Pre-Budget thoughts

Key driver will be the huge and ballooning deficit. I think we are somewhere north of the Ksh109bn that GoK plans to raise in the market. And that may not factor in contingency funding for droughts, floods et al; one-off hits such as the planned Census in August and the katiba referendum. Therefore:

Divestures:
25%+ of NBK will be sold to Equity and others. One reason to put some cash into the share as addition of NBK would make Equity undervalued on forward P/E basis.
New KCC
KPL was a shoe-in candidate a year ago. Not so sure given all the foregoing with KCB and the like.
In which case, KPA, KenGen 19% may have to come into play.
Outliers will be the likes of New KCC in 2010 and private sale of stake in KWL.

Flood of Bonds:
Well GoK has already said it wants to bring Ksh109bn into market. Cue good income for StanChart and other bond hounds. The downside is that the accompanying liquid sucking up will either have to be solved by higher interest rates or CBK reducing banks' reserve ratio. And of course, reduced lending which may be the exact shot in the arm the economy needs right now.

Sin Taxes:
Shoe-in

Lip-service to reforms:
I dream will get a much needed financial services regulator; increase in banks capital requirement to Ksh2.5bn; a halved cabinet (politically easier to do this than to get MPs to pay taxes). But I think we'll get something small on NSE, the annual "reduction" in car spend.

D&B new website, new sheriff in town & KPA IPO

In practical terms, D&B's earlier website was good because it fairly easy to navigate. What has always been my issue with D&B is the speed and quality of its customer service. Hope that is also given a new coat of painting.


Hope Mwakwere realises there is a new sheriff in town. He is officially the worst performing minister in the history of Kenya. A complete and utter waste of taxpayer's money. If there must a be a minister from the coast on the PNU side, lets try somebody else. I think if there was ever going to be an effective PM-post, then it'd have a required a strong personality who can set an agenda for how and what the post should do. If only GoK could also think about reducing the cabinet numbers, we'd be well on our way.
Why not list KPA? Apart from reducing the political dimension somewhat because investors won't put up with people like Mwakwere recommending who should its CEO, it'll give another fund-raising option.

Mind you, with the way Safaricom is going, Kenyans may steer away from GoK OFS in future. I am worried that its rate of depreciation may mean I have to re-write this post. Although supply has been cited as the biggest issue, I'd actually say its the realisation that it doesn't have a goods investor relations team. Econet has been pushed back and I doubt if it'll have the cash to compete and neither will Telkom. Still, I've sold my small holding just in case things go below IPO price (or rather below Ksh5.10 which is the breakeven point).

Friday Shorts

On my list of dream IPOs for 2008 are Kenya Pipeline and KPA to float 30% each this year. Additionally, I'd like to see KPA float a 15 year bond to help finance some serious expansion of its capacity. Perhaps deepen the port as well as have a proper 24 hour service. That is the only way it will achieve its goal of being in the top 20 in the world.

Due to looming slowflation (i.e. slowing economic growth vs. rising inflation), we’ll probably end up with two more interest cuts in 2008 rather than the three I expected.

An interesting spat is going on between M7 and one of his opposition MPs, Beti Kamya. She called him an non Ugandan, which is the Kenyan equivalent of saying Wambui is Kibz second wife.

Are the thousands who were internally displaced part of the current jaw-wagging between the protagonists in Kenya? What can we do to stop this dichotomy in believe between “there is a nation called Kenya”, but “this area is for my tribe thank you very much”? Why should we all as Kenyans bear the costs of resettling them? Shouldn’t it be the case that those who displace should bear the costs via their CDFs?
After all, respect for private property and seller vs. buyer rights are at the heart of a functioning economy.

Transport-Joined up thinking urgently required

As we aspire to register constant 10%+ growth rates, a major plank of achieving this will be an integrated transport policy that looks at developing all the key arteries of our economy:

Roads: Mainly targeting built-up urban areas. At peak times, it can take 3hours+ to get in and out of Nairobi a city of circa 3m people (this is similar to London a larger city by land mass and population (8m). Bypasses (as already proposed) could help reduce this by 20%. Wider approach roads into NBI, Mombasa and wider throughroads for growing towns e.g. Eldoret, Nakuru could work to increase traffic flow. Betterbuilt roads coupled with more frequent maintainance could give us cheaper roads. Finally, heavy good vehicles should economically be encouraged to move their wares onto...

Railway: China is using rail network to both open up and link its economy within and outside to the rest of Asia, but also because its a recognised cheaper mode of transport especially for freight goods. Goods to Mombasa that now take upto 12 hours from Nairobi  and much longer to Busia would take as low as 4 hours on a modernised rail track. The track is already there all the way to Uganda and just needs the modernisation of the trains. Trains could also play a role in reducing road traffic in Nairobi with links to Thika (and areas in between). RVR should consider issuing long-held convertible bonds to finance both the relaying or repair of tracks and leasing modern trains. Once freight goods reach Mombasa, they will require a well-functioning 

Port: With a growing economy surrounded by similarly growing but landlocked neighbours, there is no excuse for KPA not to aggressively plan and institute a 24 hour port to able to increase capacity with the growing economy. Alongside this should be an efficient and corruption free customs clearance. Given its profitability, GoK should consider floating a portion of KPA at NSE with the intention to use the funds to develop and equip the port for the future.