Tuesday, October 31, 2006

Kenyans Are “Taxed to Death”

The World Health Organization recently called on several African countries to lower taxes on pharmaceuticals. Among them is our motherland Kenya, the country with the second largest taxes on drugs in Africa, and maybe in the world. This is according to Taxed to Death, a joint study by the American Enterprise Institute and the Brookings Institute.

The study reports that Kenyan taxes on locally manufactured pharmaceuticals stood at 27.8% in 2005. That was Africa’s (and the world’s) second highest taxes, after DRC’s 31.4%. East African Community members faired better that Kenya, with Tanzania taxing its locally manufactured drugs at 26.2%. Ugandan taxes stood at 21%.

Imported pharmaceuticals are the ones that suffer most from the tax man’s noose. The 2005 overall taxes and tariffs charged on imported drugs stood at 37.8 percent in Kenya. Again, Tanzania and Uganda had lower charges; 31.6% in Tanzania and 31% in Uganda.

The study found that high taxes and tariffs led to higher market prices, which reduced ability of the poor to access medicine. As a result of lower taxation, 50-70 percent of Ugandans and Tanzanians are able to easily access and afford medicines, whereas only less than 50% of Kenyans can easily access and afford the same drugs.

Kenya’s high tariffs and taxes have had grave consequences in the fight against HIV/AIDS. Antiretroviral prices have increased to the point that the government has failed to meet its own treatment targets. The National Aids Council is reported to have targeted to provide 45, 000 patients with drugs in 2004, but only afforded to treat 24, 000 patients. That number is just a drop of AIDS patients in desperate need of antiretroviral drugs.

Finance Minister Amos Kimunya should seriously consider revising Kenya’s pharmaceuticals taxation policy. He could argue that every industry needs to pay taxes and all importers pay tariffs. But his arguments would carry little weight considering that (1) tariffs on imported drugs are only 0.058% of the Kenyan government’s annual revenue, and (2) taxes collected from locally made drugs are equivalent to 0.837% of the country’s annual health budget.

Apart from reducing taxes and tariffs, the government should consider eliminating trade barriers that make drugs expensive, such as slow clearance of cargo at the port of Mombasa. All these costs are passed to the already overtaxed consumer.

The government should know that only a healthy Kenya would make Vision 2030 possible. Unhealthy Kenya would only lead to "Vision Kuombaomba From China", the 2030s superpower.

This post is based on Taxed to Death, a study by Roger Bate, Richard Tren. and Jasson Urbach for the AEI-Brookings Joint Centre for Regulatory Study.

Monday, October 30, 2006

Kenya's Digital Newspapers: A Rip Off

This is a follow up to last week’s Kenyanomics post on Why Pay for Internet News. Excellent comments from KBW members like the girl next door and bankelele advised Kenyans abroad to subscribe to The Nation’s digital paper, a replica of the print edition. Taifa Leo and The East African Standard are also available in their digital forms.

Kenyans abroad can now read home newspapers page by page on their computers. But they will have to face unfriendly prices. The Daily Nation readers will have to pay US 75 cents or Kshs 53 for the paper. The Standard readers will pay a modest US 63 cents or KShs 44. Both newspapers sell at KShs 35 in Kenya.

The idea of selling Kenyans abroad digital newspapers is great, but poorly executed. According to a report by the Online Journalism Review magazine, most digital newspapers cost between 75 to 100 percent of their print editions. But that’s not the case with the tenants of I&M Towers and The Nation Centre. The Standard’s digital paper exceeds print edition by 125%, whereas The Nation’s digital paper is selling at 151% above its print edition.

The annual cost of reading The (Digital) Standard stands at USD $216 and USD $273.75 for The Nation. Just for comparison purposes, the annual cost of reading the New York Times digital newspaper is US$ 160 and that of the USA Today, America’s largest newspaper, is US$ 146.

Good luck to the two media houses business plans. But I don’t think Kenyans will be bought into “the great digital newspaper rip-off”. Ama niaje?

Friday, October 27, 2006

Jimnah Mbaru: Africa's Godfather of Investment Banking

Many Kenyans would relate the expression “being in the right place at the right time” with J. J. Kamotho. The Mathioya MP has always been in the right political party at the right time, which has guaranteed him consecutive parliamentary seats in the “Kamotho-hostile” Central Kenya.

No ones talks of Mr. Jimnah Mbaru or—if you would like—the Kenyan Warren Buffet. The gentleman has excelled at investment banking, and has transformed the Nairobi Stock Exchange from an exclusive elite club to a money machine for the masses.

Mr. Mbaru has succeeded at the backdrop of successive problems with Kenya’s political class. For instance, the 1980s saw Moi’s administration takeover Mbaru’s banks in the name of streamlining the banking industry. Those actions were undertaken by non other than Professor George Saitoti, the then Minister of Finance. The disappointed Mbaru kept his cool and concentrated on nurturing Dyer and Blair Stockbrokers LTD. He had just acquired the firm from the Kenya Commercial Bank at a cost of KShs. 400,000. The rest is an epic success story: The little Dyer and Blair Company is now a "billion-shilling" investment banking business.

In 2002 general elections, Mbaru tried to apply his investment banking know-how to bring some common sense to Kenya’s political scene. But who was Mbaru to join Kenya’s well knitted political class? His candidacy was snatched and given to one of their own. That event turned to be a déjà vu all again. The disappointed Mbaru kept his cool and went back to his Dyer and Blair Investment Bank. He soon became the NSE chairman. The bourse has broken several records during his tenure.

Jimnah Mbaru: Africa’s own Godfather of Investment Banking and another reason to Kujivunia kuwa mkenya.

Why Pay for Internet News

Gone are the days when The Nation and the East African Standard provided all internet news for free. The two newspapers have now introduced “prime content news”, which require subscribers to pay an annual 60-US-dollar subscription fee. This has not gone well with people relying on internet-news, especially Kenyans living abroad and the budding investment class. The latter group will now have to pay for The Nation’s Smart Company and Money and the Standard’s Financial Standard.

Disappointed Kenyans should worry no more. After all, Kenya is an emerging market with a well established entrepreneurial culture. As a result, the action taken by The Nation and the Standard has inspired other entrepreneurs to venture into news provision business, some for profit and others for leisure.

This claim is made clear by the number of websites and blogs providing Kenyan news. The number of those offering business news and analysis is by itself uncountable. One of them (http://www.eight.co.ke/) is reporting stocks prices live from the bourse. Newspapers report the same information once in 24 hours.

Economic and political policy blogs such as Bankelele, Kenyan Pundit, Mzalendo, Thinker’s Room, and Kenyanomics have provided portals for meaningful discussions, which cannot be equated with the scanty number of “letters to the editor” published by the two newspapers.

Why pay for “prime content news” while the blogosphere is still free?

Friday, October 13, 2006

Please Control Media, Says Maina Kiai

It is hard to believe that the Kenya National Human Rights Commission (KNHRC) is pushing for more media control. In the following Daily Nation (Oct. 12) article, KNHRC chairman Maina Kiai, is asking the government to block media houses from owning several news outlets, all in the name of making reporting “fair and open”. This group should be reminded that open and fair society cannot be achieved through state control, but through competition of ideas. It is the absence of competition that has resulted to development of "monolithic ownership".

Kiai team calls for controls on media holdings

Story by SAMUEL SIRINGI Publication Date: 10/13/2006

"A State-owned human rights agency has called for the enactment of a law that will limit media ownership. Restrictions on cross-media ownership would ensure public life was reported in a "fair and open manner", says the Kenya National Commission on Human Rights (KNCHR).

In a report to be launched today, the commission, chaired by Mr Maina Kiai, says a media house owning both print and electronic media was not healthy for democracy. Local print media is dominated by two major publishing houses – Nation and Standard – both of which have substantial broadcasting stakes. Royal Media Services, which owns radio, television and a newspaper, is also classified under what the commission calls "emerging sense of monolithic ownership". It proposes: "There is therefore urgent need for regulation of cross-media ownership to guarantee a diversity of information and variety of voices."

The report adds: "It bodes ill for our democracy if Kenyans are expected to make choices based on three sources of information." The Referendum report calls for speeding up of the Media Bill to regulate cross-media ownership. The commission's recommendation is welcome news to the Government, which has been pushing for a law against cross-media ownership despite opposition from industry players.

Last month, Information and Communications permanent secretary Bitange Ndemo said the Cabinet had endorsed a draft media policy. Dr Ndemo said the paper would open the way for tabling in Parliament of a proposed media Bill. But he stated that the Government was not intending to control the operations of the media through the policy. One of the proposals states that "concentration of ownership of print and electronic media in a few hands will be discouraged". At a forum held in Nairobi in May, the media asked the Government to drop the proposal on the matter, saying cross-ownership should be left to market forces rather than be regulated."