Category Archives: World Bank

Growth Crossings: Africa Rising?

Excerpts from the Economist Events #GrowthCrossings dinner in Nairobi this week.

growthcrossings-nairobi

  • China grew by exporting to the world, Africa is rising by buying products – Abiola Olaniran
  • There are 1 trillion cash transactions in Africa that can be financially included through partnerships & technology – Sanjay Rughani
  • In two years, the unbanked African population has dropped from 54% to 46% – Sanjay Rughani
  • An ADB study found 3 drivers of Africa growth to be demographics (young urban population), climate change, and digital leapfrogging – Donald Kaberuka
  • A mobile network is many things in Africa, and Safaricom will be an ecosystem for others to succeed e.g in health, education, energy – Stephen Chege.
  • E-commerce is driven by high volumes, consistent delivery, and consumer protection – this takes a lot to succeed in Africa –  Sanjay Rughani.

M-Shwari, Equitel, and Mobile Lending Apps in Kenya

Just 24 hours apart, Equity Bank and Safaricom, which arguably have the most financial connections with Kenyan citizens, through m-banking, both made financial results announcements. Equity released their Q3 2016 results while Safaricom, whose year ends in March, was announcing their 2017 half-year results.

Safaricom has M-Pesa and also powers M-shwari at CBA and KCB M-pesa while Equity has Equitel a bank in a SIM card that gets around the barrier of the M-pesa. At the beginning of the year Equity had 8.8 million customers and the country’s largest bank – KCB had 3.8 million . They are surprisingly topped by CBA with 12.9 million customers, largely due to their partnership with Safaricom called M-shwari which allows savings and lending directly from a phone SIM card.

In the results this week, Safaricom reported pre-tax half-year profit of Kshs 34 billion derived from their 26 million customers solar-2Bphone-2Bchargerand their CEO said that they process about 21,000 M-pesa transactions per minute and that 2 loans are processed every second. M-pesa revenue increased by 33.7% to Kshs 26 billion, and message revenue grew by 8.1% to Kshs 8.6 billion (with the increase in premium rate SMS revenue probably attributable to sports betting /mobile gaming)

They now have 50,000 merchants using their cashless platform called Lipa na M-Pesa, and announced a waiver on person-to-person and Lipa Na M-Pesa transactions under Kshs 100 (~$1)  “We have done this to empower the people who support this company the most – the mama mbogas, the small businessmen, and the micro-agents who form our network.”

As at September 2016, Equity had a Kshs 15.1 billion pre-tax profit, an 18% increase over last year.  The Q3 results also showed a second straight quarter of reduction in loans at the bank from Kshs 222 to 221 billion. Whether this is due to the recent interest rate-capping bill or an absence of lending opportunities, or an economic pullback is not clear, but the deposits raised by the bank went to government treasuries which grew by Kshs 21 billion in the quarter.

Equity reaffirmed an ongoing commitment to shift in customer service channels from physical branches to phone and agents. In the first year of Equitel (their telco), it did 151 million transactions in the quarter 142% more than the year before. Equitel is now the second largest move of mobile money in Kenya – at 14%, being M-Pesa (84%)  but ahead of Airtel Money, Orange Money and Mobikash.

Equity Bank has also released a series of Eazzy banking solutions and tools including (an)  Eazzy App, Eazzy Chama (investment group/SACCO management tool) and (an) EazzyAPI (for developers to build on).

Away from the two, the World Bank’s CGAP blog recently highlighted and compared several phone-based borrowing / m-banking solutions and apps available to Kenyans. They are easily accessible but unregulated, and they vary their terms, credit scoring methods, limits (which range from ~S1 to $10,000) interest rates, duration,  and the ultimate cost to the borrower. They include;  Branch, Equitel (Eazzy Loan and  Eazzy Plus Loan), Jumo/ Kopa Cash, KCB-M-Pesa, Kopa Chapaa, Micromobile, Mjiajiri, M-pawa-Sacco, M-Shwari, Okoa Stima, Pesa na Pesa, Pesa Pata, Pesa Zetu, Saida, Tala, and Zindisha.

$1 = Kshs 101

IMF Laments Interest Rate Caps

The IMF has released a statement following its latest discussions with Kenya government officials. It notes that the

“The IMF team expressed concern that the recent amendments to the Banking Act that set limits on deposit and lending rates are likely to have an adverse impact on Kenya’s economy. While these amendments aim to reduce the cost of borrowing and increase the return on savings, international experience shows that interest rate controls are ineffective and give rise to unintended negative consequences. These include reduced access to financing for small and medium-sized enterprises, and an increase in informal and predatory lending at much higher interest rates. Interest rate limits could also reverse the remarkable increase in financial inclusion that has benefited a large proportion of Kenya’s population. These adverse effects could lead to lower economic growth and undermine efforts to reduce poverty. In addition, interest rates limits undermine the effectiveness of monetary policy aimed at ensuring price stability and supporting sustainable economic growth.

that said the law is here and so far banks have complied, and not challenged the law. They are also releasing their Q3 results, but the full impact of the law will not become apparent till the end fo the year when more details are released such as the number and type of new loans issued in 2016.

France & Kenya and Renewable Energy

Yesterday there was forum on renewable energy in Nairobi. It was organized by the Embassy of France and the Kenya government to show executives from French energy companies opportunities to invest in renewables and other energy projects in Kenya and Africa. Aqylon, Engie, GreenYellow, Quadran,  Sogea Satom, Total , UrbaSolar, Vegrent, and Vinci representatives were part of the group.

French companies built hydro dams in Kenya

French companies built hydro dams in Kenya

Excerpts

  • Large silent corporations include Engie which produces 3 GW in Africa and Vinci which has EUR  800  million of revenue, and 14,000 staff in Africa.
  • SUNREF from AFD/KAM provides tailored finance for green energy to Kenyan companies through Bank of Africa,  CBA,  Diamond Trust and Cooperative Bank. 11 companies have now been financed, and some that have got SUNREF green energy finance include KTDA, Meru dairy, Strathmore University, and Redland Roses.
  • Kenya has 10 independe power producers (IPP’s) producing 650 MW (28%) of its electricity – shows how vibrant it is for investors.
  • Regional electricity sharing in future: Kenya produces 2,200 MW, Ethiopia 4,284 MW (90% from hydro), Tanzania 1,583 MW (65% from thermal), and Uganda 900 MW (80% from hydro)
  • GreenYellow works with factory, malls, hotels, to finance & build (heat/cold/solar/light) systems that reduce their energy costs by 30%
  • UrbaSolar is working with Kenyatta University on a 100% self-consumption plant that will reduce electricity bills by 80% (20% is night).
  • Total is constructing a 40 MW solar plant at Isiolo with Green Millenia, while Kenya’s rural electrification authority (REA) has got funding to do a 50 MW one near Garissa.
  • KenGen which provides 80% of Kenya’s electricity, has tendered for an Olkaria 5 plant, and will build an industrial park there.
  • There’s opportunity in Kenya off-grid & mini grid electricity, but there’s no legal framework for integrating with the national grid integration & projects sometimes face land acquisition or compensation delays.
  • Solar has not picked up in Kenya, but with drop of photovoltaic prices, there’s lots of interest here now – Energy Permanent Secretary J. Njoroge told the companies..  He also said renewable energy is intermittent – it can only be used up to a certain % of Kenya’s electricity grid supply. Later there was  mention of CSP solar plants which are more complex & expensive than traditional PV ones which but do give stable solar electricity.

Silicon Savannah Economic Impact

Kenya has been called a hotbed of innovation and entrepreneurship.

But is it really and will it transform Kenya? The World Bank does seem to think so. In a report  titled “From Economic Growth to Jobs & Shared Prosperity” – released this week, and in comments by Apurva Sanghi, World Bank Lead Economist & Program Leader, it stated  that while some Kenyan firms are more innovative than China, Malaysia, India ones, in terms on products and processes:

  • The innovation is small and incremental.
  • Kenya’s management capacity, while high for Africa, still lags that of China and India.
  • Only 3% of local firms buy licenses and patents.
  • Few companies invest in R&D  (only 26% of firms).
  • Few new products are introduced in Kenya (only 12% of firms introduced new products).