Category Archives: Sports business

Vipingo Ridge

April 2010 saw the formal launch in Nairobi of the Vipingo Ridge a golf resort development at Vipingo north of Mombasa. It is similar to Great Rift Lodge, and is situated on 2,500 acres carved off a sisal estate Rea Vipingo and comprises two world-class golf courses and the real estate villas, some still available to buy.

The development Chairman spoke (on behalf of other directors unable to attend because of the Iceland Ireland Volcano & flight shutdown) about plans to build two world-class golf courses here – one of which (Baobab) has been open since last year and played by many, the other will be ready in June. They were built through trying times including the 2007 election violence and the 2008-9 global credit crisis, but he says they never compromised in quality. The courses were designed by 1988 Kenya Open Champion David Jones.

On the first course, they had 250 parcels of land of which 190 have been sold, but now 60 remain and invited attendees to take them up. The remaining one acre plots range from 10 million (now ~$130k) to 20 million (now ~$260,000) depending on their location and the course views, and some two-acre ones are 21 million.

Villas range from 2-bedrooms (150m2) of about 20 million (now ~$260,000), 3 bedrooms (200m2) of about 25 million (now ~$325k) and 4-bedrooms (250m2) of about 28 million (~$363k), can be fully-furnished for rental purposes, and all are positioned on terraces to give views of the golf course and the (distant) sea. They are low-density of about 4 villas on one acre built in Swahili/Arabic design, and membership to the golf club and a private beach club is included.

Najib Balala the Kenya Minister for Tourism gave a speech outlining the government plans for expanding the tourism sector and where golf tourism fits in their Vision 2030, which has three resorts cities planned – Vipingo, Diani and Isiolo. He also mentioned his push within the government to have a dual carriageway road built from Mombasa to Malindi to take precedence over the upgrading of Malindi to an international airport while Mombasa airport remains under-utilized and this has been agreed to in principle. He said Vipingo will host the second Utalii College (which trains staff to work in the tourism /hospitality sector) and will also be inviting a developer to set up a hotel there to complement the college and the Vipingo resort area.

A round of golf (18 holes) at Vipingo costs $40 (~ksh3,000) plus caddy fees of $6 (~Ksh500)

Nyramid Update

– The communications company identified earlier has stopped accepting new investors or deposits and has told existing investors that their contracts will not be renewed once they expire. (I.e. receive full payment)
– Also, an e-mail circulating, purporting to be from Equity Bank, names some of these companies and warns other banks and their customers to be on the lookout for these schemes.

To: undisclosed-recipients
Subject: Message from Central Bank
It has come to the knowledge of the Central bank (and other commercial banks) that some fraudsters have opened accounts in the guise of Merry Go Rounds. Be advised that these are in fact pyramid schemes. A pyramid scheme is a fraudulent system of making money which requires an endless stream of recruits for success.

The fraudsters have already mobilized a sizeable number of people who have made colossal sums of deposits. The security machinery has managed to penetrate the cells and is making good progress in this regard. In some incidents, they masquerade as working with the knowledge of the bank.

We make it very clear that the bank is not involved in any way with its operations. This is the more reason why it has been decided that all these accounts cease receiving any deposits from the public or allow any withdrawal either from the counter or from the ATMs. Any member of the public wishing to deposit or withdrawal should be advised accordingly.

Refer any enquiries to Major Mutua and Security Department in Head Office.

The following accounts have been identified to be receiving suspicious deposits from the public on a daily basis:-
———————————————————————————-
And many others not yet fully identified.

Please circulate this mail to all your friends to avoid more innocent Kenyans getting into the trap.

New NSE listing?
The Daily Nation reports that a new company will soon list on the NSE via a private placement. Midlands Limited will sell 20 million shares to raise 250 million shillings to put up cold storage facility. Suntra has valued the shares of the agro-processing, Nynadarua-based company, which currently has 3,000 shareholders at 28 shillings and they will be listed at 10.50 each. Related piece.

Sports

– Kenya is bidding to host the 2009 sevens rugby world cup. The organisers, who are up against seven other countries, are deriding the lack of government support. Good luck!

– The 2006 Nairobi Marathon takes place in 12 days. However, unlike in previous years where the different races were spread out over different parts of the city from Lenana school, to Nairobi School, to Mombasa Road, this year’s races will center around the Nyayo Stadium area.

Previous marathons have inconvenienced some travellers, churchgoers, and shoppers, on Sunday morning. However, those interested in watching this prestigious international sporting event will have to go to the race area.

Safaricom security
Safaricom to enhance its anti-fraud systems.

Let UAP take you to the 2010 World Cup in South Africa

As the logistics and numbers of the 2010 World Cup become clearer, and after my brief trip to South Africa, it’s time to re-evaluate financial plans for the Cup and specifically take a fresh look at UAP who are the only company to so far come up with a targeted finance product.

I had looked at the UAP Insurance plan earlier and dismissed/rejected it on the basis of its marginal return. E.g. investing 5,000 shillings per month over next 42 months would give about 233,000 shillings at an assured internal rate of return of about 6%. However, of that, my own savings would be about 210,000 shillings (90%) while UAP would have chipped in only about 10%.

However it is important to note, and they state this in the 2010 product, that the package is a savings plan toward the World Cup, and not an investment plan and it is therefore wrong to compare the plan to an investment fund or unit trust.

The main benefits of saving with UAP come not from the investment return, but from their in-built package which includes discounted air tickets, discounted accommodation and a chance to (save &) travel with other Kenyans fans who could also be your friends. UAP will also bid for some of the limited numbers of tickets that will be made available here (from the quota allocated to Kenya) thus providing some assurance that the match tickets can be obtained beforehand at FIFA-recommended prices and not from scalpers at the last minute.

During my week in South Africa, in which the conference paid for hotel, air travel and some meals I still used about shillings 6,000 on upkeep, some meals, gifts, beers, newspapers etc. Accommodation at the hotel (bed and breakfast) – next to Johannesburg Airport was about 6,000 shillings and a roundtrip air ticket would probably have cost about 40,000 shillings. Food in SA was reasonable at about 300 per meal, but there were some unexpected bills like currency exchange which sometimes cost 300 or 600 shillings each.

All this makes UAP package 2010 World Cup South Africa plan look pretty attractive for a similar trip to SA four years from now. Or I could stay home and watch the games on DSTV or some local TV channel, but I’d rather be there in person.

Safaricom Success

Mr. Michael Joseph, the Safaricom CEO, gave a talk over the weekend on leadership and the successful transformation of the company from a moribund department of a dying parastatal (Telkom Kenya) to arguably Kenya’s most successful company. The Q&A session also brought out more candid answers particularly on challenges he, and the company, faced as well as the performance of its competitors. And since Safaricom is not (yet) a public company, this is perhaps the closest thing to an AGM of shareholders for the company until 2009.

Safaricom CEO, Michael Joseph
The Beginning

The Company started in 2000. Vodafone (40%) put in $20 million while Telkom (Government of Kenya) who were supposed to chip in with $30 million, didn’t put down any cash, giving only their dilapidated network infrastructure and 17,000 existing, and angry, customers. The company had 5 employees led by the CEO who had done a similar start-up in Hungary. However, three days after the company launched, its network collapsed, damaging its reputation for network quality.

Today

Safaricom’s revenue is comparable to East African Breweries and Kenya Airways. It is several times larger than its competitor, has 900 employees, and 4.6 million subscribers (the company also envisions Kenya as having 16 million potential subscribers). It has invested 55 billion shillings, all internally generated, constructing its network, which now covers about 20% of the geography of the country.

Success factors

Safaricom made several key decisions early on, but was helped by the collapse of Telkom landlines and, in hindsight, some blunders by Kencell (now Celtel) which launched around the same time and which initially had a larger subscriber base in the early years. These include:

  • Focus on prepaid customers The company felt that in a country without a strong credit background industry, consumers would only spend what they had. Also, the CEO felt that they would need these mass-market subscribers to support corporate customers who were more lucrative. Today they have 90% of the corporate market, which Kencell set out to target initially.
  • Billing per second for calls while Kencell billed per minute. Safaricom sacrificed about 20% to 40% revenue per call but again, it won more customers who preferred to only pay exactly for airtime they used. There was much debate about which method was superior, but ultimately Safaricom won out.
  • Having great customer service which was free and available 24 hours a day. While customer service is only paid lip service in Kenya he felt this would be important as consumers ventured into the new mobile phone industry. Meanwhile, Kencell’s customer service was available only during working hours and was not free. The CEO knows it is difficult to get through to customer service but that’s because the company gets an average of 25,000 calls a day, sometimes double. Yet 95% of these calls are simple, “how-to” questions (e.g. send SMS, change tariff) everyday questions, answers to which are found in phone brochures.

Marketing
Even though the company is 40% UK-owned, all their products and advertisements cultivate a Kenyan image utilizing the beauty of the Kenyan landscape and Swahili words (sambaza, bamba etc.) to reinforce how ‘Kenyan’ the company is.

CEO was very dismissive of Celtel (a pan- African company) whose advertisements have nothing Kenyan about them and faults their marketing strategy for assuming all Africans are homogeneous. Earlier, Kencell also introduced (French) Sagem phones to Kenya, which no one had heard of while Safaricom used Motorola and Siemens as their basic phone models.

Competition

  • Safaricom’s average revenue per user (ARPU) is 2 X Celtel’s and has not dropped in three years even as subscribers have more than doubled, leading the CEO to conclude that most Celtel customers are primarily Safaricom customers. Even though the company has network difficulty in some places e.g. Industrial Area, Safaricom has never shaken the impression, wrong he feels, that Celtel has a better network or clearer calls. He also says Celtel has a very high-cost structure since they have ½ the revenue but only 1/10 of operating profit before finance charges.
  • The CEO is not worried about competition from CDMA wireless as long as it is in the hands of Telkom Kenya which is still a bloated giant (17,000 employees servicing 240,000 customers)
  • He is also not worried about a third entrant or other mobile operators, or new service providers, but accepts that they will change the industry.

Financing

The first time the company took on a loan, conditions were very stringent and the loan could have been recalled e.g. if cash flow dipped. But the second time they went borrowing (12 billion for network expansion) the company was so established, they were able to dictate terms to the banks. They borrowed at 1% above the T-bill rate while also retiring old debt. He also said Kencell (Celtel) had much higher finance charges since they had borrowed and were still paying back an expensive foreign currency loan from their then-parent company (Vivendi.)

Other

Peculiar Kenyan call habits: CEO denies he ever made this infamous statement attributed to him. However, he admitted he doesn’t understand why phone traffic between 8:00 p.m. & 8:40 p.m. on weeknights is four times higher than normal, even though cheaper call rates are also available on weekends and at other times during the day.

Gift of gab: The most profitable call sites in Kenya are Garissa and Mandera. Safaricom has also set up call sites to meet high demand at remote refugee outposts such as Kakuma and Dadaab. Kenyans are also high users of text messages (next to the Philippines) while Nairobi has the highest density of mobile calls in the daytime (higher than New York) partly because landlines are poor.

Social responsibility: The company spends 200 million shillings a year on corporate social responsibility (CSR) projects through its foundation and its biggest sponsorship will be the 2007 Mombasa cross country ($250,000).

Recruitment: Safaricom only employs graduates, yet somehow 70% of them fail a pre-employment test the company administers. They are now recruiting overseas and the average age of employees is 24 (seems young).

Premium rate services: CEO hates these companies who run promotions that charge 20 and 50 shillings above normal Safaricom rates. He has to let some of them use his network, by law, but makes it as expensive as possible for them to do so.

Bad stats: When the company launched, it found that most of the government statistics on income, expenditure, and population were, and still are, wrong as shown by the number of subscribers the company has.

Honesty and integrity are the best virtues he has learned to have on his job. This has enabled him to perform his job and shielded him from unreasonable requests/offers from politicians and business people and if there had even been a whiff of anything less, he would have been asked to compromise himself or the company.

Next CEO: He’s reluctant to retire even though he knows its inevitable. His last contract was renewed, after a long battle between forces from Central and Western Kenya who each wanted their own candidate, but were unable to agree, leaving him as the compromise candidate. He will prepare for retirement by stepping back as the face and spokesman of Safaricom slowly and we will soon see other senior managers at the company take on more public roles in the future.

Future

  • CEO wants the industry measure and focus to change from ARPU to ARPU margins
  • Call costs will come down and there will be more price competition (perhaps even 5/= per call) as new competitors and technology become factors down. He expects Safaricom profits to drop from next year and may have to start cutting costs to stay competitive.
  • Safaricom will have a new big product by year-end, which will change our lives. The company will also add a new tariff this year.

Safaricom IPO

  • IPO was planned to happen this year, but the Cabinet rejected the proposal until Telkom is first privatised. The reason is that Safaricom is Telkom’s only valuable asset, and they did not want to diminish Telkom’s IPO value and prospects. So the 25% sale will be in 2008 and will be bigger than Kengen’s, by far, according to the CEO.

Bankers Predict the World Cup

In March this year, an Economics team made some interesting predictions about the now on-going World Cup. While the likely outcome then was that Brazil would defeat France in the final, the team predicted that the entire world economy would benefit most from Italy defeating Germany in the final 3 – 1. Interesting read, since Italy, Germany and France are all in the semis now. (PDF here)