East Africa Economic Report

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 the National Bank of Kenya in a share swap. Another group, the NIC group will merge with the 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...

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 perc...

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 han...

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...

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...

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 the 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...

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 sells 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 to 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 ev...

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 linki...

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...

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 u...

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 fac...

Dr. James Mwangi:  EquityBank Group CEO   S ix 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 Ba...