Category Archives: Kenya economic growth

Rail Check: SGR First Class

A review of the Madaraka Express SGR service between Nairobi and Mombasa, Kenya using the Business Traveller format of train reviews.

Background: Kenya launched the Madaraka Express, a new passenger service train service when the Standard Gauge Railways in May 2017 that replaced the ‘old’ Kenya Railways train service between Nairobi and Mombasa and which was discontinued just a few weeks before the launch. China Road and Bridge Corporation built the new standard gauge railways (SGR) and Africa Star Railway Operation runs the train service for Kenya Railways.

Booking: You buy all tickets online, and you have to choose – first (costs Kshs 3,000) or economy (Kshs 1,000). There is no seat selection or seat map. You then pay via M-Pesa and get an SMS with the seat selection and ticket number. The ticket price is a flat rate, with no difference in prices for weekends, or midweek. The booking site also shows the number of available seats and you can book for several people, but there are some rules about large group bookings. 

Getting There: Nairobi’s SGR station is located about 8 kilometres from the Jomo Kenyatta International Airport and 15 kilometres from downtown Nairobi while the one at Miritini station that serves Mombasa is a corresponding distance from the airport there and centre of the island. You can get to either station by using a taxi service like Uber or Little Cabs.

Even though you are going to hot Mombasa, dress warmly for the SGR ride. Don’t get on board in T-shirt and beach shorts as the train is kept at a cool air-conditioned temperature for the duration of the ride and the windows don’t open.

At the SGR station, you go through a few security checks – sniffer dog, bag x-ray etc. There are different rules that are not clear and some people are allowed to bring food onboard, but other items like visible alcohol bottles and cigarette lighters are confiscated from passengers.

You then go and print your ticket stub from a vending machine, which you have to show to enter the station. You enter the number that was sent to your phone via SMS and you can, for good measure, also print one for the return leg.

Boarding: At Nairobi, there is a lounge for first-class passengers that is separated by a screen from the economy ones. First class passengers board first from their lounge, and parents with children are given boarding priority. You walk across a bridge from the lounge and down to the train.  There are escalators at both Nairobi and Mombasa stations and some lifts, but they can get crowded.

You find, your coach and there’s another ticket check at door. The train has about eleven economy coaches, and two first-class ones, according to the announcer, with numbers one and two at the back, next to the dining car.

Seat: Once on board, you have to sometime be firm on the seat you paid for as some people arrive and want to sit on a different seat in the first-class cabin that is in a 2-2 layout. Window seats have a socket and you want to sit next one where you can plug your gadgets in to charge. I got the impression some people buy two seats so they can stretch out in the extra space and nap without being bothered by a seat companion who may be a noisy, messy eater.

There is enough space in the overhead bins, and large suitcases are placed at the end of the carriage near, or under, the sink. It would be nice if there were some proper luggage racks, but there is ample space.

The tray table, which pulls out from the seat in front, is wide enough to rest a laptop computer on. But it has no slots for cups, so if you are reading or working on a laptop, it is available to hold your cup. The train sways gently, but it is more likely you will knock over the cup or someone passing may bump it by accident.

Journey: The train pulls out of the station on time at 2:35 P.M. It accelerates slowly on through past the many cement factories in Athi River town, the African Heritage House, and other familiar sights. It doesn’t really pick up speed, in this area with slight curves, until it starts descends the plains, and the rail straightens. Most of the journey is done at speeds of about 110 Km/h (70 mph) and the train is very deceptive in its speed, which is displayed on a small screen in the coaches. You never get a sense of the speed until you pass a car on the highway or see a helicopter slowly pass overhead and you realize just how fast the train really is compared to these other vehicles.

The entire railway is double fenced, zoning off the SGR from the communities that it passes through on the 400-kilometre journey. The afternoon train is a non-stop one. Unlike the old train which would slow to stop in small towns and in which passengers tourists would stick their heads out of windows, watching the passing countryside or to count the number of coaches of the train as it turned, this new rail has few curves and the train hardly bends. There are no roads to cross, and instead, the train is elevated far above the ground as cars pass underneath. School kids, who used to stop and wave at travellers on the old train, do not bother to stop playing football to even glance at this fast-moving one.

Looking outside from your seat, you might spot some elephants, giraffes, buffalo, monkeys and other wildlife in the open plain, and later when an announcement is made about the train passing through Tsavo National Park. Occasionally pass another train, but mostly you pass old abandoned stations that used to be landmark stops on the old train,

Service:  In first-class, a drink cart was rolled down the aisle with a snack, and free serving of coffee or tea is served, but the service is rather slow and clumsy. Later they served drinks, for sale, which were rolled down on an old airline-style cart, with a selection of beers, wine, soft drinks and snacks, but the cold drinks are not really cold. Even warm ones can run out and you may have to switch what you are drinking.

It is better to go straight to the dining car where you can have more cold drinks and snacks. The train ride is not too long, so you won’t be eating large meals like the elaborate full dinner and breakfast meals that the old train used to serve in first-class. The same beer that was Kshs 250 in the VIP at the station is now 350 here. Also, the Mombasa station also has a first-class lounge upstairs but there is no restaurant there, yet.

There is no Wi-Fi or screens, but you get good service on Safaricom internet service for most of the way. Some passengers had iPads which they used to entertain children they were travelling with.

Arrival: Accessing the station at both ends can be stressful At Mombasa having arrived at about 7:15 P.M. it took about two hours to get to our destination by historic Fort Jesus. The new highway, that is still under construction, takes about fifteen minutes to reach the junction to Mombasa airport. Then it took us one and a half hours to negotiate the traffic that had overlapped and got stuck on the dusty Makupa Causeway, with matatus, tuk-tuk’s and other vehicles going off-road and meandering between long-distance trucks. Some vehicles had they engines off and truck brakes had a burning smell. The cause of the jam was a lorry that had gone off the road just as the causeway enters the island. The return a few days later took about a half-hour from town. Regardless of if you take the SGR, or fly into Mombasa’s main airport, you are stuck on the same highway that is under repair for the next few weeks.

Verdict: The 66 people in the first class train cabin are equal to the number on a typical bus on the Nairobi-Mombasa highway, while each economy coach (there were eleven) has almost double that number of passengers. Also, the 50 wagons on an SGR goods train of which you pass one or two during the journey are equal to 50 fewer trucks off the Nairobi-Mombasa. See also Owaahh’s “The Man Who Sold A Country” for more on the impact of this new railway.

Good points: The time-keeping, the on-time departures and arrivals. Also, the new SGR service crew make many announcements, about making good use of a shared public facility. When KFC came to Kenya and later Subway and other fast food-joints followed, they introduced the idea that patrons should clean up after themselves and dispose of their assorted papers, cups and leftover food in large bins provided. On the SGR they keep broadcasting announcements throughout the trip reminding passengers about cleaning up their space, not littering, not sticking gum under the tables, etc. They also ask people travelling in groups to be considerate of others in terms of their conversations and music. But other passengers played music on their phones, without using headphone, and there was a cacophony that competed with music blaring from the train’s overhead speakers.

Some groups ignored this and a few people don’t use headphones and you often have competing sounds in the cabin, including songs on the train PA in-between announcements. While others heeded the advice and took their loud conversations to the dining car where they could sit facing each other and discuss their trips and business plans over plenty of alcohol. There is also some camaraderie in first class, and people share tables as they enjoy drinks and watch the rapidly passing scenery.

In Nairobi, Kenya Railways also runs a commuter service from the old railway station in downtown Nairobi to the SGR station. They time it to shuttle passengers who are connecting on the SGR Nairobi. This costs Kshs 50, a fair deal, compared to the cost of using a taxi which is at least ten times more. The commuter trains makes two stops at Imara Daima and Makadara.

Bad points: The odd toilet rule about not throwing anything, even tissue, down the toilet does not make sense. Their instructions are to dispose of toilet paper in a bin on the floor?? Yet the toilet seems like the same standard vacuum flush that planes have. BTW, the old train used to flush straight down and fertilise the side of the tracks.

FACT FILE:

  • JOURNEY TIME 4 hours, 35 minutes (Nairobi to Mombasa).
  • SEAT CONFIGURATION 2-2. Seats can rotate backwards but no one tried to turn them around. People went to the dining car for face to face meetings.
  • PRICE:  Advance first class fares from Nairobi to Mombasa are Kshs 3,000 (about £23 / $30) for a one-way booking, which you make online and pay for via mobile money (M-Pesa). You must enter the name and ID/passport number of each traveller. 
  • CONTACT info@krc.co.ke

Barclays Kenya unveils AFMI 2018 – the Absa Africa Financial Markets Index

Barclays Kenya launched the second edition of AFMI 2018 – the Absa Africa Financial Markets Index, revealing performance improvements at a time of economic turmoil on the continent and also the addition of new countries to the index that now tracks twenty African economies.

In the time since Barclays launched the initial Africa Financial Markets Index in 2017, they have seen good engagement from policymakers striving to improve their appeal to investors through the AFMI 2018 index which measures countries across six pillars of market depth, access to foreign exchange, market transparency/regulations, capacity of local investors, macroeconomic opportunity, and enforceability of legal agreements. This year, three new countries – Angola, Cameroon and Senegal joined the index bringing the countries tracked to 20 and the country measures were also tweaked to include elements of financial inclusions and levels of investor education

The AFMI 2018 was again topped by South Africa, the most advanced financial market in Africa, followed by Botswana, Kenya, Mauritius and Nigeria. Kenya, Morocco and Seychelles all improved in the rankings while Mauritius and Namibia slipped slightly. Nigeria was credited for improving in its administrative efficiency and tax reforms. 

Jeremy Awori, Managing Director of Barclays Kenya said that emerging markets were under great pressure with currencies dropping, interest rates rising, political instability, falling commodities etc. and these highlighted how strong domestic financial markets could be used to cushion African economies from headwinds. He said that while  Kenya topped the access to foreign exchange pillar of the index, and had improved in the enforcement of  legal agreements, showing it was on a path to be a regional financial hub, there was still need to need to improve capacity of local investors, and grow the diversity of investor products. He added that Barclays Kenya was the first institution to list an ETF – an exchange-traded fund at the Nairobi Securities Exchange (NSE) and was also providing thought leadership on international swops and global master repurchase agreements.

Guests at the launch included Geoffrey Odundo, CEO of the NSE, and Paul Muthaura, CEO of Kenya’s Capital Markets Authority (CMA). Odundo said that while the 2006-08 IPO era unlocked retail investor capital, there was much more opportunity for investors to get good returns in the secondary markets including through REIT’s and that the NSE was currently piloting on offering derivatives. Muthaura spoke of initiatives to connect investors across African investors including a pilot exchange partnership between Kenya and Nigeria, and the African Securities Exchanges Association which was looking to enable trading links between the six largest exchanges on the continent.

Anthony Kirui, Head of Markets at Barclays Kenya said the country had an array of fixed income securities, but attention needed to shift to re-opening bonds as opposed to issuing new paper. He added that there was a need to create a primary dealership and a true OTC market and to also address the reluctance from local owners to list on stock markets. Muthaura said that one factor in the lack of new listings at the NSE was due to companies, who may have been candidates for listing to get new capital, now opting for the abundant and cheap funding from banks that were flush with cash in the era of interest rate caps

In East Africa, Uganda was stable (at No. 10) on the index while Rwanda and Tanzania dropped slightly, the former due to discrepancies in the implementation of rules and the latter due to lack of capacity of local investors. Ethiopia was at the tail end of the Index due to not having a security exchange and corporate bond markets, but that is likely to change as the country pursues reforms such as freeing the foreign currency exchange rate and planning for privatization of Ethiopian enterprises.

The AFMI 2018 report was done with the Official Monetary and Financial Institutions Forum (OMFIF) and can be downloaded from the Absa site.

KPMG on the 2018 Finance Bill Amendments

The President of Kenya signed the Finance Bill 2018 after a stormy debate in Parliament last week that saw chaotic arguments about vote procedure methods used and actual vote counting mainly with regards to VAT on petrol products.

Some of the earlier clauses in the Finance Bill had been highlighted and KPMG, which has done a series of articles,  has provided a further update on aspects of the laws in Kenya and which they termed “..the changes present an unprecedented disruption of the tax regime that will impact the economy and citizenry for years to come.

Their perspective on the signed Finance Bill implications:

  • Excise duty on services: The President accepted Parliament’s decision to drop a Robin Hood tax of 0.05% on money transfers above Kshs 500,000 (~$5,000). But the shortfall was replaced by an increase in taxes on all telephone and internet data services, fees on mobile money transfers, and all other fees charged by financial institutions which all now go up by 50% – and which KPMG writes may have a negative impact on financial inclusion.
  • A national housing development levy was approved. With the country’s wage bill of Kshs 1.6 trillion, KPMG estimates that government can potentially collect Kshs 48 billion a year (~$480 million) from the levy, (Kshs 24 billion of which will be from employers) – a massive amount when compared to the Kshs 12.8 billion that NSSF – the National Social Security Fund collects in a year. Regulations for the National Housing Development Levy Fund (NHDF) have not been set, other than that the payments are due by the 9th of the following month. For employees who qualify for affordable housing, they can use that to offset housing costs but for those who don’t qualify, they will get a portion of their contributions back after 15 years.
  • Petroleum VAT: KPMG says that a significant portion of the government’s tax targets for 2018/19 was dependent on value-added tax (VAT) on petroleum products and that is why they have been insistent on having this implemented. Sectors that supply exempt services such as passenger transport (PSV’) and agriculture producers are expected to raise their charges to customers as they are unable to claim back the 8% VAT tax.
  • Kerosene, which is used by low-cost households, takes a double hit with the introduction of VAT as well as an anti-adulteration tax of Kshs 18 per litre. Already kerosene now costs more than diesel in some towns around the country.

  • Excise duty on sugar confectionery, while opposed by sugar industry groups, was reinstated in a move similar to other countries that are trying to address lifestyle diseases by introducing taxes on sugar products.
  • The betting industry, whose survival which was at stake, gets a reprieve as the gaming and lotteries taxes, introduced on January 1, were reduced from 35% to 15%. Many of the prominent betting companies had scaled back their advertising and sponsorship and had turned to engage in serious lobbying efforts ever since. Also, an effective 20% tax on winnings has now been introduced. The earlier tax law allowed bettors to claim some deductions if they kept records, but that has been removed altogether.

EABL: Beer, Taxes, Innovations, Tanzania.

EABL released their financial results for their 2018 year to June this week. It was a tale of two halves with flat growth in the first half of the year which coincided with Kenya ’s prolonged electioneering period and which affected sales of its products such as Senator lager, an affordable beer brand.  But the second half of the year (January to June 2018) saw a more business-friendly environment and more money in consumers pockets.

EABL ended the year with 5% revenue growth to Kshs 73.5 billion and the star of the show for the company in 2017 was Tanzania which saw 41% growth, mainly driven by Serengeti Lite beer. Also, special innovations that contributed 22% to the results is one of the best performances in the world. At EABL, Tanzania’ grew to account for 11% of revenue while Kenya’s was 73%, and Uganda was at 16%.  Capital expenditure was Kshs 13 billion, up from the 5 billion the year before and Kshs 7.8 billion was due to the Kisumu plant which is expected to be opened later in 2018. While overall profit before tax for EABL was Kshs 11.7 billion, a decline of 12% from the year, the company will pay out the same Kshs 7.50 per share dividend to shareholders.

The EABL managers spoke of innovating to reach the 1 million consumers who attain the legal drinking age (18) every year in Kenya – and investment in existing brands, and rolling out new brands to win over changing customers tastes. They also made some excise tax savings in Uganda by moving some  Tusker and Guinness production there while in Kenya, EABL’s profit was weighed down by a Kshs 2 billion one-off provision for taxes that significantly reduced their final result. They said a stable tax environment would enable the company to generate more taxes for governments without causing consumers to pay more.  

Also that by doing more local production of beer and spirits at Ruaraka in Nairobi, at Tanzania, Uganda and soon at the new line at Kisumu has allowed them to bring global brands into countries and produce and offer them at local prices. In the 2019 financial year, they will commercialise the Kisumu brewery which will also benefit 15,000 farmers and generate over 100,000 direct and indirect jobs in the production and distribution chain of Senator beer from Kisumu.

Urban Inflation Index July 2018

The running urban inflation Index compares prices of common goods In Nairobi to what they cost one year ago, five years and ten years ago when the index started.
The  July 2018 index comes at a time when there are sensational headlines about quality and counterfeits that was triggered by the drought of 2017 and subsequent importation of foods including sugar late last year.

It has also tricked into crackdowns, indictments, arrests, and parallel investigations by the Police, tax authorities,  parliamentary committees and food safety regulators that has seen queries about tons of goods including sugar, fertilizer, animal feed, building materials, alcoholic spirits, (refilled) LPG gas, auto spares, and sports shoes among other common items – with confiscations at the Mombasa Port, airports like Eldoret and bazaars and shops in Nairobi which have resulted in some demonstrations by business traders.

On to the index.

More expensive

Staple Food: A 2 Kg pack of Unga is Kshs 98 today. Last year, it was at a government-subsidized price of Kshs 90. In 2013 it was 104, and ten years ago, an Unga pack was Kshs 73.

Beer/Entertainment: A bottle of Tusker beer is Kshs 230 at the local pub. Five years ago a beer was 200, and ten years ago a beer was Kshs 130. Just a few months ago, during a tour of Kenya Breweries, the managers said that, based on the recommended retail price of Kshs 140 for a bottle of Tusker, Kshs 84 was tax, Kshs 23 goes to the distribution chain and just Kshs 33 was for them as a company to produce the beer at profit and to pay its shareholders.

Domestic electricity pricing over ten years of the inflation index.

Electricity: A chart of domestic prepaid electricity purchases shows that electricity was at its lowest in May 2015, and its highest in July 2015 and now in July 2018. One observation is that pre-paid power purchases no longer fluctuate. At the beginning of the month, one used to get 40 or even 50 units for Kshs 500 ($5), but now that amount only realizes 22 units and the pre-paid meters issue a (low-token )beep warning the whole month – and power tokens seems to exhaust a lot faster (because the units are less initially)

Other Food Item: Mumias, which used to be part of the index, was Kenya’s sugar industry bellwether – a diversified company that also produced ethanol and electricity and whose shares were once offered to the new investors at Kshs 49 per share. but which now trades at less than a shilling (Kshs 0.70) today. But Mumias now has no stocks on supermarket shelves as production was halted due to a lack of cane and long pending bills owed to farmers. A  2 kg pack of Mara, a competing sugar brand, is Kshs 298. A year ago, a bag of Chemelil sugar was 290, and five years ago Mumias sugar was 250, while ten years ago, a Mumias pack cost Kshs 145.

About the same

Fuel: Earlier this month, the ERC raised the price of petrol by 3 shillings – so in Nairobi a litre of petrol now costs Kshs 112.2 (approximately $5 per gallon). Last year a litre of petrol was Kshs 97.1, five years ago it was Kshs 109.52, and ten years ago it was Kshs 101.50 per litre. But from September 1 2018, Value Added Tax (VAT) which is 16% is expected to be added back to the cost of fuel.

Finance: Bank loans are 14.%, and have remained so ever since the introduction of interest capping in 2016. But the law is set to be adjusted this year by the government, in spite of opposition from parliamentarians who had passed the cap law. Also, average bank rates were 17% in July 2013.

Communication: Not much has changed in terms of phone rates over the last few years. At Safaricom which had (March) 2018 revenue of Kshs 224 billion, 40% of that was from voice, 28% from payments (such as M-Pesa), and 16% from data while SMS accounted for 8% of revenue. The cost of making mobile payments went up slightly in this year’s budget with a tweak in the excise tax on money transfers, and a charge on large bank transfers that has since been temporarily suspended by a Court.

Foreign Exchange: 1 US $ equals Kshs 100,75, while a year ago it was Kshs. 103.9. Five years ago it was 87.15 and ten years ago the dollar exchanged at Kshs 67.4. Also ten years ago the Euro was at 101, the Rand 8.9 and the Sterling Pound 125, while today the Euro is at Kshs 117, the Rand at Kshs 7.4 and the Pound at Kshs 133.

Other Energy Source: An LPG gas cylinder at Kenol is Kshs 2,250 this month. A year ago (in March) it was 2,030 and six years ago (2012) it was 3,000.

Less Expensive

Nothing really

Share this inflation index if you agree with the perceptions about what has become more or less expensive over the years.

If it were all left up to you, how would you improve the urban inflation index?