Category Archives: Kenya economic growth

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%.

First Class: Kenya Railways vs SGR

This is the first class cabin of the lunatic express, the 120-year-old Kenya Railways line (operated by Rift Valley Railways – RVR), that the Standard Gauge Railway (SGR) is meant to improve on. The cabins are about 40 years old; they are mostly used by tourists or adventurous travelers and families taking scenic journeys to and from the Coast or Rift Valley.
It was disappointing to see pictures from Kenya Railways of what #SGR “first class” will be – it looks like a third class with swivels seats – this after a $3.2 billion mega-project?. Yes, the trains will move faster, but apparently, they won’t go too fast because this is Kenya where they may encounter people or wildlife on the tracks. 

By looking at this chart of train cabin seats in China, KR is a correct, but the first class of China and the new SGR is not the same as the first class on the old (RVR)/Kenya Railways. China has first, second, and business class (which has lie flat seats) like an aircraft – but no economy class.

What we know as the first class of the old Kenya railways, qualifies as a luxurious “sleeper coach” in China which offers privacy and comfort. SGR Journeys will be faster, perhaps 5 hours from Nairobi to Mombasa compared to the current train service by RVR which takes 15-20 hours. The  train is also used by hundreds of residents who live in small towns along the railway and who will appreciate the improved new cabins.

But will Kenya Railways offer some new sleeper cabins to improve on the old railway service? The Kenya Economic Survey 2016 shows there has been a continuous decline in rail passenger indicators of journey, passenger-km and revenue. The major reason is prioritizing on the freight, which is more profitable than passengers’ services hence the available locomotives are prioritized to freight.

Kenya Airways marks 40 years with 40% fare sale

Kenya Airways (KQ) turns 40 today. It was incorporated on January 22, 1977, after the disbandment of East African Airways as a consequence of the collapse of the East African Community, and with some assets and staff of East African Airways was to be the national flag carrier of Kenya

The airline’s story can summed up in three phases: First, was a typical African state airline flying unprofitable routes to far-flung destinations, and with operational and management issues.

Then the early 1990’s saw a move to address the decline and a new board was formed, that was chaired by former Central Bank Governor Philip Ndegwa. It had a mandate to commercialize and privatize the airline. They hired Speedwing Consulting in February 1992 who appointed a new executive team that implemented an extensive restructuring involving fleet reduction, fare and route reviews, staff training and voluntary staff reduction.

This was followed in January 1996 by the sale of 26% to KLM  which was to see KQ grow as part of a global airline partnership. Kenya Airways was converted to a public company in March 1996 and its shares were listed on the Nairobi Stock Exchange in June 1996 in an over-subscribed IPO in which thousands of Kenyans bought shares. This reduced the government shareholding to 23%, and shares were later cross-listed in Uganda and Tanzania.

The third phase was the 2000’s decade when Kenya Airways embarked on a long expansion period under CEO Titus Naikuni, and there was a period where they greatly increased and modernized the fleet, and added almost a route every month, mainly to African capital cities. The expansion, however, came a time that the global and African airline space was becoming quite competitive at a time that KQ also faced new internal challenges. This was manifested in two years of successive record losses, strained network operations, and passenger relationships.
They airline turns 40 at a time when it has embarked on an extensive restructuring program called Operation Pride. KQ’s new chairman is celebrated former Safaricom CEO Michael Joseph who joined the board in September 2016, and who is leading the search for a new CEO. KQ has a leaner fleet of mainly new Boeing 787 Dreamliners and Embraer 190’s, staff and operations with a focus on partnerships and regaining profitability with the support of the Kenya Government.

For any airline, 40 years is a major milestone to reach, and even with the ongoing austerity moves, KQ is still celebrating the occasion with special fares for its passengers including:

  • 40% discount across its network for flights booked from January 22 to February 5, (the 1977 date after it commenced flights) for flights taken between January 22 to December 31, 2017.
  • $1,977 business class fares to Hong Kong, Paris, London, and Amsterdam.
  • Up to 50% off companion fares when one buys a business class ticket

Kenya’s Money in the Past: Digital Kenya

Digital Kenya, by Bitange Ndemo and Tim Weiss, charts the rapid emergence of Kenya in the world of technology. Through stories and interviews with people in the sector, you learn about risk-taking and making policy from humble beginnings back in the mid-1990’s when the whole country shared 32 kbps, and the then telecom Kenya Posts & Telecommunications (KPTC) monopoly declared internet services as being illegal. At the time, KPTC was connecting about 10,000 users to the phone network, and with 77,000 potential customers waiting, they envisioned a 5% tele-density in Kenya by the year 2015. The tele-density in 2015 turned out to be 88% thanks to rapid changes that came after fibre cables and the cheaper mobile phones emerged.

One story is a narration of how, as a peace agreement was being signed in February 2008 to end the post-election violence in Kenya, the ICT Ministry managed to secure a guarantee to enable the laying of the TEAMS fibre cable that ultimately changed the face of ICT in Kenya. This came after the ministry had stepped back from another long-discussed  bureaucratic cable project – one called EASSY. This was one of the examples of government officials circumventing red tape for a good outcome. Another was the roll out of M-Pesa which is also cited here, ahead of regulations and thanks to some  individuals in government giving it their cautious blessing. Not all of them turned out well, and one case cited is of officials at the Postal Corporation sabotaging a land deal that would have led to the establishment in Nairobi of the headquarters of a multinational telecommunications organization.

There are many other stories that show issues of privatization, race, the lack of vision & finance, tech startups, the need for skills to scale, and the disconnect between local capital & the tech sector. It also shows the disconnect of ICT with both formal banking and also with the agricultural sector, two crucial links yet to be adequately bridged in Kenya.

Thanks to the Ford Foundation, the books is available free of charge and a free book download can be obtained.

Reading the African Tea leaves at Global Airlines

From this recent article about Ethiopian Airlines, it was shocking to learn that African airlines now account for about 20% of air traffic to and from the continent, down from 60% three decades ago. This was according to Ethiopian Airlines Group CEO Tewolde Gebremariam.  According to the Wikipedia, which has a list of the largest airlines in Africa by passenger numbers (2013), the top African airlines are:

1 EgyptAir 11.8 million (M) passengers
2 South African Airways 9.5M
3 Royal Air Maroc 6.2M
4 Ethiopian Airlines 6M
5 Air Algérie (4.4M in 2012)
6 Tunisair (3.8M in 10212)
7 Kenya Airways 3.6M
8 Arik Air 2.8M
9 Air Mauritius 3M
10 Libyan Airlines 1.3M

But what does Africa mean to these and other airlines? How does Africa impact these airlines financially? For some it’s clear, but for others, it’s difficult to judge as  many carriers lump their (tiny) African operations with Middle East and South Asia. Also, many airlines are state-owned and do not disclose investor levels of information that is useful for comparison.

A recent Qatar Airways financial report notes that the aviation industry in Africa is still in its early stages of development meaning that the continent is poorly served by its own national airlines. But alongside traditional extraction of natural resources, manufacturing, tourism and infrastructure investments are rising, which bodes well for the future economic and political stability of the African continent. Increasing air-connectivity between Africa and the rest of the world will drive economic growth. Another one from Ethiopian notes that jet fuel is 21% more expensive in Africa compared to the rest of the world.

Here are extracts from the annual reports and official releases of the various airlines:

Air Algerie: Flew 5 million passengers on 56 aircraft.

British Airways: Flies to 16 destinations in Africa.

Chinese Airlines: Have only recently started flights to Africa, and travel between Africa and China is mainly by African airlines and the gulf carriers. Of the six state-owned airlines, Air China flies to Ethiopia and South Africa, while China Southern flies to Kenya.

Egypt Air: Their report notes that African airlines not able to achieve adequate load factors except on a few routes and the airline operates in a territory that has lots of disruptions, cancellations, and flight & route changes due to security. The state airline comprises an international airline, a local airline, industrial training, ground handling, medical, in-flight catering, and other arms. It had 2015 revenue of 17.7 billion pounds (~$2.5) billion of which 7.5 billion pounds was from airline passenger flights in which they carried 7.4 million passengers (plus another 1.2 million in the sister domestic airline). 52% of their revenue is from the Middle East was 52%, followed by 21% from Europe. No number is given for ‘Africa’ but the report notes that African revenue declined 25% from 2014.

Emirates: Now flies to 154 cities in 83 countries. In 2016, revenue from Africa was 9 billion AED (~$2.5 billion), a 3% decrease from 2015. Africa accounts for 11% of Emirates overall revenue of their 84 billion revenue. 29% comes from Europe, 27% from East Asia, 14% from America, and they only get 10% from the gulf & Middle East – a truly international airline. Also, Dubai Tourism statistics show that only 5% of visitors to Dubai are from Africa, led by Egypt (239,000) and Nigeria (139,000). Emirates get 32% from travel services, 27% from UAE airport operations, 20% from international airport operations, and 18% from catering. 

Ethiopian Airlines: Flies to 49 destinations in Africa. It had 2015 revenue of 49 million birr (~ $2.1 billion) and 3.5 billion birr (~$160 million) profit, and is one of the few consistently profitable airlines on the continent. They have huge investments in Asky Airlines (ECOWAS airline based in Lome that flies 10 000 passengers a week to 22 destinations in 20 countries of West and Central Africa) and Malawi Airlines. Another post mentions that Ethiopian Airlines has proposed a joint pan-African airline for the  under-served Southern and Central Africa regions to the governments of Zambia, Zimbabwe, Uganda, Rwanda, Namibia, DRC and Botswana.

Etihad Airways: Own 40% of Air Seychelles and flies to 166 destinations using 120 aircraft (2014). Has 49 code-share partnerships including with Kenya Airways, South African, and Royal Air Maroc. Their 2014 revenue was $7.6 billion, with a profit of $73m profit (no further breakdown).

Kenya Airways: In 2015, 49% of its Kshs 110 billion ($1.2 billion) revenue was from the rest of Africa (down from 52%). 22% was from Europe, 19% from Asia and 10% from local flights in Kenya. So is KQ’s dependence on Africa is a drawback?

Lufthansa: Flies to 17 destinations in 14 countries in Africa. In 2015, it had 583 million euros (~$608 million) of revenue from Africa (unchanged from 2014), and this is about 2% of their overall revenue.

(Air) Mauritius: In 2015, had 490 million euros of revenue (about $600M) and a net profit of 16.5 million euro (compare to a loss of 24 million euros the year before) They carried 1.5 million passengers and flew to 23 destinations. Europe has been their main market (34% of revenue) followed by Asia 32% (they have the largest Asian network of any African airline). In Africa, they fly to 6 destinations, and 29% of their revenue is from a combined Africa/Middle East/Indian Ocean zone, earning 39.5 million euros ($49 million). The flew 247,000 passengers in Africa, a 10% increase.

Qatar Airways: Flies to 26 African destinations (our of 150 total) and plans to add more in Africa and India which they expect will be the largest growth markets in the near to medium term. In 2016, they carried 26.6 million passengers.

South African Airways: Generated 589 million rand (~$42 million) from its African routes and notes that Africa continues to have strong underlying growth. They had a fleet of 50 aircraft in 2016 and are trying to grow a hub in West Africa.

TunisAir:  Flew 2.7 million passengers in 2015, which was down from the average of 3.7 million they have carried in past years. Some of this can be attributed to curfew hours and increased security.

Turkish Airline: Got $826m from African sales in 2015 (a 9% decline from 2014). Africa accounts for 8% of revenue and passenger volumes and they fly to 48 destinations in 31 countries on the continent using a  narrow body i.e. 737 fleet of aircraft. Turkish Airlines sells 10,000 tickets per day in Africa.