Wednesday, 28 December 2011

How the West Lost Africa to China




Over the last seven years, I have attended several investor conferences in Kenya in which, western and Chinese investors among others, were invited. One thing stood out that explains the growing Chinese presence in Africa. Africa urgently needs investment in infrastructure (roads, rail roads, oil pipelines, Hydro-electric dams, name them) and other economic resources-be they mines or factories.

Western investors do not appreciate this urgency. Many want ideal conditions that perhaps do not exist elsewhere. Others are plainly cynical. In a 2004  investor conference in Nairobi sponsored by Financial Times, European investors could not believe that the Nairobi stock exchange in Kenya, can raise US$100 million in three-weeks.

Roads under construction in Kenya by Chinese contractors.
 We  shall assess Chinese workmanship a year down the roa
d
Yet the bourse had just two months earlier mobilized US$300 million in just the same period for the local electricity generator, Ken gen. It is noteworthy that this bond was oversubscribed by 200 per cent. Therefore 67 percent of the Money was refunded to eager investors.

Shown that some roads can be concessioned as PPP projects, some were cynical about the EIRR 25%. Way higher than anywhere else. Many would not believe that the vehicle population in Nairobi exceeded 500,000. A majority wondered whether the Laws currently in place can protect their investments-even the old constitution protected the right to property. They still called for more political and legal reforms before they could sink their investment in Kenya.

This song was repeated in all the three conferences I attended. At one point, an irritated Cabinet Minister plainly told the Europeans: “By the time the laws are in place, there will be nothing for you to invest in. All will have been taken.” The local media treated such statement as reckless. But the Minister was right: Laws are promulgated to protect that which already exists. They do not protect nothing.

While Europeans were busy asking for reforms, the Chinese were seriously asking for details about certain projects.  And they went ahead and bid for them. For some reason, they have opted to do the projects as bilateral aid not as commercial projects. Since 2005 the Chinese have build several roads in and around Nairobi, Kenya’s capital city.  A majority of them are no more than three months to completion. That is a total of nearly 500KM or road. The Chinese business model, unlike the West’s model is focused and efficient.

Africa is in a hurry for investors because of the lost decade of 1990s. During this period the West held sway in Africa. And they assumed too much. In the 1990s, the cry in Africa, from east to west, was that “western governments and their donor agencies were adept at shifting goals.” Such shifting of goals, called “donor conditions” frustrated development programming in Africa since, the fulfilling of one condition opened the way for another not development funds. Infrastructure on the other hand was yawning for funds to improve, add or maintain. It was deteriorating.

This hardened Africans who wanted development not fantasies. At the Horizon, China was emerging as an economic super Power. It was also eyeing African resources and Markets. So it chose a different business model to enter the market. While the west was harping on democratic reforms, good governance and respect for human rights, China chose the opposite route. Its model, fitted well with Africa’s urgent need for Investment in its economy. It was focused and efficient in delivering investment funds to the continent.

Poverty, disease, insecurity, lack of markets  and seclusion are as much human rights issues as democratic and political rights. The Chinese, who in 2009 alone invested, US$56.5 billion in Africa have built hundreds of hospitals and thousands of kilometers of roads, as well as government buildings, railway lines and football stadiums, reported the German online publication, www. Spiegel.de.  It added  "If it weren't for this aid, many African countries would be significantly worse off than they currently are.”

 “Inefficiency and confusion” is what is driving the west out of Africa. For instance, for three-years, the World Bank advised and trudged along with a consortium of European contractors bidding for a 49 Km road by-passing Nairobi, Kenya. The process went up to the construction stage when the World Bank withdrew from the deal in late 2010, saying one of the partners in the consortium was tainted with corruption.

This raised eyebrows in Nairobi as analysts wondered whether the bank did not do a due diligence on the contractors until the last minute. Or did it know all along that one of the parties in the consortium was tainted? Why then, did it not withdraw earlier? A year later, China has approved funding for the same project to start in January 2012

Five years earlier, the Bank’s private sector lending arm, the International Finance Corporation, IFC, treated East Africa to a similar charade. IFC was contracted as the consultant in the consessioning of Kenya-Uganda railways. Being the consultant and transaction advisor, IFC, recommended a South African firm.

Just as the concession was to change hands, IFC withdrew, throwing the whole process into disarray.  Both Kenya and Uganda have yet to gain from the concession. Instead they are always working to try and rescue the white elephant.  Africa is dotted with such white elephants arising from wrong advice by Western experts.

In Uganda, President Yoweri Museveni, frustrated by the West’s shifting of goals over its decision to build a second hydro dam at Bujjagali, imposed a tax on fuel to help build the source from domestic sources. In Parliament, he bluntly told western diplomats to keep off the bujjagali project. Within a month the World Bank had approved US$320 million loan for Uganda to build the same project.

In addition to the entry of China, Africa also posted impressive growth in the 2000s. This coupled with good house keeping has significantly reduced donor dependency giving African countries some elbow room.

This means that some countries, among them, Kenya,could now decide what to buy, from whom and at how much. In 2002/03, Kenya for instance equipped its Police Force and the military with Japanese Vehicles instead of the traditional European sources- Britain and Germany.

Western diplomats based in Nairobi were unhappy.  Led by the British High Commissioner, William Clay, and his Germany Counterpart, Bernt Murtzelburg, the diplomats began accusing the new government of being corrupt. Making independent business decisions that did not favour Britain and the west became corrupt!

To sum up, the west lost Africa to China because of their condescending attitude towards AfricaAfrica paid them back by looking elsewhere for technology transfers and foreign aid. 

Are Chinese angels? Definitely Not! Is the “romance” sustainable? Countries have permanent interests; not permanent friends. China’s business Model may be in sync with Africa’s interest.  Africa must define and cling to its interests. We must  protect family jewels by ensuring that we get the fair- value for our Jewels regardless of the customer’s business model. That means we must put the greater good ahead of the personal good.

Saturday, 17 December 2011

Kenya rearing to become a PPP playing field


Demand for infrastructure exceeds Govt.’s ability to finance
An Estate: This 500 unit estate will use several septic Tanks 
After the massive construction of Major roads and other transport infrastructure, Kenya is set to  embark on another round of developments of social infrastructure. The country is experiencing a major shortage of houses which has buoyed activity in the housing development sector.

Demand for houses, says the government’s official data is 150,000 units a year while supply is just about 30,000 to 40,000 units a year leaving a yawning gap of 110,000 units. Activity in the housing sector has been boosted by the development in roads which has opened up many areas within Nairobi City and its satellite towns. Still demand is way ahead of supply.

Adding to the pressure is the new constitution that has devolved governance to the regions creating 47 county governments. These new governments and their attendant bureaucracy will demand offices and residential houses and related infrastructure in the regions.

These individual units  use Pit Latrines

This means that Kenya, which cannot supply the entire required infrastructure from the exchequer sources, will soon become a major player in PPP projects in East Africa.  The demand for such infrastructure is expected to grow exponentially over the next 10 years or so making the country a major market for real estate and related infrastructure development, say experts. 

The expanse in the foreground and
 background is crying for investors
In the recent past-the private sector, buoyed by ready availability of finance- has moved in to cash in on the demand. But even then demand still exceeds demand by leaps and jumps.

This means that there is room for more investors in the real estate sector to develop the required infrastructure. While the private sector has developed housing units purely on commercial basis, there is one area that has largely been neglected. That is waste water transportation and management systems. A Majority of urban centres, most of which are new and some whose growth will be driven by the devolution of governments, do not sewerage and waste water treatment plants.

This problem is especially critical in urban areas surrounding Nairobi due to the movement of people and businesses from the city to the Satellite towns. Such urban area as; Ruiru, Ruai, Athi River and Ongata Rongai have posted significant growth in economic activity without  concomitant growth in social infrastructure, including  sewerage systems.

A recent situation analysis by the Kenya government reported that, only 14 per cent of Kenya’s urban towns have sewerage systems. It also reported that most of them were old ranging between 20-40 years and poorly maintained. Consequently, said the report, the facilities have deteriorated and do not meet increasing demand leading  to frequent bursts due to overloading.

Kenya has a mixed sewer system which receives both domestic waste and industrial effluent. Industrial waste water, by law, should be pre-treated on site before discharge into the municipal sewer system is discharged without raw due to laxity in enforcing the law. Industrial effluent is a major pollutant of water sources and the environment

Failure to pre-treat industrial waste water leads to sewer bursts due to blockages from suspended solids, corrosive effluent and secondary reactions of effluent in the sewer line, experts say.
 A survey by this publication in the above named urban areas established that, most estates have built communal or individual Septic tanks while many other developments have Pit Latrines. These are emptied when full by exhausters at high cost. The high cost of emptying the tanks, this publication has established, is an incentive for some to empty their septic tanks into public places. This contributes to poor hygiene and environmental degradation. 

Since local authorities are strapped for cash, they are unlikely to invest in sewerage systems any time soon. Although figures are not readily available, experts say that the investment is colossal.
Therefore they called on the government to consider establishing a PPP framework in the sewerage sector to tap private sector finance and management of the sewerage systems in the country.

Monday, 12 December 2011

Revealed: Why the frequent spats among the Sudans?


Omar El-Bashir: Sudanese President

 Tension between South Sudan and the Northern Sudan is unlikely to be resolved anytime soon, South Sudanese government sources say. There may be temporary truces, but the tensions will remain and could sometimes explode into full scale military combats, said the source.

The bone of contention is the $20 billion a - year-oil wealth. Before South Sudan seceded from the then Republic of Sudan in July this year, the country was producing some 0.5 million barrels of crude every day. That earned the country an estimated US$ 54 million per day at the price of US$108 per barrel or $1.62 billion a month. Shared equally between the North and the South that meant a whopping $810 million in its coffers a month or $9.72 billion a year. Before the 2005 CPA, Khartoum used to pocket the whole lot, the equivalent of US$19.44 billion at current prices.
Hugging or Back stabbing: with Salva Kiir
President of South Sudan

The secession of South Sudan, which controls 75 per cent of the crude output, changed that equation. It meant that North Sudan had to make do with 125,000 barrels of crude. This is just $13.5 million a day or $405 million a month, an equivalent of US$4.86 billion a year.  South Sudan on the other hand pockets the rest, that is US$1.215 billion a month or $14.58 billion a year.

 Sudan, that is Khartoum, is in a severe economic crisis. The sharp fall in oil revenues has resulted in a sharp decline in Forex reserves in Khartoum. Sources say that Khartoum’s import Bill is US$2.5 billion a month. Previously, oil revenue could finance up to 35 per cent of her imports. That figure has now been reduced to 16.2 per cent. This resulted in the weakening of the Sudanese currency, the Pound, and the resulting increase in domestic inflation that sparked riots in Khartoum in September. Consequently, to build a forex reserves, Khartoum has increased the exports of gold, reported Bloomberg news service on December 6, 2011. Even then, there are fears that soon El-Bashir could face kind of unrest that toppled presidents in Tunisia, Egypt, and Libya this year.
Not taking Chances: South Sudan Army guard a Refinery
 Starved of forex and with no significant oil revenue of its own, Khartoum hiked the crude transportation fee for Juba. Khartoum, our sources say, charged US$50 per barrel. Juba objected since the standard transportation fee is far less. Nigeria for instance charges her landlocked neighbour, Gambia US$1.00 per barrel. To charge US$50 per barrel was extortionist and a ploy to continue sharing of oil revenue through the back door. Juba offered to negotiate the transportation fee around one dollar per barrel meaning that South Sudan is ready to pay $375,000 per day or US$135 million a year as transportation fee. Hence the on-going dispute over fees.

To make matters worse for Khartoum, the oil Pipeline’s minimum capacity is 200,000 barrels a day, the source said. This means that Khartoum cannot even export her own output without support from her neighbour. What’s the point here? That Khartoum is at the mercy of Juba now and in the future. That is why the North is aggressively pushing south in the hopes of finding some more oil deposits or even acquiring some by force, our source said. It also using this aggression in the South to divert attention from the storm building at home, said the source.

This is where China comes in. Being a huge buyer of the Sudanese Oil, China is aware that if the South turned off the tap, the North will not export her crude regularly.  Although quite civil on the surface, China is said to be using the Carrot and stick diplomacy to get especially the North to relent.

It is considering building a new refinery in the South thus completely eliminating her dependency on the North. Should this come to pass, the North’s Pipeline will have been rendered worthless since it cannot transport less than 200,000 barrels a day.

Khartoum aware of this as The South is considering building a pipeline through Kenya into the Port of Lamu. Kenya is looking for investors to sink some US$8 billion  into the development of the port in Lamu together with the construction of a Road and a railway line linking Kenya and South Sudan. That, say sources, is the reason why Khartoum is still clinging to some parts of the South especially Abyei, since there are suspected oil deposits.

 Given the economic stakes, it seems that a truce, if any, will be temporary and that the former components of the Sudan will quarrel frequently over who’s stealing from who. Whether these spats will develop into gunfights remains to be seen.


Wednesday, 7 December 2011

A court ruling that Lacked wisdom

A Kenyan High Court ruling made last week spawned a noisy exchange between the executive and the Judiciary. The ruling, in response to an application by an NGO, ordered the government to arrest the Sudanese President, Omar El- Bashir, and hand him over to the ICC “should he visit Kenya.”


The government immediately rejected the ruling thus opening the noisy exchange with the judiciary and some human rights activists. It also opened a diplomatic spat between Kenya and Sudan. The three- pronged spat has raised critical Questions among Kenyan analysts.

The first is; for who does the Kenyan law and the Kenyan Judiciary exist? Whose interests should come first in the dispensation of justice? What does the independence of a judiciary mean? What should it limits be and who defines such limits? What is the role of the Judiciary in the protection of Kenyan interests world-wide? When it come to arbitrating international disputes what should be the guiding yard stick?

In attempt to answer these questions; the legal profession performed dismally. And this could put the entire profession into a state of disrepute in the eyes of Kenyans. A flurry of opinion pieces and editorial in the local press simply exposed the dilemma the ruling put even the legal profession in.

All of them harped on this myth of the independence of the judiciary to justice what was clearly a “political ruling from the bench,” said a local analyst. The “apologists” of the ruling demonstrated clearly the hypocrisy of the legal profession when one of their number stirs public anger.

The Sudanese president responded using arm-twisting tactics. He ordered the Kenyan Ambassador out within 72 hours and recalled its Ambassador in Kenya. Other measures that were not publicly announced included: the expulsion of all Kenyans living and working in Sudan, cessation of trade relations, and the ban of all flights entering or leaving Kenya from Over-flying Sudanese airspace. Clearly Kenya interests were threatened

Sudan is not a leading destination for Kenya’s exports in the world. But is the fifth largest Consumer of Kenyan tea in the world. Tea exports earned Kenya some US1.2 billion in 2010; Sudan consumed some US$250 million of that. That is a market that has to be handed with velvet gloves if: Tea prices are to remain high in the world market and two if Kenyan tea farmers are to remain profitably employed. Barring flights into or out of Kenya from overflying the Sudanese airspace would have a similar effect on the tourism industry especially. Further the interest and safety of the 1,500 Kenyans living in Sudan had to be considered.

It is not clear the how far Sudan would have carried out these threats or if carried out at all or how long they would have been in force in Sudan. However, a system as temperamental as Sudan’s could have put these injurious threats in place-for a while

The short and the long of it all is this: the judge should have considered all these facts before handing out the ruling.  By handing out the ruling oblivious of these facts in effect handed Sudan the diplomatic coup against Kenya that was evident last week.

Strangely the legal profession does not think it is their business to protect Kenyans and Kenya’s interests world-wide. They think that somebody else should. Which brings to mind a case in Britain that the ‘apologists” referred. A magistrate’s court issued a warrant of arrest against a former Israeli Foreign minister, Tzipi Livni, at the request of lawyers representing Palestinian victims of Israeli military operations in Gaza.

 The Israeli Government rejected the ruling. The British government was embarrassed and   amended the law removing a private prosecutor’s freedom to seek a warrant of arrest in exercise of "universal jurisdiction.”  Now private prosecutors must obtain the consent of the director of public prosecutions before the issuing of a warrant of arrest by any court in exercise of "universal jurisdiction.”
The question still remains are judges and Lawyers oblivious of national interests? If that is the case, then do they understand the role of the Law in the first place? By definition; the Law is a social contract between the citizens of a country to protect their common good? This means national interest take precedent over other considerations. In other words the Law cannot supersede national interests.

So was the ruling right? To the extend that it subordinated Kenyan interests to other interests, it was a ruling in error. No wonder Kenyans are reading “politics” in the ruling. According to the Political school of thought, the ruling may have been obtained in a bid to prove to the ICC, where six Kenyans are charged with crimes related to the 2007/08 post-election violence, that Kenya is not ready to Co-operate with it. This would mean that should the Court rule that their cases are admissible, then two of the six, who are presidential candidates in the 2012 election, could be detained. Once detained that would pave the way for some interested candidates to win the Presidency.

 This line of thought is helped by the fact that the judge appear to have depended on political opinion of the two principals in Kenya’s coalition government. The judge is reported to have quoted the opinion of those letters to make his ruling. It is not surprising then that politicians took the Judiciary by the horns.

And the judiciary, specifically the Chief Justice is not helping matters any by jumping into the fray. In fact the Parliament had to advise him to stop jumping into such disputes because they could be taken to the Supreme Court for arbitration and embarrass him. The CJ is the President of the Supreme Court in Kenya.

The ruling lacked in wisdom, say analysts. Wisdom would have obligated the judge to consider the potential for embarrassing the country. He should also put Kenyan interests and not those of ICC or any other provision of the law ahead of Kenyan interests. The promulgation of any law, say analysts, should not be divorced from national wisdom. Probably other subjects, such as Diplomacy, economics and basic accounts should be introduced at the Law school to make judges wiser, say analysts. 

Wednesday, 30 November 2011

Will a Single currency benefit East Africa?


The Kenya shilling: used by
nearly 60 million people in the bloc

Will a monetary union benefit the East Africa Common Market?  Can it succeed? These are questions many “an expert and observer” have asked in the recent past. The economic conditions in East Africa, says critics, are not favourable for a Monetary Union come mid–next year.

The experts do not foresee the bloc being ready for a monetary Union until after 2015. What are the problems cited: Weak domestic currencies, rising inflation, economic disparity within the member-states and among the states and general unpreparedness-whatever that means.

The Tanzanian Currency:
the third weakest currency in EA
 Just the same problems the pro- monetary union lobby says a single currency would solve.  The single–currency school accuses the critics of  “crying wolf.” Of creating mountains out of Mole hills.To be sure, the single -currency school avers, inflation in East Africa is high, ranging between 19.8 per cent per year in Kenya to 31 per cent in Uganda.

However, a closer look at the drivers of inflation shows that they are temporary in nature. A prolonged drought in the region resulted in food shortages which in turn send, food prices skyrocketing.  The other driver is high crude prices in the international market. To some extend the debt crisis in Europe weakened our currencies as demand for the green buck in the international market rose.

But these conditions are reversing: the rains are pouring heavily; Crude prices in the world market have turned south and the panic caused by the debt crisis in Europe has passed. 

With all conditions looking north the currencies are now recovering their foot hold against the green buck. Even the Kenya shilling, recently, billed the worst performing currency in the world against the US dollar has turned round. It is now billed as the best-performing currency in the world against the US dollar.

The trend in East Africa is; good rains lead to the collapse of food prices and consequently, food-driven inflation. Unless the debt crisis in Europe spins out of control, demand for the green back has declined and local currencies are revaluing. These coupled with the decline in crude oil prices are a recipe for a decline in inflation. Experts are now looking at single digit inflation by the end of Q1 next year.  Such developments, says the pro-School, nullify pessimists’ argument of volatile economic conditions.

They cite the example of the Kenya shilling which almost the official currency in large parts of Tanzania, Uganda and Somalia. If for argument’s sake, the shilling were to become the official currency in the region, what would happen to domestic prices across the board?

In Tanzania for instance, prices would decline by nearly 322 per cent so that items that cost 100s of shillings would cost in the 10s of shilling. Those that cost tens of thousands would come down to hundreds. In Uganda, prices would decline by 783 per cent while in Rwanda and Burundi the price declines would range between 35.4 and 30 percent.

In effect, the domestic prices of goods and services will be re-valued and so would the wealth of the region.
The stronger Kenya shilling is used as a store of value and also for trade in the region. One can book a Middle level Hotel in Arusha and Moshi and other parts of Tanzania that border Kenya using the Kenya shilling. One can also buy a pack of cigarettes at the Kiosk across the street in Kenya shillings.

The same is the case in Uganda and Somalia. The stronger Kenya shilling is valued as a means of exchange and a store of value. We are talking about ordinary vendors on the street not a savvy businessman in a stripped suit.

The upshot here is: East Africans know a stronger currency when they see it and they   use it for business. So we might say that the small business man in East Africa has contributed to the weakening of their domestic currencies by preferring the Kenya shilling to their domestic currency.

The implication is: a stronger foreign currency is preferable to a weak domestic currency. Even in Kenya, some ambitious people prefer holding the US dollar to the local currency which they consider volatile.

A stronger East African currency would probably be stronger than the Kenya shilling. This would mean that the GDP of the region would be revalued in terms of the domestic currency and inflation would dip.

Just imagine. How would a currency used by 130 million people affect: consumption, production and employment creation in the region? How would it affect the competitiveness of our exports to the world market? How would it affect regional foreign debt? How would it affect debt service especially in the weaker economies? Think about it.

Monday, 28 November 2011

Tanzania Stalls EA Monetary Union negotiations

President Jakaya Mrisho kikwete:
Combative  president combative Country?

Tanzanians have, as usual, stalled the negotiations on the creation of Monetary Union in East Africa. Media reports say that the Tanzanian delegation to the task force on the creation of a monetary union, at Entebbe, Uganda, opposed every item in the background Paper.

The background paper will eventually become the protocol for the East African Monetary Union.  At the table for discussion was Article 24 which proposes a universal monetary and fiscal policy.

President Kibaki of Kenya:
The Giant of the region worrying Tanzania
The delegation also stalled article 17, which proposes that member states coordinate tax policies at the community level. This will require that partner states to disclose fiscal policies to other partner states.

These two proposals mean that member-states will have to cede some of their sovereign power to a regional authority such as an East African Central Bank and common Customs Authority.

The refusal by the Tanzanian delegation to discuss these issues did not surprise many Observers in the region. Tanzanian delegations have always stalled discussion on the creation of East African Common Market right from the start. At times, said a delegate familiar with Tanzanian attitude, “they just flatly refuse to discuss an issue, declaring an imaginary dispute.”

It is for this reason that the integration process has always virtually been forced down Tanzania’s throat, says a source familiar with the process.

Beginning with the East African co-operation in the 1995 to the customs Union in 2005 and the East African Common Market in 2010, Tanzania is the reluctant partner, said the source. In fact, she agreed to the East African Common Market protocol when it became clear that other members were ready to leave her out.

It is not clear why she is the reluctant partner. Experience shows that she has benefitted immensely from the integration of the region. Tanzania has cut a niche market for its exports to Kenya, the largest market in the East African Common market block.

An Analysis of the trade data shows that Tanzania manufactured exports to Kenya rose by 2000 percent from US$6.6 million in 1998 to US$135.4 million a year in 2010. Kenya’s exports on the other hand rose by 243 per cent from $188.7 million in 1996 to $392 million in 2010. However, Tanzania’s informal exports to Kenya far exceed the formal exports.

The perils of her reluctance to join the EACM are also glaring. It has been reduced investment flows from Kenya and a growth in smuggling.

With the expansion of the East African Community to include Burundi and Rwanda and also South Sudan, Tanzania is no longer a favoured destination for Kenyan investors.

Unlike the past where Kenya competed with Britain and South Africa, as sources of investment funds into Tanzania, Kenyans are looking elsewhere to invest. In the recent past, some Kenyan Companies have divested from Tanzania to invest at home. Others have looked elsewhere.

For instance, Major Kenya retail outlets appear to have shunned Tanzania denying the country’s manufacturing sector a major outlet for their products. Nakumatt Limited, the largest retail Chains in Kenya has already opened three branches in Uganda and one in Rwanda. Only Uchumi Supermarket has opened a branch in Dar-Es salaam, Tanzania.

Banks are also following a similar trend. For instance Kenya Commercial bank, the first Kenyan Bank to venture into the Tanzanian market in the 1990s boasts of only 11 branches in Tanzania; 14 in Uganda; 19 in South Sudan and 9 in Rwanda.

Equity boasts of 38 branches in Uganda and 4 in South Sudan. It has its eyes trained on Tanzania and Rwanda. Rwanda is higher in the radar than Tanzania.

One of the benefits of Monetary Union is an increase in intra-regional trade and investment which lead to better economic performance at home. Tanzania, by being a reluctant partner is losing out on investment funds from the region’s economic powerhouse-Kenya.

 Further, unilateral increases especially in Consumers taxes, had spawned increased smuggling of consumer goods from Kenya. A Tanzanian newspaper recently reported that smuggling of Kerosene-a vital Kitchen input among the rural folk and urban poor- from Kenya to Tanzania has risen following the increase in tax on Kerosene in Tanzania.

Friday, 25 November 2011

Kenya Al-Shabaab War: will Kenya Succeed where others failed?


Kenya Soldiers on Ground in Somalia. Will she tame Al Shabaab?

Will Kenya succeed where others failed? This question has been asked by many a writer in the last one month. Depending on where one comes from, the answer has been to show that defeating a rag-tag army called Al shabaab will be an herculean task for the Kenyan Military.

The Kenyan defense Forces invaded Somalia on October 15th 2011, in a bid to destroy this terrorist group which was accused of breaching Kenyan territorial integrity.  It was blamed for kidnapping tourists from Isolated Kenya tourist resorts which was a threat to her US$1 billion- a-year industry.

The attack has spawned a series of questions among them: what was Kenya’s agenda and whether it will succeed where others failed?

Granted. Ethiopia invaded Somalia in 2006 and was humbled by the militias. Two years later, Ethiopia withdrew its forces, citing the heavy cost of keeping soldiers in Somalia. More than 10 years earlier, the Mighty US was humbled by the same militias. Two Black Hawk choppers were shot down and 18 servicemen killed.  The bodies of several soldiers were dragged through the streets of Mogadishu. This led to a hasty withdrawal.

This scenario, coupled with the fact the Kenyan Military was once termed a “career army” which was never involved in any war led to the question raised at the beginning. 

However, the Kenyan invasion enjoys several advantages never enjoyed by the previous invaders.  For a start, Al Shabaab and all such similar militias are confined to the south of the country.

The North, including the Capital Mogadishu, is in the control of the TFG (the transitional Government Forces) and the Amisom (The African Peace keeping force). The Porous Kenya border is controlled by the Kenya Army.

In the south, Al Shabaab’s stronghold, the sea including entry into the port of Kismayu is controlled by the Kenya navy. And the Air space is controlled by the Kenya Air force  which has been softening the targets with frequent bombing runs. This means that Al-Shabaab is effectively isolated.

In addition the Kenya military enjoys advantages that the previous “invaders” of Somalia never enjoyed.  Unlike the Americans and the Ethiopians, Kenyans speak Kiswahili, a language spoken by a majority of locals in the areas it has invaded. This makes it easy for Kenya to pacify the locals and win their hearts since their intentions are easily understood.

What has been the operational effect of this virtual Isolation? Both and the US battled the militias in Mogadishu, leaving other parts of Somalia, particularly Kismayu and the porous Kenya-Somali Border un Policed. This allowed the militias to receive arms, and export contraband to finance its war with the US and Ethiopia.

The Kenyan defense forces on the other hand, began by chocking off Al-Shabaab's lifeline. The Kismayu port, through which Al-shabaab could import contraband goods and weaponry, has been effectively blockaded by the Kenya Navy.

Two, the Porous Kenya-Somali border through which Al-shabaab and its supporters in Nairobi smuggled the contraband into Eastleigh Estate in Nairobi has also been cut off by the Army which is moving South wards towards Kismayu.  In the air, the Kenya Air force has effective control

We can therefore conclude that Al shabaab's sources of finance have been effectively shut down. This has reduced its effectiveness as a fighting force. And analysts in Nairobi do not give Al-Shabaab much chance against the Kenya Defense Forces in the face of this deadly strategy.

Finally either as a result of the strategy or as part thereof, the Kenya defense forces appears to be herding Al-shabaab together for the final assault. To date, Al shabaab has been uprooted from various strongholds in Southern Somalia and are being herded South-wards toward Afmadow and Kismayu.

So we may ask will Kenya succeed where others failed. The answer is a firm YES. Al shabaab low on funds, arms and hiding places is something of a sitting duck.  So far it has suffered huge loses whenever it engages the Kenyans; This means that they are also running short of fighters.  And since all re-supply routes are cut off, the probability of re-arming or even training more soldiers is close to zero. My Prophecy, the final assault whenever it comes, will be just that, a final one. There will be no-al-shabaab after that!

Tuesday, 22 November 2011

Nairobi emerges as the Financial Hub of East Africa


Nairobi has emerged as the financial hub of the East Africa Common market bloc, we can report. Thanks to the rapid expansion of homebred multinational banks and the consolidation of the management of foreign transnational banks from Nairobi

The foreign banks have actually lost their dominance of the local financial market both in profitability and branch network in the region to indigenous banks.

The indigenes have since the mid-2000s taken the foreign banks head on in terms of branch network expansion and innovation. This has made the Kenyan financial market and by extension East African financial market the pitch for stiff competition driven by Kenyan banks.

The front runners are Kenya Commercial Bank, the oldest bank in the region, and Equity Bank, ironically the youngest and the most aggressive bank in the region.  In fact, Equity is now the largest bank in sub-Saharan Africa in terms of customer base, boasting of a whopping 6.7 million accounts.

The Multi national banks- Barclays Bank and Standard Chartered – are losing out in terms of profitability. In the first half of this year, Barclays lost the poll position posting someUS$60.4million in pre-tax profits. The top slot went to Equity Bank which bagged some US$65.6 million. Kenya Commercial bank came second posting $ 63.3 million. Standard Chartered, which has traditionally held the second position after Barclays, came a distant fourth earning $27.8 million. This, it appears, will be the trend up to the end of the year with minor changes.

In terms of capitalization, Barclays, which was once the leader comes a poor second after Equity Bank, which boasts of a US$340 million war chest compared to Barclays’ US$190 million. KCB has been to the capital market recently seeking to raise it war chest to expand into the region.

At home the two banks lead in innovation. They have taken advantage of the entry of Fibre Optic into Kenya to expand their customer base without expanding their branch network. They have launched Agency banking where business people are licensed to perform banking functions for a commission.

It is expected such innovations will soon be licensed elsewhere in the trading bloc. On this score the foreign multinational banks were caught napping and are yet to wake up.

The Foreign transnational banks brought this dismal show upon themselves. In the 1990s, when they called the shots, they trimmed their presence in the market by discarding retail banking. Accustomed to earning billions from doing nothing, the banks closed down some 230 branches across the country, saying they were unprofitable.

At that time, between 1997 and 2001, the banks made billions from investing in government securities.
The dejected retail customers trooped to indigenous banks such as Kenya commercial bank, and building societies such as Equity Building Society, Family Finance and others. When these institutions converted into banks in 2005, the battle lines were drawn. Soon Equity was buying out town and setting up braches in the low-end areas. The gamble paid off and soon, it was announcing profit growth rate in triple digits while the majors were stuck in single digits.

The majors woke up to the reality. And in 2006/7, they began gunning for the retails markets. Gone were the days when the major banks treated potential customers as a nuisance. They had to compete with street hawkers for space on the street as the drive for new customers heated up.

Robust economic growth spawned increased demand for banking services including credit. This, coupled with good house keeping among the banks saw the previously sick men of the banking industry namely; Kenya Commercial Bank (KCB) and National Bank (NBK) return to profitability.

Coupled with the rapid growth of newly licensed and other small banks, pressure grew on the major banks which moved quickly to retain their market share and probably expand resulting in hawking of loans to the retail market.

The battle then spread beyond the Kenyan borders into the East African region as indigenous Kenyan banks expanded out of the domestic market. This market was previously dominated by both Barclay’s and Standard Chartered.

KCB is now the dominant bank in the region boasting of a total of 221 branches in the region including; 11 branches Tanzania; 14 in Uganda, 19 in South Sudan and Nine in Rwanda. Equity boasts of 38 branches in Uganda and four in South Sudan. It has its eyes trained on Tanzania and Rwanda. It would be interesting to watch as the battle for a bigger share in the regional financial market shapes up.

To counter the aggressive expansion of the indigenous banks, the Trans-nationals which are already present in the region are consolidating the operations in the region to be managed from Nairobi. The city has become truly the financial capital of the region.

Thursday, 17 November 2011

Do Kenyans learn from the Mistakes of others?

EA Money Market

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4084.44
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KES
     27.53
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TSH
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Evidence is emerging that the real estate developers whose homes were flattened by government’s bulldozers in yokimau, were in fact land grabbers. The evidence suggests that the developers were duped into buying government land reserved for the Jomo Kenyatta International Airport in Nairobi

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The disputed plot is not in Syokimau farm but is sandwiched between the Airport and the farm. Previously that land belonged to the Kenya Airports authority, being a reserve for the expansion of the airport which lies 21Km South East of the Nairobi CBD.
 Kenya shilling’s exchange rate 
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147.59
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UGx
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   27.64
ZAR
  11.47
   11.47
The unsuspecting investors bought the land from conmen some years back and dismissed murmurs that they occupy the land illegally. The evidence suggests that the LR number is for a piece of land located at least 10 KM from the site. This plot has also been sold and is being developed.

In effect the government has told the developers that they were robbed of their money due to the investors’ lack of due diligence. Generally, it is incumbent upon investors in land to ensure that the land title in question is clean. He must confirm that the title is registered in the name of the seller and that the land has no caveats.  This means that an investor inland should engage the services of a Lawyer to advice before money changes hands. Lawyers would investigate the land in question to establish the genuine owner, that the land being sold is the land physically registered and that it has no caveats.

Apparently, this group of investors chose to ignore the right procedures. In fact a number have admitted that they cut corners with the process opting to deal with the sellers on the basis of trust.
 Strangely, the developers knew since 2004 that they were trespassing on government land.  Instead of pursuing the people who sold them the land, the investors opted for Court injunctions to stop the government from evicting them from the land.

How they expected the government to look the other way as it lost land reserved for the expansion of an international Airport is difficult to fathom. The investors apparently did not learn from another group of investors who had bought land on road reserves around the same area and put up palatial homes. When the time for the expansion of the road came in 2006, the structures including some Multi-story flats were brought down. Those who ignored the government’s warning had their structures brought down by bulldozers. 

Land in Nairobi is scare and expensive. This has forced potential home owners living in the city to look to the outskirts of the city such as Syokimau, Mlolongo, Athi River, Kitengela and other parts of Mavoko Municipality for land to build homes and factories. Demand for land in these areas has gone up and so has the number of conmen posing as land selling agents.

Conmen know this and they exploit the greed for urban plots to line their pockets. Many have no qualms selling fake land. That is what happened to investors at Syokimau who bought nothing.  They simply gave someone their hard earned income in exchange for the pain they are suffering now- for the simple reason that they ignored the legal procedures regarding land acquisition. 

It is emerging that it is not only Syokimau investors who will lose their lifetime investments. The government, reports indicate, has decided to reclaim its land from grabbers especially around Airports. This means that many more homes could face the bulldozer before the close of this year.
The government, reports say, has opted to protect its airports by recovering its land from land grabbers. It is feared, say official sources, that Al Shabaab sympathizers could buy homes within these areas and use it to hit planes approaching or leaving the airports.

Kenya has sent its defense forces to Somalia to fight and destroy this terrorist group which is allied to Al Qaeda. If this is the case, then, analysts say, many land grabbers around the airports’ landing and take off pathways will soon come to grief. This leaves the question begging when will Kenyans learn?  Those who ignored these procedures in the past have come to grief: Do we learn anything from the mistakes of others?