Category Archives: Kenya

Will Kenya’s renewed privatisation push succeed?

Image : State Department photo by Ron Przysucha/ Public Domain

President William Ruto has announced that 35 state-owned enterprises are slated for privatisation, thrilling stock market executives but dismaying opponents.

A recent change in the privatisation laws of Kenya has empowered the National Treasury to sell state owned enterprises without seeking approval from Parliament. The government argues that the amended law, enacted in October 2023, will eliminate bureaucratic hurdles and expedite the privatisation process. Shortly after assenting to the legislation, President William Ruto announced that 35 state-owned enterprises were slated for privatisation. Among them are the Kenya Pipeline Company and the Kenyatta International Conference Centre (KICC).If successful, this will mark a departure from the previous administration of Uhuru Kenyatta, which did not privatise any public companies. The last successful privatisation in Kenya was that of Safaricom in 2008, during the tenure of President Mwai Kibaki, who oversaw the sale of shares in several state-controlled firms such as Mumias Sugar, Kenya Reinsurance and Kengen.Is the timing right?Proponents of privatisation in Kenya argue that it will improve the government’s fiscal situation by generating income from the sale of assets amid mounting debt obligations that have compelled the government to increase taxes and cut back on non-essential spending. Kenya’s national debt increased from $35.39bn in 2018, to $55.08bn in 2021, and $71.48bn in 2023, according to data compiled from official sources by Statista. The global research firm projects that Kenya’s national debt will continuously increase between 2023 and 2028 by a total of $36.7bn.“The timing is right. Like many frontier economies, Kenya is faced with a huge debt burden,” says Kiprono Kittony, chairman of the board of directors of the Nairobi Securities Exchange (NSE). “Why should the government be so indebted, when it has its own assets?”Kittony notes that privatisation could unlock numerous benefits for the economy if done correctly. “Privatised companies will be more efficient, they will foster greater innovation, and they will be more market-driven; even the caliber of talent they attract will improve.”He argues that a private-sector led economy has one major advantage: it minimises unwanted political meddling in various economic sectors. “Privatised companies can aggressively compete for customers and market share as opposed to worrying about satisfying political whims.”

According to Kittony, listing of state-owned enterprises could also help address some of the corporate governance concerns surrounding these firms.

“The corporate governance of listed companies far exceeds that of non-listed companies, and there is empirical evidence that better governed companies are more effective platforms for wealth creation.”

Ending the IPO drought

One of the options that the amended law provides for privatising state-owned enterprises is to list them on the stock market through initial public offerings (IPOs). This is the preferred method for Kittony, who says that the NSE is collaborating with relevant regulators such as the Capital Markets Authority (CMA) to facilitate the smooth listing of targeted parastatals.

The Kenya Pipeline Company, which manages the country’s national oil and gas pipeline, is especially attractive to NSE investors, Kittony argues. KPC posted a pre-tax profit of Sh6.2bn (approx. $40m) for the year ending 30 June 2022 on total revenues of Sh26.21bn (approx. $170m) and total assets of Sh129.8bn ($840m), as per its most recent annual report. This makes it one of the most lucrative and valuable public enterprises in Kenya, hence the keen investor interest.

The NSE has not registered a new listing to the bourse since October 2015, when the Stanlib Fahari REIT was listed. The REIT is currently in the process of being delisted from the main investment segment of the NSE. The new privatisation plan is aimed at addressing this IPO drought, with President Ruto noting that his government intends to list 6-10 state-owned enterprises firms in the near future.

“We have established over the past few years that in Kenya we do not have a demand-side problem. There is a lot of demand for both equities and fixed income securities. The problem has always been on the supply side where we don’t have enough products to offer.” notes Kittony, expressing optimism that the renewed privatisation push will help reverse this.

However, privatisation alone is not enough to boost investor confidence. There is also a need to encourage private entities to list on the stock market, he explains. By having both public and private firms listed, Kenya can signal its commitment to market reforms and create more opportunities for domestic and foreign investors.

Kittony argues that privatisation transactions should be well-priced to ensure the government gets enough income from the privatisation exercise and the investors get a fair return.

“The pricing must be done in a way that gives upside to local investors.”

Political risks and viability of business models key concerns

However, not everyold is sold on the potential ease of a privatisation programme. Kwame Owino, CEO of the Institute of Economic Affairs (IEA) – a think tank that facilitates informed debates to influence public policy in Kenya – privatisation has not been successful in Kenya and other East African countries because of various political obstacles.

The first political obstacle that Owino outlines is public resistance arising from lack of trust in the process.

“Privatisation is not easy to sell in the East African region partly because governments are not really trusted. Many people think that privatising is to hand over the nation’s crown jewels to the private sector,” he remarked in a media interview on the topic. There is also likely to be opposition from the country’s trade unions.

Owino says that another obstacle the privatisation process faces is silent but strong opposition from some government officials who may not want to lose the benefits and advantages that come with controlling parastatals.

“Even within the government itself there are many people who enjoy the privileges that come with sitting on boards or in some cases direct procurement with enterprises that are owned by the government. They find it difficult to cede that control.”

Some state-owned enterprises that are slated for privatisation may face low investor interest due to their unviable business models and long history of operating unprofitability. A case in point is Kenya Airways (KQ), in which the government owns a 48.9% stake. KQ has been draining public funds without giving any return on investment for many years. According to the auditor-general, the Treasury gave the national carrier Sh16.27bn ($100m) in 2022 without any loan agreement or recovery mechanism, highlighting the adverse impact of loss-making entities on the government’s finances.

KQ is not alone when it comes to unsatisfactory performance among state-owned-enterprises. A 2022 report by the Treasury’s Public Service Performance Management and Monitoring Unit reveals that the majority of parastatals in Kenya are struggling financially, operationally and strategically, with an increasing number relying on bailouts and subsidies to stay afloat. The survey rated 232 parastatals out of which only 92, a mere 39.6%, achieved their annual performance targets.

The ranking looked at the parastatals’ key mandate, customer experience, corruption prevention, project completion, payment of pending bills, absorption of funds, access to government procurement opportunities for the youth and women as well as internship opportunities for the youth.

Widespread underperformance among parastatals on these key metrics may lower the market value and appeal of state-owned enterprises as investment opportunities, complicating the privatisation process by making it difficult to find suitable investors. Other private investors will believe that they can provide the leadership required to oversee serious reform and a return to profitability.

Overcoming the legal hurdles

The privatisation plan also faces major legal hurdles. Opposition leader Raila Odinga’s party, the Orange Democratic Movement, has challenged the amended privatisation laws in court, arguing that the process should be subjected to a referendum due to the strategic significance of the firms listed for sale.

High Court judge Chacha Mwita in December ruled that the petition by the opposition leader raises important questions that warrant the Court’s attention. “I am satisfied that the petition raises substantial constitutional and legal issues of public importance that require critical examination,” he pointed out in his ruling. Mwita said any planned sales made under the revised law were suspended until Feb 6 2024, when the case will be heard.

The ODM party is sticking to its guns and demanding a referendum, particularly for assets like the Nairobi based KICC. The iconic conference center is a key part of the country’s national heritage, even featuring prominently on bank notes.

“If ever there was a matter over which a referendum was mandatory then it’s the sale of National Assets like KICC, KPC and the others. One generation of greedy leaders cannot just strip a Nation of its assets without reference to the people,” notes Edwin Sifuna, Nairobi senator and secretary general of ODM.

The government faces a tough court battle after ODM’s petition to pause privatisation under the new laws was heard by the High Court. However, it still has a fighting chance to get privitisation back on track. Many factors will influence the ongoing court case, such as the quality of the legal arguments, the evidence presented, and the possibility of dialogue between the government and the opposition. Meanwhile, President Ruto is determined to continue with his plan.

This is partly because Kenya needs to remain in the good graces of its main creditors, particularly the World Bank and the IMF, who have been urging the country to get rid of unprofitable state agencies and merge those that have overlapping functions. The privatisation of these firms is crucial for Kenya to maintain its good standing with its lenders.

Source: AfricanBusiness, 9th January 2024

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Weak Kenya shilling boon for neighbour economies

Potato traders wait for traders for the valuable commodity outside Mwariro Market located along Ring Road in Nairobi, Kenya on April 11, 2023. PHOTO | FRANCIS NDERITU | NMG

As Kenyans continue to struggle with high unemployment levels, rising cost of living and faltering businesses, traders importing good from their market were all smiles as the falling shilling assured them better deals.

The Kenya shilling lost roughly 16.7 percent against the Uganda shilling since June 2023, driven by surging appreciation of the US dollar against it, and a wave of market correction among financial traders concerned about the latter’s overvalued position in the forex market.

The dollar has strongly rallied against the Kenya shilling for nearly six months —a development that saw the greenback rise from an average exchange rate of Ksh125 against in the first quarter of 2023 to a record high of Ksh155 posted in November.

On the other hand, the Uganda shilling has held steady against the Kenya currency, posting an average sell rate of Ush25 since July, compared with Ush30 recorded in January 2023. This trend has translated into notable currency gains for local importers but also raised questions about spill-over benefits for Ugandan customers.

“Some products in the Kenyan market have been discounted as well, because of low consumer demand. Though we have realised strong financial savings from this situation, I’ve told my fellow traders to put those savings aside for a rainy day instead of passing them on to customers straight away. It is always easy to cut product prices during good times, but it is very difficult raising prices in a tough economic situation.”

Buying dollars in Uganda

Mr Wadada said businesspeople from Kenya, Tanzania and Rwanda are expected to flock to Uganda to buy dollars in January because of the scarcity in the region, and this may cause fresh depreciation pressures against the Uganda shilling and potentially wipe out the savings realised by local importers.

“Nonetheless, stable fuel supply patterns between Uganda and Kenya of late have helped maximise some of the currency savings enjoyed by Ugandan importers who buy goods regularly from Kenya,” Wadada added.

Read: Ugandans flock to Kenya for holiday shopping

The high taxation and living costs experienced in Kenya have also impacted Kenyan citizens living in neighbouring countries.

30pc drop

“Anyone who lives in Uganda and is paid in Kenya shillings is losing about 30 percent of their pay in currency depreciation-related costs. But those of us that earn in either Uganda shillings or US dollars and live in Uganda are fairly shielded from that problem,” said John Chihi, a Kenyan professional working in Kampala.

“Those selling real estate in Kenya but live in Uganda are also likely to lose about 30 percent of their money through currency depreciation costs if they choose to value their property in Kenya shillings.”

“The combination of big price increases on various items sold in Kenya and currency depreciation have raised the cost of living for everyone. I used to spend about Ksh5,000 ($32) on my son’s upkeep per week, but I now spend Ksh12, 000 ($77.8) per week, because of various product increases and tax increments applied on many goods and services in Kenya today,” Mr Chihi added.

In Tanzania, cross-border traders in fresh food, especially in the north, say the weakening of the Kenyan currency has impacted their business.

The Bank of Tanzania (BoT) foreign exchange rates published on December 14, 2023 showed the Kenyan shilling exchanging at 16.2 to the Tanzania shilling, from the previous Tsh22 earlier in the year.

Economics lecturer at the University of Dar es Salaam Prof Humphrey Moshi said the supply and demand chains between Kenya and Tanzania would be affected by the weakening Kenyan currency. Shared essential services such as education and health have also become expensive for both Kenyans and Tanzanians.

Zanzibar President Dr Hussein Mwinyi was quoted in an officla statement saying the value of trade between the two nations in 2022 had reached $800 million.

“Due to the good relationship and co-operation that exists, our two countries have also been able to benefit economically, especially in the fields of trade and investment,” he said.

Source: The East African, 31st December 2023

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Kenya marks 60 years of independence, and the president defends painful economic measures

People jump and wave Kenyan flags during the 60th Jamhuri Day Celebrations (Independence Day) at Uhuru gardens Stadium in Nairobi, Monday, Dec. 12, 2023. Thousands of Kenyans braved a chilly morning to attend festivities Tuesday in the capital Nairobi, to mark 60 years since the East African country gained independence from British Colonial rule. (AP Photo/Brian Inganga)

NAIROBI, Kenya (AP) — Kenya’s president on Tuesday defended the high taxes the government recently imposed, calling them a “necessary sacrifice “in helping the country deal with ballooning foreign debt which now stands at $70 billion.

Speaking at celebrations marking 60 years since Kenya’s independence from Britain, President William Ruto said East Africa’s largest economy was no longer at risk of defaulting on bond payments following economic reforms his government had undertaken since taking power last September.

“Though painful, the sacrifices we have made will not only make our freedom fighters proud,” Ruto told tens of thousands of people in the capital, Nairobi. He added: “I can now confirm without fear of any contradiction that Kenya is safely out of the danger of debt distress, and that our economy is on a stable footing.”

The economy has taken center stage in politics and daily life in Kenya as the government tackles mounting debts. A $2 billion Eurobond is due in June.

Last month, the government reached a lending agreement with the International Monetary Fund amounting to $938 million, a boost for the country struggling with dwindling foreign exchange reserves.

Recent attempts at reforms include a mandatory housing levy which courts struck down last month for being “discriminatory, irrational, arbitrary and against the constitution.”

The president also removed subsidies on fuel and maize flour — a staple in Kenya.

Ruto vowed that “all taxes collected by the government shall be put to their intended use and that no single shilling — not one shilling — shall be lost through embezzlement, theft or corruption.” Kenyans have long complained of widespread official graft.

Source:  AP , 12th December 2023

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Kenya court suspends privatisation of 11 companies

Kenya court suspends privatisation of 11 companies

Kenya court suspends privatisation of 11 companies

Kenya President William Ruto speaks during a plenary session …   –  

Copyright © africanews

Peter Dejong/Copyright 2023 The AP. All rights reserved.

Kenya

A court has suspended the privatisation of 11 state-owned companies in Kenya, including the national oil and gas company, following an appeal by the main opposition party, a court source said on Tuesday.

According to main opposition leader Raila Odinga, the sale of the state’s holdings should be subject to a referendum because of the strategic importance of the companies concerned in this country, the economic powerhouse of East Africa.

In his decision handed down late on Monday, High Court judge Chacha Mwita said he was “satisfied that the (opposition) application raises constitutional and legal issues of public importance that require critical examination”.

The sale process has therefore been suspended until 6 February, when the case will be examined on its merits.

On November 27, the Kenyan government announced the sale of stakes in 11 public companies in order to replenish the state coffers, at a time when tax revenues are falling short of its targets.

The Kenyan economy is plagued by galloping inflation and a plummeting currency, which has caused the cost of debt repayment to soar.

The 11 companies, including the national oil and gas company and one of its operators, agricultural enterprises and a publishing house, are among the 35 that President William Ruto announced last week that he wanted to privatise.

At the end of June, the public debt of the country of some 53 million inhabitants stood at more than 10,100 billion shillings (64.4 billion euros), according to the government, or around two-thirds of gross domestic product.

The cost of servicing the country’s debt, mainly to China, has soared while the Kenyan currency has plummeted to record levels, with the shilling now trading at around 153 to the dollar.

The agricultural sector, which accounts for 21% of GDP in 2022 and is the biggest contributor to the Kenyan economy, has been hard hit by the recent drought, followed by torrential rains.

Since Kenya passed a privatisation law in 2005, only six public companies have been partially sold, including the largest telecommunications operator Safaricom and electricity producer KenGen.

Source: africanews, 5th December 2023

Kenya court suspends privatisation of 11 companies

Kenya court suspends privatisation of 11 companies

Kenya President William Ruto speaks during a plenary session …   –  

Copyright © africanews

Peter Dejong/Copyright 2023 The AP. All rights reserved.

Kenya

A court has suspended the privatisation of 11 state-owned companies in Kenya, including the national oil and gas company, following an appeal by the main opposition party, a court source said on Tuesday.

According to main opposition leader Raila Odinga, the sale of the state’s holdings should be subject to a referendum because of the strategic importance of the companies concerned in this country, the economic powerhouse of East Africa.

In his decision handed down late on Monday, High Court judge Chacha Mwita said he was “satisfied that the (opposition) application raises constitutional and legal issues of public importance that require critical examination”.

The sale process has therefore been suspended until 6 February, when the case will be examined on its merits.

On November 27, the Kenyan government announced the sale of stakes in 11 public companies in order to replenish the state coffers, at a time when tax revenues are falling short of its targets.

The Kenyan economy is plagued by galloping inflation and a plummeting currency, which has caused the cost of debt repayment to soar.

The 11 companies, including the national oil and gas company and one of its operators, agricultural enterprises and a publishing house, are among the 35 that President William Ruto announced last week that he wanted to privatise.

At the end of June, the public debt of the country of some 53 million inhabitants stood at more than 10,100 billion shillings (64.4 billion euros), according to the government, or around two-thirds of gross domestic product.

The cost of servicing the country’s debt, mainly to China, has soared while the Kenyan currency has plummeted to record levels, with the shilling now trading at around 153 to the dollar.

The agricultural sector, which accounts for 21% of GDP in 2022 and is the biggest contributor to the Kenyan economy, has been hard hit by the recent drought, followed by torrential rains.

Since Kenya passed a privatisation law in 2005, only six public companies have been partially sold, including the largest telecommunications operator Safaricom and electricity producer KenGen.

Source: africanews, 5th December 2023

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Africa’s direct investment rebound

The number of foreign direct investment (FDI) projects in Africa increased by 6 % in 2017, despite the continent experiencing sluggish growth, according to a report by EY. The top five FDI destinations – which accounted for over half of total investment – were South Africa, Morocco, Kenya, Nigeria and Ethiopia. The uptick in projects came as economic growth in Africa recovered following the lowest growth in over 20 years in 2016.

Source: African Business, Dec/jan 2ß10

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