Youthful Tantrum

The saga at the Youth Fund continues at the board hit back at the Minister of Youth Affairs for ‘re-appointing’ the ‘previous CEO’ to his previous post. And the nightly news have duly shown two CEO’s show up at the Fund office, each claiming authority to run the Fund – one backed by the Board of Directors, one sacked by the Board (and reappointed by the Minister)
For month now the CEO has had the upper hand in the media making rounds that he had single handedly stopped the Fund from engaging in financing deal with Canadian group Enablis – one which would the Fund would have been better served by channeling these funds through local commercial banks

Now the board has hit back with a hard hitting statement giving reasons why they had fired the CEO including that he was in-subordinate, misused resources (over-claimed imprest, attend training for fun), took trips to his distant home in northern Kenya under the guise of making official trips in his government allocated car), inflated procurement contracts, among other things.

The government inspector appears to agree with the board in most of the allegations against the CEO; but their recommendation is also curious: they don’t say the CEO should be sacked, instead - “…the audit team noted the board had lost faith and trust in the CEO and that they cannot continue to work together as a team. The only prudent action by the minister is to separate the two.”

This bring to mind a similar stand-off a few years ago at Consolidated Bank of Kenya where the Board said the would not renew the contract of the CEO and asked the Minister to appoint a new CEO. However the cards were flipped on the Board and they were all sacked, while the CEO was re-appointed to a new contract

This time around the stakes are different. The board appears stronger and the Minister not as powerful; in fact she is under siege from her own assistant ministers and the Board who used comments against her this week in the media including ‘lying, crying, comical’. So how will this one end? How should it end?

Rules for Kenya Internet Trading

Continuing with the pace of more regulations to strengthen the securities industry in Kenya, the capital markets authority (CMA) has availed at their website even more draft regulations for public discussion that cover internet trading, disciplinary actions, takeovers and licensing. In addition to those rules for public offers they have;

Internet trading
- Kenyan organizations or those which target Kenyan investors need CMA approval
- Source of platforms: they may own, gets from eth exchange (NSE) or use other platforms if CMA approves.
- Those who already have should re-apply – licenses are renewed annually, and are canceled automatically if one stops being stockbroker, network or exchange
- All platforms should Ensure confidentiality, safety of data (no manipulation, virus etc), back up plan, maintain audit trials Encryption and firewalls, Prevent duplication of orders
- Stockbrokers can sponsor chat rooms
- Traders to Report monthly on number of users, transaction averages, and system downtime

Disciplinary Processes
- Proposes creation of disciplinary committee that follows civil law e.g. sharing of evidence, call witnesses, cross-examination
- Committee can warn or censure firms or persons or can suspend or revoke licenses

Take-overs (intended to sort out carbacid-type deals)
- Board of company being targeted for take over must hire an independent financial adviser
- Offeror to make public announcement, if there’s unusual movement in target company share price
- No withdrawal of offers unless the CMA rejects it; also the target company has 3 weeks to decide
- If takeover fails, have to wait at least 12 months before making anther attempt - specifies format of takeover documents and reply documents to be filed with the authorities

Licensing (for securities exchanges, stockbrokers, investment advisors)
- Stockbrokers (share cap 50 million or~$670,000) to disclose their information technology, and comply with ration for overdrafts, borrowings
- Agents can only work with one stockbroker, and may not handle client funds
- Dealers (share cap 20 million or $267,000) to disclose their information technology, and comply with ratios for overdrafts, borrowings and investment portfolio liquidity
- Investment advisers (share cap 2.5 million or ~$33,000) their portfolio may not exceed Kshs 10 million ($133,000) otherwise may have to become fund manager to handle larger business
- Fund managers (share cap 10 million) and Investment banks (share cap 250 million) must also disclose their information technology, and comply with ration for overdrafts, borrowings

send comments to ceoffice@cma.or.ke

Pesapal goes Live

I first heard about Pesapal, from founder Liko Agosta, at the September Nairobi skunkworks forum.

In a country (and region) where the mobile phone is, next to cash, becoming the preeminent means of small business payments, Pesapal which will enable Kenyans to pay online via mobile phones (Safariom's mpesa or zap from Zain) for products and services from vetted merchants, is a timely e-commerce platform – that conveys benefits for both merchants and buyers.

For buyers/customers, Pesapal pre-screens and vets the vendors, which gives comfort to them in terms of them being wary of transferring payments for services which may later not be rendered, or goods not received.

For merchants/ business people, Pespal, which comes with a readily available API and pre-built components, saves them the hassle and cost building e-commerce websites to advertise their goods & services, or receive payments; they simply sign up with pesapal, track orders, and get payments/transfers into their bank accounts.

Here’s a great Pesapal review from White African.

White elephants never go extinct

stairway to heaven

The last few years has seen white elephants disappear from the scene, as seen in defunct projects that have stalled, and died and are condemned to ridicule. They dot the landscape in towns and rural areas, and are seen as monuments to changing global trends, poor planning, bad management, government pork, largesse, populism, toxic corruption etc.

Properties lie dormant for years, idle, and then every few years, someone comes along and picks up a white elephant carcass and revive, breathes life back into it; sometimes its the government and sometimes its the private sector, foreigners, other entrepreneurs who come along and say; that "it was a good idea, but it was executed wrongly ((e.g. the Numerical Machnining Complex is something every industrialist talks about but is forever condemned because it was associated with the nyayo car.), this time we'll do it correctly" - and they throw in some cash, put a coat of paint, sometimes tear down white elephant carcass, re-open a factory or hotel, put on a new coat of paint, add a production line, change the public image etc. And things change for a few years in the revived area.

But it's a cycle of up’s and down's - and when one year something is revived, somewhere else something is going bust. This week as there are plans to revive Panpaper, down goes the Kenya planters coffee union (KPCU) and numerous dams built for water conservation at apparently inflated prices.

So white elephants will never die; as long as you have dreamers, entrepreneurs, go-getters, leaders with bad intentions, crooks who default - but mostly people who say it can be done! Sometimes they are right and we applaud and revel in their success, but sometime they are wrong - and more white elephants are born.

recent pics of a few

Idea Exchange: Local Techies

The last Nairobi skunkworks forum introduced me to a couple of interesting local companies, so let me add some more to the list.

From the mail-box are recent pitches from local companies, some of which I’m interested in, some I’m experimenting with, and others I am yet to check out – check them out, give them a try, hare comments, and learn about more these local tech companies

1. From Nigeria comes UBA Bank, Just licensed in Kenya, the one bank (other than stanbic bank (SA) that has embraced new media tools for communications such as marketing, customer service and investor information – has a twitter account, facebook group, (even an Arsenal FC fan page) and are very responsive to online queries; will any Kenyan bank step up and match that?

2. Also from Nigeria is Text2fly a mobile service that lest your search for flights putting a travel agent in your mobile phone. Not flown much of late and next flight is likely to be local, but I’d personally be interested in a service that lets me know what’s available, - like Kenya last minute see 10.

3. Uzanunua bills itself as a a cost effective way for Kenyans to buy & sell goods through online auctions e.g. cars, property

4. Freeview is a basic free digital television service, with no monthly fees
5. Webpesa is a local ad revenue generator for local blogs and publishers, a local adsense that allows small payments .e 500 shillings by m-pesa or zap, a fraction of the $100 adsense cheques.

6. The Strawberry Store is a web store for gifts, furnishings and accessories that brings IKEA to your door step

7. Ignite has new workshops series for October and November that cover mentoring, networking, negotiation and other skills at affordable package for entrepreneurs

Those I know

8. Book Villa I’ve been a members of this book club for a couple of years – and for 2,000 shillings (~$26) read all the fiction and non fiction books (borrow & return two at a time) you want to.

9. Mamamikes reminds you that Kenyan kids are about to undertake primary and secondary level final examinations and how you can send the gift packages for motivation and luck.

10. Kenya last minute has last minute travel offers for harried workers in need of an instant vacation and includes disounted hotels, air tickets etc.

11. I’ve just joined Zuqka which is the brain child of Kahenya. If I describe it as a local facebook/magazine/TV platform, what would Kahenya call it?

M-Pesa as a low cost bank account

Safaricom have extended the registration deadline for m-pesa divided payments via cell phone to today - October 15. Over 465,000 of their shareholders own less than 1,000 shares, and will get a dividend payment of less than 100 shillings ($1.31), with most in this category likely to get about shillings, assuming they have not bought any shares since the IPO allocations.

M-Pesa's latest offering During the dividend registration process, Safaricom has clarified that shareholders receiving dividends of less than 100 shillings will only be able to buy airtime with this, while those with larger dividends will be able to withdraw the cash, pay bills, send it to other people etc.

All this brings up the question that has been asked several times, most recently by research group - CGAP in the blog post cell phone bank accounts as an incentive to save money. If you compare holding cash in an m-pesa account, you are able to gain comparable benefits to low cost bank accounts offered at several leading local banks – and can use banks for those services that M-pesa or Zap (from Zain) don’t have e.g. withdraw cash via m-pesa, and go to Equity Bank and buy a banker’s cheque for 50/=

Benefits of m-pesa banking
- 24 hour banking: More reach & access than any bank or ATM network
- Mobile banking with operator tends to be cheaper then mobile banking via bank provided services
- Saving in transport costs and banking transaction costs
- Can pay a variety of bills for utilities at a low cost
Challenges of m-pesa banking
- Lack of float at dealers to transact/occasional mpesa system downtime
- No credit history; and the clumsy expensive statement from Safaricom not useful yet
- Calls for discipline to build savings
- Funds are not insured, and are more prone to crime. And dealing with a stolen phone in Kenya is not a pleasant experience.

Anyone tried to use m-pesa as their main bank a/c?

This Time Around

1. Sustaining Pastoralists: Three years ago, in January 2006, there was a government plan to assist pastoralists by encouraging farmers with abundant pasture and water to buy animals from pastoralists and keep the alive during the prolonged dry season.

In September 2009, Kenyan TV screens have had, images of dying cattle being rushed to the slaughter houses where they will be bought by the government from ranchers at a cost of almost $105 each. But with cattle dying before they can be properly certified for consumption, the government of Kenya through the agriculture finance corporation; now decided to revive the program (details here); the livestock- off-take program targets private ranch owners with surplus land capacity to purchase animals from 22 drought-hit districts.

2. Compensating Investors Nyaga Stockbrokers eventually collapsed in September 2008, despite an earlier bailout that was intended to keep the stockbroker alive when news of its troubled reach the front pages of local newspapers.

The last time a stockbroker collapsed, investors had been compensated from the sale of stockbrokers seat which yielded about $3.5 million. But in 2009, the value of a seat is not considered to be much, hence the need to dip into the investor compensation fund – and late in September 2009, we got the final tally from the capital markets authority - spelling that it would (and teh CMA has paid out 90%) to 27,829 investors a total of Kshs. 302 million shillings ($4 million) from the investor compensation fund (said t have 426 million)
- Payments below 50,000 shillings will be made to a total of 25,135 investors
- Payments of above 50,000 will be made to a total of 2,744 investors

3. Reviving Uchumi In June 2007, Uchumi Supermarkets set out to tap investors for funds through a shareholders debenture loan that was not too successful.
They are now back in 2009, asking for the same funds this time, with much improved performance and the prospects of the company getting out of receivership and being re-listed at the Nairobi stock exchange much better.

Banking on Other Income

It's crunch time in Kenya’s economy and many companies are feelign the pinch. While operations may be hurting, listed (and unlisted) companies still strive to report (increasing) profits to shareholders to they will look to unconventional income opportunities to deliver by year end:

some examples

East African Portland Cement: went from a profit warning issued at their ½ year to a full year profit increase thanks to a property revaluation exercise.

Mumais Sugar: full year profits were attained due to a tax credits they gained from investing in electricity co-generation.

Scangroup: profit in the ½ year was credited to income from their investment in Government bonds

Access Kenya: profit growth in the ½ year was attributed to the strengthening of the US$ against the Kenya shillings - and most of their revenue is dollar denominated

Counting on Other Income: Going forward, other companies can also employ similar measures to plug income gaps e.g.
- Tax breaks from listing - Safaricom
- Green energy – carbon credits, co-generation - Kengen, Safaricom
- Fibre cable/IT investment writebacks
- Property and investment revaluations
- Forex: a weak shilling is usualy good for Kenya Airways and tea companies

Olympia Capital 2009 AGM

excerpts from the last ½ of the meeting

Q&A leading into the 2009 AGM, Olympia shareholders had many questions revolving around the companies investment strategy, governance issues, disastrous foray into South Africa and prospects of escaping an Uchumi like future as the AGM was postponed, and happened a week later than scheduled.

Governance: - the AGM was delayed, the Board said, because the annual accounts were late coming out; one shareholder urged them to do better, not aim for the minimum corporate of 21 days only to avoid being late and incurring regulator penalties. CEO (Michael Matu) said they had noted this and had improved to the extent that the ½ year accounts were released in September, just over month after completion of period.
(lacking) corporate governance (missed this part where the auditor read out a statement that the company had no corporate governance in place. The auditor apparently made a similar remark last AGM, but that was omitted from the minutes of the meeting presented today - the directors mentioned they have engaged consultants and were embarking on corporate governance measures. One shareholder noted that the board had promised the same last year and no piece meal measures have been implemented to which the directors said they were doing this now and would brief shareholder in about two months
director loans increasing each year amount to 18.3 million – who, for what, what terms? CEO said he’s the only director and he has borrowed to buy house and car. Loan interest is paid and assets are charged to the company
insider board: One shareholder complained that 5 of the 7 directors had links to the parent company, so board was not truly independent
investor briefing -one shareholder presented the directors with a list of 35 detailed questions. The chairman suggested they have an investor briefing in about two months where all these and other shareholder questions can be exhaustively answered it will not be an EGM. CEO also promised to reply to all these questions via e-mail to the shareholder and copy his replies to the Capital Markets Authority whose representatives were in attendance
- at that time, the directors all also explain what measures they have taken in the area of corporate governance

Strategy Going Forward - For SADC (southern Africa) Olympia is still keen on the building materials market which is still strong. Even plan to go back into South Africa but without a link to Builders Warehouse – who handled 75% of their sales. They hope to revive and relocate the Natwood business to Botswana (Gaborone) from South Africa from where it will be easier and cheaper to supply their core markets in the Gauteng region (transport distances will halve from 600km to 300km)
- now going into Zambia on a smaller scale, and will look at Zimbabwe since economy is more attractive after dollarization
- part of problem was they did not make the management changes that they hoped to make; hire right people

Investments - Dunlop is profitable this half year, though had not yet installed new plant they bought to replace their exiting 1970’s plant. However with what they know from the Botswana tiles operation, they know how they can multiply their products & sales in Kenya with Dunlop once new plant is installed. From Botswana they supply South Africa, Zimbabwe, Angola Nigeria and Mozambique. Answering a separate shareholder question, mentioned that factory land had been given to Dunlop to support their balance sheet, but transfer had not been effected since they were awaiting confirmation that there would be no stamp duty to be paid on deal
- Mather & Platt, they bought out centum’s shareholding, but are yet to beef up the management there
- A shareholder (who was transaction adviser on the rights issue of 2007) said he was surprised to see how share transfers were disclosed in 2009 accounts. CEO said that at the time of rights issue, shares were allocated pending investments later made. E.g. Olympia had no cash to take up Heri rights issue, but Avon advanced Olympia cash against balance sheet . In answering a similar question CEO said of their strategy – when they see opportunities, but have no cash they arrange for third party to buy shares and agree to re-sell them to Olympia at later date
- No due diligence in describing Natwood investment, CEO had mentioned that they paid ½ the funds but later their due diligence showed that there were come issues within the company and a shareholder questioned if any initial due diligence was done at all. CEO explained that if company went after blue chip companies, they would pay premium prices, but they chose to go after viable but distressed companies and in this case they had consulted advisers and lawyers before natwood deal.

Shareholder votes - One director was re-elected, but COO Mwangi Wamae opted out of re-election to the board.
- ESOP though directors said employee share options plan (ESOP) will be a key tool to attract top managers for the various companies, shareholders voiced concern that this was the wrong time to bring up an ESOP, with the board governance not in place. Directors argue that the ESOP approval was separate from the implementation noting that - they have had an ESOP in Botswana for 3 years with no shares issued, and that the CMA (Kenya) would not be discuss and approve an ESOP unless shareholders had approved it. Since this was a formality it was approved.
- A dividend of 10 cents was approved. Chairman joked that this was the same as Safaricom was paying

Summary: Olympia CEO and Board pulled it off (again) - reassuring shareholders that the company was sound, strategy & governance would improve, they had a plan to take it forward and that the worst (of the SA foray) was behind them now.