www.nairobibusinessmonthly.com COMPANY & INDUSTRY how to leverage marketing & sales capabilities to grow money & markets the golden rule for investors in stock marketwww.nairobibusinessmonthly.com BUSINESS & LAW is delay in executingVol 3 • Issue No. 12 • April 2015 | Ksh300.00 • Tsh5,000.00 • Ush8,000.00 • RFr2,000.00 deathrow inmates CBK CHIEF APPOINTMENT: WILL a miscarriege of MERIT OR POLITICS, CARRY THE DAY? justice?+P.50KISUMU RISES AGAIN Lakeside city shrugs off years of stagnation and the 2007 PEV to drive the economic agenda of Western Kenya
Contents techbyte Samsung launchesNairobi Business Monthly display solutions, takes innovation toApril 2015 the next level.Briefing P.49 COVER STORY & FEATURESNational treasury trains officials P. 6Unilever on dental deseases P.7Boosting CIC profitability P.8Data Viz: Commercial Serviceproviders P.9First person: From customerattendant to service station dealer P.10Investment Guide: Top priorities formanagers P.12CORPORATE SCENE COMPANIES & INDUSTRYPublic accountant’s partnership with Consumers left with power losses P.20Maarifa education p.14 EXECUTIVE ARENA:Omidyar Networks in unique grant P.15 Caseware Africa businessHaltons inks deal with Tuskys P.16 leader Theuns Holthouse P.26Longhorn dons a new look P.17HOW STUFF WORKS: ... on phonesecurity P.18Business Diary P. 19BUSINESS PROPERTY WHY KISUMU IS BACK TO& LAW & INVESTMENTS BUSINESS P.32The broadcasters’ revolution P.28 Mortgage for the self-employed SOCIETY SURVIVAL P.42-43 & CULTUREMONEY thhIatewitssekuanerlvarl’icsovifaltiyalf.ef;or& MARKETS TECHNOLOGY & INNOVATIONSGolden rule for stock investors P.40ENTERPRISE& IDEASSecrets of a young millionaire investors Free wi-fi: Boost for Nakuru County P.46 The art of selling goods P.54P. 44 LAST WORD: Unlocking Kenya’s April 2015 | Nairobi Business Monthly | 1 economic engine P.64
Editor’s Note End football stalemate, for the Nairobi sake of business, for the game Business MonthlyF ootball, also known as soccer, is one sport, according to Business Reference Services, that has overwhelming global appeal, transcending national, cultural, religious, and Nairobi Business Monthly magazine is published gender boundaries, as well as socio-economic classes. Its appeal continues to grow, monthly by Al-Nur Media Africa Limited, Mayfair with an ever-expanding audience throughout the world in both industrialised and Office Suites, 1st Floor Suite A1, Parklands Road,developing countries. There are estimates to effect that there are over 240 million registered P.O. Box 57731 – 00200, Nairobi, Kenyaplayers worldwide, with fan participation in the billions - good for business. Email: [email protected] [email protected] Kenya, it is the leading sport ahead of athletics, volleyball, basketball, handball and swim-ming. Just like the Manchester United-Arsenal contention of the English Premier League, or the Published byReal Madrid-Barcelona FC rivalry of the Spanish La Liga, we have our own. And it is as legendary Al-Nur Media Africa Limitedas they come. The rivalry between current league holders Gor Mahia and AFC Leopards is one of Managing Editorthe things that have, for instance, kept Kenyan soccer alive through the years. David Wanjala Staff WritersThe last four seasons, with the coming in of DStv as the official broadcaster of the league, have Victor Adarseen soccer reclaim its lost glory. It got fans, once again to throng stadia for live matches remi- Gabriel Gajetanniscent of the 1980s. The consistency of the league in the above-mentioned period gave birth Alpha Femito competitiveness, with the cup race going to the wire more often than not. Sponsors begunflocking back. It was about to kick off to international standards. For the first time, players were Contributorsbeginning to make a decent living from local league. It was looking bright. Marvin Sissey Peter WanyonyiUnfortunately, in Kenya, it is when the stage appears brighter that curtains suddenly fall. At the Lydiah Wereend of the last season, Sam Nyamweya’s Football Kenya Federation (FKF) and Kenya Premier Sue McPheeLeague (KPL), the organising company of Kenya’s top-flight soccer, locked horns when the latter Leonard Mutindarejected FKF’s unilateral decision to expand the league to 18 from 16 teams. Facts of this stalemate James Ndoneare well detailed in the Society Segment of this Issue. Francis OkwembaMiffed, the protagonists, against common sense, headed to law courts where it has dragged for Chief Designerthe last four months, stagnating the season. Even FIFA’s intervention, unsurprisingly hasn’t Zadock Malikayielded much in the stand off, which has resulted, like before, in parallel leagues. Chief Operations OfficerThis is not good. It is not good for the players and the technical staff whose entire livelihood and Shuweikha Saeedthat of their dependants relies on the sport. Ultimately however, it is not good for business. It isnot good for sponsors. Massive revenue to the federation is being denied through lost gate collec- Advertising and Marketing Managertions, TV rights, marketing rights, hospitality rights and licensing rights. Sponsors too, are not Roselyne Okayogetting value for their money, with obvious likely resultant effects – they are likely to withdraw Business Executivespartnerships. David Adema Hellen WanjiruShould that happen, it will take a long time for football to recover and start growing from where Nahum Okiomeriit had come to. We call upon the football stakeholders, including the figureheads in the various Wilson Hayacamps in the standoff and more so the line ministry with overall supervisory role, to urgentlyintervene and end the stalemate, not just for the sake of the game, but also for business. Subscription Fred GithuiDavid Wanjala Circulation PDSMANAGING EDITOR Abdulrahman Chengo— [email protected] Administration Fatma Yusuf2 | Nairobi Business Monthly | April 2015 Photography Zadock Malika NBM Library Printing Emirates Printing Press, LLC, Dubai, UAE Nairobi Business Monthly may not be copied and or transmitted or stored in any way or form, electronically or otherwise, without the prior and written consent of the publisher. Nairobi Business Monthly is published at Parklands Road, by Al-Nur Media Africa Limited, P.O. Box 57731 – 00200, and Telephone 0735 701702, 0715 061658. Registered at the GPO as a newspaper. All correspondence to the editor is assumed to be intended for publication. Nairobi Business Monthly admits no liability for unsolicited articles or pictures, which must be accompanied with a self-addressed, stamped envelope. Whilst every effort has been made to ensure the accuracy of the information contained in this book, the authors, publishers and editors accept no responsibility for any loss, financial or otherwise, sustained by any person using this publication. No part of this publication may be reproduced, stored in retrieval systems or transmitted in any form by any means, without prior written permission of Nairobi Business Monthly. All rights are reserved.
April 2015 | Nairobi Business Monthly | 3
Mailbox WE'D LOVE TO HEAR FROM YOU: Send your letters to, [email protected] DISCLAIMER: Letters submitted to Nairobi Business Monthly Submission of a letter constitutes permission to Magazine are presumed to be intended for publication. The publish it in any form or medium. Letters may editor reserves the right to edit them. Readers are advised to submit their names and addresses even when these are not to be be edited for reasons of space and clarity. published. email: [email protected] Comments on our stories and topical issues www.nairobibusinessmonthly.comIn the March edition I was glad your magazine COMPANY & INDUSTRYwas able to shed more light on oil prices, citing ILLEGAL LPG TRADE THRIVES ASadvantages and disadvantages, as well as the ENERGY COMMISSION WATCHESimpact of the falling prices on the economy. Whatcaught my attention is the fact that the East ENTERPRISE & IDEASAfrican countries do not have adequate storage CONSERVATIONIST WITH Afacilities, hence miss a chance to accumulate KNACK FOR BUSINESScheap stockpiles.— Muthoni Nyanjau, via e-mail. www.nairobibusinessmonthly.com BUSINESS & LAW SPOTLIGHT ON ATHLETICS Vol 3 • Issue No. 11 • March 2015 | Ksh300.00 • Tsh5,000.00 • Ush8,000.00 • RFr2,000.00 WHY BROADCASTERS COULD BE ‘NEVERTIREE’ ISAIAH SETTING THEMSELVES UP TO FAIL KIPLAGAT P.54 BLESSING OR CURSE? After the fall in crude oil prices, local explorers are decomissioning rigs while State mulls doubling fuel levies. Is the excitement shortlived?Mixed fortunes in falling oil prices Petroleum Gas (LPG) business is largely needed funds. Patience is all what youIn the March edition, I was glad your out of control. Many customers are green need especially if you don’t want to havemagazine was able to shed more light about the unlicensed vendors that the a long financial relationship as the caseon oil prices, citing advantages and best thing is to do proper campaigns. We with lenders.disadvantages, as well as the impact of all want to use gas that sometimes we Anthony Litala, Nairobi.the falling prices on the economy. What don’t mind about who the dealer is. Ascaught my attention is the fact that long as I can refill my gas cylinder I am Techbyte spot onthe East African countries do not have good to go. I can only pray that the Energy I enjoyed reading your March issue,adequate storage facilities, and hence Regulatory Commission will sensitize especially the techbyte segment; it wasmiss a chance to accumulate cheap Kenyans and educate them on some of well done. It really enlightened me aboutstockpiles. This means they stand to lose the advantages of buying or refilling gas mobile Apps and their applications. I amfrom the falling prices in fuel. cylinders at licensed petrol stations. a living example of a question asked inSo one question that begs for an answer is, Lillian Kwamboka. a middle of a conversation by a friendwill the oil recently discovered in Turkana of the type of operating system my cellever be exploited? If yes where will it be Build or buy? phone runs on. I must admit I had no cluestored as it awaits to be refined into the I make reference to a story by Steven of what it was. I wish I could have comedifferent oil products. Is East Africa doing Ekwaro on housing industry that: “more by this segment earlier and I could haveanything to address the situation? Or, will than 80% of first time homeowners are impressed him by my knowledge of theall these countries just act as if all is cool building their own houses as opposed to subject. Kudos for enlightening us andand that it is business as usual? Only time buying fully developed units, in which have more of such segments in future.will tell. case they would use home loans. Four Mohammed Ismail.Muthoni Nyanjau. out of five homeowners construct their houses and less than half of them do not LIKE USIllegal trade that is petroleum gas intend to borrow to finance construction.”Are we just going to buy gas cylinders I would advice Kenyans to stay away from facebook.com/from bogus dealers as energy commission mortgages… it hurts to pay more when you nairobibusinessmonthlywatches? Some cases of cylinders that can save when you buy a house in cash.explode causing a lot of damage in Invest with your head and then build your FOLLOW USestates is an indication that the Liquefied own house once you have raised the much twitter.com/@ nairobibusiness4 | Nairobi Business Monthly | April 2015
GODIGITALWITHSEND YOUR NAME, MOBILE NUMBER AND EMAILDIGITALADDRESS TO: [email protected] AT YOUR FINGERTIPS April 2015 | Nairobi Business Monthly | 5
Briefing A snapshot of the business world Car and General links MRF tyres promotion with 12 SACCOSTreasury trains of getting all government agencies Dubbed “ peel, stick and win”,officials on to use the automated e-procure- the promotion is targetinge-procurement ment platform. members of the 12 participat- ing Saccos, and will provideT he National Treasury last primary users of the system and “We have rolled out the IFMIS original stickers on the rear month embarked on a are critical in the successful roll e-procurement within all Minis- screen of the matatu. The series of training sessions out of the system within the corpo- tries, Departments and Agencies as duplicate will be left with thefor the over 600 procurement, rations. IFMIS e-procurement will well as the 47 counties and we are Sacco for the raffle draw. Eachfinance and ICT officials from significantly change the tendering now embarking on doing the same sticker has an original and adifferent state corporations on process by speeding up the process within the state corporations,” said duplicate with a serial number.e-procurement. The training as well as enhancing accountabil- Jerome Ochieng Director IFMIS There will be a winner fromsessions are aimed at prepping ity and transparency. Department. every participating Sacco andthe corporations for the rollout all matatus with MRF stickersof the IFMIS (Integrated Finan- “This is a system that will The automated e-procurement will have a chance to win twocial Management Information improve the speed of procure- and payment platform is expected new tyres.Systems) e-procurement system. ment and payments to suppliers. to significantly increase account- Vijay Gidoomal, the Managing e-procurement provides better ability and transparency in the Director of Car and General The IFMIS Department of the oversight, transparency, accounta- tendering process. said, “MRF tyres have stoodNational Treasury will follow up bility and governance,” said Mutua the test of time and we arethe sessions with in-depth training Kilaka, Principal Administrative “Almost 40 per cent of our pleased they have lastedand support once the system is Secretary (PAS) National Treas- budget goes to procurement and beyond our customers expec-deployed to the state corporations. ury when he opened the training it is thus essential to take a look at tations. ” sessions. how we are spending this money,” MRF Limited is India’s largest The training sessions are said Ochieng. tyre company with a multi-targeted at procurement, finance The rollout of the system to state plant operation producingand ICT officers, who will be the corporations will be the final phase The training sessions drew offi- world-class products in nine cials from the ministries of Agri- manufacturing units. The culture, Livestock and Fisheries, Company has acquired global Energy & Petroleum, The National recognition with a premium Treasury, Lands, Housing & Urban range of tyres. Development and Industrialization & Enterprise Development.6 | Nairobi Business Monthly | April 2015
DATASTREAM 14 984.9 bn 2014 The total number of new branches that regional How much natural disasters costs Kenya retailer, Nakumatt Holdings, plans to open in according to the Food and Agriculture The year that mobile phone and tablets the next two years. Currently, Nakumatt has a Organisation’s recent report that was reached 13.9 million subscriptions regional branch network of 52 outlets across released at the UN world conference for Kenya, Uganda, Tanzania and Rwanda. disaster risk reduction. remaining the internet access point for majority of Kenyans, a 5% rise from the previous year.Concours 2015This year’s event will be the 45th to be organizedby the Alfa Romeo Owners Club and will be held atthe Nairobi Racecourse on September 27thT he 2015 CBA Africa ards of preparation for their cars station wagon which are being contesting the competition class Concours d’Elegance had a and motorcycles.” prepared by Magdi Riad. Tutu with their motocross machines. flying start at the launch of Maina of motocross fame has The Bassi brothers, Gurvin andthe regulations and the premiere “The event mirrors the character switched to four wheels and will be Harmann are pinning their hopesof the TV programme. 49 and objectives of CBA. We strive driving a 1971 Volkswagen Beetle on a 1988 Honda CRB 600R.competitors submitted entries to enhance the lifestyle of our along the judging line on Septem-(26 cars and 23 motorcycles) for customers through the best possi- ber 27th. His sisters Wambui and Among the competitors who willwhat is rated as the classiest ble service and the provision of Tina Maina will be making their be at the racecourse on Septemberevent on the Kenya motor sport products which meet their needs. Concours debut in a 1964 Mercedes 27th after contesting the Concourscalendar. Concours day gives us a golden 190. Youngsters feature strongly for the first time last year are Fran- opportunity to showcase CBA’s among the 23 motorcycle entries cis Kung’u Njau with his gleaming Loud applause greeted the offerings to individuals, the motor which are already on the list. Andre two tone 1951 Riley and Samuelannouncement by Chris Pasha, the trade and other commercial and Antoine will be riding a 1960 BSA Waweru Mwai who is preparing aGroup Head of Marketing of CBA, industrial organisations.” B33 along the racecourse parade 1968 Mercedes 280 SE. They willthat the bank has increased the ring during judging. Amy Wanday be vying for the newly introducedprize fund to 2.5 million shillings. Surprise entries received during and her brother Ted will both be award for the competitor with theHe said, “This will recognise the the launch function include the most improved score.time and effort made by competi- 1965 Jaguar E-Type of Alec Davistors to achieve the highest stand- and a 1962 Triumph Herald sports car and a 1976 Morris TravellerUnilever: Dental diseases slow down economic growth speaking on World Oral Health town, with the slogan ‘Smile for daily brushing with toothpaste.O ral hygiene can help Day marked on Friday as the life’. Residents were offered free “Many Kenyans still do not brush accelerate economic Kenya Dental Association (KDA) dental check-ups, teeth brushing their teeth twice daily with growth by increasing partnered with Unilever Kenya’s lessons and awareness on oral toothpaste as recommended byproductivity and reducing Close-Up toothpaste brand in a health and this will be rolled out dentists. This proves that we needmedical costs for households and campaign to reduce tooth decay across the country. “Oral health is to step up awareness throughorganisations. A senior manager and gum diseases in the country. an important component of good campaigns like World Oral Healthat consumer goods manufacturer Dr Sidibe said during economic health, and good oral health is a Day, in partnership with theUnilever says that despite being downturns, patients might delay fundamental human right. We country’s health experts,” said Mreasily preventable, tooth decay consultation and treatment, are reaching out to children and Marc Engel, Unilever CEO for Eastaffects nearly all of the global with disastrous financial and the general population with oral Africa and emerging markets.adult population and 60 to 90 per health ramifications. “Untreated health education,” said Dr Jane Tooth decay is the most commoncent of children. “Cavities are a tooth decay can prevent people Wamai, the chairperson of Kenya chronic disease on the planetmajor cause of absenteeism from from turning up to work which Dental Association. Unilever says with painful and expensivework in adults, resulting in both results in companies under this is part of its commitment to consequences from time lost atshort and long-term impacts on performing, targets not being help one billion peopleimprove school through to large medicaleconomic productivity,” says Dr met and consequently impacting their health and well-being and bills. It is largely preventable byMyriam Sidibe, the Social Mission the economy,” she added. The works with the World Dental brushing teeth twice a day withDirector at Unilever. She was campaign kicked off in Naivasha Federation to encourage twice toothpaste. April 2015 | Nairobi Business Monthly | 7
MORE INSIDE▶ Briefing Business Diary: Events calender for AprilWhat it will take to Tom Gitongo,boost CIC profitability Group Chief Executive CICW ith ever emerging risks, “Insurance products go through posting an oversubscription strategy into the counties, where there’s a growing need cycles,” he says. of 111%, which amounted to there is potential for market to have insurance cover. Sh6.34 billion up from the Sh3 growth. The new offices willThat’s why people are grabbing “And so it is important that we billion targeted. The capital be opened between March andthe opportunity to insure them- keep revisiting our product offer- realised from the Bond issue is October.selves as insurers vie for the big ings and see that they fit in. We being used to drive the expan-market. will consciously and deliberately sion agenda that has so far seen The underwriter is also grow our individual life. It is an it open the South Sudan and enhancing customer service Billed “profitable growth area full of potential. It enjoys Uganda branches with plans through a loyalty scheme, whichthrough customer service”, the lowest loss ratios and the underway for operations in involves training and reward-CIC Insurance is evaluating its biggest potential in terms of Malawi, where the requisite ing insurance agents in majorcurrent range of products to profits... it has more beneficial licence has been obtained. towns to boost their capacitycome up with new ones that impact. Pension is another area in selling policies. The Groupaddress the needs of various that will grow because all the For an insurer that has carved intends to train about 300 agentsmarket segments. Effective effort that we put in our working a niche as the leading co-oper- by the end of March. The train-delivery of services now means years should not be compro- atives insurer in Africa and the ing programme is going on inthat loss making lines are mised or reversed because of pioneer and largest micro-insur- Kericho town and will spread tostreamlined big time and focus lack of a plan.” er in Kenya, spreading wings other parts of the country.pointed at making portfolio that across the country is a strategyis profitable. The evaluation CIC’s gross premiums grew that will reposition CIC to better “Part of the reason why insur-will see some policies upgraded by 23%from Sh11 billion in 2013 tap opportunities available in ance penetration remains low isor scrapped off and new ones to Ksh13.7 billion in 2014. Total the co-operatives movement and lack of awareness about insur-introduced to make its product assets increased by 39% to Sh23.7 micro-insurance sector. ance products. As a companyportfolio more competitive in billion from Sh17 billion in 2013 we are training our agents tothe market, initiatives which are while shareholders’ funds went The Group will open seven equip them with knowledge onpart of a five-year blueprint that up by 13% to 7.2 billion in 2014 new offices in Kitengela, Isiolo, products available and modes onis expected to see the company from 6.7 billion in 2013. Nanyuki, Kitale, Kitui, Naivasha how to capture the market,” saysgrow its market share and and Kilifi as part of its expansion Gitogo.improve its market position. It pays when a variety of poli- cies including health, education, Transformation at CIC Insur- travel or property are makingance Group started a year ago sustainable profits. “It’s painfulwith an aim of boosting growth to lose nearly 600 million onand profitability. The plans will a line of business. We want tosee the insurer develop new achieve more growth by focusingproducts, open new offices, on the customer and this meansand train insurance agents developing products that theyacross the country. Group Chief need and taking our servicesExecutive, Tom Gitogo says some closer to them,” says Gitogo.of these developments havealready commenced and are Last year CIC successfullyset to continue within the year. listed its Bond at the Nairobi Securities Exchange (NSE) after8 | Nairobi Business Monthly | April 2015
Briefing INVESTMENT GUIDE: Financial analysis P.12 Top priorities for the investment communityDATAVIZ management BUSINESS BAROMETERMAJORITY OF INVESTMENT MANAGERS FAVOUR THEREPLACEMENT OF THE CURRENT COMMERCIAL SERVICE 1,000PROVIDERS AND DATA SOURCES BY ONE OR MORE DATA UTILITIES Internet access has been widely tipped GREATEST CONCERNS ABOUT KNOW YOU CUSTOMERS (KYC), to be the key differentiator in Kenya’s ANTI-MONEY LAUNDERING (AML) AND SANCTIONS SCREENING economic performance, creating at least 1,000 jobs a month in the business Lack of a golden source of data Not Concerned process outsourcing sector since 2013, Lack of industry utility or utilities Some Concerned according to the ICT Authority of Kenya.Lack effective compliance process Great Concerned 630bn Regulatory fines As the recent market value of 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Safaricom hits Sh630 billion, it is now leading other big firms likeQUOTED: EABL (valued at Sh248bn), Equity (Sh190bn) and KCB (Sh179bn). The“It will free up resources for other telecommunications firm’s marketgovernment projects in the country, as well value is equal to half of what the Kenyaas reduce over reliance on development Revenue Authority (KRA) is expected topartners who have previously provided mostof Kenya’s infrastructure funding. collect this year.–Transport and Infrastructure Cabinet Secretary Michael Kamau on the move by treasury to 61%seek foreign financiers in highway projects. According to data prepared for The Wealth Report by the analyst firm WealthInsight, the global population growth of ultra-high-net-worth individuals has recorded a rise of 61%, growing by almost 5,200 last year. This means that 65,000 people have joined the ranks of the ultra-wealthy over the past decade.. April 2015 | Nairobi Business Monthly | 9
MORE INSIDE▶ BriefingFIRSTPERSON CORPORATE SCENE: Omidyar Network is improving lives P.15 Investment priorities: what are the challenges and opportunitiesFrom customer a service station. View Total Service Station.”attendant to Candidates are selected from For him this was a golden oppor-service stationdealer hard working, enthusiastic, tunity to have a career. He has honest workers who exhibit strong worked very hard and tried to learnBy Victor Adar getting creative can open floodgates entrepreneurial skills. Then the as much as possible about the for big cash. For more than 45 years company equips them with the service station business. DuringW e have witnessed innovative now, Total Kenya Limited has run a necessary business skills through his second year of employment he business models that big Young Dealer scheme which gives an elaborate mentorship and train- climbed the ladder from a seniorcompanies embrace for the efficient promising service station employ- ing programme and helps them customer attendant to becomedelivery of services. Maybe it is the ees the opportunity to undergo on to build up the working capital the “Records Supervisor”. Twotouch of professionalism associated the job training to give them the required to independently run a years later, he was promoted to bewith running successful businesses. necessary accounting and business service station. the Forecourt Supervisor whereMay be not. However, seemingly experience required for operating he raised the station’s customer Stephen Kamau is one of the service standards. graduates of the Young Dealer scheme and now runs the Westend “The service station manage- Total service station in Nakuru. ment and the Total sales repre- Talking about his life, Stephen sentative for the region recognized says: “I come from a low income my efforts to boost sales and I family in Kitale town and at a very was appointed to the new posi- early age I worked as a labourer tion of service station marketing before becoming a trainee officer. The objective was to bring customer attendant at the Elgon in customers from the neigh- bourhood of the service station. Many hours of visiting potential customers were rewarded with more business for the service station which became one of the best in the region with high sales and service rating,” he says with a contented smile. The next step up the ladder was the appointment by Total as the caretaker for a new service station in Lokichoggio. His role was to open the service station ready for the official launch by the then Managing Director of Total Kenya Momar Nguer and the Energy Minister at the time. Once this assignment was completed he moved to the Total Service Station in Eldoret as the Manager. “In a span of seven years, I10 | Nairobi Business Monthly | April 2015
Briefing EXECUTIVE ARENA: Bean counters find an edge P.26ran this station and three others Fate performed well growing by about dealers in remote areas, thousandsbefore I was selected as a Young 5.4%. What it means is that of kilometres from the capital city.Dealer in 2009. Every day part of I come from a low people are investing wisely, and They do well having learned from thethe revenue from a young dealer’s income family in Kitale getting wealthier. When people are job, thereby bring added dimensionsservice station is credited to his town and at a very wealthy it is clear that more money in terms of serving the wide marketor her account which builds up early age I worked is being spent on food, shelter, optimally – petroleum stations arethe capital needed to operate a as a labourer before clothes and of course on fuel. spread across the country in allstation,” he says, adding that after becoming a trainee the 47 counties. The dealers andaccumulating the required capital customer attendant at Young dealers can be compared consumers must nurture skills thatto become a fully fledged financial the Elgon View Total to people in the back office. They strengthen their stations and alsodealer he has the pride and satis- Service Station. take companies to the next level bring sanity to the petroleum indus-faction of running his own service but much is not usually said about try. Thus, the problem of test tubestation. services are rendered at stations them. But then again, it is this lot dealers, of those who are into the they run. With the wide knowl- that helps in meeting the chang- trade but lack the idea of its opera- Kamau’s is a more unlikely edge those who pass through this ing needs of consumers in the tions will be a thing of the past.growth that you cannot imagine – a scheme have a competitive edge. petroleum industry. Talk of themodern graduate would not thinkabout starting off as a trainee. Why Petroleum is one of the vibrantsome of young professionals fail to sectors growing at a rapid rate.get plum jobs is partly because of Data from the Petroleum Institutethe rush, having the belief that it of East Africa indicates that petro-is better to get straight employ- leum demand grew by an averagement than to scratch the ground of eight per cent to hit the 87,000and learn the ropes over time. He barrels per day slot last year, anis among the very fortunate to indication that the consumptionlink with Total, which is the only of the product is increasing. Atoil marketer with an incentive the same time, Kenya’s economyscheme, which gives customerattendants the chance to gainthe much needed experience tomanage a service station andobtain the necessary funds. The scheme is backed by a train-ing and mentorship programmerun by the territory managers.Eventually, this empowers hardworking individuals to rise frombeing a customer attendant to thelevel of running a multi-millionshilling business of their own. Thisgives young dealers a distinctivemark, as what they learn fromthe scheme would account for adifference impacting big in the way April 2015 | Nairobi Business Monthly | 11
BriefingINVESTMENT GUIDENAIROBI BUSINESS MONTHLY | VOL 3 | ISSUE 11 | MARCH 2015 The survey was The priorities of investment managers conducted in the third quarter of 2014 with six of the ten largest Regulation investment manage- Lack of STP in major areas ment firms and theirKYC/AML/sactions screening counterparts at more than 30 investment management houses. FATCA The survey’s resultsCorporate Actions identify the following eight key issues facing OTC cleaning investment managersTrade repository reporting for the year ahead:Collateral management The heavy impact of regulation on Reconciliations investment manag- Repo ers 0 10 20 30 40 50 60 70 80 90 100 Managing regulatory reporting and compli- ance is taking up consid- erable time and effort. As a result, less time isTop priorities available to innovate and respond to new clients.for investment Three out of four managers surveyed named this as an operational pain-point and also the greatest single source of expenditure. By prioritising regulatory compliance, invest-managers in 2015 ment managers appear to have major regulatory challenges under control, but significant opera- tional challenges remain, particularly related to Know Your Customer (KYC), Anti-Money Laun- dering (AML) and sanctions screening compli- ance. Other challenges investment managers face to ensure compliance to regulation include:By Stephen Ekwaro banking organisations, securities institutions Multiple reporting templates to complete -R egulation, automation and financial and corporate customers. Investment managers report little or no syner- crime compliance initiatives are top The findings of the survey, which are captured gies between these reporting exercises, leading priorities for the investment manage- to time-consuming duplication of effort. in a paper entitled Operational Challenges Facing Investment Managers in 2015, assesses Diversion of resources to meet regulatoryment community in 2015 according to a new the current and future operational needs of the demands - The sheer number and diversity ofresearch commissioned by SWIFT, a member- buy-side with a view to determining potential regulatoryobligations,thefrequentlackofclar-owned cooperative that provides communica- solutions around automation, standardisation ity over implementation requirements, fixedtionsplatform,productsandservicestoconnect and collaboration. deadlines, and the fear of incurring financial2010 The year when the US Government introduced the Foreign Account Tax Compliance Act.12 | Nairobi Business Monthly | April 2015
Briefing HOW STUFF WORKS: Recovering a stolen phone P.18penalties for non-compliance, are impacting sources of reliable data. Investment managers, rules binding issuers.investment managers’ organisational struc- for instance, are required to assess clients and Efforts to make corporate actions processingtures, investment budgets, recruitment, and counterparties to ensure they are not launderingdata management priorities. money, breaching sanctions or handling invest- more efficient, in terms of issuing clear notifi- ments from corrupt public officials. They must cations to investment managers and executing This in turn affects clients as investment also check the tax compliance of clients as per their instructions as late as possible, have yetoperations departments struggle to keep pace the Foreign Account Tax Compliance Act intro- to succeed. There is a lack of direct regulatorywhile simultaneously running day-to-day duced by United States government in 2010. pressureforimprovementsincorporateactions.functions. These factors are considered to limit The range of parties involved – issuers, dataavailable time to meet client demands for new Repetition of the due diligence process for vendors, stock exchanges, stock registrarsservices and reporting. the same client (by each and every invest- and investors, as well as sub-custodians and ment manager, even when an existing client global custodians – also makes it hard to build Pressure to meet regulatory deadlines - Regu- invests in another fund), can strain relations a consensus for reform.latory compliance projects have to run in paral- with investors.lel, rather than sequentially, and firms have to The growing importance of collateralmake assumptions due to lack of clarity in the Mitigating outsourcing risks – Investors management – Post-crisis regulation isregulations. This is placing significant pressureon firms in terms of resource capacity. and regulators are encouraging investment prompting investment managers to address managers to focus on business continuity the cost and risk of managing collateral. Investment in technology and headcount and risk mitigation, especially in the case of- Managers are redesigning and rebuilding outsourced services. This has increased criti- A lack of standardisation hamperingtechnology to retrieve timely data for regula- cal dependency on third party service provid- post-trade efficiency – Communicationtory reporting purposes. Some have built data ers especially in relation to the safekeepingwarehouses to consolidate data from multiple of assets, valuation of shares in a fund and between counterparties could be more efficientback office systems. transfer agency. if there was a greater use of message standards. Internal and external data aggregation is Inefficiencies in corporate actions A lack of standardisation in post-tradenecessary to populate regulatory reports - To processing – There is clear appetite for a processingoftransactions –Theprocess-report to multiple regulators on a consist-ent, accurate and timely basis, data has to be single, authoritative source of reliable corpo- ing of some asset classes (notably OTC deriva-retrieved from external (executing broker, prime rate actions information (perhaps as a shared tives, but also repos, collateral movements,broker, clearing broker, custodian, fund admin- utility), and greater demand for enforceable stock loan and investment fund settlementistrator) as well as internal (equity, fixed income, and registration) continues to be impeded byderivatives) systems. This creates dependence low levels of standardisation.on timely delivery of accurate data by thirdparties, and can lead to risks of data corrup- Newformsoffunddistributionsupporttion that cannot be controlled when third party areneeded –Investmentmanagersfacechal-systems are upgraded or changed. lenges in distributing an expanding range of Rising concern about the cost of making a fund types into a number of geographicalregulatory mistake - The value of fines being markets through a growing range of infrastruc-levied by regulators for breaches of investor tures adopted by investors.protection rules have increased awareness ofthe cost of even inadvertent mistakes. “This research into the investment manage- ment industry shows that there are clear pain- Increasing client expectations - The ability of points that operations executives will need toa manager to meet regulatory reporting require- address in 2015 and beyond,” says Ian Bessara-ments is now a standard feature of operational bia, SWIFT Business Development Manager fordue diligence, and some investors are seeking Sub Sahara Africa.indemnities from investment managers iferrors occur. SWIFT enables its users to exchange auto- mated, standardised financial informationSpecific pressure resulting from KYC, securely and reliably, thereby lowering costs,AML and sanctions screening due dili- reducing operational risk and eliminating oper-gence – Investment managers are looking ational inefficiencies. It also brings the financial community together to work collaboratively tofor utility solutions to provide more efficient shape market practice, define standards and debate issues of mutual interest. April 2015 | Nairobi Business Monthly | 13
BriefingINSIDE▶Corporate sceneENDORSEMENTICPAK OK’s strategicpartnership withMaarifa EducationMembers of The Institute of university into an outstanding education market and attract resources universities needCertified Public Accountants of institution with the resourcesKenya (ICPAK), in a Members’ it needs to compete locally and a greater number of qualified and, in so doing, fulfil theirSpecial General Meeting on 11th beyond in an increasingly globalMarch, voted overwhelmingly to education market.” students. The investment will social missions and benefit theenter into a strategic partner-ship with Maarifa Education Maarifa is a specialist educa- also address the near-term capi- communities in which theythat will, subject to regula- tion company that invests intory approval, lead to Maarifa and partners with universities tal requirements and provide operate. The KCA Universitymaking a US$17.5 million across Africa to expand accessinvestment in KCA University. to high-quality higher educa- KCA University with the expan- and Maarifa partnership, with tion that produces graduates Commenting on the news, with the knowledge, skills and sion capital it needs to enable its innovative structure, willBenson Okundi, Chairman of attitudes required in today’sICPAK, said, “This is a great world. Maarifa’s founders are it to invest in core infrastruc- pave the way for further privateday for education in Kenya and committed to building qualityfor the next generation of our African education institutions ture, systems, faculty develop- investment in the Kenyanbusiness and accounting talent. that serve the students, alumni,As the Sponsor of KCA Univer- faculty and staff, as well as the ment and student facilities. tertiary education market.sity, ICPAK and its members are communities and countries inproud to support this proposal, which the universities operate. Maarifa also plans to establish Mike Eldon, Chairman of theto ensure the continued successof KCA University and to The proposed investment will a Foundation with KCA University Council,support its transformation into help KCA University to makea truly best-in-class university. substantial improvements to $17.5mseed funding of US$1 said of the vote, “This isWe have found the right blend its programmes, campuses, a momentous occasionof vision, values, expertise and and service offerings, so it can million, approximatelyfinancial resources in Maarifa to compete more effectively within Sh92 million, through Money, subject for KCA University, asachieve our goals.” the growing Kenyan higher- which KCA University to approval, it will enable us to offer Maarifa Co-Founder and will grant scholarships that Maarifa all round excellence toCEO Scott R. Royster said, “We to financially needy Education, will the students, the staffsincerely thank the ICPAK students. invest in KCA and the wider commu-members for their vote of confi- nity. It also marks adence. Subject to our proposal The proposed part- Universitybeing granted the necessaryregulatory approvals, we look nership heralds a new successful end to theforward to fulfilling our prom-ise to work together with KCA era for Kenyan private Council’s three-yearUniversity management and itsCouncil to help transform the education showcas- search process for a ing how private sector invest- partner to support the univer- ment and engagement can sity’s growth and development. significantly increase access to Having Maarifa as a strategic the financial and operational partner will secure our future14 | Nairobi Business Monthly | April 2015
Briefing BIOGRAPHY FEATURE: Contact: Changing Times P.58 Sobia Khan How technology has [email protected] reengineered social set +971 04 7062249 ups Mark Kassand provide the Council Emerging Capital Partners MILESTONE Marmembers and faculty with the (ECP), one of the oldest and Devsignificant support we need largest private equity firms It was October 2013 whento transform the university investing in Africa, has provided Ford Motor Company succinto a leading, internationally financial backing to Maarifa andrecognised tertiary education the proposed partnership with named Mark Kass itsprovider. I also wish to acknowl- KCA University.edge the critical role played by Senior Managing Director busithe KCA University Board of Alex-Handrah Aimé, Manag- of Business Development addTrustees and the ICPAK Council ing Director at ECP commented at Al-Futtaim automotivein progressing this transaction on the news, “ECP is proud toto the advanced stage it has now support Maarifa in its partner- after successfully Easreached.” ship with KCA University and ICPAK. It is precisely these types managing the company’s com Vice Chancellor Professor of innovative strategic partner- second largest autoNoah Midamba added, “The ships that will help to addressfaculty, staff and students at the critical supply-demand business across multipleKCA University have all united imbalance for quality market-behind Maarifa’s proposal. We relevant tertiary education in geographies. This In thare delighted that the ICPAK Kenya today. We are delighted move reaffirmed the gromembers have supported this that ICPAK members have automaker’s commitment porproposed partnership, which formally agreed to this partner- to Kenya as one of its priority growth markets on the Africanplaces us on very solid ground ship. This important milestonefor a successful implementa- further reinforces the strong continent. He assumed additional responsibility as Group CEO aligtion.” sense of shared common values of CMC Holdings Ltd East Africa post-acquisition in May 2014 and goals between the various In addition to investing institutions.” whereby the company has subsequently delisted.significant capital into itspartner universities, Maarifa GRANT In this position, however, Kass is responsible for organic andintends to draw on the inter-national education experience Support for itnhoerAgal-nFiuctgtaroimwtphowrtiftohliiMno aeaxnidsrtikisnfgualhlnydarenssepwonfersoixbnltteieefronsrabscurisovisnesess Retail expeof its management team to Equitable Tax operations and alignmteuntrancraosrsoEuasnt Adfrician. underperforming buprovide strategic, financial and Systemsoperational support to KCA Wsbpuiesthciniaaenlsizseienxstg,etinnhsesivtmaerarten-tuiaspEyileaeexnMxtdrapeetEmrursireeAnlnyacraweomdusaonpapdartnraiknnkbiilunneenghdgt2ase8vr,-ipnyieenograsftpropsere,pmnrotinntgrahteutionnitiaelslyaonudtUniversity. Omidyar Network, a philan- thropic investment firm dedi- past 11 years working outside of the UK with a comprehensive Speaking about his inspira- cated to harnessing the powertion for founding Maarifa, Scott of markets to create opportu- understanding of Europe Middle East and African (EMEA)R. Royster said, “We believe that nity for people to improve theirthrough partnerships with great lives, has announced a two-year markets, opportunitiesHanisd cwhalilfeengeJsaprcesqenuteedl.ine and his four cinstitutions like KCA University, grant to Tax Justice Network -we can help transform Africa Africa totaling as to $450,000 Though his wife Jacqueislineaannd hais vfoiudr chsildproenrrtessidefainnthehaving starinto an economic and intellec- (about Sh41 million). The grant UstKarwteitdhofruetqluifeenatsvaispitrsoYtfeoosDsuuiobnnaaigl, chreiEciskneatnterar.evHidpeswrpeaosrntaswefaaunrdrheadvoinfg the Yeartual powerhouse, based on the will support the Nairobi-based Young Entrepreneur ofNthee Yweasr fporaLponedorn iGn 1r9o99ujupdgeadnbyd Citibank astrength and knowledge of her nonprofit’s work to promotepeople, her sheer size and scale, equitable tax systems across Ernst & Young, the TimhesiNgehwlsypaspeur GcrcouepsansdfuCitlibaanuktaonmd otive groupas well as her vast untapped Africa.resources in which all Africans also received numerous accolades prior to selling his highlydeserve to have a share.” successful automotive group to Lookers Plc in July 2000. He moves up the ladder at a time when sales of Ford models are expected to grow significantly in 2015 with resultant market share growth of over 2%. This growth is a substantial improvement on the already impressive 31% sales growth performance registered since 2012. Through CMC Motors, the portfolio of Ford cars, pick-up trucks and sports utility vehicles (SUVs) is set to grow significantly. By the end of the year, Ford’s line-up will include a raft of exciting new models, including the Focus, Fusion, Everest and Ranger. CMC is also investing in a Quick Lane Service Centre to allow for a customer-focused business. April 2015 | Nairobi Business Monthly | 15
BriefingINSIDE▶Corporate scene Tax Justice Network-Africa added. Haltons Limited has signed a AGRICULTURE(TJN-A) is a pan-African Omidyar Network’s grant new partnership with Tuskysinitiative established in 2007 to that will see it set up stores Elusive fertilizerpromote socially just, demo- comes through the philan- within the supermarket’s outlets plant is only one yearcratic, and progressive taxa- thropic investment firm’s across the country. awaytion systems on the continent. Governance & Citizen Engage-The organization’s activities ment initiative, which works The partnership, which has Kenya will start manu-are aimed at promoting public to build stronger and more private equity backing from Fanisi facturing fertiliser next year.awareness of tax issues by open societies by increasing Capital is expected to significantly Toyota East Africa, whichnetworking among 29 member government responsiveness and widen the access to world class recently won a tender toorganizations across 16 African citizen participation. In service pharmacy services to Kenyans by construct the facility, hascountries, coordinating civil of those goals, support of TJN-A leveraging off Tuskys expansive undertaken to have the projectsociety organizations’ tax- will foster improved transpar- implemented within therelated efforts, and raising ency and governance of budgets retail network. stipulated time.awareness of the importance of and extractive revenues and According to Sam Njuguna, thetaxation as a tool for develop- other resources used for public Mr. Dennis Awori Directorment and enhancing democratic services. Acting Chief Executive Officer of and Senior Advisor Toyotagovernance. TJN-A is a member Haltons Limited, the new partner- Tsusho East Africa said hisof the Global Alliance for Tax Omidyar Network was ship with Tuskys complements organization will ensureJustice. established in 2004 by eBay the pharmacy chain’s strategy to Kenya gets its first ever ferti- founder Pierre Omidyar and double the number of branches liser plant next year. “Tax Justice Network Africa his wife Pam, the organiza- from the current 25 to 50 by endhas established itself as the tion invests in and helps scale of this year. “We are totally commit-preeminent African organiza- innovative organizations to ted and we shall be ready totion working on tax justice on catalyze economic and social “This partnership will boost produce fertilizer in 2016,’’ hethe continent,” said Omidyar change. It has since commit- Haltons in its ambition to expand said.Network Director, Investments ted more than $760 million to further. It will afford us an oppor-Ory Okolloh. “Their research for-profit companies and non- tunity to offer quality services and He was speaking when heand policy work provides inval- profit organizations that foster convenience to our customers.uable insights for both govern- economic advancement and This is in line with our mission is efficiently managed.ments and citizens wrestling encourage individual participa- to support “Better Living”, while “The partnership with Fanisi,”with how to create and sustain tion across multiple initiatives, maintaining “Competitive Pric-equitable tax systems, and their including Consumer Internet ing,” Mr Njuguna said. Mr Kamau added, “will provideestablished, local voice draws & Mobile, Education, Financial Tuskys with the opportunity torespect from stakeholders not Inclusion, Governance & Citizen On his part, the Managing partner with a strong brand whileonly in Africa, but globally. We Engagement, and Property Director of Tuskys, Mr George offering its customers the optionat Omidyar Network are proud Rights. Kamau said that the supermarket of quality pharmaceutical servicesto support their work,” she chain, which presently has over 50 offered by knowledgeable and PARTNERSHIP branches countrywide, saw huge trusted professionals. We will opportunity in partnering with offer floor space to Haltons in our Haltons inks deal Haltons Limited due to the simi- outlets. This fits well with our aim with Tuskys in larities in the clients served and its of providing a variety of products expansion drive need to associate with a pharmacy and services to our clients”. that has established a strong brand, ► Agreeement to enable strong governance structures and Haltons Limited pharmacy pharmacy to double branches chain has undergone aggressive expansion over the last one year Leading pharmacy chain following the investment by Fanisi16 | Nairobi Business Monthly | April 2015
Briefing TECHBYTE Innovation P.49 Samsung takes display solutions to the next levelled a delegation that paid a other strategic partners before sional General Manager Akira emphasized the need for thecourtesy call on Deputy Presi- commencing the work. Wada said design works for firm to adhere to the dead-dent William Ruto at his Karen the project will start soon. line of setting up the factoryoffice. He said the construction “We intend to put up the saying a local plant will lead toof the fertilizer factory will take first phase of the NPK fertilizer The Deputy President said reduced costs.12 months. around Eldoret because our construction of fertilizer feasibility study shows that Rift factory will address the high “The public is already aware The Toyota chief said that Valley consumes most of the cost of the input that has been of this project and there-his team was also in the final fertilizer in Kenya,’’ he said. identified as a constraint to fore timely completion is ofstages of negotiations with high crop productivity. Ruto essence,” he said adding that The conglomerate’s Divi- “Most of our farmers have no other means of livelihood other than farming.” Toyota Tsusho recently won a $1.2 billion (Sh108 billion) tender to put up the fertiliser manufacturing plant. The company will also release an additional 215 vehicles to the police force this month. Mr Awori said that his company was keen to deliver the remaining 500 units to fulfill the promise of delivering 1,100 units in an agreement signed by the government last year.Capital in 2013. When Fanisi Capi- contribution to the immediate pation in the regional healthcare other stock markets in Africa willtal acquired a significant stake in community in the areas of health sector,” he said enhance its liquidity and giveHaltons Limited, it had four operat- and economic development”. it the ability to raise capital toing outlets. The capital investment BOOKS access other markets within theand strengthening of management Mr Makatiani said that Haltons is continent. He says the companycapacity has led to the successful the second firm in the pharmaceu- Longhorn dons has set a side Sh150 million forgrowth and strengthening of its tical industry that Fanisi Capital a new look the Tanzanian market and Sh80brand. has invested in. It previously took million to revamp the Uganda up a stake in Sophar Limited, a East Africa’s largest subsidiary. The firm is already has The Managing Partner at Fanisi Rwanda-based pharmaceutical publisher, Longhorn Kenya footprints in Uganda, Tanzania,Capital, Ayisi Makatiani, said wholesaler. Limited will now be called Long- Rwanda, Zambia and Malawi asHaltons is a living proof of their horn Publishers Limited a move part of its growth strategy.support and reliance on strong “Fanisi has made strides in the that will enable it cross list in theentrepreneurs to grow businesses, healthcare sector since its first region. The publisher also announcedadding that thepartnership with investment in Rwanda. Through that it has completed the acquisi-Tuskys “is in line with the stra- this new partnership, Fanisi has According to its Managing Direc- tion of 2 properties in Uganda andtegic plans of the business and secured a good combination in tor Musyoki Muli, the planned Rwanda at a tune of Sh25.3 millionwill continue to make a positive the retail and pharmaceuticals. cross listing of the firm in the and 9.1 million respectively. We continue to deepen our partici- April 2015 | Nairobi Business Monthly | 17
INSIDE▶ Briefing ENTERPRISEHOW STUFF Secrets of a young millionaire P.44 WORKS ON PHONE SECURITY: HOW TO USE ANDROID DEVICE MANAGER TO RECOVER A LOST PHONEIt is not simple to get an International get an abstract to prove that the device is can now manage all devices connected to your Google account.Mobile Station Equipment Identity, actually missing. In addition to the make, In fact, after you have signed in, click the arrow next to Android.popular as an IMEI number, especially model and visual appearance, the police You will see all devices that have been attached to your Googlefor a lost or stolen android device. Some and your carrier may request the IMEI to account. Find your current phone and copy the most importantpeople misplace documents that contain help identify the device. thing that is IMEI number. You can go a head to track and findthis number thereby having hard times your device. The combined effort of the police and your mobileworking with their mobile providers and Usually, people use Android Device carrier will help you achieve this.law enforcement officers like the police to Manager to locate lost android phones. It isrecover their devices. actually the easiest way because, from your Web browser or another Android device, Once you realize that the phone is gone, you can ring your lost Android device, lockdon’t panic. There is even no need to think it down with a new password, or completelyabout what sort of personal information is erase it. But what if you don’t have access toaccessible via the device, what photos you a computer, or even an Android device?had saved on it, and the cost of replacing it. Nicole Cozma says on CNET online portal In most phones, the IMEI number is that if there is no computer near you andprinted on the box itself. If you are the you have lost your Android phone, your firsttype who does not keep boxes, trace the reaction is not racing home to check thephone’s receipt – the vendor may have GPS location of your device. With the recentwritten the IMEI number of the device on update to the Android Device Manager,the box at the time of sale. This number is you can check the location from anotherunique to your device, and may allow the Android device instead.carrier to discontinue service to it, or betterstill blacklist it from their network if it was Here is you can still find your IMEI withoutstolen. the phone in your hand. Start by logging into your Google Dashboard by typing a way Report to a police station where you will www.google.com/settings. At this point you18 | Nairobi Business Monthly | April 2015
Briefing 1 2 3 4 5 6 7 8 9 10 11 12 AprilThe Business Diary8 22 economic growth and structural developers both from the public changes witnessed in the East and private sector.LelapaFund Kenya April iHub, Nairobi, Kenya. African region over the pastMeet up decade. 23LelapaFund HQ, Kenya. 14-15Kenyan start-ups and small 18 Etex Africa Expobusinesses are invited The East Africa Education KICC, Nairobi Kenya.to LelapaFund’s second Conference Extreme Expo 2015 Etex Africa Expoinformation session – Sarova White Sands Hotal in Hillcrest, Nairobi Kenya. The ETEX Conference offersexclusively for Kenyan Mombasa, Kenya. The expo provides a unique students, parents, educatorscompanies seeking capital. organized by the Aidem opportunity for businesses and corporates an opportunity Business Solutions will take involved in the gaming, active to meet and explore a wide9-10 place from 14th April to the 15th equipment and outdoor travel range of study options (digital) April 2015. and adventure industries to both in Kenya and abroad.East Africa Digital engage with the youthful andMarketing 15-16 active cross-cultural public. 23-24The Digital Fair aims at bringingtogether key players in the AITEC Southern Africa ICT 20 Financial Reportingdigital marketing space from Summit 2015, Mozambique Workshop for Cooperativethe East Africa Region. The Southern African ICT Supply Chain Capacity Societies Summit will gather the region’s Development Sarova Panafric Hotel,11 ICT policy-makers, regulators, Boma Hotel, Nairobi Kenya. Nairobi Kenya. and professionals from The Institute of Certified PublicStrategic Marketing throughout the Southern African 21-22 Accountants of Kenya (ICPAK)Management Training Development Community has organized this workshopPanari Hotel, Nairobi. (SADC) region Project Finance for Energy to provide the delegates withBy recours Four Kenya and Infrastructure East expert knowledge on theConsultants. 15-16 Africa Conference practical challenges affecting Dar es Salaam Tanzania. SACCOs in Kenya and guidance11-13 East Africa Property In an effort to open up this on compliance with both Investment Summit region to new investment, this the regulatory and reporting11th Buildint Kenya The Summit focuses on the event is brimming over with requirements.As the main international opportunities created by the opportunities for investors andbuilding and construction event, overwhelming and sustainable 24exhibitors will showcase thenew products and technology Laikipia Fashion Weekendnot only to Kenya but also to its & Galasurrounding countries. Sportsmans Arms Hotel, Nanyuki, Kenya.13 27Parents WorkshopPeak Performance International, 2nd Solar Africa 2015Ngong road, Nairobi Kenya. Kenyatta International Conference Centre, Nairobi14 Kenya.Una Hakika StakeholdersForum April 2015 | Nairobi Business Monthly | 19
Company 145m&Industry Units of electricity lost in ALSO READ ►How to get to the top through Marketing and sales 22 ►Duracoat flavours painting 55 January up from 113m units in ► DICTIONARY: Keep abreast with technical business terminologies 23 December last yearelectricityPower losses increase despitebig investment to strengthentransmission networkBy MICHAEL DUNCAN In the electricity business, power losses He however said that the utility has not refer to the difference between the amount of recorded as much losses as reported by KNBSP ower losses went up for two consecutive electricity generated and that, which is sold to since July last year. “We need to find out how months despite massive investment by customers. The losses occur due to a number of they (KNBS) got their data because ideally they Kenya Power to strengthen its network. reasons including a poor electricity distribution should get the information from us,” he added.The latest report from the Kenya National network that does not support a certain level ofBureau of Statistics (KNBS) indicates that 145.69 powergenerationandvandalism,amongothers. He noted that there has been a 2 per centmillion units of electricity were lost in Janu- increase in power losses between July last yearary up from 113.26 million units recorded in Peter Mungai, Kenya Power’s general manager and the end of January but added that they wereDecember. for business strategy told the Nairobi Business on a declining path by the end of last month. Monthly that the surge in power losses is attrib- According to the Leading economic indica- utable to the company’s recent drive to connect According to the KNBS report, local electricitytors report for January 2015 published by the customers to low voltage lines that are often generation increased from 750 million unitsKNBS, power losses had reduced significantly prone to the losses. in November to 775 million units in Januaryto 95.20 million units in November last year 2015. However, electricity sales by Kenya Powerfrom 105.01 million units during the previous “Losses have gone up because of the work declined from 621 million units to 601 millionmonth, owing to investment by Kenya Power we are doing in connecting customers who units during the period.andLightingCompany(KenyaPower)toupgrade are mostly in low voltage lines that increaseand expand its network to curb the same. the losses because we are extending the lines,” Last year, Kenya Power’s managing director said Mr Mungai. Ban Chumo said that the company was hoping to cut its annual electricity loss from 17.5% expe-20 | Nairobi Business Monthly | April 2015
rienced at the time to 15% by the end of 2016. for construction of 36 substations across the in Nairobi and small businesses in the Central One per cent system loss translates into Sh1 country at a cost of Sh10.5 billion. Among the Business District, whose monthly power bills companies that bagged the lucrative tenders is exceed Sh100, 000.billion losses in annual revenue for Kenya Mastermind Tobacco’s engineering company,Power, according to industry estimates. The NGMLimitedandadvertisingcompanyMagnate It announced a budget of Sh150 million for theacceptable level of system loss varies with the Ventures. The rest of the eight companies that first phase of the project that would see 5,000size of a country’s grid network, with those that were chosen to build the substations were customers connected to the devices in a dura-have a wide network prone to larger losses. mostly from India, Saudi Arabia and Iran. The tion of two years paving way for distribution foreign companies will set up 20 substations of the meters to 500,000 other clients at a cost “The drop in system losses is a cumulative at a cost of Sh5.8 billion. of Sh15 billion.development resulting from the reinforcementof the network that we have been undertaking Kenya Power posted a 38.5 per cent jump in The smart metering approach was meant towhich include construction of new substations its profits after tax for the half-year period to increase the utility’s revenue from electricityand associated power lines to reduce outages December 2014, mainly attributed to increased sales by sealing off loopholes for losses.and improve the flexibility of the network,” said electricity sales and an upward review of theMrChumo. electricity tariff that was carried out by the Kenya Power also announced plans to Energy Regulatory Commission (ERC) during outsource meter-reading services as another A research note released by Faida Investment the period. measure to boost its revenue collection. Howev-Bank in 2013 indicated that Kenya Power lost er, mid February, the firm suffered a blow to itsapproximately Sh1.3 billion in revenue for 2012 According to the results published by the plans to outsource meter reading services afterdue to high power losses. company, revenue from electricity sales the Employment and Labour Relations Court increased from Sh26.9 billion recorded during suspended the tendering process following Analysts at Faida said that the loss in reve- a similar period in 2013 to Sh37.6 billion real- an application by the Kenya Electrical Tradesnue could be prevented by strengthening the ized during the period under review. The firm and Allied Workers Union (Ketawu) challeng-company’s distribution network to increase its announced that during the half-year period, it ing the bid.efficiency. had spent Sh10 billion to upgrade its electricity distribution network through replacement of In its application, Ketawu argued that more This, according to the Faida Investment old power distribution lines, transformers and than 1,000 employees of Kenya Power currentlyBank’s report could reduce the need by Kenya refurbishment of substations and installation working as meter readers, supervisors and dataPower to seek to raise the cost of electricity in of new ones. filing clerks could lose their jobs should theorder to plug the deficit in funding resulting company’s plan succeed.from reduced incomes. Kenya Power’s increased uptake of loans from both bilateral and commercial lenders saw its Less than half of Kenya Power’s customers “If the firm succeeds in improving its effi- finance costs rise from Sh1.9 billion to Sh2.3 are currently on prepaid meters. In 2012, it set aciencies, it is in a unique position in the power billion during the period. target to migrate all its clients to prepaid meterssector to capitalize on the capacity additions by by end of 2015 to avoid loss of revenue throughgenerators since they are the sole distributor to In November, Kenya Power signed an agree- defaults on unpaid electricity bills.the consumer and revenue collecting agent for ment with Standard Chartered Bank Group for athe entire sector,” said analysts at Faida Invest- Sh17 billion ($190 million) loan that is part of the Under the government’s plan to increase elec-ment Bank in the research report. total amount it intends to spend on upgrading tricity generation capacity by 5,000 megawatts its network. Part of the money will be used to by the end of next year, Kenya Power will play the Power is lost on three levels; during transmis- settle an outstanding loan of Sh6.2 billion ($70 key role of creating demand for the additionalsion from the generation station to substations, million) it has with the bank. capacity. This is by strengthening its networkin the course of distributing from the substation to adequately absorb the planned power andto customers and at some customer premises It is also in talks with Exim Bank of China for a connecting new customers.through tampering of meter systems. Sh9.2 billion ($103 million) loan while the rest of the funds are set to come from the World Bank. Last year, the firm launched an online portal During the current financial year, Kenya targeting manufacturers and other large powerPower has budgeted to spend about Sh52 billion Early this year, the company secured $25 consumers.in a project meant to upgrade its network across million funding from Africa Finance Corpo-the country. ration, being part of a $150 million syndicated Itwillprovideanavenueforpowerconsumers loan that it is seeking to fund rehabilitation of to submit applications for connections while at This will see the company install new substa- its network ahead of absorption of extra 5,000 the same time enabling the government plantions and power lines in a bid to deal with power megawatts of power that are to be generated for additional generation using the statisticslosses through which it hopes to save Sh2 billion from the government’s plan to scale up power obtained from the portal.by the of 2016. production by the end of 2016. This is meant to accelerate demand for elec- “We intend to invest in reducing the length Last year, Kenya Power set January 2015 as tricity which has in the past sparked debate withof lines by putting up additional substations the date for introduction of the smart meter- industry experts warning that consumers couldso that we can achieve the target of reducing ing services to its customers in selected estates pay as much as Sh50 billion per year in extrasystem losses to 15 per cent in two years,” said costs resulting from idle generators should theMrChumo. additional capacity fail to be fully absorbed. In February, the company issued tenders April 2015 | Nairobi Business Monthly | 21
Companies&IndustriesHALLMARKSHow to build marketing granularity and analytical rigor to allow actionand sales capabilities to to be taken. When a global chemical companyget to the top benchmarked the specific capabilities of its marketing, sales, and pricing functions, it foundBy Dr Kellen Kiambati ing marketing and sales capabilities; in fact, that while one business unit was strong at deliv- it’s necessary to measure ROI to be effective. ering value, its strategic marketing capabilitiesT he market revolution has profoundly The best-performing companies focus on needed improvement to drive growth. Just as altered the business world as companies building capabilities that are directly linked important, the company rolled out a shorter reinvent how they build things to be to specific growth and margin opportunities version of the diagnostic on an annual basismore efficient and productive. It is time that by instilling ROI discipline. For example, a to gauge ongoing performance and to spotcompanies apply that same level of scrutiny and building-materials business found there was emerging trends.commitment to marketing and sales. enormous value available (about two percentage points of margin) from improving capabilities Target the capabilities that matter the most At a time when growth is not only more in transactional pricing, sales, and local tacti- Companies tend to invest in capabilities withoutimportant but arguably more elusive than ever, cal marketing. Historically, the company had thinking through which are likely to have thecompanies must tap the potential of marketing found it hard to fund the investment required to most impact or are most important to beat theand sales to deliver better results. Many senior build those capabilities, given that it was a large competition. This is generally the result of aexecutives still argue that the return on invest- expense without a return in the same year. But faulty understanding of existing capabilitiesment (ROI) from marketing and sales is just too when executives calculated the internal rate of and/or decisions driven by personalities ratherdifficult to assess, especially when compared return of a serious and sustained performance- than a set of facts everyone agrees on.with revenue-generating line businesses. So, linked investment to build those capabilitiesinstead of taking a systematic and deliberate (such as new account-planning tools, pricing Do not try to do too muchapproach to investing in their institutional software, value selling, sales-manager training, Building capabilities requires focused atten-marketing and sales capabilities, many compa- and targeted hiring), they found it was four tion. For example, one manufacturing companynies choose to focus on tactical efforts that times greater than building another manu- found when working to upgrade its commercialprovide quick, visible results. That is a mistake. facturing plant. capabilities that any unit that built out three capabilities at once failed. However, if units Sustainable competitive advantage flows to Know what needs to be fixed stuck to two capabilities at a time, they succeed-companies with the best marketing and sales It is virtually impossible to fix something if you ed. Not trying to do too much, too soon ensuredcapabilities. There are seven hallmarks of lead- don’t know what’s wrong with it. Yet while most they met their goal of improving margins bying companies: businesses rigorously measure and track key three percentage points. Another reason for performance indicators, few apply the same keeping the scope narrow is that changing howView marketing and sales as an investment, not approach to capabilities—and if they do, they an organization works is a prolonged endeavor.an expense typically look at individual rather than true The likelihood of failing or losing momentumIf done well, investing to build a carefully institutional capabilities such as tools, meth- only increases when companies do too muchchosen group of marketing and sales capabili- odologies, core processes, and systems. Compa- at once.ties can yield a massive return—as much as five nies should not only know their marketing andor ten times that of an investment in hard assets sales capabilities but also how they compare Tailor the approach to the company’s stage ofsuchasfactoryequipment.However,companies against their best-performing peers. developmentrarely calculate the ROI of building marketing A successful investment in marketing and salesand sales capabilities. Too often, leadership Acquiring this knowledge requires undertak- isn’t just about choosing the right capabilities;looks at marketing and sales as an expense ing a diagnostic that reveals capability strengths it is about choosing to develop them in the rightrather than an investment in top-line growth. and weaknesses—and does so with sufficient sequence. Where you are on the business- performance curve should inform your deci- It is possible to measure the ROI of build- sions about which capabilities to develop: Stage 1: Low growth and profitability relative to market. Investment should focus on foun-22 | Nairobi Business Monthly | April 2015
BUSINESS GLOSSARYdational capabilities that give businesses the Business dictionarytools to grow, such as transactional pricing,performance management, and customer- Annual percentage rate (APR): A yearly rate ment. Also referred to as a credit derivativeportfolio management. Without this founda- that is charged for borrowing (or made by contract, the purchaser of the swap makestion, companies will not be able to make it to investing), expressed as a single percentage payments up until the maturity date of athe next stage. number that represents the actual yearly contract. Payments are made to the sellerStage 2: Low growth but high profits. To promote cost of funds over the term of a loan. In of the swap. In return, the seller agreesgrowth, companies should focus on building other words, it is the interest rate that to pay off a third party debt if this partycapabilities in branding, strategic marketing, reflects all the costs of the loan during a defaults on the loan. A CDS is consideredcustomer life-cycle management, and customer one-year period – this includes any fees insurance against non-payment. A buyer ofservice. or additional costs associated with the a CDS might be speculating on the possibil-Stage 3: High growth and high profitability. transaction. APR reflects the annual cost ity that the third party will indeed default.To become a market leader, businesses need of borrowing money, and makes it easier toto invest in higher-factor skills such as channel compare different loans and credit cards, as Ethical investment:aninvestmentphiloso-performance and integration as well as alterna- one can easily see which loan/credit card phy which attempts to balance the regard fortive go-to-market approaches such as inside would be cheaper. morality of a firm’s activities and regard forsales or e-commerce. return on investment. Ethical investors seek Bull market: a financialmarketofagroupof to invest (usually through mutual funds orThink institutional capabilities, not just indi- securities in which prices are persistently unit trusts) in firms which make a positivevidual skills on the rise, or are expected to rise. A bull contribution to the quality of environmentDifferent elements of a business often have market is when the market appears to be and quality of life. Ethical investing dependstheir own perspective on the relative impor- in a long-term climb. Bull markets tend to on an investor’s views; some may choosetance of a given capability. That can be prob- develop when the economy is strong, the to eliminate certain industries entirelylematic: people leave, but companies need to unemployment rate is low, and inflation (such as gambling, alcohol, or firearms)sustain capabilities over time. The only way is under control. Bull markets are charac- or to over-allocate to industries that meetto implement true institutional capabilities terized by optimism, investor confidence the individual’s ethical guidelines.is to encourage a broad, inclusive discussion and expectations that strong results willthat creates a clear view of which capabilities continue. A bull market is often compared Nominal interest rate: the rate quoted inare necessary across the entire company and to a “bear market”. The use of “bull” and loan and deposit agreements - the inter-how to prioritize them. In effect, companies “bear” to describe markets comes from the est rate on an investment or loan withoutmust create a common and accepted frame of way the animals attack their opponents – a adjusting for inflation.reference. bull thrusts its horns up into the air while For example, if the nominal interest rate on a bear swipes its paws down. If the trend is a loan is 7 per cent and the inflation rate isHave an operating model to keep it all running up, it’s a bull market. If the trend is down, 4 per cent, the real interest rate is only 3 perIn the end, building marketing and sales capa- it’s a bear market. cent. This type of interest rate is referred tobilities alone isn’t enough. Without the right as the coupon rate for fixed income invest-operating model to support change, even the Credit default swaps: a financial contract ments, as it is the interest rate guaranteedmost advanced capabilities will wither. An oper- whereby a buyer of corporate or sovereign by the issuer that was traditionally stampedating model needs to be specific and measur- debt in the form of bonds attempts to elimi- on the coupons that were redeemed by theable, including elements such as clear annual nate possible loss arising from default by bondholders. The nominal interest rateperformance-improvement goals; scheduled the issuer of the bonds. This is achieved is, in essence, the actual monetary priceand formal reviews throughout the year by by the issuer of the bonds insuring the that borrowers pay to lenders to use theirsegment, key account, and other categories; buyer’s potential losses as part of the agree- money.individual and business-unit performancereviews; incentives aligned with institutionalgoals; and leadership role modeling to shapethe culture. Culture, in particular, should not be under-rated. Top-performing companies actively builda culture that’s customer-focused, managed forthe long term, creative, confident, flexible, andfast moving.— The writer is a member of Institute of HumanResource Management of Kenya and author ofBusiness Research Methods. April 2015 | Nairobi Business Monthly | 23
Companies&Industriesinvestment Although its implementation has faced challenges as it is not clear who lies with theKenya is ranked worst in responsibility of collection of the tax betweenmining business appeal the Kenya Revenue Authority and stock broker- age firms, experts have warned that implemen-By michael duncan regulate mining activities in the country. Local tation of the tax could lead to a slowdown in mining activity is currently regulated using the fresh investments in Kenya, especially byK enya was ranked the worst country in Mining Act that dates back to 1940. This law foreign companies. Africa in mining investment attractive- has often been criticised by industry analysts ness in a survey carried out by Canadian who say that it fails to adequately address issues For instance, a report released by localbased Fraser Institute. emerging in the mining sector. consulting firm Deloitte East Africa in January indicated that implementation of the capital The survey of mining companies 2014 report As a result, the law has been criticised for not gains tax on the extractive sector could derailreleased by the institute last month (March) being able to secure maximum revenue for the investment, especially in oil and gas explora-placed Kenya at position 120 out of a total of 122 government and communities living around tion even as Kenya forges ahead with plans tocountries that were included in the study.The large mines as it proposes low royalty rates for become an oil-producing nation.mining attractiveness index sought to establish certain high worth minerals as compared tohow various countries around the world faired what is charged by other countries in the region. “The unclear tax policy on farm down trans-in terms of their geologic attractiveness and actions has the potential to derail the momen-implementation of policies that encourage Having been crafted in 1940 when Kenya did tum building. Not all farm down transactionsinvestments in their extractive sectors. not have a two-tier system of government, the generate windfall profits. They represent a real current law also fails to provide a model of shar- opportunity for big oil companies to acquire In yet another index included in the survey, ing mineral wealth between the national and working interest in the country’s petroleumthe policy perception index, which tested the county governments and local communities. sector originally dominated by smaller oilattractiveness of mining policies adopted by companies,” reads the Deloitte report in part.the various governments, Kenya only managed The highlights of the survey are thereforeposition 107 out of 122.The country also scored particularly important to policy makers, espe- Thelocalminingsectorhas in the recent pastlow in the best practice mining potential index cially now that the Mining Bill 2014, which is been faced with a host of challenges includ-at position 120 out of 122. This category required meant to update the current law is awaiting ing conflicts between mining companies andmining company executives to rate a country’s discussion by the Senate. government officials that have threatenedattractiveness based on their perceptions of its investments in the industry. A decision bygeology as an indicator of mineral potential The draft law has already passed through mining cabinet secretary Najib Balala in 2013regardless of the policies in place. parliament and if it is cleared by the Senate, it to revoke 43 mining licenses belonging to vari- will be headed to the president for assent before ous firms on grounds that they were irregularly “The survey is an attempt to assess how it becomes law. acquired was faced with mixed reactions andmineral endowments and public policy factors highly criticised by industry players.such as taxation and regulatory uncertainty The survey by the Fraser Institute also comesaffect exploration investment. While geologic at a time when The National Treasury has The Kenya Chamber of Mines, an industryand economic considerations are important re-introduced the capital gains tax that will be lobby group, was strongly opposed to the under-factors in mineral exploration, a region’s policy applied on transactions involving sale of shares taking claiming that Mr Balala did not consultclimate is also an important investment consid- by both local and international companies. The industry players before issuing the directive.eration,” reads the report. tax became effective on January 1, 2015 and will Among the companies affected by the revoca- be applied at the rate of 30 per cent on gains tion of the licenses is Cortec Mining Kenya, The results of the survey come at a time when involving sale of rights by resident companies in which was licensed to mine niobium and rarethe government is yet to adopt a new law to the extractive sector and 37.5 per cent in similar earth metals at Mrima Hills. transactions involving non-resident firms. While Kenya is said to have deposits of rare earth metals worth more than Sh5 trillion, mining of the mineral is yet to take place as Cortec is locked in a legal battle with the cabinet secretary. Another company, Base Titanium, which is licensed to mine titanium mineral in Kwale is currently in dispute with the Kwale County government over a levy imposed by the latter on mineral exports from the Kwale Mineral Sands project. Base Titanium is opposed to a tax bill amounting to Sh378 million from the Kwale County government, which it terms as unconstitutional and with potential to hurt the company’s performance.24 | Nairobi Business Monthly | April 2015
Duracoat takes pain out of paintingBy Victor Adar first of its kind to be introduced in East and Kamlesh Shah Central Africa.. A proprietary active ingredi- MD DuracoatxA crosstheworld,theprivatesectorisclaim- ent in fragrant paint creates a pleasant scent ing its place at the top becoming leaders on application. The pricing is not high … about and superior customer service have all been in their various fortes by creating jobs and 5 % more than the usual paint that you would hallmarks of the company as it has continuedreinventing the way business is done. It is no apply in your home”. its growth. It is expanding into the regional bloclonger about what the government can do for widely distributing its range of products notus, but what businesses can do to better lives. It is often the case that the stroke of the paint- only in Kenya but also in Uganda, Tanzania, brush leaves behind some headache inducing Rwanda, Burundi, Democratic Republic of One small step to manufacture paints smell of sorts. As we know, newly painted or Congo and Southern Sudan.nearly some 40 years ago, Basco Products (K) re-painted spaces need to be vacated for a fewLtd (popular as Basco Paints) has seen major days until the paint smell is clear. The introduction of the Colourmania Centrestransformation giving homes and offices a lift in 2003 to Basco Paints’ dealer network, as wellwith fresh paints. The company is making a Fragrant paints will be available through as to select retail outlets such as Nakumatt, hasbold statement. It intends to play a key role in dealers countrywide, as well as at all Duracoat re-emphasised the company’s commitment tothe painting agenda giving other bullfighters of Colourmania Centres, in a range of over 7,000 its customers. Growing in leaps and bounds overpaints like Crown, Sadolin, Solai and Glory a run colour shades. That painting affair is taken to the past decade, the compay now manufacturesfor their money. Although family run, Basco is new heights especially when the country is 200 million litres of paint every month.poised for growth fighting in the league of giants experiencing a construction boom with manyfor a share of the big market. It is enjoying the real estate projects coming up shows the paints The introduction of Duracoat’s Fragrantsecond spot after Crown Paints, which controls industry is truly set to flourish. paints addresses a further anxiety for users,65% of the market share. that of ‘new paint smell’ and will contribute The man behind the growth of Basco Paints to making the process of painting more pleasant Under Basco Paints, the leading paint manu- is optimistic about their latest products adding and less stressful, thus taking the ‘pain’ out offacturer has launched a new range of paints into that this was another significant step after the ‘painting’.the Kenyan market named Duracoat Fragrant years of hard work, in line with the company’spaints aimed at enabling homeowners and commitment to providing total paint solu- The elephant in the room however, remainscommercial users to enjoy scented paint, in tions. As was the case with the introduction counterfeit. In an effort to curb this menace,effect eliminating the so called ‘new paint of Duracoat Colourmania Centers countrywide, they retain a sample (and bunch number) ofsmell’. The effect of paints is huge, and the latest which revolutionised the availability of the their paints, and once what a particular dealerfragranced ones unveiled are expected to take largest variety of paint colours for consumers is selling to customers is different from thethe industry by storm, boosting Duracoat’s claim through Automated Computerized Tinting original then the already established businessof being the expert. Customers can now create (ACT) systems, Basco Paints has continued an relationship is cut off. With evidence a dealerharmony in their homes, and give shine to dull impressive growth map. who is guilty of such offence would face the law.rooms thanks to the Vinyl Silk, Vinyl Matt andSoft Satin varieties. Vanilla will be the first scent For some time now, Basco Paints has enjoyed “Counterfeit is a big issue throughout Kenya,to be rolled out, with more to follow. a substantial market presence in the region with there are no easy solutions to it. Education can their Duracoat and Basco range of products. help. And people should ask for the right paint. At a time when most Kenyans are green when Quality, convenience, accessibility, affordability There is no way we supply a dealer with 100,000it comes to selecting paints with durability and paints and they sell eight million. When wecost the only the determining factors, Dura- realise such a thing we simply stop selling tocoat is giving lifeline to corporates and homes the dealer,” says Shah.through their innovative solutions. According to Kamlesh Shah, Basco PaintsManaging Director, the introduction of Fragrantpaints plays an integral part in the success of thecompany, a major innovation in paint technol-ogy in response to an overwhelming demandby users to improve the smell of fresh paint,especially for those re-painting or redecoratingalready inhabited dwellings, those with youngfamilies, or those in offices. “We are trying to remove the ‘pain’ out of thepainting,” says Shah. “The Duracoat range of Fragrant paints is a April 2015 | Nairobi Business Monthly | 25
EXECUTIVE ARENATHEUNS HOLTSHOUSE DIVISIONAL BUSINESS LEADER , CASEWARE AFRICAIn technology, beancounters find an edgeAccounting practices are evolving in line with changing trends. Most organisations are demandingspecialists, higher standard of advice one-stop-shop practice for all their financial needs. CaseWareAfrica, a global auditing and financial reporting software provider serving audit and accountingfirms, government entities, municipalities as well as blue chip companies, is a leading player inthis segment, with a presence in 130 countries. LUKE MULUNDA talks to Theuns Holtshousen,Divisional Business Leader, CaseWare Africa, on how financial practices are adopting newtechnologies to streamline their processes and meet changing demand, professionally and inaccordance with compliance standards.NBM: What is the state of accounting standards in Africa; are we increased competition?up to par with international best practice? HOLTSHOUSEN: We are entering an era where customers areHOLTSHOUSEN: We have moved in leaps and bounds over the last few demanding specialists, a higher standard of advice delivered,years, though as we are still maturing and like any developing market, collaboration, and one-stop-shop practice for all their financialthere are still some areas for improvement. And, as foreign investment reporting software needs. For these reasons, reporting software hasincreases and trade expands there is huge demand for compliance changed the industry completely over the years and will continuein Africa to ensure that it is aligned to international best practices to to evolve to adapting with the demanding standards and deadlines,ease trade and investment decisions. However, the biggest concern though with this evolution, practices need to understand what soft-currently is that many practices and companies across Africa are still ware is available to them and what software will ensure they notcompiling critical audits, financial reports and financial statements only meet the above requirements, but also adhere to internationalmanually, which leaves them prone to errors and manipulation. standards and regulations. The question, therefore, is how relevant will the practice be if they Practices will need to progress where technology is a corner-are still compiling these intricate statements and reports manually? stone for development. The aim is to understand the customer’sCompanies and organisations are demanding more and as compli- perspective while still adhering to regulations. The early adoptersance becomes stricter, practices need to streamline reporting and of new technology software are reaping the benefits. As technologycompliance to keep up. becomes more intuitive, the cloud strategy addresses even more pain points and becomes an enabler for better client collaboration The risk of non-compliance as far as standards are concerned is – changing the way firms operate where they are both connectedhuge when compiling these financial statements and reports manu- and intelligent, becoming a hybrid of capabilities giving practices’ally. Practices need to focus on adapting to technology to ensure effi- the competitive edge. Though also critical is the ability to integrateciency, collaboration and, more importantly, an automated process platforms where the practice is able to ensure effective practicethat adheres to the relevant standards. In fact, our key focus going management – using solutions that allows them to work online/forward is to provide the African market with the right technology offline from their desktop – depending on their requirements andto meet progressive compliance. business model. It’s about optimising their capabilities to produce the required results needed.NBM: What lies ahead for accounting firms given the fact that Kenya specifically is at an advantage than its peers where invest-they are increasing at a high rate? What will be the impact of26 | Nairobi Business Monthly | April 2015
where the rest are still conservative and therefore hesitant to put important data in the cloud. However, there is a need for collabora- tion and this can only be achieved through the utilisation of cloud solutions. By using cloud solutions, practices have no geographi- cal limitations where there is the ability to utilise a network of firm standards and audit methodologies and create more capacity without additional costs. Theuns Aredpdoirttiosnanaldlyh, awviethm“obrigedtiamtae”t–oparnacatlyicseestwheilml ta–MKkawDemlhDeliuescsrshahtciiSmoshacaetrhxbituiciladlifnogr Holtshousen. customer services and client retention. This is becoming more and more important as customers are seeking additional value fromments have been made to allow business to benefit from the cloud. their service providers. As a practice, having these capabilities will go a long way to provide a higher standard of advice delivered,NBM: How will practices need to evolve to adapt to these demanding collaboration, and one-stop-shop for financial reporting softwarestandards, changing regulations and deadlines? needs. Furthermore, this has a huge positive impact on serviceHOLTSHOUSEN: The business landscape is changing – and those that delivery where the statements and reports and analyses becomerise up to meet the challenges head on are those that have the poten- more credible and secure.tial to innovate and drive opportunity. And certainly in the accountingsector this is no different. The challenges and opportunities for practices NBM: In Kenya there is a push to have more fines for account-have never been greater as structures, processes, client expectations and ants and auditors who do not follow standards. Can this worktechnology developments continue to drive change and transformation. or are there other more effective ways of ensuring compliance?And while these influencing factors can very easily become threats – HOLTSHOUSEN: In Africa more often they would be one body - thethey should be seen as opportunities for practices to evolve traditional academic, professional and regulatory side. Often these bodies’models of doing business. most strategic initiative is ensuring more effective ways of ensur- ing compliance. With this in mind, practices will need to start working smarter andnot harder. The bigger firms certainly have access to the resources to This is especially due to the immense competitive nature of theempower themselves by working smarter. market - customers and industry are holding the firms accountable, which makes it necessary for firms to be transparent. Additionally, To evolve it’s critical to look for technology ambassadors – individuals they are driving superior service where processes and reportingwho will drive a vital agenda amongst colleagues, peers, practices, etc are done right. This is important as foreign investors also rely onto ensure an early adoption of technology. The smaller practices need financial information to make assessments on whether to investto partner with experts who are able to guide them through the change or not and good reporting and reliable information is as importantmanagement process and self-learning to enable them grow. Global to a country as sound infrastructure and good communications.partners should make this available to small practices with a step-by- An automated process allows a sense of security and sanity as thestep guide. It is also for this reason that choosing a company that has a outcomes will comply with International Financial Reportingsolid footprint and experience since the human element from a training, Standards (IFRS).support and business advice cannot be underestimated. Furthermore, these professional bodies allow developmentalNBM: There’s need for collaborative, on-the-go technologies to take growth, where for example it will be their responsibility to addresspractices into the future, via cloud strategy. How will this impact on skills shortage and increase the access to professional financialservice delivery and credibility? qualifications.HOLTSHOUSEN: Moreprogressivefirmsareenthusiastictolookatcloud, NBM: What is the situation in South Africa with regard to profes- sional misconduct among accountants and auditors? HOLTSHOUSEN: In South Africa we have segregated the duty where the regulator is separate from the professional body to ensure that compliance is adhered to and therefore, allows more control in SA. April 2015 | Nairobi Business Monthly | 27
Business S8$x0x%xx&Law 2eo0afr1m5thwaeri1kll0ebadxx0erxx0fexxxxxxdxox0aoxrxskntmaerirmnoraaudcrsianl ► Futures market in the pipeline to boost capital markets 38infrastructureAnnouncement of contractors inmega roads project ends jittersBy James Muliro or no bids at all. The northern frontier, which foreign contractors, mostly from China seem is in dire need of road infrastructure, has been to prefer routes stretching over say, 100 kms,P lans to construct 10,000 km of roads characterized by countless incidents of insecu- local contractors preferred the shorter routes across Kenya are back on track after a rity that have killed the interest of contractors due to their limited capacity to construct delay that threatened to throw the whole for the region. massive stretches that would not only requireproject into disarray appears to have been dealt huge capital outlay but a lot of expertise andwith. The ambitious plan almost hit the rocks A number of roads connecting urban centres time. Many of the routes earmarked, it appeared,after it earlier failed to get the necessary backing that are far apart got little attention from inves- were shorter.from local banks to support contractors. Banks tors in the initial 720 kilometres road network,had cited lack of a regulatory framework on an whose construction was to commence last The delays had even got some critics read-annuity-financingmodeltoguidefinancingand February within the first phase. Too, whereas ing pessimism in the entire process, with somepayment arrangement for the contractors, thegovernment and financiers. Under the annuity-financing programme,contractors are to undertake the design andconstruction of the 10,000 km of roads eitherusing their own sources of funds or by borrow-ing from banks. The government through thebanks then pays the contractors periodicallyfor say, 10 to 15 years in an arrangement thatalso sees the contractors maintain the roadsunder agreed terms. Challenges emerged from the end of last yearwhen the government kept postponing the datesfor announcement of winning bidders in thefirst phase of the road development programme,citing cases of some prospective contractorsseeking more time to finalise design work onthe routes they were planning to bid for. Othersindicated the need to hire more engineers tohelp in the design work before submitting bidson the routes they would prefer to develop. Another challenge that turned out to be a bigheadache to government was many parts of theexpansive northern Kenya frontier, which hadbeen earmarked for construction attracted few28 | Nairobi Business Monthly | April 2015
arguing that the plan was being prepared for tion of the 10,000 km of roads succeeds. Two members drawn from the National Treasury,failure from the word go. Analysts argue that local banks; Kenya Commercial Bank (KCB) the office of the Attorney General and from thethere could be intense backroom lobbying on and Cooperative Bank (Coop) agreed to allocate Engineers and Accounting professional bodies.who to be allocated the contracts of specific Sh40 billion and Sh8 billion respectively forroads. The backroom lobbying has always the project, salvaging the initiative. The banks The government has over the years, encoun-been used as a political tool that would seek agreed to provide financing to contractors under tered massive challenges in the constructionto reward ‘friends’ or ‘allies’ of the status quo. the annuity programme. and maintenance of roads across the country.The process appeared to have potentially The cost of road construction in countriesfallen hostage to rent seekers out to make a The deputy president, who also chaired a like Australia and India is anything betweenkill at the public’s loss. meeting of the banks that will fund the project, Sh15 million and Sh20 million per kilometer. said the guidelines in the annuity fund would In Kenya, it costs anything between Sh60 Despite the glaring challenges in the ensure the government’s new model for road million and Sh80 million per kilometer. Facednew ambitious road development plan, the constructionthroughpublicprivatepartnership with budgetary constraints, high unit costs asgovernment believes that using the annuity works seamlessly. well as cost inflation by rogue contractors, themodel in roads construction will be a game government sought to use the private sector inchanger in delivering new tarmacked roads “The regulations will make sure the road the roads construction with payments madeacross the country. The plan is meant to open annuity programme operates smoothly by over an extended period of time. In the newup mostly the rural areas, where an estimated guaranteeing timely payment of contractors arrangement, payments are to be made for only80% of the new roads are to be constructed. and services,” he said. the completed projects. After so much jostling,Development of new access roads in rural 650 km of roads out of the 2000 km targetedareas is meant to stimulate the productive Road contractors are to approach lenders for phase one in the three phase process weresectors of the economy like agriculture and for financing. The government then pays the earmarked for rolling out before the end oflivestock, tourism among others with link- lenders after the roads have been constructed March.ages to the markets and urban areas. and certified to have met the agreed quality specifications. “The contractors have no reason on why they The project’s prospects got back on track on should not complete their work within theMarch 13 with the announcement of the initial According to National Treasury Cabinet stipulated period as the Government will paywinning contractors to kick off phase one. Secretary Henry Rotich, the government would them as per the agreement reached upon beforeEarlier, in February, the National Treasury stick to the payment agreements but only on the construction work. This will be a significantgazetted guidelines on the establishment of condition that contractors do not do shoddy shift from the past practice since payments willa Public Finance Management (Roads Annu- work. An independent engineer is expected to only be made for roads well completed,” Mr.ity Fund) 2015, outlining the objectives and pay contractors upon thorough scrutiny and Ruto said.purposes and sources of funds. It also defined approval of the project.how the fund would be managed and how Kenya has been developing about 242 km ofmoney would be paid out. Annuity fund rules will roads every year over the last fifty years. The ensure the new model ambitious 10,000 km roads construction over The objective of the fund is to provide for road construction through the next five years means that each year, at least,money to meet the government’s annuity PPP works seamlessly. 2,000 km of new road links have to be completedpayment obligations to contractors for the if the plan is to be considered as successful. Indesign, development and maintenance of The contractors will be responsible for the the Sh300 billion project, the roads are to be builtroads under the Annuity Proramme that maintenance of the roads for about 12 years in three phases. The first phase would stretchwas launched in July last year. The Gazette within which time they would be compen- over 2,000 km and would cost an estimatedNotice preceded the Cabinet’s approval to sated for the actual construction work and Sh90 billion. The subsequent phase is expectedthe Roads Annuity Fund, 2015 what would for maintenance. Thereafter, the government to cover 3,000 km of roads at an expected costfinance tarmacking of the 10,000 km across. would assume responsibility for the roads or of Sh102 billion. The final phase is to developAlready, Sh500 million has been put in the enter an agreement with contractors for repair 5,000km of roads at a projected cost of Sh108fund to start the project. and maintenance. billion. Fresh bids would be announced at every phase. The process would be undertaken under a Money for the fund would include that appro-public private sector arrangement in which priated by the National Assembly and alloca- To expedite the process, contractors will bebanks are major partners in providing financ- tions from fuel levy as prescribed by an Act of required to do designs based on the availableing to contractors to undertake the construc- Parliament. Already, the government plans to road reserves to cut down the cost of having totion work. double the fuel levy rate from Sh9 to Sh18 per acquire private land. In the first phase of the litre of petrol or diesel to raise funds for road programme, only the roads that do not have Last month, deputy president, William repair and maintenance across the country. major design and land acquisition issues haveRuto, stepped in to put some steam into the been given greater priority. The government isprocess in a meeting with players from the The Roads Annuity Fund would also be also mulling giving contractors the responsibil-private sector at the Kenyatta International replenished using grants or donations. It will ity of acquiring land to pave way for constructionConvention Centre. He said the government be administered by the Ministry of Transport of the roads.would do what it takes to ensure the construc- and Infrastructure with oversight committee April 2015 | Nairobi Business Monthly | 29
Business&LawProf Njuguna Isaac Dr Haron Ndung’u. Awoundo. Sirima..What will carry the day in namingnext CBK chief, merit or politics?Appointment has been made The three positions were advertised because fixed two terms of four years each. While he didcompetitive, but analysts the president is required to fill them “through a a good job in managing inflation and openingdoubt Parliament can live up to transparent and competitive process and with up financial services to millions of unbankedexpectation to ensure the best the approval of Parliament,” as provided for in through mobile money and agency banking,candidate is picked the Central Bank Act, 2012. he completed his second term under a cloud of corruption allegations.By LYDIAH WERE Previously, presidents unilaterally appointed the Central Bank governors. Now the bank will Under his tenure scandalous transactionsT he race for the next Governor of Central have two deputy governors. Dr Haron Sirima took place at the Central Bank, in which the Bank of Kenya is on. While low-profile and is the current deputy governor having served country lost billions of shillings. The Cockar the succession having been ostensibly under Prof Ndung’u, while Dr Mbui Wagaca is Commission, established to investigate thethrown open by making the process competi- the acting chairman. So the battle will be for the sale of the Grand Regency Hotel, found outtive, President Uhuru Kenyatta will make the governor position, chairman and one deputy that “the entire transaction was tainted withfinal decision in appointing Prof Njuguna governor if the President decides to retain Mr misrepresentation and deception….”Ndung’u’s successor. Sirima. The report named then Minister of Finance For the first time in Kenya’s history, the Prof Njuguna Ndung’u exited on March 4 Amos Kimunya and Prof Ndung’u, stating thatPublic Service Commission (PSC) will nominate after his two four-year term ended, becoming the governor was not truthful to other publicCentral Bank of Kenya governor. In an advert in the first governor in recent history to serve full institutions, such as the Kenya Anti-Corruptiondaily newspapers last month (March), the PSC term. Previous Central Bank governors – Andrew Commission, the Commissioner for Lands, thecalled for applications for chairperson, governor Mullei, Nahashon Nyagah, Micah Cheserem, Public Procurement Oversight Authority andand deputy governor positions. Eric Kotut and Philip Ndegwa – all left office the Prime Minister about the sale of the hotel. under controversial circumstances. The Finance ministry sold the five-star Grand Regency Hotel for Sh2.9 billion (about $45 Prof Ndung’u was the first to serve under the30 | Nairobi Business Monthly | April 2015
Dr Mbui But observers, however, say that competitive- for exporters, Kenya imports most of its goods, Wagaca ness in choosing the governor will just be in mostly machinery, which sucks the economy of name and the whole exercise will be a cosmetic more shillings, compared to exports of mostlymillion), three times lower than its estimated venture to meet the requirements of the law and agricultural commodities. The governor needsvalue of Sh7 billion. appease the public and international commu- a balance between importers and exporters. nity. The President still has virtual influence Then there was the scandal in which the on the PSC and as such can, or will, remotely Some of the factors on the table for appoint-government lost more than Sh1.8 billion in a dictate his preferred candidate to be among the ment to the prestigious post include qualifica-money printing deal with De La Rue. This could three names sent to him. tions and experience. There is no shortage ofbe the biggest blight on Prof Ndung’u’s legacy. Kenyans with impressive records in relatedThe Central Bank of Kenya (CBK) used Sh10.2 In Parliament, the Jubilee wing of President fields such as economics, banking, financebillion (£75.3 million) to procure 2.6 billion Uhuru Kenyatta and his deputy William Ruto or law to fill this key post. Names have startedbank notes from De La Rue between March 2003 have the numbers and are likely to approve emerging including Commercial Bank of Africaand December 2011 through expensive stop gap any candidate picked by their captain. Also, CEO Isaac Awuondo and Economic Secretaryorders. Under Prof Ndungu, CBK continued to Parliament has lost credibility as a watchdog Geoffrey Mwau.enter into and awarding of irregular contracts to and vetting agent, with serious allegationsDe La Rue Currency and Security Print Limited of corruption leveled at various committees, Other possible candidates include the actingon direct basis without following the procure- worse so the all-important Public Accounts chairman of the CBK Board of directors, Dr Mbuiment Act. Committee. Wagacha, National Treasury Principal Secretary Dr Kamau Thugge and Dr John Ngumi of the ThePublicAccountsCommitteeauditshowed With MPs yawning for bribes and their hearts Konza Technocity Authority. Awuondo will bethat the 2006 deal would have seen the currency on the take of the highest bidder, the process of an interesting candidate to watch. He has beenprinted from Malta at a cheaper cost. The loss approving high profile public figures has been a close ally of President Uhuru Kenyatta, as thearising from using interim stop gap orders after reduced to a numbers game and commercial Kenyatta family owns CBA.the cancellation of the international tender for gain. From cabinet secretaries to the Inspectorsupply of 1.7 billion new generation bank notes General of the police, MPs have failed to apply The CBA boss also served in the Presidentialis estimated at Kshs1.83 billion. their veto power to block candidates who have team that restructured the parastatals under the shown clear incmpete or questionable records. chairmanship of Abdikadir Mohammed. Also to It is hoped that a competitive appointment be watched is Prof Ndungu’s deputy, Dr Haronwill ensure that the candidate who makes it to The Central Bank governor’s post won’t be an Sirima, who is likely to act while the Presidentthe post is clean and competent enough to rid exception. But beyond the lobbying, political, considers the names before him.Central bank of underhand dealings that have ethnic and loyalty affiliations and public specu-given it a bad name. Parliament will be involved lations, analysts say President Uhuru has a duty Analysts say the ideal candidate must demon-in vetting and appointment of the CBK boss as to give the economy a competent candidate. strate extensive track record in monetaryper the law, thus promoting transparency and management as well as autonomy in a worldcompetition in the process. The new governor will build on Prof. where economies are rising and falling due to Ndung’u’s success since the latter oversaw the the policies they adopt. The CBK governor is transformation of the banking sector, especially a key player in the economic well-being of a mobile banking, licensing of microfinance country. institutions, and stabilised the economy by fighting inflation. Central Bank of Kenya has had a string of governors. Kenya’s first African Central Bank However, the new CBK governor will need governor was Duncan Ndegwa who served for to firm his or her grip on high interest rates 17 years. He was appointed by country’s first charged by commercial banks and make them President Jomo Kenyatta in 1966. Others served benefit depositors. The spread between interest between two and eight years. From history, the on loans and deposits is about 16 percent, the first governor of the independent Republic of highest in Africa. This not only discourages Kenya was Dr Leon Baranski from Poland who saving among Kenyans but most importantly was appointed by President Mzee Jomo Keny- slows the flow of credit to the private sector, atta. which is the engine of economic growth. Earlier, the banking regulator advertised for Kenyans expect to see a stronger shilling 10 senior positions, nine of which were direc- that has real value. The local unit has been at tors. The bank is looking for directors to run the mercy of the mighty dollar and invincible its finance, internal audit, banking services, euro, losing value every so often and punishing security services, financial markets, economics importers, and in turn hurting consumers of and financial systems. This points to a major imported goods with high prices. When the shil- overhaul of its corporate suit that will see the ling is weak – say at 90 to the dollar – importers old guard giving way for new faces. need more of the currency to buy dollars, thus spending more. While a weak shilling is good But the most important change will be at the top. April 2015 | Nairobi Business Monthly | 31
CoverStoryKISUMU ISBACK TOBUSINESSEven though it was one of the towns worst hit by the 2007PEV which made investors shy away for long, the city haspicked up the pieces and is driving the economic agendaof western region.BY ALPHA FEMIfter years of staying in the cold The new developments and the reality of Kisumu’s massive expansion has prompted the county govern- and trudging on the wayside as ment to come up with a 30-year Integrated Strategic major towns in Kenya boomed plan which has seen the city zoned into the Central with growth, Kisumu City, with Business District, Kisumu Port, and slums upgrading. the latest mad rush to acquire a When the Kenya Airports Authority launched theA portion of the lakeside town, has Sh3 billion upgrading of the Kisumu International turned to be the proverbial stone Airport, it was like they had seen the potential of the that the builder rejected. city opening up as a regional trade centre that would With major development activities in all sectors require international connection. Inauguration ofof the economy, the port city is reclaiming its lost Kisumu airport expansion in 2007 marked the begin-glory as the economic hub of Western Kenya and as ning of the city’s turnaround as a major economicthe connecting city within the East Africa Region. It is hub and currently gives investors all round directliving up to its billing as “the second most important flights from Nairobi.city after Kampala in the greater Lake Victoria basin.” The international airport, on-going massive Kisumu’s big rise as an economic hub and choice construction of new roads, and proposed expansion offor investment is attributed to its centrality not only lake transport have greatly contributed to the beehiveto the neighbouring western Kenya towns but also its of economic activities within the city.proximity to other cities in the East Africa Region.Talks of an integrated East Africa Community will Unlike a few years back when travelling fromseriously consider the city as a possible headquarters, Nairobi to Kisumu by road could take more than tenbeing the central connecting point between Nairobi, hours due to poor infrastructure, road transport hasKampala, Juba, Kigali, Bujumbura and Dar-es-Salaam. greatly improved reducing the travelling hours to approximately five. The rich agricultural land, fast improving infra-structural development and the growing population FromthejunctionatMauSummitalongtheNakuru-for ready manpower is what makes Kisumu a choice Eldoret Highway, the road has been expanded andfor investors. smoothened to the heart of the lakeside city, making it a hotspot for National Traffic Safety Authority to The entrant of major supermarket chains with big nab over speeding motorists cheated by the smoothoutlets within the city including Nakumatt, Tuskys, road surface. The road network has made Kisumu theand Naivas is clear testimony of the scramble for a headquarters of economic trade within Western Kenyapie of the city’s economic block.32 | Nairobi Business Monthly | April 2015
kisumu wakes up April 2015 | Nairobi Business Monthly | 33
CoverStoryregion,with farmproducefromtheneighbour- ment of tour companies. in a Sh4.7 billion project dubbed “rehabilita-ing agricultural rich counties finding their way What makes Kisumu a natural potential for tion and extension of drinking water supplyin time to the city for onward air transport to and purification infrastructures in the city ofNairobi and other destinations. development of tourism industry is how it is Kisumu” which has translated to large invest- linked though roads, air, railway and water ments in water and sanitation infrastructures. Revival of lake transport has witnessed ambi- transport. Major tourist attractions in the region The project once completed is expected totious interest from beyond, with the South include the Impala sanctuary, Kisumu Museum, address the demand in water and sanitationKorean government expressing their intention Kit Mikayi, Equator Crossing, Kogelo village within Kisumu for the next 15 years.to construct a shipbuilding industry. which is the ancestral home of US President Barack Obama. The French government is also supporting This was confirmed by South Korean ambas- Kisumu Urban Program (KUP) for infrastruc-sador to Kenya Choi Donggyou when he visited Several industries and companies have crept ture, waste management and health care. This isthe city in December last year, with the governor, back to the city and are slowly consuming the expected to change not only the face of KisumuJack Ranguma saying the county is working void left by the closure of the once giant Kisumu city, but also the entire county.on a memorandum with the South Koreans to Cotton Mills (Kicomi) and the East Africa Brew-start a marine engineering school at Maseno eries Limited. The industries include processing Kisumu’s growing population does not onlyUniversity. of farm produce, fish processing centres, steel provide readily available workforce but also a manufacturing, sugar milling, road construc- market for the products. According to Mr Ranguma, the ship building tion companies, and the molasses processing.industry will reduce the cost of production for The city boasts of one of the biggest open-airthe greater East Africa community market and Being on the shores of Lake Victoria, the city markets in the region. Kibuye Open Air markethelp the city become the first within the East offers opportunity for uninterrupted water attracts traders from as far as Uganda.African region to export ships. supply for big industries as well as tacks of agricultural land for exploitation to grow cash The city, being a cosmopolitan town with its In addition, the city is among seven counties crops that can thrive through supplementary population of near a million people has pushedin Western Kenya earmarked to benefit from irrigation. the demand for housing, a fact that has seen thea modern commuter railway network. Kenya emergence of new high-rise estates within theRailway Corporation has embarked on a plan The French government has been involved city. The real estate sector is another frontierto revamp the region’s railway system to reducethe cost of freight and transport of heavyweightgoods by road. The energy sector, including the recentdiscovery of possible huge deposits of oil andpetroleum products in Kisumu county is anoth-er frontier making investor’s rush to Kisumu.The Sondu-Miriu hydropower plant has injected60MW into the national grid and lightened upthe city’s previously unpromising economy. With its beautiful landscapes and historicalarchives, Kisumu is becoming another centreof tourist attractions and outweighs all otherwestern Kenya towns in the number of touristsvisiting the region. On her visit to the port city in January, EastAfrican Community, Commerce and TourismCabinet Secretary Phyllis Kandie acknowledgedthe increase in hotel bookings within the city.According to Ms Kandie, there was a 37 percentincrease in hotel bed occupancy in the region,being a total of 345,000 night bookings in 2014compared to 252,100 in 2013. Even the tourist attraction sites noted asignificant rise of visitors with Kisumu museumreceiving 151,200 visitors in the last year ascompared to 144,900 in the previous year. The rise in tourism activities has provided achallenge, which gives investors opportunityto exploit the hospitality industry throughconstruction of tourist hotels and establish-34 | Nairobi Business Monthly | April 2015
kISUMU WAKES UP Education sector has not been left behind in the scramble for investment in Kisumu city. All major universities in the country have opened branches in the city to tap the thousands looking for higher education. After it acquired the former British Council premises within the town’s CBD, University of Nairobi has renovated the building and is currently putting up a multi-storeyed campus. Other universities and institutions of higher learning have taken cue and set up centres in the town. Sensing the rapid growth, the county govern- ment sought to redirect the expansion to shores of Lake Victoria and is in talks with Kenya Rail- ways Corporation over a 75-acre piece of land stretching from the city centre to the lakeshores. In the project, the county government is seek- ing a private-public partnership in which the state corporation will donate the land while the county sources for developers, with future proceeds divided between the two. Improved infrastructure and relative peace have increased investor confidence in the city. Equator Bottlers has put up a Sh1.5 billionSeveral industries and The kind of new residence coming up bottling plant, while Jumbo Mattress Companycompanies have crept on Riat Hills which had been neglected announced their entrance in Kisumu by estab-back to the city and are for many years. lishing a factory to drive competition with Foamslowly consuming the Mattresses Limited which is already establishedvoid left by the closure Kisumu’s emerging success can further be in the city. Other big investments seen in theof the once giant Kicomi attributed to relative peace, especially with recent years include Mayfair Holdings andand the East Africa its long history of election-related violence. United Millers, which owns the United MallBreweries Limited Although it was one of the towns worst hit by that hosts businesses including Tuskys Super- the 2007 post-election violence with massive market and Fox theatres.that for many years to come will make Kisumu destruction to property which made investorscity magnetic to real estate developers. shy away for long, the city has picked up the pieces and is driving the economic agenda of Kisumu is among the counties selected to western region.benefit from Sh25 billion low cost housing byLake Basin Development Authority (LBDA) withthe county government already setting plansto upgrade several old estates and slums. Thedevelopments have seen the price of land withinthe city skyrocket, with the resource beingturned into a gold mine. April 2015 | Nairobi Business Monthly | 35
CoverStoryThe rising hills of RiatBy GABRIEL Kudoi A modern residence in Riat Hills with is slightly lower than the sweltering tempera- a Panoramic view of Kisumu City, Airport tures of the the city centre.F ifteen years ago, the list of who-is– and Lake Victoria who in the county of Kisumu could The emergence of storied buildings in Mili- not have thought of the deserted ready title deeds, for between Sh65, 000 and mani which, additionally, is in Kisumu’s Central shrubby hills of Riat as a place they Sh250, 000 for a 0.02 ha on the 60-acre parcel Business District area and increased demand for would some day scramble for. of land. office space by a section of non-governmental Mzee John Ouma, 65, who has organisations has compelled many residentslived in Kiboswa on the slopes of Riat hills for “We are adding value to land in that you get who value exclusivity to seek for alternativemany years says initially, the place didn’t attract a title deed plus the plan of the house you will residence elsewhere.much attention. It was just an ordinary grazing build since we want uniformity,” explainedfield for their animals. Herds of cattle, sheep Mr Wycliffe Abok, the operations manager of Some of the big names with interest in theand goats grazed freely on the land as no one Kisumu Real Estate. area include Cord leader Raila Odinga, formerlaid serious claim to ownership of the shrubby, KCB bank CEO Martin Oduor-Otieno and Afro-rocky hills. The project’s 60-acre parcel of land has fusion artist Suzzane Owiyo. It is rumoured been sub-divided into 378 plots of 250 square many other big shots in the government includ- “We used to graze our livestock on this hill. metres, each of which is enough for a 4-bedroom ing parastatal heads, judges, military and policeNobody could challenge you for trespassing. maisonette, a servant’s quarter and a parking chiefs, and top legal practitioners also own titleOnly a fewhousescouldbespotted,”saysOuma bay, with the prime plots going for Sh250, 000. deeds in the area.adding, “but we have since lost all that to thedevelopers.” The past few years have witnessed crowds of Mr Odinga has built a 74-roomed house at property developers rushing to the stony, vast Riat Hills with several conference halls. The The father of four who was 50 years then hills seeking to tap into its growing potential house is to serve as a base for his Raila Odingasays an acre of the land would go for less than for Kisumu property boom. Foundation.Sh500, 000, negotiable, as this desert hill wasnot viewed as attractive for settlement or viable The hill that is sandwiched between Kisumu- Currently, a 0.25acre plot goes for an approxi-for any other activity. Kakamega highway and the Kisumu-Busia mate price of Sh3.5 million depending on its road, overlooks Lake Victoria besides offering location in the area. Then, Mzee Ouma adds, it was Kenya- Re beautiful panoramic views of the city centre, theand Milimani estates that were the favourite airport and eye-catching sunrises and sunsets. Some of the notable estates under develop-residential areas for the affluent in Kisumu. The exquisite views have in return witnessed Fast forward. 2015. Riat Hills has become hordes of developers dashing to the area to tap,one of the most sought after place for property as well, into the cool breeze whose temperaturedevelopment due to its strategic position thatgives it a perfect picturesque view of the lake. According to Nishma Karia, proprietor of LakeEstate Agency, an acre piece of land now costsSh5million and the price is likely to double inthe next one year due to increased interest bythe buyers. Mid-last year, a property developer raisedhopes of the middle and low income earnersin Kisumu after the launch of a project seekingto offer them houses at cheaper rates. The houses, to be located in the vast Riathills, are a departure from the norm practisedin the area mostly associated with high-incomeearners. The project, dubbed Millimani West, seeksto provide decent residential houses to middleincome earners in the lakeside town. The project will sell plots, which come with36 | Nairobi Business Monthly | April 2015
KISUMU WAKES UPment in the vast hill include a 91-acre project ette. The houses sell for Sh20.3million for the restore that lost glory of exclusivity.by Home Afrika investment group. three bedroom maisonettes and Sh13.5million However, the increased interest in this highly for the three bedroom bungalows. The programme, according to Home Afrika priced area has drawn the attention of the countyCEO Njoroge Ng’ang’a, is aimed at enabling The property is listed as having been designed government, which has now drafted laws aimedpeople own decent housing in a secure envi- to take advantage of the Riat Hill slope by offer- at controlling over-development of the area.ronment. ing residents stunning panoramic views of Lake Victoria as well as the city centre. The head of city planning, Ms Everlyne Otieno “WewanttobuildcommunitiesaroundAfrica said they intend to adopt a strategic master planby providing quality, sustainable and affordable The houses are en-suite; a lounge with sepa- later in the year to help restore sanity in devel-housing to people,” he said. rate dining, large fitted kitchen, cabro paved opment of housing in the area. driveways and parking, borehole, club house The 91-acre land project will comprise 140 and perimeter wall as well as a servant quarter. “A plan adopted in 1974, which set aside areaspieces of 0.25acre land with each going for like Tom Mboya Estate and Milimani as suburbs,Sh2million. The development has incorporated the latest has been overtaken by the town’s expansion,” ultramodern infrastructure and employs green she said. The development will comprise 300 houses technologies in areas such as lighting and waterwith other amenities such as a hotel, convention management to make each resident feel catered This perhaps explains why nine residentscentre, commercial facilities, nursery and day for. moved to court January this year, to block thecare centres as well as medical and recreational construction of a four storey building in Riatfacilities. Coromandele group is currently constructing hill saying it flouted laws governing construc- in Riat Hills a Sh1.3billion property which aims tion in the area. Upon buying the land, one can proceed to to transform Kisumu’s housing scheme into aconstruct but with strict adherence to the laid more urbane yet alluring middle class status. They argued that the building would blockout structure that would ensure uniformity with them from receiving natural light and fresh airother houses in the neighbourhood. Mr Fred Anderson, chairman of Coroman- against their right to clean and healthy environ- dele group, said the housing project will be a ment as enshrined in the Constitution. It will comprise luxurious villas of up to paradigm shift from the usual housing units4 bedrooms, town houses, apartments and common in the region. In the court papers, the nine argued that thesemi-detached maisonettes all with a speci- building risked posing security threats to themfied standard. “Every house will have a unique view that is as it flouted the county zoning laws. distinct to it,” he said. Mr Ng’ang’a said that through the project, Kisumu zoning policy classifies Riat hills andthey intend to make it affordable for people to The 30 villas will be priced at Sh38.5million Milimani estate as low-density areas meaningown houses while at the same time decongest and Sh48.5million each depending on the they are restricted to only bungalows and lowthe busy town. design. maisonettes. “We have a board that will look at other avail- The developer said the concept of the project The building dimensions for the area shouldable opportunities in the market and inform us is based on contemporary Swedish design, be 6 meters for front, 3 metres for side and rearof the needed changes,” he said. which will contain stunning features that at 4.5 metres. Further, plot coverage allowed in resonate with nature. the area is 50 per cent, plot frontage 10 metres Currently, Kisumu town, the third largest minimum.city in Kenya behind Nairobi and Mombasa is “The beauty of Kisumu area and especially thefacing a shortage of decent and affordable rental first rim of the Riat Hills inspired me to create Ms Otieno said that since Riat hills is on thehouses, a situation that the county government a new concept of living for Kisumu,” he said. flight path, some of the considerations by thehas been trying to avert. county will give details for investment in the The 30-housing units will each comprise four area to conform to Kisumu’s millennium city With a population of over 900, 000 working bedrooms en-suites, walk-in closet, expansive status.class residents, the town lacks rental houses roof terrace with external Jacuzzi, two roomwith only areas like Kenya Re, Migosi and servant quarters and free flowing open plan in However, despite its clamour, property devel-Mamboleo having decent houses for the low the common areas. To maintain warmth in the opers argue the place still lacks better roadsand middle income earners. house all the time, the floors will be wooden. for use by would-be residents, discouraging a number of residents. Another notable housing project in the area “With features like the view of the Lakeis the Ridge park estate, owned by former KCB Victoria and Kisumu town and even the climate “It is still safe to say that the greater Riat isbank group CEO Martin Oduor-Otieno. which is cooler owing to the lake breeze makes served by one main road that connects Riat the homes ideal for anybody,” said Mr Ander- market along Kisumu-Kakamega highway and The Ridge Park estate, whose construction son, adding that the idea was born out of the the Riat junction along Kisumu-Busia Highwaywas completed in 2011, is one of the posh estates increased encroachment on high-end estates now known simply as the Airport. But the roaddonning the vast hill. like Milimani whose face has since changed is too steep at one end making it almost impos- following the establishment of high rise sible to exit at this end. This leaves the great Riat The 23-unit estate that comprises eight three- buildings stealing away its original concept of hills with one main access. Electricity, roads andbedroom maisonettes and 15 three-bedroom exclusivity. piped water still runs only along the few mainbungalows has only five houses rented out with roads,” said Mr Habil Odhiambo Odundo, Chiefthe rest used as holiday homes by owners who The Swedish-born developer who boasts of Executive officer of Habil and James Propertypurchased them. over 40 years experience in real estate sector Consultant group in Kisumu. says Riat Hill Villas project in Kisumu will Rents asked from the houses range from Sh50,000 for a bungalow and Sh70, 000 for a maison- April 2015 | Nairobi Business Monthly | 37
Money Sh627m&Markets Money raised by NSE through IPO mid last OTHER STORIES ► Mortgage for the self-employed 42 year part of which was used to set up thecapital markets derivatives marketNew futures market By James Muliroto cushion investorsagainst risk, boost I nacoupleofmonths,Kenya’scapitalmarketscapital markets value will have a new investment vehicle that helps investor to hedge against risk. The deriva-38 | Nairobi Business Monthly | April 2015 tives exchange, which is to be launched within the second quarter of this year, is considered an avenue for investors to cushion themselves against interest rate fluctuations and volatility against commodities and currencies. This is
Money&Marketsbecause most assets traded on the derivatives markets regulator to lock it out of a bid to operate futures following an existing listed and liquidexchange are often higher risk and complex in the market, yet it had the requisite infrastructure stock market. Single Stock Futures is an agree-nature. and expertise to do so. The capital requirement ment between two parties to exchange a stated was later lowered to Sh500 million to allow the number of stocks in a company for a price agreed For starters, the Nairobi Securities Exchange NSE to bid for running the exchange. today while the date of delivery is set at a later(NSE), which is to manage the new exchange, has date in future. Index Futures is an arrangementadmitted seven derivatives brokers and three Part of the Sh627 million the NSE raised where buyers and sellers agree to pay or receiveclearing banks ahead of its launch by June this through an initial public offering (IPO) between disbursement for the cash value of an underly-year. The seven brokers include AIB Capital, July and August 2014 was used as start-up capital ing stock index at a future date.Dyer and Blair, Genghis, SBG Securities, Faida for setting up the derivatives exchange. In Febru-Investment Bank, Kestrel Capital and Standard ary the same year, the bourse incorporated NSE The exchange will also seek partnershipsInvestment Bank while the three clearing banks Clear, a wholly owned subsidiary that would with agricultural companies to create futuresinclude Co-operative, CFC Stanbic and Barclays. settle trading accounts, clear trades, collect contractsforagriculturalcommodities.Current- and maintain funds for transactions and report ly, there are two active commodity exchanges According to the NSE’s chief executive officer, trading data. The subsidiary will also be home in Kenya namely, the Nairobi Coffee ExchangeMr. Geoffrey Odundo; “The exchange is intro- to derivatives brokers where they would settle (NCE) and the Mombasa Tea Auction, which sellducing new asset classes to provide investors their clients’ claims and liabilities in respect of coffee and tea respectively. Previous attempts towith additional instruments to not only invest spot trading and futures contracts. develop a vibrant commodities market for otherin, but provide tools for the efficient and effec- agricultural products have not gone beyond thetive management of risk.” “The NSE is currently conducting train- warehouse receipt system (WRS), which has ings and workshops for market participants nonetheless attracted little support from the The NSE’s derivatives exchange will facilitate in collaboration with industry bodies,” Mr. farmers.spot (immediate) and futures trading of multi- Odundo noted, adding the target is to go liveasset investment products, which include equi- within this year. According to the Capital Markets Masterties, bonds, currencies, interest rates and agri- Plan (CMMP), Kenya’s financial markets haveculturalcommodities. Itwill supporttradingin Due to the complex nature of the derivatives reached the level of sophistication from whichcontracts concerning the buying and selling of market, sound regulations and strict controls it can move to the next stage with the introduc-such assets with delivery made at the point of are required to avert risks like those that hit tion of derivative markets (both financial andexchange or at a later date. The delivery date of the U.S, European and other global markets in commodity derivatives).some assets will be set at a future date (hence the 2008 and 2009 resulting in a financial crisis.term futures trading) at an agreed price while Currently, the NSE has a free hand to create and “A financial derivatives market will be ableothers will be done at the time of transaction enforce its own operating guidelines without to support some of the actions presented (e.g.or immediately hence the term spot trading. interference from the regulator. helping primary dealers in the bond market better able to manage their risks), aid wider According to Faida Investment Bank chair- Products will be introduced on the Exchange risk management for the whole economy andman, Bob Karina, the derivatives market, though in a phased approach starting with the ‘more improve portfolio returns for institutionalcomplex in nature will broaden avenues of familiar’ ones before graduating to the more investors. This could be achieved by productsinvestment in the capital markets, raise liquidity complex one with time. According to Kenya such as foreign exchange, interest rate andlevels and help investors to hedge against risk. Capital Markets Master Plan (2014 - 2023), the equity based derivatives,” the CMMP indicates. most evident opportunity is for the market to In December last year, the NSE was granted trade and clear interest rate, foreign exchange Even with further estimation that the valuepreliminary approval by the Capital Markets and equity based derivatives (futures and of the derivatives market may reach Sh18 tril-Authority (CMA) to establish a derivatives options). To be introduced earlier will be lion by 2013, a lot of work will have to go intoexchange to trade futures contracts and options currency futures, because of an existing over- developing the derivatives market and gettingthat are known to hedge against risk. the-counter and very active foreign exchange it to a higher level of awareness to local and market, single stock futures and the index foreign investors. In spite of the uncertainties The NSE’s exchange will be modeled on the that the market may receive little attentionJohannesburg Stock Exchange (JSE)’s Deriva- Kenya’s financial from potential investing participants, the NSEtives Market, which trades equities, bonds, markets have says it has put in place elaborate plans to raiseinterest rates, currencies, commodities, futures reached the level of awareness in the market targeting local retailand options. Option contracts offer buyers or sophistication from which and institutional investors.sellers the prerogative of selling or buying a it can move to the nextspecified commodity or asset at a given price stage with the introduction “So far the Exchange has and continues toon or before a given future date. of derivative markets” underwrite market development expenditure towards raising the awareness of the derivatives At the moment, the Nairobi bourse is the only market,” Mr. Odundo said, adding, “The NSE willentity granted the license to run the exchange, roll out an awareness campaign targeting localwhose capital had originally been set at Sh1 retail and institutional investors”.billion by the CMA. The NSE contested the highcapital requirement saying it was a ploy by the April 2015 | Nairobi Business Monthly | 39
Money&MarketssharesThe golden rule for very pessimistic and try to offload their sharesinvestors in the stock when actually they should be loading more ofmarket the stocks. All these decisions happen too fast without much of research and the only focus is the price instead of the reason behind the increase. The secret is to focus on the shares’ intrinsic value, the stability or profitability of the company and purchase it at low price in order to sell it when the prices have surged.By Husborn Kenyanya not perform well, I can still rely on another. Acceptance of Loss Never put all your eggs in one basket. Purchas-M ost Kenyans have been shunning away ing a variety of stocks mitigates the risk of loss. When buying a given stock, it is prudent to also from investing in the stock market and A regular review of the portfolio from time to plan on a stop-loss instruction as well. The stop yet there is a huge potential for high time is essential as it enables one to decide on loss level is the point at which you can no longerreturns. In order to better understand how to whether to buy or hold the stock. If the assump- accept any further losses and therefore you aretrade in the stock market, below are some of tions under which the stocks had been bought forced to sell the stock at a loss. A stop-loss level,the strategies that will ensure that investors get do not hold, then it might be prudent to offload in my opinion, should be about 10% below thegood returns in the market regardless of whether them. It should be noted that the returns may purchase price. This will limit the loss to 10%one is a long-term or a short-term investor. Sit appear low but it is less risky in a diversified instead of leaving it to continue. The stock maydown and relax, I have some proven strategies portfolio than putting all the funds in one stock. continue loosing until it reaches a price too lowthat work and here we go. The size of your portfolio is determined by the that it attracts demand. amount to be invested and your risk appetite.Know your risk appetite In fact, you may buy more shares at a much Choose undervalued shares lower price for the same stock with the sameStocks are very risky investments despite having revenue used for offloading them. For instance,very high returns within a short period. For a For one to be successful in the stock market, assume I bought 1000 units of stock X at Sh10.00conservative, it is advisable to be a long-term bargain stocks are the best. These are the ones but then later on realise that the price has startedinvestor. Only invest funds that you may not priced lower than their true value or worth given falling to Sh9.00. If my stop loss is 10%, thenneed in the near future. For high risky investors, that they have a very good potential for growth. I should sell it at Sh9.00. I therefore get backknow the entry and exit price for the chosen For newbie investors, they miss the mark as Sh9, 000 from the sell assuming transactionstock. You can take advantage of the fluctuation they misinterpret this by going for heap stocks charges. If it falls further to say Sh7.00 apiece,in price levels, buy low and sell high as long as in the hope of making high returns. Thorough I can repurchase the same shares with the Sh9,the returns can cover the purchase cost. Suppose research is essential before one invests in any 000 getting about 1200 shares. I therefore standI find a stock that fluctuates between Sh9.00 to company. at a better position than one who continuedSh12.00 apiece. If I have Sh90, 000, the purchas- holding the stock.ing cost is about 2.1% and selling cost is about Ideally, the share price should reflect the2.1%. In total to complete a whole transaction earning prospects of the firm. However, market Patience is the key in the stock market with aI incur a total charge of 4.2%. I can then get frenzy can cause the share price to be overpriced calculated and pre-determined exit prices. It isabout 10,000 shares. After two or three months, or under-priced. Of course one of the tools for allaboutseeinganopportunity and going for it.if the price rises to Sh11.00, the gain is Sh2.00 valuing price is the Price Earning (P/E) ratio in Remember, you do not own anything until youper share translating to about 22% return. This deciding whether to buy or sell. The P/E ratio buy it nor do you make any profit till you sell.leads to a net return of 18%. I therefore make a should be combined with many other factorsnet profit of Sh16, 200, quite impressive. that affect the price for it may not give a true Consult a financial advisor, picture of the real value of the company unless broker or consultantsDiversify your stocks combined with other analytical tools. When there is a bull market, the stock prices show a The fees payable to a financial advisor orIn the NSE, there are over 60 firms. Therefore rising trend and investors rush to buy more of consultant may not be as costly as the lossesstocks are classified into various categories the rapidly growing share price and often lead to that one can make if investing poorly. It isdepending on the industry: Banking, Manufac- overpriced shares because of very high demand. prudent to seek advice from more experiencedturing, Commercial services and many more. people or need to do more research about stockIf I invest across the industries, then the risk Everyone is too optimistic expecting to investments before finally putting your fundsof lose is minimized. In case one industry does make huge gains as the trend continue. On the in the stock market. It is not advisable to take other hand, in a bearish market, everyone is a loan to buy shares; the market is volatile and sometimes you have to wait for long before you make good returns. — Mr Husborn Kenyanya is a banker .40 | Nairobi Business Monthly | April 2015
OPINION || ECONOMIXWhile sustainable, Kenya’shuge debt rings alarm bellsT herehasbeenalotoftalkabouttherisingpublicdebt.Of private sector, and course that’s enough to worry even the ordinary person because in the end, the debt is serviced by taxpayers’ thereforetakesupfunds BY LUKEmoney. And so the more debt the government accumulates MULUNDAthe more money is needed to pay back and more likely the that could have beenmore tax burden for the people. Luke Mulunda used for investments is the editor of Kenya’s gross domestic product (GDP) is valued at Sh4.75 tril- businesstoday.co.kelion, while we owe lenders Ksh2.5 trillion. Yes, you read that right. by the private sector. Email: lmulunda@Most of the fears have been among economists and financial businesstoday.co.keexperts who feel the debt is too high for an economy growing Externalborrowing, onat a slower rate. the other hand, exposes Yet it may not be something we could lose our sleep over.After all, debt is no longer a problem exclusively associated with a country to externaldeveloping countries. Since the financial crisis of 2008, evendeveloped countries such as Italy, Spain, Greece and Portugal shocksoverwhichithashave had to grapple with the monster. little control. However, Public debt is basically made up of funds that the governmentand associated agencies have borrowed to finance their spend- it also frees up funds foring. It is usually measured as a ratio of Gross Domestic Product(GDP) – the total gross income of a country in a year. The ratio private sector borrow-is important because it shows how long it would take a countryto pay off its debt. In Kenya, for instance, the debt-to-GDP ratio ing and subsequentstands at 46 per cent. In comparison, the European MonetaryUnion (EMU) States have a debt ratio of 96 percent. This is the investment in the realparadox of modern economics, where some of the richest arealso the most indebted. economy. The most important variable to consider is sustainability of Rising debt But in cases of largea debt or a country’s ability to pay back its debts in future. A external shocks servic-country’s risk can be assessed by looking at parameters such asmacroeconomic, fiscal and monetary policies. Questions such as means Govt ing debt becomes moresources of revenue are important. Tax revenue would be impor- will in future expensive as the value oftant to consider, since this is an indicator of the ability to pay spend most of its the local currency depreci-back debt. We may not be doing so well here but new reforms revenue servicing ates. Borrowing in a foreignpoint to an uptick in the short to medium term. currency also poses the risk The currency composition of debt also matters. Borrowing loans of local currency apprecia-in foreign currency means increased vulnerability to external tion that ultimately makesshocks. exports more expensive and imports cheaper. The International Monetary Fund (IMF) has come up with aDebt Sustainability Framework (DSF) that it uses to determine Kenya’s fiscal deficit for the financial year 2014/2015 stood atdebt thresholds based on the quality and strength of institu-tions. To realistically assess the sustainability of Kenya’s debt, Sh342.4 billion, 55% external and the rest from other sources. Thisone would first have to understand what constitutes qualityinstitutions and where Kenya falls. is a relatively good mix that enables the Government to balance The ratio of external to internal debt is an important factor to between crowding out funding for private investment, and expo-consider when issuing debt. Borrowing locally means that thecost of servicingthedebtisnot affectedbyexternal shockssince sure to external risks. Borrowed funds should be used prudentlythe debt is in local currency. However, borrowing internally alsocomes with a negative impact known as the crowding out effect. by government to enhance debt sustainability. Spending on the This means that government competes for funds with the projects that yield income in future to pay off the debt improves sustainability while wasteful spending only undermines it. Rising debt means that the Government will in future spend most of its revenue servicing loans at the expense of important local investment. That was the case for Highly Indebted Poor Countries (HIPCs) before they got the all-important relief. Inability to pay debt leads to inability to borrow. For example, Greece government is facing the problem as most lenders see it as a high-risk economy. Besides, where such governments are able to secure loans, it comes at a very high cost. High interest rate means very expensive debt, increasing the debt-to-GDP ratio. In the case of Kenya, debt sustainability could be determined by simply looking at the debt-to-GDP ratio. Heavy investment in projects will yield enough revenue to pay the debt in future. Good investments and microeconomic environment, backed by good quality institutions would ensure debt sustainability, and therefore low risk. But still, the govern- ment needs to moderate its appetite for borrowing. April 2015 | Nairobi Business Monthly | 41
Property 60&Investments Maximum age at whichCONTENTS ► How technology can help businesses transform HR functions 49 a mortgage ends or retirement age,mortgageß whichever comes firstIn the best interestof the self-employedBy Victor Adar direct mortgage from the financiers, begging Lamudi Kenya Managing Director Dan Karua the question, employed or not employed, rich says: “Securing a mortgage can be a challengeE ventheself-employeddeserveamortgage. or wealthy, what will it be? for self-employed individuals because lenders But the process is not usually an easy one tend to see them as a liability when it comes to as most lenders tend to have reservations With the rising demand for homeownership, repaying the loan.”about financing projects of this lot. The lenders an increasing number of people are securingsee this group of people as the least ideal borrow- mortgages to make their dream of buying prop- Mr Karua is not making a blanket negative caller primarily because of the risk involved. Often erty come true. However, without a stable source but simply pointing out that there are mortgagetheir income is not steady enough to warrant a of income, it can be especially difficult to make products tailor-made to suit the self-employed. headway. Among the top requirements is (having) all legal42 | Nairobi Business Monthly | April 2015
business documents in place to prove that your need financing knocks simply because your earlier,”means of income is legitimate. This will enable business papers are not in order. It is better to he says.the lender to verify your stream of income and have the wits of preventing problems that ariseits credit worth. It also shows your commitment that might hinder you from getting financing I t i s LamudiKenyaManagingto your business and it may act as collateral to a good Director Dan Karuayour loan. You will also have to provide details Securing a mortgage thing toabout the history of your company, including can be a challenge own a home whether you are self-employed orits profile and background. for the self-employed not. But poor financial planning can cost you an because lenders tend to arm and a leg. Homeownership does not come In most cases lenders tend to have reser- see them as a liability cheap. That’s why you need to plan your financesvations about financing projects of the self- when it comes to repaying accordingly. Most first time homeowners foremployed, but with proper financial records the loan example, underestimate the costs that they willfor your business things are rosy. You need to incur. As always, there are additional costs thathave good financial records that will deter- when there is still time. It may be possible to amount to nearly 10% the value of the housemine how much credit you are eligible for. negotiate a flexible interest and loan repayment that you will need to take into account duringThis should include audited financial records period at this time. the planning stage.of your company for the last three years. Thesedocuments will act as proof of the strong finan- Think about home loans, if you are self- Additional charges to plan for also include:cial muscle of your business and will help you employed for example. One of the greatest chal- stamp duty, which ranges between two to foursecure a loan without much ado. lenges is the reality of shopping for a mortgage. percent of the value of the house depending on A mid the euphoria of getting a new home comes its location; loan appraisal, which is about one Bank statements will also be required. This the good choice and the bad choice – choose percent; and the remaining five percent to behelps the lender to verify your ability to repay the one that is tailored to your individual financial spent on insurance and legal fees. If possible,loan. As a guide, it is recommended that you do situation. meet with a lender to get pre-approved for a loan.not borrow more than two and a half times your This will guide you through the house huntingannual gross income. To achieve a phenomenal “As with all home loans, you will need to shop process and in managing your expectations forgrowth it is better to stick to this rule. around to find the best mortgage provider to your ideal house. suit your needs. Most lending institutions have Finally, you will need a sales agreement for different interest rates and loan repayment peri- “You need to take precautionary measuresthe propertyaccompaniedbyacopyof national ods of between 10 and 25 years, noting that the which will safeguard you from undergoing aidentity card or passport for the directors of your maximum age at the end of the mortgage term financial nightmare as you climb the prop-companyandacopyofKenyaRevenueAuthority must be 60 years or retirement age whichever is erty ladder. It is important to do due diligence(KRA) Pin for the directors or registered busi- before you buy a house, taking account of allness owner(s). Bottom line is you should not the information available through the Ministrysee a long day when the day that you so much of Lands,” says Karua. April 2015 | Nairobi Business Monthly | 43
Enterprise Sh25400&Ideas AhcgisRhecaeaTocrtghomweeuprthaAasoimlncfeewryhtoFit,cruEoeSianrturh.eitrcataKdhsecteaanotEryvataeesrdtCOMING UP ► Nakuru County gets free wi-fi 46resilienceSecrets of a young millionaireEric Kinoti, 29, who runs a Sh150million empire, reveals how hemet lady luck while struggling tosell foodBy Lydia Were Eric Kinoti and supplying city hotels both in Nairobi and Mombasa. The milk business was very chal-B eing a millionaire at a young age makes or even basking in the Malindi sand beaches, lenging because it has a lot of licensing and a peopleimagineyouarejustlucky.Yet you but he chose to do business as his side kick. lot of capital involved,” he says. have to be natured well to make it in life.Starting a company that earns Sh150 million “I started distributing eggs around Malindi Things did not work well and he foundand an affiliate raking in Ksh3 million annually during my free time,” he adds. Three years himself working at Standard Chartered Bank,is no mean feat. later, Mr Kinoti quit his job in 2007 to venture only to get frustrated after two months on the into business. “With a capital of Ksh20,000, I But Eric Kinoti, a Forbes Top 30 below 30 started buying milk from Kinoo and Kiambufinalist for 2014, is living his dream throughShade Systems East Africa, a growing empirethat manufactures and supplies military tents.Born in Mombasa 29 years ago, Mr Kinoti wasbrought up in a business-oriented family andit’s from this upbringing that the CEO of ShadeSystems learnt the ropes of entrepreneurship. “I started assisting my mother in her busi-ness while still in lower primary,” he says. “Atschool I sold sweets from my father’s wholesaleshop to the other pupils. At age of 10, I was thecashier at the shop.” This inspired business in him, a mindset hecarried on to high school. “I was allowed to sellcakes to students at the school canteen,” saysMr Kinoti, whose company emerged secondrunners up in the KPMG 100 Midsized Compa-nies 2014 and the industry leader in manufac-turing.Aftercompletinghisdiplomainbusinessmanagement in 2004, Mr Kinoti started workingas a cashier at a hotel in Malindi and workingmostly on night shift, he had a lot of free time.He had the option of hanging out with friends44 | Nairobi Business Monthly | April 2015
job. “The milk business became a challenge for Entrepreneurship start an enterprise and start earning profits theme and I had to look for a job which I got but is a journey, not a next week. It doesn’t work like that. I stayed forafter working for Standard Chartered Bank for one-off get-rich scheme. over three years without making real money,only two months, I realised this was a bad move,” When you imitate what but I kept my focus, faith and worked hard.”says Mr Kinoti. your role models are doing, you limit yourself, He says the biggest mistake entrepreneurs The political upheaval that erupted after the be different make is jump from one business to another,disputed 2007 General Election was a blessing in hoping the next is better. “Every business, everydisguise, as he was forced to relocate to Nairobi. and heavy duty canvas bags, school bags, laptop industry, has its own challenge, it’s upon youHe started supplying foodstuff to schools in bags, corporate bags as well as iPad covers. Safi as an entrepreneur to stay put, work hard andMombasa, Nairobi and Eastern Kenya. It is while Sana Home Cleaning Services offers house remain focused from where you are.”in this business that he met a client who didn’t cleaning and residential laundry services.want anything that he was supplying but a tent His last word? “Think Big. Start Small. Startfor a function he was planning. “I took the chal- Mr Kinoti wants young people to learn from Now.”lenge and supplied it. After making some money him and not emulate him. “Entrepreneurship isout of the deal, I went and withdrew all the a journey, not a one-off get-rich scheme. Whensavings I had and ventured into tent business,” you imitate what your role models are doing,he says. This inspired a new line of business. you limit yourself, be different,” says Kinoti. “Young people willing to venture into business Breakthrough, three years later should not wait for the fat lady to sing; start At 24, and armed with Ksh60,000, Mr Kinoti with what you have as it is the small things westarted Shade Systems East Africa, to manufac- do that make us the most important people inture military and relief tents, branded gaze- the world.”bos, restaurant canopies, car parking shades,marquees, luxury tents, wedding party tents In entrepreneurship, he says, patience is acanvas seats and bouncing castles. “Capital was virtue. “Most of the young people are not patientmy biggest bottleneck and I tried a shylock. I enough to see a business grow. They want tohad my stuff auctioned when I did not pay ontime,” he says. After several years in the business, ShadeSystems made a major leap forward in 2010when the company sold a canopy tent to anAsian family and those who attended thefunction loved the canopy idea and inquiriesstarted streaming in. “After that I got a big tenderto supply military tents and I’ve never lookedback since then,” he says. Mr Kinoti draws heavyinspiration from business mogul Chris Kirubiwhom he terms as a shrewd businessman who‘sees a gap in market and fixes it with a solu-tion.’ In his job, every day presents a differentchallenge, mostly unwelcoming clients. “Every choice has consequences. In businessyou make many mistakes, some haste decisionsthat don’t work, but at the end, you learn fromevery past experience. However, it takes hardwork, sweat, dedication, focus, having the rightteam and God,” he says. Listed in Forbes 30 Most Promising YoungEntrepreneurs in Africa 2014, Mr Kinoti wantsto expand his business to the entire Africanmarket. Getting the right positioning of thebusiness in terms of location, name, staffingand expansion hasn’t been an easy task for himand he has been forced to relocate twice. MrKinoti owns two other companies affiliated toShade Systems. Bag Base Kenya makes leather April 2015 | Nairobi Business Monthly | 45
Technology x10xxxkxx%mx&Innovation Radixuxs from Nakuru’xsxCBD with CONTENTS ► Tenacity for survival: The hawker’s life 54 a capacixtxy of 1Gbps ► Opinion: Manage IT implimentation like projects 48 xx xxxxxxxxxsocial responsibilityLiquid Telecom connectsNakuru County to freeWi-fiThe project, a first of its kind in Kenya, will see Nakuru join Kigali in Rwanda and Tshwane inSouth Africa as one of the first major urban centres in Africa to enjoy access to free public Wi-fi. 46 | Nairobi Business Monthly | April 2015
By Victor Adar Left to right: Nakuru County Governor Mbugua, Director of Digital Com. Itumbi and Liquid Telecom Kenya CEOL iquid Telecom Kenya, Africa’s leading Ben Roberts during the launch of Bila Waya in Nakuru data, voice and IP provider, has part- nered with the Nakuru County Govern- Nakuru Campus and Mount Kenya Univer- with more set to be invested during networkment to launch high capacity free Wi-fi in sity. This is expected to increase the use of optimization exercises across 2015. TheNakuru, a move that will see the residents of e-learning, which increases information success of the Nakuru Wifi project is keyNakuru County enjoy a free, fast and reliable retention among students by up to 60 per to Liquid Telecom’s strategy of developingpublic street Wifi connection, enabling rapid cent, according to the Research Institute of viable business models for the sustainableaccess to information vital for economic and America. offering of free WiFi in Africa.educational advancement. “With the uptake of e-learning by various “Free Wifi is a facility that is gaining This public-private partnership has seen colleges and universities in Kenya and traction globally. We believe it is right Africathe design and launch of a high capacity Wifi the wealth of knowledge available online, should be at this same frontier of technologynetwork that covers a 10-kilometre radius Internet access in academic institutions has and business model,” said Ben Roberts. “Thisfrom the central business district (CBD) with fast become a defining factor in the quality is also vital in achieving Liquid Telecom’sa capacity of 1 Gigabyte per second (Gbps). of education that students receive,” said Ben vision of Internet access for all of Africa,Currently, this network is connected to a Roberts. which we see as a core driver of economic200 Megabytes per second (Mbps) pool that takeoff and success for the continent.”is upgradable to 1Gbps based on demand, Also expected to be connected to the freewhich Liquid Telecom will be monitoring Wifi are Naivasha and Gilgil towns, as well Internet access has been widely tipped toand upgrading as the need arises. as Egerton University in Njoro, which will be be the key differentiator in Kenya’s economic connected later in the year. performance, creating at least 1,000 jobs a Of paramount consideration in the design month in the business process outsourc-of the Wifi network was ensuring adequate The free Wifi connection will give users ing sector since 2013, according to the ICTcapacity and seamless connectivity through with Wifi enabled devices open access to Authority of Kenya. Recent efforts, driven bythe use of equipment that will deliver on user the Internet with the exception of unlawful public-private partnerships, are expected toexperience. activities such as streaming or downloading raise the country’s Internet access further, of offensive content that violates copyrights. from the current 52.3 per cent, as reported by “Liquid Telecom has put in place outdoor the Communications Authority of Kenya.Wifi nodes, which are designed to carry So far, Liquid Telecom Kenya has investedhuge capacities with the ability to withstand $400,000 , about Sh36 million in the project,harsh climatic conditions to guaranteemaximum and uninterrupted speeds whilesurfing. With the built-in meshing technol-ogy incorporated in the network systems,users in Nakuru will not experience serviceinterruptions when moving from one pointto another within the areas covered in thetown,” said Ben Roberts, Liquid TelecomKenya CEO. The network designed by Liquid TelecomKenya is built around the strategic pointsaccessed by the highest proportions of thetown’s population. With 51 nodes installed,the network will serve users in the streetsand open public areas such as stadia andparks. The first phase of the free Wifi projectcovers the county’s Kenyatta Street, MarikitiMarket, the main bus terminus at the CBD,Afraha Stadium, the county headquartersand the Westside Mall, with the second phaseexpected to cover more streets using streetpoles and other public infrastructure. Academic institutions in Nakuru will alsoenjoy free Wifi access, among them JKUAT April 2015 | Nairobi Business Monthly | 47
OPINION || Tech@Work Managing IT implementation as projectsBY PETER T he corporate world is littered with the graves of failed drawing up all the plans required to carry out the work – includingWANYONYI projects, and nowhere is this more common than in the resource plans (what resources will be sourced from where), information systems. IT projects are prone to cata- change control plans (how to deal with change requests duringThe author is an ICT strophic, morale-sapping, budget-draining failure: world- the project execution), communication management plans (howconsultant based in wide, it is estimated that over 40% of large IT projects fail. to coordinate communications within the project team and withNew Zealand. stakeholders), risk plan (how to manage risks associated with In the last elections, a much-touted digital voting platform the execution of the project), and the quality control plan (how simply collapsed. The Electoral Commission blamed all sorts of to ensure that what is implemented is of the required quality). gremlins for the failure. Teachers will bitterly recall the monthly The many plans identify this as the Project Planning stage. excuses used to delay their salaries: “the computers are not work- ing”. And so on. With the planning out of the way, it is then time to hand the project over to the technical team. An IT project needs formal At the foundation of all these issues lies a common but totally business and functional requirements, and this is the stage at unnecessaryrealityoflifewithgovernmentITservices–they are which the SDLC becomes visible. A business analyst is engaged poorly implemented, and most fail before they can be rolled out. to interview all stakeholders and nail down all the identifiable Within the private sector, there is more rigour and less politics, requirements of the project – which must fit within the project but still, failure in IT projects is a very common occurrence. How, objectives and measures of success. This is the analysis stage, then, to manage IT projects in such a manner that they succeed? and it hands over to the design stage – where the requirements become the basis of a system design, and which in turn gener- The litany of failed IT projects has some common elements, ates a complete, implementable blueprint of the system to be including poor leadership, ambiguous sponsorship of the implemented, and also involves assessing system criticality and projects, ever-changing requirements, inadequate resources security as well as any privacy impacts of the system. and poor choice or design of technology. Many IT projects are managed using the traditional SDLC – Software Development The sheaf of documents generated at the design phase is then Life Cycle – process, an industry standard that is a bit dated but handed over to the implementation team. This can be a software which has been proved to deliver excellent results in software development group, a network rollout team, or even a solution andinfrastructureprocesses.However,governmentsareloatheto purchase group. Their job is to build, rollout, or identify and adopt micro-managing sector-specific standards and processes, purchase a system that meets the design specifications handed and most government departments try to manage IT projects in to them from the preceding phase. Implementation of a well- the same way they would manage, say, civil engineering projects designed system is fairly straightforward, assuming that the – and hence the failure. The unique nature of IT projects requires project manager exercises stringent change control and manages that the Project Management Life Cycle – PMLC – must be wrapped resources well. The completed system is then handed over to around the SDLC for the project to have a reasonable chance of the testing phase, where a group of advanced users and third succeeding. This involves several process changes and steps. parties are invited to utilise the system and push it beyond its design boundaries. A good test is one which breaks the system, First, every IT project should be initiated as any other project forcing the implementation group to address the weaknesses would. A project sponsor should be found and enlisted, usually that led to the failure. System support plans are developed at a big shot within the organisation, to give the project the politi- this stage, as testing exposes the most likely support areas that cal and organisational backing it requires to proceed. Clear the system will require once it is implemented. project objectives and measures of success must be identified and listed down, as well as an unambiguous timeline, all possi- Testing is followed by re-implementation, in which flaws are ble constraints, and all known dependencies and risks. This addressed. After this, the testing team hands the system over phase of the project should not involve technical IT people at to the training team, who show all the users and stakeholders all, and should end with the creation of a Project Charter – the how to utilise the system for its earlier-identified purposes. This all-important Project Initiation Document that forms the basis is a short stage, and it is followed by the actual deployment or of the project. rollout of the system. Once the charter is completed, it is time to involve the technical The rolled-out system is now complete, and the support people. All project stakeholders – users, sponsors, IT resources, plans are activated. The SDLC is done at this point, and control third parties, vendors, and partners – must be identified and passes back to the PMLC, with the project manager initiating and labelled as such. The scope of the project is defined – what will completing project closure by gathering all the lessons learned be covered and what will not be covered – and a schedule and during the project, creating a project summary document, and budget are drawn up. The Project Team in charge of delivering the then leading the teams involved in celebrating a successful project is then selected from the IT resources, and a manager is project!. placed in charge of the entire project. The manager is in charge of48 | Nairobi Business Monthly | April 2015
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