Category Archives: European Union

Mauritius and the EU Blacklist

This week, the East Africa Venture Capital Association (EAVCA) organized a talk about Mauritius that’s facing a European Union financial transactions blacklist.  

Some excerpts:

  • Mauritius has set itself up as a financial hub that attracts and deploys investments across Africa. It has become the place of choice to operate through and 90% of investments into East Africa are done through Mauritius (60% are from the EU). The significance of this is that one panelist said that the Mauritius ban was worse than COVID.
  • Mauritius has complied with 35 of the 40 clauses (including the big 6 important ones), and 53 of the 58 recommended actions on Anti-Money Laundering (AML). There’s high-level commitment to correct the remaining ones, led by the Prime Minister, and the nation has a timetable to address the outstanding issues in 2021. 
  • The blacklist prohibits European investments in new funds in Mauritius, with the ban also affecting all European Investment Bank (EIB), funding, investments, lending and operations. The ban is not retroactive, so they have agreed on a grandfather period, till 31 December 2021, during which funds can continue to operate and by which time they hope the country will be removed from the list. But from October 1 2020, European funds can’t make new invests in funds structured in Mauritius. They have two options – focus on funds not established in Mauritius or invest through parallel structures (institutions that are set-up to co-invest along with funds in Mauritius) 
  •  No African country will benefit from Mauritius troubles as there are few alternatives to that country. Malta and Ghana have also been listed – so likely bases are now Dubai, or within the EU (Netherlands, Ireland, Luxembourg, France) itself.  
  • Kenya and Mauritius have been working on a taxation treaty for 8 years. Kenya has signed 14 tax treaties (including with Canada, France, Germany, India, Norway, UK, Zambia and South Africa), most before 1987, but none had raised as much attention as the proposed Mauritius DTA, as it is which is a low-tax country. Uganda and Rwanda already have Mauritius DTA’s. Kenya’s Parliament opened public participation on a new Kenya-Mauritius treaty for the avoidance of double-taxation in terms of cross-border transactions (property, profits, royalties, dividends, technical fees etc.) and the deadline for comments is October 5 202. But the treaty does not apply to most Kenyan investment firms as a 2014 KRA law change requires 50% of ownership to be in another state to qualify.  

KPMG on Geopolitical Risks and Opportunities

KPMG’s Audit Committee Institute series organized a breakfast session in Nairobi today that assessed the risks posed by global events & trends and the potential opportunities that could emerge. The session took place at a time when countries and industries around the world are gripped by concerns and efforts to contain the spread and impact of the Coronavirus.

Sophie Heading, KPMG Global’s Head of Geopolitics, who is on a tour to speak in different capitals around East Africa mentioned that geopolitics now affects the developed world as much as it does for developing countries. She said that US domestic governance is the number one political risk across the world, and that while there has been a shift in leadership away from the US & Europe (G-7 nation) towards China, currently we are in a G-Zero world in which there is no clear leader.

She referenced three distinct areas of technology, trade and trust in which geopolitics could be traced along, and the opportunities they presented for different African countries.

Excerpts

  • Technology: Advances bring geopolitical power and this is likely to spread to other markets – as seen in the battle between the US and China over spectrum (5G), data, and platforms. China is looking to reshape the Sub-Saharan Africa technological space while the US wants to protect its security interests and intellectual property.
  • Trade: The US and China have decided to decouple and go separate ways and other countries will have to choose who to align with. Both are seeking new alliances, investors, partners, suppliers, staff etc. but this is also at a time that other key markets are increasing their regulations in terms of capital, policies, taxes and data, etc. Foreign aid used to be a tool that Western states used to influence economic events in Africa, but with the Chinese model of financing infrastructure being so successful, she expected that there will be a drop in aid from the West as it is no longer seen as being effective.
  • Trust: There is social discontent across the world as young populations feel that government systems are not meeting their needs. This is different in developed nations versus it is in developing ones. But because of their debt levels, most nations now have less policy flexibility to address their internal issues. Also with global growth having slowed down to about 3%, and which may reduce further to as low as 1.5% with the Coronavirus outbreak, any such interventions may widen the social wealth divides within countries.

She said that there is more need to pay more attention to environmental, social, and governance (ESG) issues. This is something that Europe, and the private sector, have championed, but which other governments have not, while the US, China and India have all stepped back on the environmental front.

She cautioned that Nairobi, which is the second-biggest hub in the region for impact investing, but without the Kenya government signalling its interest in championing of ESG issues, may lose out on future investment and client opportunities.

Toxic Business: Banned in the European Union, poisoning Kenya

Agriculture is one of Kenya’s key income earners contributing 24% of GDP and employing 75% of the population either directly or indirectly. As a result, the demand for pesticides is high and increasing with the need to increase agricultural production to keep up with population increase. Imported chemical pesticides in the market account for 87% and has more than doubled in four years from 6,400 tonnes to 15,600 tonnes in 2018, yet there are few safeguards to control application.

Every year fresh produce from Kenya is rejected by the European market when it is found to have harmful levels of chemical residue. When returned it finds its way to local fresh produce markets and consumed by unsuspecting Kenyans. The result is a huge healthcare burden on households as more people, especially children, fall ill.

A report by Kenya Plant Health Inspectorate Service (KEPHIS) showed that 46% of the fresh vegetables sold in Kenyan fresh produce markets have high levels of pesticides with harmful active ingredients, with Kale (94%) having the highest level of pesticides and herbicides that are harmful to human and animal health.

A small-scale farmer Joseph, who has adequate training in the handling of pesticides, prepares to spray his crops by mixing the chemical with water in a backpack sprayer pump, using his bare hands and no protective mask or clothing, he gives the pump a firm shake to mix the ingredients in it and then proceeds to splash water on the exterior of the sprayer pack to rinse off the chemical overspill with his hands. The small quarter acre, gently-sloping vegetable garden surrounds his family’s house, which further exposes his family to harmful chemicals. He is not aware of the danger of handling these pesticides, only focusing on their efficacy in pest control.

At the local roadside Market, Daniel Maingi of Kenya Food Rights Alliance purchases green capsicum and spinach to take for testing at the University of Nairobi’s Pharmacology & Toxicology Laboratory at the Department of Public Health, where Professor Mbaria confirms harmful levels of chemicals containing toxic active ingredients on the sample vegetables.

The “Pesticides In Kenya: Why our health, environment and food security is at stake” report by Route To Food Initiative (RTFI), makes a distinction between the toxicity of the active ingredient and the toxicity of the chemical product. In the European market, the manufacturer of a chemical product first registers the active ingredient, which is then tested and must be identified by name on the product label.

Of the “247 active ingredients registered in Kenya, 150 are approved in Europe, 11 are not listed in the European Database and 78 have been withdrawn from the European market or are heavily restricted in use due to potential chronic health effects, environmental persistence, and high toxicity to wildlife.”

In a case of double morality standards, these chemicals are available to Kenyan farmers threatening the health of both citizens and the environment by contaminating the soil and water. Most of these pesticides take years to degrade and therefore persist in the environment for many years and many are acutely toxic causing severe long-term toxic effects, disrupting the human endocrine system, harming wildlife and other non-target organisms that are crucial to the ecology.

The Pesticide Control Products Board (PCPB) set up by the Government of Kenya under the Pest Control Products Act of 1982 regulates the importation, manufacture, distribution and exportation of pest control products. PCPB has registered 247 active ingredients in 699 horticultural chemical products, with more products registered than active ingredients as one active ingredient can be by several companies. Of these, a quarter are banned in Europe and they include big brand names such as Syngenta, Bayer and BASF.

In Kenya, chemical companies host robust carnival-like events where smallholder farmers are bussed in from across the country and paid a stipend to attend. Throughout the festival, no mention is made to farmers about safe handling or protective clothing when mixing the chemicals for application on the crops. The farmers appear to completely trust the chemical companies to have their best interests at heart and do not ask any questions. At these marketing events, several chemicals are presented as solving multiple problems and are touted as the best in the market.

Glyphosate-based agrichemicals have received an enormous pushback globally for its carcinogenic properties. However, there are other harmful ingredients that should attract much more attention in use in Kenya, but banned in the European Union. Carcinogenic active ingredients include Chlorothalonil, Clodinafop, Oxyfluorfen and Pymetrozine. Mutagenic active ingredients include Cabendazim, Dichlorrvos and Trichlorfon. Endocrine disruptor pesticide active ingredients include Acephate, Carbofuran, Deltamethrin, Omethoate and Thiacloprid. Active ingredients that hamper development and are harmful to reproductive health include Abamectin, Carbendazim, Carbofuran, Gamma-cyhalothrin, Oxydemeton-methyla and Thiacloprid. Neurotoxic active ingredients include Abamectin, Acephate, Dichlorvos, Glufosinate-ammonium, Omethoate, Permethrin and Thiacloprid.

Before the advent of chemical herbicides, farmers would weed their farms by hand and using hand hoes, this has been increasingly replaced by pesticides even for the smallholder farms under five acres. Mono-cropping or monoculture where one crop is planted year in year out, depleting the soil of nutrients and necessitating the increased use of fertilizers to improve yields with each subsequent year, also encourages the spread of crop pests which require chemicals to treat. Another area that receives little focus is post-harvest storage pesticides. If fertilizers are subsidized, why not include hermetic storage technology (HST) storage bags that provide moisture and insect controls, without pesticides, in this policy?

If we continue to consume chemicals, consciously or subconsciously through the food we eat, the water we drink and the air we breathe, then the next generation we produce will be of a lesser quality than ourselves, as will subsequent generations.

A guest post by Velma Kiome 

Guide to Baku, Azerbaijan

Getting There: Qatar Air was the best, and the only real option picked by our travel agent. We booked tickets early and they cost about $1,000 for a round trip. The flights are Nairobi-Doha and Doha-Baku and total time and the total journey time was about eight hours. Our layover in Doha was short and we had to sprint through the airport to get our connecting flight. Fortunately, we had received boarding passes for the Baku-leg in Nairobi, but in the rush, we lost some documents.

In the weeks prior to departure, there was some confusion about how to obtain a visa to enter Azerbaijan. The country has an e-visa page, but the pull-down menu of country choices does not list Kenya. Some other travellers going for the race chose South Africa as the nearest country to complete the e-visa application but we chose to wing it.

The Formula One race is a big business deal in Baku, and there was a Presidential directive on the internet that the Government of Azerbaijan would offer visas on arrival for F1 fans coming to attend the race. We had arrived early for check-in for our flight in Nairobi which was a good thing as we had to haggle with the Qatar Air staff and make some calls as they checked a book register of passengers. Eventually, they allowed us to proceed and board. There was no issue in Doha, other than the sprint across to catch the connecting flight.

On arrival at Heydar Aliyev International Airport (GYD) in Baku, there was a special desk section for F1 fans with special ushers around, dressed in F1 garb, ready to assist. You showed your ticket, paid a $26 fee and were issued with a 30-day single-entry visa. Note: We had bought our tickets through the official F1.com site and they arrived two weeks before the race, delivered from the UK by DHL to Nairobi.  

For other fans who already had applied for and got e-visas online, they could walk up to airport machines and get served.

After getting an e-visa, you then proceed to the immigration area.  There, they ask a few questions about the purpose of your trip and you also have to provide an email and phone number (we gave Kenyan ones).

if you intend to stay for more days in the country, you have to register online within 10 days of arrival and even the hotel you are staying at can process this

Getting Around: Baku is a small city and we walked end-to-end across it on different days. There was no need for taxis as it’s a very walkable city with lots of sights. We took a taxi from the airport that cost 50 Manat for a distance of about 40 kilometers using an unofficial cab (the official airport ones charge 70 Manat) and that was the only ride we hailed. All cabs are old Mercedes cars. As you walk around, note that weather changes were quite abrupt from sunny to cloudy. days were ok, but the nights were chilly.

Where to Stay: We had made a reservation at the Viva Boutique using Booking.com which we had made a while back and the rate was about $120 (200 Manat). They cost much more if you have booked late. Hotels tend to block off and charge higher fees for Grand Prix weekends. This room which would now be about  400 Manat on race day while other hotels would charge about 800 Manat. 

The hotel is not far from the track and we walked to different events of the race weekend.

We had arrived a few days before the race and had made an Airbnb reservation for the first few days. The homeowner had offered to pick us from the airport, and we had even negotiated an amount for this. But after clearing immigration, the Airbnb host was not answering his phone and we got worried. So we went to the hotel and negotiated for extra nights.

What to Eat: Restaurants are many, from local ones to others serving common international cuisines such as London Pub, McDonald’s and Starbucks.  Local restaurants had many dishes which we did not try. They have chicken served in many different styles and we ate a lot of chips and bacon.

Staying in Touch: It’s usually advisable, when visiting a new country, to get a local phone SIM card, in order to avoid roaming rates that are very expensive. We got Azercell lines from a booth at the airport that cost about $20, and which came with lots of minutes, SMS and 10GB data bundle that lasted the whole trip. This enabled lots of phone chats, browsing, and sharing of images and videos from the Baku trip with friends. However, like in a few other countries, you can’t make phone calls on WhatsApp – a VPN is advisable for that.

Shopping & Sight-Seeing: The local currency is called the Manat. It’s quite strong $1 = 1.70 Manat (so a Manat is ~$0.6 or ~EUR 0.5). Credit cards work well here for most purchases, but it is always a good idea to call your bank before you travel to any country.

Sights to see on the streets of Baku are the full-grown trees, especially in the old city section. The buildings also have interesting architectural designs, walling and engineering of tiles on newer buildings.

Baku is a small town. Malls are modest in size. There are kiosks that are rather expensive, compared to the supermarkets.  By Monday, after the race, malls were quite empty.

One popular tourism attraction is Yanar Dağ, (“burning mountain”), a natural gas fire which blazes continuously on a hillside on the Absheron Peninsula on the Caspian Sea near Baku. Tourist charges to visit are 2 Manat each.

Race Day:  The race is at 4:10 PM, which is late compared to other F1 races, and Baku is an hour ahead of Nairobi. 

We had great seats across the pit lane that cost about $500 and it was a fun vantage point. The race itself was kind of anti-climatic given the dominance of the Mercedes team who recorded their fourth consecutive 1-2 finish in 2019, and pre-race favourites Ferrari again seemed lost. The stage was set on Friday, during practice, when one of the cars from team Williams ran over a manhole cover which had come loose. This cause extensive damage to the car and the session had to be stopped. Other teams, including Ferrari, had their practice time limited as a result and this may have contributed to their Sunday pace.

During the weekend, we did the pit-walk to view cars up close in the garages. Many F1 races now put on huge musical concerts to entertain fans from across the world who have come to attend, and this year Baku had American rap star Cardi B performing on Sunday night, after the race.

Odd Points: You can exchange foreign currency with no questions asked and no need to show any identification (ID) in Baku.

A guest post by @asemutwa who travelled to watch the Formula 1 Socar Azerbaijan Grand Prix 2019 race in Baku.

Also see this other race trip report.- Guide to Abu Dhabi.

Banking News

ADB: The New head of the African Development bank ADB will be elected on 22. This was after USA and France combined to scuttle Nigeria’s bid for the presidency – according to the Business Day (SA) newspaper. Donors threw their weight behind the Rwandan candidate, Donald Kaberuka. Kaberuka met the criteria on total votes polled but did not meet the regional vote percentage required, while Bisi Ogunjobi, the Nigerian candidate, likewise met the criteria on regional votes but missed that of the total votes polled. According to the East African (Kenya), most countries are determined that the president should not be from a French-speaking country.

KCB: Kenya Commercial Bank will begin offering Western Union services at all branches soon.

EIB: The European Investment Bank (EIB) has opened the first of three first regional office in Sub-Saharan Africa in Nairobi – to cover Central And East Africa.

NBK: National Bank of Kenya is carrying out a retrenchment package that will cost over 80 million shillings ($1m). It is being done in three phases: employees who are over 50 years, followed by non-performing staff. After that, it will be voluntary retirement for anyone wishing to leave the Bank.

Executive Changes: 

  • NIC Bank has a new Managing Director James Macharia.
  • Robert Barry, the CFC Group MD has resigned for personal reasons.
  • Mr Albert Ruturi, the Chief operating officer at KCB is retiring. The Bank, which is searching for a deputy CEO, has placed an advertisement in the Economist magazine, leading to the possibility that a non-Kenyan will be picked.