Tuesday, 24 September 2019

Banks' Mergers to create regional behemoths

Joshua Oigara: CEO KCB Group

This is the year of Mergers and Acquisitions in the financial and telecoms sectors in Kenya. According to the scheme of things, these marriages must be consummated by the end of this year.  Finance and Telecoms are the vibrant sectors of the Kenyan economy. The mergers will produce titans, especially in the financial sector, dwarfing their competitors.

In the financial sector, Kenya’s largest bank by assets, Kenya Commercial Bank will acquire a 100 percent stake in National Bank of Kenya in a share swap.
Another group, the NIC group will merge with Commercial Bank of Africa, also, in another share swap, creating the third-largest banking group with more than 100 branches in the country and the East Africa region.
These acquisitions will place the Kenyan financial market firmly in the hands of indigenous banks. Local banks have swiftly shunted local branches of Multinational Banks, such as Barclays Bank and Standard Chartered Bank to the lower ranks of dominance in the local and regional financial markets. These are now the fifth and sixth largest banks in Kenya, having ceded their leadership perch to four locally incorporated banks.
The acquisition of the National Bank by Kenya Commercial Bank will create a behemoth in the region’s financial sector. It will add another 71 branches to KCB’s 175 in Kenya making it the largest bank in terms of reach. Although some of the 301 branches in East Africa, could end up being closed, KCB group will still be a behemoth. In addition, it will bring an additional asset base of US$1.14 billion to KCB group’s $7.46 billion created a behemoth worth US$8.6 billion.
Another merge between the NIC group and CBA group will create the largest bank in Africa with 41 million customers.  Even then, it will rise to the third largest bank group in Kenya behind KCB group’s closest competitor, Equity group which has 289 branches in East and Central Africa, pushing Co-op Bank to the fourth position.  Equity Bank Group’s capital base is the second largest in East Africa standing at US$6.38 billion. The marriage will place Kenya's financial sector firmly in the hands of indigenous hands.
James Mwangi: CEO Equity
 Group Holdings
The acquisitions in the financial sectors are not confined to the local market. Equity Bank, the second-largest bank in Kenya, has entered into a US$105 million share-swap agreement to acquire four branches in the region from Atlas Mara, ATMA. The four branches are in Tanzania, Rwanda, Mozambique, and Zambia. The acquisition will mark the entry of Equity group into Zambia and Mozambique.  
 It is also expanding its footprint on DR Congo with the acquisition of the second-largest bank in that country, Banque Commerciale Du Congo, BCDC. The bank has 29 branches across the country including key cities Kinshasa, Goma, and Lubumbashi. It has an asset base of about $700 million. This adds to the 2015 acquisition of the seventh-largest Bank in DRC, ProCredit Bank. The new acquisitions could catapult Equity to the Pole position in terms of assets expected to hit US$10 billion at the end of the year.
The resultant behemoths will dwarf their competitors in East Africa, making Kenyan banks, the dominant players in the region.  KCB group’s asset base of US$8.6 billion is larger than the four top banks in Uganda and Tanzania combined whose asset base stands at US$7.24. The largest Tanzanian bank, CRDB, holds an estimated $2.52 billion worth of assets followed closely by NMB with an estimated $2.36 billion. In Uganda, Stanbic Bank controls $1.5 billion in assets, followed by Centenary Bank with $866 million, reported www.theeastafrican.com
Since all the merging banks have branches in the region, the financial market in East Africa too will be dominated by Kenyan banks.
The expansion into DR Congo and Ethiopia by both KCB and EGH will pit the master and his apprentice. The KCB Group Chief Executive, Joshua Oigara, cut his eyes in the Banking sector at Equity Bank, under the pupilage of James Mwangi, the CEO of the Equity bank group. EGH, headed by Mr. Mwangi, is gunning to be the largest bank in East and Central Africa when its assets grow to US$10 billion.
And in the telecommunications sector, Telkom Kenya and Airtel, will merge to form the second largest Mobile services provider in the Country, after Safaricom.
Safaricom, the most profitable company in East Africa, is a pioneer in innovation. It was the first in the world mobile money transfers with M-Pesa which came life in 2007. It boasts of 27 million subscribers in a country of 55 million people. The competitors, Airtel and Telkom Kenya, boast a combined subscription base of 17 million people.
It remains to be seen how the merger will affect Safaricom’s dominance in the telecoms’ sector. However, the behemoth, analysts say, should now set sights beyond the borders, targeting underserved markets such as Ethiopia, South Sudan and DR Congo.

Monday, 16 September 2019

EACOP: Total's Bad Omen,Magufuli's nightmare

The three potential Routes to evacuate
 Ugandan crude oil
The French Oil major, Total Oil SPA's foray into East Africa's crude oil industry has run into a huge storm. In what looks like a bad Omen,   Total has stopped all activities to do with East Africa Crude Oil Pipeline.

This follows a double blow to Total SPA which owns 33 percent stake at Hoima Oil Wells in Uganda. The firm was to buy a 22 percent stake from its partner Tullow for $900 million. However, the deal has collapsed following a disagreement with the government over Capital gains tax.

The death of the buy-out deal left the construction of 1450KM  East Africa Crude Oil Pipeline, EACOP, from Hoima to Tanga Port in Tanzania, which was connected to the sale, in a limbo. That Total Oil SPA has abandoned the project, putting its implementation in doubt is a Bad Omen for the French Oil major.

 Total had gunned for a majority stake at Uganda’s crude oil Wells through a buy-out of 22 percent of Tullow’s stake. This would have made Total SA the majority shareholder with 55 percent stake the lead implementer of the Crude Pipeline project. Now that the sale has failed-at least for now- and Tullow is firmly back at Hoima oil fields, EACOP is in jeopardy.
The collapse of the deal is a nightmare for Tanzania's President John Magufuli. He viciously yanked the Pipeline from Kenya by deceit. But he is an angry man. So frustrated the is he, that he publicly asked his Ugandan counterpart, Yoweri Museveni, to dismiss the Commissioner General of Uganda Revenue Authority. A Tanzania publication, www.thecitizen.co.tz quoted him as boasting that he has “dismissed six- Commissioners General in three and a half years.” Magufuli could not see why his Ugandan counterpart cannot do the same.

He has every reason to be frustrated: A large proportion, 85 percent, of the East Africa Crude Oil Pipeline, passes through Tanzania and she had lined up a significant number of local contractors to work in the US$5.5 billion Project. Now with the disagreement, all these hopes could evaporate. Not only the contracts but also the $12 barrel transport fee is also at stake. The relatively idle Tanga Port is also at risk.

 Tullow, which opposes the Tanzanian route, could kill it, choosing its preferred route, through Kenya.  Also, Read http://eaers.blogspot.com/2018/01/will-totals-entry-into-kenya-kill-hoima.html  

 Total SPA has made a number of strategic blunders in East Africa that won her more enemies than friends, especially in Kenya.  First, it engineered the re-routing of the Oil Pipeline from  Kenya based on a flimsy feasibility study that bad-mouthed Kenya.  

The second blunder was the announcement by its CEO, Patrick Pouyanne. Soon after the purchase of the 25 percent stake held by MAERSK in Turkana Basin in Kenya in August last year, he announced that would lobby Kenya to ship its oil through Tanzania’s Port of Tanga.

Lapsset Corridor: Lamu Port no longer a
proposal but a reality
That almost torpedoed her acquisition and she had to beat a hasty retreat, supporting Kenya’s decision to evacuate her oil through the Lamu Port.   

The failure to secure deals in Uganda is a bad omen for Total Oil SPA for it gives Tullow a major stake in the Crude Oil sector in East Africa. Tullow Oil Plc favors the Kenyan route to the New Lamu Port.

 Now, the failure of the Ugandan deal gives her the muscle she needs to drive the Pipeline route her way. Therefore, the potential for the death of the Hoima-Tanga pipeline and return to the originally planned Hoima-Lokichar-Lamu port route is high. The Lamu Port is no longer a proposal for the first berth will become operational in a month’s time.

 There are compelling economic reasons for that potential shift: First the Hoima- Tanga Pipeline is the most expensive of the three alternative routes to ship Uganda’s crude oil. It will cost $5.5 billion compared to US$4.4 billion for the Hoima-Lokichar -Lamu route said a report on the local TV channel, www.citizentv.co.ke.

Further, a Joint venture Pipeline between Kenya and Uganda will see Uganda ship her Crude at $9 per barrel compared to $12 on the Tanzanian route.

And third, Tullow has no stake in Tanzania at all but has a stake in Kenya and Uganda being the firm that discovered Oil in the two countries. Should Total SA, insist on the Hoima- Tanga Route, being the minority shareholder in both Kenya and Ugandan Oil Wells, she could be forced to farm down, thus leaving East Africa.

Could Kenya have the last laugh on the Crude Oil Pipeline in East Africa? That looks likely.  Both Tullow Oil and Kenya government agree on the evacuation of Oil through the Lamu Port in Kenya. 

For Kenya, an Oil pipeline to Lamu is an integral part of the LAPSSET corridor and would brook no change. It is a developmental issue that cannot be compromised.

Two, Kenya is already ahead of Uganda in oil exports, having exported the first 200,000 barrels this month on an experimental basis. So Kenya is already ahead of Uganda in oil exports though Oil was discovered in Uganda earlier than in Kenya.

Three, Uganda’s interest is to export Oil and is likely to be impatient with prolonged negotiations which delay its plan to export oil by 2022. That plan is already scuttled by the disagreement in Kampala. Uganda is therefore likely to favor the line that exports oil sooner.
Given that Kenya is in agreement with the Oil partners on the implementation of the US$2.1 billion Lokichar-Lamu pipeline of which Tullow is the lead implementer,  Uganda is likely to dump Tanzania. That would give Kenya the last laugh, analysts say.

Wednesday, 4 September 2019

Kenya exports Oil, Hoima-Tanga Pipeline stalls.

The trucks that evacuated Crude by 
Road to Mombasa
Kenya has just exported its first 200,000 Barrels of Crude oil from its Lokichar basin. The export will earn Kenya some US$12 million. This is a minuscule amount compared to Kenya’s GDP.

However, it is significant in that, it demonstrates the advantages of decisive action compared to indecision: Resolute action has positive results at a cheaper rate while procrastination delays action and blocks the benefits accruing from firm decision making.

The export,  billed " Pilot oil export" has thrust Kenya into the oil exporters club, seven years after the first barrel was discovered in the Lokichar Basin, in Turkana county.

Kenya’s crude is said to be among the best in the world, at par with the Brent Crude C1. Sold at $60 a barrel, it was a windfall of sorts for the country, since officials in the Ministry of Energy and the developer, Tullow Oil, say it was viable at US$56 a barrel.

On the other hand, Reuters reported, the construction of the Oil Pipeline to the Tanga Port in Tanzania, from Hoima in Uganda, has been indefinitely put on hold following a disagreement between Tullow Oil and its partners, Total oil and China’s CONCC over taxes.

Tullow, which discovered Oil in the Hoima Basin in Uganda back in 2006, was never for the idea of evacuating Uganda’s crude through Tanzania. And this, analysts say, could have contributed to the decision by Tullow to offload 21 percent of its stake in Uganda to the French oil major, Total SPA. Total, through the Tanzanian President, engineered the re-routing of the pipeline from Kenya's Lamu Port to Tanzania's Tanga Port.

An oil pipeline. The Hoima-Tanga pipeline has hit a storm
Now Uganda’s target of exporting crude oil by 2022 is in a disarray following the disagreement.
The re-routing of the oil Pipeline to Tanzania also derailed the previous MOU between Kenya and Uganda to construct a standard gauge Railway line, SGR, from Kenya’s Port of Mombasa to Kigali, Rwanda Via Uganda.
In 2013, the then “coalition of the willing” comprising of; Rwanda Kenya and Uganda agreed to upgrade the Northern Corridor Railway line to Standard Gauge standard. The Rail then was at a cost of US$13.5 billion including rolling stock and locomotives.
 Construction was to be completed last year. Read  http://eaers.blogspot.com/2013/07/coming-soon-mombasa-kigali-express.html. To date, the line is behind schedule. Only Kenya has built the Nairobi- Mombasa section and is extending it to Naivasha, 120 Km North West of Nairobi.

Trouble for the SGR began when Uganda reneged on an MOU with Kenya to build the Hoima-Lokichar –Lamu crude oil Pipeline, choosing the Tanzania Port of Tanga instead. Tanzania, after yanking the Pipeline from Kenya also began sweet-talking Uganda to also use the Central Corridor.
That effectively derailed the Mombasa Port- Kampala - Kigali line.

Kenya responded by re-designing the SGR to terminate at Kisumu instead of Malaba, on the Kenya Uganda border. The Financier, the Chinese Exim bank grew cold feet on its funding.

Kenya also opted to go it alone on the oil Pipeline from Lokichar to the Lamu Port. The first berth in the Greenfield Port is due for completion in a month’s time and the first Post- Panamax ship is expected to dock in November this year. Kenya’s ambition of exporting Crude through the Lamu port, therefore, looks achievable. The completion of the first birth will jump-start the development of other related projects in the Lapsset corridor using the Lamu Port as their entry point.

However, Uganda has indicated that it may favor the Northern Corridor line if Kenya assures her that her side of the line will terminate at Malaba as initially agreed.  

This follows a study by Uganda’s Ministry of Transport and Public works, which concluded that the Central Corridor is not a priority for Uganda. The study established that the Central Corridor SGR, which will terminate at Mwanza, Tanzania’s Port city on Lake Victoria, will be a bottleneck for Uganda’s economic ambitions.

It established that to carry a single trainload of 216 containers will require five ferries each carrying 44 containers. The ferries are not available since Marine transport on Lake Victoria collapsed more than 10 years ago. Read:http://eaers.blogspot.com/2017/06/the-central-corridor-is-no-option-for.html.

Decisiveness and risk-taking is thus a critical variable in economic growth and increased productivity. By contrast, indecision and confusion hamper wealth creation. Indecision and procrastination are wrong decisions and they are slowing the pace of wealth creation in East Africa.
 The design layout of Lamu Port's Berth 1 due
 for completion in a month

According to the Africa Economic Outlook 2019, Kenya and Ethiopia are the leading debtors in East Africa. Ethiopia’s indebtedness stood at 62 percent of the GDP in June 2018, while Kenya’s was 57 percent of the GDP in September 2018.

The two countries are the largest economies in the fastest-growing region in Sub-Saharan Africa.
 Ethiopia’s GDP growth rate is estimated at 8.5 percent a year, while Kenya’s is just around six percent.  The driver of this growth is public investment in infrastructure.

Both countries have heavily invested in mega infrastructure projects in energy and transport with borrowed funds.
These are pricey projects which have driven the debt to GDP ratio up. But they are also fast-growing countries which is expected to drive the ratio down in the future.

The leadership in both countries has been “daring” in that they have borrowed to invest in Infrastructure despite warnings from the Bretton Woods institutions. Since infrastructure is an enabler in economic progress, the economies have responded by posting fast rates of growth. At the going pace, the two economies GDP will cross- the US$100 billion mark this year, says the IMF.

In the meantime, Uganda is likely to join Tanzania in cirrhotic growth. According to the IMF, Tanzania’s GDP will slow down to just around 4 percent in the short term, down from a decade long rate of more than 7 percent.

Wednesday, 21 August 2019

Kenya is world's eighth - largest geothermal powerhouse

Kenya leapfrogs Iceland. Next target?
Kenya is now the world’s eighth-largest geothermal producer.  It has leapfrogged Iceland. Kenya’s electricity generating company, KenGen, last month added another 79 Mw from its Olkaria V unit 1, bringing the total Geothermal generating capacity to 769 MW ahead of Iceland’s 710 MW.
Kengen will also launch the balance of its 165.4 Mw Olkaria capacity at the end of this month, further widening the gap with Iceland. It also narrows the gap between Kenya and Italy, the “birthplace” of geothermal energy technology.
KenGen plans to add another 1,745 Megawatts from geothermal by 2025. Coupled with generation from other producers, this will raise its geothermal generating capacity more than 2357 Mw, bringing Kenya, near neck to neck with the US. The United States is the current leader in geothermal generation with a capacity of 3,591 MW, says energy siren. www.energysiren.co.ke.
Before then, there are three other giants to leapfrog. These are; Italy 944 MW; Mexico 951 MW and New Zealand 980 MW. All these are within Kenya’s sight given its a penchant for large capacity plants. Currently, there are three projects whose contracts have been approved to generate more than 400 MW of geothermal power in the next three years. These are; Suswa 300MW, and Menengai GDC fields 105 MW.
 Kenya is probably the only country in the world that has geothermal as its baseload source. Baseload is the minimum power that must be in the system always. Hydropower has relinquished that position, which it held for dog years to geothermal. Kenya’s geothermal potential is estimated at 10 GW found mainly in the Great Rift Valley.
Italy discovered and developed geothermal energy more than 100 years ago. It was the leader until the second half of the 20th century when other countries tapped into the power source, says Energy Siren.
Given the rise of geothermal, the Kenyan power distributor, KPLC, has re-engineered its power purchase–mix, buying more geothermal energy in 2018.  The mix comprised of: geothermal 47 percent; hydro 39 percent; Thermal 13 percent in 2018.  The mix is expected to change further this year with the entry of must-consume sources such as Wind and Solar power. Wind formed only one percent of its purchases last year and solar power was virtually unknown.
The geothermal capacity at 769MW is second only to Hydro at 821 MW, but given the growing investment in this industry, Hydro will soon relinquish its top slot.
Kenya’s current electricity generation capacity has risen to 2715 MW against a peak demand of 1802 MW. Demand, according to KPLC, grows at 8.8 percent a year.  With the entry of the 165.4 MW Olkaria V, in July, Kenya’s power generating capacity will rise to 2880 MW. Demand, at the going growth rate,  
The Olkaria geothermal power station
will stand at 1961MW, leaving a spare capacity of 919 MW or 32 percent.
The spare capacity, which is a requirement in power generation, stood at 23 percent by June 31, 2018, says the power Distributor, KPLC, in its annual report 2017/18.  However, the capacity rose to 34 percent following the Commissioning of Lake Turkana wind power and the Garissa solar farm.  These two added a further 364MW to the national grid.
 Although the spare capacity is good for the power generating community- and the country since it eliminates power black-outs and rationing-they are a cost that has to be financed by the consumer.
Excess capacity,--idle capacity if you wish-  is also good for planning  for it ensures that new investment in power generation is prudently studied-and allowed when necessary.
 The growth of renewable and cheap green energy sources has rendered thermal technology obsolete. Power deficits in the 1990s, according to a World Bank study, forced many African governments to allow investment in quick- to -commission thermal powered generator. At that time, crude oil Price were less than $20 per barrel.  They were thus manageable. However, with the rise in crude prices, thermal power generation has become expensive.
These contracts, called Power Purchase Agreements, PPAs still continue to haunt the electricity consumer. Coupled with excess capacity now, they keep the power bills high.
With hydro turning into a stabilization source, the need to re-engineer power generation sources in Kenya is high. The restructuring will involve decommissioning thermal power plants. But the cost of doing so at once is astronomical.  Hence the decision to allow the contracts to run their course, decommissioning thermal plants once their contracts expire.

Thursday, 1 August 2019

Africa needs to invest $1.2trn to fast track infrastructure

Karuma Hydro Dam  in Uganda:
More energy generation needed
According to the Africa Development Bank’s Africa Economic Outlook for 2018, Africa needs to invest a total of US$1.2 trillion over the next seven years on productive and profitable infrastructure projects.  This works to an average spend of US$170 billion a year at the top end.

Of this amount, the continent, through budgetary allocations and donor support, can manage $65 billion a year, leaving a yawning gap of US$105 billion or a total of $735 billion over the seven-year period. The AEO breaks down the sectoral needs as follows in order of priority: US$ 35-50 billion on energy, $35-47 billion on transport, and $55-66 billion on water and sanitation. 
Africa is under increased pressure to invest in infrastructure in order to remove the inefficiencies that could stall the recently launched continent-wide free trade area. AfCFTA billed the largest free trade area in the world holds the key to Africa’s economic independence and security.

 However, the continent’s productive sectors are uncompetitive due to structural deficiencies, among which is small markets, and low capacity utilization due to infrastructure bottlenecks. For AfCFTA to succeed, experts say, the continent needs to invest in transport and energy infrastructure. 

Thika Highway in Kenya:
More of these needed
It needs to improve on productivity by removing nontariff barriers among which is poor infrastructure. Ports are inefficient because of the lack of reliable transport inland. Goods take weeks to reach the customer because of poor roads and lack of high-speed railway lines. Manufacturers invest in own generators because of unreliable grid power supply, rationing, and outages.

All these bottlenecks increase the cost of production leading to high consumer prices, low demand, and the proliferation of cheap imports. Industrialization cannot grow in such a business environment. Yet Africa must industrialize to create jobs and reduce the incident of poverty.
Given that domestic sources cannot meet the continent’s demand for infrastructure, external sources will be necessary. The continent will need to raise at least US$0.8 trillion from external sources to build infrastructure over the next seven years as a top priority.
Offloading at a Port: Lack of good
  overland Transport cause delays at Ports
This is a huge amount for a continent whose GDP now stands at US$2.5 trillion. Therefore innovation in funds mobilization is necessary.
Of course, the GDP will not remain static. In any case Africa’s GDP growth is robust at around 4.0 percent, way above the growth in other emerging economies. However, this growth cannot generate the funds needed to build infrastructure hence the need to mobilize resources through all mechanisms.
The AEO 2018 says that Institutional investors, Commercial banks and Sovereign fund managers are sitting on US$ 100 trillion in savings. This means that the funds needed to invest in Africa’s infrastructure is a drop in the ocean. However to mobilize these resources, Africa needs to develop a pipeline of bankable projects, says AfDB   www.afdb.org.
Kenya's SGR: More of these will ease
landlocked countries develop
The AFDB has set up the Africa50, www.Africa50.org, an investment vehicle whose job is to help develop such a pipeline of bankable projects in the continent. Africa50’s goal is to move the bulk of project development away from the public to the private sector in order to fast track investment in infrastructure. It, therefore, targets private sector-driven projects or those designed on a PPP model in transport infrastructure, energy, and ICT. These sectors, it is estimated, will consume 80 percent of the total investment in infrastructure.
  Africa50 capitalized at US$870 million, is owned by 30 shareholders including 27 countries and three Central Banks.
Although a step in the right direction, it is doubtful that Africa 50 can achieve the target infrastructure levels on its own in the short-run. Some Borrowing by African states is therefore unavoidable. Even then, the active participation of Africa50 could reduce the risk profile of debts in Africa and reduce the cost of borrowing.

Tuesday, 16 July 2019

AfCFTA: The African Airlines' hanging fruit

Ethiopian: The only profitable airline in Africa

 Africa must eliminate import taxes and Prioritize of Air transport to actualize the Continental Free Trade Area, AfCFTA, born just slightly over a month ago.  Both decisions, say, experts, can result in rapid growth in intra-Africa trade.

 Intra-Africa trade is hardly 15 percent of total trade in Africa. This means that dependence on taxes from Intra-Africa trade to support fragile budgets is not significant. And with the US$1 billion compensation fund set by Afrexim Bank, the decision can be made immediately.

 According to the UN Economic Commission for Africa,   UNECA, removal of import duties will increase intra-Africa trade by 52.3 percent, and double it if non-tariff barriers are removed. In other words, removing import taxes will raise intra-Africa trade to 23 percent in the short run. In the same breath, UNECA says that removal of nontariff barriers will double intra-Africa trade to 30 percent in the short run.https://au.int/en/document/36085-doc-qacftaenrev15marchpdf

Precision Air: Loss Making
AfCFTA has created the largest free trade area in the world, after the WTO, experts say. With a total population of 1.2 billion, a total GDP of $2.5 trillion, and total business and consumer spending in excess of $4 trillion a year .https://www.imf.org/external/pubs/ft/fandd/2018/12/afcfta-economic-integration-in-africa-fofack.htm
This is a mouthwatering prospect for the Small manufacturing enterprises in the Continent who are constrained by small domestic markets and poor transport infrastructure.
 The major nontariff barrier is transport; for Africa suffers a dearth of transnational transport infrastructures such as roads and railway lines. Overland infrastructure is expensive and takes longer to develop.
 According to Africa Development Bank, AfDB, Africa needs to invest anything up to US$160 billion a year on hard Infrastructure- Roads, Railroads, power generation, and Water supplies- for nearly a decade in order to meet all infrastructure needs.
Of this, the continent can raise only US$50 billion a year internally, leaving a yawning gap of US$107 billion a year. This means that for every year’s worth of investment in infrastructure, Africa is two years behind the ideal.
The major immediate solution to this handicap is air transport, say, experts.
Without reliable overland transport, African Airlines must step in and fill the gap to actualize this dream. According to International Air Transport Association, IATA, there are 349 commercial Airports in Africa, giving an average of six Airports for each country. https://www.icao.int/
This suggests that Airports are underutilized.
The same presentation shows that there are 161 airlines which do 1.13 million flights a year, transporting 98 million passengers. These numbers give the following averages; each flight carries 87 passengers. Further, each of the 161 airlines ship an average of 609,000 passengers per year. No wonder African airlines are the most expensive in the world because of low- load factor.
In January last year, Africa liberalized Air transport by launching the Single Africa Air Transport Market, SAATM. This means that an “eligible” aircraft or airliner  from one African country  can fly over another African country’s airspace and land on its territory by using a simple prior notification procedure, says IATA.

According to IATA, the liberalized Airspace creates opportunities for African Airlines to increase its frequencies and traffic in the continent. And since air travel is faster, it will raise the efficiency of delivery leading to improved economic efficiency and lower costs. Since Air transport is an enabler, its growth will lead to growth in other sectors of the economy dependent on it.

The 161 airlines, according to IATA, generate US$55 billion a year. All are in the red, posting losses of up to one percent of the revenue in 2018. This was a major improvement from losses of up to six percent in 2015. But liberalization will see air transport’s contribution to the GDP rise.

Kenya-airways: Must exploit its
 large footprint Africa to turn  round
It is, therefore, time the airlines moved fast to fill this gap, increase business for themselves and their customers, and pad up their bottom lines. They have a lifeline, let them grab it.  Since a large proportion of the airlines are state-owned, plunging into driving intra-Africa trade will save the taxpayers the burden of keeping them afloat. 

There is no shortage of business in Africa. According to Bloomberg, African economies are growing faster than elsewhere including the developed West, second only to Asia.

This growth was driven in large part, by Africa’s growing middle class which was estimated at 355 million people in 2013.  The robust economic growth, says Bloomberg, pulls an estimated 90 million people a year out of poverty which suggests that nearly half of Africa’s population is middle class.  That is five times what the airlines transport in a year.
If African Airlines double the passenger traffic to just 200 million, experts say, their contribution to Africa’s GDP will rise to $110 billion in the short run. That will mean more jobs, larger profits, and more taxes.  This is a hanging fruit.
Over to you! aviation sector.

Monday, 1 July 2019

Damn the free market system!

The stock of raw nuts:
 Market boycott hurting Tanzania
 Satan must be the inventor of that distribution system called free markets and its relatives, viz:  production, demand, price, and inflation!  The market is an unmitigated autocrat.
Look, the animal, whatever its size and location, behaves in the same way; deciding who gets how much of what, who produces how much of what, who sales what to who and how much of it.  This clan has no respect for anyone however powerful. Even governments dance to its dictates. Don’t be fooled. Those sweet sounding documents going by the name policy are just responses to market dictates. No one dares challenge this animal unless they are suicidal.
 The market calls our desire for things, the demand which, it tells us, is unlimited.  Therefore to ration our demand, it introduced another relative called price – the money you pay to buy something.  Basically, the price is meant to ensure not everybody gets what they need, because the market says, money is scarce.
So we are forced to buy just what our money can buy and keep dreaming of buying more. And we keep going back to buy the same quantity of the same things. The market calls this trade turnover- the many times you return to buy the same things- And, it means profit to those selling.
 Price gives more to people who need less and less to people who need more because they cannot afford the price. 
The market also dictates how much you will get from your products and who buys. It is nor respecter of Kings or pauper. Both have to dance to their dictates.   If in doubt, ask President John Pombe Magufuli of Tanzania. Last year, he decided that Cashew nuts farmers should earn more than the price the market offered. In a huff, he raised the price by 94 percent. The market walked away.
Raw nuts
 He sent the army to buy. After that, he lost control of the market. No trader remembered that Tanzania had cashew nuts in its stores. They simply forgot! And Tanzania is still sitting on last year’s stocks for no one remembers Tanzania harvested Cashew Nuts last year. We fear the market could also forget the That Tanzania is expecting to harvest another 200,000 tons this year.
 In the meantime, Agriculture exports slumped by more than 50 percent to US$554.1 million from $1.225 billion the year before. This, because Cashew nuts were not exported among other reasons. Talk of markets boycotting a supplier!
 A Market’s boycott can push one to desperation because one has to sell what they produce to buy what others produce.  And desperation tosses due diligence through the window. Or where it is still in the house, it is pushed to the backburner, making the seller vulnerable.  The smart sellers coin some attractive slogans to market their produce.
How many times does your local supermarket advertise offers of one product or the other?   How many times does it have promotions and other Slogans such as “Hurry while stocks last?” Take a keen look, the products are either near their expiry date. Or its sales were low due to stiff competition from their peers in the neighborhood.
In some instances, desperate sellers just deal with anyone who can take the stock away from them. Here Conmen take advantage and swindle the seller. Others promise to buy but just vaporize. This happened to Tanzania when a smooth-talking Conman entered into a contract with it to buy the Cashew nuts despite reservations by Kenyan press about the ability of the alleged buyer.
Months later, the buyer has yet to come up with the money. The deal was tossed out of the window and Tanzania went back to the drawing board. The Stock is still gathering dust in Warehouse while new produce is about to hit the market.
Never joke with markets. They are unmitigated dictators. Venezuela’s Hugo Chavez and his successor Nicholas Maduro, learned that lesson the hard way.

Monday, 24 June 2019

Why the Chinese won’t finance Naivasha-Kisumu Line

Kenyan SGR: Mombasa-Nairobi
Section operational
The Naivasha-Kisumu SGR line technically and commercially unviable, we can report. That is why the Chinese cannot finance it. Kenya is, therefore, well advised to focus on the Naivasha-Malaba line which will  link to Uganda and on to Rwanda, Eastern Democratic Republic of Congo, and eventually Juba, in South Sudan.
That was the original goal and design of the standard Gauge Railway line, to provide seamless railway connection between Mombasa Port and its hinterland. That would raise its economic and commercial viability. Also, Read http://eaers.blogspot.com/2013/07/coming-soon-mombasa-kigali-express.html

The purpose of a Standard Gauge Railway line is to provide high- speed, cheap and reliable network for faster transportation of goods and people. The purpose is well served by a line linking Kampala through Malaba than through Lake Victoria.
Tunneling Nairobi-Naivasha Section

While a high-speed Railway linking Mombasa and Kisumu is desirable, technical hitches make it a bottleneck to high-speed railway transport in the region. It is also expensive for it requires investment in port improvement in East Africa and the purchase of high capacity ferries.

Let’s look at it this way: One double-stack train can carry 216- 20-foot containers. To carry the same quantity across Lake Victoria to any destination in East Africa will require 5 ferries each carrying 44 containers. This raises the transport time for the containers to their destination by 15 hours, in the process increasing the transport cost for importers and exporters.

In addition, some freight such as oil and chemicals cannot be ferried over a freshwater lake such as Lake Victoria.  Furthermore, the loading and off-loading also constitute some risks for the freight owner including damage, loss, and delays.

These are the same hitches that bedevil the Dar-Es-salaam-Mwanza line as a link to Uganda

High speed means High speed. That is faster transportation of goods and people. For instance, a train journey from Mombasa to Kampala through Malaba will take 24 hours. The same journey will require an additional 15 hours by Ferry. It takes five to seven days by road.

 The Chinese know this and will not spend good money chasing bad money. That is why they were ready to fund a seamless railway link between Mombasa and Kampala and onwards but grew cold feet on the Kisumu line. Kisumu was designed to be a branch line whose commercial viability is assured by the vibrancy of the mainline.

While marine transport across the lake is desirable, it is only useful for small - scale traders. Marine transport across Lake Victoria collapsed more than ten years ago and it would require massive investment in cash and time to revamp it. It takes three years to build a Ferry, meaning it would require 15 man-years to build five Ferries in addition to revamping the Ports along the Lake.

Seamless railway transport in east Africa would raise demand for the Railway service and lower freight costs, making the line profitable. This is one reason Kenya should re-think the Naivasha- Kisumu line.

Kenya changed its design following Uganda’s shift of the Oil Pipeline from Kenya to Tanzania in 2016.  However, the Tanzanian ambition of diverting cargo from Mombasa to its Port in Dar-Es-Salaam is,   simply put, a pipe dream. Ferrying freight on Lake Victoria presents a problem of herculean proportions.

A report by the Ugandan Ministry of Works and Transport dismissed the Dar-Es-Salaam- Mwanza-Port Bell link as a minor alternative to the Northern Corridor SGR. The report demonstrates that travel time between Dar-Es-Salaam and Kampala through Mwanza will take a total of 89 hours- 72 hours to Mwanza and an additional 15 hours across Lake Victoria. And, the report adds, this is being optimistic.
Now that Uganda has seen the light, Kenya should refocus on the Malaba line to unlock the funds even for Uganda and raise its economic and commercial viability.

Wednesday, 19 June 2019

Why Tanzania's lowest budgetary growth in East Africa

IMF's projection of Tanzania's
 growth path to 2024 

Tanzania has posted the lowest budget growth in the East Africa region.
The financial year 2019/2020 budget statements, read simultaneously in five parliaments last week, posted on average a 12.52 percent increase over the last financial year without Tanzania. With Tanzania, the average growth declined to 10.40 percent.
The Tanzanian budget increased 1.9 percent over the previous year to US$14.3 billion. The leader is Uganda who posted a 21 percent expansion in the budget to US$10.7 billion; Rwanda 11 percent to $3.16 billion; Kenya 10.3 percent to $30 billion; and Burundi 7.2 percent.
Tanzania’s budget rose to Tshs 33.1 trillion ($14.3 billion) from Tshs 32.48 trillion (US$15 billion) in the last financial year.  In absolute terms, the budget expanded by Tshs 600 billion (US$222.8 million). However, depreciation of the local currency reduced the value in US dollar terms compared to the previous year.
The currency declined 24.4 percent year-on-year from Tshs 2,165 to Tshs 2,693 to the dollar. Even then, her budgetary expansion is less than half of Rwanda’s $460 million.
Although some reports attribute this to Tanzania’s “up by your own bootstrap approach,” the weak budgetary expansion confirms the reality of IMF’s projection that Tanzania GDP growth will falter to 4.0 percent over the next four years. The six percent decline from 7.2 percent in 2015 and 6.0 percent in 2018, is the result of legislation and policy actions that have undermined confidence in the economy.
In the past, experts have persistently warned that Tanzania’s policy and legal environments were not conducive for investment and could stymie economic growth. However, the government ignored them. Instead, it chose to create an intrusive and the meddling bureaucracy and laws that legalize extortion and blackmail of investors. The result is falling FDI as investors hold back their plans to invest in the country.
 Also lengthy bureaucratic procedures delay investment plans. For instance, the construction of a $30 billion natural gas plant at Lindi is set to begin in 2022. The project has been in the drawing board since 2014. Lengthy and uncertain negotiations framework have delayed the project’s implementation.
The changed fortunes place Tanzania in unfamiliar territory and the government in a precarious position. According to the African Pulse, published by the World Bank, Tanzania was rated among the top performers in Africa. In the World Bank’s taxonomy, Tanzania was ranked among “The established” Performers, those who have consistently posted growth rates above 5.4 percent for a long period of time. With the new circumstances, the country will drop to the level of “Stuck in the middle” countries whose growth rate hardly exceeds 5 percent.
The deceleration is unwelcome news for it comes at the wrong time for the ruling party: it comes in the run-up to an election year. Coming at a time when the ruling party’s fortunes are shrinking, the deceleration could result in the rout for the ruling Chama Cha Mapinduzi, CCM, in the ballot. Its popularity has shrunk from 85 percent in 2005 to 55 percent in 2015 and could shrink even further this year.
 No wonder the
government was so unhappy with the IMF report this April that it was not released in Tanzania nor was it published by the local press.

Monday, 17 June 2019

The cause of Tanzania's "resource Nationalism"

Tanzania's SGR: under Construction
According to a recent report on the Construction Magazine, www.constructioreviewonline.com, the 300 Kilometre Dar-Es-Salaam –Morogoro Standard Gauge Railway Line will cost US$1.9 billion.  And in a video clip Broadcast by Tanzania Railways Corporation, TRC, https://www.youtube.com/watch?v=vrcv3CBi63E, the line, the Minister said, was funded by the Tanzania taxpayer.
Eureka! East African watchers say. “This explains the sudden surge in resource nationalism in Tanzania,” said a Nairobi based economist. The line attracted no takers after the
fallout with the Chinese in 2015. Yet implementation still went on and the financiers were a mystery.
The project was too pricey for the Tanzania budget which was US$15 billion in the 2018/2019 financial year, data crunchers say. Of this, $5.8 billion was set aside to finance development projects,-roads, airports, schools, hospitals, and the Railways line. At $1.9 billion, the line gobbled up $664 million a year since 2016/2017 financial year. That is whopping 11 to 14 percent of the development budget!
Is it a coincidence then that resource nationalism surged at about the same time? Wondered a trade expert based in Kampala, Uganda. Resource nationalism involves, but is not limited to, what economists call “Obsolescing Bargain.”  This is a situation where the investor loses the bargaining power to the host government once the investment is in place and cannot be transferred elsewhere. It is, put simply, the ability to blackmail and extort.
 Tanzania has exploited this power ruthlessly. President Magufuli came into office promising to be the new broom that will sweep the country of corruption. And fighting corruption has become the mantra exploited to extort and blackmail investors to submission.
 The Bulldozer: 
Tanzania's President Magufuli
 Two well –known cases come to mind: The worst casualties of blackmail were the Mining sector where the largest gold miner, Acacia Mining Plc  was handed a $190 billion tax bill, saying the gold producer had falsely declared bullion exports since 2000, a claim the producer denied. The state later settled for a $300 million tentative payment after a meeting between Magufuli and the president of parent Barrick Gold Corp reported Bloomberg.
This demand jolted investors in Tanzania some of whom held back their investment plans while foreigners seeking to invest in the country returned their proposals to the shelves. US$ 190 billion is 3.8 times larger than Tanzania’s current GDP, estimated at US$50 billion. Spread over 17 years, this demand comes to an average tax bill of $11.2 billion a year.  Given that the government budget has just crossed the US$14 billion mark, then Acacia Mining Plc taxes could fund the government’s budget for whole years since 2000! That, observers say, is fantastic.
The most recent case is the extortion to Bharti Airtel, the Indian mobile telephone company. The firm had to cede 9 percent stake to the government-owned TTCL, cancel a US$407 million the government owes Airtel Tanzania, the local outfit; Pay US$2 million in penalties and good will, pay$4.4 million in unearned dividends over the past ten years, and a total of U$26 million broken into 60 tranches of US$434,000 of unknown budgetary vote, the local press reported. All to resolve a dispute over the ownership of the company which the Tanzania government claims it was cheated out of during the transfer of the company from Celtel to Airtel.
PresidentMagufuli bluntly told the press that he would have de-registered the company had it sought international dispute resolution. This, East Africa watchers say, is a pointer to what foreign investors are going through in Tanzania whenever a dispute arises. The government holds a gun over their heads during the negotiations!
Apparently, the government has found a way of raising some of the funds it needs to support its development programs through extortion. 
And to cover its back, in July 2017, Tanzania enacted three laws asserting “permanent sovereignty” over its natural resources including oil and gas while drastically amending the country’s mining code. Together with new regulations, the laws allow the government to renegotiate an investor-state contract terms that parliament deems “unconscionable”, and impose quotas for the procurement of local goods and services, and employment of local personnel. The government is also entitled to a free equity interest of between 16 percent and 50 percent in mining groups, which are prohibited from suing the
state in courts outside Tanzania.
The economic damage caused by Tanzania’s policy shift is glaring. According to IMF, the country’s GDP growth rate has faltered, declining to an estimated 4 percent over the next four years, from 7.2 percent in 2015.  The country has slipped from the second fastest growing economy in East Africa to the fourth.
Despite vehement denial by the government, the evidence is visible. The budget this year grew by 1.5 percent to $14.4 billion down from $14.5 billion last year. In terms of Tanzania shillings, the budget expanded by only Tsh 500 billion over the last Financial year.

Tuesday, 4 June 2019

Kenya’s Killer Punch against Financial crimes

Dr.  Njoroge: Governor Central Bank:
He wrongfooted the "mattress bankers"
 Financial crimes in Kenya, which includes; theft of public resources, tax evasion and money faking and fraud faces a killer punch. The Central Bank of Kenya has launched new banknotes and immediately demonetized the 1000 shilling note.
The banknote is the highest store of value in Kenya and very popular with those involved in financial crimes including fakers. The current one will cease to be a legal tender in four months’ time, on October 1.
This is a killer punch because it tightens the noose for “mattress bankers.” Many are, of course, involved in financial crimes. That is why the money cannot be banked for fear it will be traced to them. The rules of retiring the old note are stringent, geared to expose the owners of the money.  This leaves the mattress bankers with only two options: bring it out and answer questions, and perhaps, face the law or go bust.
 The option of facing the law is not attractive given the stiff penalties already imposed on proven graft cases. Read http://eaers.blogspot.com/2018/05/graft-under-siege-in-kenya.html.  Many could opt to let the wealth go to waste, after all, they never worked for it. Their money could soon be museum pieces!
The rules allow those who hold less than one million shillings in one thousand shilling notes, to walk to the nearest bank and get it replaced provided they provide proof of ownership.  Those holding between one million  and five Million shillings will have to go to their banks where they hold accounts and are known and provide the usual proof.
Haji: DPP cut his  teeth at NIS
Those holding  between one Million and five Million in one thousand shillings notes and do not have bank accounts will have to take it to the Central bank for replacement.  
That is a catch22 situation: The corrupt cannot just walk to a bank and deposit large volumes without answering some nasty questions. The thought of visiting the Central bank is definitely a nightmare.  And the commercial banks, smarting from hefty fines imposed on them by the Central Bank for handling money stolen from the National Youth service, NYS, will be watching their backs.
The Kenya Bankers’ Association has warned that there will be no escape for financial criminals who hold large volumes of illicit money in their homes. And these are the targets of the new order in Kenya’s money world. The association has warned that not even buying assets such as buildings, and vehicles will clean the money. They are right!
Kenya has advanced in electronic funds transfer system. Even supermarkets and other traders accept electronic transfer using Mobile money transfers. Large financial transactions are effected through electronic Cash transfers which are secure and reliable. This means that hefty cash purchases of high-value assets will be red flagged suspicious!
And given that some are suspected to hold tens, if not hundreds of millions of illicit cash, that cannot be spend overnight, the order must be a nightmare for them.
So what to do?  Tough Choices! The financial criminals cannot even use their relatives and friends to clean the money as they will have to explain how they made the money to the banks. This leaves only one other choice: using perennial litigants to try and stall the implementation of the demonetization.
George Kinoti: The no-nonsense head of DCI
Two of these litigants have already filed suits seeking to stall the move. However, it remains to be seen whether any Judge will be foolhardy to stall it. Already the judiciary is being viewed as protectors of the corrupt and other criminals by issuing orders that amount to an abuse of office.  It has to be extremely careful how they tackle this matter lest it turns out to be the proverbial “last straw that broke Carmel’s back.”
 The move to demonetize the 1000 bank note, is apparently the final part of the strategy to make financial crime expensive in Kenya. It comes hot on the heels of the move to nationalize physical assets of graft suspects if they cannot account for it. Already, the anti-graft body has recovered an estimated US$ 300 million of such assets. The Assets Recovery authority, another institution whose mandate is to recover assets suspected to be acquired with proceeds from crime has also recovered some assets and is in the process of recovering others.
 In effect, financial criminals will soon be reduced to paupers: if they have not found a way of disposing of the money stashed in their mattresses, it would soon turn into worthless paper. Also, Read http://eaers.blogspot.com/2018/05/graft-in-kenya-are-40-days-of-thief-over.html
The other parts of the strategy to make financial crime expensive includes creating a multi-agency investigating team, which ensures that all skills are put together to investigate any suspected crime.  
The entry of National Intelligence Service into active investigations must worry a number of people and scare others for these can out ghost anyone.  And the sleuths are playing a major role in the war against crime, including financial crimes.
All security agencies in Kenya, including the Police, the Directorate of Public Prosecutions, and the Ethics and anti-Corruption authority are now managed by people who cut their teeth in either military or civilian intelligence. The National Intelligence Service itself is headed by a former Chief of military intelligence. The message is clear here: There is no place to hide for criminals, not even for corrupt judges!
A similar multi-agency structure, created to fight the Somalia based terror group Al- Shabaab, has proven lethal to the terrorists. The forces on the ground are under one command which has eliminated bureaucracy in sharing intelligence and operations.
All it takes is a distress call for other units to swing into action in support of Kenyan forces in Somalia. Although it has not eliminated Al-Shabaab, the strategy has degraded the militants and also reduced terror attacks on Kenyan soil.
 The corrupt and other financial criminals face a similar fate because, the multi-agency team, in this case, involves the Central Bank.

Wednesday, 29 May 2019

Step aside Fintechies,banks re-enter SME lending

Dr. James Mwangi: 
EquityBank Group CEO
 Six commercial bank groups in Kenya have resolved to lend to Micro and small enterprises, SMEs. The decision by the six, four of which are the largest banks in the country, will have a significant impact on credit to SMEs. This marks the beginning of a major price war that could benefit the borrower. 
Equity Bank group shot the first volley: It set aside US$1.5 billion to lend to the sector of the economy at 13 percent per annum probably through its EAZZy app. Soon thereafter, a consortium of five indigenous banks launched Stawi, a mobile phone app to lend to the sector amounts ranging from US$300 to $2,500.  The consortium targets some 10,000 applicants this year, which means that at least an additional US$25 million is available for the SMEs to borrow.
It is not clear how much Equity will lend per customer, but given the size of its war chest, it could lend more.
The consortium includes; Commercial Bank of Africa, the Cooperative Bank of Kenya, Diamond Trust Bank Kenya Limited, KCB Bank Limited and NIC Group.  Some are among the largest banks in the country. KCB is the leader in terms of assets followed by Equity Bank and Co-op Bank.  However, Co-op Bank will soon lose the third slot to NIC/CBA once the two banks merge. KCB is also gunning to buy National Bank of Kenya, thus maintaining its lead.
The shift marks the end of the two-year credit drought SMEs have suffered since the introduction of interest rates caps in 2016. The move, which saw banks turn to lend the government and high worth clients also cost them in terms of income. However, now that Treasury Bonds are becoming unattractive given their declining yields, commercial banks now have to turn to the real economy for business.
SMEs are the largest employers in the country and also drivers of economic growth. Most SMEs fall under the informal sector and by extension, the term informal refers to people in self-employment or small-scale industries. The informal sector is estimated to constitute 98 percent of business in Kenya, contributing 30 percent of jobs and 3 percent of Kenya’s GDP.
 That is the real sector of the economy! And starving it of credit is a recipe for an unequal distribution of the benefits of economic growth. The Kenyan economy has posted robust growth rates in the last decade, hovering around 5.5 percent.  This has pushed the real income per capita to US$1895 last year. However, the population living in absolute poverty is still in the double digits largely due to the slow-down in the growth of the informal sector.
Joshua Oigara: KCB Group CEO
The dearth of bank credit has seen the rise of fintechies, mobile phone loan apps that lend small amounts ($50-100) to small business and households. Now with the shift in policy towards lending this sector with a longer tenor and low-interest rates, the commercial banking industry has set the stage for price wars with the techies.
The apps use the Mobile phone platforms to lend. They Include Tala, M-shwari, KCB-MPesa, Branch international among others. Except for KCB M-Pesa, the others are extremely expensive.  
So the commercial banks, by easing the conditions of their loans and lowering interest rates, are headed for greener pastures.  
Although still conservative, the shift to lending to SMEs, could proof lucrative for the banking industry- and the economy. Credit to the private sector, according to the Central Bank of Kenya by 3.4 percent in the 12 months to February, way below the 12 to 15 percent level which deemed ideal to spur robust economic growth. Credit to the SMEs is a hanging fruit! They need not worry about defaults the default rate is still low. 
 Safaricom’s Fuliza, a form of an overdraft facility, which has been around for a few months, lend the equivalent of US$36 million in the first month of operation.  That is more than the stawi app plans to lend this year. This is a pointer to the high demand for credit in the country
The fintechies lend for just about a month at exorbitant rates of more than 10 percent.   This tenor is not supportive of business growth for it does not generate profits. It just generates enough to pay the loan and interest, leaving the investor with nothing to write home about. That has seen the number of defaults increase because they are just shylocks on Mobile apps. Shylocks are generally spurned attracting only the desperate cases.
But with banks now offering unsecured loans, uptake is likely to shoot through the roof as Fintechies witness a decline in business. The longer tenor and low interest rate is the magnet to attract SMEs whose major hurdle with bank loans was lack of securities to offer.