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.

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.