Kapenguria Six: The End of an Era

The last of the famous Kapenguria Six freedom fighters just died. Here is a summary of their lives after independence.

The Gentlemen	Post after 1963	Age & Life
Jomo Kenyatta	President	89, Filthy rich
Achieng' Oneko	Information Minister	88, Lived well
Bildad Kaggia	Education Ass. Minister	82, Died Poor
Fred Kubai	Labor Minister	79, Died Poor
Paul Ngei	Minister	81, Died Poor
Kung'u Karumba	Businessman	"Dissapeared"

Kenyanomics salutes them!!!!

State Failure and the Economic Rise of Mungiki

The proper role of government is to secure its citizens’ rights and property. Failure to perform this role could lead to chaos, anarchy and eventual collapse of the society. But since individuals are inherently entrepreneurial, they step-in, and start providing services neglected by the state. This becomes a new way of earning their daily bread.

Such businesses grow fast due to high demand for services rendered. Unfortunately, they attract aggressive competitors who, too, want to make a killing in the new industry. Even the government that had neglected its tax-payers comes back to reclaim its "constitutionally mandated monopoly." The group that had started all these does not sit back and watch. Instead, it vows to protect its business turf to the last man.

That explanation resembles Mungiki’s journey to becoming part of Kenyan life. It was not by mistake that they chose to serve in government-neglected areas, such as slums, Matatu industry and the security sub-sector. These areas share one common misfortune: the absence of law enforcement agencies or being surrounded by corrupt state officials.

Bottom Line: Government failure to provide security has contributed to the current national crisis. The killers in Mungiki must face justice, and the state must start performing its constitutional duty of protecting our rights and property.

An expanded version of this post will appear on Kenya Imagine.

Nakuru: The Making of a Kenyan California

The State of California is the American trendsetter for energy and environmental policies. Most of its regulatory laws are copied by other states, and sometimes by the federal government. Though Nakuru town is not a state, its controversial smoking laws could find their way into other municipalities’ town halls. This could mark a new era in the history of Kenyan local authorities. We could see municipalities starting to exercise their independence from the central government.

This is both good and bad news for town dwellers: Good news because it’s easy for them to protest against laws made locally, and bad news because it might open a by-laws arms race among municipalities. I would not be surprised to see certain County Councils coming up with ridiculous laws, just to outdo Nakuru’s stupid smoking by-law.

Bottom Line: I hope this new era will spark a culture of competition among local authorities. We need to have a situation where Thika will be competing with Nairobi for industrial dominance, Nakuru with Eldoret for agricultural supremacy, and Narok with Mombasa for Tourism prowess.

A report card for Cameroonian Bureaucracy

"There is so much bureaucracy here and it takes long before anything is approved,” (All Africa)

It took Cameroonian authorities:

• At least fours to inform Kenya Airways of plane disappearance,
• 11 hours to start searching for the plane,
• 40 hours to find the wreckage that was 12 miles from the airport,
• 10 days and intense diplomatic pressure to let foreign pathologists do their job,
• And still dragging their feet on investigation

Is Rift Valley Railways Scared of Magadi Soda?

A commercial battle is brewing between the newly formed Rift Valley Railways (RVR) and Magadi Soda Company. RVR wants Magadi to pay more for the use of Konza-Mombasa railway track. But Magadi will hear none of that; it argues that a 1997 contract with KR gave it exclusive rights to use the railway line until 2023. The rail operator has retaliated by holding Magadi’s fuel hostage until it agrees to pay higher rates.

I am persuaded that this epic controversy has less to do with rates. It's all about supremacy in Kenya’s railway transport sub-sector. There exists bitter commercial blood since both companies competed for the control of Kenya Railways.

RVR (K) Ltd—which won the contract—knows that Magadi is interested in rail freight business. Magadi has done little to hide its plans. Just months after loosing KR bid to RVR, Magadi bought five brand new locomotives, and returned five old ones it had leased from the defunct state owned rail operator.

Bottom Line: “Did Magadi buy FIVE engines just for its own private use?” I doubt it. A company that built a 144-km railway line, from Konza to Magadi, has more than Soda ash on its long-range business plans.

When Matatus Were Young

Believe it or not! There was a time that the government defended the matatu (minibus) industry. That was in 1973, when the industry was still young, innocent and loved by many town dwellers. The key matatu defender was President Kenyatta himself. He consistently told bureaucrats and bus owners to leave matatus alone. Two bus operators (Jogoo Kimakia and Godfrey Muhuri) were met with a rude shock when Kenyatta refused to protect their buses from matatus. Kenyatta told Kimakia that, "If I were you, I would sell the buses and buy matatus."

Another occasion is when Transport Ministry (under Ronald Ngala) tried to introduce TLB rules. This did not go well with matatu operators. During one of Kenyatta’s roadside speeches, he was asked when rules and taxes on matatus would be repealed, on which he answered: "It is repealed forthwith!" Kenyatta later declared matatus “a legal mode of transport that could carry passengers without obtaining special licenses . . . but had to comply with existing insurance and traffic regulations.” (IPAR)

Kenyatta’s roadside declaration gave birth to Kenya’s most chaotic, yet iconic industry. In just three decades, matatus have evolved from a simple man’s business to a multi-billion industry, which has provided thousands of Kenyans with entrepreneurial opportunities.

The industry has succeeded this far because the government performed its proper role at the beginning: it ensured that matatus were not harassed, and it eliminated the burden of bureaucratic requirements. Now the industry is facing a new challenge: WHO SHOULD OWN/CONTROL A MATATU ROUTE? Is it vijana wa mtaa (home boyz) or matatu owners.

Bottom Line: According to Karol Boudreaux of Enterprise Africa at George Mason University, the solution lies with the enforcement of property rights in transit routes. That means recognizing the true "owner/operator" of a matatu route. The issue could be too hot to touch, but it is the only solution to our public transport chaos. Karol has done extensive research on South African matatus (called kombis in SA). Her publication (Taxing Alternatives: Poverty Alleviation and South African Taxi/Minibus Industry) offers a glimpse of how Kenya could streamline the matatu industry.

The Ugly Side of Kengen Subsidies

The recently announced electricity subsidies are politically right but economically wrong. They are directed at appeasing Kengen shareholders but will surely hurt the electricity sub-sector, as well as halting economic growth. They also equate to wealth transfers from the tax-paying-mwananchi to the fast rising investment class; this might affect the war on poverty.

Minister Kimunya said that the first Kshs 1.3 billion is “compensation for losses caused by regulator’s refusal for Kengen to increase power tariffs.” But that’s not a credible reason, considering that the government will get the lion's share of the subsidy. Check this out: the state owns 70% of Kengen, which would translate to KShs 910 million or 70% of the subsidy. The other 300,000 shareholders will share 390 million.

Bottomline: As Kengen shareholders (including GoK) ‘fatten’ their CDS accounts with subsidies, 33 million Kenyans will have to deal with poor roads, inadequate schools and hospitals, insecurity, and many other problems that could be solved with Kimunya’s 1.3 billion give-away. Subsidies will not solve electricity problems in the country, they’ll only postpone a major disaster in Kenya's energy sector.

On the Trail of Moi’s Dream-Team

The twenty first century belongs to Moi’s dream Team Alums. The six gentlemen did not succeed in streamlining government bureaucratic procedures, but they have done wonders in their respective corporate, academic, and non-profit careers.

It all started with Kitili Mbathi going to work for Stanic Uganda, which recently rocked Ugandan Stock Exchange; then Titus Naikuni taking the helm of Kenya Airways; then Oduor Otieno becoming the CEO at KCB; Dr. Wilfred Mwangi heading research projects at ICRAF; Mwagazi Mwachofi flying high with Celtel International; and Richard Leaky becoming the short-term care taker of Transparency International (Kenyan Chapter).

Google could not tell Kenyanomics what the sixth technocrat (Prof Shem Migot-Adhola) is up to. Does anybody know what Prof Migot-Adhola is doing of late? Following is a summary of Dream Team's occupations, during and after the 1999 dream:

Team Members	Then	Now
Martin Oduor-Otieno	Treasury PS	KCB Chief
Richard Leaky	Cabinet Sec.	TI
Titus Naikuni	Transport PS	CEO KQ
Dr Wilfred Mwangi	Energy PS	ICRAF
Mr Mwaghazi Mwachofi	Financial PS	Celtel
Kitili Mbathi	Investstment PS	Stanbic UG
Prof Shem Migot-Adhola	Agric PS	????

Bottomline—: Kenya would be a different place if the state operated like the private sector.

Kenyans Investing Offshore, Beware

NSE’s poor performance has not stopped young Kenyans from venturing into stock market investing. Some are even venturing into several developing countries’ capital markets. This new found adventure can prove to be simultaneously sweet and sour, as it has happened to me in Malawi. It all started in 2002 when I was a first year econ student in college. Investing time had never been sweeter for me: I had just started earning my own cash, NSE was starting to wake up, and a network of African brodas was opening immense investment opportunities. What else could a risk assertive college student could ask for?

I did some research on stocks in Kenya, Ghana and Malawi and immediately started to load-up. Things have worked very well since. But repatriating a slice capital gains from Malawi is nothing but head-ache. I never knew Malawi exercised an exchange rate control policy, which basically means controlling the amount of foreign currency leaving the country. Nobody can buy dollars without reserve (central) bank’s approval, plus there is a limit of $5,000, and you must give a credible reason. The experience has made me appreciate Kenya’s monetary and exchange rate framework, which many bloggers (me included) have been yap-yapping about.

Malawi’s system is so bureaucratic. First, I had to prove to the reserve bank that my capital was sourced from outside Malawi. That meant providing receipts of all money transfers I had ever wired to the South African country since 2002, including sections of my bank statements. Well, I provided the requested paperwork but Malawian bureaucrats could not understand how my “X-dollars” had accumulated to, say, “8X-dollars”. In their mind I was either cheating or stealing from poor Malawians. Other than that capital gains have been sweet, and there still exists under-priced shares in MSE.

Bottomline, know more about a country’s capital, monetary and exchange rate policies before sending your marupurupu there. Don’t let glittering stocks fool you.

Tomorrow: Economic Implications of Foreign Exchange Controls

Kengen’s Raw Deal

The decision to split Kengen into two corporations is something to wary about. According to media reports, geothermal plants—which are wholly owned by Kengen—could be transferred to the state.

Here is the problem: The public already owns 30% of Kengen assets. They should subsequently own a third of the yet-to-be-incorporated Geothermal Company. But they might get nothing from the deal.

Yesterday’s Business Daily reported that geothermal sub-sector is worth about Kshs 15 billion. Publicly owned geothermal assets are therefore worth Kshs 4.5 billion, which is what the state want to take from capital markets. That’s another raw deal for Kengen shareholders, who were lied on tariff increase during IPO.

Bottom-line: The state must purchase geothermal’s Kshs 4.5 billion assets from the public or allocate them shares of the same amount in the new company. It is also hypocritical for the state to nationalize part of a company it recently privatized.

The Mombasa Aftermath

Hongera to athletes who lifted our nation's flag high in Mombasa. Nyinyi ni Wetu!!

How to End Tribal Appointments

The so-called tribalism in government appointments, especially in parastatals, can be eliminated by either privatizing them or making them self dependent. That would make these institutions determine their higher management, instead of the current system where management is (supposedly) determined by the tribe whose son resides at the big house on the hill.

But why should the government run these institutions in the first place? Why should it control sugar companies, supermarkets, banks, airlines, wine agencies, produce marketing boards and other business entities? KIE’s business textbooks taught me that the state (read bureaucrats and politicians) should run businesses too dangerous to be overseen by the private sector. Kenya Railways, Kenya Airways and the Eldoret Bullet Factory were given as examples. I now know that is not true, thanks to economic liberalism and further studies.

Our politicians are worse than high school textbooks when it comes to pushing for less government involvement in public institutions. They would like us believe that state institutions are tools of "ensuring equitable distribution of national resources." According to them, the “equity” includes equal participation of each tribe in the management, an utter nonsense that has historically led to institutional inefficiencies and unnecessary political bickering.

Bottomline, the state has to cease control of business entities and other vital institutions. That's the only way that tribally-influenced-appointments can be brought under control. The best manager runs the show in the private sector, whereas the best tribal-cum-political player is most likely to run the show in public institutions.

This post was inspired by African Affairs’ post on Tribalism: Kenya’s Undoing in the 21st Century.

Prospects of the US-Kenya Airline Route

The ongoing expansion of JKIA (Jomo Kenyatta International Airport) will enable the airport receive a Category One status from the United States FAA. This new status will allow airlines to launch direct flights between the US and Nairobi, which would boost the local aviation industry. Odds are that passengers that usually connect through Europe and South Africa will start using JKIA.

After all, it would be more economical for travelers originating from central, east and south east of Africa to fly through Nairobi. The near future could see JKIA becoming a stop-over-port for flights serving South East Asia, Australia, New Zealand, and Indian Ocean islands.

The direct route between East Africa and the USA will be a battleground for domestic and foreign airlines. Kenya Airways, which previously thought it would be the only player, will have to fight it out with tough competitors like Virgin and Ethiopian airlines. One can only hope that the Kenya Airport Authority will grant landing rights to KQ's competitors.

JKIA’s new status could also have a “big-bang” effect on the US-Africa route, which is currently being served by three airlines, i.e., South African, Ethiopian and the US-based Delta Airlines.

Cricket World Cup in the Caribbean

We are second in our group. Canada and England lost their opening games, whereas New Zealand and Kenya won theirs. Our team has the ability to crash Englishmen next weekend, which could give us better chances at semis. Am not sure whether we can discipline Kiwis. But our team is full of surprises.

And guess what! Kenya is playing England on March 24th, the D-day for Cross Country Championships in Mombasa. Is a double victory possible? I bet it is.

ICC World Cup: Group C

		P	W	L	T	N/R	R/R	Pts
1	New Zealand	1	1	0	0	0	0.94	2.0
2	Kenya	1	1	0	0	0	0.71	2.0
3	Canada	1	0	1	0	0	-0.71	0.0
4	England	1	0	1	0	0	-0.94	0.0

Please visit: http://kenyacricket.blogspot.com/ for full analysis.

On Bureaucrats and Tribal Politics

Am not amused by Prof. Njuguna's appointment as the new CBK governor. We all know that a fair share of parastatal jobs are reserved for the big man's home boyz. This happened with the colonial government, Kenyatta, Moi and now with the Kibaki administration. Any other president--be it Raila, Mudavadi, Kalonzo, Ngilu, Muiru, Ojiambo, or Ruto will do the same.

That's why the parliament must start approving senior civil servants hirings. But our September House attendees (MPs) are busy politicking on re-elections and on unmet political promises. The most vocal ones ( read "saviors" in ODM) preferred to board the next flight to London.

Am sure Prof. Njuguna's appointment will soon be a thing of the past, just like the dictatorial appointment of the new ECK board came to pass.

I dare say that not all home boyz are bad boyz. Githongo and Cheserem (not quite sure of him) are examples of home-boyz-gone-wild. But will Professor Njuguna join this group? Only time will tell.

Please let Kenyanomics know of any bureaucrat that did not toe the "T" word line. Was Githongo the first?

"KNEC website exposes candidates to fraudsters"

It’s great that candidates of KNEC exams can access their results online. Graduates with tuition balances will no longer beg for a peek of their results. But the examination council's technological move has compromised on candidates' privacy, given that anybody can access the results online. KNEC should consider assigning passwords to candidates, as the following opinion piece suggests (The Standard, March 06, 2007). I don't think anybody wants his/her Kiswahili D+ to be broadcasted worldwide.

KNEC website exposes candidates to fraudsters

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The Kenya National Examinations Council (KNEC) posts results on its website.

This has catapulted the examination and education system to the technological age. But there are ethical issues on the matter.

It is possible to get access to personal candidate’s information — full names, index numbers and examination results. This is gross invasion of privacy.

I am not well versed with privacy and confidentiality law, but I consider this unacceptable. The information will be invaluable to fraudsters who can use it to produce fraudulent certificates.

KNEC should introduce privacy restrictions. To access personal information, a unique identifier known only to the candidate should be given.

Njeri Kagotho, US

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Government’s Hand in High Petrol Prices

Government policy is partially responsible for the high petrol prices in Kenya. Equally destructive is the recently passed Energy Bill, which seeks to control petrol prices but does little to question KPC’s storage charges, local refining fees, and several bureaucratic conditions set by domestic regulators.

The Bill popularizes the idea that distributors are to blame for the Wananchi’s pain at the pump. It’s also awkward that the flawed Energy Bill had a heavy backing from the World Bank, which warned on being “deterred from funding the (energy) sector if the Bill was not passed rapidly.”

Following are some of government actions that have contributed to the high petrol prices:

• Finance Minister Kimunya’s 2006/07 budget increased fuel levy tax by 55 percent (from Shs 5.80 to 9.00 per litre of petrol).
• Kenya Petroleum Refinery, which is owned by the government and two other multinationals, increased crude oil refining fee from Sh2.90 to Sh3.58 per litre, a 22 percent increase.
• The state owned Kenya Pipeline Company increased storage charges by 33 percent (from $2 to $3 per cubic metre).
• Distributors are required to process 70 percent of their crude oil at the inefficient Mombassa plant. Only 30 per cent of processed petroleum can be imported from the Middle East, which has cheaper refining costs. (See The Standard).

Kenyanomics says: It makes no sense to target distributors yet the government is robbing Kenyans in broad daylight.

“Why isn't Africa Attracting Portfolio Investment?”

The past 20 years have seen Africa open more stock exchanges than any other region in the world. Some of African exchanges have been the world’s top performers, but that has not attracted the attention of international portfolio investors. But why? The World Bank’s PSD Bloggers had the following to say:

Why do the global emerging market funds ignore African-listed securities? Are mutual funds discriminating against Africa?

Not at all, said Todd Moss from the Center for Global Development in a presentation on his recent work to Bank staffers yesterday. Turns out there's no market failure at all. The problem lies with the African stock exchanges themselves.

Despite their recently good performance (as described in a prior post), Sub-Saharan African stock exchanges lose out because of their small size and very low liquidity. As he put it, "the New York Stock Exchange trades more before tea than all of Africa trades in a year." The glaring exception is the Johannesburg Stock Exchange (JSE), which is as large and popular as any emerging market stock exchange.

The bottom line - a stock exchange must have $50 billion in market capitalization and $10 billion in value traded to attract any interest from global emerging market funds. Of the 15 African exchanges, only South Africa hits either metric.

Moss thinks African exchanges might get a boost from large privatizations, but argues that the real key is to focus on investment climate issues. Big home-grown firms, hungry for equity finance, are needed to build up stock markets, which in turn attract mutual fund managers.

So where are the big African companies? Barriers to entry keep African firms out of the formal sector. Once they formalize, barriers to growth - such as higher infrastructure costs and "unofficial payments" - keep African firms small. For more on these barriers to growth, see the World Bank paper "Business Environment and Comparative Advantage in Africa: Evidence from the Investment Climate Data" from Benn Eifert, Alan Gelb, and Vijaya Ramachandran.

. . .

Kenyanomics Says: Doesn’t that make merging of African stock exchanges more reasonable?

Is the US Planning a Military Base in Kenya?

Two events that could shape Kenya’s position on global military supremacy took place yesterday. One was President Bush okaying a plan to establish a military command post in Africa (Africom). The other event took place in Nairobi, where the Chinese graced Kenya with military hardware worth more than $800,000. The Chinese have not indicated interest in establishing military command posts in the region, but nothing will stop their American counterparts.

It is not yet clear where the American command post will be based, but it is somewhere close to the Horn. The US military is already present in Djibouti, where it intends to contain “threats from Yemen and Somalia extremists.” But Kenya is also a prime target, given the US desire to take control of the East African coastline, from Djibouti City to Dar es salaam.

Kenya may be tricked with promises of better security and other goodies. But despite suffering terribly from terrorists, we must not believe that our neighbors are on a mission to harm us. Peace with our neighbors and other nations should be cultivated with dialogue, not with bombers or massive propaganda.

Only Private Sector Can Save EAC

The future of the East African Community (if any) lies in the private sector, not in politics being traded in Nairobi, Dar, Kampala, Bujumbura, Kigali, or Arusha. This fact is exemplified by the distinction with which politicians and businessmen are conducting their integration affairs. Regional companies are integrating their services with ease, but the political side is characterized by unending “consensus” meetings and epic court battles.

Picture this: East African cellphone companies just formed alliances without a single court battle or negative news in the media. Talks on amalgamating the three stock exchanges are calmly going on. But alas! Politicians in Kenya cannot even agree on who would represent their country in Arusha. Yet we expect the same political class to lay ground for economic integration.

EAC politicians need to learn one thing: that their role in establishing a thriving regional market does not go beyond shutting up and keeping off. Politicians must stop meddling and acting like they are doing something for the common man. Its only then that an individual living in Mbeya (Tanzania) could gain the confidence of forming beneficial relations with East Africans living as far as Gulu in Uganda or Garbatula in Kenya.