Category Archives: East African Community

Plane Moments: Mostly KQ

 

  • Precision Air:  Kenya Airways and it’s associate company, Precison Air Services are working on a commercial alignment with respect to pricing on joint venture routes. They have applied to Kenya’s Competition Authority for an exemption as the regulator does not allow two similar airlines to have the same ticket pricing. Read more on Precision Air in which Kenya Airways has a 41% shareholding.
  • Kenya Gets Protectionist:  Kenya is limiting the issuing of new licences for global airlines seeking to exploit the strategic Nairobi hub in a protectionist move aimed at reviving the dwindling fortunes of national carrier Kenya Airways. Transport Ministry Principal Secretary Irungu Nyakera said Kenya is doing what the US and the European Union are doing, limiting the frequency of Middle East carriers because they have realised they are killing their own airlines, leading to job losses.  
  • Tanzania is revamping its national carrier by buying new planes as part of plans to boost tourism and transport sectors.  The country received delivery of two Bombardier Q400 planes in September at a cost of $62 million and has also made initial payment for the purchase of a Boeing 787 Dreamliner, which is expected to be delivered on June 18.
  • Nigeria airline takeovers: The takeover of the nation’s biggest airlines, Arik and Aero airlines by the undertaker, the Asset Management Corporation of Nigeria (AMCON) may have exposed some management lapses in the private sector.. some of Arik’s missteps to include “starting off its international services with the gas guzzling ultra long-range Airbus A340-500s literally guaranteeing losses on its relatively short-range services to London, South Africa, New York and Dubai. It also bought 10 of the relatively cost inefficient Boeing 737-700s used mostly by short-haul, low-cost airlines like Southwest Airlines. It only has four of the more efficient and versatile Boeing 737-800s suitable for high-capacity routes such as Lagos to Abuja and Lagos to Port Harcourt, as well as regional routes to West and Central Africa.”
  • RwandAir will start direct flights to India’s commercial centre Mumbai on April 3…it also plans to start flights to Gatwick, London’s second-busiest airport, and to the US this year as part of its strategy to serve more global markets.
  • The CEO of apologized for customer frustrations  over the last few months.  They have since introduced a new introduced a brand new Bombardier Q400 next generation aircraft to further enhance flight schedule integrity.
  • Etihad Airways Engineering has signed an agreement with Kenya Airways to perform mandatory checks on its six Boeing 787-8’s between February and October 2017.  Etihad Airways Engineering is the largest commercial aircraft maintenance, repair and overhaul (MRO) services provider in the Middle East.

 

I&M Bank Rwanda IPO Launched

Yesterday, I&M Bank Rwanda launched an IPO share sale that will result in the listing of the bank’s entire share capital at the Rwanda Stock Exchange. The Government of Rwanda will sell its entire 19.81% in the bank as part of its divestment from public enterprise policy, and through the sale of 90 million shares of the bank, they hope to raise 8.9 billion francs (~$10.8 million), which will go to the Rwanda government after deducting expenses.

Quick Notes

  • Minimum is 1,000 shares at RWF 90 per share, therefore the cost of investment is RWF 90,000 (~approx $109 or Kshs 11,350). Further purchases are in blocks of 100 shares.
  • Opens 14 February, closes 3 March 2017.
  • Allotment plan: 40% of the shares are reserved for international investors and 60% for domestic investors. The domestic pool is further broken down with 25% reserved for East African nationals, 5% for employees of the bank, 15% for Rwanda institutional investors (QII’s) and 15% for other East African QII’s.
  • The Plan is to list and trade the shares, in Kigali, as ‘IMR’ from 31 March 2017.

IN 2015, I&M Bank Rwanda (IMR) was the 3rd largest bank in Rwanda by assets (RWF 171 billion), behind Bank of Kigali (RWF 561 billion), and Cogebanque (RWF 178 billion). Other banks were KCB Rwanda (RWF 149 billion) and Equity Rwanda (RWF 93 billion). For 2016, IMR had assets of 206 billion francs in 2016, loans of 111 billion and deposits of 134 billion and a pretax profit of 8.4 billion francs. It’ has 17 branches, and plans to build a new headquarters ($25M) and install a new IT system ($4M). It’s business is in four mains sectors – construction, wholesale & retail, manufacturing, and agriculture.

I&M Bank Rwanda (formerly Banque Commerciale du Rwanda Limited – BCR) is the Rwanda subsidiary of I&M Holdings Limited. I&M Holdings listed on the Nairobi Securities exchange in June 2013. It is the oldest financial institution with over 50 years of existence and the first bank in Rwanda, having been incorporated in 1963Actis recapitalized the bank and became an 80% owner in 2004 and sold that 80% stake in 2012 to I&M (55%) and the governments of Germany and France who, through their development finance institutions of DEG and Proparco respectively, each retain 12.5%.

Odd points

  • IMR has entered three snap transaction with the National Bank of Rwanda regulator) in which I&M has given $8 million to the regulator in exchange for local currency. I&M will receive 2% interest and pay the NBR 8% interest in local currency.
  •  In Rwanda, bank directors sign conflict of interest statements?!

More details in the prospectus from Dyer & Blair Investment Bank, who, along with BARAKA Capital Limited Uganda, are Lead Transaction Advisors. BARAKA Capital Rwanda is the Lead Sponsoring Broker.

1 KES = 7.93 RWF and 1 USD = 823 RWF

Mombasa and Tax Collection

There was an interesting screen shot of the amount of customs tax collected by the Kenya Revenue Authority (KRA) on 16 December 2016.

It showed a total of Kshs 1.57 billion collected that day. Of that, Kshs 1.24 billion (79%) was recorded at Mombasa, and Kshs 139 million (9%) at Nairobi. Other top collection points were 6% at Nairobi’s  JKIA airport, 2% at Mombasa Airport and at Pepe Containers each, and 1% (Kshs 15 million) at Busia town.

Other centers listed include Eldoret and Wilson airports, and border towns of Moyale (Kshs 640,000), Isabanya, Namanga and Malaba which all recorded small collections. Other centres were Lamu with Kshs 21,000 and Kshs Kisumu 10,000. Mombasa had 1,887 transactions, JKIA had 1,205 transactions, Busia had 141, as Lamu had just 3 on that day.

In 2016, KRA collected Kshs 1.2 trillion of revenue for the government, which included Kshs 386 billion of customs tax – which works out to almost Kshs 1 billion per day. So Friday, December 16, was an exceptional collection day that came just before the Christmas break.

It’s worth noting that landlocked countries in East Africa are also able to pay tax and clear goods at Mombasa before transportation to the countries. This is done to prevent dumping of untaxed cargo during transit through Kenya.

KRA’s strategic corporate plan calls for clearing more cargo at Internal Container Depots (ICD’s) and this may have implications for Customs’ deployment of staff in the coast region. KRA’s 6th corporate plan also noted that the perception of corruption is highest at Customs service area at 66%.

Africa in 2017: Barclays Forecasts

Today Barclays Africa economists gave their forecasts on Africa and specifically Kenya for the year 2017 at an event that featured several roundtables sessions.

  • Populism: During 2016 the world changed in terms of two surprising votes in the US and the UK that reflected an inward focus. The votes in those countries were driven by populations who felt that their politicians were not pushing their agendas  on matters such as trade and immigration. Also while incomes of the rich & poor have been improving, those of the middle class have stayed stable or declined.
  • US President-elect Trump is expected to reduce the US corporate tax rate which  may woo companies to bring back some of the $2 trillion profits sitting outside the US.
  • barclays-africa-forumBanks are seen as making too much money and not playing their part in society – this has resulted in things like the interest rate cap law in Kenya.
  • Reaching  Entrepreneurs: There are 40-50 million emerging SME’s in Africa but only 1/5 of them have access to capital, and this is because banks ask for collateral
  • Banks operate in cash driven economies and many entrepreneurs don’t want to share information. Banks also have to collect a lot of documentation that bothers customers.
  • Barclays is committed to making sure there’s no systemic risk from their exit from Africa, and that its customers will continue to get good service in all the 10 markets
  • Barclays has a platform called Rise with centers in London, New York, Cape Town, Mumbai, Tel Aviv where they partner with companies on ideas to be implemented.
  • Africa: The continent  is now becoming a bit more fragile, and for the first time in a decade, Africa is going to grow at a slower pace than the global average 3.5% (but if you exclude  South Africa and Nigeria), the growth is still above average for most
  • African countries have been spending much more than their revenue and the years of deficits have eroded Africas strong starting point. Going forward, African countries will face higher financing cost and lower capital inflows.
  • Brexit Impact: 45% of FDI into Africa comes from Europe and  Kenya gets 23% from the UK.  But the pound has continued to weaken since the vote and this will result in reduced global demand for African exports, less tourism from UK/EU, and reduced remittances from African migrants
  • Kenya: The shilling currency has been weakening at a lower rate than its peers. This could make exports expensive and widens the current account deficit. It’s possible that the Kenya shilling  could depreciate to  110/$ over the next 12 months. This is mainly due to the expected dollar strength against all currencies. Kenya has strong exchange reserves and can tap an IMF precautionary fund to cushion shocks.
  • East Africa:  Trade lags the rest of the world. Since East African borders “opened up” around 2010, Kenya’s exports to the EAC have only increased by 8% compared to 50% to the rest of the world.

Nairobi debate on BREXIT

Yesterday there was a debate in Nairobi on the UK’s referendum on EU membership, on which there will be a vote in the UK (and Gibraltar) on June 23. Europe is the second largest destination for Kenya’s exports (after the rest of Africa) and the UK is second in Europe with about Kshs 40 billion of exports from Kenya, slightly behind Netherlands (a destination for flowers). Overall, the UK is the fourth largest destination of Kenya’s exports (after Uganda, Netherlands, the US), and it imports about the same amount from the UK (Kshs 42 billion).

The debate was sponsored by the St. Paul’s Property Trust and had  Aly Khan Satchu (as the moderator), Graham Shaw (Brexiter) arguing for Britain to exit) and Chris Foot (Remainer)  arguing for Britain to remain in the EU).

 Reasons  to BREXIT

  • If #BREXIT doesn’t happen now, Britain will beholden to unelected decision-makers in Brussels for the next 40 years. Other countries will soon have similar votes.
  • The (bureaucratic) EU has 5 laws on pillow cases, 109 on pillows, and 12,000 on milk.
  • Germany bailed out Greece, and the EU will soon have to bail it out again (Italy is also shaky)
  • EU laws limit Britain’s ability to get top talent (e.g from Kenya) as they have to give preference  to the EU states.
  • Under the EU, the production of a country is controlled (they may have to destroy fishing boats, and Portugal’s wine industry was destroyed by the EU).
  • Britain will have to renegotiate trade deals with 28 (and maybe 32) countries, but probably has no interest in trading with 10 of them.
Brexit debate in Nairobi

Brexit debate in Nairobi

Points against BREXIT

  • The great Winston Churchill wrote a book title “Europe Unite”.
  • 56% of Britain exports are to the EU, – don’t BREXIT.
  • The last time the UK thrived outside the EU, it had a protectionist market called the colonial empire. 
  • There has not been much discussion about the positives of being in the EU – only the negatives – and that is not enough reason to leave.

Audience

  • Impact on Barclays Premier League (BPL)? : Arsene Wenger (Arsenal manager) asked Britain to stay in the EU (which is a huge global export, but how many in Europe watch the BPL ?).
  • The world is moving towards integration  (e.g The East African Community).
  • The rise of nationalism in Europe is a concern.
  • Britain at 16%, is Europe’s biggest export market, ahead of the US (14%), and China (8%).

Also see this forum, with the (then) High Commissioner from Britain to Kenya in which he discussed the relationship between the two countries.