Thursday, 31 October 2013

KDF wrecks Al Shabaab camp in somalia

Hardly a month since they raided the WestGate Mall in Nairobi,the Kenya defense forces have attacked and wrecked an al-shabaab training camp in Somalia.

KDF have confirmed that the "courtesy call was successful."  However, It is not clear who else was involved. intelligence sources have hailed the attack as pay back time. Two days ago, intelligence reports say, two senior commanders were killed in a drone attack in Baraawe in South Somalia. Among the dead was a commander named Anta, a Bomb expert. Kenya Defense forces were also reported to have assaulted an al-shabaab camp in “Jillip deep in South Somalia.”

And now as we write, the same sources report that a training camp in South Somalia is under drone attack. An intelligence source in London is quoted as reporting heavy Bombardment at a camp Known as Hurguun 30 Km from Dinsoor. There are reports of continuous bombardment of the camp which is characteristic of Military jets, rather than drones. The number of casualties is not yet clear, but villagers estimate it could run into hundreds of ill-trained and ill-equipped trainees, our sources say.

An intelligence source has characterized the attack as “payback time for WestGate and he say, al-shabaab is paying a heavier price.” The camp is said to host some 400 trainees. Heavy smoke is reportedly billowing from the camp. Villages are said to be celebrating the demise of the tyrants.

Monday, 28 October 2013

Wind power: Ethiopia beats Kenya to the finish line.

Ashegoda windfarm: The largest wind project in Africa
ETHIOPIA HAS JUST commissioned a 120MW wind power farm, the largest operating wind power farm in sub-Saharan Africa so far. This brings to 170MW the quantity of Ethiopia’s electricity produced by wind power. In the process, Ethiopia has now become the leader in wind power generation in Africa beating Kenya, to a poor second- at least for the time being.

 Kenya has very ambitious plans, including being home to Africa’s largest wind power project, the Lake Turkana Wind power Project, which is just crawling off the ground.  Other projects include the proposed 100MW Kipeto Energy sponsored by the American multinational GE in the Ngong area at a cost of US$ 300 million; Aeolus (Kinangop and Ngong Hills) and Isiolo Wind farm. 

The Ashegoda project in Ethiopia cost US$ 290 million was built by French firm Vergnet SA was funded by concessional loans from BNP Paribas and the French Development Agency (AFD). The Ethiopian government contributed 9 percent of the cost.

 This follows the commissioning of 51MW Adamia1 wind farm in 2011. The project was built by Hydro China and CGOC also of China at a cost of US$117 million. It was funded by the Chinese Export Import Bank and the Ethiopian government.

The progress of Ethiopian power development is an important lesson for African countries. Power generation is still the preserve of the government owing to its large capital outlay. All Ethiopian Power projects enjoyed a significant (9-15 per cent of the project cost) financial input from the government. The government, through a bond meant for Ethiopians will fund the US$4.8 billion 6,000MW Grand Ethiopian Renaissance Dam GERD, currently under construction at the Blue Nile.

This is the lesson Kenya appears to have learnt in the development of geothermal. The private sector has no stomach for the drilling risk nor does the financial sector appear ready to finance such a risky venture. Therefore, where the energy sector is liberalized as in Kenya, the government has to bear the drilling risk and then allow the private sector to generate power from the capped wells. That has resulted in a rapid expansion of geothermal power generation in Kenya, which could reach at least 1000MW by 2016.

Participation of the government is a confidence builder especially for the private sector financiers. Refusal by the Kenya government to provide sovereign risk on the Lake Turkana wind power project, which will generate 300MW thus being the largest such project in Africa, has resulted in its lengthy delays.

 However, the project is back on track after the Africa development Bank issued guarantees for the construction of the 400kv, 428km high voltage transmission line to deliver electricity from the site to Suswa station. Lack of sovereign guarantees was one of the causes for the delay. 

The wind farm is located in a very remote area lacking in basic infrastructure. Initially LWTP was expected to build the infrastructure including the transmission line to Sasumua power station 400km away. This is in addition to building roads to transport the generating equipment. 

However, several government interventions have eased the burden on the sponsors, making the project attractive to investors. One of the interventions was the decision by the government to build the transmission line.

Monday, 21 October 2013

Shrinking Oil Prices: Whither Africa?

AS NEW OIL discoveries are made almost on a monthly basis, it is time to face hard questions and seek answers. Among these are question as whither oil supply in the next decade and beyond? Whither the price? Who will be the losers and who shall be the winners? What impact on world economic growth? Specifically will Africa gain or lose?

Transport and energy Infrastructure
 are what Africa need to trade with itsel
Africa, which is likely to be fastest growing region in the next five years, stands at the threshold of rapid balanced, all inclusive development, experts say. Although some countries could suffer temporary setbacks due to revenue declines, continent is well poised to maintain its development thrust.

This is because some of the fastest growing countries in the continent are just now discovering Fossil fuels such as oil and LNG.  They have not even sold a single barrel and have thus not tasted oil money. To these countries energy prices are the bottle necks.  Consequently any price decline would thus be a welcome relief.  
The same is that case for the non-oil producing Africa countries. They rejoice at any price declines. If the declines are significant and sustained, oil consumers enjoy significant savings which spur growth.
Either way it seems, the prospective price declines need not worry Africa. In fact, it could open another gate valve to development.

East Africa which is just discovering how much wealth she has beneath , stands a better chance of shifting gears to embrace a balanced growth. The region has enjoyed more than a decade of robust economic growth ranging between more than four per cent in Kenya to more than seven per cent in Tanzania. The drivers of growth were tourism, agriculture, trade, transport and communications and some manufacturing.

 For this region therefore Fossil fuels will be just an additional source of income. Earnings from a barrel of crude oil or a cubic foot of LNG will supplement earnings from a ton of coffee, tea, flowers and vegetables in terms of generating foreign exchange and even taxes.  Consequently the potential for a balanced economic growth which will reduce poverty level significantly is very high.

 Why are we convinced that fossil fuel price will decline? Experts estimate that given the current rate of fossil fuel discoveries in the world, the global supply will rise from the current 73 mbd (Million barrels per day) to 110 mbd in 2020.  This is a 51 per cent growth in just a decade. Demand on the other hand is expected to grow by 8 per cent per year to 96.7 mbpd over the same period.  The question then arises: Are we looking at fuel glut in the next five to seven years?

Basic economic theory teaches that, an increase in supply of a product is a good thing only to the point of equilibrium. That is to the point where demand for the same good equals Supply. At that point, the price is optimal. However, if supply keeps rising against static demand or if supply grows faster than the rate of increase in demand, there is cause to worry.

This is what is going on in fossils fuels sector. Discoveries of Oil and LNG appear to be running ahead of demand. This is both goods news and a cause for caution.  In east Africa, like anywhere else on the globe, It is good news because competition among suppliers will force down the price, and more important eliminate speculators and Cartels. Herein lies the cause for concern. How low will the price of crude go? And how will it affect the world economy? Who shall win and who shall lose?

The price of crude still appears high at slightly over US$100 a barrel. However, experts project that the price will soon decline.  They estimate that nearly 30 per of the price of a barrel of oil is “fear premium.” That is the price we pay due to instability in the Middle East. This is because traders, mainly derivative traders, bid up prices at any slight sign of trouble in the Middle East.  However, with advances in oil exploration technologies coupled with more fresh oil discoveries worldwide, this risk factor is being hedged out. 

Another factor that could also be hedged soon is the Monopoly of OPEC. OPEC controls 40 per cent of world output. This has given it a monopoly to set the world prices. Consequently, the world market price for crude oil simply scatters around OPEC price. OPEC controls prices by controlling output. So that if prices rise sharply OPEC increases output: when the price is low she reduces output.

The new discoveries of crude oil and LNG including the shale oil and gas are threatening OPEC’s monopoly. The US for instance is tending towards self-sufficiency. The US is the largest consumer of fossil fuels uses 18.9 million bpd. By June this year, the US was produced 7.4 million barrels of shale oil per day.  This figure is expected to rise to 9 million bpd by 2018. This coupled with the current production of crude could see the US being near self-sufficient in fossil fuels by 2020. 

The continued discovery of oil in the eastern Africa coast and  parts of China only adds to OPEC headaches. It means that 60 per cent of world output of oil will be outside OPEC. Since this will have become a buyers’ market, competition will force prices down the cliff. How far will it shrink? That remains to be seen. But days of US $80-100 a barrel appear to be headed in the direction of history.

The Upshot of this analysis is; African oil producers face a huge oil price decline just when many have entered the market. This will stymie the anticipation of a windfall gain and the resultant economic benefits to a country. However, the good news is low crude oil prices lead  to low prices of almost all other goods resulting in significant  decline in inflation. Low consumer goods spur further economic growth.

But east Africa and Africa generally will need to continue opening itself up for trade with itself. This means that as the region opens up new oil and LNG wells, it should also continue to build pipelines, railway lines and roads to connect itself with Africa in order to open new markets for their goods, say experts.

Tuesday, 15 October 2013

Assertive Africa? Brace for more

FOUR MONTHS AGO, when the African Union raised issues with the ICC, we asked whether Africa’s assertiveness can be ignored  At that time we focused on economic causes for Africa’s confidence saying the world must take note.

Bujagali Hydro project in Uganda:
We ended our analysis with the question; who shall blink first, Africa or the West?  Following last week’s no nonsense AU summit where Africa gave the UNSC an ultimatum, the West has blinked first. Now western Diplomats are said to be drafting a resolution to be adopted by the UNSC adjourning the ICC trial of President Uhuru Kenyatta and His deputy William Ruto for a year, subject to extension. 

In our analysis mentioned earlier, we advised the west to respect Africa’s new found boldness.  It seems like the west has finally realized that Africa has come of age and will brook no nonsense. It should brace for more of Africa’s fortitude. The continent has tasted blood and is baying for more and will stop at nothing.
 So how and why did Africa develop such confidence? Thanks to Europe’s inability to read the sign of the times. Its apathy towards Africa in the 1990s helped built the continent’s faith in its ability to solve its own problems. 

Picture this: In 1993, the UN sent a peace keeping force in Somalia. It was humiliated by the warlords there.  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 of UN peacekeepers. Somalia was left to its own devices. 

A year later, the UN took its sweet time to intervene in Rwanda. Hutu militias, supported by the government’s security forces massacred nearly a million people in a three- month period of murderous orgy- until the rebels then rebels arrived in Kigali sending the militia and the army fleeing into Congolese jungle. Since then, Rwanda has rebuild itself.

Back to Somalia. After years of lawlessness and refusal by the so-called international community to do something, Africa got tired. 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.  Then followed Amisom which protected the then President of the Federal Transition Authority in Mogadishu. But al-shabaab, a terror group that was now in charge of terror in Somalia, was roaming the larger part of Somalia, including the sea port of Kismayu. From here Al-shabaab was breaching Kenya’s territorial integrity thus inviting Kenya’s big boots across the border into Somalia.  A year later, Al shabaab was all but annihilated. 

These small military, political and economic successes, coupled with decline of the West cumulatively built Africa’s confidence in itself. The growth of China as an economic power house also contributed to Africa’s self-esteem. Now the continent knows what it wants and sets out to get it.

On the economic front, Africa has transformed itself from a “hopeless Case” in the 1990s “a rising continent” in 2012.  Much of this transformation is largely home brewed: Africa tried things that worked for her. Among these is the end of internal wars and strife.  These resulted into a robust and persistent economic growth, now in its second decade. Owing to robust economic growth the per capita domestic revenue mobilization has risen to U$441 shrinking foreign aid to $41 per capita. The continent is lifting an estimated 15 million people out of poverty a year. This means that so far an estimated 90 million have been lifted out of poverty. At this rate of growth, an estimated 120 million people will join the middle class by 2017 and more will follow.

To sustain robust growth, Africa has identified its bottlenecks and prioritized their removal in a clearly defined development agenda. Consequently, it only deals with partners who fit in that agenda. Africa has learnt to choose the right friends and make the right policy-choices and implement them. Therefore economic growth in Africa is sure to be sustained. IT is now the potential growth pole in world.

A growth pole is a region whose growth drives the rate of growth elsewhere in the world. It is a position to be envied and honoured.  The business community everywhere in the world knows this and acts according to dictats of profit making.  The influx of large western multinational corporations into Africa is a clear indication of where the next dollar in profits will come from. 

Thika Super highway in Kenya: 

Only a fool would dare rub such a region the wrong way.  This is the reality Europhiles-those characters that constantly threaten us with sanctions from the West- must wake up to. The West played a major role in under developing Africa. Africa played a major role in developing Africa. Consequently Africa is in no mood to be taken back to Egypt. 

And politicians and bureaucrats in the west are coming to terms with this reality-much as they hate it.

 In fact from the economic standpoint the West is almost irrelevant in Africa. It is no longer the leading market for Africa Produce, nor is it a reliable donor. But Africa now needs a little aid and a lot of trade. And the largest market for Africa is Africa.

 If anyone followed the two-day visit by the French president, Francois Hollande, to South Africa Last week, then one would recognize Africa’s power. The president with his entourage were in South Africa to do business and French businessmen walked home with billions of euros worth of business contracts in the transport and energy infrastructure sectors. There are only four regional power houses in Africa Viz; South Africa, Nigeria, Kenya and Egypt. Egypt is in political turmoil that leaves only three. 

So After South Africa where will the French head next? Kenya, perhaps. Now do you expect the business community in the  US and UK, which have economic interests in Africa, to risk falling to a second position owing to some myth called values? Do values create jobs or generate economic growth? Tell me.

Monday, 7 October 2013

Slums in Kenya bastions of enterprise?

 WE ALL KNOW that the informal sector is the leading employer in Kenya. Official data shows that in 2011, the formal sector employed 2.123 million people while the informal sector employed 9.9 million Kenyans. This leads to the question: where do these people live? A majority lives in informal urban settlements, popularly known as slums. Much of what we hear about slums is squalor and debauchery. 
A section Of Kibera: The slum has more TVs than
the affluent neighbourhoods

True, there is poverty, moral decadence and dirt: There are no flash toilets in the slums, nor is there running water and plush homes. But slums are bustling with entreprenuers. Thanks to robust economic growth in Kenya, slums are turning into beacons of enterprise rather than by-words for squalor, Poverty, crime, debauchery. A one week survey by this publication established that slum dwellers are an enterprising lot. Many earn more per day than their peers in the formal sector employment. Perhaps, slums generate more income than the affluent estates in their neighbourhood. At least that is true of the two slums in my neighbourhood in Nairobi, among them Kibera, allegedly Africa’s largest slum.
Kwayas Garage:These cars will soon be back on
the road,sparkling

 Most are manual workers, small scale traders, hawkers, urban farmers, skilled artisans in the informal sector. They provide needed services to the affluent neighbourhoods. These include; general merchandise kiosks, fruit and vegetable stalls, car-repairs and maintenance, and personal care activities as Barbers and salons. This study is stratified into three levels depending on skills level of the slums dweller ranging from those who have very little education and no skill to those with an elementary education and plus a skill. 

We begin with the lowest cadre in the unskilled category, the scavengers. These are people who make their living from collecting and selling waste plastic and metal. Among these is Job Mwai Kimani, alias Jobo, a scavenger. Each morning, the 25 year-old man is out on the streets collecting plastic and metal items discarded by the richer neighbours. He collects 25-30 kilos of waste plastics and metals a day. 

 By ten O'clock, he has filled his bag and is on his way to Mabobo, who buys the merchandise. A kilo of plastics fetches Ksh 10 (11 us cents) and that of metal Is Kshs 20(US$0.22). Jobo earns between $ 2.75 and $3.44 dollars a day. That is the average income for, in some good days, he can earn up to US$5.00 a day. 

 Mabobo, a former street boy, is a vital cog in this business. He stands between the scavengers and the recyclers. He is their market and the reason why they are up early every day of the week. Now married and a father of three school going children, Mabobo has graduated from scavenging to dealing in waste plastics and metals. He is contracted to supply the recycling plants with 1.5 to 2 tons of waste materials every week. He spends Kshs 22,500 (US$ 256) a week to buy the materials from his suppliers-the scavengers like Jobo. He sales his stock for Kshs 36,000 ($ 414), making a cool $158 a week. In a month he makes a total of US$632. 
Mabobo Weighing A customer's wares.

His wife, Meri, runs a business too, in fact three. She runs a kiosk selling general merchandise, a food kiosk, and a mobile money transfer. Her total earning s from all these businesses a day is Kshs 1000(US$12 a day). In short the Mabobo family takes homes nearly US$992 a month from their businesses. This is the kind of salary senior civil servants take home a month. 

 Slum dwellers understand very well economies of large scale production. So they ensure that they capture a large market for whatever they sale, be it roast or boiled maize, boiled eggs, used clothes and shoes. The quantities they sale in a day determine the profitability of their businesses. And they work hard to widen their markets. In terms of earnings, their take home pay per day is higher than their peers employed in the formal sector.
 Others such as Oscar, a car-wash, take home more. During the week, he washes about five cars per day and one or two Carpets. That earns him Kshs 1,600 (US$18.40) a day, enough for him and his three employees. His business peaks over the weekend when he washes 40 cars a day. He takes home Ksh 8,000(US$92) a day. During weekends, he employs six more casual workers.
Jobo: Sorting his wares for weighing

 Apart from the Menial workers named above, there are skilled workers such as Motorcycle taxi riders, mechanics, house helps, traders, hair dressers and other artisans. They repair; fridges, air conditioners, electrical appliances, vehicles, tailor our clothes and repair them, weld our gates, and make metal windows, doors and gates- all service in demand by the affluent. Many own the businesses they operate- in some instances they own more than one business. 

Kawaya (wireman) and his four friends lost their jobs twenty years ago as Mechanics. They set up a jua Kali-Informal -garage at an open space in the neighborhood of affluent estates in Nairobi’s Langata area. They all live in Kibera slum. Their business premises is just about three-kilometres from Kibera. So they walk to work every Morning. Theirs is one of the four informal garages within the same one kilometer radius neighbourhood. Initially, there was a mechanic, a panel beater and the wiring guy. In those days, in the late 1980s, making US$50 equivalent per week was tough. They were unable to meet their bills on time, but they still trudged on. 

To date, thanks to the growth of car owners and the population of estates in the neighbour hood, taking home US$20 day is not a big deal. On very good days they make up to $100 a day. Today the garage has grown from the initial four to at least 100 people direct employees. These range from Panel beaters, to welders to wiring guys to painters. Each takes home on, average Kshs 700-1300 (US $9-15)a day. 

 The garage has spawned the growth of support businesses such as spare part shops where one can buy vehicle consumables as engine Oil, break fluids, ATF, bolts, nuts air cleaners, fuel filters etc. Even Paint shops have cropped up here. These shops have rcut down the time it used to take to repair a vehicle. Initially, motorists had to go the garage for a diagnosis, and then would travel to Nairobi’s city Centre -7 KM away to buy the spare parts then return to get them fixed in their vehicles. 

To date, with all businesses concentrated in the same area, it is easy to get your car serviced in less than an hour and continue with one’s business. These businesses, which are stocked in consultation with the Mechanics, have improved the earning capacity of the garage’s “associates.” 

 More people open an opportunity for further business. This large number of mouths to feed has spawned a large number of food kiosks and hawkers. Not only that, since the garage is patronized by the Middle income group, other businesses that serve the middle class such as Carpenters, Salons and pubs, butcheries, Vegetables and fruit Kiosks, general merchandise Kiosks and hardware stores. 

 For the Upper middle income groups in the neighbouring estates, the growth of slums coupled with their enterprise, has made life easy. The merchandise here is relatively cheap compared to the Shopping Malls and the quality is more or less the same. So for top-up shopping the middle class runs to the Kiosks in the neighbouring slums estates. 

What’s more, the neighbors in the slums offer credit facilities to their customers contrary to the malls where everything is paid for in cash. That is an added attraction for the middle class in the affluent estates. In the evenings, the Kiosks explode into a frenzy of activity, food stalls increase as more traders join in the alleyways selling cooked Fish, Chicken and roast meat to serve customers who find cooking expensive. 

 The larger the slum, our survey established, the bigger the market and therefore the more intense the evening activity as traders jostle to serve office-workers returning the City Centre, and Industrial area. There are cinema halls tucked away inside the slums where they show pirated Movies at Ksh 15(US cents 17) per head. But given the sheer population of TVs and the fact that DVD machines are way cheap, the most popular business here is pirating Music and Movies which sale for as little as US cents 57 apiece. The Movies are pirated from DSTV channels. This accounts for the occasional DSTV dish in the slums.