Thursday, April 28, 2011

The Rise of the Kenyan TransNational

A good sign is that while global firms are (ostensibly) looking at Kenya, in reality as a beachhead for E & C Africa, Kenyan firms are growing into Transnationals. Nairobi is becoming the HQ for many of these firms.

Nakumatt has grown from a single dusty megastore in Industrial Area [opposite Nyayo Stadium] into EAC's largest retailer. It dominates Kenya but has opened stores in Uganda [outshining the older Uchumi], Rwanda & will soon open 3 stores in Tanzania. I am sure Burundi & South Sudan are not far off.

Even Uchumi [which expanded into Kampala many years ago] plans to open new locations in Uganda to mirror Nakumatt's expansion. There are runors about expanding to Tanzania as well.

KenolKobil has pursued an expansion strategy for years & the regional footprint has become more important to KK over the years. It just announced a significant new acquisition in Tanzania. By 2015, KK's regional operations > Kenya operations. KK has established a subsidiary as far south as Mozambique. It trades as Kobil [no more "Kenya Oil" aka Kenol] in the region.

Kenya Commercial Banl (styled as 'KCB') was the first Kenyan bank to venture into EAC with an operation in Tanzania. KCB does not use "Kenya" for easier acceptance to other markets including Rwanda, Uganda & South Sudan.

A close [& more successful] competitor is Diamond Trust Bank [styled as DTB]. Unlike KCB, DTB acquired majority stakes in its sister firms [under the aegis of AKFED] over time & is not a unified brand in all EAC countries except Rwanda.

Equity Bank purchased Uganda Microfinance Ltd & is now among the fastest growing banks in Uganda. Greenfield operations are quite successful in South Sudan. This remains a bank to watch.

Mid-tier banks like NIC Bank [no more the verbose National Industrial Credit Bank] and I&M Bank [no more the verbose Investments & Mortgages Bank] have expanded into Tanzania. Seems Ugandan banks are over-priced for them or the smart money says the potential in socialist leaning Tanzania is greater.

***I&M Bank took an interesting route by acquiring 50% of First City Bank with a Mauritian conglomerate (CIEL) which has extensive operations in the Tanzania & Zambia. My gut tells me that they will acquire a Zambian operation since Tanzania & Zambia share an extensive border & trade relations. The Tanzanian acquisition ['C&F Bank' now renamed 'I&M Tanzania'] is a joint venture between I&M and CIEL.

AKFED has used the Kenyan operations to support & eventually acquire other EAC businesses.

Jubilee Insurance Company had a path similar to DTB. The Tanzania & Uganda operations are now subsidiaries of Jubilee Kenya but I expect the Kenya operation to become Jubilee Africa but HQ's in Nairobi.

Tourism Promotion Services (TPS aka Serena) is a Kenya based firm but grew 'East African' by acquiring TPS properties in Tanzania & is now TPSEA. The brand name "Serena" is owned by AKFED. There are Serena properties [not part of TPSEA] in Uganda, Rwanda & Mozambique.
[BTW, the Kampala Serena puts the Nairobi Serena to shame!]
Like the path followed by other AKFED firms, I expect TPS(U) & TPS(Rw) will merge into TPS(EA) within a few years. Maybe even the Polana Serena in Mozambique. Of course, add a name change to TPS Africa soon thereafter.

The brand name "Serena" is owned by AKFED & there are Serena properties in Afghanistan, Pakistan & Tajikistan but these have little connection to the original TPS.

Another AKFED baby is Nation Media Group which has extensive operations in Uganda & Tanzania. Unlike DTB or TPSEA, these were greenfield operations but seem to be doing well. I am sure there are plans to head further west. Museveni was not happy with NMG but since AKFED is a major investor in Uganda [Air Uganda, Bujagali, TPS/Serena, DTB, Jubilee, etc] he has eased off.

Sameer Group [naushad merali's group] has interests in various countries. Except for the perennial under-performers in Kenya, I know little of them but Sameer recently bought a £15,000,000 call-center in the UK.

TransCentury has made a splash & excepts to list in a few years. They are in Tanzania [through a NSE-listed EA Cables subsidiary as well as direct ownership of Chai Bora], Uganda [RVR = Rift Valley Railways] & South Africa [Kewberg Cables]. I believe they are poised to expand even further & faster over the next few years especially through the revamp of RVR.

Cooper Motors Corporation (nowadays CMC Group) has operations in Uganda & Tanzania.

Kenya's largest firm East African Breweries [which changed from 'Kenya' Breweries to 'East African' Breweries after making forays into Uganda & Tanzania] looked into expansion into Ethiopia as well. EABL broke up with SABMiller controlled Tanzania Breweries by buying a majority stake in Serengeti Breweries.
*** KBL became EABL which became KBL (again) in the 1970s after the nationalization of Uganda Breweries during the days of the murderous buffoon idi amin as well as nationalization by the socialist fools who ran Tanzania. With the loss of its Tanzanian & Ugandan operations [leaving only Kenya] EABL changed its name to KBL. And now back to EABL.

Kenya Airways (KQ) has the largest pan-African footprint & in some countries it is the de facto international airline! KQ in West Africa provides a 'matatu' service by hopping in & out of multiple cities boarding & disembarking passengers before reaching its final destination!

Even the small firms are in the act like NSE-listed firm Car & General (C&G) has operations not only in Tanzania & Uganda but in India as well!

There are numerous smaller, private or family firms with interests in EAC. These may fly under the radar since they might not share a common name or want to (legitimately) remain out of the spotlight.

Tuesday, April 26, 2011

Africa - Deja Vu

In 1994, about 1,000,000 people lost their lives in the Rwandan Genocide. Most of the dead were Tutsis butchered by the Hutu Interahamwe. It was ethnic cleansing reminiscent of the Jewish Holocaust [other groups were also targeted by the Nazis].

In 2008, Kenya faced it's less severe form of ethnic violence primarily pitting the Kikuyu vs the Kalenjin. What happened was wrong. From the first insult hurled to the last unnecessary death. Kenya, Kenyans, Kikuyus & Kalenjins have paid the price since. Of course, a few have gotten away with murder. Kenya's economic future was shattered in the medium term. The scars of 2008 remain in an economy that:
  • Faces food shortages [many killed & displaced were farmers]
  • Economically displaced persons [Uprooted businesses & dearth of tourists in 2008]
  • A gargantuan government [Huge money-guzzling cabinet]
  • Many, many more ills!
Now we have Nigeria which has experienced violence before the complete cycle of elections in 2011! The excuse ranges from religious to ethnic tensions but the dead are mothers, fathers, brothers, sisters... whatever religion or tribe...

Churches and mosques were burnt, and mobs with machetes hunted for Christians in the northern city of Kano. Muslims were attacked in reprisal.

The excerpt below could be attributed to a Rwandan, Kenyan or Nigerian. It would not surprise me to hear the same happen in another African country. Take your pick of 50 odd countries because it seems most African countries never learn. A pity most do not follow the examples set by Botswana & Mauritius which have regular non-violent elections where power is transferred fairly & peacefully.

"The rioters used a sharp cutlass to cut his forehead," said insert name here younger brother as he sat by his bedside along with their mother. "They nearly sliced his skull into two."

Wednesday, April 20, 2011

Ideas for 'local' Fuel...!

Check what this Kenyan farmer in Kisii is up to!

No need for electricity from KPLC or LPG from OMCs!

Monday, April 18, 2011

Kenya - Fuel Sector Solutions

It is a sign of the times that I, a citizen blogger/tweeter, am responding to a Tweet by Kenya's Deputy Prime Minister & Finance Minister, Mr Uhuru Kenyatta (@UKenyatta). I doubt he (or his staff) would have responded to my letters!

He does not know me but he [or his handlers] have responded to some of my Tweets & that has encouraged me to write another blog post. This does not mean I support his political views but he has done OK, in my book, as far as Kenya's economy is concerned. I was an idealist when I was younger but have grown pragmatic as concerns the rate of (good) change in how Kenya does business. Let's be clear, Kenya has very far to go before meaningful comparisons to Singapore can be objectively made.

Of course, this is a basic outline of what Kenya can do but I hope its a start when riots in some far-flung country don't affect me as much. Nevertheless, Kenya is not an island in the global environment.

[BTW, President Paul Kagame of Rwanda (@paulkagame) is on Twitter too & has personally replied to me. ;-) ]

Kenya's Fuel (Petroleum) Crisis(es)

Problem:
Volatility of Prices - Kenyans are being disingenuous in apportioning blame when Kenya experiences huge variances in fuel prices. The volatility of oil prices can be blamed on lots of factors but Oil (crude) is heavily traded on the global market & Kenya has no petroleum deposits to speak of to fll back on. Hopefully, we strike some hydrocarbon deposits, soon.

Solutions:
1) Kenya [as a country] enters into Derivatives that 'set' a base price. Not a cheap option since Derivatives cost Premiums/Payments [aka Money]. The gain/loss from derivatives can be used to 'stabilize' the price. Of course, as KQ knows, they can also hurt when prices fall.
  • Derivatives require Premiums or Cash Payments/Receipts depending on the type, strike price, etc. Lots of options. Lots of calculations. Lots of sharks.
  • Hedging is complex & generally works better if you are a Seller of the Product e.g. if Angola knows how much oil it can produce, it can sell it 'forward' through Derivatives or Forwards so it knows how much it will earn in a fiscal period.
2) Bilateral agreements that allow lifting of Crude at discounts to Market or Fixed Prices. Helps Kenya but there is a price to pay as well since Bilateral Agreements always involve Quid Pro Quos.
  • What can Kenya offer the Middle East countries? Support at the UN, no matter what? Food security? What? [In essence, very little]
  • Kenya may enter into untenable agreements which will bite back when the chips are down. I remain wary of these bilateral agreements. Iran offered Kenya a deal but the conditions might be onerous.
  • That said, there is Southern Sudan. Kenya can promise (& deliver) a refinery &/or pipeline to SS to move oil 'south' thus reducing SS dependence on the North. In exchange, there is a commercial 'payment' in oil e.g. Kenya moves 100 barrels to Lamu in exchange for 5 barrels.
  • Uganda plans to build a refinery but needs to 'sell' its refined products. How about a long-term agreement with them?
Problem:
Huge Import Bill [& need for forex] for fuel. Not an easy one to tackle since Kenya imports 100% of its petroleum requirements.

Solutions:
1) Reduce the use of Oil/Capita. Not easy as we 'expand' our economy. Nevertheless, improving the roads, cutting down on 'poor' driving habits e.g. matatu-style driving will save Kenya a huge percentage of WASTED fuel.
  • Traffic is horrendous in Nairobi (other urban centers too) partly due to a poor road network. Well, improve it by building more roads. We need them as the country expands. Nevertheless, this costs money & therein lies the rub. Are Kenyans ready for 'efficient' toll roads?
  • Public Transport - This is critical. Look at New York or London where buses & trains are the primary mode of transport. I do not mean matatus but I mean decent & reliable BUSES & a train system. Singapore & Bangkok have relatively new (& efficient) Urban Rail Systems. Let's look to India [Dehli Metro] & South Africa [Gautrain] as examples of what can be done in the 3rd World & African scenarios.
  • Devolution - The private sector is already devolving out of the CBD. Financial Institutions' HQs have moved to Upper Hill but banks have branches & ATMs everywhere else. It is time for GoK to do its part. Move 'out' of CBD to an efficient purpose built 'city' served by rail, airport & roads. Also devolve functions as well as continue going online.
  • Singapore contemplated moving government functions OUT of the city centre to enable 'release' of prime property to private entities & reduce traffic into the city for government services. Add new & better designed buildings for efficiency.
2) Bio-fuels - Forget the naysayers. There are lots of advantages to UNSUBSIDIZED bio-fuels. Let us choose those that make sense. Some will work, others will fail. Let's not be afraid of failures as long as the process is transparent & we learn from it.
  • Ethanol - Kenya can dramatically increase ethanol production by using sugarcane waste/baggasse as feedstock. Mumias is putting in an ethanol plant. What is required is a minimum payment that encourages Mumias/Sugar Firms to install the conversion plants & provides an incentive for continued production. We need to return to ethanol blending or UNTAXED 85-100% ethanol fuel.
  • Bio-fuels can also be produced by using other feedstock including certain fast-growing grasses. I am not saying we use 'food' crops for bio-fuels but marginal lands for dedicated bio-fuel crops.
  • Many researchers in the USA are working on bio-fuels from algae, switchgrass, etc. We need to do the same. What can we grow in our semi-arid areas (with limited water requirements) that can be used to produce Bio-Fuels?
Problem:
Increasing Consumption of Imported Fuels

Solutions:

1) Population Control - Why do folks think Kenya can keep on feeding more folks? We need to improve QUALITY of life. I say max of 3 kids. Any more then off to the sterilization table. I am NOT advocating China-style policies.
  • We can increase per capita energy use without increasing our total import fuel bill. There is always a minimum requirement per kid/person. So more people means more fuel is required to maintain the standard of living.
Problem:
Taxes on Fuel

Solutions:

1) Taxes - Taxation of fuel in Kenya needs to be harmonized for efficiency & to prevent adulteration not for populism.
  • Kenya's government needs to be more efficient but the taxes are here to stay. They should be reasonable so as to make smuggling & adulteration insignificant.
  • Taxing kerosene at low rates to shield Wanjiku leads to adulteration of diesel. The chemical & physical characteristics of diesel & kerosene allow 'mixing' to the detriment of users of diesel. As for Wanjiku, she needs to understand (4) helps lower her bills.
  • Diesel is 'dirtier' than petrol but has enjoyed popularity since it was taxed at a lower rate than petrol. There are other reasons diesel is preferred for certain applications like 'safari' vans, etc.
  • GoK needs to shift to 'green' vehicles as a matter of public policy. This gives a boost to local bio-fuels. Ethanol-only cars can fill up at any fuel station obviating the need to manage VAT/refund paperwork for GoK or exempt organizations.
2) Revenue - GoK still needs revenues but these can be recovered from indirect taxes (vs tax on biofuels) on fuel stations, wages, land rates, income taxes, etc i.e. other economic activities generated by bio-fuel production.
  • What of adulteration of petrol/diesel using biofuels? Well, currently biofuels are pricier than 'petroleum' [if no taxes are applied] & this will somewhat help.
  • Enforce laws against adulteration. Heavy fines & jail terms. Easier said than done in our current system of goverment & judiciary.
  • Taxes are here to stay but can we increase the production & use of LOCAL fuels that encourage other economic activities?

Wednesday, April 13, 2011

Corruption - (Zero) Charity Ngilu

From Mzalendo:

Full Ngilu (Ministry of Water Report)

The allegations of corruption against the current Minister of Water, Charity Ngilu, have been pouring in since late last year when her former Assistant Minister, Kiunjuri, presented a dossier with corruption allegations to KACC, in addition to the pending allegations currently under investigation by KACC and parliament, just last week, her Ministry was accused of embezzling Kshs 57 million belonging to the Kazi kwa Vijana program. And the Minister appears to have been behind efforts to force out the Nairobi Water MD because he refused to endorse dodgy procurement contracts.

Although she has been offered several opportunities to defend herself in parliament and before KACC, she has so far ignored them. Instead she has chosen to argue that the allegations are the work of several individuals who are out to “fix her.”

Conspiracy theories aside, the mounting evidence is damning.

We have been able to obtain a full copy of the infamous Kiunjuri report and are sharing it here in the public interest and because it’s yet another example of just how brazen our politicians are about pilfering taxpayers’ money.

Full report is available here (PDF, 1.4MB)

Some highlights:

Inflated prices of goods – sandpaper bought at Kshs 220 instead of Kshs 10 [How's that for a profit margin!]
Cost-overruns on dam construction without requisite work to justify
Conflict of interest with companies getting tenders for dam construction

We are doing our part to keep our eye on our politicians, and so should you!

Email cases of corruption in your constituency (or good performance) to info-at-mzalendo-dot-com

A key component of citizenship is making sure we engage and do more than just complain – let our MPs know that we are watching.