Category Archives: South Africa

Kenya’s Money in the Past: Diplomatic Engagement

This week saw the publication of “Kenya’s 50 years of Diplomatic Engagement, from Kenyatta to Kenyatta,” a book on the history of the diplomatic services and foreign policy in Kenya.

Edited by Dr. Kipyego Cheluget, Kenya’s Assistant Secretary General at COMESA, it is a collection of writings by different authors including foreign ambassadors. It is the result of a nine-year journey that came from an idea that came when he was Director of the Foreign Service Institute – to document the history of the diplomacy in Kenya. And he then set out to travel around the county, interviewing and recording former ambassadors and diplomats such Munyua Waiyaki, Njoroge Mungai and even unofficial ones like politician Mark Too. Some of them have since passed away like Bethuel Kiplagat and Phillip Mwanzia, and whose widows were present at the book launch.

The Chief Guest was Former Vice President, Stephen Kalonzo Musyoka who has also served as a Minister for Foreign Affairs and Minister for Education and he said that to upgrade Kenya’s  diplomatic performance, the country should reward career diplomats and have them, not election losers, as Ambassadors, and legislate a 70:30 ratio of professionals over politicians in such posts, a reverse of the current imbalance. The event had panel talks with former ambassadors on topics like peace-building in Ethiopia, Somalia and the East African region, using sports as a tool of diplomacy, combating apartheid, the lost years of engagement with Russia shaped by the Cold War and how the pioneering diplomats worked through trial and error for decades without an official foreign policy.

The MC for the event at Taifa Hall of the University of Nairobi, Nancy Abisai said the only good books is a finished book, and Kenya’s Cabinet Secretary for Education Dr. Amina Mohamed, added that, following a challenge by President Kenyatta, her Ministry was in the process of setting up a unit for the publication of Kenyan memoirs and which would be operational by January 2019. Former Vice President Moody Awori, who at 91 is still an active Chairman of Moran, the publishers of the book, said they were looking for more scripts to turn our more such books.

Excerpts from early sections of the book and launch

  • It has never been right to say that Kenya’s foreign policy is a “wait and see” one. Diplomats were able to negotiate to host a combined World Bank/IMF meeting in 1973 and for UNEP to have its headquarters in a newly independent African country – Ambassador Francis. Muthaura.
  • Njoroge Mungai initiated steps for President (Mzee) Kenyatta to be nominated for the Nobel Peace Prize in 1972 and Singh Bhoi drafted the dossier.
  • Dennis Afande opened the Kenya Embassy in Jeddah, Saudi Arabia in February 1977. He was the only employee there for four months and the only signatory to the Embassy bank account for the period.
  • When Paul Kurgat went to apply for his scholarship visa at the Nairobi Russian embassy, in 1984. he was arrested and questioned about links to Oginga Odinga. He was later to return to Russia as Kenya’s Ambassador in 2010.

The book is available in local bookshops, such as the University of Nairobi one, at a cost of Kshs 1,395 (1,200 + VAT) and a digital version is also available on Amazon for $8 (~Kshs 800).

Barclays Kenya unveils AFMI 2018 – the Absa Africa Financial Markets Index

Barclays Kenya launched the second edition of AFMI 2018 – the Absa Africa Financial Markets Index, revealing performance improvements at a time of economic turmoil on the continent and also the addition of new countries to the index that now tracks twenty African economies.

In the time since Barclays launched the initial Africa Financial Markets Index in 2017, they have seen good engagement from policymakers striving to improve their appeal to investors through the AFMI 2018 index which measures countries across six pillars of market depth, access to foreign exchange, market transparency/regulations, capacity of local investors, macroeconomic opportunity, and enforceability of legal agreements. This year, three new countries – Angola, Cameroon and Senegal joined the index bringing the countries tracked to 20 and the country measures were also tweaked to include elements of financial inclusions and levels of investor education

The AFMI 2018 was again topped by South Africa, the most advanced financial market in Africa, followed by Botswana, Kenya, Mauritius and Nigeria. Kenya, Morocco and Seychelles all improved in the rankings while Mauritius and Namibia slipped slightly. Nigeria was credited for improving in its administrative efficiency and tax reforms. 

Jeremy Awori, Managing Director of Barclays Kenya said that emerging markets were under great pressure with currencies dropping, interest rates rising, political instability, falling commodities etc. and these highlighted how strong domestic financial markets could be used to cushion African economies from headwinds. He said that while  Kenya topped the access to foreign exchange pillar of the index, and had improved in the enforcement of  legal agreements, showing it was on a path to be a regional financial hub, there was still need to need to improve capacity of local investors, and grow the diversity of investor products. He added that Barclays Kenya was the first institution to list an ETF – an exchange-traded fund at the Nairobi Securities Exchange (NSE) and was also providing thought leadership on international swops and global master repurchase agreements.

Guests at the launch included Geoffrey Odundo, CEO of the NSE, and Paul Muthaura, CEO of Kenya’s Capital Markets Authority (CMA). Odundo said that while the 2006-08 IPO era unlocked retail investor capital, there was much more opportunity for investors to get good returns in the secondary markets including through REIT’s and that the NSE was currently piloting on offering derivatives. Muthaura spoke of initiatives to connect investors across African investors including a pilot exchange partnership between Kenya and Nigeria, and the African Securities Exchanges Association which was looking to enable trading links between the six largest exchanges on the continent.

Anthony Kirui, Head of Markets at Barclays Kenya said the country had an array of fixed income securities, but attention needed to shift to re-opening bonds as opposed to issuing new paper. He added that there was a need to create a primary dealership and a true OTC market and to also address the reluctance from local owners to list on stock markets. Muthaura said that one factor in the lack of new listings at the NSE was due to companies, who may have been candidates for listing to get new capital, now opting for the abundant and cheap funding from banks that were flush with cash in the era of interest rate caps

In East Africa, Uganda was stable (at No. 10) on the index while Rwanda and Tanzania dropped slightly, the former due to discrepancies in the implementation of rules and the latter due to lack of capacity of local investors. Ethiopia was at the tail end of the Index due to not having a security exchange and corporate bond markets, but that is likely to change as the country pursues reforms such as freeing the foreign currency exchange rate and planning for privatization of Ethiopian enterprises.

The AFMI 2018 report was done with the Official Monetary and Financial Institutions Forum (OMFIF) and can be downloaded from the Absa site.

Vivo Energy – London IPO prospectus peek

Last week Vivo Energy had the largest African listing at the London Stock Exchange since 2005 and the largest London IPO so far in 2018. Vivo  raised £548 million by selling 27.7% of the company at 165 pence per share, which valued Vivo at £1.98 billion.

The company which operates fuel businesses in 15 Africa countries, will have a secondary listing in Johannesburg while it will report primarily to the London exchange.

A peek at the 288-page prospectus

Performance: In 2017 revenue increased by 16% to $6.6 billion and earnings before taxes were $210 million, a 21% increase. Revenue was 66% from retail (Shell fuel stations, convenience stores, restaurants) and 29% from commercial business (large customers, LPG), with the rest from lubricants business.

Vivo has Subsidiaries: in Madagascar, Tunisia, Senegal, Burkina Faso, Cote d’Ivoire, Guinea, Uganda, Kenya Ghana, Mali Mauritius, Morocco, Cape Verde) and a 50% investment in Shell & Vitol Lubricants. All these companies are registered in Netherlands or Mauritius. Prices are regulated in 12 of the 15 countries that they operate in, including Kenya.

Engen: The company is in the process of buying Engen for $399 million, and this will comprise a payment of $121 million in cash and 123 million new shares of Vivo, after which it is expected that Engen will own 9.3% of the company. The Engen deal which is expected to be completed later in 2018, adds 300 stations and brings on 9 new countries to the group.

Johannesburg: Another 10% of Vivo is being availed to get the company listed in South Africa. The listing at Johannesburg will cost $16.3 million which includes payments for legal advice $4M (Freshfields Bruckhaus Deringer), $2.6M to the reporting auditors & accountants (PWC), other legal advisor fees of $1.5M and $142,000 to Bowman, JSE fees for listing and document inspection of $180,000, and $7.1 million in other expenses in South Africa.

Taxes: Sale of shares in the UK will attract a stamp tax duty of 0.5% of the offer price, while a tax of 0.25% is payable on every sale in South Africa.

Managers & Employees: There is an extensive listing in the prospectus on Vivo’s key managers and directors, their roles, compensation and other benefits. For directors, it lists current and past directorships e.g. Temitope Lawani, the co-founder and Managing Partner of Helios Investment Partners, has 47 current directorships. A top Kenyan official is David Mureithi, the Executive Vice President for Retail, Marketing, and East & Southern Africa.

Vivo has a long-term incentive plan for executives and senior directors and also an IPO share plan for employees. They have a total of 2,349 employees, with 240 in Kenya, which is third in employ size behind Morocco (579) and Tunisia (270).

In Kenya: they had sales of $1.3 billion in 2017 up from $1 billion in 2016. They have 189 stations in the country (56% of which are in Nairobi) and are the number one in the country (due to the strong Shell brand) with a 27% market share. They also supply jet fuel at four airports and sell lubricants. And while employees of Engen have just filed objections to the deal in Kenya, going by past transactions, Kenya’s Competition Authority will approve a deal as long as there is no severe loss of jobs.

Shareholders: Prior to the listing were Vitol Africa B.V. 41.6%, VIP Africa II B.V. 13.3%, (Helios) HIP Oil B.V. 2.4% and HIP Oil 2 B.V. 41.8%. After the deal, with a full subscription, it is expected that Vitol goes to 28.9%, VIP to 9.2% and HIP 2 to 30%.

Litigation: A government ministry in DRC has tried to put a hold on the sale of the Engen subsidiary in DRC (in which the government owns 40%), but Vivo believe the case has no basis and are contenting this.

Barclays launches the Africa Financial Markets Index 

Barclays launched their first edition of the African Financial Markets Index (AFMI) that ranks and compares the depth of financial markets in seventeen African countries. The countries were score against six broad pillars of (1) Financial markets depth, (2) Access to foreign exchange,  (3) Market transparency & the regulatory environment, (4) Macroeconomic opportunity, (5) Enforceability of agreements and (6) Capacity of local investors.

South Africa came out on top of the AFMI with 92 out of 100. It was classified as a highly developed market but (with a) challenging macroeconomic outlook; It was followed distantly by Mauritius (66), Botswana (65) and Namibia (62).

Kenya was ranked fifth (59), just ahead of Nigeria (53) Ghana (49) and Rwanda (48), and Kenya was found to be the most sophisticated in East Africa due to innovations and reforms by the Nairobi Securities Exchange (NSE) and the Capital Markets Authority (CMA).  Kenya’s scores were quite consistent across the six pillars with recent developments including the de-mutualization and the IPO of the NSE, the launch of a first exchange-traded fund by Barclays Kenya, and the launch of the M-Akiba bond.

Kenya is the seventh largest stock exchange by market capitalization and sixth by bond listings. But George Asante, Managing Director and Head of Markets at Barclays Africa said that Kenya lacked deep-pocketed market-makers who could broker deals, and take price risks and also that Kenya needed to develop a primary dealership network. He added that the participation of local investors in long long-term investing was quite limited and local investors are critical as they buffer volatility caused by foreign investors. Assets were concentrated among buy-and-hold investors, rather than pension funds and insurers. Kenya’s domestic institutional investors have $12.6 billion of assets but this only works out to  $173 per capita and he suggested that Kenyan markets and regulators needed come up with more securities listings, instruments, and innovations.

Barclays Bank of Kenya Managing Director Jeremy Awori said that “The AFMI will be produced annually to drive conversations, track progress and address gaps in financial markets.” Already countries like Rwanda and Morocco want to use the index data to improve their financial markets.  At the tail end of the AFMI was Egypt, Mozambique, Seychelles and Ethiopia. Ethiopia was scored as “a fast-growing economy but with no financial markets depth or local investor capacity.”  

Guests at the launch included Jeffrey Odundo, CEO of the NSE, and Paul Muthaura, CEO of Kenya’s CMA. Muthaura said the CMA had a master plan to make Kenya a choice destination for capital flows by 2023, while Odundo said the NSE has broadened its  revenue and product base (by introducing REIT’s, ETF’s, M-Akiba and next derivatives, and a new law to govern securities lending), and was working to make Kenya more visible. They are active members of the Africa Securities Exchange Association and will host a “Building African Financial Markets” seminar in Nairobi in April 2018. They also plan to join the World Federation of Exchanges.

The AFMI report can be downloaded here from the Official Monetary and Financial Institutions Forum website; OMFIF produced the report with Barclays Africa

Kenya’s Money in the Past: Kalonzo Musyoka

Excerpts from his recently published official biography – Against All Odds. 

Background

  • – He worked at customs department at the port of Mombasa where he was disgusted by the bribery he saw. He did his pupillage at Kaplan & Straton. Later he got a Rotary Club scholarship to study business management at Cyprus and he was poached to work at Manu Chandaria’s Comcraft in the legal department.
  • Lost the 1983 election and came fourth. But when the MP was shot two years later by a policeman, occasioning a by-election, Kalonzo reluctantly entered that and won.
  • He has always been touched by the poverty he saw when he grew up and launched the Kalonzo Musyoka Foundation in January 2006 which worked with Shelter Afrique to launch affordable housing for rural women in Kitui.

Cabinet & Economic Intrigues

  • KANU era: Mwingi is one of the fastest growing towns in Kenya because of the water it gets from Kiambere-Mwingi. But that was only after he fought off powerful forces after he secured $116 million from the Italian government – a powerful voice who wanted it to go to the National Water & Pipeline Corporation but Kalonzo steered it to TARDA so it did not become a white elephant.
  • CHOGM The Commonwealth Summit in New Zealand which was attended by Mandela was almost overshadowed by ‘Bull of Auckland’ incident. But Kalonzo explained the incident to officials there so that it did not reach the media there or affect the ongoing summit. But it did leak afterward in the Kenya media.
  • When Tony Blair praised him before President Moi after the 1997 CHOGM, he knew had lost his Foreign Affairs docket – and after the elections, he was moved to the Education & Manpower ministry.
  • In 1998 he fled teachers striking outside his office by hiding in his wife’s car. He then got Mulu Mutisya and elders to negotiate a settlement with teachers union (KNUT) and the strike was called off the following day.
  • Moi was shocked at the excesses of Mobutu when they visited Gbadolite – his hometown and said “River Ubangi could generate electricity for all of Africa.
  • South Africa: After Kenya had in 1963 turned down an ANC request to set up a base in Nairobi, Moi worked hard to mend fences with South Africa after Mandela was freed, and Mandela thanked Moi for $1 million that Kenya gave to ANC during apartheid struggle. Mandela also made a secret visit to Nairobi when he fell ill on a flight in April 1990, then returned for an official visit in July.
  • NARC: Free primary education was Kalonzo’s brainchild as education minister. When Kibaki became the NARC candidate in 2002, Kalonzo gave the campaign team all the papers and policies that he had written – including on FPE that was soon implemented by the new government. 
  • MOU breach: Happened when Kibaki moved Kalonzo from Foreign Affairs to Natural Resources. All NARC summit leaders had a choice of their ministerial dockets – and he had chosen Foreign Affairs, Raila had taken Roads & Public Works and Moody chose Home Affairs. 
  • Jubilee: After beating back a “feeble” Musalia (for president) effort, Uhuru and Ruto turned on to him; and his reunion with Raila started the day Uhuru and Ruto returned from the ICC hearings and after (vice president) Kalonzo had met them at the airport and driven around Nairobi with them.

The book is available to buy here.