OBSERVATIONS ON KENYA'S 2009/2010 BUDGET

The Finance Minister has impressive speech delivery. He kept the budget speech short, interesting and communicated with his audience within and outside the Parliament during the speech.
2009/2010 budget anticipates Government borrowing of Ksh 109 billion. Armchair economists have crowed about how the new borrowing will crowd out the private sector and raise interest rates.

I think NOT.Uhuru provided an expansionary budget and an expanded source of funds at the same time. How?

Firstly, he has provided AMMENDMENTS to the Retirement Benefits Authority (RBA) regulations to allow schemes below Ksh 100 million in size to invest entirely in Government Bonds and bills. New money into statutory schemes such as the new Civil Service Pension scheme, Local Authorities provident schemes and National Social Security Fund (NSSF) will be channeled into Government securities and infrastructure bonds.

Secondly, he maintained the current TAX RATES. In an environment of rising inflation constant tax rates allow Governments to increase their tax revenues without raising tax rates. For instance, if the price of a widget increases from Ksh 116 to Ksh 150.Value Added Tax payable to the Government would rise from Ksh 16 to Ksh 20.69 (assuming a VAT rate of 16% and a VAT inclusive sale price of Ksh 116).
Salaries are likely to be increased to mitigate the effects of higher living expenses. If your Gross pay rises from Ksh 20,000 to Ksh 25,000 your tax payments rise. The effect is more pronounced if your gross is above Ksh 40,000 because your marginal tax rate is 30%.

Thirdly, Kenya has a low CAPACITY to spend. It is unlikely that all the money set aside for the CDF and other Development projects will get spent. Hence, our deficit may be smaller than expected.

Links: 2009 Budget speech and Finance Bill 2009.

Stanbic,CFC and the Budget

The past month has been very interesting in the financial world
CFC Stanbic Merger
The mechanics of this merger are in two parts:

1.CFC Holdings will take over Standard Bank of South Africa's stake(Stanbank-SA stake in Stanbic-Kenya is held through Stanbic-Africa Holdings ltd) in Stanbic Bank Kenya in Exchange for CFC Holdings shares.Simply put CFC will give Standard Bank-SA shares in the entire CFC group(CFC holdings) and get the former's shares in Stanbic Bank Kenya

2.Gambit holdings(45% stake in CFC holdings) will sell their shares in CFC Holdings to Standard Bank-SA through Stanbic Africa Holdings Ltd.

The net effect of the two transactions are that Standard Bank-SA will end up with 60% of CFC Stanbic Holdings ltd shareholding

Who has bought whom?
This deal has confused many.The facts are:
-CFC Holdings has acquired Stanbic Bank Kenya ltd.
-CFC Holdings has been acquired by Standard Bank Group of South Africa

Why does CFC Holdings want a CMA exemption?
CFC Holdings wants a Capital Markets Authority exemption because the deal seems to disadvantage the minority shareholders i.e. while Gambit holdings gets to sell its stake in CFC Holdings to Standard Bank Group.
The minority shareholders dont get this option.They can only remain with their shares in the CFC Holdings group or sell them through the market and NOT to Standard Bank if they do not like the deal.

The other merger option
The deal could also be structured in the manner TPS used to consolidate its East african operations under one group.In this case a new company would be formed and it would take over the entire assets of CFC Holdings+Stanbic Bank of Kenya.Then Shareholders of CFC Holdings would exchange their share in CFC holdings for shares in the new group.Likewise to holders of Stanbic Bank of Kenya.

The Budget
Did anyone notice the proposed amendment in the retirement laws that exempted a deceased persons retirement benefits from his/her estate?
This amendment means that if name your girlfriend as your retirement benefits beneficiary and not your wife and children.In the event of your untimely demise, the scheme trustees can pay your pension benefits to your girlfriend and your Wife/children cannot dispute it in a court of law.

Am sure in a few months this law will bring some interesting situations to light.Unless retirement scheme trustees amend the laws on nominating nominees and state who u can or cant nominate as a nominee.