BUDGET 2008

I must confess i was pleasantly surprised, i expected capital gains Tax, more taxes on second hand vehicles etc.First it was smaller than i expected at about Ksh 720 billion(was expecting a Ksh 850 billion plus budget). Here are the specifics:

THE GOOD
-Stronger Regulation for the Capital Markets.There are now restrictions on ownership of stockbrokers,investment banks and fund managers.By the way Banks,Insurance companies and similar corporate entities are exempt from these restrictions.
Let us hope that the new rules will keep us from a repeat of the Francis Thuo,Nyaga stockbrokers debacles.
The new ownership requirement will increase the number of politically correct persons(read new ODM personalities) with stakes in the Capital markets.i.e. has anyone noticed who owns the stock brokerage firms?

-No new taxes on personal or corporate incomes.What can i say? More taxes= less disposable income. -Senior citizens over 65 years of age exempt from taxes on their pensions.

NOT GOOD
-New capital requirements for banks. I thought Ksh 1 billion in core capital over 2 years was a joke.
I approximate over 60% of the banks are multiples over this Ksh 1 billion core capital amount.For example if Housing Finance successfully completes its rights issue,the core capital will be over Ksh 2 billion.Barclays has over Ksh 5 billion. The requirement is unlikely to spur mergers and acquisitions.

-No Value Added Tax decrease
VAT acts as a drag on consumption.Lower VAT and consumption might get a kicker with all the added benefits e.g. higher demand in the economy.

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APPLE 3G IPhone
Apparently,Orange/Telkom Kenya have the rights to sell it in Kenya.
http://www.apple.com/iphone/countries/ke/

The Economy...Intangibles ......our stupidity

The economy is like faith. it is moved by factors that are not tangible.Hence, many developed economies around the world have Business Confidence indices i.e. the higher the business confidence, the better the economy's performance.

The current crisis will eventually subside.My guess is that by the end of March we will have a solution to the problem.However, whether that solution will be palatable to all, i don't know.You may NOT like the taste of Quinine but it can cure malaria.(get the drift?)

The lack of confidence means that even if normal business resumes in Eldoret,Nakuru,Kisumu and Mombasa and the displaced return, the local community won't make substantial investments in those areas.

For Kisumu, the likes of United Mall are unlikely to be built for a while.Uganda underwent a similar situation for about ten years after the end of the Bush war in 1986.For instance, the average Ugandan proffessional started building and buying houses from around year 2000.Over 10 years after the end of the war.

Once,peace is restored most people in Kenya won't be sure how long they can live before the next violent outbreak.Don't expect them to build 10 bedroom mansions or build retirement homes.Hence, expect the next Kenyan fad will be to have a second/third home in Dubai.UK and South Africa are ruled out beacsue the former has too mant taxes and the latter has Jacob Zuma and Power rationing.

The legal cost to business/economy.
Hernando De Soto's book 'The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else.'said that it is because the poor in developing countries don't have property rights and cannot monetise/mortgage their assets(land) for capital.

The current crisis has made Title deeds void i.e. the fact that you have a title deed or lease certificate is useless as long as the locals in an area won't allow you to live or develop a certain area.Hence, you well tended 5 acre tea and dairy farm in the Rift Valley, can't get you a loan at the nearest Bank.

The losers in the current situation are:
Banks/Lenders
Do you think you can auction any land/houses pledged as security in Kisumu or Eldoret? If you do, then can you get a market price for it?

Society
Since, you can't got to court for legal redress or to the elders(there aren't any around), what do you do to solve your problem?You guessed right, a small proportion of people(the stupid ones) will take the law into their hands.

Court Process
In the current state,even if you obtained judgement against a debtor how do you enforce it or collect it? It is difficult to attach property in the current environment.As a result businesses will become more averse to granting Credit which is the KY Jelly that enables consumption in the economy.Less lubrication(read credit), less economic growth

NEW YEAR ,NEW PROBLEMS

Let's hope the year ends better than it started. I have been away for the holidays and work. My condolences to all of you who have lost friends, family, colleagues and property in the current political crisis.

Let’s hope we deal with the root causes of the crisis which are poverty, inequality and rabble rousing politicians who are the matchstick that lit our flame. South America, South Africa and Nigeria have the same problems as Kenya. However, the problems manifest themselves through kidnapping, armed insurgency and drug trafficking in South America. In Nigeria the crime and constant coups in the past. In South Africa via violent crime and xenophobia.

Aside from that I think this will be great year for the market. Why?

1. Inflation

It will be high in the current year. Generally inflation tends to erode the value of money. For instance, bread is now Ksh 35/loaf from Ksh 23 a year ago. You still get the same loaf (500gm) but you must spend more money i.e. Ksh 12 to get the same 500gm.

2. Real Estate slump

I don’t think the high end of the market will go anywhere soon. The current chaos will make wealthy Kenyans think of buying second, third or even fourth homes overseas. I see UK (If u can get around the tax implications for non-resident property owners), UAE, Tanzania and even Australia get some of this Kenyans.

3. Uncertainty creates opportunities

Opportunities are present in the current environment for the clever investor. There is only one rider 'YOU NEED CASH TO SEIZE THE OPPORTUNITIES'

Therefore, you must be in cash (but u will get whacked by inflation) or near cash situations.

That leaves only one place to place your money-Stocks.