Investors Diary

Dear Investor,
Welcome to sample a collection of my thoughts, research, financial advice, gut feeling and other works that i love to share with you from time to time.

If you are a stock market investor or otherwise and would like to invest in the Kenyan stock mart, the Nairobi Stock Exchange, you can always get free and helpful financial and investment advice on this site.

Further leave you comments and lets make the world of investment fun to operate.

More latters as we strive the world of investing fun , more fun and alot of fun.

Thursday, August 30, 2007

Kenya as an Emerging Capital Market (Part II)

Capital Market
Capital markets are an essential part of the financial sectors of modern economies. Providing alternative savings tools to savers and non-bank sources of financing for enterprises. The markets promote economic growth through improved efficiency in savings mobilization.
Nevertheless, in an economy of many private enterprises, many firms list in the market while many that qualify to do so do not due to fear of losing management control amongst others.

Banking Sector
Banks, in their dual role of being investment advisors as well as lenders may tend to indirectly discourage the stock exchange as a means of raising capital. For the Nairobi stock exchange, there is both inadequate marketing of itself trough efficient investor education programs as well as lack of a sufficient number of products listed at the bourse to attract more investors both local
and foreign although the current focus on upcoming Safaricom IPO is creating excitement across the globe even in Wall Stree cycles.

Factors in the Emerging Kenyan Capital Markets
There are factors that have to be addressed in terms of the stage of development of the Kenyan market. Countries with big equity markets have less volatile, more price efficient
markets with substantial degrees of liquidity. Most emerging markets, as in Kenya, are highly concentrated. As a result they tend to be undeveloped, and are small and illiquid, exhibiting pricing volatility and error. The more integrated the market to international markets, the less volatile the returns.

Institutional Investors and stability
A factor that drives markets strongly is the level of institutional arrangement and the regulatory framework. In Kenya, this may have neccessitated the need to allocate more shares to institutional investors referred to as 'Qualified Institutional Investors' to encourage market stability as opposed to more retail speculators who would sell at ther slightest of scare.

Emerging markets and development
The rise of emerging markets is changing the traditional view of development as follows.
-First, foreign "investment" is replacing foreign "assistance." Investing in the emerging markets is no longer associated with the traditional notion of providing development assistance to poorer nations.
-Second, emerging markets are rationalizing their trade relations and capital investment with industrialized countries. Trade and capital flows are directed more toward new market opportunities, and less by political consideration.
-Third, the increasing two-way trade and capital flows between emerging markets and industrialized countries reflect the transition from dependency to global interdependency.

Emerging markets like Kenya are the "key swing factor" in the future growth of world trade and global financial stability, and they will become critical players in global politics. They have a huge untapped potential and they are determined to undertake domestic reforms to support sustainable economic growth. If they can maintain political stability and succeed with their structural reforms, their future is promising.

So what?
The accelerated information exchange, especially with the aid of the Internet, is integrating emerging markets into the global market at a faster pace.

Monday, August 27, 2007

Kenya as an Emerging Capital Market (Part I)

Thanks to a blog comment by Bankelele, press statements and an email i got from Strathmore (which happens to have been my former university) on the upcoming finance conference on the capital markets i have ventured to look into this new phenomenon that is set to revolutionize the way business in done in this part of the world. The forum dubbed 'Kenya as an emerging capital market' will endeavor to address issues including monetary policy and capital markets, the integration of the East African capital markets, NSE as an engine for growth, private equity and venture capital, using capital markets to fund infrastructure and the the formation of the EA capital markets.
I therefore wish to expound on this issue that i hope will be comprehensively addressed during the capital markets forum on Friday 7th September 2007.

Emerging Markets
This is a term coined in 1981 by Antoine W. van Agtmael of the International Finance Corporation of the World Bank.
An Emerging Market Economy (EME), or Developing Market Economy (DME) is defined as an economy with low-to-middle per capita income. Such countries constitute approximately 80% of the global population, representing about 20% of the world's economies. The term emerging markets is commonly used to describe business and market activity in industrializing or emerging regions of the world.

What an EME Looks Like

  • EMEs are characterized as transitional, meaning they are in the process of moving from a closed to an open market economy while building accountability within the system.

  • As an emerging market, a country is embarking on an economic reform program that will lead it to stronger and more responsible economic performance levels, as well as transparency and efficiency in the capital market.

  • An EME will also reform its exchange rate system because a stable local currency builds confidence in an economy, especially when foreigners are considering investing. Exchange rate reforms also reduce the desire for local investors to send their capital abroad (capital flight).

  • Besides implementing reforms, an EME is also most likely receiving aid and guidance from large donor countries and/or world organizations such as the World Bank andInternational Monetary Fund.
Emerging Economies:
These are countries considered to be in a transitional phase between developing and developed status. Examples of emerging markets include China, India, Mexico,Brazil, much of South East Asia, countries in Eastern Europe, parts of Africa and Latin America.
The term "rapidly developing economies" is now being used to denote emerging markets such as The United Arab Emirates, Chile and Malaysia that are undergoing rapid growth.

Top 4 Emerging markets
According to the latest findings from the Grant Thornton International Business Report (IBR) published on April 19 2007, Mexico, Indonesia, Pakistan, and Turkey are the emerging markets to watch. They have identified them as the next generation of emerging economies set to have significant impacts on the world economy, although Mexico was already identified as an important economy in studies such as BRIMC (Brazil, Russia, India, Mexico and China), or as part of the G8+5. These countries may match or even overtake some of the commonly identified BRIC economies (Brazil, Russia, India and China) which are expected to join the global economic powers, although these economies are unlikely to match India or China in strength.

According to CEO of Grant Thornton, Indonesia and Pakistan, with their large populations, have the potential to grow their labour intensive exports and could capitalize on the process of low-cost production that mainland China has so successfully exploited.

World Stock Markets
Billions of dollars of share priced have been wiped out in world stock market, while credit markets have gone through a period of repricing that prompted fears of a meltdown. It is as if the world markets catch cold when the US market sneezes which set up the herd contagious instinct amongst investors. Contagion is the herding behaviour when expectations cause investors to pullout in response to a shock that hits the market. The expectations become self fulfilling when the behaviour causes a collapse of the markets despite sound fundamentals. As globalization advances, increased capital flows are likely to exacerbate the interdependence of economies and heighten the possibility of contagion.

EME vis World Markets
The integration and interdependence of financial markets has become evident in current years and the US markets being the largest in the world triggers contagion whenever a crisis such as the sub-prime mortgage loans hits it. This has far reaching effects on the emerging markets of Africa and Kenya is no exception.

Emerging Market Economies (EME) have to watch closely how the developed financial markets undertake their business operations in relation to their overall stability if they are to continually poise themselves for stable macroeconomic environments and capital markets advancements.

Local Politics vs. Global Economy
An emerging market economy must have to weigh local political and social factors as it attempts to open up its economy to the world. The people of an emerging market, who before were protected from the outside world, can often be distrustful of foreign investment. Emerging economies may also often have to deal with issues of national pride because citizens may be opposed to having foreigners owning parts of the local economy.
Moreover, opening up an emerging economy means that it will also be exposed to not only new work ethics and standards but also cultures as well: indeed the


Although emerging economies may be able to look forward to brighter opportunities and offer new areas of investment for foreign and developed economies, local officials of EMEs need to consider the effects of an open economy on its citizens. Furthermore, investors need to determine the risks when considering investing into an EME. The process of emergence may be difficult, slow and often stagnant at times. And even though emerging markets have survived global and local challenges in the past, they had to overcome some large obstacles to do so.

Kenya as an Emerging Market Economy (EME) therefore needs to brace itself for challenges that comes alongside this new recognition.

CMA: A Toothless Bulldog in Hibernation

Capital markets developments:
The budgetary estimates laid down during the financial year 2007/08 spelt out the following developments as far as the capital markets is concerned:
• The percentage of IPOs reserved for East African residents has been increased from 25% to 40%.
• Dividends not claimed from listed companies after seven years are to be remitted to the Investor Compensation Fund (ICF), which shall now be overseen by an ICF Board.
• The CMA can now impose sanctions, including financial penalties (not exceeding Kshs 10 million for institutions and Kshs 5 million for individuals). These shall be paid into the Investor Compensation Fund. In addition, the general penalty under the CMA Act has been increased to Kshs 15 million.

CMA on the Spot:
The CMA over the last few years due to the collapse of giant Uchumi Supermarkets and Francis Thuo and Partners as well as issues of insider trading that has been allegedly the case in most brokerage houses. Other issues include the issue of bouncing cheques as proceeds from the sale of securities to their clients by some rather big brokers in full view of CMA.
Unlike the Central Bank of Kenya (CBK) that has been on its toes in the regulation of Commercial Banks and the Monetary Policy, the CMA has been in hibernation. The CMA has been a stumbling block in the establishment of new brokerage firms and investment banks in the industry due to its high handed rules and unclear underdeals that seem to be doing runs this institition.

In essence there are more than 200 applications for brokerage firms estblishment gathering dust at the CMA premises but upto now nothing has been done to them and essentially means no new broekerage firm will be coming up to help meet the increasing demand amongst the investing public that has seen long queues behind brokerage houses during IPOs. Their weakness is also being demonstrated by their inability to allow the opening up of an Over The Counter (OTC) market which thrives in many countries.

Stocks Agents:
Due to CMA’s weakness, there has been a huge retail market that has sprung up since September 2005 in the form of small starters who practice as stockbrocking agents at a commission ranging from between 20-50% of the brokerage fee. Although this is a good starting point for practitioners in the industry, it denies many entrepreneurs the opportunity to receive full commission for the clients they serve very diligently and with a lot of professionalism. Indeed, the agents also need their cover to limit underpaying by the powerful brokers who control the industry. Further, there is also need for the establishment of the stocks agents association although there have been alot of stumbling blocks on the way. Infact these agents should also operate like insurance agents but apparently as of now they not allowed to serve more than one broking house.

Underdevelopment of Equity Market:
The CMA takes the blame for our underdeveloped equity market. It goes without saying that real growth should start from the root- the brokerage firms. My recommendation would be that the CMA encourages more players (brokerage firms and investment banks) to get into the industry. I would also encourage the CMA to get tougher on regulation to avoid conflict of interests that has seen an industry player being the shareholder of some listed companies as well as the chairman of the NSE. This creates a compromising situation and sometimes it would be difficult to differentiate between shareholding and management.

Quarterly Reports:
This will call for industry scanning and allowing for public scrutiny. I would propose quarterly publication of accounts in the dailies in the same way commercial banks do. This should be done with the help of external auditors to guarantee transparency. My justification for this is the fact that like commercial banks, they too are handling public funds and like a listed firm, it is of importance to know that a firm is not highly exposed and be assured of its credibility.
With such measures, there would be no cases of losers in the stock market as was witnessed in the Uchumi collapse where shareholders could not even get the par value of the share. The Capital Markets Authority recently came up with the Investor Compensation Fund.

Establishment of the Investor Compensation Fund:
The ICF is established under the Capital Market Act Cap485A of the laws of Kenya and stipulates as follows under Article 18:

18. (1) There shall be established a Fund to be known as the Investor Compensation Fund for the purposes of granting compensation to investors who suffer pecuniary loss resulting from the failure of a licensed stockbroker or dealer, to meet his contractual obligations.
(2) The Compensation Fund shall consist of -
(a) such moneys as are required to be paid into the Compensation Fund by licensed persons;
(b) such sums of money as are paid under this Act as fines or penalties or under section 34 as ill-gotten gains where those harmed are not specifically identifiable;
(c) such sums of money as accrue from interest and profits from investing Compensation Fund moneys;
(d) such sums of money recovered by or on behalf of the Authority from entities whose failure to meet their obligations to investors result in payments from the Compensation fund; and
(e) interest deemed to accrue on the proceeds of a public issue or offer for sale of shares of a company listed or to be listed on an approved securities exchange, between the closing date and the date of dispatch of shares certificates or refund cheques, to be determined at the rate prescribed by the Authority.
(f) such sums of money as are received for purposes of the Compensation Fund from any other source approved by the Minister.
(3) Moneys which have accumulated in the Compensation Fund may be invested by the Authority in such manner as may be determined by the Authority.

Fund Limits:
An issue of importance is that compensation is limited to ksh 50,000 per client whereas the total pay out should not be more than 50% of the fund. There is also a maximum of ksh 5 million per collapsed broker / investment bank is payable as compensation to investors. Since NSE and CMA normally gets commission from their sale/buy orders of 0.01% there is need to revamp and strengthen Investor Compensation leading to investors shying away from the same.

Speculative Tendencies:
As the market slowly rejuvenates and with good prospects of economic growth projected to be above 6% for 2007/08 things are looking good for our stock market. It is also important to note that the occurrences at Francis Thuo and Uchumi Supermarket have served as a good lesson to many equity investors, as they have realized that one can be a millionaire overnight (as witnessed in the KenGen IPO) or end up a poor man for the rest of his life- as was witnessed in the Uchumi collapse. But as with all speculative markets, risk takers will take positions when the market is at its lows.
In Kenya, we have a potential investment population that is almost equivalent to the number of Kenyan voters being served by only eighteen (18) brokerage firms, save for the new broker, Renaissance Capital ( Russia's biggest Investment bank and a leader in most financial sectors as asset management, corporate finance etc) that has recently been awarded the license to provide investment banking and stockbroking services in place of the collapsed Francis Thuo broking house.

Financial Deepening and innovations:
CMA and NSE have been very slow in the opening up of the Over-The-Counter (OTC) market as well as adoption of new markets and products such as financial derivatives-futures, forwards, swaps, options that would widen the scope of available investment options for investors. Therefore investors have been struggling to cash in on the few available options moslty shares, bonds and equities. In this sectors despite the rapid growth that has been witnessed over a few years ago dur to increased IPOs by companies, there is still limited options compared to other markets in Africa such as Nigeria with over 190 Listed companies and capitalization off $2.23B, Johannesburg Stock Exchange (JSE) with over 400 listed forms and Cairo Stock Exchange and Alexandia Stock Exchange which forms Egypt Stock Exchange has over 833 companies. NSE has only 53 companies and several IPOs slated for the year.

Rogue Brokers:
CMA has also failed to reign in on rogue broker some trading in clients shares to rake in millions without bating an eyelid. Some of these brokers have become overnight millionnaires whereas their clients are leading modest lifestyles save for their stocks. In the industy, it is evident that there is very little room for competition.which has encouraged unprofessionalism. You will be surprised at how many times you miss a good deal at the expense of someone with a bigger account than you do or how many times you have issued sale or buy orders to your broker only to call them back a week and they haven't executed the same. At times they are seemingly oblivious of the happenings therein with rude receptions to accompany it.

Frequently, brokers have told their clients that they were unable to execute their orders because on that particular day, they were ‘dealing for their institutional investors’. When you are in such a predicament, you have no choice but to wait until the day when the stock broker goes ‘retail’. Sad enough, this could be long after share prices changed tremendously.

Hereditary Management and Protectionism:
Again, the management of most brokerage firms stands a big test. Notably, most of the brokerage firms are family owned and have adopted a very cyclic management system where the next of kin is always the person to take over. This has attracted a traditional approach to trading where fundamentals do not apply. It is not wrong to argue out that due to this, the same management has paved its way to control the regulators and the other players namely the Capital Markets Authority (CMA) and the NSE. The implications of this are increased protectionism when it comes to encouraging new players and sticking to old rules. As always new entrants are often seen with a suspicious eye and have to be vetted by a clique that consist of the 18 broking houses. This always need one to be on good books with them lest the deal goes sour. This is not encouraging for Kenya as an emerging market.

Market Research:
The current family set up of the brokerage firms has also kept talent at bay always employing their next of kin or people known to them. You will perhaps agree with me that there has been very limited research and commentaries that come from brokerage firms and investment banks. Contrary, the Fund Managers and Asset Managers have done limited research aimed at giving buy and sell recommendations geared towards their client needs. For the many years that the NSE 20 Share Index has been the basis of investment for most of its users, there has been no research or proposal sent for approval to CMA.

US Markets:
Compare this to the United States that has over 10 Indices rating the performance of the overall market and at least one index rating every single market segment. Being the market pros to their routing trading activity; stock brokers and investment banks are the only people who can steer growth as far as research is concerned. The US also have the Securities and Exchange Commission (SEC) similar to ou CMA that has been instrumental in ensuring that the market players are closely watched to avoid major corporate scandals line Enron's saga.

Securities and Exchange Commission (SEC):
The United States Securities and Exchange Commission (commonly known as the SEC) is a United Stated government agency having primary responsibility for enforcing the federal securities laws and regulating the securities industry/stock market.
The SEC was established by the United States Congress in 1934 as an independent, non-partisan, quasi-judicial regulatory agency following years of depression caused by the Great Crash of 1929. The main reason for the creation of the SEC was to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. The SEC was given the power to license and regulate stock exchanges. Currently, the SEC is responsible for administering six major laws that govern the securities industry.
These encompass the Securities Act of 1933, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisors Act of 1940, the Sarbanes-Oxley Act of 2002 and the Securities Exchange Act of 1934 amongst other statutes.
The SEC enforces the statutory requirement that public companies submit quarterly and annual reports, as well as other periodic reports amongst other regulations. More...

Compensation of investors who lost their money in collapsed stockbroker Francis Thuo kicks off this morning amid a simmering row between the Nairobi Stock Exchange and the regulator, Capital Markets Authority, over what to do with whatever remains of the Sh250 million raised from the sale of the firm’s seat at the bourse.The two institutions are fighting behind the scenes over the more than Sh100 million expected to remain after all claims are paid

Parting Shot:
A seasoned stockbroker with a good track record is an indespensable person in the pursuit of wealth. In the same breadth, an efficient management authority, in this case the CMA is fundamental in the management of all the players at the capital markets to ensure proper performance, allay investors fears and ensure security of investments for the investing public.

CMA should stop being a toothless bulldog and bite where it ought to!

Friday, August 24, 2007

NSE Handbook 2004/05/06

To All Readers,
Thank you so much to all my avid readers who have always spared a minute or two to check out my blog and savour the content therein. For those who have unrelentingly left their comments i must say you make the world of blogging fun to want to be in. Your comments and suggestions have come in handy in ensuring that this blog continues to offer information accross the board that will in one way or the other support our investment endeavors especially in the emerging markets of Africa (that are seen to be the next big thing) and beyond.

This week i got two NSE handbooks that are vital in understanding all the companies listed at the Nairobi Bourse and moreso the more clouded companies that do not always come to the limelight through successive press coverage. These are must read for all and covers the companies financial reports for more than five years.
These i got from fellow bloggers and great online friends as well as the NSE.

If you wish to have a copy drop me a line at and i will be more than willing to send you. You have been such a great reader, such a great inspiration, a very great supporter and an indispensable party in my blog.

Hats off, Thumbs up and kudos for being there!!!!!!!!!!!

Talk to me...

Thursday, August 23, 2007

Africa Capital Markets; Which Way Forward

Immense Growth: The last decade has witnessed a rapid and immense growth amongst the African Stock markets in terms of market capitalization, listed firms, available equities, bonds and debt instruments listed, number of investors and brokers, innovative financial products that have enhanced the deepening of the African capirtal markets as well as the growing interest by Small and Medium Enterprises (SMEs ) to offer the shares through Initial Public Offers for subscription by the public.
Investors: There has also been a strong and growing focus amongst the investors in the developed economies of the world to invest in the African Stock Markets with a focus of capitalizing on the opportunities available therein in portfolio diversification and enhance portfolio return.
The African capital markets encompass the following:
-The African capital markets encompass 16 member strong African Stock Exchanges Association (ASEA) dealing in a broad range of securities and include the fast growing markets of Nigeria, Ghana and South Africa.
-An equities market representing a host of the Continent' s strongest , reputabe and profitable companies.
-The fast growing private equity and Venture Capital markets dealing in Small and Medium Enterprises.
-A fast growing bond and debt securities market.
-A growing derivative and innovative structured products market.
-Most of the African Stock Exchange Association (ASEA) members have totally deregulated their foreign exchange controls provide free and unfeterred access for investors around the world.
-In Nigeria, the Nigerian Stock Exchange in association with the Nigerian Central Bank have developed a pain free system for foreign investors to access and invest in the Nigerian Stock Market (Central Securities Clearing System is the securities clearing body) and repatriate their returns without hassle.
-The African capital markets are being rated as having the highest return in the World in dollar terms.
-The capital markets in Africa are beginning to open up and open up significantly. For example who would have forecast 12 months ago that, by this time this year Nigeria's markets would see $3bn worth of new issuances?
-Countries like Nigeria, Ghana, Kenya and even Zimbabwe are all offering investment opportunities.“Nigeria’s market has made average returns of over 30% this year and Zimbabwe’s returned over 100% this year even after adjusting for inflation, so there’s a lot of interest, and a lot of investment.
-Kenya is also rapidly gaining popularity amongst the western investors ands especially the top Wall Street Investment Banks with its rapid growth and increased IPOs that have been oversubscribed.
-The East African stock exchanges have mooted a plan to merge and form one East African Exchange that will be a step towards the integration of the countries in the East African Community. The Exchange will widen the scope of investment opportunities available to investors.
-African Capital markets are also contemplating forming a universal african capital market whereupon trading, listing and other financial market operations will run smoothly without any difficulting enabling investors undertake their investment decisions. Companies intending to list in other african exchanges will be able to do so without much stumbling blocks and hindrances set by countries.
-Egypt and South African stock markets have grown by leaps and bound and lead the continents stock market capitalizations and number of listing companies.
-Johannesburg stock exchange has for a long time attracted alot of investors from the developed markets as USA, London as well as from other parts of Africa. With the world cup 2010 being held in SA things are looking good for this market and if the current trends are to go by, investors in tourism, real estate, banking and such like stocks will reap bountifully.
-In Kenya the stakes raised with expectation of the continents much awaited listing of Safaricom, Kenya's leading and most profitable company cannot be overemphasized. The tender bids already issued have attracted hosts of major investment banks in Kenya , USA and far and wide, leading legal experts, brokers, top banks, as well as registrars and other operatives. We can lonly wait and see despite threats of impending court battles.
-The establishment of the privatization commission in Kenya is long overdue and with parliament forcing the minister of Finance to gazette the same, things are up and running and what more share we say except to invest, invest and invest in our lovely continent.

Wednesday, August 22, 2007

Investor Education and Protection Key Amidst NSE Growth

Growth: The Nairobi Stock Exchange has grown by leaps and bounds in market capitalization and number of listed firms thanks to an increased Offers For Sale by private and public companies including Kengen, Scangroup, Eveready, AccessKenya, Kenya Re and Mumias Secondary offer. Alongside these Initial Public Offerings (IPOs) there have been increased rights issue by companies starting with the suspended Uchumi others are KCB, Diamond trust, Housing Finance, Olympia capital, NIC Bank amongst others. The activity at the bond market has also realized improved performance over the last few years and expectations are high for this emerging market with a focus by the Wall Street leading investment banks.

Heightened Activity: In the past one and half years, activity at the stock market has risen tremendously, drawing many new investors and the number of CDS accounts rising to over 600,000 occassioned by by heightened interest in IPOs during the financial year 2006/07 and this is expected to rise meteoriclly with expected increase in listings during the FY 2007/08.

Limited Knowledge: However, many Investors have limited knowledge on how the stock market works. Other than being attracted by the possibility of quick gains, the investors are sometimes shocked to learn that the prices also go down.
Most investors do not have much knowledge of the factors behind share price formation. But stockbrokers, fund managers or stock market analysts have more superior information on what goes on with share prices. They often have the technical know how on how to undertake technical and fundamental analysis. Further, they have the proximity to corporate decision makers and the shakers and movers of the Kenyan investments cycles as well as the Board of Directors and management of most listed firms who can confide fundamental information to guide their investment endeavors.
These information ranges from major announcements, mergers and acquisitions, profitability, rights issues, bonuses, dividends, splits, new products, new business deals, management changes and much more.

Standard and Poors Rating: From 2002 to 2007, the main NSE index rose 787% in dollar terms, according to Standard & Poor's, the investment research firm, making it one of the world's best-performing markets.

Anecdotes Doing Rounds: In the year 2006/07, stories of overnight wealth creation have created a huge frenzy for shares from people who have never invested in the stock market before. When KenGen, the state's biggest electricity company, listed its shares last year, there were queues at brokerages all over the country. Local media reported how small-scale farmers were selling their cattle to buy the shares. Banks suddenly offered "share loans" to people who had been considered unworthy of credit. This even extended to other subsequent IPos although with the market correction witnessed in early 2007 many have held back until prospects look rossy again.

Kengen IPO: The KenGen IPO was more than 3 times oversubscribed, and 70,000 people were allocated shares. The price quadrupled (Rose from 11.90 to everage at 40) on the first day of trading. Demand for a stake in last year's other big listings - including Eveready, the battery maker, and Scagroup, an advertising company - also dwarfed supply. By the end of the year, 15bn shillings of new money had poured into the market. This year AccessKenya was also oversubsribed as well as the state monopoly reinsurer-Kenya Re that realized 334% oversubscription. This implies that investors will get as low as 200 shares. However Qualified Institutional investors were favored by the allocations and got substantial portions.

NSE 20 share Index: In 2006, the NSE 20 Share Index had risen 60%. The NSE's resurgence began towards the end 2002 after emerging from a nine-year bear market. From a low of 1,000 points, it more than doubled in President Mwai Kibaki's first year in power bursting through the 6000 mark for the first time. This can be attributed to the following:
-A sound macroeconomic variables-Interest Rates, Inflation rates, exchange Rate.
-Economic growth figures of around 6% with positive future prospects for 2007/08.
-Tax collection has nearly doubled with plans to increase government revenue from taxes with the installation of Tax registers and stringent tax rules which are paying off.
-Vast sums of money have poured in from the diaspora with heightened marketing by government, NSE, real estate businesses and other ventures.
-Increased online blogs devoted to stock market investments and the investing in the emerging markets of Africa. This has created interests amongst foreign investors targeting emerging markets.

Information Asymmetry: The company insiders including brokers, Investment banks, fund managers have more information unlike any other average Kenyan stocks investor on the street and will always capitalize on this to make informed decisions. When the degree of information asymmetry is high, then there is more uninformed trading. This leads to price volatility that is unrelated to fundamental value of the listed company. But in an efficient market, no market player (investor, stockbroker or dealer) has an opportunity for making a return on a share that is greater than a fair return for the risk associated with it. I think Kenya however cannot be described as an efficient market.

Investor Education: The above neccessitates the development of comprehensive investor education programs by the NSE and the Capital Markets Authority (CMA) in their bid to enhance the growth of the capital markets, encourage most listings as well as attract more first time investors. It is noteworthy that there are hundreds of analysts and thousands of traders receiving new information on companies through electronic and print media and as such might not make any meaningful decisions within such a short time.

However, in emerging markets, policy makers and regulatory agencies should take up the case on behalf of investors who may not be aware of their entitlements. The quality of information is important for market liquidity. Quality accounting disclosures, for instance, are considered means of reducing information asymmetries and increasing the ability of equity traders to effectively execute stock trades when needed and at reasonable costs.

Investor Protection: In trying to bridge information gap, the International Organisation of Securities Commissions has championed investor protection as one of three core objectives. Investor protection has a positive effect on the efficiency of corporate governance, breadth and depth of capital markets and economic growth.

Further, there is need for proper and effective investor education programs being in place to woo many to stocks market investments that have been the preserve of those in the financial field and elites.

Securities and Exchange Commission: The SEC's Office of Investor Education and Advocacy in the US provides a variety of services to address the problems and questions you may face as an investor as well as help the to invest wisely and avoid fraud. This is a neccessity in our economy that is emerging from corruption quackmire and economic stagnation phase towards an era of heightened growth, equity investments and unparalleled stock market activity.

Tuesday, August 21, 2007

Revealed: Kenya's Exclusive Clubs

In Kenya there are many 'clubs' that are often deemed as only for members who have paid the joining fee. These 'clubs' are widespread and any new member intending to join must adhere to the strict guidelines and stringent rules set by those already with membership. These rules sometimes are inhibitions (choreographed stumbling blocks) meant to hinder any jokers from joining out of whims and not with serious consideration and well thought out intention.
Welcome to Kenya a place of exclusive clubs!

From sports facilities including golf clubs, tennis courts, swimming pools, gyms to night clubs and clandestine groups with 'Strictly Members Only' signs clearly imprinted in large bold letters at their entrance points, these exclusives places abound and are places arousing curiosity amongst the outsiders who would wish to have a peek at the goings-on in the inner circles of the clubs.

Investment Groups:
Talk about Investment groups and they have also become exclusively members only and sometimes a close politically correctness and patronage is an added advantage to the grouping. Remember Trancentury Group and the associated cliques. Its membership was started a few years ago and with right investment decisions the company have managed to amass alot of resources. Thanks to its closeness to the political elite, the company is now so exclusive and any new member is at the mercy of older members after paying hefty joining fees.

The sons and daughters of the Trancentury elite are now putting their best foot forward and have hit the road with their Baraka Ltd, another investment group fashioned in the style of Trancentury and upping their stakes in the investment arena.

Baraka Ltd:
Baraka Ltd (according to reliable source) is a new investment group consisting of politically connected young upcomming business entrepreneurs (mainly sons and daughters of the Trancentury elite) running their own successdul business ventures and possessing the requisite skills and academic papers to spruce up their investment endceavors and what more do they need. The sky is the limit!

Nairobi Stock Exchange:
The Nairobi Stock Exchange has also become an exclusive club with a few wealthy persons allegedly running the shows here. Do not forget that having the coveted seat at the NSE is also a subject of political maneuvres and off-the-cuff tactics.

Renaissance Capital:
Talking about the NSE, now Renaissance Capital (K) Limited moved a step closer to securing a stockbroker’s license when it won the tender for the purchase of the coveted seat on the Nairobi Stock Exchange tha fell vacant with the unprecedented collapse of Francis Thuo and Partner. The brokerage firm's wooes began with the sudden death of its main proprietor, Francis Thou.
Renaissance Capital bid was the second priced at Kshs 251 Million to Old Mutual Investment Management Services hefty price Sh452 million.

Now Renaissance Capital, Russia's leading Investment Bank, is now ushered into one of the most exclusive clubs—the 18-member NSE.

Turning the Heat on Financial Markets:
The Renaissance Group is a leading private investment bank operating mainly in Russia and the Commonwealth of Independent States (CIS). Renaissance Capital, which specialises in investing in high opportunity emerging markets, is estimated to have a market value of between $7 billion to $10 billion (over Sh700 billion) is set to turn the heat on local financial market players as it acquires more regulatory licenses to operate other services.
NIC Bank Capital had submitted a Sh180 million bid for the seat and was third.

As a matter of fact 2007 is an electioneering year and with several individual declaring their intetions to vie for the various seats, it is now emerging that the parliamentary seat is another coveted place that has become the preserve of the rich. With billions likely to be poured to 'shake every corner of the republic' it goes without saying that the monied will carry the day as the electorate blinded by small perks and handouts will rush to vote in their 'cherished leader' to join exclusive club of 222 members ( thanks to the rejection of the women bill and the constituencies bill that would have seen the number increase by 50- Nominated women and 40 new constituencies) with fat pockets, hefty salaries and substantial allowances to top it up.

Welcome to the club;


and have a members day, wont you?

Monday, August 20, 2007

Business Process Outsourcing; An Idea for 2007/08

Over the weekend amidst my weekend escapades i managed to squeeze time and attend a talk by some of the creme-de-la-creme of our society who have been instrumental in their areas of engagements. The weekend saw me attending a business and investments forum addressed by The Investments Secretary Mrs. Esther Koimett, PS ministy of Planning Dr. Edward Sambili, Top CBK Directors, Business Moguls, Entrepreneurs, Young Upcoming Business leaders amongst others.

At the end of the forum i thought it would be prudent if i share the same with my avid readers.

Highly potential sectors:
In their address the emphasis was on the key sectors that are likely to rake in millions in the next few years and any proactive business minded person may wish to venture. These encompass the Information Communication Technology (ICT) sector, Tourism, Financial Services Sector, Service sector, Construction, Agriculture, Capital Markets, Business Consultancy and Supplies and Services/Procurement.

Today i wish to talk about the new craze in town-Call Centers- Otherwise under the umbrella of Business Process Outsourcing. It is noteworthy that the advent of the ICT technology has seen the emergence of various technologies that are expected to change the way business will be conducted and correspondingly enhance economic growth and development. The issue of Business Process Outsouring (BPO) cannot be gainsaid as this was instrumental in the rapid growth and turn around of the Asian economies expecially India, Phillippines, Eastern Europe as well as in South Africa and Egypt.

Business Process Outsourcing (BPO):
Business Process Outsourcing (BPO) is the contracting of a specific business task, such as payroll, to a third-party service provider. Usually, BPO is implemented as a cost-saving measure for tasks that a company requires but does not depend upon to maintain its position in the marketplace. BPO is often divided into two categories:
-Back Office Outsourcing, which includes internal business functions such as billing or purchasing, and
-Front Office Outsourcing, which includes customer-related services such as marketing or tech support.

BPO in India:
The BPO industry in India refers to the Services Outsourcing Industry catering mainly to Western operations of Multinational Corporations.The sector witnessed considerable activity during 2004–05, including a solidifying of operations by major Indian and MNC players and stepped up hiring. The domestic BPO market, catalyzed by demand from the telecommunication and Business Financial Services segments, matched the growth of BPO exports. The market experienced maturity and consolidation, a result of numerous mergers and acquisitions taking place within the sector. There were over 400 companies operating within the Indian BPO space, and third-party services providers. The key enabler for this has been cheaper bandwith leading to low telecom costs for leased lines and availability of educated English speaking workforce in India.

India's Challenge:
India’s BPO sector is facing increasing challenge from Kenya and other East African countries. South Africa also plans pose a strong challenge. The main daunting problem for India especially in Bangalore and Chennai is low quality in BPO services.

Other Emergent BPO Centers:
India has revenues of $6.4 billion from offshore BPO and $36 billion from IT and total BPO. Apart from India, other locations like the Eastern Europe,Phillippines, and South Africa have emerged to take a share of the market. China is also trying to grow from a very small base in this industry. However, while the BPO industry is expected to continue to grow in India, its market share of the offshore piece is expected to decline.

Call Centers:
Africa's call center industry is set for major growth and are deemed to gain popularity and preference over Indian operators, with South Africa and Egypt leading the charge thanks to cheap labor, good language skills and time zones that chime with Western Europe. South Africa, which is favored by British companies for its cultural affinity with Europe, call center positions are expected to more than triple to 7,400 by 2010. Egypt also continues to impress western investors with its mix of savvy and linguistically-talented agents.
Indeed, countries that have made improving IT and telecommunication a priority, like Botswana, Kenya, Senegal and Ghana, are ripe for growth.

Kenya--impeded in the call center industry to date by poor communications links to the rest of world--is banking that the first fiber-optic cable in east Africa to be laid by mid-2008 will boost its status as the region's top economy. Many Kenyan entrepreneurs hope that this, plus cheap labor, clear accents, and customer fatigue with Indian call centers could help the African country hook into the burgeoning call center and outsourcing Industry, worth $130 billion worldwide.

Fiber Optic Cables in Kenya:
The laying of the fiber optic cable has been on with Telkom having unveiled the long haul Mombasa-Nairobi fiber optic cable measuring nearly 500 km as the state-owned company readies for stiff competition from other players as Kenya Data Network (a company associated with the billionairre Naushad Merali and his Sameer Group) that is also eying the under sea fiber optic cable system. Telkom has introduced a new broadband wireless platform -- Kenstream Wireless -- to complement the already existing Kenstream services.

Kenya Call Centers:
Kenya's endeavor to drive down telecommunications costs to tap into the multibillion dollar outsourcing industry and make Kenya an information technology hub is welcomed in bringing Kenya into the fiber optic loop. Kenya's nascent call center business has grown from employing 200 people last year to 3,000 this year, despite relying on expensive satellite-based communications. To get more companies to give their business to Kenyan call centers, the country needs to increase its bandwidth up to 500 megabits per second by year's end and subsidize the cost until a submarine fiber optic cable is working.

Kencall is a premier call center established in Kenya that is already making inroads into the highly competitive Business Process Outsourcing industry despite the infrastructure challenges to their efficient operations. KenCall, being one of the country’s premier call centres, has defied the odds to win a global award in back office operations business, beating rivals from the infrastructure-enabled markets such as India and the Philippines.
Kencall has 500 agents and 5 international clients and has been at the forefront of an emerging outsourcing industry in Kenya, and is hungry for more growth.

Future 0f Call Centers:
Statistics shows that some 3,000 Kenyans now work in call centres, with the outsourcing sector encompassing about 30 companies. KenCall and 3 others dominate, industry players say. KenCall wants to treble its number of agents by the end of 2008. more

The future of call centers is bright with possible reduction in telecommunications costs. Further, with intense maketing likely to go on and a new focus by western companies on Africa (Kenya Included) It is time we take the responsibility to invest in call centers and MAKE MONEY!!!!!

Thursday, August 16, 2007

The Kenya that was in the News

Kenya News:
This week has seen various occurrences i nthe newsfront some political others business. Taking about politics the August House dramatically shot down two government sponsored Bill that sought to increase the number of MPs in parliament through 40 new constituencies and 50 new nominations seat for women.
In Business, as others focused on Safaricom IPO and its attendant problems, others were taking about Mergers and Acquisitions amidst new profitability feats realized by some corporate bodies and much more.

Kenya Parliament:
Acrimony, hostility and bitter exchange of words characterized debate yesterday's debate when the two bills were brought into the house after a morning of lobbying amongst themselves by the goverment side. When the bill was tabled a rather full house parliament was deserted as MPs walked out of the House causing a quorum hitch and when division bell was rang only 95 MPs were there , 50 short of the required 145 (two-thirds).

The dramatic debates that characterized the House when this bill was brought were fun to watch and i couldn't help but wonder where politics of ODM and NARC went to as men ganged up against the women literally (with few excepions though) to shoot down the bill that would have seen the womenfolk get 50 free nomination slots in parliament-without going through the elective process. On the sidewalks i wondered aloud how women would want equality and the likes while asking for favors without fighting it out with men in elective posts. Do they expect the men to dole these free seats just like that especially with their majority vote in parliament?

Kenyan Constituencies:
The other bill that would have seen an increase in the number of constituencies by 40 new constituencies was also shot down on technicality as the requisite two-thirds majority coudnot be raised when the Division Standing Orders of the House can again be introduced 6 months latter which means that elections will be held and women will have to fight it out for more seats for themselves whereas there will be no new constituencies for those who have been waiting with bated breathes.

Kenyan MPs:
The Kenyan MPs have been described as a selfish lot, that would increase their salaries and allowances without bating an eyelid. As you might not be aware, the Statute Law (Miscalleneous Amendment) Bill which seeks to inter alia ratify a pay cheque for MPs as hefty gratuities at the end of current parliament was quickly withdrawn from the order paper amidst the hostility that saw some bills rejected. Talk about parochial selfish interests? what more do we need to know?

Kenyan Fourth Estate:
The news gatherers became the newsmakers as in a rare show of solidarity and unity (Except for KBC Journalists who abhorred the silent demonstration, dont know why???) they took to the streets in a dramatic and the most eloquent of ways-Loud Silence-With their mouths and microphones gagged with masking tapes symbolic of th gagging of the media by the current controversial Media Bill. From local media moguls, leading newcasters, print, radio, cameramen, reporters, mass communication students and supporters as well as foreign media houses, they all hit the streets to petition the president not to ascent the bill.

Kenya Politics:
Politics is a dirty game or so they say and here there are no parmanent enemies or friends. Now this is evident as the politics of the orange gone bitter and the flower about to dry up emerge. One mans woos is anothers blessings and as ODM-Kenya moved house to ODM the original outfit, Kalonzo Musyoka, Ojiambo and Maanzo's team were taken to the drawing board. Moi is closely working with Kibaki, what with the new appoinment as the goodwill ambassador of peace to Sudan. Uhuru is loking for new alliances and sticking his guns in KANU with new work relations with Biwott's Team despite the earlier bitter vourt debacle-Enemies turned friends.
Kibaki's is laughing with more votes to him as the teams fight it out as he hits the road for more votes while dishing out new districts, characteristic of the Moi regime. The dust is yet to settle, politics of oranges going bitter and flowers drying up continue as the dust continue in the haphazard manner the politics of 2007 are indeed entertaining to look at! we remain waiting!

Kenya Business:
Profitability: There are reports that Scangroup Limited has seen its half-year pre-tax profits increase by 30 per cent to Sh116.6 million, up from Sh89.6 million recorded last year due to 54 per cent growth in billings by the advertising and public relations giant and earnings achieved through major acqusitions in advertising firm Redsky— in late 2006 and early 2007. More...

New markets: ScanGroup is also set to enter the Nigerian market by end of the year as growth in the industry peaks, raising investor expectations for better performance in future[More]

Safaricom IPO: The never ending debacle of the Safaricom IPO resurfaced again after the problem sorrounding its shareholding and Mobitelea Ventures Ltd 5% stake acquired in a mysterious circumstance. This time Hon Raila or if you may wish ODM, promises to halt the process in court even as the Treasury continues with the tendering process of the advisory team with yersterday's opening of the technical bids for consultancy services.

AccessKenya contracts: AccessKenya another recently listed firm has struck an interconnectivity agreement with Safaricom that will open the biggest and most lucrative voice traffic to this newly listed firm within Kenya.

Rights Issue: NIC Bank has appointed its investment bank subsidiary, NIC Capital, to act as the lead transaction advisor for its upcoming rights issue as well as Kestrel Capital and Dyer & Blair Investment Bank as the lead stockbrokers for the plan to raise Sh1 billion by selling new shares (rights Issue) to existing shareholders. The money raised will fund the bank’s expansion plans and shore up its capital base. More here...

Expansion/Rights Issue: Olympia Capital Holdings is set to embark on an ambitious expansion plan after the Capital Markets Authority (CMA) approved its plans to raise over Sh400 million through a rights issue.The creation of 30 million new ordinary shares will give existing shareholders the right to purchase 3 shares for every 1 share. More
Coldtusker enumerates more on how to buy shares under a rights issue.

Upgrading: Meanwhile, Olympia Capital Corporation (Botswana) has been granted approval to migrate from its venture capital board to the main board. This effectively means that the company, which is 27 per cent owned by Olympia Capital Holdings (OCH) Kenya, ceases to be classified as a "speculative" investment on the Botswana Stock Exchange. More

Projects: East Africa Portland Cement Company (EAPCC) will shift its energy source from electricity to coal to cut down power bills and operation costs.The move by the cement maker follows recent discovery of coal deposits in parts of Kenya[Here]. Further, EAPCC has launched a Sh1.6 billion project that will double its production capacity in the next one year. The investment comes amid confusion whether the company and Bamburi Cement Ltd, intend to merge to keep off stiff competition.

Mergers/Acquisitions: There were reports that Kenya’s two largest cement producers East Africa Portland and Bamburi have kicked off a process that may see them merge into one of Africa’s biggest manufacturer. Sources say that the two companies have tabled the proposal before Capital Markets Authority (CMA). The law requires the market regulator to approves any takeovers and acquisition of publicly quoted companies.

...and the business world continues to churn more and more news and as investors we receive, assimilate, digest and probably act in them if they are fundamentally useful and...

Have a business week!!!

Tuesday, August 14, 2007

Constituency Development Fund Lauded But...

After reading Bankelele's Blog, on (Poor) defence of MPs salaries that also touched on the emotive issue of Constituency Development Fund (CDF) i pondered for a while then thought of revisiting an exposition i had done before on CDF in Kenya.

The concept of the Constituency Development Fund (CDF) that was adopted by the Kenyan Parliament through a bill by Hon. Eng. Karue has been applauded for enhancing constituency development across the country.

The Constituency Development Fund (CDF) was created in Kenya in 2003 through an Act of parliament to “fight poverty at the grassroots level through the implementation of community based projects which have long term effects of improving the peoples’ economic well being(and to) relieve members of parliament from the heavy demands of fund-raising for projects which ought to be financed through the Consolidated Fund.
The fund is also governed by the CDF regulations that were put in place.

Percentage Distribution:
The CDF fund comprises an annual budgetary allocation equivalent to 2.5% of the government's ordinary revenue although there has been lobbying to see the fund increased to 7.5% of government’s revenue. 75% of the fund is allocated equally amongst all 210 constituencies. The remaining 25% is allocated as per constituency poverty levels, population size and the size of the constituency.

A maximum 10% of each constituency’s annual allocation may be used for an education bursary scheme, 3% for administration and 5% to cater for any emergencies.

The fund is managed through 4 committees 2 of which are at the national level- The National Management Committee (NMC),and Constituency Fund Committee (CFC) and 2 at the grassroots level-The Constituency Development Committee (CDC) and District Projects Committee (DPC).
Despite being a noble idea there are concerns thus;

Efficacy and Efficiency: There have been concerns on the efficacy and efficiency of the CDF fund i naddressinf the needs at the grassroot levels

Inadequacy: There are also the issues of inadequacy of the amounts disbursed for projects at the various levels to fund development projects.

Projects Funded: Other issues revolve around the stipulations of the CDF Act of 2003 that the projects to be funded should ONLY (Note only, which is limiting) include:

1. Schools-nursery, primary and secondary constructions, extensions, libraries, staff quarters to cater for the increased number of students due to Free primary Education (FPE).
2. Agricultural projects e.g. cattle dips, irrigation, community farming etc
3. Water-boreholes, drilling, drainage etc
4. Eletricity projects-Rural Electrification, lighting public institutions etc
5.Health projects-Dispensaries, health centers, mobile clinics etc
6. Bursary (10%)
7. Emergency Fund (5%)
8. Administration (3%)
9. Security-Police posts, administration camps, security apparatus

Patronage in Appointments: The Act stipulates that the Member of Parliament (M.P) is mandated to select the members of the Constituency development Committee (CDC) that wil be charged with projects identification, selection, funding, monitoring and evaluation at the grassroot level. This has been marred with patronage and installing of close associates of the M.P at the expense of development oriented persons.

Corruption: some Members have been accused of funding projects in areas where they have massive support and are likely to get substantial votes at the expense of equitable distribution.

Misuse of Funds/Ghost projects: I have learnt from reliable sources that some M.Ps have been amassing wealth and campaign money through ghost projects allegedy funded then latter diverted to enrich their pockets within the knowledge of a few confidantes.

Slow projects implementation: CDF fund is normally issued every year and since inception it has increased marginally to the current total cfugure of Ksh 10 Billion with each constituency getting between 37 Million and Ksh 60 Million during the FY 2007/08. However some constituencies have been slow to implement their projects with other including Kamukunji shelving the money for 3 consecutive years with claims that they were wating for the funds to be 'enough', talk about greed. This slow implementation hampers regional development.

Poor Traning of Personnel: Further, there has been slow and inefficient training of persons involved in running the fund at the grassroot level including CDC committees. Most of them have low credentials as far as proposals writing, projects analysis, monitoring and evaluation as as as accounting for funds is concerned since their appoinments is based on political affiliation.

To improve this ingenious innovation there are various imperatives that must be observed;

1.Scope of projects: It is imperative to widen the scope of projects to be funded under CDF as opposed to the parochial funding of only schools, health centers, electricity and agriculture.The funds can also allocate some percentage of CDF for entrepreneurial ventures in the constituency so as to inculcate a culture of small business development and management while providing the requisite financial support.

Investigate corruption allegations: There is need to swiftly investigate allegation of corruption and embezzlement of the fund that had been levelled against some members.

CDF Audit: NMC should institute periodic audits of the CDF funded projects to establish their current status and properly ascertain whether they were actually real or 'ghosts'. this will enhance accountability.

Infrastructural development: This is key and the development of the transport and communication sector is paramount in reducing the cost of inbound logistics and eventual costs of outputs within the value chain process. CDF should also focus on this vital element.

Policies: Our country needs visionary leaders who can go beyond their selfish interests to developing programs and policies geared towards enhancing equity in resource distribution, proper security apparatus, boosting agriculture and encouraging merit and excellence as opposed to corruption and embezzlement of the funds within the public coffers. It is high time we elect such leaders if Kenya is to be an economic powerhouse, a tiger of some sort within the expansive African Continent.

Extensive Training: It is vital to institute extensive training of persons involved in the implementation and management of CDF funded projects both at the National level and the Grass root level inorder to enhance performance, accountability and efficiency.

Delinking from politics: There is an urgent need to delink the process of CDF management and disbursement from any political influence through empowering thr National Management Committee (NMC) to operate freely without the whims of politicians.

Constituency Account Managers: In the critical process of delinking CDF from political influence, there is need to hasten the employment of Costituency Account Managers who will be charged with the reponsibility of disbursing,managing, monitoring and evaluating the CDF fund in the constituencies.

-Despite all criticisms CDF is still a noble idea...

Just a Thought!
By the way the NMC in collaboration with parliament started the process of employing CDF managers 6 months, in March 2007 when the posts were advertised in the local dailies. Interviews were done 3 months latter in June 2007 and work was meant to start in July 2007 in line with the commencement of the 2007/08 financial year. As of now, close to September, no CDF managers are in office to manage CDF and parliament will be dissolved any time soon. One is left wondering as to who will be incharge of managing the CDF funds once M.Ps are out of parliament and moreso when it is widely known that nearly 90% of them will not step back to the August House according to recent survey.

Wont they missaproriate this funds??? Bloggers should help out highlight this issue!!!!

Monday, August 13, 2007

Chindia- The Emerging Economic Clout

Today i was feeling 'global' and thought why not check the other world economies and the influence on our stock market as well as other emerging markets. Upon extensive research i realized that some of the top four rapidly expanding economies have a bearing on our Sub Saharan developing economies.

G8: Alongside the other developed countries of the G8 with massive economic clout and global political influence China, India, Russia and Brazil are attracting massive Foreign Direct Investments. This new influence by China and India is what i would call Chindia.
India was one of the world's poorest economies when it won its independence from Britain in 1947. Incredibly, 60 years later, the country's emerging economic clout has made it Asia's top spot for billionaires.
India's emerging economic clout: This has made it Asia's top spot for billionaires with its 40 richest businesspeople worth a collective $170 billion, up from $106 billion last year, according to leading American business magazine Forbes.

India's Stock Market:
India's hot stock market, up 39 per cent this year, and its robust real estate market helped swell most fortunes. In the last three years, the Bombay Stock Exchange's benchmark Sensex index soared from 6,000 to more than 15,000 recently.

Indian Billionaires: The collective wealth of Indian billionaires jumped six fold from $32 billion to $191 billion in that time. The notable 2004 elimination of capital gains tax on the sale of equity shares, encouraged entrepreneurs to list their companies.

Rising Stocks: If the stock market keeps rising, the tide of good fortune will continue to create many more of the newly rich.

Corruption: Now that India is playing a larger role in the world economy the issue of corruption in public and private sector is slowly coming to a sharp focus. One wonders however whether corruption will slow growth or growth will slow corruption. [More].

The last two decades has seen the emergence of new and rapidly growing world economies that are slowly emerging as the top and fastest growing economies with good investment prospects for foregin investors.
The Chinese economy grew at 11.9% in the last quarter and could probably be growing at its fastest in 12 years.

China's Quality Fade:Despite the increased net exports of the Chinese Exports to Africa, America and other markets, there have been increasing concerns of quality fade in most of its products branded made in China.

China stock market:
Chinese shares have continued rising at a breakneck pace, pushing Shanghai's main stock index through the 4,000 mark for the first time in May 2007. Shanghai's benchmark CSI 300 index had closed up 2.6% at 4,090.57. The index has doubled in value this year and quadrupled since the start of 2006.

China's stock markets: The markets are almost going mad, actually, with the leading Shanghai market continually rising as ordinary Chinese flock to buy equities in breathless, record numbers. The bull market is so dramatic — the Shanghai index has hit record highs with slight falls on the way as others warn againstt "blind optimism." and "Irrational exuberance."
College students, yuppies, retirees and others are buying individual shares or investing in China's swelling mutual funds.

Along with China, India and Russia, Brazil is a country overflowing with opportunities to attract foreign capital. Brazil is the leading the way in Latin America’s economic development. In 2006, it was the 3rd largest economy in the western hemisphere and the 11th largest in the world. The economy has stabilized, the legislative reforms of the Lula Da Silva government are boosting cooperation between the public and private sectors, imbalances are improving, and the high valuation of markets is attracting the attention of foreign investors.

Brazilian Stocks:
Barely four years ago, the largest Latin American stock markets were on the black list of investors in emerging markets. The economic crisis in Argentina, along with the arrival of Lula as president of Brazil. Now, the Brazilian currency, the real, as well as the country’s stock market are both at all-time highs.

“If you want to be in Latin America, you have to be in Brazil,” notes Rafael Pampillón, professor of economics at the Instituto de Empresa business school in Madrid.

Emerging Economy: Because Brazil is an emerging economy, there are many sectors where investors can make the most of the gold mine contained in Brazil’s economic develop

Stock Market Appeal:
For more than 20 years, Brazilian capital markets were characterized by protectionism and underdevelopment. Following the improvement in the economy, capital markets began to modernize. Lately, Brazil has been benefiting from a favorable external environment. On a global level, it has significant liquidity. In a broad range of financial markets, prices have risen at a brisk pace and the country has growing economic ties with developed economies.More...

Global Markets Calm:
Despite the calm down, investors are bracing themselves for fresh stock turmoil in the coming week after riding a roller-coaster on world markets in recent days, amid fears that US home loan woes could trigger a credit crunch.The pumping of tens of billions of dollars by central banks in US, EU and Japan into the markets on Thursday and Friday helped to ease the panic and stave off fears of a global economic crisis.

The short-term money markets have also eased after efforts by central banks to keep money flowing through the system. [More]

May the Real Owners of Safaricom Stand Up?

Real Owners:

The past few weeks, the local media has been awash with details that the Public Investments Committee (PIC) wants the government t0 institute proceedings to establish the real owners of Safaricom one of Kenya's most profitable telecommunication company that raked in 17B pretax profit for the last financial year. Information available at Safaricom's web show that its sharehodlers are Telkom Kenya and Vodafone Plc.

5% Stake:
This parliamentary watchdog wants the much anticipated Safaricom Initial Public Offer (IPO) slated for latter this year shelved due to the failure by recent investigations to unmask the owners of a shadowy company with a 5% stake in Kenya's most profitable firm.
This therefore means that the planned sale of 25% of Safaricom shares to the public through the Nairobi Stock Exchange that was anticipated to raise close to 34B may be put on hold until the owners of Mobitelea ventures are known.

Mobitelea Ventures:
This is a shadowy company that is alleged to own 5% of Safaricom though the company CEO was quick to scoff at the report claiming that the reals owners of the company are Vodafone Plc with 40% and government through Telkom Kenya with 60% shareholding. The report says that in 1999, Telkom Kenya owned 70% of Safaricom Ltd while Vodafone Kenya Ltd owned 30%.
Mobitelea Ventures Ltd is a firm registered in Guernsey Island and whose directors are obscure through other nominees. The firm owned 10% in 2002, which was reduced to 5% in 2003 when Vodafone Plc "bought" back part of the shareholding.

However, the evidence available from the office of the Registrar of Companies indicates that Safaricom's authorised share capital is 1,000 with;

-Vodafone Plc having 40%
-Telkom (K) Limited 60%
-Messrs Paul B. Julan, John K. Mosonik, Augustine K. Cheserem, Ashwini Bhandari, Kenneth Hamish Keith, each had one(1) non-participating share.

Shoromo Ltd:
Last year, it emerged that in February 1998, when Vodafone Plc entered the Kenya, the UK firm had used a pseudonym Shoromo Ltd and only changed its name to Vodafone Kenya Limited on October 15, 1998. More...

For the clearly illustrated shareholding structure check out pesa tu blog.
Many think the claims that the shareholding structure of Safaricom cannot be clearly identified is a scheme to defraud the public. Although as a requirement, companies intending to issue shares through an IPO through the Nairobi Stock Exchange (NSE) should reveal all the fundamental information, including shareholding, that would influence any investors purchase of the shares, this remains to be seen. Kenya Re didnot reveal the details of the forensic audit report claiming that it was sub judice to the court proceedings on the same only making them available for inspection at the company premises which many may not bother.

IPO still on:
The Government has said the sale of Safaricom shares to the public will go on, as scheduled, despite recommendations to shelve it by a parliamentary committee last week.

Thursday, August 9, 2007

Rennaissance Capital Now sets Shop

Europe's leading investment banker, Renaissance Capital, Tuesday received a license to operate as a local investment bank in Kenya and said it would to target Zimbabwe and Nigeria as one of its key markets in Africa.

Major Investment Bank:
Renaissance Capital is a leading investment banking firm in Russia, Ukraine, Central Asia and Sub-Saharan Africa. The company has market-leading positions in each of its core businesses – -Mergers & Acquisitions
- Equity and debt capital markets
-Securities sales and trading
The company is wholly owned by employees and management and is part of the Renaissance Group.

Rennaissance Group:
Renaissance Capital is part of the Renaissance Group, an independent group of consumer finance, investment banking, asset management, merchant banking companies specializing in emerging markets. The Group began operations in Russia in 1995 and has since become the largest privately owned investment group.

Stephen Jennings, Renaissance Chief Executive Officer, said here the Kenyan license allowed the firm to set up its Africa regional headquarters in Nairobi, from where it invest an initial sum of 1 billion U.S. dollars in Africa's telecommunication sector.

Peek on fellow Bloggers and Newsportals:
Investors are waiting to see what these new kid on the block will bring to the stock market. Read out bankele's analysis of the new stock broker.

As various companies release their financial results the banking sector has realized some all time highs. Those who have released their results include Equity, KCB, BBK, NIC amongst others. Read more and the incisive analysis by Mjengakenya.

Standard Chartered Bank Kenya has reported a 21% increase in half-year pre-tax profit. The bank posted a Sh400,000 rise in its profitability to hit Sh2.3 billion, up from Sh1.9 billion over the same period in 2006 to be the second most profitable bank in Kenya after Barclays.

BBK PLC is bidding for ABN Amro Bank in Europe with sweet offers to Amro's shareholders.Read Kainvestor'a blog on this here.

Telkom Kenya rattles the big boys in their game with only a few months into its wireless operations that has attracted close to 150,000 subscribers and growing. Its targets are immense and its only a matter of time and they will be in the same league as Safaricom and Celtel. How about their profitability and sale of its 51% stake? The companies said to have bidded include, India’s Bharti Airtel, Reliance Communications and the Tata Group all for the 51 per cent in state-owned Telkom Kenya. Time will tell after a conference recently for the tenderers to buy the stake.

Confidence in the Nairobi Stock Exchange remains high despite a recent market correction and loss by investors of more than Sh80 million in the collapse of a brokerage firm.

Monday, August 6, 2007

Who is this man Merali?

Naushad Merali:
Naushad Merali has emerged as a go-getting, aggressive, witty deal maker who will stop at nothing to seal a seemingly impossible deal all odds notwithstanding. His business endeavors has seen him cut a niche in the Kenyan market and beyond as the most entrepreneurial business mogul in the league that can be equated to the American Donald Trump, Bill Gates, Warren Buffet in Kenyan standards.
Merali is respected by all for his seemingly insatiable appetite to get wherever he wants and would scale even the seemingly insurmountable odds to realize his dreams. Following his footsteps, his son has also emerged as a go getter, like his father, with the academic credentials to crown it all in business.
Sameer Group:
Merali has formed a large group of companies under the Sameer Group umbrella that are involved in across section of the economic sectors as agriculture, construction, Energy and Power, Export Processing Zone (EPZ), Information Technology, Telecommunications, Finance and Transport.
Some of the companies including Sasini Tea (Agriculture), Eveready (Energy) amd Sameer Africa (Transport) are listed at the Nairobi Stock Exchange.

The wide array of companies in his portfolio include:
Sasini Tea and Coffee Ltd: This is a public listed company quoted on the Nairobi Stock Exchange with over 2,000 hectares under production and represents the Sameer Group’s interests in Tea, Coffee, Forestry, Dairy, Horticulture and Tourism.
Tea is grown by a Sasini subsidiary, Kipkebe Limited, which operates two major facilities (Kipkebe and Keritor) and exports tea to Egypt, UK, Pakistan and the Middle East.
The company's coffee plantations are located at altitude in central Kenya with facilities in Kiambu and Nyeri Districts ( Mweiga Estate)
Dairy and Horticulture Sasini's dairy division produces milk and flavored yoghurts, as well as producing milk for sale to the food industry in general. Its horticulture division is growing, producing such vegetables as peas and corn.
Equatorial Commercial Bank: It began in 1983 as a Finance company and converted into a commercial bank in 1995. The bank is now growing its consumer banking operations. Dimension Data:
Swift Global Kenya: Provides personal and business connectivity.
Kenya Data Networks: This is a private data and infrastructure provider in the communications sector.
Ryce East Africa: This provides complete transportation solutions to Kenya.
Yansam Motors: This is the other motor vehicle company in the Sameer Group Car Park that was initially launched to source and supply other popular brands of motor vehicles to cater to the ever increasing demands of the market. Yansam Motors has diversified into agricultural business by acquiring sole franchise rights to market the Iranian ITMCO brand of tractors and farming implements in Kenya. The company also has an engineering division.

Celtel Kenya: Celtel builds and operates communications networks in Africa.

Sameer Africa: This formerly under the name Firestone East Africa. This was established in Kenya in 1969 as a joint venture between Firestone Tyre and Rubber Company of the USA and the Government of Kenya with the aim of producing tyres for the Kenyan and the East African market.

H Young:This is one of East Africa 's leading construction company.The company's design and manufacturing activities relate to all sectors including Telecommunications, Mining, Power Generation, Petroleum Industry, Agricultural Sector (sugar, tea), Process Industries, Cement, Infrastructure (roads, water supply) among others.

Eveready East Africa: This company was quoted recently at the bourse after successful Initial Public offering that was oversubscribed. The company was established in 1967 to manufacture primary batteries.

Sameer Industrial Park: Sameer Industrial Park (SIP) is Kenya’s premier Export Processing Zone (EPZ).

Dimension Data: Dimension Data was founded in South Africa at the inception of networked communications. It provides Network Integration, Converged Communications, Security, Data Centre’s & Storage, Microsoft and Customer Interactive Solutions.

The art of a deal:
With Mr. Merali quest to expand his regional outreach through the various companies, his networth is way into billions, leads an opulent life and lets his money work for him. His political connection has also helped him secure business deals with several willing foreign direct investors. To say the least this guy has mastered the ART OF A DEAL! and would jump in every time an opportunity presents itself.

At the Nairopbi stock exchange, Merali also invests in a couple of companies and with big monies involved he can always cut deals for himself with big profit margins to follow.

Mass Cross Listing in the Offing

11 Firms:

After my earlier posts on cross border listing (see Below), it is now emerging that eleven (11) firms have approached the regulators to cross list on the East African bourses. It is noteworthy however that although the regulators have been trying to level the playing ground, alot of issues still need to be addressed before companies join in this bandwagon.
East African Exchange:
With the establishment of an East African Exchange (EAE) also in the offing, the eleven companies are said to be as follows: Kenya with 5, 3 fromUganda and 3 from Tanzania.
Earlier the Kenyan companies that had taken the cue to pursue cross border listing include East African Breweries (EABL), Kenya Airways (KQ) and Jubilee Insurance.
Listed Companies:
Among the east African players, Kenya still leads the pack with 53 firms and the number is expected to rise with the listing of Kenya Re,Safaricom and others soon to come. Der es salaam and Uganda Exchanges follows in the number of listed firms with only 7 and 6 respectively. This is excluding the Kenyan firms (EABL, KQ and JHL) that have poineered to cros list in the exchanges.
New Incentives:
The regulators have put in place alot of niceties for companies striving to cross list which include:
-Issuing a summarised Information Memorandum.
-No requirement of reporting accountant’s report.
-An abridged financial statements for the last five (5) years is acceptable.
-Provision of the latest annual or interim accounts submitted to the home exchange would be accepted as the latest financial statements.
-Standard initial fee of US$5,000 (Sh360,000) against previous amounts of US$21,126 (Sh1.5 million) to cross list its securities across Kenya and Uganda.
-However, only companies listed in the Main Investment Market Segment (MIMS) of both bourses will be eligible for cross listing. (Business daily)

Nonetheless, more still needs to be done to make the East African Integration a reality in all aspects then we can proudly talk about an Economic Integration, Political Integration and finally adopting a one currency for the East African Union.