Category Archives: Kenya budget

Kenya 2018 Budget Policy and the Big Four

Kenya’s National Treasury has published the 2018 budget policy statement  (BPS) – titled “The Big Four” – creating jobs, transforming lives.

It has lots of mentions of the “Big Four” agenda which President Uhuru Kenyatta unveiled in his Jamhuri Day speech (December 12, 2017) which are targets of what his government will aim to achieve in its second term. According to the BPS, the “Big Four” Plan (items are) increasing the share of manufacturing sector to GDP; ensuring all citizens enjoy food security and improved nutrition by 2022; expanding universal health coverage; and delivering at least five hundred thousand (500,000) affordable housing units.

BPS excerpts; 

  • The BPS assumes that GDP will be between 6% to 7% over the next five years, and nominal GDP will rise from Kshs 6.7 trillion ($66 billion) in 2016  to Kshs 14.3 trillion ($139 billion) in 2022.
  • The BPS assumptions are premised on improved collections and efficiencies at Kenya’s 47 developed counties to collect revenues, and for them to have and adhere to realistic budgets. Also, that there be reductions in duplication of roles, resulting in simpler government structure. Counties wages as a percent of their revenue has been 37-38% for the last three years.
  • The BPS cites a goal to double income tax from Kshs 625 billion in 2016-17 to Kshs 1.26 trillion in 2021-22 and mentions that a review of Kenya’s income tax code will be completed by June 2018 to enhance tax compliance and ensure the stability of tax revenue. 
  • The BPS notes that interest payments over the same period will rise from Kshs 271 billion to Kshs 491 billion and wages from Kshs 336 billion to Kshs 563 billion. Elsewhere it projects that wages which were 30% of gross national resource in 2016/17 will progressively reduce in subsequent years down to 23.4% in 2021/22.
  • The BPS cites public-private partnership projects that will be undertaken during the 2018-2020 period such as a second Nyali bridge, Lamu coal plant, Lamu port (3 berths),  Lamu-Garissa-Isiolo highway, airport rehabilitation car parks, conference centers, affordable housing projects, and even a Likoni crossing aerial cable car.
  • There are also 22 energy projects – a mix of geothermal, solar, wind, from which the government commits to purchase energy. These include Lamu coal ($360 million per year) and the Lake Turkana wind (€ 110 million per year).

Some risks noted in the BPS include, counties failing to collect & remit revenue, and the Kenya Deposit Insurance Corporation only covers 9.2% of bank assets (the figure should be closer to international goal of 20% to protect against systemic bank risks). Others are terrorist attacks, natural disasters, climate change, disruptions to mobile money systems, unfunded pension liabilities, and most important the sustainability of public debt.

EuroBond & Mindspeak with Henry Rotich

Last weekend, the Mindspeak series had National Treasury Cabinet Secretary Henry Rotich

Treasury Cabinet Secretary . There was a lot of expectation that he was there to talk about Eurobond but that wasn’t the case and it was merely one subject he touched on his talks about his role and functions in the government, and economic outlook for Kenya.

In his intro, host Aly-Khan Satchu said that the Kenya Eurobond which was the perfectly timed and a stunning issue at 6.875%, the largest SSA bond perfectly times. It has helped the shilling  – stunning issue outperform many currencies – only losing 11% against the dollar, compared to the Rand (-39%) , Angola (-50%) and Kwacha (-73). KCB CEO Joshua Oigara noted that people outside Kenya are more confident than people within, and people who are doing great things, should know that a certain percent will not agree with you.

CS Rotich at Mindspeak

Excerpts of the CS presentation, remarks, and Q&A session 

  • Kenya Outlook China slowdown to focus on domestic and US exit from international market will have an impact on the world, but Kenya with a diversified economy and strong private sector should be resilient
  • Challenges include to reduce poverty, and inequality, and also create employment. The economy needs to grow faster than 5-6% and not getting enough innate employment. 1 million a year. 6% will only create 600,000 jobs. so need 10% growth to create jobs 1 million per year. 
  • Agriculture has not been modernized for a long time. these services sector (ICT, financial). manufacturing has been flat for two decades (10% of GDP) – and this needs to be 20%. That’s  why they are support leather & textile, and working to lower energy costs and , improve the business environment through special economic zones.

The Job 

  • He is guided in his job by three measures of economic health – interest rates, exchange rates and inflation (stable, single digits).
  • The ministry has undertaken fiscal reforms, and the budget is more policy-based.They pay suppliers with Gpay and IFMIS, new procurement laws are in place, the auditor general reviews expenditure, and there are quarterly reports on the website and which are submitted to parliament.


  • Kenya still has low and sustainable external debt levels. It did not get HIPC debt relief, unlike other countries and has paid debts on time – this was a big selling point when marketing the Eurobond.
  • The current account deficit gone from 10% to 7% of GDP mainly because of lower oil prices, and less thermal energy generation and slowdown of consumer imports  (good, as the focus should be  on investments not consumption)
  • You cannot be a growing economy if you can’t borrow from outside – you need to safeguards.  The bond was oversubscribed and when it traded favorably, they also did a tap sale that picked another $750m. Aly-Khan said the government actually got $815 million and only has to pay back $750 million.
  • Explanations and documentation about the bonds are on the treasury website.
  • Euro bond proceeds received have been spent on 2013-15 budget programs like infrastructure projects. The bond was not specific, and not earmarked to any project. it was for budgetary support of programs, some initiated by the previous government, such as roads and electrification
  • We will remain as participants in the international market and soon intend to borrow more


  • Need to raise Kenyan savings from 12% to at least 30% of GDP – perhaps through more innovative finance products (from insurers  & capital markets) to save.
  • M-akiba bond launch has been delayed. It was meant to come out last October, but interest rates were still high and volatile.
  • They have also sorted issues with Safaricom and CDSC  – all that’s left is to set the price and launch.
  • Kenyans will be able to buy government bonds of amounts of Kshs 3,000 (~$29) by phone.


  • Wants to raise tax to GDP ratio to 25%, but people say there are too many taxes already
  • Wants to keep government wages below 35% of revenue.
  • New VAT and excise bills have come, but we are yet to modernise income tax. That should happen by the next budget with a view to expanding tax base (very few people pay tax now).
  • They will also support county governments to implement and collect taxes assigned to them like property tax.

Local Banks

  • Wants to reduce bank interest rate spreads from 17% to 8% – we’ve been asking banks what is this 8%? Can they share infrastructure, reduce the cost of perfection securities etc.
  • There are too many banks that are not offering competition;  5 banks control 70-80% – the other 30 are competing for 30% market share. Parliament stalled a move to increase bank capital, but his aim is for 15-20 banks which actually compete.

 Oil & Petrol

  • It’s good that Kenya did not discover oil early – and was thus able to diversify and develop agriculture, and services, and its only now that oil & minerals are being discovered.
  • The petrol pump price would be lower if exchange rate was 88-90. Now the rate at 102 has eaten a lot of  savings.
  • When oil prices fall, we should  actually keep the petrol price the same and transfer the savings to a fund


  • There has been no government privatization since Safaricom — the current law is a hindrance rather than  facilitator as there are too many lengthy requirements and safeguards. We may have to amend the law if you wants to see more privatization transactions, and need to trust the government by not requiring too many consultations.
  • There’s a pipeline of projects to sell,  starting with sugar companies, then a few banks (government owns 4 banks), hotels stakes etc.

Budget 2014/15

Excerpts by @JGMBugua of today’s budget speech that was read in the Kenya Parliament, by the National Treasury Cabinet Secretary, Henry Rotich. 

  • Grumbles still rumbling through Parliament as members realize they have been snookered and the Waiguru motion is dead
  • Kenya Revenue Authority (KRA tax collection) target set at Kshs 1.1 trillion for the coming year i.e. ~$12.5 billion
  • Financial Services Authority to be established… We should be aware the FSA in the UK had to be split and some of its oversight functions returned to the Bank of England after systemic failures during the global financial crisis. The more apparent implication of establishing the Financial Services Authority is that it would likely see the collapse and merging of…the Capital Markets Authority, the Insurance Regulatory Authority, SASRA (for Saccos), the Retirement Benefits Authority and so on..
  • Three new airports to be built in Mandera, Malindi and Suneka (?)
  • Duty rates on import of iron and steel products increased from 0% – 25% – apparently to protect local industries
  • KRA ordered to stop demanding custom bond from importers of refined industrial sugar and wheat…Those barons lobbied hard
  • Import of inputs for seed processing exempted from duty.
  • Govt moves to block multinationals from evading tax through transfer pricing where the local subsidiary buys from its mother company at exaggerated prices hence reporting little or no profits. “To keep the relationship at an arms length…” Rotich
  • Stock market brokers win big as government and the Investor Compensation Fund forced to retreat and accept only 5% shareholding each in the demutualized stock exchange..Brokers to share 90%.

Analyzing Kenya Pipeline

Pre-IPO Peek at KPC

Kenya Pipeline Company (KPC) is expected to be the next big privatization project to help plug the current Government of Kenya budget deficit. The IPO transaction adviser selection process is already underway for KPC and other state corporations

How much can one glean from audited accounts of the giant company? I got hold of a 2007 annual reports of the company – a rare big glossy booklet that mentions every project e.g. SAP, ISO, fibre optics, refurbishments in Western Kenya, Mombasa, Athi River, with lots of graph

KPC still mostly compares itself to other state corporations in terms of goals such as to raise capacity from 440,000 to 880,000 lire per hour by August 2008 – a massive project that later turned controversial and may have cost the last MD (Okungu) his job in January 2009.

– 2007 revenue of 8.8 billion shillings (~$117 million) (2007 was 8.45 billion and 2003 was 6.5 billion). 2007 Revenue comes from export services (4.3b) , local services (3.7b), and 748 million from kipevu storage fees
– Pre-tax profit of Kshs. 4.3 billion in 2007 (~$53 million)
– Earnings per share was 163 shillings [153 in 2006, 2003 was 29 shillings) – company’s shareholding is made up of 18 million ordinary shares of 20/= par each.
– Dividend paid out of 8.25 per share each year 2007 and 2006
– Cash of 4.5 billion (1.1 billion in 2003) of which 2.5 billion is in treasury securities (which they only started investments in 2005)
– Paid 2.2 billion in direct and indirect taxes and was recognized by Kenya Revenue Authority as a distinguished tax payer
– Total assets of 20.2 billion shillings (18.7 billion in 2006) –however fuel stocks of 13 billion shillings (384,509 cubic metres) that is owned by marketers is not include in their accounts. [2006 was 36 billion comprising 856,958 cubic metres]
2008 decline: summarized KPC financial accounts show revenue declined by 7% to Kshs. 8.2 billion and pre tax profit 54% down to Kshs. 2.6 billion in 2008

Auditors: Accounts audited by controller and auditor general, who hired Deloitte & Touche; who said the accounts were ok except to note that that 1.2 billion receivables (current assets) includes 348 million owed from an unnamed oil company that is the subject for a court case and for which no provisions have been made

Scandals: has been a cash cow for politicians for years with a high turnover of managing directors, manager and directors. Different parts of the report mention Kshs. 967 million pending in lawsuits, 404 million leasehold land unable to develop since it is gazetted forest land, 347 million from Oil Company, 314 million of obsolete spares, and Kshs. 221 million for a finance deal with Triple A that cost the previous MD (Ochuodho) his job. The company also provided Kshs. 382 million of services to National Oil Corp of Kenya (related company as they are both owned by the Government– do they pay all oil marketing fees?

Bank with NBK, CBA, Stanchart, Co-op. In 2007, they paid off all bank loans (EIB, Stanchart, and CBA) amounting to Kshs. 500 million in 2007, but are still stuck with the 221 million Triple A loan.
– KPC recently signed a syndicated loan of Kshs 8.2 billion with CFC-Stanbic, Barclays, CBA, Citibank, and KCB.

– Exports 58% to Uganda, 155 Rwanda, DRC 14% Tanzania 6% Sudan 4% Burundi 3%
– strong shillings bad for export sales
-pricing structure – more expensive at Eldoret and Kisumu means that the company loses revenue if other countries e.g. Rwanda, Uganda remove their oil at Nakuru or Nairobi depots
– 50% of their revenue comes from fuel exports, and With oil being found in Uganda, Sudan, and possibly Congo, is the pipeline capable and adequate to transfer oil from central Africa to the coast at Mombasa?

Others & Non core activities
– will Construct an LPG plant with private sector investors (including Kenya pipeline refineries limited, and now-collapsed Triton) in Mombasa at a cost $50 million and one in Athi River at a cost of $13.5 million by Bharat of India
– Other income includes Kshs. 8 million in helicopter income, and also disposed of 120 million worth of helicopters in the year 2007
– 50 million donated to ministry of youth affairs
– 6 acres worth of land worth 30 million in Nairobi was donated for a street children rehabilitation center
– Spent 114 million in advertising (by a monopoly) and 35 million shillings in legal expenses
– Has shares in petroleum institute of east African and consolidated bank
– Successfully changed their pension from a defined benefit to a defined contribution scheme

– Slight financial dip in 2008 will probably be attributed to the post election disruptions
– Capital spending could be significant as they are extending the pipeline to Uganda (Eldoret to Kampala). Also the company already spends quite a bit in pipeline rehabilitation costs, and won’t a complete new pipeline (though more expensive) be a better solution?
– Needs a stronger management team led by a strong MD – like Kengen’s Eddy Njoroge (someone with a legacy to protect who will shun the wheeler dealers) and a stronger board (not just the Energy ministers’ cronies)
– Could be a good IPO buy i.e. a cash cow pre-tax profit margins of almost 50%

Other Opportunities
– Bank of Africa: branch managers, assistant branch managers, operations assistants’ by 5/2
– Consolidated bank credit manager, administration manager, apply to the Head of HR 51133-00200 by 31/1
– Housing Finance senior relationship manager (mortgage finance), portfolio manager, legal officer,
Dyer & Blair sales agents, and for several hundred other weekly jobs visit Kenyan jobs blog

2008 Budget A to Z

Compared to the lofty 2007 Kenya budget, this one came at a serious time when the country had almost reversed gains made over the last five years, according to the Minister.

Challenges: regional disparities, poverty, youth employment low agriculture productivity, transport during crisis raised food prices, and containing inflation

Targets: 10% economic growth by 2012, Kenya to be a Middle income country by 2030, Social income reforms, develop a democratic issue-based political system and a higher quality of life

some excerpts

Airlines: For Kenya airways: zero rate on international air travel no VAT on tickets?

– increase share capital from 250 million and 300m to 1 billion over 2 years(parliament rejected this last year) and can’t pay dividends till adequate provisions are made.
– 5 development finance institutions to be restructured, as will Postbank and the agriculture finance corporation. National bank will be privatized (further)
– CBK can penalize forex bureaus for violations
– Fate of unclaimed deposits to be decided by a task force to be formed

BRIC China and India will keep food and oil high, but there are regional Africa opportunities

Capital markets
– NSE reporting: companies like Safaricom and kengen can publish their notices and accounts in two daily newspapers as opposed to mailing each shareholder a copy
– Insurance companies can invest 10% in any listed company – up from the previous 5% ceiling
– Annuities to publish quarterly returns
– Asset backed securities rules will be gazetted to encourage particplants
– Share capital of stockbrokers and i-banks raised to 50 million and 250 million respectively as anyone owing more than 25% barred from running the companies (3 years to comply). They must also get indemnity insurance for failure of employees
– CMA to get more power to seize assets

CDF: CDF benefits not tricked down due to poor management and there will be more accountability to reduce duplication. does that mean less funds for CDF now?

– 1.56 billion towards teacher employment
– Teachers kids’ education now not a taxable benefit for employers and teachers

– NOCK (parastatal) expanded to stabilize petrol prices
– clean energy: 4 billion for geothermal, 300 million solar electricity generated to supply 74 public institutions, 200m for wind power generation
– 6.8 billion for rural electrification (to develop mini grids) which will reduce rural urban migration.

Food prices
Minister says food price beyond the control of government
– Maize imports duty free
– talks to set up a regional fertilizer factory with Uganda and Tanzania
– 744 million for agric extension programs
– zero duty on bread and rice
– duty reduced from 35 to 10% for one year on wheat imports
– no duty on insulated tankers for milk transport

– more nurses to be hired
– 550 million to support guardians of HIV orphans and this will benefit 30,000 households – up from the current 2,500

– Housing bill, landlord & tenant bill coming
– 350 million to construct 200,000 low cost housing units using appropriate building technology
– 500 million for infrastructure in slums
– National housing corp: relief for buyers of their houses – up to 150,000 p.a.

– 900 million shillings to develop a business process outsourcing park in Nairobi (BPO) which may create 10,000 jobs
– 700 million towards completion of Under sea cable improve bandwidth quality, reduce costs of communications.
– Remove import duty on telecommunication equipment as well as on printers

– No stamp duty transfer for land transfer by individuals to companies wholly owned by families

– communication commission of Kenya will reduce the number of licenses offered from 300 to 16 from July 2008, Ministry of tourism reduces from 25 to 2, Mines & geology 24 to 8, Betting control 26 to 9, Forestry from 15 to 11
– Business regulatory reform commission to be created

– Remove import duty on hot rolled steel (was 10%)
– New 10% tax sodium sulphate, epoxy resin) to protect local producers
– Reduce import duty on cement form 40% to 25%
– Tax on plastics: manufacturer’s can apply to get refunds of this tax get in line

Northern Kenya
– 2.9 billion shillings to the arid and semi arid areas rehabilitation through various ministries: this will include water, abattoirs, school feeding programs, rural electrification, livestock support
– also 900 million for the garissa garsen hola road (done by NYS) and for 200m improve marsabit and maralal water supplies

– the Minister was interrupted for not sharing budget information for MP’s in good time
-The Minister later asked members of parliament and constitution office holders to pay their share of income taxes

– Mombasa port will be expanded with 20 billion of Japanese funds to allow bigger ships
– Free port at Mombasa to be set up (like Dubai) which should create jobs for the youth

Privatizations more coming to fix budget shortfall

Railway: Government wants Rift Valley Railways to increase capacity, lay more tracks, and transfer cargo.

Retirees: No tax on all pensions for those over 65 years

– 65 billion shillings to be spent
– Build Athi river-namanga, mau summit – kericho, Nairobi to Thika
– Register all road contractors, engineers, quantity surveyors
– Long term infrastructure bond

– More funds for police force salaries, and equipment to fight crime
– Organized crimes bill to control gangs and militia and an anti money laundering bill coming to parliament
– 2.8 billion for new housing for police and prisons staff

Shilling central bank will not be intervening to adjust exchange rates

Sin taxes: beer and alcohol to cost more

Sports & arts
– Artist and sportsmen; any tax paid abroad can be used to offset against tax in Kenya if they show evidence of payment
– National football competition in every constituency (1 million shillings per constituency for purchase of kit and balls)

Tourism: budget 26% up
– 600 million to KTB to promote Kenya
– Exempt import duty gym equipment for hotel industry

Youth employment
– Absorb NYS graduates into armed forces
– Youth enterprise fund gets another 500 million
– 465 million for free tuition in vocational colleges from January 2009
– The 900 million shilling garissa hola road will be built by NYS who will also get contracts to fix dams across country – and who will also employ local youth

Water & environment
– 26% water budget improvement
– 1 billion towards multipurpose dams (built by NYS)
– 2nd mzima springs project to supply Mombasa with water.
– program to clean up Nairobi river
– Remove import duty on garbage collection trucks

– motorbikes: Zero VAT to motorcycles less than 250cc
– Vehicles to be registered as soon as they arrive in the country to prevent diversion of transit vehicles to local market