Category Archives: Nairobi cost of living

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?

Kenya Income Tax Cuts, Increases, and Other changes 2018

The Kenya government, through the National Treasury, is proposing some long overdue changes to the country’s income tax laws, which are contained in a draft bill that will be submitted to Parliament.

The bill has new clauses that affect transfer pricing, new extractive (oil & gas) industries, phase out of turnover tax, and an apparent tax cuts. It comes after other recent changes to the tax code. Kenya also has an ongoing waiver and amnesty program for income tax and assets held outside Kenya to be declared and repatriated to the Kenya Revenue Authority (KRA)  by June 30.

Leading accounting and audit firms such as KPMG, PWC, and Deloitte have looked deep into the clauses, and these are some of their findings: 

KPMG:

  • Companies are to produce and maintain transfer pricing documentation and policies in place for the year of income.
  • The withholding tax threshold of Kshs 24,000 had been deleted.
  • Payments to non-resident petroleum contractors will be 20% (up rom the current 12.5%)
  • Developers who build over 400 houses to pay taxes of 15% on gains.
  • Micro-finance institutions (MFI’s) interest will be exempt from withholding tax.
  • Sports clubs & associations will get taxed on entrance fees and subscriptions.
  • Farms, warehouses or doing consultancy work for more than 91 days in a year are now considered permanent establishments. KPMG comment – This will require non-resident persons doing business in Kenya to re-think their operational models.
  • A listed company will pay 25% taxes for five years if 40% of its shares are floated.  KPMG  comment – this will reduce the impact of taxation as an incentive to list.

Deloitte:

  • Income tax rate of 35% on more than Kshs 750,000 (~$7,500) per month
  • Non-residents’ who receive their pensions in Kenya will pay a tax of 10% on transfers (up from 5%) 
  • A higher corporate tax of 35% for large companies with taxable income over Kshs 500 million (~$5 million).
  • Real-estate capital gains tax of 20% (up from the current 5%). Deloitte comment – Though the increment is quite steep, it enhances equity considering that CGT is regarded as a tax on wealth.
  • Equality: Each person in a marriage is now required to file their own tax returns: no more cases of wives having their incomes filed under husband’s income tax returns.  
  • Mining & Oil: Losses can be carried forward for a maximum of 14 years (There is no current cap)
  • EPZ holiday removed: Now EPZ’s will pay 10% tax for the first 10 years, and 15% for the next ten years (other companies pay 30% corporate tax).
  • SACCO’s: Cooperative societies to pay a withholding tax on dividends and bonuses of 10% (up from the current 5%) 
  • Subsidiaries in Kenya to pay 10% tax on dividends remitted to the parent companies.
  • E-commerce: The Treasury Cabinet Secretary will be allowed to introduce taxes on digital platforms.
  • Capital allowances reduced: The 150% allowance for investments outside cities has been removed, those for filming equipment reduced from 100% to 50%, and educational institutions from 50% to 10%.
  • Small businesses, that are licensed by counties, will pay a presumptive tax of 15% of the business permit fee. Deloitte comment – (this) replace the turnover tax, currently at the rate of 3% of a person’s turnover (KRA has faced challenges collecting) ..  will require collaboration with the county governments. 

PWC

  • All medical insurance paid by employers for employees is now tax-exempt (even for expatriate staff) and age limits for children covered goes up from 21 to 24 years.
  • withholding tax of 5% will be levied on payments to foreign insurance companies. PWC comment – this is aimed at promoting local insurance companies.
  • Income tax exemptions that have been dropped include income of the Export-Import Bank of the USA (relates to Kenya Airways?). Also on the income of stockbrokers from trading in listed shares. PWC comment – this may have a negative impact on the growth of the capital markets in Kenya;
  • 20% withholding tax on payment to non-Kenyan companies for horticultural exports. 
  • 20% withholding tax on payment of air-tickets to non-resident agents. PWC comment – may lead to increase in airline ticket prices in Kenya which may affect competitiveness of local airlines.

They also looked at other recent tax adjustments which PWC notes will mainly alleviate the government from paying VAT refunds.

  • Milk, maize, bread, bottled water, will all cost more after moving from “0%” VAT to “exempt” VAT as importers will pass on non-recoverable VAT to consumers.
  • Same for LPG gas, some medicines and agricultural pest control inputs.
  • Making housing affordable. PWC comment – the Government is also proposing a stamp duty exemption for the purchase of a house by a first time home owner under an affordable housing scheme
  • Betting/Gambling: For winnings, a 20% tax will be deducted at source i.e the betting company) on any prizes (this is up from the current 5%)

Other Clauses in the Income Tax bill

  • Parent companies are to file country-by-country reports with KRA within 12 months of year-end.
  • No capital gains tax is due on land if it is compulsorily acquired by the government.
  • No capital gains on listed securities.  
  • While there is a new 35% tax for the rich, the income tax bill appears to lower taxes for the low-income.  e.g. someone earning Kshs 40,000 (~$400) per month, who pays 5,932 in tax per month now after personal relief, will have a lower tax burden.  Income tax bands are expanded in the 10% range (now up to 13,000 from the previous 10,000) and there is also a higher relief of Kshs 1,408 versus the current 1,162) and the resulting net tax for the person will now be Kshs 5,009 for the month – a 15% income tax cut?.  
  • Tax rate of 15% for five years for local vehicle assemblers. This can be extended by another 5 years if the company achieves 50% local content value in the vehicles.  
  • Taxes waived on the income of disabled persons, amateur sports associations, and NGO’s (relief, poverty, religion, distress) whose regional headquarters are located in Kenya.  

Finally, other stakeholders are invited to review the proposed changes to the 103-page income tax bill and submit comments via email to ITReview2017_at_treasury.go.ke by May 24.

Carrefour in Kenya

Majid Al Futtaim had grand plans for the Carrefour franchise in Kenya which they have since accelerated as other supermarket chains have encountered financial difficulties. This was revealed at a media session by Majid Al Futtaim managers at their Two Rivers Mall office,  located at their second hypermarket in Nairobi. The company which is the leading operator of malls in the Middle East and North Africa holds franchises for Carrefour stores in 38 countries, including 14 in Africa.

Their Country Manager for Kenya, Franck Moreau said they had an initial target to open 5 hypermarkets and 10 supermarkets within 5 years but that has all changed now. When Majid Al Futtaim decided to invest in East Africa, back in 2012, local retailers like Nakumatt and Uchumi were doing quite well. The took up a 20-year lease at Two Rivers, opened their first Kenya store at the Hub in May 2016, and in the last two months, they have signed on to replace Nakumatt as the anchor tenant at two large malls in Nairobi – at TRM on Thika Highway and the Junction Mall on Ngong Road. 

They operate decentralized hypermarkets with each store doing its own ordering, deliveries, storage, handling, marketing, maintenance, payments, and human resources all at the store sites. The financial aim is to create value and market share while meeting or exceeding budgets, and going by current trends in e-commerce, they target to have 15% of online sales in the next two years.

Majid Al Futtaim operates 220 stores in 15 countries, serving 200,000 customers a day. They plan to reach at 500 stores in 5 years with the “great moments, every day, for everyone” theme through innovation in customer service, being a great employer, and working with local suppliers as they take the hypermarket store and adapt it for different countries, customers and cultures.

For Kenya, 1,000 unique products items are imported by Carrefour to differentiate the stores from other supermarkets, and 29,000 other items are sourced from 650 Kenyan suppliers that they work with. Moreau said 50% of their customers at Two Rivers are from the neighbouring Ruaka area who come to shop at Carrefour for the quality, fresh, and available range of products for different classes. But he added that one unique Kenyan thing was a distrust of ‘promotions’ (buyers think there is something wrong with the products on sale) and they are the only supermarket chain asking suppliers for to give continuous and permanent promotions.

The conversion of malls stores to fit the Carrefour model takes time and large investments which Moreau  estimated was five times more than what other local retailers spent on their stores and that it will take about nine months to convert the spaces they are taking over at the Junction and TRM  to full completion, by which time they will have over 1,100 employees in Kenya.

EDIT Feb 27, 2018:  Majid Al Futtaim announced plans to open its fifth Carrefour hypermarket in Kenya at Sarit Centre, in Westlands Nairobi, just a few days after Uchumi ended their 30 year lease at Kenya’s iconic mall. The new Carrefour  will be opened in April 2018, initially on the ground floor and will later relocate into a new wing of Sarit Centre that will be completed before the end of the year.

Nairobi Supermarket Shoppers and Economics Trends

Chris (@blackorwa) has a blog on Kenya supermarket buyers, deciphering consumer patterns and habits of Nairobi shoppers by analyzing and decoding their discarded supermarket receipts.  This is an interesting experiment, in which they actually paid street kids to dig and dive for recipes in the garbage. They based their search for trends on a previous study at Walmart to draw out patterns of shoppers.

some interesting findings

  • Supermarkets not within malls have 61%  of their customers buying less than 3 items and spending Kshs 200 (~$2) on average.
  • M-PESA is yet to dominate retail – it was used for just  3.6% of supermarket transactions, with cards (credit/debit) used for 1.8% of transactions 0  as cash is still king at supermarkets. Safari com hopes to change that with 1tap which makes it faster to make purchases.
  • On a typical weekday, a small well-positioned supermarket does 2,350 transactions with a value of about Kshs 360,000. This translates to about Kshs 10.8 million in revenue a month.
  • Margins are thin, and supermarket profit are determined by controlling labour expenses.
  • Cooked food, mineral water, and bakery drive a lot of sales – they have the highest sales volume and greatest profit margins.

Take  a look at it the study

Urban Inflation Index: July 2017

Comparing prices and inflation in Nairobi to four and five years ago. 

Price and inflation comparisons are made a bit difficult by the unprecedented (in recent years) shortage of certain food commodities. Back in 2008 as post-election violence rocked the country, supermarkets opening shop, receiving supplies, stocking shelves and selling fresh foodstuffs and household items were seen as one of the barometers that life was getting back to normal. But going into the August 8 elections, several supermarkets have had empty shelves, notably at Kenya’s largest chain, Nakumatt that is limping under debt, and empty shelves, with lawsuits from landlords and key suppliers and a delayed shareholder deal. Unlike Uchumi who faced a similar situation just over a year ago, Nakumatt has not shown humility in asking for a bailout from the government or relief from suppliers and partners.

On to the index

Gotten Cheaper (in four years)

Finance: Bank loans are 14.0% due to the interest capping law of 2016. Average bank rates were 17% in July 2013

Fuel: A litre of petrol is Kshs 97.1 (~$4.25/gallon) today in Nairobi. It was 109.52 per litre in July 2013 (and 117.6 five years ago).

About the Same

Staple Food: With just under two weeks to the elections, maize has been hard to find, even at the government subsidized prices of Kshs 90 per pack. In July 2013 the pack cost Kshs 104 (and it was 118 five years ago) But just how long it will stay at 90 is not clear as the 2017/18 budget drafted at a time of high maize prices and low supplies, zero-rated the importation of white maize for a period of four months. Will it go back up after this window closes?

Communications: Phone call rates flattened in 2013 even though at the time Airtel and Yu were bringing the prices down, while now Safaricom battles distant Telkom Kenya (rebranded from Orange) and Airtel, as well as Equitel from Equity Bank, with competition more on data pricing, and mobile money transfers – where M-Pesa still dominates.

Beer/Entertainment: A 200 bottle of Tusker beer is Kshs 200 at the local pub. This is the same price it was in July 2013. (And it was 180 five years ago)

Utilities: Pre-paid electricity is about Kshs 2,500 per month, which is unchanged from the last review. The calculation of pre-paid tokens remains a complicated exercise.

More Expensive

Other food item: Sugar is hard to find, more so for traditional brands like Mumias. A 2kg bag of Chemelil sugar is Kshs 290  compared to 250 in July 2013 and five years ago it was 237. Prices of other food commodities like milk and butter have also gone up.

Foreign Exchange: 1 US$ equals Kshs. 103.9 compared to 87.15 in July 2013 and 84.25 five years ago.

There has been quite some outward flow of currency ahead of the election.