Monthly Archives: June 2014

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%.

Kenya Euro Bond A to Z

Excerpts from the prospectus for the ‘Euro bond’ being floated by the Kenya Government. 

Advisors: Include two Kenyan law firms (Kaplan & Stratton, Anjarwalla & Khanna) and 3 UK ones. Citibank are the registrars and paying agents and lead managers are Barclays, JP Morgan, QNB, Stanchart and Dyer & Blair is a co-manager. The prospectus notes that while no person has a material interest in the offer, the advisers may perform banking transactions with the Kenya government.

Also, the Kenya High Commission in London is the processing agent and the Court of International Arbitration in London will resolve bond investor disputes. 

Anglo Leasing There is mention of the status of 18 contracts unearthed following a passport deal that was found to be irregular. The prospectus notes that 4 worth Kshs 19B were canceled (with Kshs 1B recovered?!), and 3 worth Kshs 6.8B were completed. Of the other 11 worth Kshs 30 billion, 2 were settled directly, 2 received payments of $16.4M in May 2014 after a court judgment, 6 had not started (but what happens?), and on the last one (security equipment to the NIS) the company has made a demand of Kshs 3B but has not sued. China:  Few mentions about the country in terms of trade balance, debt, and the railway. 

Denominations: The bond is  issued in denominations of $200,000 (~Kshs 18 million)

Dublin:  The bond will be listed on the Irish Stock Exchange   

Euro Bond: The phrase does not exist in the document

Interest Rate is not stated

Investors: The offer is meant for qualified institutional investors (QIIs) and bond notes may not be issued offered or sold in Kenya, South Africa, Qatar, UAE, Singapore, Hong Kong, or the USA.

Debt Performance: Total debt at the beginning of 2014 that is owed by the Kenya (central) government was $24 billion. Debt service is expected to drop from Kshs 200B this year to about Kshs 150 billion for the next two years.

Also, the Kenya government believes its current account deficit of (cited at $3.7 billion) is overstated citing, among other reasons; the shilling has remained relatively stable, the measures excluded unclassified services (which have quadrupled) and the amount of foreign direct investment (FDI) is under-reported (by up to 50%?!)

The government has guaranteed debts to among others; Kengen – $250M, Kenya Ports – $140M, Kenya Railways – $45M and the Kenya Broadcasting corporation $39M. Kenya has a history of debt re-schedules at Paris (1994, 2000, 2004), and London (1998, 2003) and has had some debts canceled by China, Holland, and Finland 

Purpose: Funds will be used for infrastructure projects and to pay off a $600M loan that matures in August 2014.  Some major infrastructure projects include railway expansion (new wide gauge railway will be built in 3 phases at a total cost of $13 billion) LAPSSET (with a new port at Lamu, railway, road, oil terminal & pipeline and resort cities at Lamu, Isiolo, Lake Turkana), 4 dams at a cost of $16.8 billion and the replacement of the Mombasa-Nairobi oil pipeline.

Risks  Insecurity is cited. Another is the ICC (International Criminal Court) cases for which the political implications of a conviction cannot be predicted. Taxes Payments will be made to bondholders without deducting any withholding taxes. However,   the prospectus has tax advice for US, UK and Kenyan investors who may be interested in buying the bonds. For Kenya investors, interest payable on the Notes has been exempted from income tax – but that is yet to be approved by parliament, who may revoke that)  

Euro bond document found via @alykhansatchu  

More at the WSJ who expect the Euro bond rate to be at about 7% 

Joi Ito in Nairobi

This week, Joi Ito was in Nairobi as part of a team from the MIT Media Lab where he is a Director. While here, he gave a chat on his time as an academic and an entrepreneur in the technology sector.

(Wikipedia excerpt about him:  Ito is a venture capitalist and angel investor and was an early stage investor in Kickstarter, Twitter, Six Apart, Technorati, Flickr, SocialText, Dopplr, Last.FM, Rupture, Kongregate, Fotopedia, Diffbot, and other Internet companies).

Some points from his talk

There’s a bit of luck in life: He is here because he survived, and because he is lucky. What’s worked for him may not work for anyone else, and while some successful people think they have a magic touch, it’s a bit of luck they have had in their lives.

Advice for young people: 1. Question authority 2. Think for yourself – don’t look for an answer, look for your own provocation, as there’s no single answer for anything

His Learning Process: Some people learn in universities, or apprenticeships, but he learns best when in conversation with other people, not when he is reading. E.g. he apprenticed in a pet store, and on a movie production set. His well-educated sister realized that her uneducated brother (Joi) was doing o.k. – so she studied him and found that the social context is an important reason for learning – and she published these as Hanging Out, Messing Around and Geeking Out

He said the reason women don’t code, is because there is no fun for them, while guys teach other code in a  context they enjoy, but which  girls’ don’t find to be fun and that has to change for. Earlier he commended the AkiraChix for what they’ve done in inspiring and enabling young girls to learn to code, and said they were far ahead of some US institutions that were still made dominated and had not made strides in inspiring girls.

His Mission in Life: This he found was to build community whether at Mozilla while running community commons, or working in a nightclub as a DJ (something he described as harnessing the flow, of the room, all without leading). 

He found that street gangs in Chicago had more compassion and willingness to help people in their community than kids who were competing and studying hard in his physics class at. university – and that he learned more about community and human values on the street than in a class.

Choosing the Right Partners: There’s an alchemy involved when creating a community – and he’s always failed when he picked a person for their skill over their personality. He said investors have ruined more companies than founders – so be very careful who you invest with…he also noted that you may inherit some members of a team /organization like founders who you can’t get rid of.

Agility over Planning  Trends are o.k., but trying to predict when something will happen is foolish, as there is so much complexity. Just be aware of what is happening (use a compass, not a road map), understand what you have, and what’s going on around you and figure out your next move – and if the code/plan is not working, dump it .. E.g. Youtube has gone through many iterations from 2005 when it was a dating site with video, then Flickr with video .. but they always want to be the biggest video site..

Joi Ito once sought $600,000 from a company to set up an ISP in Japan. And that company then spent $3 million on a study to tell them that they would not invest in an ISP (the cost of mapping is expensive, and don’t wait for all the info before making a decision).

Take Risk Early  He was $200,000 in debt when he was 18, as his mum was sick, but he was working in a  tough job at a Japanese company, and was eventually able to pay it back. He’s since taken lot’s of risks, and created a lot of companies that have failed and it’s better to do this early in your career. He was into video games as a kid, learned to code, run bulletin board systems and computer networking (which never made money). But when TCP/IP came out he realized that was the future and he went on to build an ISP, a search engine, then an app company…

Also, the cost of trying things is going down (Facebook and Yahoo grew out of dorm rooms, not out of big capitalized companies ) – and likewise the cost of failure is now cheaper so you can take more risks. What’s important is not to get rid of risk, but to take it well.

World Opportunity:  Joi Ito said he’s a bit negative about Japan which is becoming less relevant with an aging population, worse education system, and conservative politics – but then he’s on the board of Sony because he wants to save the company that’s going through a tough time

Kenya/Africa have young populations and growing consumers, and while there are issues (like incumbent Telco’s) there are also opportunities.  He compared that that to Silicon Valley which is saturated with 100 companies chasing an idea, each with $10m funding. He said it’s possible to connect the networks and thanks to easier communications companies here can find partners in China to enable them to overcome some obstacles.

Bio-Engineering the Future: One big future trend will be bio-engineering. There are now gene hacks being done by school kids, and the cost of hacking genes going down six times faster than Moore’s law. While Monsanto used to spend billions on genetic engineering, the future is not going to be about such big companies..the solution to malaria will not be from a rich guy at Harvard, but it may be from kids hacking solutions in Africa.