WDR2017, the World Development Report from the World Bank for 2017, looks at governance and the rule of law around the world and how they can impact countries and economic development.
Illustrative pic from the Star Newspaper to show what a large sum of cash will look like
- Elections alone are not enough to bring change – even when citizens manage to remove politicians whose performance is poor or diverges from their preferences, elections alone offer no credible guarantee that, once elected, new leaders will not shirk their electoral promises and credibly commit to citizens’ demands.
- Local elites can capture public spending despite participatory programs; as they can disproportionately sway expenditure decisions
- Inequality begets inequality In societies in which inequality is high as the effectiveness of governance to deliver on equity outcomes can be weakened structurally because those at the top of the income ladder not only have control over a disproportionate amount of wealth and resources, but also have a disproportionate ability to influence the policy process.
- Devolve: By multiplying the number of more or less autonomous arenas within which public authority is exercised, decentralization increases the opportunities for policy innovations and the emergence of effective leaders. Often these innovations are spurred by political outsiders, who may not have access to the national policy arena but are more likely to acquire citizen support locally and spur local institutional reforms.
- Female leaders are less prone to patronage politics and corruption.
- Media content is often defined by elites leading to a bias, but new media can counteract this.
- Political parties are on average the least-trusted political institution worldwide
- Politically connected firms gain undue advantage in countries through using market regulations to favor firms, granting import licenses to favored firms, and diverting credit.
- Land redistribution policies often fail due to transaction costs, incomplete contracts, and political agreements.
- The Panama Papers highlighted legal and illegal ways in which assets found their way to 40 countries: Funds are legally earned through tax evasion and evading currency controls and shifting profits, but also illegally by exploiting natural resources, violating intellectual property rights, corruption, embezzlement, drug trafficking, and human smuggling etc.
See the 2016 WDR report.
This week, depositors at the closed Imperial Bank got some welcome news with the announcement that a third payment was going to be paid to them.
This comes after a first payment last December of up to Kshs 1 million per depositor that was paid through KCB and Diamond Trust banks and another one earlier this year of up to Kshs 1.5 million that was paid out by NIC bank.
This third payment is unique in that it targets the remains depositors many of who are believed to be large depositors. After the first payment, the CBK had expressed concern that some depositors had not bothered to claim the funds offered. But assuming that someone has funds of ~Kshs 50 million to Kshs 100 million at the bank, they were unlikely to be elated to received 1 million in the first or second rounds.
This time depositors can access up to 10% of the deposits, so the people above would get Kshs 5 or 10 million – still small, but much better- and depositors have a month to file claims at any NIC bank branches to receive the payments (deadline 31 Jan 2017).
The news also comes after a few days after newspaper stories that revealed the names and evidence of correspondence of CBK officials who may have benefited inappropriately from the largesse of the management of the bank that they were supposed to have supervises.
$1= Kshs 102
There are two or more sides to every story, and there are several at Imperial Bank. This is just one. The Central Bank (CBK) and the Kenya Deposit Insurance Corporation (KDIC) have accused the shareholders/non-executive directors of the bank of being negligent in allowing the fraud at the bank estimated at Kshs 34 billion (~$34 million), and collecting dividends from what was a shell institution. The shareholders have fired back in replying affidavits saying they were not party to the fraud and that, among other things:
- Documents they saw as directors (at board meetings). had been doctored by management of the bank (led by the late group managing director).
- CBK officials helped doctor the records for many years during their inspection audits.
- CBK officials received personal favours from Imperial Bank managers.
- CBK staff and Imperial managers conspired to prevent one shareholder from becoming an executive director of the bank, which would have created a second centre of power (other than the GMD) and which might have uncovered the fraud.
- The current CBK governor has made unreasonable demands on shareholders and failed to discipline his officers involved with Imperial – even appointing one of them as a receiver manager after Imperial closed.
Meanwhile, a judge issued a ruling that was interpreted differently and a group of depositors went back to court seeking a clarification of what the judge meant. It has been interpreted to mean:
- Shareholders: The receiver managers (CBK/KDIC) must share information with, and consult, them on decisions affecting the bank.
- Receiver Manager: Liquidation of the Bank can proceed liquidated.
- Depositors: Judge said to pay us 40% of our deposits immediately.
Hearings continue next week.
Yesterday the Capital Markets Authority (CMA) meted out punishment, following the Uchumi Supermarkets (USL) rights Issues.
Back in 2014. Uchumi’s rights issue to raise Kshs 895 million ($10 million) by offering shareholders 3 shares for every 8 held at Kshs 9 per share, with the funds to be used for expansion in East Africa and refurbishment of stores.
(Excerpts from) The CMA statement reads:
- The regulatory breaches of the former directors and the two USL officers were identified in respect of the period of 2012 – 2015 and involved making changes to the Information Memorandum (IM) after CMA approval; failing to make proper disclosure of material information to inform investor decision making; misapplication of Rights Issue (RI) proceeds; mis-statement of financial statements in 2014; weaknesses in board oversight of the branch expansion programme; inadequate conflict of interest management; and inadequate disclosure of asset sale and leaseback arrangements. The breaches of the transaction advisor revolve around not ensuring changes made to an approved IM were submitted to CMA for further approval.
- Out of the Ksh895 million right issue proceeds received by USL in January 2015 it was established that a small portion was used to pay the rights issue expenses but the balance was transferred to the trading account from where payments were being made to settle outstanding suppliers’ debts as opposed to funding branch expansion.
- With respect to the financial statements for the period ended June 30, 2014, that were used to support the Right Issue, it was established that a Ksh350 million asset sale and lease back transaction was recognized, while the agreement for the same was signed and funds received in September 2014 . As a result of this recognition, USL’s profits as at June 30, 2014 were enhanced by Ksh19.97 million arising from the gain on sale of the assets. Further, the USL liabilities were understated to the tune of approximately Kshs.1 billion. The Board subsequently reversed this treatment in the audited accounts in 2015, stating that this recognition had been premature.
Other recent actions by the CMA have targeted directors of Imperial Bank and CMC Group.