Category Archives: Coronavirus

Kenya relaxes Covid-19 restrictions

Kenya will relax some of the restrictions that have been progressively building since the first case of Coronavirus was announced in the country in early March.

Speaking in Nairobi today, President Uhuru Kenyatta said the decision to re-open the country was a balance between a health crisis and an economic crisis. He mentioned that while the country was not quite ready, a “reasonable levels of preparedness” to reopen had been attained.

He called on citizens to be responsible and to engage in minimal contact and movements and to delay “non-essential up-country travel.” They should also avoid interacting with the elderly and the ill

Some of the changes will be:

  • The restriction of movement in and out of Nairobi, Mombasa and Mandera counties will end on July 7. The Government will then study patterns of infection over the next three weeks.
  • Local air travel resumes on 15 July.
  • International air travel resumes on August 1.
  • Churches can re-open with a maximum of 100 attendees and each ceremony will be not more than an hour. Also the ill, and no one under 13 years or over 58 years will be allowed to attend.
  • The evening curfew across the country, restrictions on wedding & funeral numbers, and a ban on political gatherings were all extended by another 30 days.

The President said it was not enough for the Government to pump resources into the economy using stimulus instruments, and that such efforts will go to waste if the people do not co-create solutions with the government.

He called on businesses to create new business models to find opportunities presented by the crisis. He cited the textile industry in Kenya, which had ramped up manufacturing, and emerged as a net exporter of PPEs (personal protective equipment) to the region and he called on other industries to emulate this.

A frank assessment

EDIT: A day later, Prof George Magoha, Kenya’s Cabinet Secretary in the Ministry of Education, announced that the 2020 school calendar year will be considered lost due to COVID-19. He proclaimed that they had shelved a proposal to open for candidate classes in September. Instead, there will be two Form One class cohorts in the 2021 academic calendar, all learners in Grade 1 to 4; Standard 5 to 7; and Form 1 to 3 in 2020, will remain in their current classes in 2021 and there will be no KCPE and KCSE examinations in 2021.

How competition agencies should reorganize themselves to mitigate the impact of Covid-19

The Covid-19 pandemic has occasioned an unprecedented humanitarian and economic crisis across the World whose impact will be felt for quite some time. 

All stakeholders, including Governments, regulators and other State agencies, have to implement their mandates to ensure that markets remain open, functioning, and competitive. They also need to develop and implement policies that ensure the impact of this crisis is short-lived, while also mitigating its effects.

Recently, heads of Competition agencies across Africa congregated virtually under the auspices of the African Competition Forum (ACF) to deliberate on how we can prepare ourselves for an uncertain future. The meeting also recognized the critical role competition agencies play in ensuring that markets continue functioning competitively.

Competition agencies have in recent weeks attended to infractions like price gouging, abuse of dominance, cartelization, and abuse of buyer power. The purpose of such conduct is private gain at the expense of consumer welfare and, in the current emergency, is antagonistic to containment efforts.

In order to continue playing their role in the post-pandemic era, it was noted that Competition agencies should reconfigure their operations from at least four perspectives; organizational, regulatory capacity, enforcement priorities, and policy advisory role. 

Competition agencies should be prepared to work with limited resources due to decreased Government revenues, even as demand for their mandates expand. As a matter of priority, agencies should review their strategic objectives and refocus their interventions in favour of fewer but highly impactful activities. 

They should also enhance collaboration and cooperation with regional Competition agencies and, nationally, with respective sector regulators. 

Competition agencies should also entrench a culture of Enterprise Risk Management (ERM) and Business Continuity Management (BCM). At the Competition Authority of Kenya, implementation of ERM and BCM, coupled with the digitization of our core mandate processes in mid-2019, is enabling the organization to weather this storm with minimal disruption to service delivery. 

However, automation begets risks such as cyber-attacks and breach of client confidentiality and therefore specific measures should be taken to insulate an automated organization.

From a regulatory perspective, it is critical that agencies review their laws to ensure that they are results-oriented, while at the same time flexible to deal with emergencies. The Competition Act No.12 of 2010 has enabled the Authority to attend to supply chain and consumer protection challenges. 

Agencies should also align their interventions with the country’s industrial policy. For instance, Competition agencies need to think about how they can ‘lower their guns’, albeit momentarily, to support a certain threshold in the growth of our Nation’s industrial capacity.

Competition agencies are likely to experience an upsurge in joint venture applications and distress mergers, more so from the airline industry. It is also expected there will increased merger activity in the online and e-commerce space.

On the flipside, killer mergers could also increase where dominant incumbents seek to acquire upcoming competitors, more so in the digital economy which has become indispensable in the pandemic. Towards this, the Authority has realigned its workforce to enable critical review of all merger applications, but within the law.

Further, the Authority is finalizing investigations in the retail sector regarding allegations of a few supermarkets failing to pay their suppliers on time, which is against abuse of buyer power provisions under the Competition Act. Unfettered supply of essential commodities to consumers is paramount during a pandemic.

Lastly, the Covid-19 pandemic has seen some countries revert to price controls. As competition agencies, we need to advise our governments that price controls are counterproductive since they ultimately harm consumers, more so by facilitating the proliferation of black markets. Quality and the safety of goods is also not guaranteed.

Fortunately, the Kenyan government has attended to the market distortions during this pandemic through the forces of supply and demand. Specifically, the Government has ensured that essential supplies in the market are available.

Regulators should not strive to go back to the pre-Covid-19 dispensation, in terms of how we organize and manage our agencies, but instead, let us embrace the new normal way of doing things that is far from normal.

Mr. Wang’ombe Kariuki is the Director-General, at the Competition Authority of Kenya. He is on Twitter at @wang_kariuki.

Kenya Airways 2019 results

Kenya Airways announced their results for 2019, which its Chairman Michael Joseph described as a reasonably good year in which they opened new routes, improved on performance and flew a record number of passengers, but one in which they had to make new accounting standard adjustments and then end by looking ahead to a Coronavirus world.   

Group CFO Hellen Mwariri read the financial results starting with an explanation of IAS17 that was replaced by IFRS16. In 2019, the airline had shown improved revenue of Kshs 128 billion which was a 12% increase from the Kshs 114 billion the year before. They had flown 5.1 million passengers, a 7% increase and opened new routes to Genera and Rome with connections to Malindi.

The revenue growth of Kshs 14 billion was offset by increased direct costs from more flights of Kshs 5.8 billion, increased fleet ownership costs with the return of two Boeing 787s that were previously-leased out, resulting in a Kshs 6.4 billion expense, and increased finance costs which went up by Kshs 4.9 billion.

The main difference with the new accounting standard was that leases which were not on the balance sheet, are now included, with interest as an expense and this would affect airlines heavy on leasing. She said that mainly as a result of the 76% increase in finance costs, the airline’s loss for the year also increased by 71%, going up from Kshs 7.5 billion in 2018 to Kshs 12.9 billion in 2019. 

Much like former CEO Mbuvi Ngunze, the airline’s new Group CEO Allan Kilavuka, who recently took over from Sebastian Mikosz, was welcomed with an in-tray of increased losses and new challenges, this time brought about by Coronavirus. 

He estimated the impact of Coronavirus was a revenue loss of revenue, to date, of $150 million (~Kshs 16 billion) and that even if they start flying in June, he estimated that revenue will be $400 million (Kshs 43 billion) lower than 2019.

He said the airline was tentatively preparing to resume flights on June 8 2020. For now, they have converted three Boeing 787’s for cargo and have daily flights carrying flowers (1,200 tons to Europe so far), food (2,600 tons to Europe & the Middle East) and medical equipment (1,500 tons), while occasionally also operating occasional passenger repatriation flights.

The losses sent the airline back into negative equity territory, but the Chairman spoke of light at the end of their restructuring, which was through the planned creation of an airline holding company, that would include the Kenya Airports Authority and probably a re-nationalised Kenya Airways. A bill is with the Attorney General and should go to Parliament in a matter of weeks. Parliament has, in essence, revived an earlier plan to enable the airline to compete with its regional peers that are all state-owned. 

Safaricom 2020 results with CEO transition

Safaricom PLC announced its financial results at a unique event, streamed online, that featured its incoming and outgoing CEO’s.

Overall revenue grew 5% to Kshs 251 billion as M-Pesa revenue grew 12% to Kshs 84 billion with mobile data growing 12% to Kshs 40 billion. Voice and SMS revenue declined. Profit before tax increased to Kshs 105.77 billion up 17% from the previous year, and the company will pay out Kshs 56 billion as dividends to shareholders, up from 50 billion in 2019.

The firm’s Chairman Nicholas Ng’angá welcomed the new CEO Peter Ndegwa who has been in office for a few weeks now and thanked Michael Joseph who had been appointed interim CEO following the demise of Bob Collymore in July 2019.

Ng’angá asked that the country’s regulatory period, after Coronavirus, be designed to support the revival of businesses, not one that increases taxes for consumers and businesses, noting that the company had paid Kshs 111 billion in taxes and fees to the government during 2019.

Michael Joseph said that in his second stint as CEO they had simplified offers to customers and mobile data had double-digit growth while gaining market and increasing data revenue. Safaricom and Vodacom have acquired the M-Pesa brand from Vodafone and will roll out M-Pesa across Africa with new products and lower costs. Safaricom is also pursuing one of the new licenses in Ethiopia.

Sateesh Kamath, the Chief Financial Officer, said the results were adjusted for the one off-gain of acquiring M-Pesa and that service revenue still grew in the year, despite the decline of the sports betting and the reduction of tariffs the company had undertaken to support consumers during Coronavirus. He said that they plan to introduce more use cases to cannibalise M-Pesa “withdrawal” revenue and instead grow customer e-balances in the long run, while Joseph said that they plan to roll out a unit-trust investment product.

Peter Ndegwa, the incoming CEO, announced that the company would roll out a device financing offer to enable Kenyans to access 4G smartphones, with affordable data, by paying as little as Kshs 20 per day. He concluded by saying that Coronavirus made it impossible for the company to provide forward guidance on earnings and capital expenditure for 2021 and that they would do that at a later date.

Aviation in Africa after Corona

The future of aviation in Africa after Coronavirus was the subject of a webinar by Invest Africa held this week with aviation experts. It came on the day that Air Mauritius entered into voluntary receivership, and this was said to be the first of many that will follow.

The call, which was said to be one of the most popular by Invest Africa, featured Rodger Foster (CEO at Airline SA), James Hogan, (former CEO at Etihad), Nick van de Meer (COO at Vista Global), Tony Payne, Yvonne Makolo (CEO at RwandAir) and Allan Kilavuka (MD at Kenya Airways).

Some excerpts:

  • The whole industry in lockdown and we have never seen global aviation stop, just cargo and emergencies. Airlines, can’t use 9/11 and SARS as an indication, but 9/11 resulted in 40% of business loss which took almost 5 years to recover from.
  • 40% of the global commercial aircraft grounded may not fly ever again. When SAA resumes after Coronavirus, it may only operate at 3% of its previous capacity flying 5 routes with 3 planes, down from 3,000 flights and 55 routes. 
  • Rethink business models: Rethink networks, rationalize flees, and operate small capacity aircraft. When travel resumes it’s unlikely that will require large aircraft. There may be just 3-4 business class passengers on some routes and while people may increase travel over 12-24 months, the global shutdown has made them realize that virtual meetings work, and there is less need to travel
  • There’s too much capacity and, with 200 airlines, too many players in Africa aviation. It will be survival of the fittest.
  • Airlines usually have 2 months of cash on hand, but with no planes in the sky, they are engaging in cash conservation in the short-run and finding alternative fundraising to be sustainable in the long run.  
  • While airlines are in discussions with their governments, countries have other many priorities now, like health and hospitals, and there will be no more free money from governments for airlines.  
  • Instead, airlines need to work with each other – airlines, airport, MRO, manufacturers etc. Airlines don’t have the balance sheets that airports do and consolidation will be essential because of reduced demand across the board and excess capacity.  
  • What makes a bankable airline for investors? Airlines all have the same overheads – and it is not necessary every airline to duplicate these. A 5-star hotel operates 5 restaurants using one kitchen. African airlines should restructure and have one centre of excellence for MRO (maintenance, repair, and operations), pilot training, finances, back-office structures. 
  • The productivity of staff and assets need to improve significantly – use fewer resources to do more work – but airlines have to balance that with an even smaller and health-conscious travelling public (crew and passengers) and extra costs of cleaning aircraft that are unbearable. Alongside that, skills are abundant as Covid has placed pilots and engineers on furlough and retrenchment.
  • But the challenge with cooperation and consolidation are different laws, regulation, politics, and bilateral agreements in every country.

Listen to the aviation webinar here