Thursday, June 12, 2008

2008 Budget A to Z

Compared to the lofty 2007 Kenya budget, this one came at a serious time when the country had almost reversed gains made over the last five years, according to the Minister.

Challenges: regional disparities, poverty, youth employment low agriculture productivity, transport during crisis raised food prices, and containing inflation

Targets: 10% economic growth by 2012, Kenya to be a Middle income country by 2030, Social income reforms, develop a democratic issue-based political system and a higher quality of life

some excerpts

- Airlines: For Kenya airways: zero rate on international air travel no VAT on tickets?

Banking
- increase share capital from 250 million and 300m to 1 billion over 2 years(parliament rejected this last year) and can’t pay dividends till adequate provisions are made.
- 5 development finance institutions to be restructured, as will Postbank and the agriculture finance corporation. National bank will be privatized (further)
- CBK can penalize forex bureaus for violations
- Fate of unclaimed deposits to be decided by a task force to be formed

- BRIC China and India will keep food and oil high, but there are regional Africa opportunities

Capital markets
- NSE reporting: companies like Safaricom and kengen can publish their notices and accounts in two daily newspapers as opposed to mailing each shareholder a copy
- Insurance companies can invest 10% in any listed company – up from the previous 5% ceiling
- Annuities to publish quarterly returns
- Asset backed securities rules will be gazetted to encourage particplants
- Share capital of stockbrokers and i-banks raised to 50 million and 250 million respectively as anyone owing more than 25% barred from running the companies (3 years to comply). They must also get indemnity insurance for failure of employees
- CMA to get more power to seize assets

CDF: CDF benefits not tricked down due to poor management and there will be more accountability to reduce duplication. does that mean less funds for CDF now?

Education
- 1.56 billion towards teacher employment
- Teachers kids' education now not a taxable benefit for employers and teachers

Energy
- NOCK (parastatal) expanded to stabilize petrol prices
- clean energy: 4 billion for geothermal, 300 million solar electricity generated to supply 74 public institutions, 200m for wind power generation
- 6.8 billion for rural electrification (to develop mini grids) which will reduce rural urban migration.

Food prices
Minister says food price beyond the control of government
- Maize imports duty free
- talks to set up a regional fertilizer factory with Uganda and Tanzania
- 744 million for agric extension programs
- zero duty on bread and rice
- duty reduced from 35 to 10% for one year on wheat imports
- no duty on insulated tankers for milk transport

Health
- more nurses to be hired
- 550 million to support guardians of HIV orphans and this will benefit 30,000 households - up from the current 2,500

Housing
- Housing bill, landlord & tenant bill coming
- 350 million to construct 200,000 low cost housing units using appropriate building technology
- 500 million for infrastructure in slums
- National housing corp: relief for buyers of their houses – up to 150,000 p.a.

ICT
- 900 million shillings to develop a business process outsourcing park in Nairobi (BPO) which may create 10,000 jobs
- 700 million towards completion of Under sea cable improve bandwidth quality, reduce costs of communications.
- Remove import duty on telecommunication equipment as well as on printers

Land
- No stamp duty transfer for land transfer by individuals to companies wholly owned by families

licensing:
- communication commission of Kenya will reduce the number of licenses offered from 300 to 16 from July 2008, Ministry of tourism reduces from 25 to 2, Mines & geology 24 to 8, Betting control 26 to 9, Forestry from 15 to 11
- Business regulatory reform commission to be created

Manufacturing
- Remove import duty on hot rolled steel (was 10%)
- New 10% tax sodium sulphate, epoxy resin) to protect local producers
- Reduce import duty on cement form 40% to 25%
- Tax on plastics: manufacturer's can apply to get refunds of this tax get in line

Northern Kenya
- 2.9 billion shillings to the arid and semi arid areas rehabilitation through various ministries: this will include water, abattoirs, school feeding programs, rural electrification, livestock support
- also 900 million for the garissa garsen hola road (done by NYS) and for 200m improve marsabit and maralal water supplies

Parliament
- the Minister was interrupted for not sharing budget information for MP's in good time
-The Minister later asked members of parliament and constitution office holders to pay their share of income taxes

Ports:
- Mombasa port will be expanded with 20 billion of Japanese funds to allow bigger ships
- Free port at Mombasa to be set up (like Dubai) which should create jobs for the youth

Privatizations more coming to fix budget shortfall

Railway: Government wants Rift Valley Railways to increase capacity, lay more tracks, and transfer cargo.

Retirees: No tax on all pensions for those over 65 years

Roads:
- 65 billion shillings to be spent
- Build Athi river-namanga, mau summit – kericho, Nairobi to Thika
- Register all road contractors, engineers, quantity surveyors
- Long term infrastructure bond

Security:
- More funds for police force salaries, and equipment to fight crime
- Organized crimes bill to control gangs and militia and an anti money laundering bill coming to parliament
- 2.8 billion for new housing for police and prisons staff

Shilling central bank will not be intervening to adjust exchange rates

Sin taxes: beer and alcohol to cost more

Sports & arts
- Artist and sportsmen; any tax paid abroad can be used to offset against tax in Kenya if they show evidence of payment
- National football competition in every constituency (1 million shillings per constituency for purchase of kit and balls)

Tourism: budget 26% up
- 600 million to KTB to promote Kenya
- Exempt import duty gym equipment for hotel industry

Youth employment
- Absorb NYS graduates into armed forces
- Youth enterprise fund gets another 500 million
- 465 million for free tuition in vocational colleges from January 2009
- The 900 million shilling garissa hola road will be built by NYS who will also get contracts to fix dams across country - and who will also employ local youth

Water & environment
- 26% water budget improvement
- 1 billion towards multipurpose dams (built by NYS)
- 2nd mzima springs project to supply Mombasa with water.
- program to clean up Nairobi river
- Remove import duty on garbage collection trucks

Vehicles
- motorbikes: Zero VAT to motorcycles less than 250cc
- Vehicles to be registered as soon as they arrive in the country to prevent diversion of transit vehicles to local market

14 comments:

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Anonymous said...

clever by half budget seems to me the govt is heavily intervening in business. - me thinks funding for stuff like narc and power sector can be done better using different mechanisms. For example building powerstations, the port, thsi CDf soccer is just increasing scope for corruption. All that stuff can be done better using incentives and public private investment there is a ton of money in the middle east that needs to be parked not to mention the overs subscribed safcom money.

anyway me thinks projects like roads and long term physical infrastructure should be funded with bonds.

And instead of having this small projects here and there to create employment the govt should establish a comprehensive social welfare dept.

and this business of duty free dump trucks - smell a rat. somebody in the know knows something we dont know kwani GM cannot assemble this trucks in kenya ? what about all the body builders ? i smell a rat lets watch and see who gets the contract for cleaning up nairobi and mombasa and who are the silent shareholders.

regardless the budget process is fucked up - the budget should be taken away from the executive and moved to the legislature(a reformed one i.e) mixing new laws and the budget is not a great idea the budget should be about the budget - but i guess thats waht we get from having no separation of power. the executive is in effect assuming the legislative role by blackmailing parliament to pass specific laws in order for the budget to pass.


where i live in california the budget takes almost 6months to be negotiated everybodys voice is hard and there is back and forth between the governor and the legislature.The budget originates form the legislator but it has to include the governors proposals - since he can veto it.

so anyway with CDF's, Youth funds, soccer funds to buy kit and balls,
womens funds etec etc all controlled by MP's

discomuthenya said...

while i agree with anonymous about the track and the soccer i think we also need to apprciate the rest of the budget that is wholly directed at making things easy for the mwananchi.this is nai not cali so the same things do not apply.if you see the trucks collecting our gabbage you would be too concerned where they came from just as long as they do come.
as for funding of the budget lets remember that ours is now a budget with MINIMAL donor fund factored in. our neighbour have no such luxury and their economies would wither and die without that surplus. lets focus on what can be done rather that what should be done.we're out of time and falling far behind in the rat race.2030 is notin the next century its tomorrow!
no country or city is without it issues hell even the gorvernator has his hands full.our streets are clean and lit.as a mama i can wlk across town in the night without (much) fear and even potholes get filled almost as soon as they form. is it enough? of course not but its a start and thats a whole lot more that we had six years ago. lets stop acting like we've come from such a good place and this is purgatory.its the other way round we are in a good place now so lets make sure it stays that way or make it better. we've got much to loose if we don't.

Gitts said...

good to see telcoms and airlines have been remembered.

I really wonder whether MPS will actually approve taxing of their allowances

tumwijuke said...

Very useful breakdown. Thanks. I'm going back to re-read and review.

Just ... one thing caught my eye. The zero tax on motorcycles. Gear up for bodaboda madness my friends. Gear up.

bankelele said...

jfmarcelo; what can i say?

Anon:
the garbage truck clause was across east africa
- also what the minister says are proposals, many of which require new legislation, they don't become law overnight

Discomuthenya:
if road sector is cleaned up, and railways get rolling, Kenya is halfway there

Gitts:
- that was a godsend for KQ
- mobile companies wanted tax on calls to be reduced, but will take the equipment tax cuts (esp. econet and orange)
- we wait and see about MP's

tumwijuke: i still don't see motobikes taking over the nairobi roads yet, they'd have to invade like a swarm (in numbers) to teach car drivers to respect them and give them way

Maishinski said...

Anon, what the f_ck are you on about?

You're not making sense at all. If the US budget is so great, why are they in a recession?

Come down to earth my friend - those clouds aint real.

Anonymous said...

@ maishinski
rcession and budget are two different things no need to get agitated - i wa s just highlighting a process. i didn't say or suggest the US is perfect - the budgetary process is a threat to democracy. my job is not to be a govt cheerleader. im just voiving my opinion if the if the govt is trying to help wnancnhi why not just give them a 'stimulus check' and let them decide instead of giving it to MP to decide for them via CDF's soccer funds and youth funds after all not everyone is businessman.

Anonymous said...

Stimulus cheque? Hahaha!

Yeah, that would definitely help "jumpstart the economy" (sarcasm intended).

Why work when you can get free money from the government?

You are entitled to your opinion, but, for me, I think the coalition budget was a PEOPLE's BUDGET.

Maishinski said...

@ Anon In Cali,

Sorry I was a bit rude. Morning blues perhaps.

I dont believe in stifling debate so feel free to voice your opinion.

Cheers!

:-)

Anonymous said...

Will the thieves and murderers approve taxes on their own salaries? Have our MPs finally realized they are not "gods" but human beings like other Kenyans?

I am eagerly waiting to see what will happen. I hope they dont increase their salaries in amounts proportionate to the tax to hoodwink wananchi!

Biz Journalist said...

The Budget was a feel good one but it lacked specifics on how the money will actually be raised to finance all these schemes.

KRA depends on growth in the income and corporate sector for it to collect more taxes.

Massive domestic borrowing by government is likely to impact negatively on the credit markets for the private sector. Higher interest rates. Companies with little cash may find it hard to finance growth projects and may instead hold on and even cut jobs.

The Central Bank jokers who rarely come up with any coherent policy will not help in this regard especially as they are still living in the era of narrow-casting policies - they claim that the Bank cannot affect the current inflation - a fact that is disputed by Ben Bernanke in his criticism of how the US Fed responded to the 1970s crisis - high oil prices and commodities - high inflation etc which are analogous to the situation in Kenya.

In short I think it is a risky budget in practical terms- in political terms it was a masterpiece

Maishinski said...

America now knows that Ben Bernanke's policies are responsible spiralling the US into a recession.

CBK has done well. Higher interest rates will be painful - but they are necessary to check the current levels of liquidity! We do have a problem of excess liquidity. Remeber the 110+ Billion forked out by Retail investors???

Lowering interest rates can be destructive as the most likely result will be an increase in "bad liquidity" (disposable cash from loans). Markets will adjust prices of goods and services to reflect the increase in spending power (basics of demand vs supply) hence the purchasing power of KSH will deteriorate.

Since salaries will be mostly paying off loans, and cost of goods will have gone up, it wont be long before a labor crisis crops up as employees demand higher salaries to meet increased cost of living.

Company margins will thin out resulting in retrenchments and other cost cutting measures...

Result: Economic slowdown, higher joblessness, higher inflation.

Staglation's a bitch aint it? Its not just timely action that's needed from CBK - its the right action. I think they have started off in the right direction.

bolingowarrior said...

Bankelele,

Thanks for your highly useful posts on Kenya's business scene. I had a question though, why has it become conventional wisdom in Kenya that fewer banks are better? I refer to the budget proposal to raise the minimum capital requirement to Kshs 1bn and the subsequent Daily Nation editorial at
stating that the country needs fewer banks. I am surprised that folks believe that increasing control of the sector by a few banks is an economically sound policy.

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