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About bankelele

Writing on banking, finance and investments in East Africa. Email bankelele_at_hotmail.com, Instagram: Bankelele, Twitter: @Bankelele.

Sugar Privatization in Kenya

Kenya has floated an international expression of interest for the privatization of five sugar companies.

The Government through the giant Agriculture and Food Authority (AFA), manages the sugar sector. The five are Chemelil Sugar Company, South Nyanza Sugar Company (SONY), Nzoia Sugar Company, Miwani Sugar Company (under receivership) and Muhoroni Sugar Company (under receivership).

The Government is seeking investors who will redevelop the factories into sugar complexes and manage them on lease for 25 years, turning them to profitability through modernization and efficient management. Investors, as individual or consortiums, will have to demonstrate familiarity with the sugar industry, submit regulatory documents (PIN, incorporation certificates, factory operation licenses), and prove their experiencing managing sugar plantations for at least 5 years, and their available financing.

The Government’s Privatization Commission has long had plans to privatize the sugar companies as part of a COMESA arrangement and to modernize Chemelil, rehabilitate SONY, expand Nzoia, and address the debts of Miwani and Muhoroni. It’s shareholding is 96% at Chemelil, 99% at Sony, and 98% at Nzoia. It also owns 49% of Miwani and 17% of Muhoroni through the Agricultural Development Corporation. Other government agencies with shareholding include the Development Bank of Kenya with 1.4% of Chemelil and 0.3% of Muhoroni respectively, IDB with 0.3% and 0.9% of SONY and Nzoia respectively, and ICDC with 0.7% of SONY.

To prepare the companies for this exercise, the government had undertaken balance sheet restructuring, writing off debts that the five owed to it, the Kenya Sugar Board, and to growers, as at December 31, 2019. They have also written off with taxes and penalties through 30 June 2019 and accrued up to date.

Recently, two governors, Wycliffe Oparanya of Kakamega and Anyang’ Nyong’o of Kisumu, writing on behalf of the Lake Region Economic Bloc, welcomed the Government’s decision to waive Kshs 62 billion (~$580 million) of debts owed by the firms. They also asked that a bill in Kenya’s Parliament direct that millers make payments to sugar farmers within 7 days of delivering crop and with these payments based on the sucrose content, rather than the weight of cane.

They also asked for a reintroduction of the Sugar Development Levy to ensure that farmers, counties, and the factories will have steady financial flows. Chemelil, Muhoroni and Miwani are located in Kisumu County, Nzoia is Bungoma, while SONY is in Migori county.

The deadline for the expressions of interest, that are to be submitted by sealed envelopes to AFA, is August 3. The bid documents will be disinfected (it’s Covid-19 season), and opened, with the results announced on August 4, 2020, at the AFA offices.

Kenya relaxes Covid-19 restrictions

Kenya will relax some of the restrictions that have been progressively building since the first case of Coronavirus was announced in the country in early March.

Speaking in Nairobi today, President Uhuru Kenyatta said the decision to re-open the country was a balance between a health crisis and an economic crisis. He mentioned that while the country was not quite ready, a “reasonable levels of preparedness” to reopen had been attained.

He called on citizens to be responsible and to engage in minimal contact and movements and to delay “non-essential up-country travel.” They should also avoid interacting with the elderly and the ill

Some of the changes will be:

  • The restriction of movement in and out of Nairobi, Mombasa and Mandera counties will end on July 7. The Government will then study patterns of infection over the next three weeks.
  • Local air travel resumes on 15 July.
  • International air travel resumes on August 1.
  • Churches can re-open with a maximum of 100 attendees and each ceremony will be not more than an hour. Also the ill, and no one under 13 years or over 58 years will be allowed to attend.
  • The evening curfew across the country, restrictions on wedding & funeral numbers, and a ban on political gatherings were all extended by another 30 days.

The President said it was not enough for the Government to pump resources into the economy using stimulus instruments, and that such efforts will go to waste if the people do not co-create solutions with the government.

He called on businesses to create new business models to find opportunities presented by the crisis. He cited the textile industry in Kenya, which had ramped up manufacturing, and emerged as a net exporter of PPEs (personal protective equipment) to the region and he called on other industries to emulate this.

A frank assessment

EDIT: A day later, Prof George Magoha, Kenya’s Cabinet Secretary in the Ministry of Education, announced that the 2020 school calendar year will be considered lost due to COVID-19. He proclaimed that they had shelved a proposal to open for candidate classes in September. Instead, there will be two Form One class cohorts in the 2021 academic calendar, all learners in Grade 1 to 4; Standard 5 to 7; and Form 1 to 3 in 2020, will remain in their current classes in 2021 and there will be no KCPE and KCSE examinations in 2021.

M-Pesa App eases cash management and reporting for SMEs

In June 2020, Safaricom launched a new app for business owners that is a serious tool that enables them to do true real-time cash management, accounting and business banking on their mobile phones.  

Perfectly timed during the Coronavirus when businesses are moving shopping online, and paying more with M-Pesa over cash, the new Lipa Na M-PESA Business App allows business people to set up and manage multiple tills at different locations, keep track of cash and integrate payments from different tills.

By using the app, business owners get immediate updates on sales and receipts, giving them visibility of how different stores are performing and should reduce pilferage and leakage from cash sales handled by employees at different locations.

Payments collected through mobile money can be used to settle supplier bills, pay daily casual salaries or be sent to the bank, all using the app. A big plus is that businesses can obtain instants overdrafts to complete crucial payments, and this follows in the runaway success of “Fuliza”.

Crucially the Lipa Na M-PESA Business App creates a digital data trail, marries accounting and banking as they can now export their periodic statements to other systems like Excel or an accounting system for easier and faster reconciliation. This is expected to ease the record-keeping and payment efficiency of business owners, 170,000 of who currently use Lipa Na Mpesa and who can receive payment from 24 million M-PESA users across the country. 

Business owners can apply online for the new M-PESA business till numbers or to add to their existing ones. The requirements asked for from different entities, from sole proprietors to partnerships, companies and churches, are listed on the site. Decisions on applications will be made within 24 hours of providing all documentation, with new till numbers provided to successful applicants. Other status decisions such as pending, or rejected, with reasons given, will also be in the same period.

The Lipa Na M-PESA Business App is now available in the Google Android store and on USSD (*234#), while the iOS version will be out later.

Nairobi Stockbroker Moment: Changes in 2020

  • African Alliance Kenya Investment Bank announced its exit from stockbroking, to focus on asset management, digital and treasury business. Clients are to transfer their CDS accounts to other stockbrokers by July 22. It will continue to operate as a licensed investment bank and fund manager and plans to launch several new funds. 
  • AIB Capital and Apex Africa are finalizing a deal announced in February 2020 to merge their stock-broking, bond-trading, derivatives, research and corporate finance businesses that will operate as AIB-AXYS Africa. To effect this, all Apex Africa capital accounts will migrate to AIB by June, without disrupting services, and AIB Capital will move to Apex Africa premises in Westlands, Nairobi.
  • Genghis Capital and EGM Securities have announced a partnership to give investors a wider range of alternative asset classes including online currencies, commodities, precious metals, oil, and biotech company stocks. EGM runs FX Pesa and the partnership, which is on a revenue share basis, envisions enabling Genghis clients to purchase shares of Amazon, Alphabet, Facebook, Zoom, Moderna and Gilead Sciences. 
  • NSE App: Finally the Nairobi Securities Exchange (NSE) has also launched online share trading through a new app that enables people to open CDS accounts on their phones and start trading listed company shares. The app, available on Android and iPhone, makes it easier to get live share prices, and view data of ongoing trade activity, with personalized notifications, chats, and financial news. 
  • NSE Training: The NSE has also been conducting investment training classes virtually to show people how to invest online, open accounts, choose stockbrokers, manage portfolios, and invest in derivatives.  
  • CMA statsStatistics from the Capital Markets Authority (CMA) show that Nairobi had a net outflow by foreign investors worth Kshs 11 billion in the first quarter of 2020, compared to inflows of Kshs 601 million in the first quarter of 2019. 

Also:  

  • Market capitalization was down 15% down to Kshs 2 trillion, from 2.3 trillion in Q1 2019. CMA stats also show that while Kenyan equity trades in the first quarter of 2020 were down 5% compared to the previous year, in (much smaller) Uganda and Tanzania, trades were up astronomically, by 315% and 433%, respectively.
  • Ultimately, Nairobi stockbrokers need a new IPO to fuel investor interest in the trading shares, and it should probably be through a huge government privatization on par with Safaricom, which the last major government IPO in 2008. Since then there have been IPO’s from Co-op Bank, British American (2011), the NSE itself in 2014, and the Stanlib Fahari I-REIT (2015).
  •  On the derivatives counter, introduced in 2019, there was 47% more activity in Q1 2020 to compared to Q4 in 2019. KCB was the most active (138 contracts worth Kshs 6.6 million), followed by Safaricom and Equity Bank. Meanwhile,  the New Gold ETF is 93% traded by foreign investors.  NSE stats show that AIB is the leading arranger of NSE futures deals, doing about 41% of deals worth 5.2 million, followed by Sterling Capital (28%) and Standard Investment Bank (9%).
  • Collective investment schemes currently have 52% of their portfolios in government securities, 26% in fixed deposits and 12% (Kshs 9.2 billion) in listed NSE firms.  

Digital Newspapers boost during Covid

At the end of May 2020 digital copies of leading newspapers were availed to Kenyans through a partnership with Safaricom.

The newspapers are the Standard and the Nairobian from the Standard Group and the Daily Nation and the Business Daily from the Nation Media Group. The digital copies all cost Kshs 20 each, which is about 1/3 of the street prices of Kshs 50 and Kshs 60 for the print newspaper copies.

This comes at a time of declining readership, and declining advertising for newspapers and in recent months both the media groups have issued profit warnings – the Standard for 2019 and the Nation for 2020. During the Coronavirus outbreak, there have been readers who have stopped buying and reading print newspapers for fear of contracting the virus, despite newspapers running advertisements about the safety and hygiene of their printing and distribution processes. Safaricom is powering this initiative as a Covid-19 response and the digital newspapers are available for a period of two months.

The digital newspapers are very easy to buy with the payment deducted from a user’s airtime, not from M-Pesa. Sign-up requires no cumbersome registration and there is no app to download. One also has to be on Safaricom data to download it, not Wi-Fi, though the download does not consume data, and the purchased copies are available to read for 7 days.

Whether this will accelerate a more permanent shift in readership will be seen after the period ends in the second half of the year. Local media houses have tried for many years to get readers to pay for online subscriptions without much success.

Early in the Covid-19 period, full PDF copies of newspapers would circulate on WhatsApp, but these seem to have stopped since a crackdown was initiated. This is also a period of increasing political activity and a key tool of propaganda is the use of doctored government documents and fake newspaper covers to mislead online readers – so having actual digital copies is a welcome tool to verify which are with the fake covers.

There is also another Nairobi newspaper that is completely free – both online and in print. The People Daily that is handed out to motorists and also distributed to a smaller clientele around the country. The packaging of the newspaper during Corona is indicative that costs may not be an issue at this paper.

*Get the digital newspapers from Safaricom.com  under “discover” then “newspapers” or by dialing *550#.

EDIT: On June 22, Radio Africa and Mediamax joined the partnership, availing their The Star and People Daily newspapers for Kshs 10 per issue.

EDIT: On July 1, the Nation Media Group announced a “change its business model from print advertising and physical reader copy to digital advertising, ePaper subscription and content-driven reader revenue.” This was accompanied by a reduction of workforce effective July 3, 2020 and salary reductions, of, in some cases, 40%.