Government Contracting to SME's

The Government of Kenya is collectively the biggest spending entity in the whole country. Yet provision of goods and services to the government is often over-looked by small and medium enterprises (SME). Many do so for a variety of reasons, some of which are late payments for good/services delivered, demands for bribes from government procuring officers, costly and time-consuming red tape procedures.

However the opportunities are there for small companies to take. It is wrong to look at this collectively because different ministries, parastatals, agencies are governed under different rules of administration and purchasing. Over the last few years the procurement process has been streamlined at many government bodies. More tenders are advertised to the public giving more opportunity for new bidders, Corruption is not as blatant and the avenues for redress in this regard have opened up. Also there are opportunities in technology that new upstart companies can grab if they are prepared for the process.

A glance at some recent GoK procurement awards at the website of the public procurement oversight authority (PPOA) shows some technology related awards including:
- Direct loading of Safaricom airtime for senior staff at the Kenya Revenue Authority - won by Safaricom (Kshs 7.8 million)
- Provision of documentation software at the Kenya Ports Authority – won by Sap Africa (~Kshs 5.7 million)
- Installation and commission of security software at Kenya Forest Services (Kshs 14.9 million)
- Supply of a network operations for Kenya Education Network- won by Lantech Africa (~Kshs 176 million)
- Provision of data capture at the High Court registry – won by DPH Software Services (Kshs 69.9 million)
- Support of the digital village sat the Kenya ICT board – won by Intelecon Research & Consultancy (~Kshs 25.9 million)

The steps to winning & executing a tender are:

- See advert in the papers
- Pay a stipulated fee to obtain bid documents Kshs 2,000 to 10,000 ($125)
- Return bid documents by a specific date and witness the opening of tenders. Bidders are often asked to provide copies of company profile, financial accounts, list of other similar contracts executed (referees/proof of performance)
- Winner gets limited purchase order (LPO)
- Winner delivers goods
- Winner receives payment

There are variations to this process; sometimes bidders are asked to return only a technical proposal (to demonstrate their understanding and expertise) subject to which those short listed are now asked to provide financial proposals. The lowest bidder at this stage should win though sometimes weighting the technical and financial scores arrives at the winner.

Sometimes a winning bidder may experience delays in procuring goods, or as a result of other factors beyond their control. The end result is that their payment may be delayed. This cash flow cycles often cripples many small business hindering their opportunity to take up new orders while waiting for old payments to be received.

This is where banks products such as solid loop, a contract finance loan, from consolidated bank can assist an SME. However, one major improvement in the PPOA rules is that a government entity cannot put out a tender for a good or service that is not budgeted for and which it has no funds for – and this cuts down on a situation where a company may provide a service that will not be paid for several years.

GoK gives you wings
So government procurement should be looked at in a new light, and many more vibrant emerging companies should seek out as aggressively as they seek out private sector or multinational procurement orders. These can be areas such as payment processes, digitization /archiving of records and web & mobile developments

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?

M4Change Nairobi

The Mobile Tech for Social Change camp (m4change) was held last Saturday (June 27 2009) at Strathmore University Nairobi, and was staged by @afromusing and @jessicacolaco

More presentations and pictures are at the Wiki page, and these are my notes from attending a brief part of the talk on mobile applications in the morning

- With regard to mobile applications e.g. MPesa, (developers should) just create them, and let users sort themselves out e.g. a credit society that has 4 managers who are signatories, each one enters one (secret) digit of the society mobile PIN# to enable a mobile transfer transaction
- Wanahabari is a text to mobile application for journalists
- You can buy prepaid electricity via mobile phone in Rwanda
- Alternatives mobile browsers to opera include skyfire and mobileXL
- Safaricom is buying out leading developers in Kenya who may develop applications that compete with them (is that a bad thing?)
- While there is demand for Safaricom to avail an API for Mpesa, it is owned and controlled by Vodafone (UK)
- If you have an account at Consolidated bank of Kenya and others, you can use a mobile phone to transfer money from your bank account to your Mpesa account
- Fibre mirage?
(i) The cost of last mile connectivity in Kenya is still high e.g. one example cited was a quotation from a leading ISP in Kenya for $10,000 to extend the fibre just 300 metres
(ii) Even though fibre can make speeds more than 17X faster today, the ISP will only make gradual increments of 2X every few months to fool customers that they are always upgrading/improving
- There is no adequate consumer protection group/lobby in Kenya to agitate for better services. The communications commission of Kenya (CCK) regulator does not respond to consumers complaints
- Only Safaricom has a 3G license in Kenya (the cost is astronomical) and so far only deployed in Nairobi, Mombasa, Kisumu
- Safaricom has developed Mpesa bulk payment/transfer systems. Example given was to enable payments to farmers in Mt. Kenya region
- A great resource for mobiles in development is the CGAP site (World Bank)
- M-pesa heralds a shift from branch based banking to agent based banking with examples (at CGAP)
- Safaricom partnership with western union to enable transfers from UK to be sent to recipients mobile phones. Still being tested with safaricom employees, but will probably be as expensive as a regular western union transfer.

Bank Review '07 Part II

Small banks, range from $40 to $100 million

Showed an inability to grow as faster as the bigger bank, with few exceptions. Yet they are still profitable and reluctant to merge

The banks got a temporary reprieve when parliament shot down the government's proposal that banks should have a minimum capital of 1 billion ($15 million) 3 years from the current 250 million shilling minimum' but that proposal is likely to be revisited by future finance ministers.

35. (38) Fidelity Bank: Estimated assets 3.2 billion ($45.7M), profit of 45 million ($0.7 million) shillings for this quiet bank with little marketing activity but which was able to grow 40% during 2007.

34. (36) Credit Bank: Estimated assets of 3,300 million and profit of 120 million, for another quiet bank which grew about 15% in 2007.

33. (33) Middle East: Estimated 3.2 billion assets and profit of 80 million in 2007. However deposits and loans are down 6% from a year ago.

32. (35) Habib Bank: Estimated 3.5 billion assets and profit of 90 million, with growth of 12% from a year ago. Participated in the first Diamond trust rights first issue as a possible merger step.

31. (29) Victoria: Estimated 4.2 billion assets 140m in profit. Flat growth expect in loans and deposits (1%), but great in profitability which is improved by over 40% in 2007.

30. (32) Consolidated Bank: Estimated 4.5 billion assets, 20 million profit with the 30% growth from a year ago. There was public fallout between the MD and the board resulting in the board being fired by the Finance Minister. The Deposit protection fund (DPF) of the Central Bank plans to sell its 51% stake to private sector, and is likely to be found next year by private sale. A loss in 2005 makes the bank ineligible for an NSE listing and the owners the collapsed banks that form Consolidated Bank are likely to figure in as potential buyers.

30. (31) Equatorial: 4.7 billion assets and 90m in profit. The Sameer group bank Out-performed corporate big sister CBA growing by about 15% in 2007.

29. (34) Development Bank of Kenya: Estimated 4.8 billion and 200m in profit. Remarkable growth fro a development finance institution to record 45% growth in loans & deposits. Part of ICDC's (Government) 90% stake in the bank is up for sale in 2008.

28. (28) Southern Credit: Estimated 4.9 billion assets, 80m in profit. 10% growth in loans and deposits, with about 40% growth in profits in 2007. Bank with a lady MD focus on cards

27. (30) Chase Bank: Estimated assets of 5.0 billion, and profit of 130 million. The winner of small bank awards, will open new branches next year and has set about achieveing a recapitalization target of 1 billion, through retained earnings.

26. (26) Giro: Estimated 5.3 billion assets, 70m in profit. With 7% growth in the year, It was supposed to be sold to state bank of India, but the deal is yet to be approved by regulators.

25. (27) Guardian: Estimated 5.8 billion assets, 45 million profit. Growth of about 15%

24. (23) ABC: Estimated 5.8 billion assets, 170 million in profits. With 12% growth from a year ago, ABC was one of the few ‘small’ banks that had a marketing push to target new customers in 2007 in addition to a recapitalization drive. Launched ‘kisima’ a flat fee account and has new branches.

23. (24) Habib AG Zurich: Estimated 6.1 billion assets, 200 million profit for another quiet bank which grew about 15% in 2007.

22. (25) K-Rep: Estimated 7.2 billion assets, 200 million profit . With international shareholding and micro-finance expertise is an natural candidate for a merger Was 29th two years ago and recorded about 60% growth in 2007.

21. (21) Bank of Africa 7.2 billion ($103 million) assets 160 million shillings ($2.3 million) profit in 2007. What is hopefully the first of many West African banks spreading eastwards has opened new branches and targeted growth of new business like asset finance.
ddia

Bank Briefs

Barclays has sweetened its’ mortgage terms

Consolidated: The deposit protection fund (DPF) will sell it’s 50% stake in Consolidated Bank back to the government –who are likely to hold on to the stake until the Bank has a profitable streak that will enable a public listing (e.g. Kenya Re) in a few years. The DPF, which guarantees funds of Kenyan bank account holders (up to 100,000 shillings), is now only allowed to invest in government securities.

Equity: As usual, is the first bank to report their September results and Kenya's fastest growing bank has doubled in almost all measures since a year ago. With assets up 42% and profits up 54% (already exceeded 2005’s) the bank is on track to reach the 1 billion shillings in pre-tax profit mark – a feat the established Nation media group only achieved this year. (See other Bank rankings)

HFCK now offers 20 year mortgage plans.

KCB has four buildings up for sale this month: Hamburg house (Tom Mboya St) for 60 million shillings, Lakhani place (Moi Ave.) 40m, Diamond Building (Moi Ave.) 30m and Loncom Building (Kenyatta Ave - Nakuru) also for 30m. deadline 10 November.

Safaricom: Is this the future of money transfers and micro finance?. Safaricom will roll out M-pesa in 2007 which was developed with CBA and Faulu Kenya. Some rough numbers from the trials: Average transaction (1,000 shilling or $14), 0.6 transactions per day, average cash deposit and transfers - 1,500 ($20), and average transfers and withdrawals were 300 shillings each.

Stanchart
- Has a new CEO: Richard Etemesi replaces Mike Hart
- To get new software: CR2's BankWorld integrated channel banking solution (source: Factiva)

Bank consulting opportunities

Investment Banking
The Government of Kenya has re-activated plans to privatize two banks (likely to be National Bank of Kenya and Consolidated Bank) and is inviting investment banks or consultants to advise on the preparation of the two banks for privatization. Some aspects of the work include marketing the banks to buyers, feasibility & valuations, and selling off non-performing assets of the banks. Deadline for applications to the Bank Restructuring & Privatization Project (info@brpp.go.ke) is June 30 and the banks are expected to be sold on or before December 2007.

Technology
Kenya Commercial Bank is seeking companies to provide a core system to support the bank’s operations. Deadline is June 2.

Politicians stalls bank reform process

According to Jaindi Kisero, the East African editor, the donor-funded restructuring of Kenyan government banks has ground to a halt and the consultants hired to advise the process remain idle.

Government influence and investment was supposed to be reduced/removed at four state-influenced commercial banks, namely, the National Bank of Kenya, the Kenya Commercial Bank, Consolidated Bank of Kenya and the Industrial Development Bank in the exercise which began in 2003.

The sticking point is that directors of these banks were to be drawn from the private sector and not be political appointees as was the case in the past. He also argues that any donor projects that conflict with interests of the Kenyan political class are doomed to fail.

Banking, Corruption, Jobs

IMF on Kenya
The International Monetary Fund (IMF) will only support drought operations in Kenya until their next review of country operations at the end of April.

Report corruption online
At the new Kenya Anti Corruption Commission KACC website. The launch was graced by Parliament Speaker, Francis Ole Kaparo, whose office is not so not so enthusiastic about websites.

Barclays improves
Barclays has joined the growing list of progressive banks by installing an ATM that accepts cash & cheque deposits at its Queensway House Branch. Many more are sure to follow.

More 2005 banks
I&M (No. 10). Loans and customer deposits increased by over 3 billion to 11b and 14.8b respectively. The Bank also increased its share capital by 500m during year.

Housing Finance (No. 14) reduced government securities from 1,346m to 796m while loans were flat at 6.5b. Profit before tax was also the same at around 100m.

Baroda (No. 15) loans increased from 2.7b to 3.4b while customer deposits also increased from 7.1b to 8b. However paying higher interest on customer deposits resulted in profit before tax dipping from 274m to 238m.

Bank of India (No. 17) Loans increased by 700m, deposits by 800m, and profit before tax increased from 73m to 80m.

Fina (No. 19) which has a significant Rwanda operation bounced back from a 2004 loss of 51m to a 2005 profit of 95m largely from reduced provision for bad debts.

Giro (No. 21) which was acquired in September by the State Bank of India went from an 04 profit of 14m to a loss of 6m in 2005 largely due to increased operating expenses.

Southern Credit (No. 26) the credit card powerhouse increased deposits by 500m to 3.6b. But paying higher interest on deposits and increased operating expenses halved profits from 61m to 31m.

Victoria (No. 27) customer deposits and placements were each up by 500m to 5.58b and 1.56b respectively. While fee income was flat, profit before tax increased from 45m to 124m largely from increased interest income.

Habib (No. 32) bank (not to be confused with the other Habib AG Zurich) posted a reduced profit of 21m, down from 94m, owing to increased interest on deposits and provision for bad debts.

Consolidated (No. 33) reduced their ’04 loss from 90m to 13m in 2005. While staff costs increased from 150m to 195m, they were able to contain other operating expenses.

Fidelity (No. 37) improved from a '04 profit of 1m to a 23m in 2005 owing to increased fee and commission income and reduced provisions for bad debts.

Paramount Universal (No. 39) loans increased from 758m to 892m and profit also went up from 12 to 16m.

Other Developments

Tax war
Between the United Business Association and the Kenya Revenue Authority over the issue of electronic tax registers

Tourism
The 2006 tourism expo targeting the low season kicks off at the Sarit Center on March 31.

Solar for tourists: Mombasa beach hotel is seeking a solar-based water heating system (deadline is April 28).

Jobs

British American tobacco
- Accounts assistants
- Trainee technical operators
Apply by April 12 to hr_batkenya@bat.com

CFC Bank
- Communications/network engineer
- Database administrator
- Software engineer
Apply to the senior manager HR P O Box 72833-00200 Nairobi by April 10

East African Breweries
- Demand planning manager
- Field logistic coordinators
Apply by April 12 to hrrecruitment@eabl.com

East African Standard
- Head of ICT services
- Head of HR services
Apply to pa-gceo@eastandard.net by April 10

Research & development manager at an investment bank. Apply to fke@wananchi.com by April 12.

Manager customs & excise at Pricewaterhousecoopers. apply to recruitment.ke@ke.pwc.com by April 13

Various jobs at the Kenya Meat Commission which plans to resume operations in June ’06.
- Apply to the Federation of Kenya employers at fke@wananchi.com for production manager, quality control manager livestock manager, internal auditor, HR & admin manager and finance manager positions.
- Former employees under 55 years who were in following departments - technicians, production, machine operators meat cutters, and packers are invited to apply to kenyameatcom@africaonline.com.

Safaricom & Mercesdes

With some ministers very quiet on the job these days, some key permanent secretaries are speaking more about their ministry policy directions and plans for the rest of the year.

Communications
Dr Bitange Ndemo, the Permanent Secretary in the Ministry of Communications gave an interview this week where he revealed that:
- Telkom will be restructured in the next few months and privatised by the end of the year. This is urgent because the value of Telkom is decreasing each year and the restructuring, estimated to cost 50 billion shillings, will be financed by the sale of 9% Safaricom to Vodafone.
- The licensing of a second national operator, - FORGET ABOUT IT, as Telkom already faces enough competition

Finance
- Joseph Kinyua, the Finance PS announced that government would privatise National Bank by the end of the year.
- Consolidated bank will also be sold to another party. The previous owners of Consolidated have expressed interest in re-aquiring the bank’s assets.
- He also announced that the government will follow in the steps of Rwanda and limit purchases of government limousines. Good luck, as we’ll keep any eye out for any new GK giants like the all new Merc S Class.



- Sector documents from the Ministry of Finance are now available at their web site

Aid plan for government Banks

The World Bank has laid out a comprehensive reform plan for Kenya Commercial Bank, National Bank of Kenya, Consolidated Bank, and Industrial Development Bank. The Financial Sector Reform Credit (FINSERC) Project involves $65m in aid, and is staggered to ensure that the governmentprivatises and restructures the banks in a timely manner. (PDF here)

2004 Banking Summary

March 31st was the deadline for all Kenyan Banks to publish their annual reports for the year ended in a daily newspaper. This is a commendable requirement of the Banking Act, that the government should also extended - and require all commissions of inquiry, constituency development funds, special projects, catering and fuel levy, city councils, ministry and all government body budgets etc to publish their 2004 income vs. expenditure and budgets for 2005. Sure it will make a lot of money for newspapers, but the greater good is an informed public with a greater awareness of how their taxes are spend.

Banking is Good
Anyway as for Bank's, 2004 was a good year, despite the lower interest rates. Most of Kenya's 43 Bank's were profitable, with few exceptions posting losses. Only 4 (Consolidated, Akiba, Fina & Oriental) of Kenya's 43 banks posted losses - the rest had profits that varied from 23 million at Middle East Bank to 5.4 billion shillings (before tax) at Barclays.

Barclays, will distribute its 5.3b as follows: (1) Barclays plc (UK) 36.2% (2) Kenya government 31.5% as taxes (3) 15.6% will retained profits, and (4) local shareholders will received 16.7% (a dividend of 14 shillings per share for 2004)

Political interference in Banks?

Industrial Development Bank
The takeover of IDB’s current account business leaves more questions than answers. On what basis was Equity selected? Was there a tendering process open to all banks and financial institutions? Given that the assets of a public (state-owned) bank are being transferred to a private Bank, is this not a form of privatisation – that must be approved by Parliament?

Consolidated Bank
Also the previous owners of collapsed banks that were folded into consolidated Bank are pushing the Ministry of Finance to turn over the Bank to them – claiming they are the true owners of the Bank.

Banking News

Postbank Modernises
Postbank has earmarked 230 million shillings for expansion including an online payment and ATM network. They are also seeking to amend the KPOSB Act 493 of 1978 that set up and governs the Bank. The Bank, which was set up to encourage Kenyans to save, is not allowed to give loans, and they would like to offer micro-finance and consumer loans at their 47 branches nationwide.

Bank to auction land
Bank of Baroda will auction off the 8,300-acre farm that used to be Chemelil Sisal Estate in South Nandi at a cost of 78 million shillings. This stems from 3 loans the directors of the company took between 1971 and 1988, that were never paid and accrued huge interest arrears. The farm has 2,000 squatters who are demanding the right to buy sections of the farm, as they have lived there for many years.

Privatisation in Kenya
(The People Feb 21) The government is considering selling its stake in three banks which it controls. National Bank, which is valued at 4 billion shillings, has attracted offers from several investors, the highest being only 500 million. This is mainly because the Bank has non-performing loans of 17 billion, 11 of which is owed by the government. Other Banks on the list are Consolidated Bank and Industrial Development Bank. The newspapers urges the government not to sell these Banks below their value, despite their various problems.

Privatisation in Tanzania
After a review of technical and financial bids, three banks - Radobank Nederland, Standard Bank (SA) and Akiba Commercial Bank - have been short-listed to bid for a 49% stake in the National Micro Finance Bank of Tanzania. (East African Feb 21)

More SMS
Prime Bank is the latest bank to offer SMS banking to its customers.

Banking briefs

The African Development Bank will fund construction of a road linking Mombasa to Addis Ababa as a cost of $55 million…Bank of India marks 50 years of banking in Kenya this month with the opening of a Westlands Branch …Imperial Bank has introduced VISA credit cards for its customers…Consolidated Bank of Kenya has introduced ATM services, under the Kenswitch consortium, as well as e-cell banking (via mobile phones)…a bank known as Osienala Beach Bank (friends of the lake) has been opened by an NGO to enable 5,000 fishermen along Lake Victoria to bank their savings... Fishermen at the Kenyan coast are now eligible to receive loans from the Agriculture Finance Corporation (AFC)…Stanbic employees handed out flowers and choclate to their customers to mark Valentine’s Day…and the National Housing Corporation will sell 850 housing units to recover Kshs. 1 .3 billion owed to it by the Nairobi City Council.