Nairobi Real Estate bubble bursts

It happened sometime towards the end of 2009.The bubble was concentrated in the upper to high end property market.i.e. houses above Ksh 10 million.Unlike, other markets Kenyans have never experienced a large scale property price decline or slump.
Signs of the high end property slowdown are:

-Property sellers not providing indicative prices
Take a look at the property supplements in the thursday newspapers in early 2009 and 2008.Sellers provided indicative prices for every property offered.Currently, property listings beyond Ksh 10 million have Price on Application(POA) instead of an actual price.POA indicates that the sellers are unaware of the ruling prices for the relevant property prices.Hence, they wont quote an indicative price for fear of over bidding the market and failing to sale or underbid the market and sell for less than the market rates.

-Compression of rental yields
Looking at the indicative rents around Kilimani,certain areas in Lavington such as Valley Arcade you can see that indicative rents have stagnated around the Ksh 60,000-65,000 range or lower for the desperate landlords.Areas, such as South B/C,Langata and West are seeing a stagnation of rents i.e. rents rising at less than 10% per annum.

-Rise in furnished apartments
To counter falling/stagnant rents savvy landlords are offering furnished apartments and houses.Ideally a furnished apartment rents at least 30%-50% higher than a similarly unfurnished unit.To furnish an apartment that you can go for Ksh 70,000-Ksh 90,000 a month wont cost you more than Ksh 200,000.The extra Ksh 20,000-Ksh 30,000 from furnishing can be recouped in less than 12 months.Furnished apartments have also seen a decline in rents a furnished 3br unit in Upper Hill used to be Ksh 120,000 now its around Ksh 90,000.

The factors that led to the real estate slump were:
-Oversupply to a narrow market segment
Most developers were focusing on the Ksh 10 million and above units because thats where the high margins were.In the end they oversupplied it.The slump has led developers back to the Ksh 5million-Ksh 8million segment.VillaCare and all those high rollers have projects for that price range on going.

-Consumer sophistication
Property buyers in the late nineties and early 00s were thrilled by the property location they didnt care about the finish or quality of the property.i.e. people were happy to buy property in Kilelelshwa it didnt matter if the finish was poor.Thats how the area around Kileleshwa Police station and Kenton College ended up looking like Umoja with a lot of flats/apartments.

Over the past three years people buying/renting high end apartments have developed minimum requirements.i.e. if someone is going to buy a Ksh 10 million apartment or rent it he requires: at least two allocated parking spaces,back up water supply e.g. borehole or large reserve tanks, large living space, good security lay out and recently a servants quarter is a must.If your apartment doesnt have these facilities, renting/selling it at the higher end of the market ruling price is tough.

-Alternative choices
Real estate buyers in Nairobi started questioning the wisdom of buying an apartment at Ksh 9,10 or 15 million when that amount could buy an acre or more of land around the city.The odds of land values rising are higher than a Ksh 10 million apartment doubling in price to Ksh 20 million or even rising to Ksh 15 million.

-Bank lending
The risk aversion among local banks led to a slow down of lending for mortgages and development towards the high end units.Leading to fewer clientele for the finished property.By the way i see banks fronting for several property sales through newspaper ads.does that indicate their exposure to the sector?

-Normal supply of units for sale
Regardless of existing market conditions(whether boom or slump) property is always on sale.People who need to sell property are ready to take lower prices because they need the cash.On the other hand existing property owners who have a large capital gain will sell to cash their gains.e.g. if you bought the first Apartments in Lavington/Kileleshwa in the late nineties you got in at between Ksh 4million-Ksh 6 million.Even if the current market is tough, Ksh 8 million to Ksh 10 million can be raised.

TREASURY BILLS FOR DUMMIES

You are tired of earning 0.5% interest on your Savings Account,uninterested in all those mutual funds/unit trusts but need a place to keep your money."Treasury Bills !" (Short term paperless Government Borrowing issued through Central Bank for periods up to 1 year)pops into your head.Central Bank of Kenya (CBK) announced that you can buy Treasury Bills from Ksh 100,000 and multiples of Ksh 50,000 thereafter.

How do you start?
The first thing is to open a CDS account with at the CBK.Download the application forms off the CBK site then fill them in and return them to any of the CBK branches- Nairobi,Mombasa,Kisumu and Eldoret.

Before you invest there is the investing jargon that you need to understand such as:
TENOR- Length of time before a bill pays back the principal amount.For instance a Trasury Bill that pays back its principal in 91 days has a 91day tenor.

MATURITY DATE- Date on which the bill pays back the investor the principal invested and interest.

FACE VALUE- Full value of a treasury bill that is issued eg. if a Ksh 1 billion treasury bill is issued.Its face value is Ksh 1 billion.Face value may differ from what you pay in.If a bill is at discount you pay less than face value i.e. less than Ksh 1 million.a bill issued at PAR is paid for at full face value i.e. Ksh 1 million for Ksh 1 million.

Applying for your Treasuries
With your CDS account ready,you can apply for the treasury bills auctions on a weekly basis.
91 day and 182 day treasuries are issued alternately i.e if 91 day is auctioned this week , 182 day is done the following week.

Treasury Bills are sold at a discount- you pay for less than face value and on maturity you get what you put in plus interest .The two are equal to face value.
For example,CBK offers a Ksh 100,000, 364 day Treasury bill at 8% interest per annum at a discount.An investor would pay Ksh 92,593 and receive Ksh 7,408 interst on maturity after 1 year.His total return would be Ksh 100,000= Ksh 92,593+Ksh 7,408. (i have ignored taxes)

The FACE VALUE of the bill is Ksh 100,000, the discount is the interest of Ksh 7,408. All Government of Kenya treasury bills follow a simialr pricing format.

CBK has a bond price calculator on their website. Key in your required return,initial investment and get the expected returns and tax amount.Click on the hyperlink for the CBK treasury pricing Calculator.

Competitive or Non Competitive?
When applying you have an option of bidding competitive or non competitive.Competitive bidding means that you quote a rate to CBK.Unless,you are a financial proffessional-know a lot about interest rates and Yield curves - bid Non competitive(limit for non-competitive is Ksh 10 million).Because you may ask too high a rate an your bid may be rejected.Non-Competitive means that you will accept the average interest rate at that auction.

How it goes

Every week CBK will offer treasuries for auction via notices placed in the media and on their site.You must apply by Thursday 2pm weekly.The auction results come out on the next day -Friday on their site and the Daily Nation.Allocations are to be paid on the following Monday(known as the value date) to CBK by 2p.m.

On Maturity

CBK wires the principal and interest(Face Value) to your bank account unless you have used your CDS account as security for a loan.Then it's wired to the lender.Rollovers are allowed i.e. your proceeds are applied to the next treasury auction.

Small Investors

Small investors may find it easier to go through a money market or bond fund.The process for small amounts of money may be tedious and the interest rates not exciting.e.g. if you invested Ksh 100,000 in in the 182 day Treasury bill auction-1849 of 02/11/2009,payment would be Ksh 96,712.20 and interest Ksh 3,287.80 after tax for the period.

For amounts above Ksh 1 million (US$ 12,987) it makes sense.Because to get an attractive fixed rate at a locally based bank you must have at least Ksh 10 million (US$ 129,870).

I came across some more blog posts on bonds:

hatua.blogspot.com- Good post on bond pricing

Kenyankytoon-A beginner's introduction to bonds but with a US/Canadian flavour

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.

OPEN LETTER TO THE BUSINESS DAILY

14^th February,2009

Pesa tu

Pesa_tu@yahoo.com

Dear editor,

REF: Making the Business Daily a better read

congratulations on launching a new and unique business product. Business Daily provides us with a daily paper that gives us all the business and economic news in one package. It isn’t filled with details of the latest antics or fallouts at ODM or PNU.

Business Daily’s content quality is certainly higher than anything out of the rest of East Africa. Approaching but not next to Financial Mail (South Africa) and probably aiming for Financial Times quality. In order to make it a great paper, I have made the following suggestions and or observations.

1. CONTENT

The target audience for BD has access to Reuters and Bloomberg terminals. Therefore, any reprints from LA times, Reuters or Bloomberg were read a few hours before it was published in the paper. It is very disappointing to buy a paper and find that 40% of it is available for free on the internet (and on other people’s website)

Yes, I’m aware it is challenging to come up with fresh content daily. This can be solved by using your Africa network to deliver more Pan-African business stories. We can have Tanzanian, Zambian or Nigerian business stories as front-page.

How about a profile of African business titans? Do Kenyans know about Reginald Mengi or Gordon Wavamuno?

2. RELEVANCE

It is pointless to reprint Jeremy Clarkson’s motor review that appears on Sunday on The Times website, the following Friday. The target audience read it 5 days before. Plus, Clarkson’s’ cars are hardly on sale here (Kenya).His humor is hard to catch unless; you have an understanding of English snob jokes and sarcasm.

The better alternative would be to get the guys behind the Autozine magazine do a weekly column. Autozine tends to get the balance between auto porn (pictures of Lamborghinis, Ferraris etc) and practicability (reviews of ex Japan used cars that Kenyans buy).They had a review of the used 2001 Toyota Vitz Vs Mazda Demio Vs VW Polo. Cars that your readers can buy. Clarkson had a Ford Kuga review-how accessible is it for your readers?

3. Localise the online forums aka forget Facebook

Facebook may be great for connecting with old pals. I’m on it and love it. I don’t think I or most people would like to argue about a political or business issue on it. For that we go to Stockskenya.

Why not talk to Stockskenya and have a Business Daily tab to discuss the day’s articles. Of course, there are legal issues concerning this arrangement. For example, libel. Nobody will sue stockskenya for libeling them (they don’t seem rich) but you will because people think you have money.

I hope the observations are useful.

Your subscriber

Pesa Tu

MADOFF LIST,KENYA and SOUTH AFRICA


I saw bankelele's post that a Kenyan resident was on the Madoff list.In case you got released from Kamiti yesterday, Bernard Madoff was an American who ran a giant ponzi scheme.Think of it as a complicated DECI-pyramid scheme for the rich and famous.

The Times has the client list on its site.Looking through it the only african residents are the Kenyan with the Mweiga address and a South African.The fact that we are the only Africans on this list probably indicates our higher level of financial sophistication relative to other African countries.
I wonder how much of the money that some of our country men/women have stashed abroad has been consumed by the recent financial crisis.

CLICK HERE for the madoff list

CHARITY PORN????

I must confess that when the independence fathers of Kenya said that we would fight poverty,ignorance and disease, it always seemed that those were obvious problems that would be solved. The recent fire disaster at Molo was a volatile mix of petrol,ignorance and poverty.People were ignorant bout their safety and poverty drove them to take the risk of collecting and selling the fuel. Ask yourself if we can take the risk of collecting highly flammable petrol from a accident site,what won't we do for a few coins(i'm thinking unprotected sex in these days of HIV).I found out what we can be done for on this blog.

We Kenyans can do anything and everything for money(blame poverty).We have helped start a new industry-CHARITY PORN.This is how it works.An adult film co. from the West ships in Porn.. sorry adult entertainment actresses in to the country.The actresses have sex with other foreign actors/actresses at local settings.Part of the proceeds from the very explicit films are donated to the local community and charities.

Natural High-Japanese adult entertainment company flew in a couple of its performers and shot a DVD for its Naked Continent series here.The producer has donated 1 million Yen to help a charity.Every 1000 Yen from every DVD sale. Here are more pictures from Sociological Images

'MEDIA BILL' AKA Kenya Communication Amendment Bill-2008 -THE FACTS, MYTHS & OPPORTUNISTS

FACT 1- The Kenya Communication Amendment Bill-2008 is an amendment of an earlier Act-The Kenya Communications Act (No. 2 of 1998) that is 10 years old. Hence, some of the 'contentious issues have been the law for since 1998.

FACT 2-Section 88 of the Kenya Communications Act (No. 2 of 1998) has been in existence since 1998.It empowers the Minister(for Information) to seize broadcasting equipment during a state of emergency or in public interest. Almost all Western democracies have similar explicit or implicit laws.

Of course, there is room for abuse but as Parliament showed as during the Kimunya-Grand Regency saga; Parliament can flex its muscles against the executive when it wants to. Under the current dispensation Parliament can prevent such abuse.

By the way why didn't the media complain about this law back in 1998? How come ODM didn't propose an amendment when it was passing through parliament.

FACT 3- The amendment provides a framework for E-commerce. For instance, it creates legal recognition for electronic contracts and signatures. It also, makes hacking a crime. Simply put, prior to the amendment if you bought goods online and had a dispute with the retailer you couldn't seek redress in Kenyan courts.

A more devious example is that if you hacked into a bank and stole money, the prosecution would find most of the evidence inadmissible in court. The hacker would have high chances of going free.

Bankelele has an informative summary on these features of the amendment here.

FACT 4- ANTI-COMPETITIVE BEHAVIOUR. The amendment provides for regulation and prevention of anti-competitive behaviour.Part VI C section 84- Fair Competition and Equal Treatment regulates competition.

I suspect that this is one of the provisions that worries media owners. Since, it may make it harder for large media groups that own broadcasting and publishing interests to use their muscle against smaller competitors. Since, they can't make noise about the anti-competitive regulations in public; section 88 is the trojan horse for raising concerns about other aspects of the amendment.

This amendment has many myths. Read on:

MYTH 1- The law will severely restrict and monitor the broadcast of programmes. -False

Section 46 H of the amendment provides for the regulation of broadcast content where broadcasters don’t adhere to self regulation. In Kenya, via the Media Council and or Media Owners Association- broadcasters can self regulate themselves. Hence, the government won't directly regulate broadcasts.

Other countries have Government regulation. Remember Janet Jackson and her wardrobe malfunction?

MYTH 2- This is the funniest one. The law prohibits changing your cellphone ringtone.

Section 84G- criminalizes cellphone reprogramming. As i understood (when i read it), reprogramming refers to changing a phone's network ID number or identity. Erasing this number prevents a mobile handset from being tracked or locked on a network (if stolen).I haven't seen anything about changing ringtones, its still legal(my opinion).

OPPORTUNISTS

I wonder why politicians didn't come clean about the amendment earlier. ODM played the populist card and lost-(Daily Nation 7th January, 2009-editorial cartoon).They came out looking like hypocrites.

PNU played the rational card and formed a committee to liaise with the media.

THE MEDIA whipped up public information with half-baked facts and forced the Government to the table. Their use of erroneous facts to further their ends makes a case for better regulation of the media.

The President came out with the facts today. It was too late; he had lost in the court of public opinion. He needs a new spin doctor. The current one has spun for too long and is giddy. The new one must be a politician or politically savvy i.e. a media practitioner with agwambo's or kalembe's political instincts.

MY TWO SHILLINGS

I weep for the poor and ignorant Kenyans who are pawns in a game played by their leaders. I wonder who will save them. Certainly, not the Press or the Church.

OTHER LINKS:

-Startup Kenya has an excellent post on this topic here.

-Kenya Communication Amendment Bill-2008- the ammendment that was signed into law last week.
-The Kenya Communications Act (No. 2 of 1998)-The original Act thats been ammended

-Section 88- Contentious clause of the Kenya Communications Act (No.2 of 1998)

NOTE: I am not a lawyer and the opinions expressed are a lay man's understanding of the law.Please don't comment if you haven't read the law.There's enough ignorance going around

PROSPERITY IN 2009

Dear fellow bloggers and fans.Thank you for educating/entertaining me during the year.

I am sorry for my intermittent posts(too much work on my desk).

A belated wish of a prosperous 2009 to all of you.

Thank you

Pesa tu

2009 FORECAST

Looking into my new HD 1080p crystal ball i see the following changes in 2009.

1. POLITICS

I reckon 2009 will go down as the year the politics of the land changed.A keen observer will notice that the populace and the politicians are marching to different tunes.The politicians(ODM,PNU,Kanu,Shiriskisho.......etc) are talking about the 2012 election and the constitution.Wananchi are talking about the cost of food,security and how the global crisis will affect us(the intelligent ones).It seems that the current political class has lost its 'people' touch.Whenever, this happens in any society then change as Mutahi Ngunyi puts it is around the corner.

If you doubt that change is coming-take a look at how the two principals spent their New year's Eve.Number 2 and Number 3 spent it amongst wealthy Kenyans and foreigners at the Coast(at those places where beer is Ksh 200 /bottle).Number 1 vukaed privately.None of them showed solidarity with the average Mwananchi.An astute politician aka MOI would have held an evening party but ensured that the ordinary councillor,teacher and such kind of people that never get invited to similar events are in attendance.In addition, he would have toured the IDP camps and showed solidarity with them.

2.BANKING

The past 5 years have been charcterised by the phenomenal growth in personal loans.Remember, when you had people accosting you in the street,promising Kssh 1 million loans with only your payslip as security?

CBK will allow people to buy Treasury bills from as low as Ksh 100,000.This will give money market funds and Fixed deposit accounts in banks competition.Banks will have to come up with new strategies for raising funds.This ought to put downward pressure on interest rates.

The Oga's-Ecobank and UBA are in town.2009 is their year to entrench themselves in the market.

The question for 2009 is; how will banks make money if they reduce lending and Government securities are offering lower returns?

3.Global Economy

2009 will only serve up more bad news.The developed world is suffering from a demographic and over capacity problem.The late Leon Levy predicted the current crash by noting that in his observation there was no product or service that the western world required that was in short supply.

Expect to see the Dow below 7000 at some point in 2009.

Nikolai Kondratieff-(Russian economist who was executed by Stalin) said that the Western economy operates within 60-70 year cycles waves i.e. every 60-70 years we have a severe economic contraction.If the last large contraction was in the 1930s then the...(go figure when the next one is/was due)

NOT YET...BOTTOMED OUT 


The markets started rising last week after the Global Central bank rate cuts and the various European rescue packages.Players are saying that the worst is over,the eye of the storm has passed.
The comentators on CNN,CNBC are predicting a recession but no more really BAD news.

I think they are wrong.Here's why i think so:

1) Real economy slowing down
The slowing economy in the west will affect the consumer portion of banks' balance sheets.I.e. people will begin to default on car loans,credit card loans etc.These loans were securitised ina similar manner to morgages.Banks have to write off all these loans.More write-offs reduce Capital.Banks are forced to slow down lending or raise more capital.Either measure affects the real economy.

2) Commodity Prices
Oil,steel ,wheat just about any heavily traded commodity has declined by over 20% from year highs in the past 2 monhs.Oil is below US$ 90/barrel.At mid-year 2008 everyone and their grandmother was predicting US$ 150/barrel oil by the end of the year.Lots of hedge funds and other 'sophisticated investors' bet on commodities rising for the rest of the year.
As these losing bets on commodities are unwound and some fail to make margin calls expect another implosion in the markets.

ARMS TRADE 101


I don't want to wade into the flood of news and reports about the hijacked ship and tanks.The papers are doing a good job.The world of arms trading is a simple business but with complex details.

Firstly, arms are usually sold to STATES and NEVER individuals or non-state groups i.e. Taliban,FARC,Lords Army.......etc

Secondly,Only states without an embargo such as a UN Arms Embargo can purchase.

Thirdly, to sell to a State it must produce an End User Certificate.This is a document that states that X amount of weapons and equipment bought from Z industries is being procured for the sole use of Government Y.Hence, we are within the first rule.

Tough situation for any arms dealer or manufacturer.You have clients but they aren't a sovereign state yet, they are going to work on how to legitimise themseleves using the arms you intend to supply.Then fortune smiles on you and you remember there several Third World states like DRC,Liberia(under Taylor) and a few others that don't have proper Government Procurement and Oversight.
The correct incentive to the right official guarantees the supply of several blank End User Certificates.How you use the Certficates is up to you.

Now the arms factory(and its host country) can sell the weapons to you and pretend they didn't know it was for a guerilla outfit(or semabargo busting) because you had all the documentation.

A really good movie that satirises the trade is Lord of war starring Nicholas Cage.

CREDIT RATING,BANKS,BONDS and SEPTEMBER


September 2008 was a good month.At least on the legislative and regulatory front.Two interesting developments that serve to deepen our financial markets occurred.

1.Credit rating regulations Gazetted by the Government.
Banks and other financial institutions can now share information on your payment(defaulting habits).Hopefully it will move to all businesses including your landlord.Any body with access to your credit information will be able to judge how honest you are on your promise to "send the check by Friday".
If it works like other countries it should make it easier for persons with good credit histories to get loans at good terms from their banks.Businesses with good history will find it easier to get supplier credit.
The flip side is that a bad credit rating will make it difficult to even rent a good house-(if ur prospective landlord sees that your score is bad, he may not want your tenancy).

2.Banks allowed to lend to each other using their securities as collateral
This may confuse those who don't deal with banks, how can a bank keep cash but run out of liquidity?Banks are like any business enterprise sometimes they need more cash than they keep at hand.When this happens, they have two ways of raising cash:-

A. Borrow money from the Central Bank (CBK)through REPOs(Repurchase agreements).These transactions involve the Commercial bank using its Treasury bonds and bills as security to borrow from the Central Bank

B.Borrow money from each other via the Interbank market
The new rules add a C option.

C.The new interbank master repurchase agreements.The transactions here are similar to REPOs the difference being that instead of having CBK and a bank transacting, we have a commercial bank to commercial bank transaction the borrowing bank gives securities to the lending bank as collateral for the lending.

Too bad the papers got it wrong and thought that everyone could trade bonds without going to the NSE.CMA came out with a clarification that this wasn't ain't so.

2 bedroom,Apartment for sale-Karen

No, am not selling real estate.I was in Karen a few weeks ago and what i saw confirmed what the Sunday Standard talks about in today's edition.the greed that changed Kileleshwa into a more expensive version of Umoja/Kayole has reached Karen.A decade ago when i lived in Karen,there were no matatus(just an old no.24 minibus).Most houses sat on at least more than 0.7 Acres(can only vouch for my neighbours then).

Land prices in areas of Nairobi that have access to the utilities-water and electricity have at least doubled in the past 5 years.Think South C,Kileleshwa,and Westlands.Developers have discovered a sure fire way to make money.First, buy or get into an arrangement with a land owner to access land in Lavington,Westlands or Kileleshwa.Second,get the building plans approved.Third,line up financing for the construction and mortgages from a bank.Fourth,put the artistic renderings of your XYZ apartments in the papers.Fifth,make sure you sell 80% of the apartments before construction.Sixth,bank your profits and consider yourself a successful real estate developer.

The danger of buying an apartment
The only selling point that most of the apartments have is that they are in a formerly expensive area like Hurlingham,Kile or Westlands.Otherwise,most of them have no new social infrastructure e.g. schools,social centres or recreational space.

If you are a snob please read on.Apartments tend to get poorer dwellers moving in as time goes by.i.e. if the first generation of owners were multi-millionaires by the second or third generation significantly poorer people will be living there.Therefore,snob appeal goes down and rent follows it.If you don't believe me take a look at the 1970s and early 1980s apartments that were built around Hurlingham and State house, those that aren't offices can't command rents of more than Ksh 40,000 per month. The rents for most of these new apartments will keep declining rather than increasing.Nairobi residents who pay rents of more than Ksh 50,000 per month want exclusivity not location brands. I don't get the rationale for buying an apartment.

Where is the housing market going?
Human beings value what they can't get or anything that has scarcity.I think the market will move towards gated communities a la Kihingo for the rich and detached single family units for the not so rich.If you do see a headline, like the one on this post in the daily classifieds then we will have hit the top of the market.

A-Team at wahi kuwahi
Is it me or is that the A-Team theme song in the background of coca-cola's wahi kuwahi radio spot?

WHERE HAVE I BEEN?

2008 has been an exciting year.I have been doing a bit of travelling and plunged into a new venture.There are many opportunities to make profits in the current global financial crisis.

Going forward, i shall do fewer articles that deal with specific investment ideas like this one.Most of the posts will deal with macro ideas and observations on ideas and trends that will shape our kenyan society.I'm being selfish and wont give away my current strategies.

Thank you to all those who comment for the witty,critical and sometimes ignorant comments and most of all ,everyone who visits this blog.

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 RULES OF POWER

Ahh…finally back from my sabbatical May I point out I’m not an ODM or PNU die-hard, I detest politicians but this post is merely an interesting observation. The former President Moi was a disciple of Machiavellian politics. He perfected the act of conjuring a rabbit out of a hat. He would perform the unexpected and agree to a previously unacceptable position. Remember, when he appointed Richard Leakey, one of his political opponents the Head of the Civil Service?

On the other hand, Prime Minister Raila’s strategy seems to be straight out of the 48 Laws of Power by Robert Greene. A few weeks ago the Prime Minister’s office was wracked by internal infighting (according to Kumekucha-whose a liar-but that's a story for another post) and dissent in the ODM party concerning the Grand Opposition and the Amnesty issue(according to the Daily Nation and EA Standard).The negative press was hammering Agwambo’s standing in the eyes of the public.Skeptics wondered if the invincibility of tinga was just a myth.

The PM quickly found a way out of the mess that was hurting him; he distracted the Public. How? He entered into the Mau forest fray. Now the news headlines are full of politicians for and against settlement in the Forest . Nobody remembers ODM’s internal struggles or the PM’s staffing issues.

On Nyanza politics Raila’s motto appears to be ‘Keep your friends close and your enemies closer’.Notice that all of Raila’s political foes in Nyanza are now Ministers.Dalmas Otieno(formerly a KANU rival),James Orengo and Anyang Nyongo(formerly SDP rivals).These individuals posses either the intellectual or organizational ability to challenge him politically on his home turf.

Now that they are closer to him, his rivals can’t use them to fight him.

Law 31 from the Laws of power states- “Control the Options: Get Others to Play with the Cards you Deal”.The current tussle over whether or not the Government should negotiate with the Mungiki aptly illustrates its application.

Who started the debate? If you guessed Raila that’s right.

Who is struggling with the issue? Central Kenya politicians.All of a sudden political,religious and civil leaders from the region are falling over themselves to appear to be backing the proposed talks with Mungiki.

Whose deck are they playing? Certainly not theirs.

STOCKBROKERS,BANKERS...DINOSAURS & EVOLUTION

The dinosaurs were wiped out by a meteorite? Then mammals took over then the hominids..homo erectus, Neanderthal man then us(Homo Sapiens).Twenty years ago the Banking sector had 2 large foreign owned banks(Barclays and Standard Chartered)The other two heavies were Government owned(KCB and NBK).The rest of the banks and Building Societies were family owned i.e. owned by a businessman who lent to his pals/family and kinsmen.

Then the Banking crises of the 1980s and 1990s came along, and a number of the smaller banks folded. The surviving banks were bought by better entrepreneurs, merged and recapitalised.Out of these ashes arose Banks such as EQUITY(formerly Equity Building Society)

Fast forward to 2008.most of the banks are hardly family controlled. The few family owned and controlled banks are small and decreasing by the year through acquisitions.

There's another industry that is structurally in the same position Banking was 20 years ago.-STOCK BROKERAGE.

Most of the brokers are family/individually owned, the sector doesn't have many controls. The firms’ capital bases are small.

My take is that in the next 3 years most of these firms will be taken over by bigger players (read banks) and soon stock brokerage will be an extension of the banking business .e.g. CFC Bank +CFC financial Services, NIC Bank and solid Stocks.

In 3 years there will probably be more brokers licensed i.e. once NSE is demutualised.However,the business will probably be controlled by a few players who will be owned by banks.

YIPEE.. TWO BLACK AFRICANS ON THE FORBES LIST

For a long time the FORBES Billionaires list had only three Africans on the list. The Openheimer Family-heirs to the De Beers fortune,Johan rupert -BAT and Richemont and the Sawiris owners of the ORASCOM group.The Openheimer's and Rupert's are white Africans and the Egyptians are Arabs.(hope i dont seem racist).

Now we have two black Africans Aliko Dangote of the DANGOTE Group Nigeria and Patrice Motsepe of the ARM mining group( Patrice has a 5.5% stake in SANLAM the parent co. of Pan Africa Holdings -Kenya).

All great wealth tends to attract controversy.Dangote is accused of being too close to the former President Olusegun Obasanjo.Motsepe is accused of using black empowerment laws to enrich himself.

The FORBES list favours those whose wealth is in listed firms.Hence, as more of the developing world's capital markets become advanced, more Third worlders should make the grade.

Here's a link to an interesting BBC article on both.

By the way
The Nairobi Stock Exchange's Market Capitalisation(Value of all the shares listed on the exchange) is approximately Kshs 850 billion. Assuming 1US$ =Kshs 65, then the Market Capitalisation in US$ is 13 Billion.Motsepe's net worth is put at US$ 2.4Billion and Dangote's at US$ 5.5 Billion. do the math.

WOE, UNTO THE SILENT ONES

"In Germany, they came first for the Communists, And I didn’t speak up because I wasn’t a Communist;
And then they came for the trade unionists, And I didn’t speak up because I wasn’t a trade unionist;
And then they came for the Jews, And I didn’t speak up because I wasn’t a Jew;
And then . . . they came for me . . . And by that time there was no one left to speak up."

Martin Niemöller

Adolph Hitler didn't wake up one morning and round up Jews.He started the holocaust with a series of smaller 'arrests' and disappearances' of the 'undesirables' in the society and snowballed them into the killing of 6 million people.First,he targeted the mentally ill and handicapped for extermination.No body complained,after all who would miss them? Plus some were a burden to society.Then, he targeted the Jews.
After,the Jews were the liberals and opponents to his regime.
When Hitler started exterminating the enemies of his regime,these liberals hadn't complained.
Why? They thought that the extermination would never reach them.When it got to them there was no-one to save them.

Back to Kenya.As you see your neighbour's son evict somebody from another tribe.KNOW THIS' that man/boy is a criminal and once he's done with the family from another tribe,he is coming for yours'.Just as tribe is the excuse to kill,loot and rape, the man shall find another excuse to do the same to his fellow tribesman.

People in some parts of Western Kenya didn't know this but are now suffering at the hands of their fellow tribsemen.
Some MPs know this for instance, Cyrus Jirongo,Kabando wa Kabando,Noah Wekesa and Uhuru Kenyatta.That's why they are on the ground telling their constituents to keep the peace.

As the Bible says 'Can a man carry fire in his lap and not get burnt?'

The church
My faith in this institution is totally eroded.I hadn't known that most of the leaders are hypocrites.Before the election, churches rushed forward and took sides.Churches were competing in taking Advertising in the daily newspapers in support of either side.After the election,they kept quiet for a week, then joined the diplomats in issuing photocopy statements.The statements all said the same thing -dialogue and peace.
The irony is that most of the clash areas are very conservative with high church attendance numbers on Sunday's.
Why didn't church leaders come out on December 31st and urge their followers not to loot, burn or attack members of other tribes?

Why was the church quiet?
Small wonder, that the band of atheists keeps growing.

AS I SEE IT...SECURITY AND THE FUTURE

Today i will concentrate on our political rather than economic state.After all politics affects the economy.i.e. siasa mbaya ,maisha mbaya.My view of politicians is that they are all liars and opportunists.

I think the following facts are agreed upon by everyone across the political divide.

I-The December 27,2007 elections were flawed.

II-Both ODM and PNU areas had voting irregularities.Hence,it's a case of who cheated more rather than who didn't cheat.

III-A vote re-count or Presidential election run-off won't solve the current crisis.

IV- Not withstanding the furore over the elections Kibaki is the legally recognised President

Where are we?
At present the crisis has degenerated from a simple(As if u can call the loss of life simple), election dispute to a tribal conflict.The two main reasons as to why the crisis has degenerated are:

1) The Government has not handled the rioters' with an iron fist.
The USA made a similar mistake on 'liberating' Iraq.They declared all Baath Party members(Baath was like KANU in the 1980s,membership was mandatory for all) unwanted and stripped them of their jobs.Then,they overlooked looting and low level crime.Because,the USA did't want to appear like a heavy handed occupation force.Big mistake, the first edict immediately disbanded the internal security forces of Iraq and created an atmosphere of lawlessness.
The looters then graduated onto bigger crimes of robbery and kidnapping.The recently, jobless Baathists provided a recruitment ground for insurgents and criminal gangs.Iraq was then engulfed in secterian violence and crime for the next three years.The situation has only improved recently through a combination of US sponsored militia(the US had to arm some of its former enemies to fight al qaeda),an ammendment allowing Baathists to get their old jobs back and tough tactics from the US military.

In order, to maintain law and order we must crack down hard on any one blocking ROADS or DAMAGING any other infrastructure.Special courts ought to be set up to try and sentence such individuals quickly(say two weeks).

The military should be given the responsibility of keeping the northern corridor(Mombasa-Malaba)-Northern corridor road open.Military forces tend to perform well when given a specific task with clearly defined objectives.Then the Police and GSU can be tasked with civil disturbances away from the roads.

Once, the roads are clear the economy can hobble along while politicians take the next couple of weeks in negotiations.If the transport infrastructure isn't open, then more people will be laid off or won't be able to work adding to the number of idlers who can participate in riots and disturbances.


2)ODM started 'mass action' without an end-game
The party did nothing to control its supporters in the first two weeks of violence.Merely, blaming government restrictions on their political activities.The reaction in most ODM zones was spontaneous(to the best of my knowledge).however,the youth were awaiting further instructions from their leaders ODM leaders failed to go to their respective home turfs and talk to the youth.As a result the orange revolution was stolen by criminal elements.For instance,in Kisumu it degenerated into wanton looting and robbery.It has created an economic and security problem that will take the lakeside time a long time to recover from.Eldoret ,Naivasha and Nakuru are in a similar situation.

ODM is a tribal coalition, (so is PNU).If in doubt look at the criteria for picking Pentagon memebrs.However,the chaos has has degenerated into inter tribal fighting among some of the tribes in the coalition.How long the coalition will hold is another issue.For instance,what will happen when to the coalition when thugs from one coalition tribe rob another?Will the victims look at it as simple robbery or consider it tribal warfare?
Can you imagine what the situation would be if the Party split up?

The violence in the ODM areas is because the youth lack LEADERSHIP AND DIRECTION.ODM shouldn't think that its support is unassailable.Human nature is extremenly fickle.The youth who chased away 'foreigners' have started to attack locals.The longer the insecurity,school closures and disruption to trade persist in those areas, the more the erosion in the party's support.The average man will ask himself if it's worth it?

Does any one remember the opinion poll last year where Kenyan favoured Kalonzo Musyoka as our next President?

The future
The average Kenyan is more concerned with security and peace.However,the politicians are still trying to prove that their side won the elections.The insecurity is likely to cause more damage to the country than the failure to count votes properly.
The two protagonists may be sidelined by a THIRD FORCE as they argue over a non event(at present the Electoral results aren't the main issue) while the country burns.This is what Paul Kagame had in mind.The country seems rudderless on the political front.As they say 'POWER ABHORS A VACUUM'

My Plea
The Government should act tougher on security.without security the Government loses its legitmacy and the Economy is in the tank.The time to Act is NOW, before the inaction and National rot seeps into the security forces.Dont fear what people think,people love security more than civil liberties.Remember George Bush 9/11 and his new Anti-terror laws?

ODM leaders should stop issuing statements in Nairobi.Go back home talk to your constituents,Let the schools open in Nyanza and Rift Valley,fight the crime and resetlle the evicted.If the KCSE,KCPE registrations end without Nyanza and /Rift Valley schols opening,the cost to your supporters(Who are Kenyans like everybody else) will be too high.
If the planting season ends in Rift Valley without calm returning,then the country faces starvation in 2009 and the residents poverty regardless of who the President is.

Once,you lose the people's support the righteousness of your cause is immaterial ,no body cares.
Whether you are ODM or PNU the current crisis threatens the stability of the Government,opposition Party and most of all the country.


WARNING
The article above may not be to everybody's taste but I've tried to speak the truth(as i see it) without being partisan.I hope it doesn't offend anyone.If you are offended my apologies.