Monday, 16 November 2015

Battle taken to Al-shabaab

 Terror  Map July-August 2015

AFTER   series of brazen attacks on security installations during the Month of Ramadhan (Mid-June- Mid July), the battle for Somalia has turned against Al-Shabaab.

In June to mid-July during the Ramadan Holy Month) , the insurgents held sway in this war attacking Police stations and Military bases in a murderous orgy that saw 321 people, among them Police officers and troops dead.

An attack in Leego in early July was the turning point. Leego, an AMISOM military camp 30KM west of Mogadishu, the capital was manned by Burundian soldiers.  Reports then said that there were up to 1000 and in any event not less than 500 Al-shabaab fighters confronting a camp of 120. 

The camp was simply overwhelmed and at the end of the siege, 50 Burundian soldiers were dead. The camp was emptied of all military hardware. Several other camps were overrun in a similar manner in just one week.

In response, the African Union Mandated AMISOM together with the Somalia Nation Army launched Operation "Jubba Corridor" in Mid july.  The Campaign was boosted by the entry of additional Ethiopian soldiers armed with Firepower. This boosted the fire capacity of the AMISOM forces to chase Al-Shabaab especially on the rough terrain.

Operation Jubba Corridor was designed to uproot al-Shabaab from Gedo region of Somalia, which they had held for Nine years.  The insurgents were put on the run almost immediately as they were uprooted from the region. Contrary to previous fights, Al-shabaab's options in the Operation Jubba had narrowed.

Previously, when confronted by AMISOM which has a superior firepower, Al- Shabaab fled to another region of Somalia. Gedo region, was the last bastion of the insurgents and once uprooted from there, life became precarious and the death toll among them began to climb. 
In June, Al- shabaab killed 321 persons in 56 incidents accounting for 45% of the deaths. It recorded a MEARisk Cincident index of 2.64/5.00

Since then the battle has turned the other side. Al-shabaab is on the receiving end and security in such countries as Kenya is improving. Terrorism incidents declined 29% month- on month to 40 Incidents in July. The death toll shrunk 69% month-on-month to 98 deaths down from 321 in June. The MEARisk CIncidents declined marginally to 2.63 /5.00 in July.

There was further 13% decline in recorded terrorist related events to 35 in August which resulted in 65 deaths accounting 34 % decline in terror related deaths in east Africa region. Terrorism rating in the MEARisk Cincidents index declined from 2.64 in June to 2.33/5.00 in August, a 43% decline indicating that al-shabaab is under intense pressure and that its threat is being decimated.

As the death toll from  terrorism related events took a nosedive,  the death toll  from security and Defense incidents was rising, much of it  suffered by Al- shabaab. In June, there were 86 deaths caused by Security and Defense events arising from 51 incidents.  This was 12% of the total pool of 708 deaths recorded in June.

There was a dramatic increase in the number of deaths from Security and defense events in July. A total of 283 deaths were recorded in this category a 329% increase month-on-month. Of these Al-shabaab suffered 205 of the deaths, forming 74% of the total deaths recorded in this category.
There was similar dramatic increase in the deaths suffered by Al- shabaab to 601 in the Month of August. This was 293% increase over the death toll in July. Al- shabaab losses accounted for 71% of the 849 deaths recorded in August.

After being uprooted from Gedo region, Al- shabaab is now a bunch of homeless punks who must fight even to hold some territory. This makes life dangerous for it. Even then, it has continued its brazen attacks on AMISOM and Somalia National troops.  It has continued flexing its muscle, by ambushing AMISOM forces with devastating consequences on both.

 MEARisk analysts expect Al- shabaab to continue with its brazen attacks on AMISOM forces.  Though virtually boxed in, Al- shabaab will not raise the white flag. It will choose to fight to the last man standing. This shifts it's motive for fighting from overthrowing the western backed government in Somalia, to fighting for its own physical survival. It is thus going to be a thorn in the flesh for AMISOM until the last of them is defeated.

As in the past, we expect AMISOM to respond with a sledge hammer to any such attacks. Whatever the strategy, al shabaab adopts; a homeless military is no military. We expect the routing to continue and Al-shabaab’s position to get even more precarious.

Some its fighters, estimated to be 300, have been cut off at Boni Forest in an operation by Kenyan security agencies.  The 90-day operation, dubbed operation “Linda Boni” was designed to decimate the insurgents hiding in Boni forest which straddles both Kenya and Somalia.
In Somalia itself, Al- shabaab is losing large swathes of territory it once held. Although still fighting to recapture some of the lost territory, this fight could be a strategy to draw them out from the civilian areas. The fight to recapture some lost territory, it seems, could be Al- shabaab’s waterloo.

Al shabaab’s days appear to be numbered and getting fewer by the day.

Tuesday, 24 February 2015

Digital Migration, PPP and Uncompetitive behaviour in Kenya

TWO WEEKS AGO, the government of Kenya closed down the analogue broadcast system in some parts of the country. That meant all broadcasters had to shift to the digital broadcast system. While others were crossing the bridge, three leading media house chose to shut themselves even from the digital platform on which they were broadcasting previously. Their argument, they have not been in the digital broadcast platform and that the digital carriers were carrying the content of KNT, NTV and Citizen TV illegally.

 That move sparked off a debate that is still raging. The context of this piece is not to plunge into the Cacophony of noise that is passing for debate. Mine is to explain the new business model into which the media houses are moving.  The noise and shenanigans is a reflection of the failure by the media houses and their supporters- some of who claim some place in the intellectual world- to understand the concept of private Public Partnerships and what it involves.

 PPP is a business model which allows the government to divest itself of some of its functions to the Private sector.  The private sector is mainly involved in service delivery and maintenance of public platforms through which the services are delivered.  This model is useful in sectors in which service providers are also the regulators. The PPP model involves unbundling the functions of the sector so that some functions can be transferred to the private sector.

One such sector is energy. For years we knew of only Kenya power and Lighting Company in electricity generation, distribution and transmission. This sector was unbundled into four distinct functions: Generation, Regulation, Distribution and transmission. Now we have KPLC- distribution,  Kengen-in generation, Ketraco in transmission . Another entity, Geothermal Development Corporation was also created to fast track geothermal energy generation.

 In the telecommunications sector, the Former Kenya Posts and telecommunications was unbundled into; the regulator, the postal corporation and telecommunications service providers. This unbundling has witnessed the near death of the fixed line telephony provider. The ownership of National broadcast signal was placed in the hands of CAK or its predecessor, CCK in much the same way as Standard Gauge railway is the property of Kenya overseen by Kenya Railways Corporation. KR owns the Railway line. That is the platform.

 In the old dispensation, CCK used to grant investors the license to operate a Radio or TV station. Then the investor was to build the transmission stations.  In the Analogue technology, one needed to build ten transmitter stations to cover the entire country.  However, Transmitter stations are expensive to build and operate. That is why it needed an investor with deep pockets. Only KBC and Citizen owned more that transmitter stations country wide. The others owned only five transmitter station in the country.  That means that only KBC and Citizen TV could reach the entire country.

The rest had a limited reach until the entry of digital satellite TV carrier, DStV which carried their signal to the rest of the country.    It was thus inefficient and expensive.

However, new technological advances have spawned a new business model.  The digital technology has spawned more efficient and affordable model. The model Unbundles service provision from distribution of content.  This unbundling has separated content development and provision from the distribution function. This has made it possible a third party to be licensed to carry the distribution function. That is how broadcast signal Distributors came into being. This simply means that the TV investor will simply plug his studio to some platform and his content is broadcast for a fee. The fee is way cheaper than running a transmitter station.

The model is new in Kenya and some regulatory authorities such as Kenya Airports Authority still own, operate and regulate Airports in the country. However, it is also moving in the direction of licensing private players to develop Terminals such as the Greenfield terminal at JKIA.  The authority, reports say, will employ the same business model to develop Airports in Lamu and Lake Turkana.

 The function of distributing the national asset was placed squarely on the shoulder of CAK. It  had thus to choose between providing the platform itself or divesting that function to someone else. It chose to transfer the function to BSD’s. The much maligned CAK and its predecessor CCK, invited a third party to perform, the distribution function for a fee thus divesting the broadcasters of the expensive distribution function which stymied their growth, that is, expansion to cover every part of the country with their broadcast signal.

It is at this point where illiteracy becomes manifest.  In the new dispensation, content – not financial muscle- is king. And this is where competition is open. It is the digital platform that will enable the growth of specialty TV channels –and we’re beginning to see this emerging with such Channels as Farmers TV and Health Africa TV.  Many more would soon follow.

Now all it takes is a million shillings a month for one to broadcast country wide.  Competition is in content development- not deep pockets or ego. If you have right content, viewers will tune to your channel- and advertisers will follow in case of Free-to-Air channels. On the converse, if one is producing unacceptable content, like the political diet these channels are fond of thrusting down our throats, then we can switch to something more palatable. The field is wide open for the three media houses to dominate the scene. But the probability of them doing so is very low. First they have to transform themselves into something better than what they are.

They must shed off the arrogance that has seen them assume that they can force the government to do their bidding. That they have been off-air for two weeks without anyone going on the streets to protest is a wakeup call. They need to change and change pretty fast.

 As for competition in issuing BSD licenses, inviting Media houses to bid for such licenses was uncompetitive in fact illegal.   In the analogue era, those with deep pocket s could hoard the frequencies thus denying others, the use of the same. For instance, Royal Media services, which owns Citizen TV owns 15 transmitter stations. Of these 5 are illegal because they were not licensed by CCK.  They could therefore hoard the frequencies from other deserving cases or they choke small stations to death.

So to ensure to ensure competition in the provision of services, the way to go is to bar the players –either directly or through proxies from applying for licenses. Just imagine Kenya Airways -or its proxies- getting a license to build a third terminal at JKIA. Would other airlines use it?  Imagine Modern Coast becoming the concessionaire on Mombasa road. Would Chania express ply the same route? That goes against the law of competition. The same is true of granting a BSD to NTV, Citizen and KTN or their proxy ADN. They would beat the competition to oblivion.

 In the new Business Model, the platform is something like ThIka highway handed over to a concessionaire so that motorists pay for use. The highway is open to all users provided they pay and obey the rules of use.  Matatus, Buses, bodabodas, trucks and HCVs can use the road provided they pay the requisite fee. No one is disadvantaged no one is favoured: All have equal opportunity. The only competitive edge is the quality of their service. 

In the new business model broadcasters are like Matatus plying Thika highway. Their copy right is their passengers inside their vehicles not the one waiting at the bus stop. That is the one they are competing for.

 So is CAK’s economics right? Damn right!

Tuesday, 13 January 2015

Low energy prices a boon for Kenya's economy 2015

LOW AND DECLINING energy costs are set to be the catalyst for economic growth in Kenya this year.  And - depending on how long the price of oil remains low- energy prices could remain key drivers in the short run. Analysts, including the World Bank expect crude oil prices to remain depressed into 2017.

This means Energy prices, coupled with infrastructure development, will determine the pace of economic growth, employment, investment, the shilling’s exchange rate and wealth distribution in Kenya. And going by the current energy trends, we may not be wide off the mark. 
Forget tourism, forget agriculture and insecurity.  Oil and electricity prices, coupled with infrastructure development, will drive growth in Kenya between 2015- and 2017.

 Let’s look at some numbers:  Crude Oil prices have declined from US$110 in January last year to US$43 yesterday, January 2015.  In January 2014, geothermal power provided only 179 MW or 24 per cent of the 747 MW produced then. Eleven months later, geothermal generated   323MW out of the 751 MW that is 43 per cent of the power generated in the country. The growth in power represented 143 Mw of new capacity. 

Last year, some 280 and MW of new geothermal capacity was added to the national grid.   Added to the existing capacity, some of which came after November, then geothermal capacity now stands at 459Mw of cheap and reliable power. This means that geothermal power production is now the leading source of power in Kenya.   We have noted significant declines in the price of electricity since August last year.

 Back to oil, the US$ 67 dollar decline is yet to be felt fully for pump prices are declining lethargically.  This is expected for price declines are rushing a head of the acquisition rate. In our case, it may be felt six week later.  Even the resistance downward by fuel price will soon fizzle out. Experts say that crude oil price will continue shrinking until investment in shale oil is unviable.

Economic theory tells us that, energy-oil and electricity- are important inputs in the process of producing and distributing goods and services. Consequently, the cost of energy will determine the price of the final product. We can therefore argue that energy determines the market size of goods and services: The higher the price of energy, the higher the cost of production, the higher the price of goods and services hence the smaller the market size as only a few consumers can afford.

 In Contrast, the lower the energy prices other things being the same, the lower the cost of production and consequently, the lower the price and the larger the market.  Local manufacturers have always complained about high energy costs keeping the price of local goods high and limiting their market.

 Now they have opportunity to fight counterfeiting of their products. Where law has failed, Price will succeed for the greatest incentive to counterfeit is the high price of genuine products.  If the price differential narrows or is eliminated, the incentive to counterfeit is also removed.  We expect that manufacturers will begin to lower prices in a bid to elbow out of the market the cheap substandard goods.  

The local manufacturers need a larger domestic market because larger market mean higher profits as the manufacturers expand capacity exploitation, which lowers the production cost per unit. Price declines put additional money in consumers’ pockets; it is more like a salary increase without taxes. This enables consumers to buy more goods and services, some of which were probably beyond their reach. As more people buy different products, demand for workers also rises.

 Low energy prices will also mean that fewer shillings leave the economy thus protecting its strength.  Kenya consumes an estimated 4.5 million tons of fuel products a year. In 2011, this was worth US$15.5 billion but as prices shot up, the bill rose to US$32 billion in 2012. That engineered a consumption decline as some Motorist parked their cars.  At the beginning of last year, the price of crude was US$110 per barrel. As the year drew to a close, crude had retreated to US$77 per barrel. To date the price is around $44 a barrel and is expected to shrink even further. The reason is simple, there is a glut in the crude market but the producers are not willing to cut supply. Suppliers in the Middle East are undercutting each other in the Asian market in a bid to maintain their market share there. This price war will not end soon.

 In the process, they are handing back to Kenya some US$60 per barrel going by the January 2014 price. Our crude import bill has been slashed by 60 per cent to around US$ 15 billion from the 2012 level of US$32 billion. In fact, a recent report by Kenya National Bureau of Statistics shows that by September, the oil bill was just about US$12 billion. This is an indicator that the oil bill last year did not exceed US$15 billion. We a made a massive national savings of US$17 billion from the oil bill alone. It could shrink further or remain the same.  Our balance of trade will be $17 billion richer. Consequently, US$17 billion in Kenya shilling equivalent or Kshs 1.5 trillion will remain in the country.

If the decline stays down for a long time, the government should renegotiate road construction contracts down. The prices of Bitumen and diesel, key inputs in roads construction are expected to shrink further, cutting the cost of building a kilometer of high quality road by half. Such reduction should be passed on to the government as budgetary savings which could be redeployed elsewhere. This is in addition to cost savings arising from low electricity and fuel prices.

 The government should start by re-negotiating the terms of the on-going PPPs for the construction of the first 2000KM of road through the PPP model. The project that will build 10,000KM of Bitumen roads by 2018 should be reviewed to bring down costs.  The savings so made should be used to develop water supplier to the large community thus employing more people.

 The 200KM project is expected to create some 20,000 jobs this year. Coupled with the construction of the standard gauge railway, which will create another 30,000 jobs and Konza techno city which will also create a large number of jobs, infrastructure development will be the driver of economic growth in the country. These are ingredients for economic growth. How far that growth will go we cannot tell for sure. However, we expect the economy to by 6-7 per cent this year.

 There is a downside though: The shrinking prices could slash investment in oil exploration.  In 2013, FDI into Kenya rose to more than US$500 million. Kenya has commercial deposits of crude oil and was expecting to start commercial production in 2017. Whether that goal will be affected remains to be seen. What is certain is; further exploration could be put on hold.