Should Retrenchees Get Safaricom Shares?

I have had strange thoughts of late. The recent one involves the possibility of allocating Safaricom shares to Telkom rentrenchees. The soon to be privatized telephone monopoly is letting go 11,873 employees of its 18,000 labor force. Unfortunately, most retrenchees are low skilled individuals who might soon dry their Kshs 250,000 retrenchment packages.

Here comes my proposal: Retrenchees should take-up Safaricom shares as part of their retrenchment benefits. They can take 50% cash and 50% shares. That arrangement would introduce them to capital markets, which is a smart way of safeguarding their urgently needed financial safety nets.

But wait a minute! It’s most likely that Telkom retrenchees got their jobs through bribery, nepotism or tribalism. A preferential treatment in Safaricom IPO would be tantamount to rewarding vices that have crippled our nation for decades. However, these people should not be hanged-out to dry, but encouraged to take advantage of the fast maturing NSE.

East African Economic Freedom

Background
The 2007 Index of Economic Freedom is out. The annual publication of The Wall Street Journal and The Heritage Foundation is an indicator of individuals’ freedom to control their economic affairs.

The 2007 report authors refer to economic freedom as the ability of individuals to produce, consume, and distribute goods and services without interference from the state or any other entity. Economic freedom calls on governments to restrain themselves to the provision of entrepreneurial-friendly environments. That includes (1) providing proper legal and law enforcement systems (2) enhancing contract laws and (3) facilitating access to sound money.

How well a government performs the above roles determines a country’s economic freedom, which is measured in percentage points. A country with higher degrees of freedom, say 90%, means that the government is performing its roles efficiently and it rarely interferes with people’s economic endeavors. On the other hand, a country experiencing low degrees of freedom, say 30%, means that the government is spending more time encroaching on individuals’ economic lives other than performing its designated roles. Government interference can happen in 10 indifferent ways.

East Africa
As the above chart shows, Ugandan economy is the most-free in East Africa, a position is has held for thirteen straight years. The Peal of Africa is currently ranked as the fifth most-free economy in Africa and 58^th in the world. Mother Kenya is ranked eighth in Africa and 82^nd in the world, whereas Tanzania is ranked 15^th in Africa and 103 in the world.

Economic freedom is not to be taken lightly; it is directly related to prosperity, thus a better weapon to fight poverty. The report observes that countries experiencing higher degrees of economic freedom were more productive and had better living standards.

That fact holds true for Eastern Africa. Picture this: Uganda, the freest economy in Eastern Africa, has the region’s highest per capita productivity ($1,478), highest life expectancy (48.4 yrs), and the highest education enrollment ratio of 66.1%. Kenya comes second with a per capita productivity of $1,140, life expectancy of 47.5 years, and an education enrollment ratio of 60.1%. Tanzania, which has the region’s lowest economic freedom, lags with a per capita productivity of $674, life expectancy of 45.9 years, and an education enrollment rate of 47.1%. Those three factors (life expectancy, education and productivity) are key components of the United Nation’s quality of life index, popularly referred to as the Human Development Index.

That simple example from Eastern Africa, which is depicted all over the world, should convince our policy makers on the importance of economic freedom in the society. It could be the missing link in the battle against poverty.

Cross Country: Its Kenya Vs. Ethiopia (Part 2)

Kenyanomics promised a post on two of the world’s best women cross country teams, i.e, Kenya and Ethiopia. Their rivalry was founded in 1990, the year that East African ladies stamped their authority in the world of athletics. Ethiopian women have been team champions eight times and seven times for the Kenyans. The 2007 championships provide Kenyans with a chance to equalize. But that will be an uphill task considering that Ethiopians have taken the gold medal home every year since 1999, except for 2001. Go Ladies!!!!

Tomorrow on Kenyanomics: Cross Country Becomes an East African Business.

Cross Country Championships: Its Kenya Vs. Ethiopia

Ethiopian Airlines and Kenya Airways are arch rivals on African Skies, but their rivalry is overshadowed by that of Cross Country athletes. This year the battle for supremacy is being fought in Mombasa. The 35^th IAAF World Cross Country Championships will be the 26^th meet for both teams. Kenyan men have been team champions 19 times and Ethiopians seven times. But let statistics not fool you! The sport is full of surprises. Actually, there are no favorites until the race is over.

The above graph shows how both teams have performed since they first met in 1981. The y-axis shows team points and the x-axis indicates the year of competition. Unlike in other sports, the winning team in cross country is the one with least points. You can therefore see that successive Kenyan teams have performed better than Ethiopians. But tables turned in 2004 when Ethiopians broke Kenyans’ 17-year winning streak. They have been on each other’s neck ever since. Ethiopians are steadily catching up but Kenyans are still holding on. And even if Bekele the Great will not be racing, the world is assured of an electrifying competition. Let the best team win. Or who is your favorite?

Tomorrow on Kenyanomics: Kenyan Vs. Ethiopian Women (Long Course)

Check Out Kenya Imagine

Kenya Imagine is a new online interactive newspaper. It allows registered users to post articles and commentaries. Users with blogs are allowed to double post, i.e, the same article can appear on Kenya Imagine and on author’s blog as well. Less than a year since its founding, the site has, in one user’s words, “become the go-to place for intelligent Kenyan debate and analysis.” Check them out!!----- http://kenyaimagine.com/

Bloggers Beware

Nark-Kenya propaganda machine is up and running. Kenyan blogs have fallen victims of Dr. Mutua’s move to counter government criticism. I happened to criticize Kibaki’s dictatorial appointment of nine new ECK commissioners. As a result, Kenyanomics’ commentary section was bombarded with fourteen 50-paged “Statements from the Minister of Planning and Development.” Now that was crazy. I’ll be spending a fare share of this weekend deleting that nonsense. Check it out: http://kenyanomics.blogspot.com/2007/01/badly-timed-post.html

A Badly Timed Post

Kibaki’s dictatorial appointment of nine new electoral officials made my post on ECK totally useless. The sequence of my post and news reports is just disappointing:

• 09:21 (-5:00GMT)—Kenyanomics posts “A Tale of Kenya’s 21 Electoral Commissioners.” I intended to explain how political appointments have continuously caused chaos at the Commission.
• 16:00 (-5:00GMT) – The Nation and EA Standard report that Kibaki has appointed nine new commissioners.

A Tale of Kenya’s 21 Electoral Commissioners

Did you know that Kenya has the world’s largest number of Electoral Commissioners? Well, no country comes close. Not even our immediate neighbors, Uganda and Tanzania, which have seven commissioners each. Nigeria, which boasts Africa’s largest number of registered voters (58 million), has 12 commissioners. South African commission has six officials, whereas major western democracies like the United States and Britain have six officials each. The most shameful comparison comes with India, whose 670 million votes (60 times more than Kenya) are administered by four officials. So why does it take a multitude of commissioners to oversee electoral transparency in Kenya’s 12 million votes? Political patronage is the answer.

Our electoral commissioners have been political appointees ever since the country’s electoral law was legislated in 1963. The reintroduction of multi party politics in 1992 did not help. In fact, things got worse as political parties jostled for representation in the commission. Gradual increase of political interests has catapulted the number of commissioners from nine in 1991 to the current 21, including the Chairman and his deputy.

Most Kenyans would agree that their bloated electoral body has been a source of unnecessary political confrontations, which can be eliminated by reducing the number of commissioners. A smaller number, say five, would mean fewer positions for political parties to fight about. This would also foster scrutiny of candidates in parliament. Finally, only candidates who are well qualified and untainted by party politics would become electoral commissioners. And that could be the genesis of electoral transparency in the Kenya.

However, reducing the number of officials is by itself a political battle. But how else could we reform the commission? Chairman Kivuitu has suggested that we remold ECK’s composition to reflect the current political climate. Unfortunately, such proposals have been implemented three times before, but without much success. In fact, appointing commissioners to reflect the existing political climate is the main cause of ECK problems.

Consider that in 1992, membership was remolded to portray commitment to multiparty politics. In 1997, membership was altered through the IPPG to fit political demands of the day. The membership structure was also altered in 2003 to include members of the short-lived Rainbow Coalition. And for the fourth time in the fourth multi party elections, Kenyans want to repeat the same mistake knowing very well that it does not work. That must not happen. We Kenyans must not let political winds dictate structures of our civil institutions.

Ignorance Vs. Kenyan Athletes

Ignorance can be very expensive. It proved so to Mushir Salem Jawher, a Kenyan-born athlete who got stripped of his Bahrain nationality. Reason: he raced in Israel, which is not recognized by his Islamic home country. The shell-shocked athlete protested his innocence by stating that he was “never told it was illegal (for a Bahraini) to enter Israel.” But who was supposed to enlighten him (and other athletes) of global politics. Is it Sports Minister Maina Kamanda, Athletics Kenya, 8-4-4 or athletes themselves? Commonsense says it is the latter. Kenyan athletes should do more research before jumping ship, lest they get themselves into stateless situations or with curtailed liberties.

Aids: A South African “Powder Keg”

The year-ender edition of the Wall Street Journal carried an interview with Rev. Desmond Tutu, a South African cleric who recently reminded his fellow countrymen that Mbeki’s policies on poverty, Aids and Zimbabwe resembled a “powder keg” waiting to explode. Those comments were not received well by President Mbeki, who referred to Rev. Tutu’s remarks as "empty rhetoric".

AIDS Tale

Current administration’s dealings with AIDS leaves nothing to be desired: senior government officials, including the President, have been on the wrong side of AIDS war. Most notable case is that of former Deputy President Jacob Zuma, who recently claimed that bathing after sexual intercourse “lessens the chances of contracting AIDS virus.” It is absurd that the comment was made by a former head of SANAC (South Africa National Aids Council).

Health Minister Manto Tshabalala-Msimang questions the success of antiretroviral drugs, which is why she supports the use of dietary supplements (including garlic and beetroot).

The president has consistently refused to acknowledge that HIV causes AIDS. He had to be overruled by his own cabinet for a statement that “HIV causes AIDS” to be included in the country' AIDS policy. Worse still, Mbeki’s administration had to be taken to court for public treatment programs to begin.

One can only hope that South African leaders will change their attitude before the “Powder Keg” explodes.

Benefits of an East African Stock Exchnage

The entire East African region stands to benefit from the establishment of an East African Stock Exchange (EASE). Companies based in countries without stock markets (such as Rwanda, Burundi, Ethiopia, or Southern Sudan) may prefer to list at the mart. It would save these nations the pain of establishing mini-exchanges that take too long to mature.

2006 East African Stock Markets Roundup

NSE ends the year as the best performing capital market in East Africa. As the chart shows, the number one position was held by the Uganda Stock Exchange for the most part of the year. But a decline in Kampala’s fourth quarter activity sent it to the second position. The Dar Stock Exchange had a rough season. Its recovering index was negative all year long.

Year 2006 was on overall a remarkable season for East African capital markets. One can easily observe that: (1) more East Africans, especially in Kenya and Uganda, were ushered into stock market investing, (2) companies no longer shied away from raising capital at Nairobi, Dar or Kampala exchanges, and (3) governments started considering sale of parastatals through IPOs.

The year ends with a sweet note to East African investors and companies alike: the trio exchanges could soon merge into an East African Stock Exchange. NSE and USE have agreed on that arrangement, but DSE people are still “thinking.”

“It’s a relief that a company situated, say, along the Nile in Uganda can depend on capital provided by an investor in as far as Lamu in Kenya. However, an old Ujamaa Legacy means that our southern neighbors are being left out (see my comment at Odegle Nyang Investments).

Does Anybody Know When KPLC Was Listed ?????

I can't find the IPO date anywhere, even on the company's website.

Safaricom IPO Dilemma

The Capital Markets Authority (CMA) requires all companies floating shares for the first time to offload at least 25 percent of their shareholding. But Safaricom owners (the State, Vodafon, and a ‘ghost shareholder’) only want to float 9% of the East Africa’s most profitable company. In that regard, the state is in a tight dilemma. Should it

(a) push CMA to accepting a 9% floatation, or
(b) negate from the IPO altogether, or
(c) let go 25% of Safaricom.

I say they let go 25% of Safaricom. However, some government officials have argued that 25% floatation is too large for the public to swallow. But i bet Kenyans would easily oversubsribe the so-called Mother of All IPOs.

Is Kenya Up for Grabs?

The government is set to privatize a large number of State Owned Enterprises (SOE), which is making some Kenyans think their country is up for sale. Check out a great discussion on this issue @ Odegle Nyang Investments blog. Well informed comments from Coldtusker, Gathara, Kenyanomics, and the host, Odegle Nyang Investments. Leave your thoughts.

Courtesy of Odegle Nyang Investments.

Bureaucratic Curse

Dr. George Ayittey (a prominent Ghanaian Economist) once wrote that African governments are good at creating bureaucracies. Kenya is a fine example of Dr. Ayittey’s observation. A look at our bureaucracies (what our government calls “Non-Gommercial State Organizations”) reveals how tax payers’ money gets wasted. It also makes me wonder how some of those organizations make Kenyans lives better. Check out the following list of fully operative bureaucracies and ask thyself two questions. What are their roles, and do their posh offices and gas guzzling cars deserve your tax Shillings?

Presidential Commission on Soil Conservation
Presidential Music Commission
Local Authorities Provision Board
Cost Development Authority
Central Agricultural Board
Pests Products Control Board
Radiation Protection Board
Film Censorship Board
NGO Coordination Bureau
Sisal Board of Board (Yes, that’s the name)

(Organizations’ names were borrowed from Privatization of State Corporations and Investments-- 2005 Sessional Paper)

Kenya Leads in Corruption Perception Index (CPI)

Transparency International just released its 2006 Corruption Perception Index (CPI). Once again, Kenya emerges as the most corrupt country in Eastern Africa, ninth in Africa, and twenty first in the world. Kenya’s Anglo Leasing scandal is mentioned as the new form of corruption, “which involves misappropriation of public funds through fraudulent contracts and sophisticated shell companies in Europe and other off-shore jurisdictions”. (See TI’s Press Release) It also emerges that corruption costs Kenya KShs 70 billion annually.

Kibaki’s government should consider incorporating the “Fight Against Corruption” in its Vision 2030. Failure to do so would cost the country over Kshs 1.68 Trillion between 2007 and 2030.

Jaramogi’s Words of Wisdom

I just read Oginga Oding’s Note Yet Uhuru, a book that could be gathering dust on our politicians’ shelves. It struck me that governance issues, which Jaramogi was addressing 39 years ago are still rife today. The last Chapter, OBSTACLES TO UHURU, reads like an address to today’s breed of politicians. Following are quotations on how Jaramogi's Note Yet Uhuru address our current problems:

On distinctions between pre-independence and post-independence (current) politicians:

“To the early generation of leaders, politics meant struggle, keeping close to the people to maintain their confidence, building unity to overcome the powerful enemy. To the later generation of leaders, politics can mean public standing, handsome salaries, shiny motor cars, and the manipulation of party branch and government office to stay in power because it brings personal advantage” (p 250).

On “Kitchen Cabinets” that have led to economic disasters such as Goldenberg and Anglo Leasing scandals:

“A government by a small circle of leaders could too easily be influenced by forces against the national interest” (p 284).

On overdependence on Western aid and investment;

“If our aid and investment come from one source only we can banish the prospect of pursuing and independent policy, for we will be brought under control by the withholding of aid, or by some other economic pressure”. We must (therefore) break this predominantly Western influence, and develop relations with both east and west” (p 285).

“It would be an insult to our dignity that a foreigner should tell us what is right for us (p 295).

On hawkers’ suppression by the City Council:

"Failure to (let the masses) attain full economic freedom will rob Kenyans their political freedom" (P 285).

Jaramogi’s words of wisdom were written down in 1967 (39 years ago) but nobody listened. Maybe we bloggers could revive Jaramogi’s dream of agitating for accountability in our government and more personal freedom for Kenyans.

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.

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?