walk scot free. Naturally his thoughts turned to his well off rela. He will of course need somewhere to stay while he looks for new digs. Maembe being of marriageable age has found himself a marriageable lady. Good. The lady hails from Kabete. Bad. Dowry is paid over generations. In keeping up with his neighbours, his church colleagues at Nairobi Baptist, Maembe will occasionally call you from Malindi, Mombasa and even Zanzibar telling you how well the weekend is going down there with Kabete gf, why don't you take easy and join him with your missus.

Because of his non-frugal ways, Maembe has several credit cards and is offcourse still paying for the RR sport. You are starting to despair, but then one Satu, Maembe invites you for ride in RR sport saying he has something he wants to show you. He drives you to Kiserian and shows you a 1/2 acre plot he has found. Yippee! You can't hide your joy at his discovered sense. He is there rub, Maembe tells you that because of his upcoming preparations for nuptials, he'll be needing all the savings he can get. Lakini this plot is going for a good price. You make a deal with him, he'll find the deposit, you'll then lend him half the remaining money and give him the rest. He agrees to this, but later calls you to ask if you can lend him the rest as well.

That in nutshell is where we Kenyans are today. We have a president who travels in 30-car motorcade compared to say 10 for Obama (3 for David Cameron). He earns Ksh36m per year, twice as much as the UK PM. And we have a GDP per capita of $315. Something like a 100 times less than the UK. When will we get a reality check.

Kenya real estate: do we have a bubble?

2011-03-24T05:58:00.002Z

A bubble is created when you have air in a liquid. Likewise a real estate bubble is created when prices are full of air. In simple terms, real income can't afford prices. A real estate bubble will always be driven by too much cash and not enough investing avenues.

Real estate in Kenya is class based. That is to say they are areas such as Muthaiga, maybe Karen, Runda, Kitsuru which are reserved for the upper class; NGOs; pirates; and other criminals and money launderers. These areas operate very tight demand and supply markets that keep prices not only from falling but rarely falling bar a catstrophe such as PEV. These are found in almost every large city. A bubble is rare here.

The settled middle class areas are Kileleshwa, Kilimani and many others. This market is aspirational, and in essence that is the issue. When you hear a 3bed apartment going for Ksh17m, ask yourself how many well paid Kenyans can afford a mortgage on that at around 14% interest rate. Answer, its Ksh200k per month assuming Ksh5m deposit on the apartment. This implies monthly income of Ksh500k before tax. Ho many Kenyans are on that kind of salary? Hence a bubble almost certainly exists in this market. The bigger worry is which banks are giving mortgages into this sector.

The lower middle class areas are increasingly get drawn into the squeeze with concomitantly higher rents...

to be continued...

Small scale farming: From subsistence to sustainable business

2011-03-22T06:27:00.002Z

Despite, our economic progress, agriculture is still the source of livelihood for majority of Kenyans. It is still the largest employer as an industry. If Kenya is to progress economically and equitably we must become more productive and agile farmers. There has never been a better time to be a farmer, but there has never been a more difficult time to do so.

Knowledge is power: In Kieni West is a bit like Ukambani in that when it rains, it rains well and when it doesn't, it dries up badly. Despite this, farmers have taken on horticulture with a gusto not seen for a while. Farmers tend to have sizeable holdings i.e. 20+ acres so its not unusual to see a farmer with 1 acre under onions or green beans. The flaw is that these are rain dependant products at the initial stage. More often than not, many get burned financially if it doesn't rain as the quality of the crop is very dependant on this initial rain. If farmers had access to good weather forecasting information, they could avoid planting at certain times. There is also the whole issue of diversify your risk.
Government services: In the old days, farmers had access to agriculture officers who advised on the best variety of seeds to plant; they had access to veterinary services so that if you were a daily farmer, you could get insemination services and treatment services at small cost. Rather than running around trying to save very rich individuals from the ICC, GoK could quite cheaply have a veterinary officer in every county in Kenya.
KARI's role: For years, its been my understanding that KARI has developed drought resistant variety of seeds. I am therefore pained when I see farmers lose their maize or potatoes because it hasn't rained enough.
Commercialising farming: For many farmers, they have yet to move from farming to eat to farming to sell some of their produce. Farmers are better at animal husbandry that your urbanite who wishes to keep hens for sale, yet they are not involved in this business.

wikileaks: Kibaki knows Ruto was behind RV violence

2011-03-04T06:53:00.003Z

A lot of what wikileaks has revealed so far has not come as much of a surprise.

We all knew Wambui facilitated the Artur brothers coming to Kenya. We all knew she and Joho were trafficking drugs at the coast and involved in a lot of other corrupt stuff at the Port. We all knew Kalonzo Musyoka was an opportunist per excellence. We knew Kibaki didn't really want to get rid of Murungaru as he helped do most of the dirty fundrasiing in the 2002 political campaign. We knew that a lot of the Kikuyu elite what very unpalatable views about Raila and the Luo community in general.

The crucial evidence that we've been waiting is for someone high up in GoK to calim knowledge or evidence of who was involved in PEV and especially in RV. On January 21st 2008, yani during the violence itself, Kibaki met Ranenberger. In what I consider the most revelatory http://wikileaks.ch/cable/2008/01/08NAIROBI239.html piece in wikileaks so far Kibaki revealed "that William Ruto, one of the members of the ODM,s "pentagon" leadership, is largely responsible for continuing violence in Rift Valley." .

In essence, the man they've all been trying to get off the Hague train should actually be reserved a first class seat on the train!

How greenbelt zoning can save Kenya's arable land

2011-02-19T10:21:00.003Z

The future of Nairobi conurbation looks like that map that Mutula Kilonzo tried to pull off but didn't manage. Everybody is in a hurry to extend Nai's reach to Thika, Kiambu, Machakos and Kajiado.

In the process, some of Kenya's most food productive land not to mention aesthetically please landscapes will disappear for good. The whiners will no doubt be wheeled to talk about GoK not responding quickly enough to flooding, droughts et al. The time to act is now before our food insecurity becomes acute driven by lack of enough arable land.

A greenbelt zoning does what it says on the tin. It puts a belt around designated green areas so as to protect them from planned (or in our case unplanned) buildings. In my humble opinion, Kiambu is a rich agriculture district that should be designated a green belt zone so that crop production can continue in the area. On the other hand, places like Karen should be opened up for further building.

Good economics is good politics, bad politics is bad economics

2011-02-19T09:32:00.002Z

It can be said that Kenya's economy has grown the last 9 or so years. It can be said that Kenya has not known the kind of political we've had in the last 9 years.

But the economic growth has widened the gap between the "haves" and the "have nots". Secondly, it has not been a "jobs" growth whereby, the economy was absorbing jobless graduate, secondary leavers and of course KCPE-leavers. At an average of 4.5%, this means that once you take off the effect of 2.3% population growth, it has grown at a paltry 2.2%. Good enough for the West economies, not for a developing nation. The growth has also not been sustainable. With the exception of the telecom industry, other sectors remain dependant on exogenous factors (agriculture, tourism among our largest fx earners); in others such as manufacturing and infrastructure building, we are still dependant on foreign money or investment.

It has also been growth that has seen concomitant growth in corruption. It has not been felt by the majority of Kenyans in a positive way. Negatively yes because now staple foods and basic necessities are more expensive, but earnings have not kept up. Pour into the mix a very young population and really the growth looks anything but stellar.

Kibaki doesn't do politics. Politics is not just about being able to take smart political decisions, but also more importantly, being able to take the public pulse into on major decisions.

On both fronts, we are not giving ourselves the chance to grow.

Investing with 2012 general election in mind

2011-01-29T08:42:00.000Z

Einstein defined insanity as doing the same over and over again and expecting a different results.

Prior to the 2007 general election, I argued here and elsewhere that Kenyans must ignore politics and effectively decouple it from business for our economy to flourish. I still urge us to do and the need to do so is even more urgent today. It saddens me when you see a whole mashinani town come to a standstill for a whole day when well-fed politicians land in their helicopters.

In part, my drive was because I used to think Kenyan siasa and had small if any effect and in any case this would be temporary. PEV and its after effects disabused me of this notion.

Politics does have a serious impact on the way your investments will turnout and you have to bear this in mind when investing. And the risk is higher the more liquid your investment is.

So real estate will be risky to extent there is a repeat of PEV because certain areas will become no go zones. Cosmopolitan towns like Nai, Mombasa and Nak will benefit on the other hand. Any slight hint of discord will send NSE investors scurrying into bonds, saving accounts and other frontier markets if they are foreign investors. IN which case, an investor will want to stay in stocks that show low volatility but give fair income (say 4%+ dividend yield). Alternatively, one can focus on being liquid to take advantage of volatile shares. As of now, I am looking at shares with that are either illiquid or have small floats in the NSE and either give good income or are more affected by other factors other than politics. Examples being Carbacid; EABL; Eagaads.

So what is the likelihood of discord or even PEV in 2012? The signs are not promising. The Ocampo announcement gave Kenyans hope that VIPs who had been able to escape the law would finbally be getting some law on their heads. It was to be a huge step forward in quashing impunity. Somebody would finally be held accountable for PEV. The new Katiba gave Kenyans hope that we'd henceforth start doing things legally, but also with goodwill.

Alas, Mwai Kibaki has other ideas. The first appointments under the new katiba for AG, DPP and CJ have be done with the utado attitude thaat we expect from Kibaki and since he has the numbers in bunge, the 3 will go thru. The appointments are not dissimilar to those of the ECK commissioners in early and late 2007 that effectively created the environment for the rejection of the 2007 ge results. The political elite don't suffer from the consequences of their actions and hence will never learn. There is no excuse for us investors.

Kenya Real Estate for beginners - Plots/Land

2011-01-26T07:19:00.002Z

It’s never too early to buy a plot for your own future home or for investment purposes.

Do your due diligence

1. Check in your proposed location of purchase for amenities that you require

a. Electricity

b. Water

c. Nearness to tarmac road/main road or river if for farming

d. Any proposed developments

e. Any past or present issues with land ownership such as reserves, demolitions, forest land

f. talk to neighbours understand if any issues over land

g. confirm pricing either via Nation’s Thursday property guide or visiting nearby shopping centre

h. above all, visit the plot/land you intend to buy wherever possible.

2. Paperwork

Get the owner to show you the title deed. Note the title deed number and the size of plot/land. Note that 1 hectare 2.47 acres. ¼ acre is therefore 0.24 hectares. Note that some surveyors can and do understate acreage

Take a photocopy of the title deed and take the same to the local district land registry where you will pay Ksh500 for a search. The search is a land registry document that confirms if there are any caveats from bank, other buyers or relatives.

There are occasions when owner may legitimately not have a title deed. The only legitimate reason is inherited plot/land. Certificates are tricky because there is a trade off between legit certificates that can easily be converted to title deeds and certificates of ownership that are in perpetuity

It favours you often to have a sale agreement that has the legal back up. If you are buying plot/land worth Ksh1m plus, the lawyer costs can to around 30-40k. I think it is worth it.

You will need original and copies of your ID, KRA PIN (which you can no longer obtain without an ID). You will also need 4 passport photos from buyer and seller.

Don’t bribe to get paperwork processed faster. For example special land boards will usually come back to bite you. Most land offices have the terms of service prominently displayed on the counter and its worth reminding them.

vii. Copy of owner's title deed->search->sale agreement->transfer->land board consent->stamp duty->your title deed

Pricing: Kenyans today know the worth of their land. No seller will overprice you if you make them a reasonable offer. Cash is king and if you have it, it opens doors to very reasonable price offers. As an example, most people nowadays do 10% deposit and remainder in 3 months. If you go to the seller 10% now and remainder in a month provided they drop price, it leads to a different outcome. It’s also possible to go to the same seller and offer 50% now and remainder in 6 months and they’ll favour you because of the cashflow aspect of a deal. Pointing aspects that please you and those that don’t while pointing out favourable payment terms will get the price down too.

Related costs: Stamp duty on plot/land is 2% in rural areas and 4% in urban areas. That is % of buying price or Lands’ valuation whichever is higher. Where land requires surveyor beacons, you need to add another Ksh10k though you should get the seller to these on. The costs of changing the documents tend to be around 3-4k. If you get a sale agreement, you’ll find most sellers don’t really care either way and you bear the cost 100%. All in all, these related costs will be between 3-6%.

Caveats: There is caveat emptor. You also place a caveat with Land registry if you are putting down a deposit and paying remainder much later or you fear somebody may attempt to sell your plot/land especially if you are in diaspora.

Please support the "Yes to ICC, no taxpayer money for ICC culprits" petition

2011-01-19T07:29:00.000Z

Many of us lead busy lives. Many of us can't afford to march on streets of Nai or elsewhere against impunity. Surely, we can however sign the 1 million petion(http://www.petitiononline.com/811976/petition.html) in support of the ICC process and to say no to continued impunity in usage of our taxes.

Many of us are afraid to take a stand lest will be laughed at; injured by no brain kalaus; fired from our jobs; ostracised by fellow tribesmen.

Lakini today, we are faced by "manifest nonsense" of a different level. If you drive through the Nai-Eldoret road, you'll note that we still have active IDP camps. Kenyans like you and me who happened to be in their own homes were thrown out by impunity as a response to impunity. Many other Kenyans lost loved ones because of trigger happy cops given permission to let loose. And then we are being told that taxpayers money will be used to defend the drivers behind this PEV. I think we can agree, this is not a good idea.

1 million signatures are significant today in Kenya because its the number required to amend the new Katiba.

Did Raila create a frankenstein monster that will destroy him?

2011-01-19T07:23:00.000Z

In the 2007 general election, Raila successfully campaigned on a platform of overt tribalism. Let’s be clear at the outset. Tribalism has plagued Kenyan since independence Kenyatta practised it; m-0-1 improved on the practice, Kibaki reverted to the Kenyatta practice and so forth. The first two presidents dealt with tribalism by dictatorship. Kibz on the other hand allowed democracy to flourish in country that is not yet a nation, but made the mistake of perpetuating past tribal practices. The difference is that democracy is a competitive where you gain voters by creating an ogre out of your opponent. So in the US, you call Obama a communist and a Muslim; in the UK, you used to anoint your opponent as a tax and spend Welshman with character flaws. They do however, campaign on issues pertinent to voters. If it was an issues based campaign, the 2007 ge would have been very close as I then alluded to.

Once the no campaign closed out the 2005 constitution with a convincing, Raila then moved on to create his 5 pillars effectively channelling tribal kings in each of the bigger tribes sans the Kikuyus. The campaign was successful in that he run Kibz to the finishing line. Unfortunately for him and us Kenyans, the general election campaign legitimised the no-issues, no-ideology way of campaigning. This was replaced with the tribal mathematics game whereby the most intense part of the campaign is spent in looking or creating tribal kingpins who can deliver a good number of votes.

Today, his protégé Rutovic is looking to copy and paste the same trick. He has already created his ogre, "Raila the betrayer", the next step is then to find kingpins with likeminds but with numbers and finally cobble up some bull to feed voters. There will also be subtle digs against "the people from the lake".

My hope is that this time round, Mzalendo Kibunja and his colleagues at the National Cohesion will step in to nip this nonsense on the bud before it steps us up for another PEV.

Kenya in early 2011

2011-01-17T06:53:00.001Z

The economy is growing once more at an amazing speed. Growth is not as uneven as some would have you believe. You can see progress in as devise places as Nai with multi-estates coming up every year; Kisumu with electricity even in such outposts as Sengho on the Nandi/Muhoroni border; Nanyuki with its expansion towards Naromoru and Timau; even Diani is seeing some huge real estate growth as people wake up to the huge potential of South coast. Its not just real estate growth. Businesses as diverse as greenhouse farming to new hotels are seeing good and sustained business growth. However, we are still too dependent on good weather for continued economic growth.
Kibaki is road builder per excellente. The only that will thing stop you from doing Nai to Eldoret in under 3 hours is that you may pass on since Kenyans can't drive safely at speed and of course a few bits of new tarmac ruined by overweight trucks. Yes, Kisumu to Kakamega remains neglected still, but I can safely say it is one of the few bits of bad road I encountered in a tour that took in some 2-3,000 kms of roads
Corruption remains big and bold issue: I was asked for bribes a record 4 times in one holiday. Imagine the I land at JKIA, as I pass through the obligatory custom check and after the usual queries about what I am carrying, the custom guy asks for my passport. As soon as he saw my name, the conversation was surreal. The customer guy to his colleague who was about to inspect my wife's cases "we, hawa wako pamoja, wacha waende". Then he turns to me in kiuk and says "Maina, what you'll do is buy 3 beers" then to a kalau standing by. "Wewe enda na huyu atakupatia pombe tatu". The custom guy is obviously from the Sonko school i.e. not too bright. As soon as I get outside and I am there with waiting family, the cop is prodding me on the back ati "si ulete pombe tatu". I just said loudly, "unataka ni kuhonge". And he practically ran-off. Corruption is now seen especially in mashinani as the only way to get service when you encounter public servants. This has in effect created a real problem in tackling the issue because the giver and taker of bribes almost think alike. Lakini if you pay taxes, and still pay bribes, its like paying your worker a salary and then bribing him to do a task for you.
There is a now a huge political disunity among Kenyans which poses questions about 2012. Many uniformly agree that our politicians are a problem and sow the seeds of disharmony and yet when they are asked to, they'll back their tribesmen without questions. The Ocampo announcement day was very instructive in this respect. Before and immediately the announcement was made, Kenyans almost to a man were agreed that the guilty must carry their crosses, that Ocampo and the ICC were impartial and that Kenyans would not support impunity. In contrast, the first MP to be questioned about it, said "Ocampo has totally failed, he has targeted Nandis". Two things wrong with this, firstly, there was no challenge from the Citizen reporter since the 6 also include 2 gema and one somali. Secondly, even other politicians who came after were similarly one-eyed. By the end of the week, you would hear similar views from mashinani guys.

Kenya's next leader -a sweet talker or a deliverer?

2010-11-22T06:58:00.000Z

A developing nation needs a leader who will (a) increase the size of its ugali and (b) do so sustainably. As a Kenyan, you can attend as many political rallies as you want; listen to as many funny political jokes/tales as you want, but come dinnertime, you'll be wanting to eat and possibly eat better over time to allow you to attend more political rallies. Once you have a family, you'll want to get a job or business that puts food on their plates; to be able to cloth them; shelter them and pay bills. You'll want a career or growing business so you can keep up with their growing needs. Finally, as a good parent, you'll want for them to successfully replay that same tape. Believe you me, that is only going to happen if you elect leaders that can do (a) and (b).

I believe that both are very challenging deliverables and it'll take a good leader to do one let alone both.

If you look at our past, Kenya has had two leaders who delivered somewhat on (a), but because they didn't deliver sustainable growth, their record is somewhat tarnished. Up until mid70s, Kenyatta had allowed Kenya's economy to grow at a good speed. Corruption and signification changes such as allowing civil servants to own businesses; rampant tribalism meant that there was anxiety as he approached his last days and political assassinations meant he bequeathed a failing template.

Hopefully we can't argue that Kibaki has implemented policies that have allowed the economy to grow during his term so far. And yet, the anxiety we collectively feel about 2012, says a lot about his failure to deliver a sustainable growth model...

A sustainable growth model is difficult to deliver because it requires the deliverer to be of sustainable habits. If you are corrupt, tribal, uneducated, don't do politics, vision-challenged and so forth, you won't deliver a good legacy. You won't build institutions that are sustainable. Your going will find people rushing in to replicate your habits.

The search continues...

Kenya's adoption of the "spend now, pay later" model

2010-10-27T06:35:00.001+01:00

If you were to be offered the choice of shopping using your credit card or somebody else's credit card, your behaviours would be very different.

The spend now, pay later model is now a key characteristic of Western capitalism. The 00s boom and its aftermath have been funded by private sector leveraging itself to the hilt. And the public sector (govts) stepping in to continue the leveraging and in effect spread the same to everybody. In layman terms, many people and companies borrowed more than they could afford on their credit cards loans, mortgages et al to finance a feel-good lifestyle. When the whole facade crumbled, governments stepped in and borrowed money to in effect repay these debts. They also performed a socialist service by making sure that the paying was spread out to everybody.

GoK has been borrowing to finance both its blotted bureaucracy and also development projects. Lately, private sector lending to finance mortgages, credit cards et al has also increased. While financing development projects such as infrastructure will pay itself back in due to course, the rest of the spending is unlikely to bring any returns. As such, paying back the borrowing will become a problem in the medium to long-term.

Rather than waiting for the medium-term, Kenyans need to start taking pro-active steps to ensure they leave and grow economically. Within their means.

Like the Tatu City idea, but who is minding the ecosystem

2010-10-27T06:09:00.003+01:00

Nairobi is the Green City no more. We have built over almost every empty piece of land such that if you were in Eastlands and wanted a game of football or a picnic in the park, you have to walk to Uhuru Park. If you are in Karen, you have to go to one of the gentrified pubs in the area. If you are in Westlands likewise.

As we now look to the outskirts of Nai as the next destination of our concrete jungle, it'd be wise to start thinking about the consequences of:

a) uprooting farmlands with plants that in effect act as part of the cleansing of the atmosphere

b) using the most arable land in Kenya for buildings. Its ironic that most Kenyans prefer building on red soil, which also happens to more productive food-wise.

RIP Nelson Muguku- Equity's largest individual shareholder- an inspiration to me

2010-10-11T20:30:00.002+01:00

From this unlikely business, he rose to become a 6.1% holder of a Ksh100bn bank that is one of Kenya's business star stories. Proof once again, "its not where or how you started, its where or how finish".

He put to shame those who said Kenya doesn't have honest billionaires.

He has been an inspiration to me. May God console his family at this time.

The early bird catches the fat worm is the golden rule of investing

2010-10-11T06:22:00.000+01:00

Imagine you had invested in Equity in 2006 when it listed. Suffice to say, but today you'd have made a million even with Ksh200k worth of shares. Imagine you had started saving as you started working. Even if it was just 10% of your salary. Today, you'd probably have the equivalent of your annual salary in savings.

If you had a bought a one acre plot in Athi River or Kitengela in the early part of this decade, today you'd be looking to spoilt the same into one eight acres plots costing the same as the 1 acre you bought in early 00s. The same is true of almost any large town in Kenya. Even agriculture land has in some parts increased by similar price.

Who is your uncle? Africa culture goes missing...

2010-10-06T20:51:00.002+01:00

Had an interesting discussion the other day. The sister of this guy is having a child. Big news especially in England where odieros are increasingly choosing not to procreate. The guy was very happy that he was shortly to become an uncle and this is where the debate began. You see, I happened to say that I’m already an uncle and the question was then paused as to whose uncle I was i.e. which of my siblings has a child. I responded that all my cousins’ kids call me uncle. At which point, i was told that I’m not an uncle.

You see, according to Western definition, the only person that can be called an uncle is the brother of either your parents and at a stretch (if the sun shining . In Kenya (and I believe a significant portion of Africa) however, the definition for your uncle is extended to include your parents cousins. When I explained this cultural context, there was silence. the sort you get when you are into subjects where the majority are ignorant.

Africa culture is with very few exceptions, ignored the world over. On the other hand since 1884 and beyond, we continue to gobble up other cultures.

Culture is important because it creates cohesion. It gives one roots and identity. Because of these and other important features, colonising nations have either used culture as a colonising tool or a signal that they were in control. Part of reclaiming your nation is to instil your culture.

NSE on track for a 4,800 finish

2010-09-20T06:15:00.000+01:00

As previously mentioned, I believe that barring another drought, the NSE will reach 6,000 in 2011 before a slight dip in 2012 to allow for the general election. To do so, it'll have to hit and stay above 4,800 during 2010.

Up to now the NSE has been driven by a combination of emotions primarily derived from the political theatre; economic fundamentals which are driven by rain or no rain and foreign interest which tends to be driven by how Western economies are performing.

With the katiba referendum successfully out of the way, the only other chink in the political armour might be the ICC investigations, but I see those getting bogged down mainly because this GoK doesn't have the cojones to deal with impunity. Thus no nervous investors.
Economic fundamentals: The structure of our economy is such that domestic demand plays the key role in the economy's outturn. Domestic demand is driven by disposable income and credit build-up. Disposable income is derived from income less taxation (which is fairly constant) less BAU spend. This BAU spend can be very volatile especially if prices of daily supplies go up. They did in 2008 and the NSE tanked. Once it started raining, Kenyans could spend more on investing and savings. More importantly manufacturers could see returns on their investments, thus economy starting growing again. Should rains continue in later 2010 and early 2011, NSE will search 5300 by March 2011.
Western economies: Are set for a low growth until 2012 at least. This maybe to NSE's advantage as many fund managers such for alpha will have to go beyond over-priced commodities and buying bonds from heavily indebted sovereigns.
IPOs: This is not really a driver but tends to be a firm signal that the NSE is buoyant and on the up. So far, KenGen's OSF, NSE IPO, the IPo by the baker, NBK's OSF have all been talked about but not delivered. By my reckoning, the NSE needs 75 counters to really catch the imagination of joeblogg type of Western funds. Nobody wants to pay a P/E of 15+ and having a few more counters will drive P/Es to attractive levels.

Charterhouse bank - the money-launderer's dream bank

2010-09-07T06:15:00.001+01:00

Charterhouse bank cost a CBK governor (Andrew Mullei) his job. It also led his obvious successor, Jacinta Mwatela missing out on the job. Several people involved in investigating the bank either had to flee for their lives or their careers were ruined. Its crimes:

Money laundering: In any story you read about money laundering in Kenya, one of the best examples you get is that of Crucial properties which held a foreign currency account with Charterhouse bank. The company owned by among others Humphrey Kariuki (Wines of the World; Dalbit Petroleum and I think former proprietor of Green Corner in Nai) was investigated by CBK after it received $25m from either Leichstein or Jersey (depends who you ask). CBK reckoned this was drug money. Charterhouse refused to provide details and the whole thing went to court. The judge allowed Charterhouse to go scot free. In the meantime, the CBK team doing investigations discovered that Charterhouse had like 200 customers with 20,000 accounts. Many lacked basic know-your-customer information, but were clearly opened for the the purpose of layering where you disguise the source of your money by making multiple transactions into different accounts. That money-laundering only became illegal in Kenya this year is neither here nor there. When CBK delved it discovered the following other crimes none which have ever been successfully prosecuted because CB and related players pay well.
Tax evasion: Charterhouse helped Nakumatt (had a 10% stake in CB), to effectively under-declare it sales which meant that its tax payments to GoK were something like Ksh50m compared to Ksh500m for the smaller Uchumi! Effectively, Nakumatt and associates had not paid taxes amounting to Ksh18bn going by the CBK findings. How? Suppliers were paid into their CB accounts where they would either ship the money abroad or shift into several other accounts within CB. When KRA came, it started chasing the account holders. Those cases are still pending.
Large exposure breaches: Means nothing to most of us, but most banks that have either been conduits of crime or played with the idea of collapsing always do so because they breach larg exposure requirements. In layman terms, no one customer should more than 25% of a bank's loans or deposits. Reason being, if the customer collapses and goes to heaven tomorrow, the bank will more or less follow (though presumably not to heaven). Nakumatt and associates probably did something like 50% of all CB's business. CB also broke banking rules on lending to employees;

Why did Charterhouse survive to awake now as its threatening to do? The owners of CB are well connected characters.

Fuller details here.

County Kenya - making your county viable

2010-09-06T06:45:00.002+01:00

I see counties working only if they tick 4 boxes:

Financial control:

The world over local governance fails because for a whole host of reasons they spend more than they get from central govt or can collect locally. As of now, I'm aware of any financially solvent municipal or city council in Kenya. Its not Kenyan either. In the US, very few states are able to balance their books. In Kenya, the chief issue is not corruption but lack of financial control. Corruption is a by-product of this. Add politics and the cocktail is potent. Apart from the kind of auditing that is being done on CDFs, the second part has to come from the locals themselves. Seek accountability from your county by electing men/women of integrity and professionalism. Ksh2bn can look like a lot of cash but if your county has 1m population that is only Ksh2k each. Its not cash to be pilfered but to put into projects that will generate returns. Proper accounting, budgeting, project management and procurement processes will seal loopholes. Although, new Katiba doesn't have it, I expect some revenue raising powers for counties eventually. In any case, revenue and job creation measures will become a key differentiator between viable and non-viable counties. Hence,

Industrial base:

Nairobi has grown chiefly because its a magnet for most of the Kenyan brains. And many others. Counties without any employment prospects will become a mere curiosity. A grounded industrial policy should be one of the things each governor should be judged on. Measures to attract some of the industries currently congested in Nai's industrial should be looked at. Counties should consider setting aside 25% of their revenue to attract prospective employers be it via soft loans or even infrastructure development. While industrial development should be pegged on comparative advantages e.g. its no point Turkana setting a tea factory; certain counties may need to create the comparative advantages. As an example, Laikipia can look to set a meat processing concern or even look to aggressively market its tourism potential which is huge (Mt Kenya, Bantu lodge, Solio lunch, Samburu traditional homes etc). Others like Eldoret must look to turn the nearby Moi University into a R&D assembly point where students can come to study and build their lives as they become part of the next Silicon valley and so forth. No industrial base will really take off without...

Infrastructure:

Many counties have basic infrastructure. A touch of tarmac here; a few homes with electricity; very basic health centres. If a county is planning to become the next base for manufacturing of agricultural produce and other value-adding activities, it'll need power either from the national grid or by supporting solar energy collection. It may need a working airstrip or even airport to either transport produce to JKIA for onward transmission or direct to export markets. Roads will have to be good even for non-perishable produce as bad roads increase fuel costs. Its not just hard infrastructure, soft infrastructure in form of promoting R&D to locate to your county will create the brainpower to attract the employers that are needed. Upgrading and increasing the number of secondary schools (provide subsidised internet); technical schools supporting industries; universities will create a virtuous circle. Planning will also make a difference. Nyeri has had the same buildings and streets since I can remember i.e. late 80s, but also seems like many other towns to have sprang up a slum or two.

Minimise impact of politics:

Unless we get any external influences, competitive politics are here to stay. If Kenyans can't understand or won't play by the rules of such competitions, we'll have bloodshed or the kind of tension we had between 2005-8. Eventually, you find the economy goes backward as ours did in 2008-9 period. County govts that fall prey to negative politics will become like in the council of Nai or even Momba where nothing really progresses because the political animals can't see the big picture. How do you minimise negative politics? This comes back to the local county people electing men and women of integrity. It doesn't matter what you want as a county dweller, if you vote for the guy who builds up your party or pays out most, he'll need to recoup that outlay or party line up. Secondly, CDFs seem to have elicited more involvement by constituents in their affairs and this level of involvement will need to be there for county governance to work. Finally, the foundations and the future of your county will be laid by the first county government in 2012. Electing the right leaders; having succinct katiba provisions for counties and central govt involvement (via annual audits) will ensure that strong county institutions are in place to ameliorate politics.

In short, County governance is here to stay. If it can build on the positive aspects of the CDF experience, it'll take Kenya places.

An analysis of the 2009 Census figures

2010-09-01T06:29:00.001+01:00

Well. Its official. China's one child per family has never seemed more appealing. We've increased by a third in 10years. As many couples will tell you, have one child is very noticeable on the budget. Having two or three is even mooore noticeable.

Unlike in Chine were you need permission to have two children, in Kenya, GoK should just say you have to pay for schooling your second. And clearly we need family planning education.

Other highlights?

Nai has the highest proportion (14%) of its young going to University. Central is next with 2.6%. Vast gap and I'm pretty sure some of it is explained by the fact that Nai houses more single people than children.
2 of the largest counties (outside of Nai), are in Western. Bungoma and Kakamega with around 1.7m each both have 700k more people than Mombasa. Nyeri has a similar population to Kajiado and Kwale (just under 700k).
North Eastern hs the highest proportion of bush toilet users (63%). Unsurprisingly, Nai has the highest proportion of its population (47.7%) with main sewer toilets followed by Coast. With 5.8%. Huge gap. Only 8% of Nyanza households have piped water. Only 2.6% of households in NE (which has the highest), use rain harvesting techniques.
Despite (or because) fo their love of mbuzi choma, Central only have 0.5m goats compared to 4m in Eastern and almost 12m in Rift Valley. Human population outnumbers each of its animals even ingoho which are only 25m. There is an economic opportunity here and I think guys need to think harder about the meat business. If you want asali, go to Eastern province where
Surprisingly, Central has the highest proportion of households (85%) that own a radio. 62% of Nairobian households own a TV with 40% in Central doing the same. Only in North Eastern do less than 50% of the households own a cellphone. A flattening market? Computer ownership (14% in Nai at the highest and 3.8% in Coast which is 2nd), is paltry although I think cellphones have been a handy substitute.
42% of our population is aged less than 14 years.

Well done to GoK for doing this census because it'll help to guide planning.

Mobile telephony - a low margin future?

2010-08-25T05:58:00.001+01:00

Zain's Ksh3 per minute call anywhere announcement last Thursday was in effect the first time Zain has made a no-head scratching announcement. That and CCK's subsequent announcement on halving interconnection rates to Ksh2.21 per minute could mark watershed moment in the mobile voicecall sector.

The key driver of the Zain move is obviously to take away subscribers away from Safaricom. The size of Safaricom's subscriber book is now seen as the biggest entry barrier into this sector and both the measures are aimed at reducing the book. As an aside, Safaricom paid Ksh4.5bn in interconnection rates (13% of its operating expense), you can thus imagine how much the other 3 players pay given most of their subscribers will be calling Safaricom customers.

Safaricom's subsequent response was clumsily presented, but the upshot is that its 8m or so subscribers will only pay Ksh2 per minute to call each other for the next month. Safaricom made Ksh63bn of its Ksh84bn revenue from voice calls last year. Thus Safaricom responded to the threat on its subscriber book (you can tell this is the case by the fact that postpaid customers will still be paying normal Ksh8 rate). The length of the offer period implies that Safaricom's thinking is that Zain can not sustain Ksh3 per minute beyond a month. Wishful thinking?

The issue is this. Can the voicecall providers make money if interconnection rates are reduced and hence they have to reduce the charge per minute? In my mind, the components that make up the cost of a call would be the fixed and variable (staff, commission, marketing) costs incurred by the provider; any costs associated with interconnection; other business-associated costs. A lot of the smaller players can probably sustain a price war because their interconnection cost has been halved. For Safaricom however, such a war would be costly because interconnection rates are a small portion of its business. It is clear that Safaricom is making a very healthy margin from voicecalls.

But the future portends lower margins and I think Safaricom shareholders should not ignore this especially in the medium-term when voice revenue will still be its predominant source of revenue.

2012 and beyond: US/Swiss model or the Nigeria one

2010-08-24T06:13:00.002+01:00

The more I reflect on Kenya's history, the more I realise that how we are governed will be the key differentiator on whether we achieve our potential or not. The new katiba has given Kenya a potentially life-saving form of governance but only if its implemented to the letter. Below I review some of the new facets and their implications.

The 2012 general election will usher in

an executive where only the president and his pre-nominated vp will be elected officials. The rest will be appointees from outside the political circle who will be vetted by the various parliamentary committees. This will work if you have a president who wants technocrats that can deliver in the particular ministry. The US model almost works but don't forget you can get guys like Donald Rumsifield. If done properly, we'll get a John Michuki-type in every ministry.
County governance. This is new but it means that a lot of the current MPs will actually prefer being governors and senators than MPs. A positive because it means that we'll have a new crop of MPs. The downside is that your current MP might be angling to eat his cut of the 15% from the budget. In this respect, lets pray we don't get the dysfunctional Nigerian model but the super uber efficient Swiss one. Already in Nyeri, Elephant Maina is eyeing the governor seat to consolidate the horrible road he did in the area. Do you think any other road contractor will build roads there?

NSE: lull before a dip or a rise?

2010-08-17T05:17:00.002+01:00

Despite a very positive referendum outcome with Kenyans voting overwhelmingly to look forward than backwards and doing so peacefully even in the volatile RV region, the NSE seems to have taken the news with a discernible lack of interest. Is the market ignoring these gains in the political environment or are there other factors at work?

Yes there was a rise pre-the voting day as it became clear that the YES team had done enough and moreover Kibz govt had anticipated any violence in RV by posting security everywhere, but a subsequent correction whittled these gains.

To my mind, the reduction in political risk should mean the NSE heading towards a 5,000 close by end of the year to reflect the gains in the economic arena not just from the YES vote but also the subsequent dividend from the same as well as the bumper agriculture produce that we should be seeing this year. This latter factor should mean lower produce prices this year and thus lower inflation feeding into higher savings and so on.

The future for Kenya's economy notwithstanding usual weather issues is frankly very bright and one would be advised to pick NSE shares that have either strong regional momentum or products that have a regional reach. Equity, Centum, DTB to name but a few have set their eyes on achieving the same sort of growth rates in EA that they have in Kenya.

Yes? No? the katiba referendum summary

2010-07-26T09:06:00.003+01:00

If you:

Want to be able to recall your MP for non-performance. vote YES

Believe MPs should set their pay. vote NO

Want land policy removed from president's control with size set being set by parliament. vote YES

Believe current land policy is good and its good president has veto on who gets land. vote NO

Want an independent judiciary. vote YES

Believe the president should continue appointing favorable judges without veto. vote NO

Want Kadhi courts not to be GoK funded, but think Christians can get 1m signatures to amend. vote YES

Believe Kadhi courts (a) will cease to exist (b) are the most important item in the katiba. vote NO

Want president's appointments to be vetted and veto'd by parliament. vote YES

Believe president should have the right to appoint who he pleases. vote NO

Want an independent central bank able to impartially supervise the financial industry. vote YES

Believe that the president and his finance minister know the banking industry best. vote NO

Want a semi-centralised governance able to take local development decisions. vote YES

Believe a majimbo system that appreciate regional tribes is the missing development piece. vote No

Want an anti-abortion law that recognises that special urgent situations for mothers' lives can occur. vote YES

Believe that there is an anti-abortion law that can stop abortions occurring in Kenya. vote NO

Believe current katiba is better than the proposed one. vote NO

Want a katiba that is superior to current one and reduces chances of dictatorship. vote YES

Want a constitution that recognises that its impossible to get all Kenyans saying yes. vote YES

Believe a katiba ain't a katiba until all voters agree its the business. vote NO

Will forthcoming Katiba referendum impact NSE?

2010-07-08T21:44:00.003+01:00

By and large, business loathes uncertainty no matter what the source. As do the investors who invest in such businesses. There is logic to this. A business will normally plan and target certain revenue and cost outcomes for the year or for multi-years. These will be primarily be based on it being able to sell as much of its product and services as possible while keeping the costs down. While there will be some scenario testing it will not usually include the impact of PEV or continued tense politicking.

Kenya has spent 47 years under one katiba and its not gotten us far from 1963 apart from population-wise. A large part of this is because we didn't know what we know today about governance. This katiba is the sum of our learnings over those 47 years. For 20 years we've seeked to agree what these are and now we have a document that summarises them. To continue dwelling on this is sheer waste given the other pressing needs that we have.

A Yes vote will bring closure to the yearning for a new form of governance. It'll mean that we have a katiba that takes us forward for another 47 years. It is not a static document i.e. it is amendable. 2012 general election will be held under new rules that we understand

A No vote will may condemn us to another 20 years of continuous search because we'll effectively have taken the energy out of a new katiba. A No vote will mean that 2012 is approached with apprehension. The issues which would make us vote No are not even small print but a symptomatic of a minority that refuses to see the woods for the trees. A No vote will mean that NSE definitely factors-in a fractious 2012 general election.

For all the above, its advisable to hold cash that will allow you to take advantage of some low priced stocks or average down.

You can now track your shares at CDSKenya website

2010-06-02T06:39:00.000+01:00

This a significant step forward in helping the NSE regain some of the momentum from 204-6 period. The automation of share trading at a was huge step in increasing share trading and share ownership. The subsequent collapse of FT, Nyaga and lately Ngenye Kariuki accounts for at least 30% of the NSE losses suffered in 2007-9 period. The wisdom of increasing CDSKenya's visibility was an obvious step in trying to restore investors confidence that they would not lose their hard earned wealth. CDS Kenya under Rose Mambo's able leadership has been innovative allowing investors to register so they can get an sms when an order is transacted on their CDS account and also emailing monthly statements to investors so they can monitor their CDS accounts.

The online service allows you to view your account via http://www.cdsckenya.com/ and all you have to do is remember your CDS account number and the ID number or passport number you used to open your account.

Two things to note:

You will not be able to see any of the cash you may foolishly have left lying in your CDS account. Note further that if you broker was to collapse, only your shares are 100% guaranteed. Any cash will be subject to Ksh50,000 maximum payout.
NSE operates a t+5 days settlement system. Which in plain English means that you won't be able to see any sale/purchases made over the last 5 business days in you CDS account. This is a bit of a loophole that I am sure brokers and can exploit.

Proposed constitution: A review

2010-05-08T19:13:00.004+01:00

Basically, this document is idiot-proof. Anybody can read this katiba and understand what each article says without needing an expensive lawyer or re-reading it severally.

Parliament:

Set parliament periods. Elections will be held on the 2nd Tuesday of August every 5 years.

Parliamentary Service Commission's composition continues to nag at me. i think its too MP-heavy and renders itself to their undue influence.

The MP recall clause- is in, but its not i.e. parliament has been given permission to come up with a law setting out the requisite criteria and procedure. However, article 105 does allow one to take a petition to high court against your MP basically declaring his seat vacant. And petition will be heard within 6 months.

Executive:

President has to seek parliamentary approval when appointing his/er Cabinet (now known as Cabinet Secrtaries), AG, Secretary to Cabinet, Principal secretaries, ambassadors , Cheif Justice and his/er deputy and ANOTHER.

Has to wait for 7 days after the elections before s/he is actually sworn into office (no more midnight swearing shenanigans)

Cabinet ceiling set at 24. Not sure why there is a floor of 14.

Cabinet secretary can't be an MP.

Cabinet secretary can be dismissed by parliament via majority vote (Kimunya won't have to die and resurrect)

Kadhi courts deal with muslim matters. Imho, they shouldn't be part of the civil service, but having been around for 53 years, it'd sheer hypocrisy to say I'm voting NO because of them. I can wait until the katiba goes through and then wage war proper.

Economy:

Devolved government has made it into the katiba complete with revenue (set at a floor of 15% of GoK revenue) and own senate.

Better control of public finance via a pre-budget statement that will allow parliament committee to consult the public.

An independent CBK-very very important especially for banking supervision and monetary policy.

Other of note:

National police

Amendments can be done via parliament and popular initiative.

Land policy

Dual citizenship

Make voting mandatory

2010-04-29T21:57:00.003+01:00

I am ashamed when I read people of my generation who say they won't bother voting. I worry when I read that only 55-60% of people vote in Kenya and less in developed countries. Part of it is a lack of history. Most of the people who died or were detained without trial in the 80s and early 90s in Kenya did so while agitating for the right to be able to vote for people they wanted to lead this nation. That is the emotional part.

If you work, run own business, invest or own property, you pay tax. That is unless you are not on the tax avoidance thang.

If you pay for your groceries, you check they are green enough. If you pay for your car, you check steering, brakes, accelerator, cromes et al. And you pay more in your ta,x (30% every month of your income) than for all these other things part from may be your home. Its not just intelligent, but right that you care about how what you've earned with your sweat is spent. Your vote may even change how and when you are taxed. Vote because whoever you choose will decide how your money is spent.

After 2007, some may say your vote was stolen. It wasn't because everybody in Kenya is in GoK and we have all now learnt a few things. Like? Most politicians in Kenya are the same and it'll require us to reassess whether its presidents/tribes/personalities we vote for. Or ISSUES. The katiba debate is encouraging in that respect. Your vote is your way of saying you are engaged in what is happening in your country.

For those of us who are prayerful. Paul spoke about how prayer alone may not be enough without action which represents our faith in something happening. If you have faith that God will give us good leaders, put it into practice by voting for those good leaders!

NSE @ 6,000 a possibility in 2011

2010-04-26T06:51:00.000+01:00

In 2007, when the NSE last reached 6,000, Kenya's economy was growing at around 7%. 2008 was 2-3% and 2009 was similarly anaemic. This year, God's favor in form of good and continuous rains mean that we are almost guaranteed 4-5% growth this year. Next year, with God's favor with the rain, we can touch 7% again assuming that we don't get into any early 2012 political skirmishes.

Because we never entered a recession in 2008-9, the economy has continued to grow and thus I believe we are poised higher in the NSE.

The private sector manufacturer and service firms should be announcing firmer or better than expected results for Q1 2010. By extension, financials which took non-performing loan hits due to PEV in 2008 and drought in 2009, will now see the upside in their balance sheets for which they've been restrained in growing.

All the above, plus the artificially lowered lending rates portend a higher NSE.

The key supporting point is 4,800 which we need to touch in 2010 so we can launch higher in 2011.

Which stocks?

Equity- we all acknowledge the step into IB was unclever. Not so Uganda and South Sudan businesses. Uganda ofcourse has oil and despite M7's re-election in 2011, its economy will continue a north-bound journey. South Sudan goes for a certain independence referendum in 2011. Both will support the upturn in Kenya's economy still Equity's bread and butter.

Centum- I think its a transformative time for this investment firm and James Mworia hasn't put a foot wrong yet. Getting into Carbacid when he did and breaking its logjam to allow trading resumption at NSE was a masterstroke. Exiting RVR and writing off the investment in advance all mean good thangs for full year 2009/10 (announcement due soon) and going forward.

I also fancy some manufacturing exposure to the likes of Crown Berger, Carbacid all which do well in an upturning economy.

Downside risks: as mentioned, any early 2012 campaigns will remind investors (specifically foreigners) that a new leader is due in 2012 and create tension. Another drought will have a similar impact to 2009.

Greece debt mess from unbalanced economy- can Kenya learn?

2010-04-25T15:49:00.001+01:00

Greece's debt crisis which may lead to a complete economic collapse is as much about profligate spending as it is is about an unbalanced economy.

A balanced economy is made up of 3 key pillars whose relationship can be summed by this equation;

a - b + c = flourishing economy

where:

a - is the private sector whose growth is a must as it effectively generates the required tax revenue that is taken by the

b - government/public sector and used to finance various types of infrastructure from judiciary to roads

c - is the external flows in form of investments; loans/grants and aid

From the above equation, its clear that if you have a huge or growing public sector then the either financing will come from either external flows or a faster growing private sector. In any case, whether the cash is coming from the private sector or external flows, in a recession, neither will be able to sustain the huge or growing public. Even in normally growing economy (neither too fast nor too slow), a huge or public sector will eventually stall the economy. A time will therefore come when massive cuts in the pubic sector spending have to be undertaken. But, typically, the public sector employee unions tend to be the most well organised and resistant to change. Public sector can be used as a patronage system rewarding supporters of current regimes with jobs.

Greece is a typical case of the above happening. The public sector accounts for 40% of its GDP! In effect this is almost non-productive resource being used without concurrent growth in the economy. In a recession, public spending would need to be reduced and this can be a problem where the unions are well organised.

While Kibaki's govt has made giant strides in reducing govt spending by for example privatising various parastatals, its also clear that since 2007, spending has gone awry with deficits recorded every year and the 42 heavy cabinet doesn't help in this respect.

Einstein said intelligent is measured by how well you learn from mistakes and it is hoped Kenyans can do so from the Greece debt crisis.

Equity/HFCK boardroom myths; Mpesa in the UK

2010-04-12T06:08:00.004+01:00

Despite all the talent and research time at their finger tips, both DN and Standard seem to have missed out on the fact that the Equity/Britak/Jimnah Mbaru fraternity owns 35%+ of HFCK. Basically, the 3 hold a controlling interest in HFCK. That they'd seek to have a BoD that is more amenable to their interests is no surprise. Is it wrong to do so? Not in Kenya. Note that unlike in the West where there are clear guidelines on the composition of Board of Directors and corporate governance generally, in Kenya, CMA/CBK/NSE are all silent on BoD. Hence, a lot of what happens in Corporate Kenya in terms of composition and BoD rules is copied from the West purely in the same way that we have democracy without the context. However, there should be rules that state that of the third non-executive directors, some should be non-shareholders.

Mpesa is in the UK. Not quite in the same, all path-blazing way that it has been in motherland, but more in an experimental manner. Of the 8 or so publicised agents in Greater London, only two were working the other day, and neither had a float to sustain a £250 send. Contrast that with Western Union or general banking presence. However, assuming you are sending school fees plus lets say farmer workers salary and need to do so urgently, then its recommended you use the Mpesa service. It costs £4 for anything upto £150 (compared to £21 with Western Union and £2 via normal bank) and will be with recipient's phone in Khayega in minutes (compared to 3 days for banks). Provident Capital have licensed some agents (the only operative one is E2 East Ham).

What lending rate should we be seeing from Kenyan banks?

2010-04-06T06:05:00.004+01:00

The last 6 months have seen wailing pleas from CBK governors and media types calling for lower bank loan rates. Much have of it has been emotive/subjective.

Although there are many factors that are considered when deciding on the the correct loan rate, 3 are key. Cost of borrowing; return on capital; loan quality.

Cost of borrowing: Quite simply, a bank is gets its money from 3 sources in order of quantity; depositors, lenders and shareholders. The lenders will typically charge some internationally priced rate and shareholders are covered below. If you look at a typical Kenyan bank's balance sheet, you'll note that the largest two single items are deposits and loans. While we are can talk about the desirable type of depositor (i.e. raia like you and me who are seen as far more stickier than corporate or other financial entities), the key consideration here is the rate depositors require before they can deposit with a typical Kenyan bank. That is, the rate they lend to the bank. Per CBK, the current average deposit rate is 4.89%; typical savings rate is much lower at 1.81% and finally the interbank rate is 2.17% (its unusual for the interbank rate to be so much lower than the CBK rate in itself a sign of some dysfunctional issues). So Kenyan banks are paying 489 basis points for deposits. They are then not going to charge bank loans at anything less than 4.89% and possibly more if their borrowing from abroad (i) attracted higher interest rates and (ii) is a significant portion of their borrowing. We've overlooked the maturity mismatch issue i.e. the bank is borrowing short (you as a depositor can withdraw your funds at any time) but lending long-term (a bank can't take back its loan tomorrow). So lets say 5.5% to breakeven against cost of borrowing. But is this real cost of borrowing? What about staff costs, administration costs (IT, branches) et al. I'd say add 50bps. Thus arrive at 6%.
Return on capital: A bank has many stakeholders, but the shareholder is the key one as they can guarantee continuity from a regulatory and financial perspective. The bank's lending rate must therefore reflect the shareholder's desired rate of return on his/er capital to keep their capital with the bank. Straightaway, you'll note that the shareholder wants the regular income in form of dividend and eventually in form of capital gains. A potential shareholder (note not a speculator), will want to keep his/er capital with a bank share for say 2 to 3 years. He/she doesn't know what may happen in those 2/3 years i.e. the risk is high, but at the end of it they'll want a return on the principal and reward in form of gains or income for keeping the cash there. The alternative would be to stick the same cash in a t-bill and earn minimum 8.75% per year with guaranteed principal protection. The bank has to deliver an annual income of no less than 8.75%, guarantee the shareholder's principal by ensuring growth in shareprice and reward the shareholder for sleepless nights. Lets say we are now at 10%.
Loan quality: In Kenya, a bank historically relied on quality of collateral in form of a clean title deed. Many banks have learned painfully that (a) title deed may not be legit (b) may not mean much if there has to be recourse to the courts where you are asked to form an orderly queue at case number 900,001. Other forms of collateral such as shares; guarantors are costly to enforce. Secondily, the other way you judge the quality of your loan book is to have borrowers that don't already have 5 other loans. In Kenya, its not possible to tell this because credit scoring started this year and of course banks didn't share customer information. The risk of lending and guaranteeing that the loan will not go bad has to be rewarded. Add another 300bps to the 10%. Therefore 13% borrowing rate.

Why do Africans have European names?

2010-03-22T06:18:00.002Z

3 reasons I have been given so far:

They were mythically told that adapting a Christian name was a mark that they had been saved and baptised and were a now a new creature with new name. Its a myth because no where in the Bible does it say that you have to change your name...
The white colonisers got fed up trying to pronounce Wambugu, Onyancha and said we had to have European names to get jobs on their farms. There is some truth here because my grandfather said it was either that or you were called brooryfoo (bloody fool) or "boy" and the later is anathema to the circumcising tribes.
To be more like our European masters, we adapted their names.

You see culture imperialism is the subtlest and most powerful form of colonialism. Today, Africans will laugh at you for having the temerity not top have a Christian or Western sounding name. We are no longer intrigued by the origins of our African names, our history, the history of our and origin of the names of places...

So why not the same for the Japanese, Chinese, Indians, Arabs and many other free nations?

NSE & 2012: Scenarios for investors to ponder

2010-02-15T20:17:00.000Z

Investors who hadn't factored 2012 into their equation when investing in Kenya, will today have bashed the wall in frustration.

Although most of us only think of LEPEST in theoretical cases, in Kenya and some other parts of Africa, its must to peg some risk-weighting against each of these factors at a macro (investing in Kenya vs investing in the UK as an example) and micro ( the impact of changes in political situation on the prospects of a particular firm).

Lets consider likely before and upto 2012 and likely bearing on NSE:

ODM/PNU break up: Initially, I thought RAO and Ruto were playing for the cameras. Until I heard Joshua Kuttuny say that their (some of RV MPs) strategy was to muddy RAO until he became unelectable. The weekend's events portend serious issues for ODM. People like Martha Karua are not really in PNU. Lets assume that the wantaway parties don't join up with anybody else. Would be the worst case scenario for Kenya imho because the nation would be ungovernable. Note, if Ruto et al leave ODM, they'd have to seek re-election
ODM loses Ruto et al gains young Central/Kisii/Coast MPs: The compe with PNU and Ruto ensemble (aka KKK aka Klu klaxx Klan) would be interesting. If KKK lost against an ODM alliance with those MPs, Kenya would prosper despite pockets of violence in RV. A win for KKK would lead to more corruption with a rapture between UK/Ruto vs Kalonzo when he realises he'll never be Rais.
Kibaki waits until new katiba is passed and goes for a 3rd term: Would lead to PEV all over again.
Business as usual: ODM remains intact and PNU similarly continues to go thru the motions of breakdown though primarily a GEMA party. Most likely to lead to PEV repeat in my view. The mantra that drove ODM was hatred of the GEMA...

What a benevolent dictator of Kenya would do...

2010-02-15T06:39:00.001Z

We've tried dictators, they didn't do it. We've tried democracy and so far its not delivered. So why not a benevolent dictator.

Definition - A dictator that has power because the people choose to allow him/her to; who must make wise use of power since the benevolent dictatorship system allows them to be peaceably removed from office.

I prefer the wikidictionary's defnition.

What should he (or she as it can happen) do on ascending to power in Kenya:-

Corruption -

require all cabinet ministers, PSs, heads of parastatals and judges to publicly (via adverts in at least two national dailies) their wealth within a month of being in office
make corruption (whether tkk or mega), a capital offence punishable with a death sentence
give those who are implicated in past corruption, 6 months to payback what they gained corruptly or get taken to court and suffer 2 above
create a special corruption court with lower threshold of evidence

Judiciary

Create special courts to deal exclusively with all cases older than 2 years.
target judiciary with reducing outstanding cases by 200,000 per year with sackings where necessary for failed targets
reduce judiciary entitlement to time-off. In fact make it compulsory for courts to be open on all but public holidays
and of course increase the number of judges
make corruption, rape, paedophilia, drug dealing, homosexuality and armed robbery capital offences i.e. death sentence
drink driving, speeding, drug taking, littering, robbery all become punishable with varying degrees of caning

Economy

Create an independent central bank charged with monetary policy (rates, inflation) and banking supervision
Create two universities via public-private sector initiatives. One exclusively for IT and another for agriculture
Require all public road works projects to have significant managerial as well as general Kenyan headcount
Reduce government holdings of parastatals to 25%
Move government ministries from Nairobi to another town via referendum - to create room to turn Nairobi into a proper commercial city. 2ndly to reduce the detrimental economic concentration in Nairobi
create an industrial corridor stretching Mtito Andei all the way to Limuru
Coffee and tea would only be exported as value added products rather than raw materials
All new buildings would have to include solar energy capability to power 50% of power installations in the building
Close all but those local government councils that deliver profitably. For the rest, use constituency funding to deliver services

Others

To aid family planning now desperately needed, only couples will be allowed to have children and only 1 child at that. Any kids born out of wedlock, the parents would be punished (unless it was rape in which case, the family of the rapist would pay for the child until it was 18).
cutting a tree down would require a licence and two that the cutter to have al;ready planted another 5 that have been growing for 12 months
abolish the rvr venture agreement and instead have one that is completely performance-based. Alongside this, restrict heavy road haulage to a certain maximum weight

Harnessing the multiplier effect of the Diaspora $, £, ¥, €

2010-01-28T20:57:00.001Z

The debate in Kenya about the efficacy of the diaspora remittance has been spilt into 3 categories;

Welfare givers-that is, diaspora remittances are seen as primarily useless because they only go help relas' consumption out in Kenya. However, this is ignoramus in the extreme. My simple maths tells me that if we assume that this bottle of milk equates to Kenya's store of money. Its quantity currently stands at 8 litres. If a diasporan comes along and adds another 1/8 of a litre, its no longer 8litres but its 8 and 1/8 litres. Whether it increases because of that is immaterial suffice to say there is more of it now. The other point is that this view ignores the circulation of money without which central bank policy the world over would not be effective in combating inflation and the like. If a diasporan sends 20k to his mother in mashinani for her spending she will go to the shopkeeper and buy her supplies. The shopkeeper will go to his supplier with the 20k and buy supplies. The supplier will go the manufacturer for more supplies who will go to the farmer for more materials.

Bubble creators: its argued that diasporans by following Kenyans down the road of currently popular investment avenues (NSE between 2005-6 and real estate since 2008), they add fuel to already overheating investment avenues and with their deeper pockets push prices to artificial highs. Agreed.

The diaspora are also involved in infrastructure projects as well as purely humanitarian projects.

Beyond these avenues, is a consideration of how a significant portion of the remittances can be used to create multiplier effects at a micro level i.e. via the remittances to relatives. And the first step has to be able to step back from the instinctive and emotional reaching for the pocket whenever a rela say they need help. How so?

If you take a typical diasporan. He will probably send Ksh100k per year as part this knee-jerk response to relas. Apart from genuine emergencies i.e. medical/nature related funding or parents/spouse, he’d be better off stepping back and asking the said rela to come with a income generating project that he can finance.

· Say the diasporan was to send Ksh50k to a rela two buy two dairy cows. Assume the dairy cow is those ordinary ones that can produce around 7 litres per day, 5 which can be sold to the local cooperative.

· At ksh23 a litre, that is KSh230 a day and if you assume spending equates to Ksh4,000*12=ksh48k per year.

· Not Mercedes buying income, but if the diasporan supports two of his relas on that basis, will equate to zero handouts the year after!

· Or a potato framing venture. Here, say the disaporan gives the 50k to his farming cousin who can use the same to lease an acre of land. Assuming 50 bags of potato per acre at Ksh1,300 per bag. That is another Ksh50k after domestic spending.

· Another example, the piki piki business can earn one around ksh300 per day and so forth…

Clearly, it’s a win win situation for the both the diaspora and the recipients of their remittances to view it this way.

Investment destinations in Kenya

2010-01-26T05:59:00.001Z

Real estate: Growing population; growing urban population; fewer alpha investment opportunities (past debacles at the NSE will take a while to be forgotten) , mean real estate is now far more liquid than it was even 2 years ago. Whether buy and hold merchant; buy and live to sell later; rental (residential/farming lease/commercial) are available avenues.
Agri-business : farming will grow to big business for the discerning. How so? Population growth at 2.5% per year coupled with urbanisation mean that one demand for food is higher overall, but the ones who can farm are moving to towns in search of bright lights. Couple this with uneven weather and you have a situation made for earnings growth in focused farming of any type of crop.
Bonds : at 12.5%, a bond whether or government released is now a valuable portion of a unit trust/portfolio manager.
NSE stocks: Rains have stopped which if they keep means they didn't reach the end of Feb. Worrying for farmers (who have become the best practitioners of rational expectations in the past, many would plant with a day of heavy rainfall-now many wait a week and then if it rains for 3 and stops, the crop can get destroyed... and the wider economy. But the index is 10% of 4,000 and it won't take much for it to get there
Venture/incubation : there are lot good to great commercial ideas out there. Which just need to meet with capital. And a good deal of patience. And here is the thing. In places like my home province of Central, young men who can't financing are being drawn to Mungiki where they can get some help either to commandeer finance from local raia or even get that capital.

Executive solution

2010-01-20T06:42:00.000Z

How about a parliamentary system with a prime minister voted in by universal suffrage with a ceremonial president (head of armed forces, able to step in if PM is incapacitated) who is a non-MP and elected by a congress made up of 200 delegates from each constituency who are randomly selected by the electoral commission?

Its not Kibaki's, Raila's, Ruto's or UK's country; its yours

2010-01-15T05:45:00.003Z

Everytime I work up myself to do a blog about Kibaki's extremely non-existent leadership qualities, I am reminded that, I've campaigned for him twice despite no evidence of any leadership skills especially when we neded them most i.e. in the 80s.

Everytime we work ourselves up to write or whine online about his laissez-faire attitude towards corruption, we should look at his ambivalent past record when he had the opportunity to do something about corruption (KREN).

Everytime we sit around asking when he'll show cohones, lets reflect on why the General Kiguoya title coined by Waruru wa Kanja fits Kibaki so well.

Everytime we whine about m-o-1's extremely backward years as president, lets recall that we kept him there for 24 years. He didn't rule alone, we were always the majority. And changing leadership shouldn't just have been about waiting to go to a fair ballot. There are many others ways that we could have gotten rid of him. Just look at how they do it in countries like South Korea, Thailand, and even Russia. Mass movements where young and old march to the capital or to the palace and show their leaders a red card.

We whine endlessly about tribalism, yet in 2008, they had to shutdown Mashada and probably should have closed You Missed this or that given the tribal stuff it propagates.

The simple facts are that, if you were to tell a foreigner that Kenyans were proud of their country and took ownership of problems, he'd ask you why then do they have to wait for Raila to lead them to planting trees on the Mau? Don't they have their own or their parents or their uncle's or grandparent's farm theat could do with planting some trees?

We talk about the need for change but most of us will only talk about it online or in the pub as they sink pints. Why not join Mwalimu Mati, Ombaka and others when they are matching to Harambee House or to bunge?

Predictions for 2010

2010-01-13T20:16:00.003Z

Markets:

· NSE will touch a high of 4,200 (the highest until 2012) with KQ, Mumias, Equity, Centum, Stan Chart, Safcom all seeing new highs.

· Gold will touch a high of 1,250 before falling off as inflation fears recede due to rises in interest rates in the 2^nd half of the year

· Oil will stay around $80 all year

· Shilling will not go below K120 to the pound but will be much more volatile against the dollar

Economics:

· Kenya’s economy will record 4.1% growth in 2010 driven by agriculture, construction, tourism and “actual” reduction in inflation

· Spain, Greece among others will see credit rating downgrades. UK will only avoid one if Tories/Labour have a clear majority in the May elections

Politics:

· The two mbutas that most of us want to see at the Hague, Ruto and UK won’t be going there

· In keeping with our love of tribalism as a political ideology, various of our elected wabunge will continue alliance building ensuring no repeat of 2008 PEV in 2012

· Tories will win but with a sliver thin majority

Environment

· Mau won’t happen. That is, no mbuta will be evicted without the serious compensation already mooted

Kenya: the reality vs fiction gap

2010-01-11T06:08:00.000Z

If the only thing you did was to read Kenya's daily newspapers; online bloggers/twitters or watch Kenyan TV; it fair to say that Kenya would always be going to the dogs...

However, travel a little bit and you realise that;

Economic growth is taking place. The combination of PEV in 2008 and the long-lasting drought in 2009 would have tested any nation's economic resilience. That the economy still grew is a miracle.
Real estate boom is not just Nairobi based and not priacy driven, but its quite wide spread with mnany other underlying drivers like population growth
Youth underemployment is an issue yes, but is partly driven by a lack of drive among them? Many want to work in the cities not necessarily because of higher wages (which go along with higher costs anyway), but because its the done thing. Yet, Kenya is starving i.e. opportunity to go into agri-business; there is a gap for tree growing business projects; there is a gap for flooding barriers and water harvesting; there is a gap for rural road building.
For travelling on noisy mathrees in which you can't hold a conversation or concentrate on the view outside (sometimes you only know you're near CBD because of the traffic jams); read listening to howling politicians who won't let Kenyans strategise about development or even see where we are going.
Tribalism: Given our environment, it should be know surprise that many of us are easy prey for demagogues. Something like 70% of us only interact with fellow tribesmen for 360 days of the year. We think, speak, conduct business, socially interact, politic in our own mother-tongues and we roughly the same peeps. We thus rarely think/speak/interact in our national language. We spend most of our time thinking about issues appertaining to our own nation (tribe as opposed to the larger Kenya). This we only change if we (a) allow students at secondary level access to schools in other areas outside their provinces (b) the continued urbanisation of the nation.

Seen in Kenya

2010-01-02T15:43:00.001Z

Cloud-covered Mt Kirinyaga seen from a maize farm

Which city please?

Boat from or going fishing...

In case you don't know your Alliance from your Baobob

Boarding the awesome Likoni ferry

Your attention is drawn to the miraa base...

mia

Mombasa seen from the air

Waiting to board fly540.com

Tea farm, Kericho. Farm workers' houses in mid-ground

Kericho town

Kapsoit Junior, Kericho.

Sun setting over Kopere hills

Road to Oneno-nam Primary school

Tangy mangoes in Songhor

Maize, sugar farm near Kopere hills

Sugar harvesting

Chemelil Sugar factory

Sugar fields. Kopere and Songhor hills in the back ground

Sugar on its way to Chemelil Sugar

Turning at Awasi. A much better road

Nyando river

Rice field in Ahero

Some of the lakeside eateries. A mbuta with kuon will set you back Ksh850

The former Lake Victoria now disappearing under hycanith

K-city

...more K-city

I hadn't realised Cittihopa operates outside Nai

Kondele

A K-city momento from PEV

Approach to K-city and Lake Victoria

One of the many large rock phenomena found in Western province. Missed the crying stones though.

... great use of the same by OMO

Another river. Whose name I've forgotten...

Kakamega

Sunday worship. Malava-style

Sugarcane transporter. The faster truck/lorry carrier is yet to be introduced.

The unslick road to Kakamega

Sugar growing in Webuye. Mt Elgon is in the background

Livonda winter resort...

The shut Panpaper needs to urgently re-open. It employs 35,000 directly and 80,000 indirectly in Webuye.

Turbo- on market day

Some river-whose name I've forgotten

Sirikiwa, the hometown of the noisy Ruto, only place a noticed had more grasshuts than mabati houses

Eld has grown fast since I was there some 7 years ago

Heavy traffic in Eld.

At least you can't miss the sign-post

Turning to m-o-1 university

Burnt Forest. Notice the charred remains of one of its tallest buildings.

Maize ready for harvest

The rolling valleys of Londiani

The bane of every driver. 1kph trailers

For some, PEV is still a reality. IDPs still waiting to be settled.

Mau Summit. Notice the obiqitous Safcom mass

Rolling plains of Molo

Sachngwan memorial

Uber-slick approach road to Nakuru town centre

The fast disappearing Lake Elementaita

...same lake from another view

Delamere farm with antelopes. While we are fighting over 2 acre holdings, this dude owns land stretching some 10km!

Early commuters on the slick Naivasha/Nakuru road

Beautifully green Mathira

Army training camp. Ngong hills in the background with the KenGen wind mills

Jumuia is a nice place to take kids for the day

Another new university

I like a CBD with trees

Ikotoilet is the latest scheme to fund public facilities. Fast-growing Tuskys in the background.

Kenyatta avenue on boxing day.

Ngong town. Note the "I am a memba" ad-board in the background

Edge of Ngong forest, Maasai teenagers in the mid-ground

Zebras at Solio Ranch

...and buffalos

The fast growing Naromoru has even attracted a sizeable Muslim population

Mt Kirinyaga covered in cloud, Kibaki's farm in the foreground

Re-commendations....

2010-01-01T18:23:00.002Z

Thank you God for the rains and a fast recovering economy in 2010
Africa Alliance: For outstanding brokerage service. You see, being a broker is simply about taking an stock/bond buy or sell order and executing at specified price. And offcourse making sure clients get a feeling that you can take care of their funds. AA does this very well.
Mwai "Roads" Kibaki: Credit where its due. With the exception of the Nai and its environs; the Kakamega to Kisumu and Nyahururu to Nyeri roads; you can now fly to your destination on very good bits of road building. The 8-lane Thika Road, will not resolve the massive jams caused by the fast growing real estate and car consumption from Central, though. Kibaki is no leader but on roads and infrastructure generally, he has done well so far.
Maina's barber and saloon on Rose Avenue off Ngong Road. Superb haircutting experience...
Starbus coach hire:- drivers with integrity
Swimming across Likoni rather than the 3 hours you'll be sweltering in your car while waiting for the ferry to become available
That all mathree drivers be made aware that they are not driving eels but metal contraptions that can't weave in and out of traffic; block rival mathrees while picking up passengers and overtaking other cars silmultenously.
HFCK's Makao product. Might be the long-sought solution by the diaspora who fear "additional" costs or even misappropriation of their real estate.
Kenyan drivers take crash courses (no pun intended) on overtaking. Tailing the car infront and shomokaring now and then will get you involved in a head on crash.
Uhuru Kenyatta: for dedicated consumption services offered to EABL. Saw him twice and his eyes could light up a dark street in Ahero.
Daily Nation's "The Truth" blue boards for making sure drivers which little town they are passing through almost everywhere in Kenya
Mama Kim's cafe in Molo. Clearly, the Nakuru land mess is not the only legacy left behind by Kihika Kimani. Awesome chapatis and tea.
The "piki piki" phenomena now overtaking the cyclist boda boda phenomena for creating some employment for the youth and offering an alternative to those dodgy mathrees. Unfortunately, GoK has noticed the phenomena and is clamping down on their growth (in Ngong, there were 30 piki pikis two years ago, now there are 300).
Upholding the Harambee spirit: Fund raising by traffic cop and ordinary cops everywhere. The bane of mathree drivers whether they are guilty of misdemenours or not. Private drivers also get caught in the net if they are driving early or late at night.
Red soil
South coast over North coast of Mombasa. just classier
Total for charging Ksh4 more than anyone else for unleaded. Made me discover all sorts of other interesting petrol providers
Avoid Zain:- The only peeps who actively use it are politicians and businesses.

Happy Jamhuri, Xmas & New Year

2009-11-30T06:21:00.002Z

'09 has just flown by. Or maybe too much fun has been had. Or maybe age is catching up.

Anyhouse,

enjoy your mbuzi, turkey (zzzzzz), or green chick peas (double zzzzzzz).

Is money-making and Godliness compatable?

2009-11-23T06:08:00.002Z

In many versions of Gospel-preaching there tends to be emphasis on the self-sacrificing nature of Christianity. According to these preachers, its easier for a camel to go through the eye of a needle than richman to go to heaven. The meek (implicitly, the poor), shall inherit the earth. There seems to be a contradiction with go ye and multiply and the various tales that Jesus demonstrated about being fruitful. 2ndly, heaven is unlikely to come tomorrow or rather, its just as likely that come tomorrow, you'll have to pay bills. Its thus to focus on making sure that you are being fruitful enough so that (a) you can build God's kingdom (b) you can generous unto those who are unable to be fruitful.

I believe what God wants is for us to not put money-making before a relationship with Him.

The "too big, please don't fail" banks in Kenya

2009-11-10T06:18:00.001Z

In this post, I talked about how banks can grow to a size that presents systemic risk to their domestic economies. That is, there are so large, that their likely failure would mean guaranteed govt assistance which would off-course mean every taxpayer peaks up the bill. Further, it was/is my opinion that such banks being deemed to be too large to fail and too expensive to rescue, should have applied to them, more stringent regulatory measures. The examples were higher capital and liquidity requirements to match their size or growth.

So do we have such banks in Kenya? The answer is yes:

KCB: At close of play in September 2009, KCB had a balance sheet of Ksh189bn, which si roughly speaking 27% of Kenya's total budget. It also has around 200 branches, 150 of those in Kenya. Thus its a large employer as well. Its collapse won't be pretty. Remedy: At 13%, its tier 1 capital ratio looks strong for versus some Western banks, but its target should be 20% or more given its host economy.
Equity: Holds just under 50% of Kenya's banking account population irrespective of the size of their accounts. And has 155 branches (130 of them in Kenya). Its collapse would lead to a severe dislocation SMEs and agriculture for which it serves a significant portion. I see its risk coming from liquidity rather than capital concerns. Remedy: Should be required to hold at least 12% of its assets in form of t-bills and or AAA-rated gilts.
BBK: At Ksh170bn (June 2009), its also a behemoth in the local economy. Included here because of its corporate client content which would again cripple our economy were it or the parent to collapse. Remedy: As with KCB, probably more suspect to lower capital thresholds and should thus be required to hold at least 15% tier 1 capital ratio at all times.
Co-op: The banker of co-operative societies and Saccos country-wide. And like Equity, therefore, carries systemic risk for the economy. Has a history of appalling size of bad loans coupled with political inteference. Remedy: Higher liquidity and capital requirements. The broker licence was probably a mistake.

Investment banks should be banned from proprietary trading

2009-11-09T06:09:00.001Z

Angukia investment bank has 3 employees.

A1 who is the broker. She executes buy and sell orders on behalf of Angukia's clients (corporate, high net worthy and raia).
B1 is Angukia's proprietary trader. He buys and sells various instruments using Angukia's capital.
Finally C1 is the investment banker. He advises Angukia's corporate clients on mergers, divestitures, acquisitions, financing and capital raising events (such as rights issues).

In the West you'd be told that there is a Chinese wall between the various activities that Angukia undertakes such that C1 and A1 never converse about the deals passing through their desks. You'd be told that if A1 received an order for 5% stake in a particular listed share, she'd never tell B1 who was thinking about selling the 1% stake that he had built up for Angukia.

This is ofcourse not possible.

In the developing stockmarkets like the NSE, where integrity may not be as established, it is essential that IBs not be part of the trading in the market.

Warren Buffet: invest in what u know & other priceless gems

2009-10-27T20:32:00.001Z

A must watch docu-info for experienced and aspiring investors alike. And remember, buy low, sell high

Living abroad and investing

2009-10-22T05:44:00.003+01:00

Just some observations:

Middlemen- cut them out or to absolute minimum. That includes relatives, "friends", brokers et al.

The more liquid an asset, the better.

Remember exchange rates matter.

Legal recourse in Kenya can be long and expensive.

Returns in motherland can be awesome.

Timing is important, therefore avoid herd mentality.

Invest in things you can monitor easily. This might mean investing locally.

DYOR

Does universal banking have a future in Kenya?

2009-10-21T05:59:00.000+01:00

Universal banking is the term used to define banks that are one a stop shop for any combination of depositors, lenders and or investors and insurance seekers. Globally, Citi, UBS Bank of Tokyo Mitsubishi and the newly formatted BofA are typical egs of universal banks. In Kenya, we have 2009 Equity and CFC Stanbic.

The key driver for this type of banking has always been the economies of scale in costs and knowledge and products. That is the upside...

The downside which has rarely been priced in the past is that the management matrix and knowhow required to centrally manage such businesses has been huge and as yet, there are few successes. The outcome of this is that management is delegated by default to those knowledgeable in the various facets e.g. an investment banker is given the remit of running the show on the ib part of the business and ditto for the insurance part of the business. This has then lend to a situation where its difficult for the ultimate bank ceo to get a handle on a daily basis what his/her value at risk from the universal bank. Cue the sort of big issues we've seen with these types of banks in the current crisis.

Given the embryonic state of banking regulation in Kenya (is no where near adapting Basel 2 type of capital/ liquidity requirements), it currently is prudent to encourage universal banking without either very targeted regulation of the various parts of such a bank.

Insurance as an investment/saving product

2009-10-15T05:55:00.003+01:00

To invest, you mostly have to have saved unless you are the type who does investing for a living in which case you can use leverage. Savings will come from your disposable income. To create the room for enough disposable income, you either increase your income; reduce your spending or do both. One-off big ticket expense items can derail your saving/investment strategy. Even if you earns zillions, having to buy a central heating system or replace a broken electrical home appliance will skew your savings targets.

Which is where insurance comes in. By insuring some of these big-ticket items, you'll typically be able to claim either on the repair work or the replacement. And although, you may not need to claim every other month, saving yourself that once a year cost is sufficient reason for taking out the insurance product.

Giving NSE some bouyancy

2009-10-08T05:55:00.001+01:00

The reasons for the current fall and stale state of the NSE are various and now well known:

Brokers' embezzlements
Economy messed up by (a) PEV (b) drought (c) bloated GoK (d) public crowding out private sector
2012 and bleak outlook
Bonds taking up the liquidity
et al

Some of the above won't change unless we see radical moves like UK or Ruto in handcuffs on their way to Hague. I think bonds have some way to go given its the latest kid on the block and corporates are now queuing up to go through this avenue.

However, the NSE can attract attention back to itself in the following ways:.

Share consolidation: while (i) sharebuy back legal stuff is being sorted out and in any case will probably be too expensive in the medium for any firm to contemplate doing (ii)the cheaper share consolidation is easy to do and will give shareholders, brokers and the firms themselves a consolidated cheaper way of managing the quantity of shares. Safaricom being the share that indirectly started the current bear should kick-off the stage by doing a 10 for 1 share consolidation. This would mean 40 shares if you currently hold 400 and so forth. Equity could then do a 2 for 1.
Shorting: a hobby horse of mine where the NSE is concerned. It will probably be the single most educative instrument that can be introduced to the NSE. Because it allows an investor to make returns and take a view whether a share is rising or falling, NSE investors will no longer think of shares as endlessly rising investing instruments. Clearly, brokers will also have two more avenues for revenue generation. How about concerns re margins?Initially, the movement when shorting could be limited to a 20% loss at which point the investor would have to come up with the cash to cover his losses.
Bring up NSSF: UK obviously banned NSSF from new share purchase to facilitate liquidity in the bond market. In the medium and longer term however, its a silly policy to ban one of the deepest pockets in the land from a capital market. An oxymoron if you like.

Saying all that, an NSE at 2,500 is a very welcome re-entry for me.

What type of CBK governor does Kenya need?

2009-10-07T05:51:00.003+01:00

With a few exceptions, the two main functions of a Central Baank in an economy are

Control money supply
Prudential supervision of the banking/financial system

In performing these functions however, you tend to get three types of people (men in the main) who head up the Central Banks:

Patron governors: These are in effect there to support the economic policies of the government of the day. So they'll adopt monetary policy and in some cases, supervisory policy to the govt's economic policies. As an example, in the US we had Greenspan who in support of credit-based economic growth adopted loose banking regulation (even going along witht the idea of awarding self-regulation to some of the larger ibs). In Kenya, we had men like Kortut who was very supportive of the export intiatives that Pattni had come up with or even Mullei who was able to relax the reserve ratio in 2003 so that banks could lend more. In Nigeria, Chukwuma Soludo presided over the introduction of margin lending which indirectly has brought the Nigerian banking system to needing bail-out.
Clean-up governors: Patron governors with a few exceptions, always create a mess. Guaranteed. Because their policies are not rooted in the basic functions of a central bank, these types of governors wonder into unfamiliar territory which (a) they don't understand (b) can't not then control. Greenspan was talking about cleaning up the mess created by "irrational exburance", but he really didn't know or understand what he was talking about since the scale of the bailout has been huge. Clean up governors therefore have a thankless task of undoing the work of patron governors. Cheserem did this in Kenya in the mid 90s.
Independent governors: In effect perform the function of a central bank and are thus usually quite unpopular only surviving due to a change of government. Mervyn King has done this to a certain extent. In Kenya, we are yet to see one but urgently need one.

Agriculture food exchange

2009-10-06T20:47:00.001+01:00

As this FT article shows, agriculture exchange would resolve two problems that have hampered farmers from growing their farming as a business:

1. Pricing: many farmers especially those dealing in perishable horticulture produce typically rely on rumours on what prices are. An exchange close to home will be able to relay the information much more cheaply

2. Transport: never mind the roads, due to (a) lack of enough cars (b) fuel costs; farmers typically have to shoulder the costs wrought by these two factors thus minimising their returns.

Stockmarkets retrace on the way

2009-10-02T06:20:00.000+01:00

After 6 months of almost uninterrupted rise driven by a huge sigh of relief at surviving the largest financial crisis since the South Sea bubble, we may have a retrace shortly. A rise of 60% seems overdone given rising unemployment; budget deficits which suggest that while the economies are recovering, the recovery is not going to be anywhere as fast or as strong as the markets have factored. I therefore expect markets to fall by around 10% in the coming fortnight but thereafter start a slower upward movement as financials start reporting in early November.

Thinking of having kids?

2009-10-01T06:01:00.000+01:00

One of aspect of financial life that no one can really plan sufficiently for, is how your finances change once you get married and then have children. Having kids and seeing them grow is both a blessing and very satisfying. Infact, a perfect tonic to a busy life. However, its good to be realistic and know its a lifetime commitment which should be borne in mind when planning your economic/financial life.

Handily enough, the UK FSA has come up with a calculator that gives you a rough idea of how much it'll cost you to bring up your kids.

Play away.

The KenGen Ksh15bn bond beneficiaries

2009-09-28T06:22:00.000+01:00

Going by the debate so far, the 12% bonds seems to have tickled the interest of retail investors who usually stay away from bonds given the return is far lower than current or expected interest. Ther reasons for this change are many but a major one would be changing perceptions about the NSE. How will the different players benefit from this bond?

Retail investors:- despite a drop in inflation, its unlikely that it'll go below double figures before 2012. That means that in real terms, a retail investor will be making a loss from investing a Ksh100k of his in the bond. Although its unusual in Kenya, you may not be able to get the full principal in the first 2 years. It'll be 2017 before you double your money.
High net worthy: If you have Ksh5m and the risk-aversion of a typical elderly investor, then the 12% is sound return. However, NSe shares pay over 10% in dividend alone.
Money market fund managers: will love this bond because it make them very competitive against savings accounts.
KenGen shareholders: interest payment of just over a Ksh1bn will hit the P&L every year. In the first few years, there will be no concomitant revenue from the project to offset this. Something to ponder?
Electricity consumers: should hopefully see fewer rationing episodes.

The bond offer closes tomorrow.

Living abroad: When in Rome...?

2009-09-28T06:12:00.005+01:00

Having lived in London for 10 or so years, I have seen wazalendo get ripped off here and in the motherland. And I think this mainly happens because of the society we come from. And secondly and more importantly, because we forget the cardinal lesson that those conquered by the Romans learned in third century.

The first one affects us in that, we are used to living in a society/country where most systems (especially government-related) don't function as they should. Because these institutions don't work well, we are used to shortcuts to get things done. We are used to services that are not delivered professionally. So for example, most land offices won't ask you for any id to see documents or you say you will bring the id tomorrow. Thus when we encounter systems that work, we surely find dificult to process whatever it is we need to get processed. Just look at these tragic examples of Kenyans trying for US papers. If its possible, its wise to engage the advice of peeps who've gone thru the same process successfully.

For those of us who God has given opporunity to land abroad, our problems seem to be varied though not insurmountable. A few examples:

we like our drink and driving. In most of the western countries, this is a huge no no and is a deportable offence. I've lost count
The law is the law. Lots of black and white situations (i.e. no room for your interpretation) across the bureaucracy.
Lack of papers means many of us do a lot of underground/menial jobs with no bank accounts and the like.
Strong motherland bias in investing.
Loneliness- no weekend relas or easygoing friends...Race is an issue
Living costs are 4 times higher than Nai in some cities abroad
Family life is not easy. No mboch or you get expensive childcare. Discipline your kids at your own risk.
Relas in the motherland expect instant returns adding to the stress.
Failure to appreciate social situations especially awkward pc ones.
A significant proportion of our students never complete because of economic situations-note that in some countries students are only allowed to work for given number of hours e.g. 16 per week in the UK.
Cramped or unhealthy accommodation.
and the worst, getting ripped off by relas when you entrust them to look after your ventures in the motherland.
And expecting the law to be on your side in the motherland...

But, its possible to successfully conclude your education and even get jobs provided, one makes it there first call to know the dos and don'ts legally and system-wise.

If you are a prospective student, think not about what your mate is doing but what is your calling. That way, you will be able to endure.
If you are a student, aim high because lecturers and tutors can be your best reference for jobs in your study nation. Some countries are now giving students 1 yr job visas. Its an awesome situation to make yourself indispensable to your employer.
If there is a job opening, stay out of office politics, pray your boss gives you the portfolio your qualification deserves and work hard like a Kenyan. You'll shine.
If you are here for a visit/a few £s, learn what can jobs pay with minimum farce and supervision.
The west is an individualistic society. Take the opportunity to build and discover you.
If you can get married and appreciate the cost and difficulties of bringing up your kids here, do so especially if you are a guy. Otherwise, the pubs are waiting to drink your sweat.

Finally, this is one of most inspirational songs for nrks. Loosely translated, you are wherever you are for a reason. And whatever hardship you endured getting there, you'll go back fruitful.

KACC: Prevent, Convict & Recover Assets vs Corruption

2009-09-21T06:50:00.001+01:00

While many have focused on the kibz illegality (in spirit and law) in re-appointing Ringera, we've overlooked the criteria by which we should evaluate his tenure and KACC's in general. On this criteria, KACC either be closed or revamped as something completely different. Summarising KACC's functions leaves with3 core ones against which you can evaluate its success

Prevention: by educating; campaigns; facilitating whistleblowing; following up and taking forward credible complaints of corruption. And probably the easiest, using the public wealth declaration forms to pursue GoK employees. Corruption is far worse now than it was in 2003 when KACC came into being. I know and I'm sure others know many who went to parliament in 2002 as paupers and are fabulously rich today. Murungaru is an example. He was facing an auction in October 2002, but today he is... So where is KACC?
Convicting of the corrupt: This is more the role of the Ag and DPP, but do note that KACC has to present fool-proof evidence of corruption. Crucially, note that KACC can institute civil proceedings where it has evidence that taxpayers money has gone missing via corrupt actions. On either fronts, it has not done so. Even it has presented evidence, I believe only Margaret Gachara has ever been convicted of corruption and even in her case, KACC never went ahead to recover assets.
Recover of Assets: Biggest failure in my books. From Goldenberg, Ndung'u commission, Anglo-Leasing there has been evidence that taxpayers money was diverted to private pockets. I believe Ksh78bn was mentioned for Goldenberg alone. Ksh4bn that it has recovered is probably what KACC has spent since 2003.

On the above criteria, its fairly obvious that KACC has failed and we need to move on...

NSE: where is hope?

2009-09-16T05:40:00.003+01:00

After the subprime crisis, market comentators and economists have now realised how important a role Keynes' animal spirits play in market movements.

From a fundamentals point of view, the NSE should now be seeing a recovery given power rationing is being reduced as well as the forecast El Nino portending better food output.

The reason its not rising is lack of hope among potential and existing investors thanks to the messed up leadership and the future.

It was a u/v curve

2009-09-15T20:31:00.005+01:00

Today 1 year ago was a fairly traumatic day not least for Lehman Brothers folk who turned up to work only to be told no pay no job et al. While there is generally little sympathy for big bank-bursting bonus earning folk getting made redundant, the effects were felt world-wide and are of course still reverberating today with many unit trusts and hedge funds who had or offered clients exposure to Lehman Brothers' structured products suffering.

The main thing though is that tremendous amounts of money and measures such govt stakes in banks and quantitive easing have resuscitated the banking system thus allowing markets to start playing their signalling role. We are far from out of the woods, but all signs are that economies will be able to self-sustain beyond govts exiting from financing banks and economies.

Irony? Well, the preceding bubble was in the main caused by a benign interest rate environment allowing banks to borrow locally at low rates and invest in toxic assets for high returns. And the instrument of choice for allowing economies to recover? Zero interest rates...

Aligning bank's size to the economy

2009-09-08T19:16:00.000+01:00

After you've

set required capital ratios
asked banks to holds capital against every balance sheet
hold the right type of capital- unencumbered permanent share capital
request a "will"
request banks' single counterparty exposure be limited to a multiple of capital

You still won't have tackled the largest elephant in the room so to speak. That is banks that are so large that you don't want them to fail because the cost of rescuing is too prohibitive. Socially, financially, economically locally and maybe even globally, these banks become a threat with economies of scale outweighed by externalities.

The answer is a removal of a one-size fits-all and move to a more dynamic capital adequacy system. Regulators and governments set minimum capital requirement with reference to the growth in the banking industry's lending as a proxy for the economy.

But then for banks that are growing, you require that they adjust their capital ratios in line with year on year the growth of their balance sheets. Similarly, those that particularly large should have higher capital ratios.

The methodology is intuitive and can be applied even to simple regulatory systems like Kenya's. i.e. while each bank must have a Ksh1bn plus, those that are growing fast or the top 10 should hold higher capital Ksh2bn and the top five Ksh3bn or higher capital ratios.

Kenya's population growth: time for the China solution?

2009-09-03T20:55:00.004+01:00

We are poor nation in money terms.

Kenya's population stands at around 40mn having doubled over the last 25 years.
It’s growing at 2% per year which means it is on schedule to double in 2050.
In real terms, our GDP has stood still since 1995 in real terms (that is 2002-2006 was merely to get us on even keel with 1997 and before and years since have been eroded by double-digit inflation). The economy as its structured currently can't double in that period.
65% of our population ekes a living from agriculture. Though this percentage will decrease in term, the total rural population will still account for around 50% by 2050
Only 8% of Kenya's land is arable
Without a sharp reversal, the current environmental degradation coupled with land issues, may well reduce this proportion of arable land to around 6%.

China was faced with similar circumstances in early 70s, its population having doubled within a period of 30years and with a static economy and agriculture growth. It worked what was its optimal carrying capacity based on its ability to feed its people (given arable land, land and economy growth potential) and instituted what is today known as the "one-child". It was actually more nuanced than that i.e. the one-child policy only applied to urban cities and didn't explicitly preclude having more than one child.

Is the population control needed for Kenya? Well, going above, a definitive yes. Is a China-type policy practical? Yes, GoK would offer to educate one child for free all the way to secondary school provided the parent/s only had the one. The parents would then have to pay for any additional ones.

Credit where its due: Kenya High Comm (UK)

2009-09-03T06:01:00.004+01:00

At the Kenya High Commission in the UK, I believe as a Kenyan that you can experience how good Kenyan civil servants can be at delivering. A new passport application will typically take around 5 weeks. There is actually faster that it'd to get a British passport, but is also a smoother process. That is, you go online and print out the application form, you're told what other documents you need; how much it'll cost you and which mode of payment is acceptable. If you submit at their office, you'll get the option of the new passport being posted back to you or you get a phone call when it is ready to pick up and you just go there between 2-330pm. And that’s that. While at the London office, you'll get a pick of glossy magazines such one from Magical Kenya. I usually take away copy and give to colleagues and one or two have booked safari tours on that basis. A word though about the Kisumu2007 glossy. On the face of it, it has the GoK emblem, but has clearly been done by some of those NGOs to justify their extravagant lifestyles in Kenya. Some quotes "the Nai to Kcity road is a good example of the many complaints about neglect of roads in certain areas". And they are trying to market Kisumu!

The High Comm has also involved itself with nrks in the UK to a very high degree, attending most events that with a Kenyan theme. Unusually, its website is updated regularly.

All in all, Kenya High Comm gets my vote for civil servants we can be proud of.

Breaking news: NSE Brokers release financial results

2009-08-27T21:30:00.008+01:00

Kudos Stella, these are two steps forward. Next thing is to introduce a uniform financial proforma. 4 lines of income (brokerage fees, advisory, profits/gains on investments and other); 4 lines of expenses (staff, admin, financial cost and other), capital and cash flow statements.

I will update as they come in, but clearly, a lot of questions/eye-brow raising stuff. No more than Renaissance. It made Ksh885m profit in investments in H1 2008 and zero in H1 2009! Believable? Well...

Although not a broker, Dry Associate is an interesting case study for where some of these brokers need to go to. Very little dependency on brokerage commission… primarily placement (of CPs I think) but very stable. Perhaps a merger candidate for Sterling IB.

Eagerly awaiting D&B, Gengis and Ngenye Kariuki's numbers...

Loss-making brokers? Need to get real

2009-08-26T21:33:00.004+01:00

It must be for incompetency that stockbrokers have not been as profitable as banks in Kenya. Stockbrokers get Ksh2 for every Ksh100 transacted. Doesn't sound much. The total NSE' valuation was around Ksh1trn or just over that during the bubble period that peaked in last August (in transaction value terms). However only a fraction of that (infact around 10% at its highest) is ever transacted (bought and sold) in any given month. The monthly average transaction is under Ksh2bn. Thus 18 brokers (and shrinking) get to share Ksh20m in commission. And its not an equal cake hence some won't get even the Ksh20mn. However, even when you assume that each of the 20 employees (on average) gets Ksh0.5m per month, additional costs won't come to Ksh10mn per month. Therefore, with a few exceptions, its difficult to understand why the brokers have the issues they've had with profitability.

Going forward, brokers (new or old), will only guarantee profitability (and therefore survival) if

a) they can change the transaction charge structure so that each broker can charge as they wish, but also complete on service level and variety of distribution channels (including the cheap internet option).

b) either focus on volumes or transaction size, but this is already a target market by the likes of D&B, Kestrel Capital and SIB who rely on big clients making big transactions.

c) chase after the illusive ib trade of which there are already some ibs that get the choice business.

d) throw themselves at the mercy of the big deep pocketed banks.

Profetha, banks are not lending because...

2009-08-10T23:01:00.003+01:00

A bank borrows from A and lends to B. The borrowing bit is called deposits and the lending bit is called loans. If it borrows from the raia, a bank rarely pays anything to borrow this cash, but will charge the same raia a considerable premium for lending to him/her. If it has borrow from other banks or other companies, it may have to pay something for the deposits. It can also borrow from the CBK, but its not called lender of the last resort for nothing. It'll sometimes demand explanations or a premium.

Simple maths will tell you that it makes a higher margin if it can borrow from the raia. Even more if it can lend back the same to that raia or his/er ilk.

Alas, we have times of plenty and times of scarcity. In times of scarcity, the bank can't borrow from the raia. It thus needs to pay to more to entice another raia or other entities to part with their cash. The other side of the equation is that the broke raia doesn't keep his/er loan repayments. The bank discovers things are thick. It decides that'll only lend to the select few who ordinarily don't to borrow anyway.

CBK wakes up and realises things are not well and its whole system is afire. Reducing the rates it charges as lender of last resort has no impact.

Professor that is where things are. Economy has no electricity to power businesses or consumers. Basic necessities are now luxuries such as flowing water and even food in some cases. It'd make more sense to have a word with the man up the hill...

Results Catch Up- NSE FTSE half yr

2009-08-05T19:51:00.004+01:00

TPS Serena is recovering nicely from a tough 2008 and going by the visa queues at the Kenya High Comm recently, things should continue to improve.

StanChart surprised didn't it with an atypical 38% increase from H1 2008? The bottomline was driven by circa 24% growth in both interest income (and surprisingly nothing to do with govt securities despite the Ksh9bn increase) and F&C as well as flat expenses. In other words strong cost/income ratio. Capital ratios look tight. Still not a buy for me unless for dividend purposes (Ksh2.50 DPS will be paid in early Oct). NBK (an okay 11% uptick) and KCB also released some flat as a pancake PAT. Some high quotient analysis was done on the latter here. BBK's Adan Mohamed had a party after 5% rise on 2008 H1, but a couple of sobering points. Flat costs and vastly reduced loan loss provisions means there should have been a higher rise. But nothing came from the income side of the P&L. Finally, parent bank showed up with 8% rise despite a very challenging environment and did better than its rival clearing banks Lloyds TSB, HSBC. RBS may do better though.

ARM continues to defy high production costs with a 32% yoy increase in profits pegged on turnover growth of 16% and reduction in production costs. It remains despite its small 10% cement market the stock to watch out of the 3 cement sellers and infact one of the good picks from the NSE industrial stocks.

Olympia finally decided to announce its FY 2008 numbers. As expected, it rolled up with a loss though not as high as many of us had forecasted (Ksh56m). I suspect the numbers don't fit. For example, if you strip Ksh1bn for Plush, you leave Olympia where it was before it bought it. Smart...

Mau squaters shouldn't get compensation

2009-07-31T06:19:00.003+01:00

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?

Be part of "Enough is enough"

2009-07-30T06:00:00.000+01:00

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.