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Editor’s Note

What Riek Machar’s return to Juba means for Africa

Machar’s return to his home country not only signifies peace and reconciliation to the South Sudan’s natives, but also to African nation as a whole – who after several months of unrest can now begin to relate and trade cohesively with the young nation.

South Sudan (SS) gained independence in July 2011 after 50 years of conflict and has faced many nation building challenges including creating new institutions, diversifying revenue streams and providing basic services to its people.

Protracted disagreement on power sharing following an internal conflict in 2013 has set back these efforts. This situation is exacerbated by the drop in petrol prices which is the main forex earner accounting for 60 per cent of GDP and a looming humanitarian crisis. In parallel SS has entered into negotiations on accession into the EAC. SS, therefore, faces multiple challenges on many fronts.

Although the formation of a government of national unity is a critical first step, a lasting stabilization of South Sudan will only happen when peace is more lucrative than war.

After the protracted fight for independence against Sudan and prior to the outbreak of the current conflict, the government failed to develop any economic alternatives for so many men with guns to shift to a civil independent state.

For this to happen, the transitional government must work together with civilian-oriented actors within and outside the governing parties, civil society, the business community and neighboring countries to find solutions that could lead to a prosperous and peaceful country – that is starving.

Only then will the process of building a truly democratic state in South Sudan will be possible.

Steve Umidha - Editor

M

ore than two years after South Sudan’s civil war ensued; its opposition leader Riek Machar landed in Juba – the country’s capital city in April this year and was sworn in as vice president, a vital first step in the effort to reconcile the country from months of turmoil.

South Sudan, the world’s youngest nation, was born in 2011 to great international fanfare. But shortly after independence, it spiraled into a civil war that killed tens of thousands and displaced more than two million people.

Nearly two years of peace negotiations in Ethiopia’s capital, Addis Ababa, yielded several cease-fires, and recommitments to cease-fires, that were broken almost immediately.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 5

M A G A Z I N E Finance & Admin Michael Wandey

Contents

Managing Editor Steve Umidha Consulting Editor Zack Owuor Staff Writers Brian Tirok Monicah Muema Contributors O. Benard Dan Mganda Olive Gerro Maurice Momanyi Alon Mwesigwa Guy Lawrence Photography Ayub Muiyuro Design & Layout Walter Onditi greatworldimages@gmail. com

Mayur Shah CEO Kenafric Industries

Business Development Paul Arithi Abel Nyakundi Abigael Shon

SPECIAL REPORT

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What next for National Bank of Kenya after Ksh1.2 billion record loss?

INSURANCE

Pg21 IRA constitute rules for mergers and acquisitions

Pg19 Focus on Uganda’s cocoa industry

6 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

THE AFRICAN BUSINESS FORTUNE - OPINION

Yoweri Museveni won Uganda’s 2016 Presidential Elections

Losers and Winners in Uganda’s March 2016 election

By Alon Mwesigwa

I

t’s now a numbers game for traders as many of them count the costs and fortunes of an electoral process that came with mixed feelings.

The election period, which dominated at least the three quarters to March 2016, finally come to a close. If anything, it was a time for splashing cash.

According to one study by Alliance for Campaign Finance Monitoring (ACFIM), a coalition of CSO activists advocating for increased transparency in the practice of financing political parties and election campaigns in Uganda, released in January 2016, between November and December 2015 alone, the ruling party NRM spent Sh 27billion, twelve times more than its competitors.

The Forum for Democratic Change, the main opposition party, spent Sh 976m.

Independent candidate Amama Mbabazi spent Sh 1.3bn. On the whole, some analysts estimate that close to Sh 300bn could have been spent during March election.

This has left some businesses jubilating while others bleeding. We look at the winners and losers.

LOSERS Tourism sector From the start of the period, it was always going to be hard for the tourism industry to generate revenues, especially in a country where the police is always in running battles with opposition and activists - fodder for the media.

And they were reported and played world over on BBC and CNN. Outlets like the Economist, the Guardian, and New York Times reported extensively what was happening in the country.

In Kenya, a satirical report called Kinyanjui Ripota’s Perspective on #UgandaDecides 2016 ran on NTV Kenya to mock Uganda. All this played at the expense of the country’s image, which portrayed Uganda as violent, undemocratic and dangerous to visitors.

Speaking to NBS TV days after Museveni was announced Uganda’s president, Amos Wekesa, the director of Great Lakes Safaris, said the election period “was bad

for the industry.”

Uganda decides 2016 hash-tag was the sixth most-trending on Twitter between February 18 and 20, but for the wrong reasons. Words like police brutality, dictator, and tear gas were mostly used. This scared people that would have planned to come to the country.

As per the latest figures at the end of 2013, tourism earned $1.4bn in foreign exchange. This could have since dropped to be- low $1bn, according to analysts.

Downtown shops The traders in the central business district were not spared the brunt of the elections. The whole of the elections week, shops remained closed as police engaged in running battles with youths who supported the opposition.

Police said it was protecting business people in town. However, people never worked. The tensions were high and the would-be shoppers feared to go to town.

“We still failed to work because

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

7

THE AFRICAN BUSINESS FORTUNE - OPINION there were no people to sell to,” one trader said.

Many businesses in town have a daily turnover of more than Shs 100m, according to some traders. And losing five days because of elections was just untenable.

The businesses also felt the impact of the return of street vendors. In the lead to the polls, government allowed street vendors back onto the streets in what was seen as a way to lure them to vote NRM. But this came at a cost for some traders, who incurred high operational costs, but were forced to compete for customers with street vendors.

Mobile money The mobile money agents and users also lost out. The platform was blocked from the morning of February 18 to 22. For every transaction that takes place, an agent earns a commission from Shs 100 upwards, depending on the amount transacted. One agent in Wandegeya told us she used to work on more than 100 people a day.

According to Bank of Uganda, daily transactions worth Shs 80bn go

through mobile money. So for the four days, at least Shs 320bn was not transacted. For the users, the inconvenience was unbearable since the blockade was done without prior warning.

There were rumours that telecoms were compensated for the loss, although The Observer couldn’t independently verify this. For agents and users, however, it was certainly bad.

Uganda Revenue Authority (URA The Ugandan tax body was one of the losers.

For every mobile money transaction, a levy of 10 per cent is collected. Uganda Revenue Authority failed to recover at least Sh 8bn each day that the mobile money system remained off, an amount more than Sh 5bn government gave the Uganda Tourism Board to market Uganda in the 2014/15 financial year.

This year the board got Ush 30bn.

Yet, as people feared to go town to shop or access other services such as banks, the revenue agency was not working.

For every transaction at the bank or receipt issued at a shop in town, there is value added tax charged. For the election week, where business was low in town, there were

ripple effects on taxes collected.

Another loss came in the form of a slowdown in investment. For every investment that comes into the country, it is an opportunity for tax.

In 2015, according to Bank of Uganda, foreign direct investment into the country dropped by $200m (Shs 682bn) and this was due to the uncertainty surrounding the elections.

WINNERS Media The media firms were looked at as some of the winners in this election. From radio to television stations to newspapers, the election came with good news in the form of advertising revenue from government, civil society, and some candidates, and the electoral commission relating to the promotion of elections.

The Citizens’ Coalition for Electoral Democracy in Uganda (CCEDU) ran constant adverts for people to come out and vote.

The EC ran campaigns to sensitize on how to vote.

All this meant income for the media firms, although they still lost out on the private sector revenue as many companies decided to remain cautious.

The Electoral Commission declares Yoweri Kaguta Museveni elected President of the Republic of Uganda on the presidential elections held on February 18, ...

8 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

THE AFRICAN BUSINESS FORTUNE - RETAIL

Uchumi needs online presence to stay afloat

Uchumi-Supermarkets-chief-executiveJulius-Kipng’etich

By Olive Gerro

K

enya’s retail supermarket, Uchumi is a brand that evokes pride and patriotism, but over the last few years, the renowned retail ‘powerhouse’ has had a lot of things go against its repute.

Available figures as of September 2014 show that the retailer was among Kenyan supermarket chains that served the East Africa region while in June of the same year, the company’s assets stood at US$78.8 million with shareholder equity of approximately US$38.4 million.

Uchumi began operations in 1975 as a public limited company by three state owned firms namely; Industrial and Commercial Development Corporation, Kenya Wine Agencies Limited (KWAL) and Kenya National Trading Corporation.

The main objective at the time was to create outlets for the equitable distribution of commodities and to create retail outlets for Kenyan manufactures.

A year later after its formation, Uchumi’s shareholders signed a management contract with Standa SPA – an Italian retail supermarket with an aim of raining

Kenyans to run the new enterprise and 16 years later the company listed on the Nairobi Stock Exchange (NSE) in 1992.

Uchumi closed down, albeit temporarily, and was placed under receivership in June 2006 after 30 years of operations.

Its closure was described as ‘one of the greatest corporate disasters in independent Kenya history’ A government-led rescue plan, however, was initiated and consequently five Uchumi outlets all in Nairobi were reopened on 15 July 2006 under interim management and a caretaker administrator.

By January 2011, the retail chain had returned to profitability and applied to the Kenya Capital Markets Authority to re-list its shares on the NSE. Approval to re-list at the Nairobi bourse was granted in May 2011 and trading in the shares of Uchumi resumed in May the same year.

Uchumi had 24 outlets spread across the country before revelations were made of the retailer having ‘cooked its books of accounts’ three years ago which led to the subsequent closure of Uganda

and Tanzania subsidiaries.

Uchumi in the 90’s and early 2000’s was the key player in the retail chain store business but the questions most people are asking is what went wrong for the state owned supermarket now that signs are pointing towards it’s collapsing for the second time after the first scare in 2006.

In 2006 the Kenyan government pumped in $ 7.3 million as part of the recovery strategy that at point saw the company place under receivership. Uchumi is so far one of the most successful turnaround stories in the Kenyan business sphere under the leadership of Jonathan Ciano.

Even after turning around the retailer to profit making, Ciano was shown the door and in came Julius Kipng’etich – who has been entrusted to return the company into glory days.

Ask Uchumi shareholders what they feel about the man at the helm, and you’ll feel the optimism that is still there for a group of individuals who are now demanding a new dawn in the company.

One key aspect will be crucial for the revival of Uchumi – Innovation and Online

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 9

THE AFRICAN BUSINESS FORTUNE - RETAIL Presence.

The way forward for the retailer is to embrace Innovation and Technology.

Business world is rapidly changing and Uchumi’s future survival will heavily rely on how much investments the company will aim to pump in its business in terms of innovation and technology in order to remain relevant with the emerging trends.

In an interview with a Kenyan journalist the new CEO Kipng’etich expressed hope and desire to steer back the company into profit-making entity and also assured shareholders in the last AGM that despite exiting Uganda and Tanzania markets, the firm remain on cause and will continue trading at the bourse.

“It is important that we get Kenya back to optimal operations and profitability by taking good care of our suppliers and creating value for our shareholders before reconsidering regional expansion,” he commented.

Under his stewardship, Uchumi will now focus on the 95 per cent of the business that makes money for shareholders and are optimistic that we will achieve this within the shortest time possible.

Uchumi’s board he hinted, will decide what is it they want their company to become?

My humble advice is that they need to learn from several technology platforms that have brought shareholder value within a very short period.

The Uchumi brand must establish its niche and market itself in order to increase customer numbers that can be leveraged on volume to lower the supply chain costs.

Nigeria for instance launched Yudala. com the first ever Nigerian owned shopping site, may be its time for Uchumi to follow suite and go online as to their model of doing business, similar attempts by UBER who came into the Kenyan market last year.

Some of its competitors are already working towards such a strategy but the headache of maintaining low costs and continuous supply still nags the entire industry.

Opportunities lie in online presence something large supermarkets are a kin to. They are known for delaying payments to suppliers but if the burden of inventory

Uchumi-Supermarkets-chief-executive-Julius-Kipng’etich

10 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

is passed to suppliers in return for prompt payments, it will be a win-win situation for both players and a good strategy for retaining reliable customers.

The benefits for this proposed model include: improved product quality since it will attract quality suppliers; discourage carrying of dead inventory; greater efficiencies through reduced workforce especially the procurement unit which will become irrelevant; and, spurring development of new goods that would create more sustainable jobs.

New and leaner competition such as Jumia, an online shopping mall, is emerging with very disruptive products.

Uchumi can be the next Jumia or Ali baba.com where Kenyans can trade online hence it will be more profitable compare to the traditional way bearing in mind that the likes Nakumatt and Tuskys are really competing to eat up the market and Uchumi might not survive the trend.

It’s probably time to go online if Uchumi wants to stay afloat.

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THE AFRICAN BUSINESS FORTUNE - MANUFACTURING

Poor quality products, exports hurting Kenya’s leather sector

By Monica Muema

C

ontinued exportation of leather products is posing a serious challenge to Kenya’s leather and footwear industry, according to sector players.

Kenya’s lack of competitiveness, lack of capacity and low quality of final products has also been blamed for the low leather production.

Robert Nzioka the director of Zingo Investments – a Kenyan firm involved in the exportation of finished leather products says the government needs to among other issues correct duty and taxation structure to provide a level-playing field for local manufacturers and importers alike in order to revitalize the sector.

“Leather sector has for a long time received low protection domestically and the government needs to fully implement and correct duty and taxation structure to reflect the exact value chain position and make the local industry competitive and attractive,” he said.

The government announced last month intentions to ban exportation of leather products in the next three years in order to promote local industry – a move that has been widely applauded but these concerns still stand in the way of the sector’s resurgence.

Available figures indicate that the country’s exports of wet-blue leather is slightly over 50 per cent, while the country’s annual shoe uptake exceeds 35 million pairs, out of which 95 per cent is imported – frustrating efforts to establish a vibrant leather industry capable of competing with international firms Industry players have welcomed government’s idea to halt exportation of raw hide to meet a domestic shortage and boost manufacturing of leather goods and products if the market is to compete with economies like Ethiopia.

In the footwear subsector for instance, where competition is largely domestic and based on price, Kenya’s

market share has also been eroded by imports of new low-cost leather footwear – believed to be originating from China and India, and Nzioka wants the government to first address these issues by putting in place right taxation measures.

In Kenya, it can be as much as 30 percent more costly to produce a pair of low-cost men’s leather shoes at ($9.44) compared to ($7.28) in Ethiopia, according to a report by World Bank.

Kenya’s tanning industry had about 19 tanneries in the 90’s with a capital investment worth Sh3.8 billion, but this changed after the abolition of ‘export compensation’ scheme and market liberalization, which involved cutting trade tariffs on imported leather and footwear, provoking a surge in cheap imports.

Nzioka wants the government to set up more cottages and train more locals as well as generate capacity and provide financing if it is to revive the sector.

“These concerns need to be addressed and new technologies should be on government’s agenda,” he said.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 13

THE AFRICAN BUSINESS FORTUNE - BANKING

SPECIAL REPORT

What next for National Bank of Kenya after Ksh1.2 billion record loss?

By Steve Umidha

T

he National Bank of Kenya (NBK) had everything ‘moving swiftly’ for its strategic transformation until last year when the government shelved plans to buy shares at the bank and instead ordered an investigation into its activities.

Treasury Principal Secretary Kamau Thugge had in June 2015 asked NBK chief executive Munir Sheikh Ahmed to liaise with the Privatisation Commission to conduct fresh due diligence of the bank’s dealings.

“This is to advise that at its meeting

held on April 22, 2015, the Cabinet directed a halt to the intended disposal of government shares in NBK until a due diligence is conducted to establish the risks in the process,” Thugge said, in a letter dated May 14, 2015.

Among the issues that were to be investigated are details of bank accounts.

Ten months to date (April 2016) NBK has reported a full year 2015 loss of Ksh1.2 billion or USD11.9 million, and the bank has blamed bad loans for the poor results that rose towards the end of the year.

The bank made the announcement hours after issuing a profit warning, and later admitted that the bad loans had led to a sharp increase in impairment charges.

The result contrasts profit after-tax of Ksh870.7 million the bank recorded a year earlier, which represents a drop of 234.4 per cent attributed which was also blamed bad loans provision, which rose from Ksh525.3 million to Sh3.72 billion.

NBK posted an after-tax profit of Ksh2.2 billion in the nine months to September last year.

The listed lender, majority owned by the government through national social security

National Bank of Kenya chairman Mohamed Hassan before the Investments committee 14 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

THE AFRICAN BUSINESS FORTUNE - BANKING

NBK’s CEO Munir Ahmed at a past event

fund (NSSF) and treasury, said gross non-performing loans jumped 63 per cent to Ksh11.76 billion, laying bare the gravity of the bank’s financial problems.

“The bank’s non-performing loan portfolio increased sharply towards the end of 2015 undoing gain of 3.3 billion shillings in profit before tax reported by the bank in quarter three of 2015,” the bank said in a statement.

Workers, through the National Social Security Fund (NSSF), are the largest shareholders at National Bank with 134.5 million shares or a 48.05 per cent stake.

National Bank reported its financial results two days after its chief executive and five top managers had been placed on compulsory leave pending an internal audit.

The bank’s regulator Central Bank of Kenya (CBK) welcomed the bold move by the bank’s board that said its actions were meant to strengthen the lender while ensuring its operations continued smoothly.

Over the last six months, two Kenyan lenders, Imperial Bank and Dubai Bank Kenya, were placed under statutory management by the regulator last year, causing central bank Governor Patrick Njoroge to vow to tighten supervision of banks.

The NSE-listed lender, which sold off several assets last year to fund its business, closed the year with total assets worth Sh125.4 billion while its total liabilities stood at Sh114.4 billion.

The shocking turn in fortunes for the lender raises questions on the validity of the bank’s books of accounts – coming on the wake of close scrutiny presently being necessitated by the new CBK boss Patrick Njoroge.

NBK’s board sent its managing director Munir Sheikh Ahmed and five top managers on compulsory leave pending investigations into alleged breach of fiduciary duty and failure to adhere to corporate governance rules.

The bank’s board did not recommend the payment of any dividends for the financial year under review

“The six managers will immediately proceed on leave but will be expected to comply and make key submissions to the internal audit process,” said the board in a statement.

The suspension comes at a time the bank is battling claims of mismanagement and a loose credit policy resulting in the ballooning of bad loans, affecting its financial standing.

“We have instituted an internal review of our financial performance and as part of the mentioned tenets, the internal audit process shall be independent hence the request by the board for the six managers to proceed on leave,” said the bank’s chairman, Mohamed Hassan.

The announcements were made following a series of multi-pronged audits that the Central Bank of Kenya (CBK) and the Capital Markets Authority ordered and which found massive gaps in the bank’s books.

The bank had re-appointed Deloitte & Touche as its auditors during the last annual general meeting held in March 2015.

The six suspended executives are now expected to present themselves for questioning during the ongoing forensic audit.

“The aforementioned actions by the Board

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 15

THE AFRICAN BUSINESS FORTUNE - FINANCE are an unequivocal demonstration of our commitment to strict adherence to corporate governance tenets and the various CBK guidelines,” said the bank’s chairman Mohamed Hassan.

Observers believe the bank’s woes can be traced back in 2011 when the government lost control of it after NSSF decided to go it alone in decision-making.

Then chaired by Adan D. Mohammed, NSSF flexed its muscles, replacing government appointees Jennifer Riria, Paul Ngumi and Alfred Juma with Mohammed Hassan (who was later voted as the bank’s chairman), Sylvia Kitonga and Erastus Mwongera.

The new catch added to NSSF directors sitting on the bank’s board who included Francis Atwoli (Cotu boss) and then NSSF managing trustee, Alex Kazongo giving the Fund five of the bank’s eight voting rights.

A few months later the board retired

Reuben Marambii who had taken over in 1998 from John Simba.

Marambii steered the bank to declare profit in 16 years and for the first time paid dividends to its shareholders in 2010. In June 2012, Ahmed was tapped from Standard Chartered Bank where he had worked for 16 years. It was the first time the National Treasury had no say on who was to head NBK. Ahmed’s brief was to help diversify NBK from consumer lending, which accounted for over 75 per cent of its loan book, to corporate lending, investment banking and insurance to support its growth.

Munir was given unfettered powers to hire and fire staff. Marambii left a lean team of top managers who in total earned a salary of Sh9.7 million a month.

When he came in he embarked on an expansion programme, rebranding and recruiting new staff – a move that has seen current payroll for the top manage-

16 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

Sh 1.2 b

NBK reported a full year 2015 loss of Ksh1.2 billion

“

The six managers will immediately proceed on leave but will be expected to comply and make key submissions to the internal audit process - the board ment skyrocket to Sh23 million monthly.

The bank has also seen more than 15 top managers leave in the past eight months over what insiders said were differences with the chief executive.

The forensic audit report is however expected to reveal if the ‘deferred’ top managers are in any way responsible for the bank’s decline which led to the record Sh1.2billion loss – only time will tell.

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THE AFRICAN BUSINESS FORTUNE - TANZANIA

United States agency suspends USD 472m deal with Tanzania

By Correspondent

U

nited States development agency opted last month to suspend a $472 million compact with the country – a move that is now likely to affect Tanzania massively.

Tanzania’s government must now outline how it will address concerns about democratic inclusivity if it wants to reopen a partnership with the Millennium Challenge Corp (MCC).

At its quarterly meeting on March 28, MCC’s board of directors decided to cease “all activities related to the development of a second compact” for assistance.

The board pointed to elections in semi-autonomous Zanzibar on March 20 that were “neither inclusive nor representative,” and to concerns the country’s Cybercrimes Act is being “used to limit freedom of expression and association,” according to a statement.

A previous vote on the compact in December had been deferred over what the board said were “governance concerns.”

“I think we’ve been very clear about what the situation was that led to the suspension,” said Beth Tritter, MCC’s vice president for policy and evaluation.

If Tanzania’s government wants to re-enter into partnership with MCC, the country’s government must take the lean, with a plan to address those specific concerns, Tritter added.

“We don’t provide checklists at MCC. We leave it to governments to demonstrate how they’re going to show their commitments to these principles, and so we’ll have to look at what we get from the government of Tanzania,” she said.

Tanzania is a major U.S. development partner, with nearly $600 million in assistance from the State Department and U.S. Agency for International Development planned for 2016.

Most flagship U.S. development initiatives operate in Tanzania, including Power Africa, President Barack Obama’s effort to double access to energy in subSaharan Africa.

Tanzania had also been a longtime partner of MCC, signing what was at the time the largest compact in the corporation’s history in February 2008 — nearly $700 million aimed at increasing access to electricity.

The new MCC compact that had been under consideration was also expected to support Tanzanian President John Magufuli’s plan to increase rural electrification in a country that has struggled with consistent access to power and seen economic growth suffer as a result.

MCC’s scorecard, which evaluates countries’ fitness for partnership according to indicators like “control of corruption,” has been trending in the wrong direction for Tanzania, and in December the agency’s board deferred its vote on Tanzania’s eligibility for a second compact.

18 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

USD 472M United States Development Agency suspended to Tanzania Tanzania is a major U.S. development partner, with nearly $600 million in assistance from the State Department and U.S. Agency for International Development planned for 2016.

U.S. Ambassador to Tanzania Mark Childress at that time pointed to politically motivated arrests carried out under the auspices of the Cybercrimes Act as a reason for the deferral.

MCC’s decision to suspend the partnership is consistent with similar decisions it has made in the past, including with other highprofile partners like Honduras and Armenia, said Sarah Rose, senior policy analyst at the Center for Global Development and former senior development policy officer at MCC. The elections in Zanzibar could have provided MCC with a “pivotal event,” on which to base their suspension decision, Rose said.

With slower deteriorating governance issues — like worsening corruption or challenges to civil liberties — it can be harder to judge exactly when a red line has been crossed, she added.

THE AFRICAN BUSINESS FORTUNE - UGANDA

Which way for Uganda’s cocoa industry?

C

ocoa is one of Uganda’s leading foreign exchange earners, according to the latest figures from the Cocoa Development Project (CDP).

In comparison to EAC markets in the region as well in the continent, Uganda earns about 85 per cent of the international cocoa market price – for a country that earned about $67m (Shs225.8b) last financial year yet it is not among the 12 crops which Uganda is giving priority.

As at September 2015, a kilogram of dried

By Correspondent cocoa beans was selling at Shs9, 600 up from Shs6, 000 a year ago.

Uganda earns the best of the world market price despite increase in production in the country, compared to other countries like Ivory Coast and Ghana that get one dollar per kilogram. Uganda gets three dollars.

Strong performance The 2014/2015 policy statement from Uganda’s ministry of Agriculture shows that cocoa exports more than doubled in

the first half of the 2013/2014 financial year. This is 9,973 metric tonnes from 4,727 metric tonnes, which is exported in the first half of 2012/2013 financial year.

This was at the back of a strong performance in the second quarter where 57 per cent of exports were recorded.

Earnings from cocoa followed a similar trend, increasing from $9m (Shs30.3b) in the first half of 2012/2013 to $17.2m (Shs58b) in the first half of 2013/2014.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 19

THE AFRICAN BUSINESS FORTUNE Income generator While cotton had a decline of 45 per cent in export values despite a 63 per cent increase in export quantities in the same period.

Revenue recorded from cotton in the first half of financial year 2013/2014 indicated $3m (Shs10b) a decline from $5.7m (Shs19.2b) recorded the previous year.

This makes cocoa the fourth highest revenue generator (nine per cent of total income) behind coffee, tourism and tea.

While production as of September last year stood at 24,008 metric tonnes, earning an estimated $67.8m (Shs228.4b) in export, Uganda targets $140m (Shs471.8b) by 2020.

Data from the CDP indicates that there were 25,000 hectares of both young and mature cocoa as of June 2015. The target is 50,000 hectares by the end of 2020.

There are about 38,000 cocoa smallholder farmers in Uganda organized in producer business groups. In Bundibugyo District, for instance, there are 3,000 smallholder farmers organised in 51 producer cooperatives.

There are also 12 cooperatives registered with the Ministry of Trade, Industry and Cooperatives, and the number is growing.

Uganda’s cocoa is exported mainly to Switzerland, Malaysia, Sri Lanka and Belgium.

Cocoa is becoming a very big and profitable enterprise in the country with the demand for the commodity and its products is increasingly growing internationally mainly in China which is the biggest consumer of cocoa products worldwide.

High pricing Despite huge potential in the sector, Uganda still lack we a policy on cocoa despite the CDP having worked on the Issues Paper and the policy proposal.

The November 2015 review of the cocoa market published by the International Cocoa Organisation (ICCO) showed the daily price averaged $3,361 (Shs11.3m) per ton, up by $163 (Shs549,310) compared to the average price recorded in the previous month.

Uganda has for many years maintained an average $3,182 (Shs10.7m) per tonne.

These high price levels have not been seen since the period of the export ban imposed on Ivorian beans four years ago

20 MAY - JUNE 2016 THE AFRICAN BUSINESS FORTUNE

in the first quarter of 2011.

The new markets in China and other Asian economies give new prospects and benefits to the farmer today. This is coupled with the strong option buying interests from traders, which has also contributed to the bullish sentiment within both local and international market.

However, experts are worried about credibility of exporters and increased number of cocoa dealers in an unregulated industry.

This is a challenge birthed by the government’s trade liberalisation policy allowing any individual to participate in the industry hence compromising quality.

Some of the major bottlenecks for the crop are poor quality of cocoa on the market and information gap and the poor road network – partly related to a weak extension system that translates to poor post-harvest handling.

Despite offering a good price, international buyers are not very happy with the quality but they continue offering better prices because of the alkalinity and a nice aroma of our cocoa and the bigger size of the bean.

Cocoa from other producing regions like Asia and Latin America tend to have a certain level of acidity so they continue buying ours and mixing with the rest.

THE AFRICAN BUSINESS FORTUNE - INSURANCE

IRA constitute rules for mergers and acquisitions

By Dan Mganda

I

nsurance regulator has moved to lay ground rules for anticipated rise in mergers and buyouts in the industry to protect consumers from price fixing and small insurance providers against anticompetitive behavior.

Insurance Regulatory Authority (IRA) has signed a memorandum of understanding with competition watchdog, Competition Authority of Kenya (CAK) to track premium rates charged on insurance products, push for information sharing and reign on players engaging in underhand deals.

The authority has stamped its feet on the ground saying it will not back track plans to move the industry towards a risk-based capital (RBC) regime despite concerns by insurance firms the move would stifle their expansion plans and push them to losses.

“We are not going to postpone the transition date. Players have a until 2018 to en-

sure they comply with new guidelines,” said IRA chief executive officer, Sammy Makove.

The new regime effective June, requires insurers to hold capital based on risks associated with businesses under their fold to ensure adequate amount of capital is left to support other operations.

The impending shift has stocked a lot of activity in the sector as the country’s 48 Insurance firms rush to strategic investors to boost their capital reserves.

IRA said it was expecting more deal makings in the second half of the year when the rules come into play.

“We are seeing this as a trend in the future, a lot of movements in consolidation and buy outs will rise on the back of new regulations,” said Makove.

Buy out of a 63.3 percent stake in First Assurance by Barclays Africa is latest consolidation recorded in the industry

that would also see the lender injecting additional capital of Sh700 million.

Currently insurance firms are required to have a capital of Sh 300 million for life insurance and Sh 15o million for general class.

The new cash ratio will be implemented in phased approach over the next three years starting June.

CAK said it has initially allocated Sh 5 million that will support research on premium rates charged by different providers and addressing challenges of information sharing to introduce a culture of transparency and predictability in the sector.

“Huge complains have been lodged on unquestionable conducts with consumers blaming providers for not giving them adequate information on products including pricing,” said CAK Director General, Francis Wangombe.

IRA has set next week to begin a review of premium charges on products.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 21

THE AFRICAN BUSINESS FORTUNE - ENERGY

Consumers to benefit from Mobisol solar products

A Mobisol employee presents the solar home system to potential clients at a market in Tanzania.

By Zack Owuor

T

he entry of Mobisol in Kenya with solar products served an eye opener for most consumers, especially rural dwellers.

It revealed that solar can equally generate electricity similar to other energy sources with additional benefits such as guaranteed no pollution, no fuel costs and no risks of fuel price spikes besides being cleaner, reliable and affordable.

Mobisol’s chief executive officer, Thomas Gottschalk, said the solar panel system introduced in the local market is the only credible substitute to grid electrification – which is expensive and unreliable.

“With solar energy your total energy bill can drastically be reduced by using a solar lamp for lighting or a water heater, which is solar powered,” Gottschalk said.

According to him, solar power systems can alternatively be installed in your

home or office to cater for all the energy needs.

Indeed, ever since Mobisol launched its first solar energy product in Kenya, the uptake has been on the rise and those who live in rural areas say the technology is good and can use the system to do a variety of things including lighting purposes.

A month after the launch, Solarcentury – a solar company has announced plans to undertake the installation of three plants at the International Centre for Insect Physiology and Ecology (ICIPE).

The company intends to build a $2.5 million (Sh250 million) project – which is the largest solar investment in the country and is expected to generate 1154kWp. Gottschalk said while solar solutions are gaining in popularity among the low-income individuals, the local market does not really carry large solar solu-

22 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

tions, strong enough to power large TVs, music stereo systems or even fridges.

“The solar panels are designed to handle small and large electricity requirements. It can be used to heat even pools.

They can be connected to an electric distribution system or even stand-alone to help you power different appliances in the home,” he said.

Kenya has a number of firms which sell solar panels but one the product has been bought, the company that sells it is not bothered to do a follow up whether it’s working or not working. However, that is where Mobisol Solar Systems comes handy.

The firms’ CEO admits that in three months’ time, Mobisol’s solar products will be in every part of the country. He says those who cannot buy the product in cash can be installed the gadget once they have down payment.

“The remaining amount can be paid

THE AFRICAN BUSINESS FORTUNE - ENERGY slowly until everything is paid. Once it has been installed if its not working, the system has a sim-card which can tell whether it’s working properly or has problems,” he said.

He said small-scale solar photovoltaic (PV) systems, typically on rooftops, account for the majority of solar installations, while large-scale PV systems and concentrating solar power (CSP) systems constitute the majority of solar’s overall electricity-generating capacity.

The company sells various sizes ranging of solar system from 80 to 200 Watts.

The smallest unit can for instance illuminate a medium-sized home with seven LED bulbs, power a radio, charge various mobile phones and run a TV – simultaneously.

Gottschalk said the largest system powers multiple lights, consumer appliances such as a laptop/TV, a DC refrigerator and charges up to ten mobile phones parallel.

Mobisol also offers a business out of a box feature, which enables entrepreneurial customers to set-up income generating activities such as barbershops as well as phone and solar lantern charging stations.

All of Mobisol’s high quality energy efficient products are thoroughly tested and certified by an in-house quality assurance team based in Germany. Additionally, all Mobisol suppliers are certified in accordance to ISO9001.

The company currently offsets approximately 20,000t of CO2 per year by replacing fossil fuels, created over 700 permanent jobs across three continents and further boosts local labour markets through in-house training opportunities at ‘Mobisol Akademie’.

Director for Renewable Energy Ministry of Energy and Petroleum, Eng Isaac Kiva said the use of solar energy is one way through which the 15,000 MW promised by the Government can be generated.

Kiva said currently, the ministry has power purchase agreement with renewable energy operators to encourage development of non-grid projects such as small hydro-power, biomass co-generation and wind energy plants.

He said the Government has adopted a system where any excess energy generated from other sources can be fed into the tariff without being lost. He added that apart from generating the required energy, the ministry intends to introduce net metering once the Energy Bill which is in its second reading stage in to law.

He said 2.4MW capacity has been installed in public primary schools at the cost of Sh3 billion to boost school connectivity. “In 2015/16 financial year, the Government plans to do additional installations in a further 100 institutions, as well as undertake maintenance

in 200 institutions which were done in early years,” he said.

Mobisol runs business in both Tanzania and Rwanda. “The system not only run 32 inch flat screen TVs with their system but can also power hair-cutters and hair-straighteners simultaneously, while entertaining their barbershop customers with music stereos,” he said.

The company target rural folk Kenyans. He said Mobisol delivers and services high quality solar systems in four different sizes ranging from 80 to 200 watts peak for private households and small businesses.

Mobisol continues its success story from Tanzania and Rwanda, where the company already has installed over 40,000 solar systems, hence provided more than 4MW of decentralized solar electricity to rural areas, leading the contribution of all East African off-grid players.

All Mobisol solar systems can be paid for through convenient payment plans via leading mobile money providers, allowing low-income Kenyans to purchase a high quality solar system at a very affordable and competitive price.

Additionally, Mobisol customers enjoy a standard three-year warranty and a comprehensive service plan including 24/7 customer care, remote monitoring and free maintenance within 48 hours.

Mobison staff installing a sollar panel THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 23

THE AFRICAN BUSINESS FORTUNE - REAL ESTATE

Kenya’s residential property market shifting to multi-unit housing

By Olive Gerro

H

ousing prices in the Kenya’s residential real estate market stabilized late last year – signaling a sharp rise in demand for apartment units.

On the other hand costs of land have skyrocketed in equal measure.

According to the latest housing price index by Kenya Bankers’ Association (KBA), released in January this year, average housing prices edged up by

just 1.14per cent in the last three months of 2015. This marked the third consecutive quarter with a less than 2 percent period-on-period increase.

While average housing prices have declined, land prices in the capital (Nairobi) have recorded significant growth over the last decade. Prices in Nairobi have risen five-fold since 2007, with average land costs in the city up 9 per cent in 2015.

Upper Hill area of Nairobi had the most

24 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

expensive land in 2015, averaging around Sh206.2m ($2m) per hectare, land prices in outlying areas, such as Kitisuru, Loresho and Gigiri, increased at the fastest pace.

A survey done by housing consultancy HassConsult, found that land prices in Nairobi’s satellite communities rose by around 11.9 per cent last year, almost three percentage points ahead of comparable acreage in the city centre.

In Kiserian, a satellite community south-

THE AFRICAN BUSINESS FORTUNE - REAL ESTATE

west of central Nairobi, land prices rose by more than 25 per cent over the period.

“With the devolution plan driving infrastructure development in outlying areas, there are significant prospects for further real estate sector growth,” Charles Odere, chairman and CEO of real estate company RE/MAX Kenya.

New shift Land inflation has already begun to change the shape of Kenya’s property market, prompting a shift away from standalone houses and towards multi-unit buildings.

The KBA noted that apartments, which saw relatively higher price movements last year, accounted for more than 90 per cent of the units offered in the fourth quarter, followed by maisonettes (5.8per cent) and bungalows (1.41 per cent).

“This justifies the increased appetite and relative affordability for apartments by an apparently growing middle class,” the report said.

Developers are increasingly building up rather than out, as they seek to maximize returns against a backdrop of limited urban space.

“We are seeing a lot of lending for housing being channeled to residential projects in the outskirts of major hubs like Nairobi. Lending for commercial development of multi-unit housing is particularly significant,” said Jared Osoro, KBA’s director of research and policy.

Appetite for new multi-unit housing saw the value of approved residential building plans climb by 11.2 per cent in 2015, according to another data by the Nairobi Directorate of Planning, Compliance and

Just over 60 per cent of the approved building plans were for residential developments in and around the capital, for a total value of Sh147bn ($1.5bn).

Enforcement.

Just over 60 per cent of the approved building plans were for residential developments in and around the capital, for a total value of Sh147bn ($1.5bn). Investment in non-residential developments, meanwhile, declined marginally, falling by less than 1per cent to Sh95.18bn ($936.5m).

Housing deficit Despite continued investment in boosting residential housing stocks, Kenya continues to experience a nationwide housing deficit.

Although 50,000 new residential units are added to housing stocks annually, national demand for new housing runs at around 250,000 units per year, Jacob Kaimenyi, cabinet secretary in the Ministry of Land, Housing and Urban Development, told media earlier this year.

In early February the government announced plans to provide both financial and non-financial incentives to the private sector to help bridge this 200,000-unit gap, which mainly exists at the lower end of the housing market.

Among the incentives proposed is the provision of serviced land to developers, access to affordable financing and legislative reforms of land-related laws. A national housing fund to help finance social and low-cost housing is also being considered, Kaimenyi said.

“Financing remains very costly in Kenya, not just for buyers but for developers as well,” Chetan Hayer, director of real estate developer Nirbhau Group, told OBG. “In addition to these kinds of incentive programmes, we need to reform the way that mortgages are structured to ensure funding can be released during construction, not just when properties are completed.”

The government will be looking for these incentives to encourage some developers to shift their focus towards mass housing schemes and entry-level residential projects.

Such projects could become more attractive to the private sector, particularly if demand and sale prices in the middle-to-high end of the residential sector continue to stall.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 25

THE AFRICAN BUSINESS FORTUNE - COVER STORY

From a janitor to a serial business magnate

By Steve Umidha

I

t’s hard to believe that the founder and the chief executive officer of one of the most noticeable names in the manufacturing business was once a janitor – a tag Mayur Shah is not ashamed to behold.

“I have previously worked as a janitor in a foreign country, I take pride, and I’m glad I did that – the experiences of undertaking odd jobs opened my eyes and pressed me to begin appreciating everyone,” he opens up during an interview in his office.

KENAFRIC’s success started out as a small outfit and is now universally recognizable brand.

The company wasn’t a success right away. In fact, when it launched, there were dozens of highly negative evaluations about its quality and its potential to compete with conventional brands.

“Normally when you start out in the fashion we did, a lot of critics are thrown your direction but you learn to get over them,” says the serial industrialist and a father of two.

Obviously, the Nairobi-based firm overcame those initial bouts of failure and has cemented its name as the most successful trademark in the region.

It is a very different ensemble from the one Mr. Mayur inherited from his father in the eighties. Kenafric is now built around four distinct portfolios — including footwear, confectionery, food and stationery products.

The diversification model reflects the aggressive strategic direction the unas-

28 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

Mr. Mayur Shah - Founder of Kenafric Industries Ltd

THE AFRICAN BUSINESS FORTUNE - COVER STORY

Mayur Velji Shah Founder , Kenafric Industries Ltd

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 29

THE AFRICAN BUSINESS FORTUNE -COVER STORY

suming, cheerful go-getter Mayur unveiled soon after he became CEO. By now the story of Kenafric’s business transformation is familiar.

While growing up in a family of four siblings and the youngest son of Mr.Velji, Mayur was somehow bestowed a bit more freedom and benefitted from being the youngest. His father had travelled from Gujarat, India by steam boat in search of better breaks and finally settled in Kenya – a place Mayur fondly calls home.

“Kenya is my home, my family. My dad constantly kept reminding us that we were born here and that this is our destiny,” he says, with a thoughtful expression.

With hardly a penny in his pocket and help of family connections, Velji got a job at a wholesale store in Karatina, Nyeri County, but was hungry for more.

Mayur’s father later moved to Nairobi to offer his children better schooling in In 2013, Kenafric Industries opted to deploy SAP’s All in One, Financial and Control the city, from which he settled and set up a warehouse. and considered his prospects. He took and this encouraged us,” he opines.

Velji worked as a warehouse manager off his chances and promised God that But more was to follow for the young then went into business in 1969 soon he would better the company from peppy entrepreneur who was beginafter settling down and later converted what he’d inherited. ning to enjoy his time as a full time it into a retail trade that fast grew into a “We were relentlessly focused to businessman. wholesale business and advanced into a have the business on its feet – it was a It didn’t take long for the company to supply business. divine journey. Our first product was enter new markets, and today Kenafric According to Mayur, the company was made in house,” he says. rakes in excess of Sh10billion in terms very successful in the seventies and early Built on the cornerstone of value-forof turnover and growing. eighties, until an ill-fated tragedy ensued money service, Mayur took the baton “God has been with us, and I’ve got to in 1982. and inaugurated their first capital acadmit it’s been a team effort, my staff, It’s a period he reminisces with nostal- quisition of Sh4.5million (borrowed at employees and more importantly my gia, a year his father’s empire came crush- I&M Bank) coupled with supplements family have all played crucial roles in ing down, following a heart-rending coup- from personal savings. the company’s success,” says Mayur. d’état.

During his stay in the United States, But just like most companies, Ke“We lost everything, but God is great. Mayur tells me of how the manufacnafric still grapples with challenges, We picked ourselves up, dusted and re- turing industry was flourishing. He such as counterfeits, rigid taxation rebuilt from,” he recalls. “We opted to help thought of replicating similar business gime as well the continued perception our dad reestablish,” says the alumni of in Kenya an idea he says clicked, and in among local consumers who prefer imThe University of Wichita.

1988 Kenafric was born. ported brands to locally-manufactured Mayur had worthy intentions to build He had returned in the country in products. on his father’s legacy; but his entrepre- 1987, starting out as Kenafric Shoe In“The government needs to liberalize neurship instincts drove him to a different dustries. the industry to create a level-playing path, manufacturing.

The firm gained market share faster field for all traders,” he advises.

Inception and initial struggle than Mayur could actually compreHis immediate plans are to see KeThe concept of legacy or inheritance has hend. His tricks were aggression, innafric products spread across key maralways been a part of most Asians’ DNA – novation and acumens from schooling kets in the continent but have not ruled and Velji’s family is no different. abroad. out the possibility of the company listNo one in the family had ever thought of The company started extensive exing at the Nairobi Securities Exchange converting the family business into a com- port business in 1995 with entry in (NSE) – in the coming years. pany until Mayur and his eldest brother, Uganda and Tanzanian, with the latter About Mayur Velji Shah Bharat Shah took charge. proving a viable market that saw KenaFounder, Kenafric Industries Ltd Mayur’s story is the epitome of how fric recoup in excess of $USD 30, 000 Place of birth, Karatina, Kenya such a legacy has been preserved after his - USD 70,000 a year later (1996) as a Married to Daxa Shah with 2 chilfather started on the efficacious journey. single souk. dren: Kushali (22 years) and Diya (13 As hot sun beat down on his head, “At that time, this was a lot of money years) young Mayur sat on his family’s business 30 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

THE AFRICAN BUSINESS FORTUNE - TOURISM

Safari Park Hotel on Winding Haven, your ultimate luxury Get - away

By Steve Umidha

D

esigned as a luxurious get-away for those who never need ask, “How much?” the Safari Park Hotel on Winding Bay is located along the modern Thika Superhighway – is for those looking to unwind in a place where man’s hand does not intrude on what nature has created.

Traditionally, hotels are the best travel retreat – classy, cozy and often expensive.

Luckily, there are many ways to score great deals on hotels for your trip in Nairobi.

Today we’ll dive into some favorite hotel excursion to save you time and whole lot of shillings.

This hotel makes a perfect base for a get-away, so quaint are its chalets – warm honey-grey, gentle and welcoming, not glowering and flinty as you might expect to see in most city hotels.

Completing the scene, are a bunting festooned village halls – a renowned hotel that is putting me up – a flawless escape away from ‘home.’

The entrance of Safari Park Hotel (SPH) feels olde worlde, squeaky dark wood doors which lead to a passage with exceedingly cozy-looking bar that instantly tempts me into ordering whisky (I love whisky), and there is a reception desk tucked away where I gather chatty leaflets produced by the hotel.

Surrounded by 50 acres of beautiful grounds, SPH combines the elegance of African architecture with a leading edge of technology. Located just 15 minutes from the city center, this facility with 168 luxury rooms and 36 deluxe suites offers tranquility and serenity away from the city’s Topsyturvy goings-on.

The suites have special features

made up of hand carved four-poster beds, en-suite bathrooms and large garden-view verandahs. It is a fusion of international sophistication, safari style, theme park fun and cultural creativity.

Though the bar hits the spot, with its stone fireplace, copper pans, tartan, wood panels, pews, and ports chalked up on a blackboard, the dining room is a little-old fashioned which makes it very charismatic.

This hotel boasts five international restaurants offering African, Chinese, Italian, Japanese and Continental cuisine.

Nightlife at the hotel includes the Cats Club, with its hot disco music as well as the soothing atmosphere of the contemporary piano bar – the Hemingways, Kigwa or Casino bars all offer variety in ambiance.

Within the hotel grounds lies the glitz and glamour of the Casino Paradise and spills of King Solomon’s mines where 106 slot machine offer jackpots paying out up to one million shillings.

There is also a fully equipped health and fitness club with Jacuzzis, sauna, steam room, professional gymnasium and an aerobic studio.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 31

THE AFRICAN BUSINESS FORTUNE - TOURISM

Kenya’s tourism industry looking up

By Monica Muema

T

he number of tourist arrivals in the country has increased by 18 per cent since the start of the year as industry players ramp up promotions to make up for falling numbers from traditional source markets in Europe.

Cabinet Secretary for Tourism Najib Balala said last month that the industry is further projecting a growth of between 20 per cent and 30 percent increase in the summer season, renewing hopes of the sector’s recovery this year.

“We have been seeing growth since the start of the year and we are already projecting a further increase in the summer season of between 20 per cent and 30 per cent,” said Balala during an InterMinisterial Tourism Stakeholder’s Forum in Nairobi.

The industry had been held back in the last three years, mainly due to terror attacks and travel advisories which led to a sharp dip in tourist arrivals.

Tourists arriving at the two main airports namely, Jomo Kenyatta International Airport and Moi International Airport dropped by 13 per cent to 748, 771 last year, a sharp contrast of 1.26 million tourist arrivals registered in 2012, the best year for the industry.

The industry recorded Sh87billion in earnings in 2015.

Balala said the ministry in collaboration with its marketing arm Kenya Tourism Board (KTB) will now embark on the implementation of seven key resolutions reached during a roundtable meeting, which identified a number of issues impacting the sector and recommended mitigating measures.

Key among the resolutions include pricing of tourism products and services, a review of open sky policy as well as setting up a taskforce to look into security threats and will be done in collaboration with Inspector of police and representation of the private sector.

“A team to monitor levels of travel advisories will also be constituted to constantly advise the government on their tonality and to necessitate government proactive engagement with foreign embassies on necessary action,” he said.

Also on the cards include a plan to persuade Kenya Airways and the Tourism Industry have an ‘interface’ that will

Cabinet Secretary for Tourism Najib Balala Jump Off a Plane Flying 11,000 Feet High

see the national carrier put in place incentives in order to open up other hubs in the region in an effort to boost tourist numbers.

“Recovery does not happen overnight, we have a two-year plan which shall be evaluated upon its completion to see the progress we have made. KQ also need to do a lot to get the support from the coun-

32 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

try,” said the CS. Meanwhile the CS has expressed confidence that the ministry will in the next financial year receive the Sh3billion recovery fund initially declined by the treasury, expected to be used in marketing Kenya as a tourism destination.

THE AFRICAN BUSINESS FORTUNE - TELEPHONY

Huawei targets FoneXpress to boost customer base in Kenya

By Monica Muema

H

uawei Technologies has signed a partnership deal with leading mobile phones retailer FoneExpress in a retail expansion plan aimed at increasing its coverage and market share in the local market.

The deal is part of a wider plan that will see the devices giant expand its retail and reseller businesses to cover the whole country.

Speaking during the signing of the partnership deal, General Manager, Huawei Devices Kenya Mark Hemaobin said the deal will enable the company to reach out to middle level and premium customers hence boost the market share across over 100 shops countrywide.

Huawei is keen to providing quality and affordable smartphones to as many Kenyans as possible. For us to meet our business goals and also increase our lo-

cal smartphone market share from the current 13 to over 25 percent this year, partnerships like this will be key for us,” he said.

As part of the deal, Huawei devices will be selling in all FoneExpress in Nakumatt, as well as Tuscom in Tuskys, Naivakom in Naivas, and PhoneLink in Major shopping malls and retail outlets across the country.

FoneXpress Service Director, Brenda Okwiri said the partnership will enable the company to bring Huawei devices to its customers in the region, as yet another choice in the company’s portfolio of International Brands in a vibrant mobile device industry.

She said. “This initiative is part of our commitment to offer customers a wider variety of original smartphone brands, and serves as an endorsement

of the Huawei brand and product range.

We will work closely with the Huawei team to offer our customers’ valuefor-money and essential after-sales support that will also be mirrored on the back-end as a dedicated newly appointed Authorized Service Centre.”

Currently, Huawei Device Kenya is selling devices through business to business partners like Safaricom, Airtel and Orange. The firm also opened a new flagship shop at Garden City Mall and will be looking to set up additional shops in key towns in Kenya this year.

The new business strategy will also see company sign up more resellers and retail partners throughout the country as the firm looks to ensure that Huawei devices are readily available to existing and potential customers.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 33

THE AFRICAN BUSINESS FORTUNE - INFRASTRUCTURE

Rift Valley Railways (RVR) readies to take on Standard Gauge Railway (SGR)

By Maurice Momanyi

A section of SGR

R

ift Valley Railways (RVR) is warming up for a showdown with the Standard Gauge Railway even after it was announced that SGR project would be completed a year earlier than its planned completion date.

The construction of the 609kilometres long line began in October 2013 and is expected to be finalized by December 2017.

Kenya Railway Corporation Managing Director Atanas Maina made the announcement last month during a tour of the Northern corridor infrastructure by the Parliamentary committee – in what is unlikely to daunt RVR’s quest to keep pace with SGR successes.

Kenyan Government contracted China Roads and Bridges Corporation (CRBC) to construct the $3.8bn or Sh327billion railway line between Nairobi and Mombasa in which China

Exim Bank provided 90 per cent of the financing while the national treasury contributed the remaining 10 per cent.

Slowly but confidently the RVR is also angling its operations in a move expected to generate competition in the transportation sector – with the consumer poised to benefit from the rivalry.

The appointments of Isaiah Otieno and Vincent Ngalula Tshiongo as RVR Group Chief executive officer and Chief Operations Officer respectively in a span of one week signal a new era in the railway company since the concession agreement was penned to turn it around.

Other developments include the purchase of track maintenance machines and train simulators to train new drivers as well as the purchase of 120 wagons last year.

The operator is finally finding its feet but still faces a lot of hiccups. Hundreds of commuters were left stranded on Monday morning after Kenya Railways

34 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

suspended train services due to what they termed as a technical hitch.

RVR’s false start in 2006 brought Kenya and Uganda to the drawing board in 2010 in an effort to seek for a more committed investor with capacity to turn around the railway sector which is crucial for both countries.

The restructuring plans saw the two governments adjust the deeds of amendments in the concession agreement following series of critical lessons learnt four years earlier.

RVR had zero investments in over 20 years before the first concessionaire expressed interest in the business and a lot of things have not gone right despite the first concessionaire coming on board to rescue the then ‘sleeping giant.’

Between 2006 and 2009 the first concessionaire, Sheltam Investment injected Sh1.3billion for a three-year period in to the company with only Sh 258million worth of investment going to new assets over that period which also failed to meet investment threshold of Sh 2Billion it had set out.

THE AFRICAN BUSINESS FORTUNE - INFRASTRUCTURE

Concession as an agreement is a grant of rights by a government or corporation while concessionaire is a person or business that has been given the right to sell something on property owned by someone else.

In the last six years to date, the operator has spent over Sh12bn on phase since the signing of a new concession agreement in August 2010 which ushered in new investors.

Qalaa Holdings, formerly Citadel Capital of Egypt expressed interest in taking over the concession to manage

Sh327b Cost of SGR

Kenyan Government contracted China Roads and Bridges Corporation (CRBC) to construct the $3.8bn or Sh327billion railway line between Nairobi and Mombasa in which China Exim Bank provided 90 per cent of the financing while the national treasury contributed the remaining 10 per cent.

the railway line. Negotiations between the investors and the governments of Uganda and Kenya as well as international financiers keen to put together a viable concession agreement happened in 2010 which would later incorporate the rehabilitation of railway infrastructure, repair rolling stock and turn around the line.

As a result, the two governments and RVR signed a concession agreement to manage the line.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 35

WELCOME TO KENYA

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THE AFRICAN BUSINESS FORTUNE - CONSTRUCTION

National Construction Authority bets on new policy to tame Chinese supremacy …in winning lucrative projects over local contractors

By Steve Umidha

N

ational Construction Authority (NCA) is betting on a new policy aimed at supporting local contractors in challenging for tenders with foreign firms.

The Contractor Development Fund Policy and Guarantee Scheme which has been formulated by the authority in the 2016/17 financial budget are expected to provide access to cheap financing for Kenyan contractors.

“Other than the contractor development fund policy, the authority has also developed a model for acquisition, operationalization and management of construction equipment for training and hire to local contractors,” said David Mathu, manager Research and Business Development at the authority.

NCA said recently at a construction industry seminar that the new plan will also seek to defuse competition from Chinese companies that continue to dominate the long list of firms lining up for government tenders.

State’s partiality in awarding lucrative bids to foreign corporations continue to be an issue of concern for local contractors – who are agitated by the high number of pre-qualified Chinese firms and are accusing the government for discriminating against them.

Unlike the Kenyan government, China provides their companies with operating capital; credit guarantees and at times negotiates at a government to government level on behalf of their firms for contracts – initiatives Mathu says have seen them contest for multibillion projects over local companies.

According to him, the new plan will ‘bring rationality’ in the construction industry and provide similar incentives and competitive advantage for local contractors.

Available statistics show that Chinese firms hold technical and financial edge over the local contractors. Their costs to finance a project are much lower at between 3 to 4 per cent compared to Kenya’s 17 to 18 per cent.

“At least 30 per cent of the monitory value of any project awarded to a foreign contractor should go to locals – this is not happening, but we hope to achieve this through joint ventures or sub-contracting,” he said.

Chinese companies have scooped more than half of lucrative tenders for the fiscal year running to June, 2016 which includes construction of roads and bridges and building structures.

Some of the mega projects being managed by Chinese contractors include Thika Superhighway (completed), The Standard Gauge Railway project currently under construction at a cost of Sh327billion.

China Wu Yi was in May unveiled as the lead contractor for the construction of University of Nairobi’s 22-storey complex valued at Sh2.3billion.

The firm also built Sh2.1billion KCB Plaza which houses NCA headquarters.

China Jiangxi International won in July last year a contract to Hazina Centre- touted to be the tallest building in Nairobi – the company is also responsible for the Sh1.3billion ICPAK Complex along Thika road.

Another Chinese firm is building a 39-storey building in Nairobi at a whopping cost of Sh6.7billion.

NCA has however questioned local contractors’ dedication to work, coupled with unskilled workmanship compared to Chinese projects that are completed a head of schedule and are competitively priced.

According a recent research conducted by the construction authority, at least 80 per cent of projects procured by local contractors fall below the authority’s potentials.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 37

THE AFRICAN BUSINESS FORTUNE - ECONOMY

Reviving Kenya Meat Commission

By Monicah Muema

T

he Kenya Meat Commission (KMC) is hopeful of passing tests to resume meat exports as part of efforts to restore the country’s vibrant beef industry.

The heavily indebted Parastatal is presently on the verge of collapse even as a parliamentary committee on Agriculture, Livestock and Co-operatives is still divided on whether to have it privatized or continue to stomach the endless government bail-outs – at the expense of tax payers.

A majority of the committee members, led by its chairman Abdi Noor is opposed to the idea of having KMC sold to private investors, and instead the legislators now want to come up with long lasting remedies for the factory’s revival.

The committee has said this will only be done once a comprehensive scrutiny of a report provided to it by the firm’s management is complete and determined from an outcome of a consultative retreat in Mombasa this month(April).

“We are on a fact-finding mission on this sleeping-giant and we want to come up with extensive and practical solutions for its revival, we will analyze the report presented to us and see how best we can solve them,” said Noor in March when the committee toured the facility in Athi River.

The report among other concerns, has recommended that the company’s long-serving employees to voluntarily take up early retirement send-off package in a ‘staff rationalization’ process – estimated to cost in excess of Sh152million, targeting over 100 workers.

In the meantime, the Board of KMC and a good number of MPs have recommended that the firm abandon plans to set up a new factory and, instead renovate and revolutionize the facility.

“Privatization may not be the solution at the moment, there’s no problem with the buildings, our biggest concern is how we can modernize the factory and replace the obsolete machines that have existed for over 66 years,” said KMC board chair Taraiya ole Kores.

The facility has the capacity to handle over 1,000 large cattle per day through its abattoirs in its Athi River plant and 250 large stocks and 500 small stocks daily in its Mombasa factory is expected to play a crucial role in the industry’s progression.

Previous attempts by the incumbent administration and Kibaki’s regime have all but bore little fruits – for a state corporation that was until the appointment of a new Board, twirling under serious financial impropriety, mismanagement and breaches of procurement of raw materials.

Despite millions of shillings that the two regimes have pumped into it to save it from financial crisis – KMC is still a sad story, a history littered with never-ending debts.

Sh152M Cost of staff rationalization

The process targets over 100 workers

KMC began showing signs of collapse ten years after it was revived, a move that prompted Kibaki’s administration in March of 2013 to order a probe into the excess loss of Sh1.2billion, including Sh600million set aside for its revival

KMC’s share of bad fortunes started in 1974 when it made a string of loses fol-

38 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

THE AFRICAN BUSINESS FORTUNE - ECONOMY

critical for beef industry lowing an advertisement of the Halal controversy, which the government said would become a subsidiary of the firm – that year KMC posted a loss of $200,000 before losses doubled to $400,000.

The following year the firm’s miseries peaked when a dispute with butchers over the pricing of beef led to a month’s-long standoff and later that year hundreds of its employees were sent home parking and purged 27 senior managers as cost-cutting measures.

“My Government has re-possessed the assets of the Kenya Meat Commission to address this crucial market outlet. KMC’s revival will not only contribute to Kenya’s exports, but also provide employment and enhance the incomes of livestock farmers,” was retired President Kibaki’s message to Kenyans when he presided over Kenyatta Day celebrations in October, 2005.

The meat firm began to collapse ten years after it was revived, a move that prompted Kibaki’s administration in March of 2013 to order a probe into the excess loss of Sh1.2billion, including Sh600million set aside for its revival.

Kenya Meat Commission (KMC) and Kenya Cooperative Creameries (KCC) were Kibaki’s flagship projects soon after taking power in 2002 on a National Rainbow Coalition ticket –and indeed the economist lived up to his pledge and facilitated the two state-owned firms a combined Sh800million bail-out to revive the firms.

Under President Uhuru Kenyatta’s regime, the commission requested for a bailout of Sh600million in the current financial year to upgrade its outdated machines and aid operations.

The meat company in its 2015-2020 turnaround strategy wants to be allowed to supply all government institutions including military and police bases with canned beef to improve exports revenues, as well be allocated further funding to mend its dead machines “We have not sold a single kilo to any government institution, we are hopeful deal will be ratified between us and the government to supply our KDF troops in Somalia and other public organisations like universities,” said Kores.

It is not done and dusted as the Parastatal is hopeful a long-lasting solution and recommendations will reached at the upcoming retreat to resolve the company’s troubles.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 39

THE AFRICAN BUSINESS FORTUNE - BANKING

Bliss as Chase Bank resumes operations

By Correspondent

C

hase Bank Limited (In Receivership) resumed operations on Wednesday 27th April in a timely move by the Central Bank of Kenya (CBK) and KCB Bank Kenya that restores confidence in the banking sector.

The resumption of operations at Chase Bank (IR) gives depositors a renewed sense of hope two weeks after the regulator placed the bank under statutory management.

While assuring customers that their money was safe, Paul Russo the Receiver Manager appointed by KCB said that the bank remained committed to its customers and was keen on retaining its clientele.

“We recognize the fact that our customers have been regrettably inconvenienced over the last two weeks.

We thank them for their support and remain deeply committed to our customer service promise.

Chase Bank’s (IR) unparalleled support to the small and medium sectors will continue unabated. We are cognizant of the central role SME’s play in the country’s economic growth and we are keen on living up to our promise as the ‘relationship bank,” said Russo.

The Kenya Deposit Insurance Corporation (KDIC) had appointed KCB Bank Kenya as Chase Bank’s (IR) statutory manager.

The appointment gives KCB the mandate to undertake all roles and responsibilities of running the bank on behalf of KDIC, the receiver manager, as provided for under the Kenya Deposit Insurance Act 2012.

All 57 branches across the country will remain open during the Bank’s normal operating hours while Chase Bank’s (IR) alternative – online and mobile banking - channels will be available. Any new deposits will also be available as soon as they are needed proof of the Bank’s determination to resume normal operations.

40 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

“We would like to retain as many of our clients as possible. But as earlier announced, customers with a million shillings or less in deposits can access all or part of their money. The bank’s history of exceptional customer service has not changed despite the receivership. If anything, our commitment to our customers has redoubled as we look forward to growing with our customer,” said Russo.

Joshua Oigara, KCB Group’s chief executive said, “We take the appointment as the receiver manager for Chase Bank Limited (IR) as a strong message that the Kenyan banking system has the capacity to offer globally bench-marked but locally relevant solutions to market challenges.”

“KCB Group is firmly behind Chase Bank’s (IR) recovery. CBK and KCB Bank Kenya will ensure that Chase Bank (IR) will have adequate liquidity for its operations. Chase Bank (IR) built a strong brand based on strong customer relationships and a commitment to service excellence. We are determined to regain our clients’ trust,” said Oigara.

THE AFRICAN BUSINESS FORTUNE - TELEPHONY

Kenyan market excites Zuri smartphones

Mr, Vikash Shah , Zuri Ceo (in the middle) Showing one of the phones to members of press(not in the Picture) during the launch of Zuri phones in Kenya.

By Maurice Momanyi

M

obile manufacturers continue to made inroads into the Kenyan market as a promising market destination.

Hong Kong-based Smartphone brand Zuri is the latest player to enter the local market and has already appointed a distributor for its products in East Africa.

Zuri Mobile, a digital lifestyle devices brand, identified and appointed DESPEC, a regional distributor for IT supplies and consumables, as a distribution partner for its Smartphone products in Kenya, Uganda and Tanzania.

In a move aimed at extending its global footprint, Zuri has equally signed an agreement with DESPEC

– which will provide Zuri with a unique opportunity to expand its channel reach within the markets covered by the agreement.

The two companies will collaborate closely to increase consumer awareness of the Zuri brand throughout the region.

Zuri CEO Vikash Shah noted that demand for smart phones is increasing across East Africa, adding that Zuri was committed to building its presence in the continent in order to compete with established brands.

“East Africa represents a very significant growth opportunity for Zuri, with demand for smartphones increasing across the region.

We are confident that DESPEC will enable us build strong routes-to-market across Kenya, Tanzania and Uganda.

Zuri is fully committed to building its

brand presence in East Africa and DESPEC is the perfect partner to help us achieve this,” he said during the device launch in Nairobi.

Zuri has initially launched four Smartphone models in the Kenyan market, all of which are covered in the agreement with DESPEC. The smartphones come with a 1 year warranty, backed by an extensive aftersales network.

Despec CEO Riyaz Jamal, expressed confidence that the brand has a promising future in East Africa.

“We are pleased to add Zuri Smartphones to our portfolio and believe that the brand has a bright future in East Africa. Channel partners and consumers are looking for Smartphone brands that stand out from the crowd. We believe the Zuri message, branding and image -- coupled with the quality of the devices will allow us to build strong sales across Kenya, Tanzania and Uganda,” said Ja-

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 41

THE AFRICAN BUSINESS FORTUNE - TELEPHONY

mal.

The appointment of DESPEC represents the next step in Zuri’s ambitious international expansion plans. It provides Zuri with access to an extensive channel customer base spanning both reseller and retailer channels across the region.

The two companies plan to work together for a series of marketing initiatives, branding exercises and social

media campaigns in the coming months to build brand awareness.

The entry of Zuri Mobile into the local market leaves mobile device users spoilt for choice on which model to go for.

This is however, backed up by the free market environment existing in the country and customers can enjoy the device now available in Kenya. Smartphone users interviewed said they were happy for the new device and welcomed more entries to our market saying they all of-

42 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

fered a variety of unique features.

Some of the models available in the market are C41, C46, C52, and S56.

Zuri designs, develops and manufactures Smartphones, tablets and accessories – digital lifestyle devices that are intelligent and intuitive, feature-rich and future-forward.

Based in Hong Kong, the company works closely with channel partners around the world to deliver on the brand’s promise of great design, value-for-money and trusted quality.

THE AFRICAN BUSINESS FORTUNE - EAC

EAC adopts code of conduct to guide regional trade

By O. Benard

B

usiness operations within the East African Community (EAC) are set to revamp after the bloc adopted codes of conduct to curb corruption and unethical business behavior within the trading bloc.

Denis Karera, chairman of the East African Business Council (EABC), the organ representing the private sector in the bloc, stated that the code of conduct was intended to create a sense of ethical business operations among the business operators in the region.

“The code of conduct is necessary because we do business in very unethical ways. We agreed that corruption was a present danger, keeping lots of people outside jobs, key tenders….. people lose not because they have lost, but because they have not carried an envelope for the powers that be,” Karera said.

The code is set to complement, rather than replace, individual company’s

codes of ethics and other existing national and international codes, thus entitling companies to ensure that employees understand and comply with the code.

By committing to the code, business operators in the region pledge to treat their stakeholders with respect, run their businesses responsibly, are actively involved in promoting integrity and preventing corruption as well as act in compliance with applicable laws and regulations.

“We demonstrate our commitment by creating policies, procedures and structures to implement the values and obligations of this code in our companies, and by reporting annually on our implementation of this code,” a part of the code reads.

The regulations were adopted at the recently concluded EAC summit in Tanzania, and endorsed after a report of the “baseline assessment and risk mapping of unethical business conduct in the community” was presented by EABC. The report affirms that codes of conduct are recognized as an important com-

ponent of self-regulation and acts as a guide for users, providing a point of reference on how to navigate certain situations.

EABC business ethics report, which briefs on among other areas, unethical business behavior, ethics management initiatives and factors that contribute to unethical business practices, points out that “bribery to access a service, to avoid a regulation and to win a tender was identified as the most problematic factors in doing business in the private sector by chief executive officers, associations and employees with associations describing it as a big problem, while chief executive officers described it as an average problem.

Regional projects and trade EAC heads of state endorsed the guiding principles at a time when most countries in the region have kick-started mega projects.

For instance, Kenya and Tanzania launched the construction of the Arusha-Tengeru dual carriage way and a by-pass road in Tengeru in efforts to ease the flow of cargo.

President Uhuru Kenyatta and Tanzania’s John Magufuli commenced the $12million

President Paul Kagame launched Kenya National Electronic Single Window System seen as a major boost for regional trade since it will simplify THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 43

facility, which is part of the ArushaHolili-Taveta road that links northern Tanzania with Taveta in Kenya, and which will reduce by a third the time trucks take to cross the border.

It will also reduce the distance between Mombasa and Bunjumbura by 400kilometres.

“We want to take our friendship and relations to higher levels by implementing projects that impact positively on the lives of our people,” stated the presidents in a joint statement after a regional summit in Arusha.

The one-stop-border post is the first

of its kind to be commissioned among 15 border facilities under construction across the EAC bloc and South Sudan.

Following hot on the heels is a mega deal between Uganda and Tanzania that is set to pave the way for building a pipeline from Uganda oil fields to the Tanzanian coast.

The move strikes a huge blow to Kenya after France’s Total, one of oil firms developing Uganda’s fields, raised security concerns about the Kenyan route, which was an earlier option but that could run near Somalia, a country whose militants have launched attacks on Kenya.

44 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

“The two countries are planning to build an oil pipeline between Tanga in Tanzania, and Uganda covering a distance of 1,120 km,” the Ugandan presidency said in its statement.

While his Tanzanian counterpart John Magufuli expressed that, “the pipeline is projected to employ 15,000 people.”

Just like Kenya, Uganda is yet to start oil production but the date of commencing the project has since been postponed due to declining oil prices and pipeline considerations.

On the other hand, Kenya is spearheading the development of the multibillion Lamu

US$147b Combined Gross Domestic Product (GDP) of EAC with a population of 145.5million citizens

Port-South Sudan-Ethiopia-Transport (LAPSSET) corridor project which will strengthen her position as a gateway and a transport and logistics hub to the East African sub-region and the Great Lakes region to facilitate trade and regional interconnectivity in Africa.

Combined Gross Domestic Product (GDP) of EAC is US$147.5billion, with a population of 145.5million citizens.

Kenya has the largest economy, with annual GDP of US$ 32.1 billion which sums up 41 per cent of the bloc’s GDP, while Burundi is the poorest with an average nominal per capita GDP of US$ 180 billion.

Common protocols Further, the region’s member states have been focusing on three critical common protocols- common market, customs union, monetary union and lately, common education- to smoothen operations within the bloc.

Common market protocol, an ex-

pansion of the bloc’s existing customs union, aims at promoting free movement of labour, capital, goods and services within the region. To adapt to the demands, countries must change their national laws on immigration and customs.

Kenya, Rwanda and Burundi have already agreed to waive work permit fees for EAC citizens.

In an effort aimed at achieving a single currency, the region’s states are to harmonise monetary and fiscal policies, fiscal payment and settlement systems, financial accounting and reporting practices, policies and standards on statistical information and establish an East African Central Bank.

Then recently, the bloc has been focusing on harmonising the education systems in the region’s partner states so as to boost skills, develop knowledge and reduce brain drain.

Once a common EAC Higher Education Area (EACHEA) is created, qualifications

will be recognised in all partner states both for continuation of studies and in the labour market.

“The most important development will be the elimination of the disparity in the national education systems when the EAC will be declared an EACHEA,” stated Prof Mayunga Nkunya, the executive secretary of the InterUniversity Council for East Africa (IUCEA).

New state Finally, EAC’s economy is set to rise after it admitted South Sudan as a sixth partner state to the trading bloc.

The oil rich country’s admission to the bloc early 2016 will be a game changer as it will immensely improve the energy sector and work force in the region.

With corruption estimated to add up to 10 per cent the total cost of doing business globally, and up to 25 per cent the cost of procurement contracts in developing countries, EAC stakeholders are optimistic business operations will be streamlined

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 45

THE AFRICAN BUSINESS FORTUNE - EAC

Looming job losses as EAC states slap ban on ‘mitumba’ The bloc insists it has what it takes to support and bring the textile sector to life

By O. Benard 46 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

K

inywa Mungai says his life may not be the same again once East African Community partner states effects ban on the importation of secondhand clothes (mitumba).

The 30 year-old father of three fears that his, and about 65000 traders’ jobs in Nairobi will be lost if the government makes real the proposal.

He has been in the business of selling secondhand khaki trousers for 11 years, having started at age 19 in Muthurwa market, the second largest open-air market in the Kenya’s capital city Mitumba business, he says, employs many youths, majorly those that failed to get formal employment. His business has enabled him support his family over the years, and rakes in between Sh2000 and sh5000 a day.

“I have labored all my life to grow this business, I’m so sure my life and that of my family will be greatly affected. Where will the government take us, having in mind that at least 85 percent of traders in Muthurwa market depend on mitumba as their source of livelihood,” he says, adding that the Kenyan populace majorly dependent on these clothing will suffer a great deal.

Mungai insists the government should strive at making the market fairly competitive to both parties if it means good for its citizens.

“We (traders) have no powers to control the decisions the government feels befits its citizens. What we are asking is a fair market that will promote equal participation. The government should ensure that local companies produce clothes at an affordable price to enable Kenyans and traders access them at a favorable price,” says Mungai.

Effecting the ban EAC summit, the highest organ of the bloc, had last year instructed its council of ministers, which is composed of ministers in charge of East African Affairs, to study ways of supporting the region’s textile and leather industries.

The ministers’ findings would guide the bloc in deciding its approach to the sector, which has been severely chocked by the importation of cheap second-hand outfits.

Kenya alone imports around 100,000 metric tonnes of second-hand clothes, shoes and accessories a year from Western countries.

The region’s heads of state agreed to adopt their minister’s position calling for a ban on importation of used

THE AFRICAN BUSINESS FORTUNE - EAC clothes, shoes and bags, by imposing heavy levies on the imports.

While addressing the nation after this year’s Arusha summit, President Uhuru Kenyatta urged traders in the secondhand clothes business to ease out of trade to encourage growth of the local textiles and manufacturing sectors.

The president said the move is meant to promote manufacturing and growth of high-value jobs locally while ensuring that the mitumba business goes on without interruption.

“Ultimately, it is critical for the mitumba industry to slowly move into the new clothes market, supporting local production and local jobs. This is an important step towards promoting the ‘Buy Kenya, Build Kenya’ initiative,” he said.

The message rang negatively to the aggrieved traders, who felt that the initiative aimed at taking away their jobs, prompting the president to host the Association of Mitumba Importers in Kenya (AMIK) in state house so as to iron out the issues.

The East African Business Times magazine (EABT) has learnt that the meeting eased tensions, with the president’s assurance that the government will provide competitive alternatives for mitumba traders through adequate supply of quality locally manufactured apparel that will be sourced at competitive prices.

The East African Community (EAC) secretariat’s study on the existing installed capacities in the region, both domestic and export manufacturers, pointed out that the region has the capacity to satisfy the market in a three-year phaseout plan.

After addressing his ministry’s milestones at the just concluded Jubilee InterMinisterial Public Symposium in Nairobi, Industrialization and Enterprise Development Cabinet Secretary Adan Mohammed disclosed to this publication that the government is working on making Kenya the easiest place of doing business by lowering production costs, improving infrastructure and availing land for investors.

“We are aware of the demands required to boost the sector and we are handling the issues cautiously but remarkably. The ministry will continue engaging the private sector and ensure that Kenya tops in ease of doing business so that local products can be affordable,” he said.

According to Kenya’s Industrial Transformation program, a publication by the ministry of Industrialization and Enterprise Development that showcases its

“

I have labored all my life to grow this business, I’m so sure my life and that of my family will be greatly affected - Kinyua Mungai

“

100,000MT

Amount in tones of secondhand clothes, shoes and accessories Kenya imports from Western countries a year projects and prospects, Kenya accounts for only 0.4 percent of the US$84 billion American Textiles market despite her advantage over other low-cost countries.

Moribund sector Further, statistics from the African Cotton & Textile Industries Federation show that the local textile industry peaked in 1984 with 52 mills producing more than 70,000 bales, and grinders alone employed more than 42,000 people.

Currently, the number of mills has reduced to 15, operating at a capacity of between 30 and 45 per cent.

Decline of Kenya’s textile industry dates to early 1980s when the liberalization policies spearheaded by the World Bank opened up the local economy to second-hand clothes, and after the collapse of Kenya Cotton Board.

Due to their lower costs compared to locally produced outfits, the second-hand clothes, which were largely imported into the country, led to the gradual collapse of the then robust Kisumu Cotton Mills (KICOMI) and Rift Valley Textiles.

To speed up investment in the sector, Kenya’s ministry of industrialization is set to develop an integrated textile cluster in Naivasha so as to attract anchor investors and leather clusters in Machakos and two other locations within the country.

Already, Uganda had proposed a ban last year -even before the official pronouncement by EAC- on the importation of these second-hand garments, which account for 81 per cent of all clothing purchases in the country.

Imports of these clothes are to be phased out by 2019, and the most affected by this move are the many traders who depend on this business.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 47

THE AFRICAN BUSINESS FORTUNE - ENTREPRENEURSHIP

Meet techpreneur who quit banking job to start mobile money App

Kariuki Kariuki Gathitu Gathitu -- Founder Founder Zege Zege Technologies Technologies

By Brian Tirok

T

o make it out there as an innovator for the technology hub it requires you to be suave and think fast so that you can establish yourself as an ambitious entrepreneur.

Kariuki Gathitu is an example of these audacious and world changing minds.

Gathitu ventured into tech business at a tender age which and later came up with Zege-technologies, a platform that builds solutions around mobile money technology.

The application is also responsible for business communication and management and soft solutions for companies and enterprises in Kenya.

The alumni of Kenyatta University pursued Computer Science has always had the passion in innovation.

He was working for Equity Bank in 2009 in innovation and project management and played a big role there as one of the developers of one of Kenya’s first mobile money revolution, M-KESHO.

He spent 2 years at the bank before quitting in 2010 to his newly found company Zege technologies, that is where he came up with M-Payer another moneyintegration product, an innovation that would change his life.

Kariuki says that with the knowledge he gained from school and the experience from Equity, he knew he was ready to come up with something of his own.

Through own savings and support from NGO’s to the help of M-lab incubators his dream became a reality.

He launched an app that will enable other banks, microfinance institution, and SACCOs (Savings and Credit Cooperative Organizations) to integrate mobile payments. That was how the product MPAYER came about.

“This app simplifies the large and complex banking system by merging it to the simple mobile pay system, we have since been developing the software pending on the customer needs, it manages business, monitors payments and lets you acquire more customers,” he opens up during an interview.

According to Kariuki the Mobile app helps one track payments in real time;

48 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

you can see which product in the market is doing well or not performing by reviewing reports, sales and expanses of the day so that you can decide to promote the product or remove it from the market space.

The app also enables you to monitor your businesses country wide at the comfort of your Home by helping account better.

“It’s very efficient and simplifies work in such a way that it takes you not more than 2 seconds to do a transaction. In just one click on the menu, you will see which products are on high or low sales and decide what to do,” he says.

The app is able to display by the number of transactions accrued in a period of time the most regular customers and by that you will be able to see who is valuable to the success of your business and probably reward them.

Kariuki has high hopes that his product will pick fast in the country considering that money transfer systems like Airtel money, M-Pesa, Orange among other services his product integrates with has flourished.

“When you look at the market Kenya has, its big business space is between 60 per cent to 80 per cent and that is all about mobile

THE AFRICAN BUSINESS FORTUNE - ENTREPRENEURSHIP money transaction systems, that’s why M-Payer is ready to tend to this industry,” he explains.

His business will revamp the banking system by providing unique financial solutions, swift method of performing transactions to banks and micro finance institutions, Kariuki however isn’t sure if the product will catch the big fishes.

“I can’t quite say much about the

target market because the flea market out there is changing dynamically, but so far we have managed to penetrate through Small and medium enterprises, institutions that is schools as well as insurance companies”.

Apart from making it out there, Kariuki has faced major challenges while starting it, he required a substantial amount of capital to pull it through, also for the selling point it was not easy to sell the

product to a market that was not ready for such company or product.

His product has since been widely acknowledged and has gathered numerous awards for his outstanding contribution in innovation and technological revolution.

M-PAYER is fast taking roots across the country; an innovation Kariuki hopes will create industry driven solutions for the Kenyan market and will look to expand to the rest of the African Countries.

Zege Technologies Staff THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 49

THE AFRICAN BUSINESS FORTUNE - LEISURE

Why Morocco beats Kenya as an ideal travel destination

Morrocan Beach

M

By Rose Njoroge

orocco targets more visitors from Russia, China and West Africa, as instability in nearby countries daunts tourists from traditional European markets.

Plans to open new air routes are in top gear. Just last month (March) alone, Moroccan airline, Royal Air Maroc made its maiden flight to Nairobi – in what observers say is a strategic move to boost its tourists numbers.

More announcements will be expected from the country’s aviation industry players with regards to launching new routes in the said markets.

But what makes Morocco tick over Kenya in terms of tourism numbers?

Morocco has the highest international tourist arrivals in the entire continent – Africa. In 2013 for instance the North African nation saw a whopping 10.05 million international tourists visit the country – compared to Kenya’s international tourist arrivals for a similar period of 1.49million.

Kenya’s 2013 figure represented a decline of 15.8 per cent from 1. 78 million tourist arrivals recorded in 2012.

50 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

THE AFRICAN BUSINESS FORTUNE - LEISURE

Diani Beach in Mombasa Tourism contributes about 11.9 percent to Kenya’s GDP at US$ 5.65 billion against Morocco’s 19.3 percent (US$ 20.8 billion), with the latter’s firmness in promoting its culture and historical buildings like the Medina of Fez ( the oldest university in the world build in 1981) being touted as some of the country’s decisive strengths.

Of the entire continent’s, Morocco is the most politically stable nation in North Africa – Kenya on the other hand is still battling with the effects of the 2007-2008 post-election violence, tribalism, corruption and constant terror attacks.

Terrorism dealt the biggest blow to Kenya’s tourism sector which suffered an 18 per cent drop in tourism numbers in 2013.

Although the Eastern country (Kenya) is doing its share in upgrading infrastructure, Morocco has already beaten it to the finishing point. Morocco’s excellent road and rail infrastructure make for a smooth visit through the country by any tourist.

While Kenya’s investment to the tourism sector stands at a low of US$ 673 million, Morocco which comes third in tourism investments spends over US$ 3.7 billion in the sector. In 2014 alone, the number of chain hotel development in the pipeline stood at 29 hotels with Kenya doing little in new constructions.

Efforts to renovate government owned hotel by allocating funds for the same have been hit by massive corruption. The renovations that tar-

geted Mombasa Beach Hotel, Ngulia Safari Lodge and Voi Safari Lodge have seen millions of shillings disappear according to Tourism Cabinet Secretary Najib Balala.

Diversification is another contributor to Morocco’s success in the tourism sector. The country offers a variety of activities in boosting the sector from camel rides in the dessert to hiking the Atlas Mountains. Clean beaches, exotic meals and historical tours are other sightseeing areas.

Its strategic location also comes as an advantage with Morocco only 4 to 5 hours away from Europe. Tourists from Spain, which is closest to Morocco, frequent the country in accessing its beautiful beaches.

The Moroccan monarchy puts a lot of focus into the tourism sector ensuring that it hits all set targets. In 1999, after the accession of King Mohammed the sixth, the government drew up a new tourism strategy called vision 2010, to increase its tourism numbers to 10 million by 2010. In 2013, Morocco reported tourism traffic of 10.15 million.

Morocco and Kenya however enjoy an almost equal amount of business tourism spending standing at 5th and 6th in Africa respectively. There is a big difference in leisure tourism between the two, with Morocco which comes 3rd in Africa at US$ 12.2 billion compared to Kenya’s US$ 2.6 billion.

The two countries suffer from low domestic tourism spending by residents.

They are ranked at position 30 and 32

in Africa having domestic tourism standing at 4.5 and 4.4 per cent of total tourism numbers in Morocco and Kenya respectively.

The country’s insistence on beefing up tourism has paid up for Morocco. The sector employs a total of 1.96 million Moroccans, accounting for 17.3 per cent of total employment. In Kenya, tourism employs 10.4 per cent he population standing at 593.8 thousand people.

Tourism is the 2nd largest foreign domestic earner in Morocco after the phosphate industry. International tourist spend over US$ 9.7 billion in Morocco in 2014 alone this compared to Kenya’s US$ 2.1 billion injected by tourism.

Kenya has however put forward efforts to revamp its tourism sector. Flights by the Royal Air Maroc from Morocco to Kenya will offer an opportunity to channel the over 10 million tourists that visit Morocco into Kenya. The Kenya Tourism Board will work in conjunction with Morocco to market Kenya to its citizenly, in a bid to improve North Africa’s tourist numbers from the current 373,000 annually.

Kenya is also offering economic incentives to tourist to beef up its numbers through the Charter Incentive Programme. They are also waiving visa fees for children under 16 and reducing park fees for tourists.

However, more still needs to be done if Kenya is going to compete with tourism giants like Morocco, South Africa and Egypt.

Kenya needs to beef up its security, clean up its beaches, ensure effective management of ferries and clean up corruption in the tourism sector.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 51

THE AFRICAN BUSINESS FORTUNE - TECHNOLOGIES

E-payments driving Kenya’s economic growth Electronic payments in kenya contribute USD 70 B to GDP

By Brian Tirok

E

very day, electronic card transfer payments are initiated by individuals, institutions or companies.

The use of card payments be it prepaid, debit or credit card has grown by leaps and bounds in Africa and more particularly Kenya.

The Kenyan electronic card market remains in its early stages, but it is growing quickly despite heavy competition from Mobile money services like M-PESA. To capture the untapped market, banks, card issuers and retailers are launching prepaid card variants for instance Kenya’s retail chain, Nakumatt has employed on the same after it launched the Nakumatt Global MasterCard Prepaid card, enabling cash-less technology.

Visa Incorporated released a 2016 study conducted by Moody’s Analytics that analyzed the impact of electronic

payments on economic growth across 70 countries between 2011 and 2015. Those countries in the study make up almost 95 per cent of global GDP. The study in the 70 countries found that increased use of electronic payment products added USD 296 billion to GDP, while raising household consumption of goods and services by an average of 0.18 per cent per year.

In addition, they estimate that the equivalent to 2.6 million new jobs was created on average per year over the fiveyear period as a result of increased use of electronic payments.

Mark Zandi, Chief Economist of Moody’s Analytics noted that Electronic payments are a major contributor to consumption, increased production, economic growth and employment creation.

“Those countries which saw large increases in card usage also saw larger contributions to overall growth in their economies,” he said

53 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

Increased electronic payment usage added $70 million (Sh7.1 billion) to Kenya’s GDP from 2011 to 2015, according to the report.

Kenya’s GDP elasticity in regard to card penetration is estimated at 0.0047 per cent meaning that a one per cent increase in card usage caused a less than one per cent increase in GDP. This elasticity has grown from 0.0041 per cent to 0.0052 per cent, reflecting an increased uptake of e-payment systems.

The research also estimated that higher card usage contributed an additional USD 296 billion to consumption between 2011 and 2015 a 0.1 per cent cumulative increase in global GDP during the sample time period.

That equals about a USD 74 billion contribution to GDP each year.

Real consumption grew at an average of 2.3 per cent in the same period, of which 0.01 percentage point is attributed to increased card penetration.

The report also found that the electrification of payments benefited governments

THE AFRICAN BUSINESS FORTUNE - TECHNOLOGIES and contributed to a more stable and open business environment.

As a result, electronic payments provided a higher potential tax revenue base for governments, while also bringing the added benefits of lower cash handling costs, guaranteed payment to merchants and greater financial inclusion for consumers.

The report highlighted that African countries experienced, on average a 0.05 per cent increase in GDP due to increased card penetration. Many African countries are in the early stages of developing their financial systems with appropriate infrastructure to support electronic payments.

In the coming years, the increase in the use of mobile phone technologies to make payments is expected to increase electronic payments penetration. Increased electronic payment usage added US$70,000,000 to Kenya’s GDP from 2011 to 2015.

It also highlighted that African countries had the second lowest average number of jobs added per year from increased card usage, which is not surprising given the region’s low usage rates and developing financial

infrastructure to facilitate electronic payments.

Real consumption grew at an average of 2.3 percent from 2011 to 2015, of which 0.01 percent is attributable to increased card penetration. This shows that card usage accounted for about 0.4 per cent of growth in consumption.

Countries with the largest increases in card usage experienced the biggest contributions in growth and economic performance.

Contribution to Employment Increased card usage and electronic payment created the equivalent to an average of 5,330 jobs in Kenya per year between 2011 and 2015. In the 70 countries sampled it created almost 2.6 million jobs on average per year between 2011 and 2015.

Both emerging markets and developed countries experienced gains in consumption due to higher card usage. Increased card usage added 0.2 percent to consumption in emerging markets, compared with 0.14 percent in developed countries between 2011 and 2015.

The corresponding figures for GDP were 0.11 per cent for emerging econo-

mies and 0.08 per cent for developed countries, and suggest that all markets, regardless of current card penetration rates, can benefit from increases in consumption due to increase in card usage.

Potential Future Growth Across the 70 countries in the study, Moody’s found that each 1 per cent increase in usage of electronic payments could produce, on average, an annual increase of approximately USD104 billion in the consumption of goods and services.

Assuming all future factors remain the same, this could result in an annual average increase of 0.04 per cent to a countries GDP attributable to card usage.

The study highlights that expanding electronic payments alone will not necessarily increase a country’s prosperity — it requires the support of a well-developed financial system and healthy economy to have the greatest impact.

The report recommends at a macro-level, to encourage the further electronification of payments, countries must promote policies that minimize unneeded regulation, create a robust financial infrastructure, and lead to greater consumption.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 55

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THE AFRICAN BUSINESS FORTUNE - ENERGY

Powering Powering Kenya’s Kenya’s economy economy through through solar solar energy energy

By Guy Lawrence

K

New buildings going up include county offices, hospitals, schools and agricultural facilities such as factories and processing plants.

The 2016 City Momentum Index (CMI) report by Jones Lang LaSalle points out Kenya’s booming economy as the driving force behind the development of new infrastructure and the country’s booming real estate sector.

These activities, according to the report, have enabled Nairobi’s expansion as it registers among the highest levels of office and retail construction of any city globally at the moment.

All this new construction amounts to a fast growing demand for power – with the current grid capacity sometimes struggles to meet its demand, resulting in power rationing or blackouts.

The interruption to business operations stifles efficiency, and therefore profits.

Never in Kenya’s history has the need

enya continues to experience healthy economic growth due to increased Foreign Direct Investments (FDI), better living standards in the urban areas and more multinationals setting up base in the capital city Nairobi as they seek to penetrate the regional market.

The upward trajectory in economy has seen the construction of iconic commercial buildings as investors, local and international, seek to tap into limited office space and take advantage of the robust retail market. This competition in the property market is being driven by Nairobi’s status as an investment hub for the East and Central African region.

Devolution in Kenya has also spurred more activity in the construction sector as counties seek to erect mega structures that will positively impact development in their respective areas.

56 THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016

for new energy solutions been more evident than right now.

Only 25 per cent of Kenyan population is connected to the national electricity grid, with rural grid access at about 5 per cent.

It is also estimated that there is a 300MW electricity shortfall at peak hours (6.30pm to 10.30pm), when most domestic consumers switch on electricity from the country’s total 2,282 MW capacity.

Also, much of Kenya’s energy is currently provided by expensive, dirty diesel generators – not good news for the business bottom line, or the environment.

To move Kenya away from diesel sources, and to help meet the energy deficit, Kenya’s government is increasingly looking to renewables as the antidote to Kenya’s power woes. Heat from the earth’s core, the wind, the water, and the sun are all freely available and sustainable – harnessing them can supply an endless source of energy and in Kenya, the long daylight hours make it particularly well suited to solar technology, which

THE AFRICAN BUSINESS FORTUNE - ENERGY

Solarcentury built Africa’s largest solar carport at the Garden City Mall in Nairobi, Kenya. generates electricity even in cloudy conditions.

Recognizing this, a growing number of businesses throughout east Africa are installing solar systems to generate solar electricity for powering facilities in buildings such as lights, air con, or machinery.

Solar roof systems are particularly well suited to dense urban environments, where land is at a premium, and power demand is high. Solar is highly scalable and flexible which enables it to be integrated in innovative ways.

A great example is the solar carport that was constructed on the roof of the car park at Garden City Mall in Nairobi last year. There is no better illustration to show how planning at the initial design stage of a new mega structure can easily incorporate solar, which provides a source of electricity to power the building during daylight hours, thereby reducing reliance on

grid energy.

Such systems – known as solar hybrid – are dispelling the common perception that solar is the preserve of households and communities with no access to grid energy. In fact, there are examples around the world of structures with solar integrated in clever ways, such is the global opportunity for solar PV. The solar system at Garden City Mall comprises 3,364 solar panels; the structure not only provides 454 parking spaces and 6,000 square meters of car park shade, but also generates 1,450mWh of clean electricity annually, equivalent to powering 550 urban homes in Nairobi every year. By using solar electricity rather than grid energy, the Mall will reduce carbon emissions by around 18,750 tonnes over the lifetime of the solar system.

Solar hybrid technology is a highly innovative energy solution that works alongside the power from the grid, and in combination with a diesel generator.

During daylight hours, the solar panels

generate solar electricity, and if the grid goes down, the system generates solar electricity alongside the diesel generator.

According to MasterCard’s African Cities Growth Index (ACGI) 2015, Nairobi is one of the cities globally with the highest growth potential and it is expected to grow rapidly in the next five years. As a continental financial and investment hub, its commercial property sector is as robust as ever. It is commendable for new buildings to adopt environmentally friendly technologies, such as solar, in order to generate clean energy which reduces reliance on fossil fuels.

If all the shopping centres and buildings with unused roof spaces in Nairobi, and other towns and cities, installed solar, there would be far less need to rely on grid power and diesel energy.

The amount of additional solar electricity generated by the panels could help to meet the energy demand of the new and existing businesses, many of whom need a secure, reliable source of energy around the clock.

THE AFRICAN BUSINESS FORTUNE MAY - JUNE 2016 57

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