Category Archives: Kenya budget

Kenya 2018 Budget Breakdown from Barclays

Barclays Bank has released a detailed budget breakdown of Kenya’s estimates for the year 2018/19. This was at an event for corporate investment banking clients of Barclays with a theme of “demystifying the national budget.” and which came a few days after Kenya’s Cabinet Secretary (CS) for Treasury, Henry Rotich had delivered his budget speech and estimates for the year to the country’s parliament.

The Barclays budget breakdown team featured Samantha Singh a Senior Analyst – Macro Research, Barclays Africa Group, Anthony Mulisa (Regional Treasurer East Africa), Peter Mungai (Head of Tax, Barclays Kenya) and James Agin, (Corporate Investment Banking Director). Anthony Kirui the Barclays Director of Markets said that while other accountants and audits had done budget analysis that mainly looked at the tax implications, the Barclays budget breakdown would focus on macroeconomic issues that affect their clients.

Some Highlights 

Revenue Targets:  The Kenya revenue estimates for 2018/19 are very bold, aiming for Kshs 1.9 trillion of domestic revenue, which is 40% more than last year. This is premised on a projected GDP growth for Kenya this year of 5,8%, but which Barclays expects will be at 5.5%

Tax Increases: Some new measure include import duties on iron, steel, oils, excise duties on money transfers sugar, private vehicles, and revised capital gains taxes, withholding taxes and business permit taxes. The Barclays team said that the income tax bill 2018 replaces some 1974 legislation that has not kept pace with time also changes the VAT act, and stamp duty acts.

The budget also moves several items from being zero-rated to be exempt, which means that suppliers are prohibited from claiming refunds and this will result in higher costs of products will be passed on to consumers. Also value added tax (VAT) on fuel products kick in from September 2018, while Kerosene taxes will also go up to match those of petrol.

While the CS mentioned reconsidering the 35% income tax on individuals, he was silent on that of corporations which are now likely to go to 35%, the highest in East Africa. The Barclays team said that Parliament needs to critically look at this, as the average corporate income tax rate across Africa is at 28%, while globally it is 25%. Also, the modalities of a new 0.05% excise duty on financial transfers of more than Kshs 500,000 ($5,000) need to be clarified.

Managing Deficits: Kenya’s deficits have been widening and this is due to lower revenues and higher expenditure, especially of recurrent items. Still, the government targets to reduce the fiscal deficit from 7.2% to 5.7% of GDP. The fiscal deficit is about Kshs 600 billion for 2018-19 is quite large; which the government plans to finance it with a mix of domestic and external finance, but Singh said it will be more difficult for Kenya and other African economies to get Euro Bonds as US interest rates are rising.

She said debt was not necessarily bad, but it was more about where the money went, which should be towards development, but not for recurrent expenditure or to defend currencies. The team was also concerned about recurrent expenditure which makes up 16% of GDP and 60% of the budget while development expenditure is 25% of the budget.

Barclays expect foreign exchange reserves to remain adequate but that with an IMF facility ending in September, Singh said that international investors would want to see Kenya affiliated with IMF and have some standby assistance (even though the IMF is not popular), or it will be hard for them to continue to finance the fiscal deficit.

Debt & Development: The Barclays team was concerned that 4 out of every 10 shillings raised this year will go to pay for debt, and they were also concerned about recurrent expenditure which makes up 16% of GDP and 60% of the budget. They noted that two years ago, 33% of the budget was going to development; now it is down to 25% and that is still going to come under more pressure as public salaries and recurrent expenditure goes up unless the government strengthens its public finance management, ensure efficiency in the collection of taxes, cut waste & corruption, and ropes in a large part of the population who are not making a fair contribution – and the team opined that if these three measures were achieved, the budget’s ambitious targets would be met and this could even enable future tax cuts.

Local Industry & Manufacturing Support: The Kenya government plans to grow manufacturing’s share of GDP from 9% to 15%. This will be enabled by raising customs taxes on iron, steel, textiles, footwear in order to promote local industries by protecting them from cheap imports. The government has also come up with offer off-peak electrical energy schemes at lower tariff’s to encourage businesses to manufacture over 24-hours.

Interest Rate Caps: In his budget speech last week, the CS Treasury requested a repeal of interest rate caps and the Barclays team was hopeful that would be approved by Parliament, saying that the cap had resulted in unintended consequences that were detrimental to the credit sector – with small businesses being unable to access bank credit and that t had also complicated monetary policy decision making.

Financial Behaviour: The team also discussed a draft financial markets conduct bill that was recently introduced as one of the alternative solutions to the interest caps and which is now going through public participation. They said that Barclays had given feedback on the bill which is likely to increase the cost of regulation through double licensing, and which is unclear on who it protects.  They said that the bill borrows from Western countries where there was aggressive credit expansion to people who should not have been borrowing, whereas here it is the opposite situation of there being too little credit.

Conclusion: The budget breakdown is a part of a series of sessions that Barclays will have on topical issues that impact their corporate clients, and another session will take place in Mombasa.

Kenya 2018 Budget Policy and the Big Four

Kenya’s National Treasury has published the 2018 budget policy statement  (BPS) – titled “The Big Four” – creating jobs, transforming lives.

It has lots of mentions of the “Big Four” agenda which President Uhuru Kenyatta unveiled in his Jamhuri Day speech (December 12, 2017) which are targets of what his government will aim to achieve in its second term. According to the BPS, the “Big Four” Plan (items are) increasing the share of manufacturing sector to GDP; ensuring all citizens enjoy food security and improved nutrition by 2022; expanding universal health coverage; and delivering at least five hundred thousand (500,000) affordable housing units.

BPS excerpts; 

  • The BPS assumes that GDP will be between 6% to 7% over the next five years, and nominal GDP will rise from Kshs 6.7 trillion ($66 billion) in 2016  to Kshs 14.3 trillion ($139 billion) in 2022.
  • The BPS assumptions are premised on improved collections and efficiencies at Kenya’s 47 developed counties to collect revenues, and for them to have and adhere to realistic budgets. Also, that there be reductions in duplication of roles, resulting in simpler government structure. Counties wages as a percent of their revenue has been 37-38% for the last three years.
  • The BPS cites a goal to double income tax from Kshs 625 billion in 2016-17 to Kshs 1.26 trillion in 2021-22 and mentions that a review of Kenya’s income tax code will be completed by June 2018 to enhance tax compliance and ensure the stability of tax revenue. 
  • The BPS notes that interest payments over the same period will rise from Kshs 271 billion to Kshs 491 billion and wages from Kshs 336 billion to Kshs 563 billion. Elsewhere it projects that wages which were 30% of gross national resource in 2016/17 will progressively reduce in subsequent years down to 23.4% in 2021/22.
  • The BPS cites public-private partnership projects that will be undertaken during the 2018-2020 period such as a second Nyali bridge, Lamu coal plant, Lamu port (3 berths),  Lamu-Garissa-Isiolo highway, airport rehabilitation car parks, conference centers, affordable housing projects, and even a Likoni crossing aerial cable car.
  • There are also 22 energy projects – a mix of geothermal, solar, wind, from which the government commits to purchase energy. These include Lamu coal ($360 million per year) and the Lake Turkana wind (€ 110 million per year).

Some risks noted in the BPS include, counties failing to collect & remit revenue, and the Kenya Deposit Insurance Corporation only covers 9.2% of bank assets (the figure should be closer to international goal of 20% to protect against systemic bank risks). Others are terrorist attacks, natural disasters, climate change, disruptions to mobile money systems, unfunded pension liabilities, and most important the sustainability of public debt.

EuroBond & Mindspeak with Henry Rotich

Last weekend, the Mindspeak series had National Treasury Cabinet Secretary, Henry Rotich.

There was a lot of expectation that he was there to talk about Eurobond but that wasn’t the case and it was merely one subject he touched on in his talks about his role and the  functions in the government, and economic outlook for Kenya.

In his intro, host Aly-Khan Satchu said that the Kenya Eurobond was perfectly timed and a stunning issue at 6.875%, the largest SSA bond in recent times. It has helped the shilling outperform many currencies – only losing 11% against the dollar, compared to the Rand (-39%), Angola (-50%) and Kwacha (-73). KCB CEO Joshua Oigara noted that people outside Kenya are more confident than people within, and people who are doing great things, should know that a certain percentage will not agree with you.

CS Rotich at Mindspeak

Excerpts of the CS presentation, remarks, and Q&A session 

  • Kenya Outlook China’s slowdown to focus on domestic and US exit from the international market will have an impact on the world, but Kenya with a diversified economy and strong private sector should be resilient
  • Challenges include reducing poverty, and inequality and creating employment. The economy needs to grow faster than 5-6% as 6% will only create 600,000 jobs – so needs 10% growth to create 1 million jobs per year.
  • Agriculture has not been modernized for a long time. these services sector (ICT, financial). manufacturing has been flat for two decades (10% of GDP) – and this needs to be 20%. That’s  why they are support leather & textile, and are working to lower energy costs and improve the business environment through special economic zones.

The Job 

  • He is guided in his job by three measures of economic health – interest rates, exchange rates and inflation (stable, single digits).
  • The ministry has undertaken fiscal reforms, and the budget is more policy-based. They pay suppliers with Gpay and IFMIS, new procurement laws are in place, the auditor general reviews expenditure, and there are quarterly reports on the website and which are submitted to parliament.


  • Kenya still has low and sustainable external debt levels. It did not get HIPC debt relief, unlike other countries and has paid debts on time – this was a big selling point when marketing the Eurobond.
  • The current account deficit has gone from 10% to 7% of GDP mainly because of lower oil prices, less thermal energy generation and a  slowdown of consumer imports  (good, as the focus should be  on investments, not consumption)
  • You cannot be a growing economy if you can’t borrow from outside – you need  safeguards.  The bond was oversubscribed and when it traded favourably, they also did a tap sale that picked another $750 million. Aly-Khan said the government actually got $815 million and only has to pay back $750 million.
  • Explanations and documentation about the bonds are on the treasury website.
  • Euro bond proceeds received have been spent on 2013-15 budget programs like infrastructure projects. The bond was not specific, and not earmarked to any project. it was for budgetary support of programs, some initiated by the previous government, such as roads and electrification
  • We will remain as participants in the international market and soon intend to borrow more


  • Need to raise Kenyan’s savings from 12% to at least 30% of GDP – perhaps through more innovative finance products (from insurers  & capital markets) to save.
  • M-Akiba bond launch has been delayed. It was meant to come out last October, but interest rates were still high and volatile.
  • They have also sorted issues with Safaricom and CDSC  – all that’s left is to set the price and launch.
  • Kenyans will be able to buy government bonds of amounts of Kshs 3,000 (~$29) by phone.


  • Wants to raise the tax-to-GDP ratio to 25%, but people say there are too many taxes already
  • Wants to keep government wages below 35% of revenue.
  • New VAT and excise bills have come, but we are yet to modernise income tax. That should happen by the next budget with a view to expanding the tax base (very few people pay tax now).
  • They will also support county governments to implement and collect taxes assigned to them like property tax.

Local Banks

  • Wants to reduce bank interest rate spreads from 17% to 8% – we’ve been asking banks what is this 8%? Can they share infrastructure, reduce the cost of perfecting securities etc.?
  • There are too many banks that are not offering competition;  5 banks control 70-80% – the other 30 are competing for 30% market share. Parliament stalled a move to increase bank capital, but his aim is for 15-20 banks which actually compete.

 Oil & Petrol

  • It’s good that Kenya did not discover oil early – and was thus able to diversify and develop agriculture, and services, and it’s only now that oil & minerals are being discovered.
  • The petrol pump price would be lower if the exchange rate was 88-90. Now the rate at 102 has eaten a lot of  savings.
  • When oil prices fall, we should  actually keep the petrol price the same and transfer the savings to a fund


  • There has been no government privatization since Safaricom — the current law is a hindrance rather than a facilitator as there are too many lengthy requirements and safeguards. We may have to amend the law if you want to see more privatization transactions and need to trust the government by not requiring too many consultations.
  • There’s a pipeline of projects to sell,  starting with sugar companies, then a few banks (the government owns 4 banks), hotels stakes etc.

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%.

Analyzing Kenya Pipeline

Pre-IPO Peek at KPC

Kenya Pipeline Company (KPC) is expected to be the next big privatization project to help plug the current Government of Kenya budget deficit. The IPO transaction adviser selection process is already underway for KPC and other state corporations

How much can one glean from audited accounts of the giant company? I got hold of a 2007 annual reports of the company – a rare big glossy booklet that mentions every project e.g. SAP, ISO, fibre optics, refurbishments in Western Kenya, Mombasa, Athi River, with lots of graphs.

KPC still mostly compares itself to other state corporations in terms of goals such as to raise capacity from 440,000 to 880,000 lire per hour by August 2008 – a massive project that later turned controversial and may have cost the last MD (Okungu) his job in January 2009.

– 2007 revenue of 8.8 billion shillings (~$117 million) (2007 was 8.45 billion and 2003 was 6.5 billion). 2007 Revenue comes from export services (4.3b), local services (3.7b), and 748 million from Kipevu storage fees
– Pre-tax profit of Kshs. 4.3 billion in 2007 (~$53 million)
– Earnings per share was 163 shillings [153 in 2006, 2003 was 29 shillings) – company’s shareholding is made up of 18 million ordinary shares of 20/= par each.
– Dividend paid out of 8.25 per share each year 2007 and 2006
– Cash of 4.5 billion (1.1 billion in 2003) of which 2.5 billion is in Treasury securities (which they only started investing in from 2005)
– Paid 2.2 billion in direct and indirect taxes and was recognized by the Kenya Revenue Authority as a distinguished taxpayer
– Total assets of 20.2 billion shillings (18.7 billion in 2006) – however fuel stocks of 13 billion shillings (384,509 cubic metres) that is owned by marketers is not included in their accounts. [2006 was 36 billion comprising 856,958 cubic metres]
2008 decline: summarized KPC financial accounts show revenue declined by 7% to Kshs. 8.2 billion and pre-tax profit 54% down to Kshs. 2.6 billion in 2008

Auditors: Accounts audited by controller and auditor general, who hired Deloitte & Touche; who said the accounts were ok except to note that 1.2 billion receivables (current assets) include 348 million owed from an unnamed oil company that is the subject for a court case and for which no provisions have been made

Scandals: has been a cash cow for politicians for years with a high turnover of managing directors, manager and directors. Different parts of the report mention Kshs. 967 million pending in lawsuits, 404 million leasehold land unable to develop since it is gazetted forest land, 347 million from Oil Company, 314 million of obsolete spares, and Kshs. 221 million for a finance deal with Triple A that cost the previous MD (Ochuodho) his job. The company also provided Kshs. 382 million of services to National Oil Corp of Kenya (related company as they are both owned by the Government– do they pay all oil marketing fees?

Bank with NBK, CBA, Stanchart, Co-op. In 2007, they paid off all bank loans (EIB, Stanchart, and CBA) amounting to Kshs. 500 million in 2007, but are still stuck with the 221 million Triple A loan.
– KPC recently signed a syndicated loan of Kshs 8.2 billion with CFC-Stanbic, Barclays, CBA, Citibank, and KCB.

– Exports 58% to Uganda, 155 Rwanda, DRC 14% Tanzania 6% Sudan 4% Burundi 3%
– strong shillings bad for export sales
-pricing structure – more expensive at Eldoret and Kisumu means that the company loses revenue if other countries e.g. Rwanda, Uganda remove their oil at Nakuru or Nairobi depots
– 50% of their revenue comes from fuel exports, and With oil being found in Uganda, Sudan, and possibly Congo, is the pipeline capable and adequate to transfer oil from central Africa to the coast at Mombasa?

Others & Non-core activities
– Will Construct an LPG plant with private sector investors (including Kenya pipeline refineries limited, and now-collapsed Triton) in Mombasa at a cost $50 million and one in Athi River at a cost of $13.5 million by Bharat of India
– Other income includes Kshs. 8 million in helicopter income, and also disposed of 120 million worth of helicopters in the year 2007
– 50 million donated to the Ministry of Youth Affairs
– 6 acres worth of land worth 30 million in Nairobi was donated for a street children rehabilitation center
– Spent 114 million in advertising (by a monopoly) and 35 million shillings in legal expenses
– Has shares in the Petroleum Institute of East Africa and Consolidated Bank
– Successfully changed their pension from a defined benefit to a defined contribution scheme

– Slight financial dip in 2008 will probably be attributed to the post-election disruptions
– Capital spending could be significant as they are extending the pipeline to Uganda (Eldoret to Kampala). Also, the company already spends quite a bit in pipeline rehabilitation costs, but won’t a completely new pipeline (though more expensive) be a better solution?
– Needs a stronger management team led by a strong MD – like Kengen’s Eddy Njoroge (someone with a legacy to protect who will shun the wheeler dealers) and a stronger board (not just the Energy ministers’ cronies)
– Could be a good IPO buy i.e. a cash cow pre-tax profit margins of almost 50%

Other Opportunities
– Bank of Africa: branch managers, assistant branch managers, operations assistants’ by 5/2
– Consolidated bank credit manager, administration manager, apply to the Head of HR 51133-00200 by 31/1
– Housing Finance senior relationship manager (mortgage finance), portfolio manager, legal officer,
Dyer & Blair sales agents, and for several hundred other weekly jobs visit Kenyan jobs blog.