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

 Uganda Forex Rates
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

Tanzania forex Rates
2575. 77
   204. 45 

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 
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?