How 30% Kenyan Shareholding of Foreign Companies was Conceived

For the last few weeks there's been talk about the 30% rule. Yesterday the CS for Industrialization said it was a mistake, and the team at Anjarwalla & Khanna said they heard that it had been introduced late in the process and that they flagged it and written immediately to the Attorney General on it. 

Anjawalla & Khanna briefing

But how did it come about? The talk was that it was introduced late in the third reading of amendments to the Companies Bill which was a voluminous bill - almost 800 pages and with 1,000 clauses - that was discussed in parliamentary sessions over a period of 5 days.

The Hansard of one session (from Mzalendo) shows that the clause that specified that foreign companies should demonstrates that at least thirty per cent of the company’s shareholding is held by Kenyan citizens by birth may have been introduced by Wesley Korir, the MP for Cherangany - and this led to a long debate late in the evening for parliament (the sitting time had been extended).

It was supported by some MP's and opposed by others including: 

For the amendment

• Nicholas Gumbo:  If you go to some neighbouring countries in East Africa, you cannot be allowed to register a company unless you give 50% to locals. Why should we be apologetic about this?
• James Nyikal: The reason is that as Kenya is growing richer, the majority of Kenyans are getting poorer.. The reason is basically that a lot of the wealth we have is actually owned by foreigners and a few people who pretend to be businessmen but are basically agents for principals who are abroad. In South Africa, immediately after their independence, there was serious effort and companies had even to give shares to local people, so that ownership became local. So, 30% is acceptable and we should support it for the sake of Kenyans.
• Sammy Mwaita:  I support because I remember when we were discussing the Public Procurement and Disposal Bill in this House, we pegged the local content at 40% , so that citizens may benefit from business. This is timely. We should initiate it from the time of registration. This is a very good move. 
• Robert Pukose: I support this amendment of 30%. This is because when you compare us with our neighbouring countries--- In Tanzania and Ethiopia it is 50%. Ethiopia makes it very positive because companies are not allowed to employ a foreigner who has qualifications which local people have. So, we should accept this 30%. 

Against the Amendment

Hansard page from Mzalendo

• (Senator) Gideon Moi: ..Number two is the fact that imposing 30% local shareholding on any foreign company is very extreme. People who want to put their money in a venture are going to be extremely wary of just picking on any shareholder. If I were to support the Member, the local shareholding would be less than 30% or none at all.
• James Oyoo: When Kenya attained Independence, it was a prerequisite for any company to give shares to local Kenyans. The immense greed of Kenyans made us reduce it to 10% (when it) started going to individuals’ pockets. It is a good idea but it is ill conceived.
• Aden Duale: The history of Mobitelea and Safaricom is very clear. Some brokers would sit somewhere and this meant we would increase brokers on the streets.. We will make Kenyans who are brokers in the village to say that if you cannot give them 30%, you will not do business. That is not what happens in most--- President Obama says, “Take Kenya where South Korea has reached.” That law does not exist in South Korea and Malaysia...You must allow engineers to have companies but you will have people who have not gone to school. 
• Samuel Chepkonga: .. I was a regulator at the Communications Commission of Kenya (CCK). We provided a policy in which we said that for you to invest in the telecommunication sector you had to have a Kenyan partner with 30%..They kept amending the policy in the telecommunication sector to where it is now; there is 0% requirement for a Kenyan to invest in the telecommunication sector..Let me tell you Members, foreign direct investment comes in huge amounts such as US$500 million. Which Kenyan will produce US$150 million? Let us be serious. Secondly, we are a very poor country. We are seeking to attract foreign direct investment. You are now telling those companies which are seeking to invest in Kenya that this is not an attractive destination. This law is seeking to encourage and make Kenya a friendly investment country. If you are going to bring things such as these, you are going to chase direct foreign investment out of this country.

Parliament Salaries 2014

This week, we get a look at the payslips of two Kenyan members of Parliament (MP); One from the Nairobi Senator, Gideon Mbuvi Sonko, and the other from National assembly representative for Homa Bay, Peter Kaluma. While they earn roughly the same amount, they differ because one does not need his salary, while the other says he can't live on his salary (and stretch himself further).

Kaluma: Peter Kaluma released his payslip to support his position before a court case, in which he was asked to increase his monetary support for a child, which he said he could not do - as he took home zero in net salary.

Bits of his payslip

Income

Salary Kshs 319,500 (~$3,759)

'Administrative' 213,000

'Sitting allowance' 10,000

'Vehicle fixed cost' 356,525

Deductions

Pay-as-you-Earn Tax (PAYE) Kshs 257,839 ($3,033)

Motor car advance 184,164

Co-Op Parliament 153,611Pension 40,257

Parliament SACCO

- Pacoso Shares 20,000

- Pacoso loan 54,212
 

Sonko:  Gideon Sonko, the flamboyant Nairobi Senator, also released his payslip on his facebook page to show that he has maintained his commitment since he joined politics in 2010 to give (his) salary back to wananchi (people) and listed several churches that were beneficiaries of his largess.

Bits of his payslip

Income

Basic salary Kshs 319,500 ($3,758)

'Administrative' 213,000

Via: Nairobi News

Sitting allowance 30,000

Car maintenance 356,525
'Responsibility 96,000

Total Kshs 1,015,025 ($11.941)

Deductions

PAYE 292,439 ($3,440, equal to 28.8%)

Pension 40,257 

Pacoso shares 50,000

Pacoso loan 64,703

In line with previous other discussions of the salaries of members of parliament, MP's earn 2.6 times what they did seven years ago. But at least they are paying an amount of tax, as other income top earners, on the full amount of their entire gross income (equivalent to about 28% tax), not just their basic salary, as in the past that left their hefty allowances (vehicle, responsibility etc.) untaxed.

Some predictions over the next few years;

- MP's will continue to increase their salaries, because they can.

- MP's will move the the elections date back from April 2017 to sometime in 2018 to get a full five-year term.
- MP's will scrap nominated parliamentary seats so that only people who campaign as hard as they, can enjoy the benefits of their 'hard work'.

- MPs will move to try to allow politicians to run for more than one seat, so that in the event they lose a large seat (President), they have something to fall  back on (e.g. in parliament, or as cabinet secretaries).

NSSF and SME's Part II

This weekend, the National Social Security Fund ran an advertisement in the newspapers clarifying amounts that employers and employees will pay now that  changes to the NSSF act are legal.

Earlier media, and social media, reports had NSSF taking as much as 12% of an employees earnings. But the NSSF ad introduced the phrase pensionable salary on which the deduction is based - so it's a percent of Kshs. 18,000 (pensionable salary) and so if someone earns Kshs. 100,000 ($1,175 per month) and their employer has no current pension scheme, their deductions are: 

Tier 1

Kshs 360 from employer

Kshs 360 from employee

Tier 2

Kshs 720 from employer 

Kshs 720 from employee

So total payment for that employee, that an employer will remit to the NSSF is Kshs 2,160 - and not Kshs 12,000. This still amounts to a payment that is five times what a typical company was making to the NSSF last year (Kshs 400 per month, per employee)  

From a note at Alexander Forbes Financial Services: The effective date (of the NSSF Act) was 10 January 2014, literally giving employers no time to apply for the opt out. They thus will have to remit both Tier 1 and Tier 2 contributions to NSSF until the opt out is granted…also that these amounts  will increase each year for the next 5 years.

EDIT - Jan 21: The Government has deferred the commencement of the new NSSF Act to the end of May 2014. This means that the contributions to the fund will be made at the old rate.  Read more.

Kenya SME Options after the 2013 NSSF Bill

The new NSSF Bill enhances the level of mandatory retirement savings to be made by, and on behalf of, an employee. It classifies the contributions made towards retirement savings into various tiers for which each tier has a different treatment. For instance, the first tier must be contributed into the National Social Security Fund (NSSF) while the second tier may be contributed to a private retirement fund if certain requirements are met.

To illustrate, in year 1, the contributions to NSSF will increase from Kshs 400 (Kshs 200 each done by the employer and the employee) to Kshs 720 (Kshs 360 each done by the employer and the employee).

The balance of the 12% of earnings (6% each done by the employer and the employee) may be contributed to a private retirement fund subject to conditions detailed therein.

Thus, there are various options available for an employer seeking a retirement solution. E.g. for an employer with a staff base of 10, setting up one's own retirement fund may not be prudent due to time and cost considerations. It is instead advisable that they consider joining an already existing retirement fund under an umbrella arrangement or under a personal pension plan. They are further encouraged to use a fund that is registered by both the Retirement Benefits Authority and approved by the Kenya Revenue Authority. A list of umbrella funds and personal pension plans registered by the RBA can be found at their website.

Lastly, Alexander Forbes has a wealth of experience in structuring retirement solutions that are customized to suit the needs of an SME – and that between our umbrella fund (the Alexander Forbes Retirement Fund) and our personal pension plan (the Alexander Forbes Vuna Pension Plan), we can find an exciting solution for SME's. We are also pleased to meet with companies and talk further through the changes to the NSSF Act and its impact.

Adapted from Angela Okinda of Alexander Forbes

Election Finance in Kenya 2013

The March 2013 elections are now officially done, with the final election petitions being dispensed with this month. This election was said to be one of the most expensive  with  the voting process costing alone costing taxpayers. $286M. For the candidates and political parties, they had their own spending through helicopters, and vehicles convoys,  crisscrossing the  country every day, endless political rallies, and (for some) television placement and full-page newspaper advertisements several times a week - though media company Scangroup attributed a 9% drop in it's 1H 2013 revenue to clients putting  off advertising spend before and after the elections

The parties are now accounting for their year to June 2013 with published accounts as part of their compliance with the law and to ensure they are eligible to get funding from the taxpayer through the Political Parties Fund. How did the main parties do, compared to last political finance review in 2010? (Kshs 87=$1)

Jubilee Coalition

A county assembly candidate inspired by Sonko?

The National Alliance - (TNA) party of President Uhuru Kenyatta received 59M( million) from members and Kshs. 20M from party officials. It made 114M from election fees, and but got 151M ($1.73M) from well wishers, but since it was not in existence a year ago, did not receive any money from the political parties fund. Its total income was Kshs 345M ($4 million) and it spent 364M including 279M on operations and 60M on staff.

United Republican Party: The URP) party of Deputy President William Ruto got all it’s Kshs 76M income from members, and spent 11M on operating expenses, 19M on an ‘alternative voting system’, 10M on a campaign secretariat, 8M each on campaign materials and meetings, 3.8M on county election committees, and 3M on ballot papers, among other expenses.

CORD Coalition

Orange Democratic Movement: Raila Odinga's ODM has Kshs 244 million ($2.8M) of income mainly from 149M in election nomination fees, and 73M ($0.84M) from the political parties fund. It reports spending Kshs 129M ($1.5M) on campaigns, 54M on regional conferences, 39M on administrative expenses, and 14M on branch coordination among other expenses.

Wiper Democratic Movement-Kenya 

Forum For Restoration of Democracy-Kenya: FORD Kenya’s 19.6M income was largely from members of 17.4 and the party spent 11.2M on campaigns, 7.4M on admin expenses and 2.1M on recruitment

Amani Coalition

United Democratic Forum Party: UDF of Musalia Mudavadi who was a distant third in the presidential election, got 8M from the PPF towards a total income of 14M and spent 3M on campaigns, 2M on delegates, and what seems like a low figure (considering the party's campaign  visibility)  of 1M each on travel and on advertisements.

Others

Others that have complied so far include Narc Kenya, of Presidential Candidate Martha Karua (25.1M income, spent 14.4M on campaigns),  Alliance Party (the Bus) which made 6.4M from elections fees, but spent 0.93M on campaigns, and the Democratic Party of Kenya (8.7M from PPF, spent 7.3M on campaigns). 

The parties all show signs of ballooning funding that it fully expensed during the campaigns, with most having virtually empty bank accounts at the end of the reporting period. UDF is even owed 12M from nomination fees, and life membership fees (MP’s who pocketed, but didn’t pay for nomination fees). 

Pattni did not win a seat

Also, some figures are rather low, like UDF's and the results capture figures that don't assume leakage/theft/diversion of campaign funds, a common and unavoidable problem parties face, given how much of the campaign involves officials handing out small money bills to thousands of voters at venues. This practice is illegal, but has rarely been punished until last week when Ford-K’s Moses Wetangula was stripped of his senate seat by a Court following an election petition. 

Kenya Decides Scenarios

As @Raaheli reminded us on election day today, Kenya has had five national election events in about 10 years - in 2002, 2005 (a constitutional referendum that failed), 2007, 2010 (a constitutional referendum that passed), and  now in 2013. 

As the results trickle in, here are some recent election predictions: 

Africa Confidential had a post about the Jubilee team, led by Deputy Prime Minister Uhuru Kenyatta, aiming to win the $1 billion election in the first round of voting. It noted that his popularity grew from recent presidential debates and postponement of his upcoming trial at the Hague. 

Another report, titled Paths to Victory, from Africa Practice had three scenarios, with a 30% likelihood of a first round victory by either Uhuru, or Prime Minister Raila Odinga (triggered by strong turnout in either's base zones), a 10% likelihood of petitions leading to a long drawn-out court process to determine the election outcome, but that the odds favoured  (60% likelihood ) a scenario in which Kenya would have a second round of elections, (anywhere between April and July 2013 - depending on the courts),  as the mostly likely outcome. 

Finally, there's another by Kestrel Capital which notes that a second round of elections, whenever they happen,  will cost Kenyan taxpayers $128 million above the $286 million spent on the March 4 election. In addition, the country's wage bill, now at 30% of budget and 12% of GDP (of which the central government is responsible for 7.8% against an African average of 6.5%) is expected to worsen Kenya's current account deficit with the new devolved county and national governments (created by the 2010 referendum) - and that an increase in taxes (PAYE, VAT, import duty) is inevitable.

EDIT 

Excerpts of a statement from the Head of Kenya's Public Service, Francis Kimemia, on the assumption of office by a new President

- The Judiciary which is a member of the Assumption to the Office of the President Committee is ready for any scenario that may arise at any time in the electioneering period as specified in Article 138 of the Constitution.

We have outlined various scenarios that may arise in respect to the assumption of office by the President-elect. In our view there are several key scenarios:
- Results are declared within 7 days after the presidential election
- Petitions are filed with 7 days after declaration of results
- If a petition is filed, the Supreme Court hears and gives a determination within 14 days A run-off is held within 30 days and is between number 1 and 2.
- If an election is cancelled a fresh election is held within 60 days In this scenario, swearing in will be held on 18th June, 2013.
- The President-elect is sworn in the first Tuesday following the 14th day if no petition has been filed or the 7th day following the date which the court renders a decision

Possible swearing in days.
-  Tuesday, 26th March 2013. (First Round Win and no petition)
- Tuesday, 16th April 2013. (Petition is filed and Dismissed)
- Tuesday 30th April 2013. (Run-off)
- Tuesday, 18th, June 2013. (Petition filed and is successful)

Finally it is important to point out that the Constitution, in Article 142, provides that the incumbent President will continue to be in office until the next President is sworn in.

Political Moment: MP Salaries Perfomance & Debates

On Tuesday, after a day of street protests

@iGaddo cartoon in the Nation

and online petitions by Kenyans, upset over yet another initiative by members of Kenya's parliamentarians (MP's or MPigs - as they were called in the street) to raise their salaries, President Mwai Kibaki announced that he would not sign a bill into law and thus appearing to halt their greedy March.

@Mzalendowatch has the hansard (transcript) of the debate on the fateful night that the salary increase was discussed, and while there was a lively debate with lots of MP's contributing on matters like hides & skins, capital gains tax on land & shares, reopening Charterhouse Bank mining rights,  and capping bank interest rates -  on the subject of their salaries, no questions were asked on the complex motion which seems to imply that it had been agreed on to pass without much fanfare.

Kenyan leaders are overpaid

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Turnover: These are interesting times in politics, and with Kenya’s 10^th parliament  in its’ last few months, there appears to be in a grab & go mentality, given that many won't be back in parliament. In the last election in 2007, about 70% of MP’s lost their seats, and with next year having  the first election under a new constitution, many current MP’s are gunning for other newly created seats such as senators and governors.

Despite their high salaries, many MP's have a track record of not managing their salaries well hence the push for a bonus send-off.

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Performance Review: How can we judge how MP's have performed over the last few years? There's Mzalendo who have tracked key issues in parliament (publishing bills & hansards) and also rate all the current MP’s as either  bad, average, or good for their online constituents to judge. 

Also the Data Science blog came up with a performance with a scorecard using recently available constituency data to determine how much value some MP's who led the controversial have actually performed for their constituents.

Debate Season : The BBC are in Nairobi shooting a month long series of shows in Kenya including Hardtalk with leading Kenyan politicians and pieces on mobile communications and Lamu.

BBC Hardtalk anchor gets grilled in Nairobi

And yesterday, Kenya’s media owners announced that they would jointly produce and broadcast a series of U.S style presidential debates  in the coming months.

 So how will the presidential candidates perform in a debate? The APSEA blog analyzed the communication styles  of three of the likely contenders  - Musalia Mudavadi, Uhuru Kenyatta and Kalonzo Musyoka (who's the current Vice President) and who are all likely to be on the debate stage in from November  with some interesting findings..

Alcohol Law in Kenya

Kenya’s alcoholic drinks control act is the talk of the country

The new law which restricts sale of alcohol, bar opening and closing times, prescribes penalties on offering brewers, sellers, patrons etc. is temporarily on hold after an association of bar owners from Muranga in Central Kenya filed a court case to delay its implementation. But in a rejoinder another group of leaders from Muranga County (see website) have come out and supported the bill via a full-page colour advert in the newspapers. They claim alcohol has ravaged the county leading to death, blindness, family break-ups, but most important the waste of able bodied youth and men who would otherwise be engaged in productive agri-business (coffee, tea, milk, horticulture).

More on the positive side of the alcohol ban can be found in a separate newspaper article in the Saturday Nation which showed the dramatic effects the ban had on a small village in Gatanga (Central Kenya), and the scenes were probably mirrored in many other rural villages that havd (previously) seen similar effects on alcohol abuse on productive population.

….although it is noon, the young folks are sober, a state locals say is a miracle. “By noon, half of them would be drunk,” says Mr Michael Muthee, 45, a carpenter. He should know: Although offering to pay Sh300 a day for a helping hand in his workshop, he found it hard to find a sober young man before the new alcohol laws came into force. And when he did, the fellow could not be counted on to return the next day, least of all, sober.

…Before the new laws came into effect, he says, much of the work on the coffee farms was left to women and children, The male folk would vanish in morning and stagger home in the evening.

So what’s in the bill being championed by the National Campaign Against Drug Abuse Authority (NACADA), but which a Member of Parliament John Mututho took most of the credit and now some blame for hurriedly pushing through?

- NACADA which operates under the Office of the President, and not from either Ministry of Health (why there are two Health Ministries and two education Ministries in Kenya is another story) sought to tackle the increased availability of outlets selling alcohol, and the marketing of it to (and use by) youth (under 18’s).

Enforcement: NACADA are meant to educate Kenyans on the dangers of alcoholism. But so far there has been little education (clause 69), and the agency which is to give statistics on alcohol which they collect state (at their website) that 15% of 15-64 years-old's in Kenya take illicit brews.
- Changaa Legal: Kenya’s most popular illicit brew is going to be legalized (repeals changaa prohibition act (69). The Government is going to develop standards for changaa which is to be brewed and packaged in a manner similar to Uganda’s Waragi and Tanzania’s konyagi, and sold in glass bottles larger than 250ML.
Fund: There is now an alcoholic drinks control fund supported brewer, wholesale & retail licenses - and of money raised, not more that 15% will go to civil society groups and not more than 50% to the district alcohol committee (led by district commissioner)
- Being drunk in public can attract a fine of Kshs 500 ($6) or 3 months in jail (a mismatch? - @archermisahle says cops are asking 1,000 for people who stagger out of pubs)
- Restricts police harassment: Only senior police officers can conduct inspections not the loitering patrol cops (25)
- Special Ones: There is some elitism at play, and places exempt from the Act (7) include national assembly (parliament), clubs (i.e. sports, social), military & institute canteens. A separate newspaper notice extended some exemption to hotels (tourists/guest) and restaurants (patrons who eat) but these are not spelt in the act.

Promotion Landscape Changes: Kenya’s popular music reality shows contest – Tusker Project Fame would be no more, unless it can be rebranded as something else (Alvaro Project Fame perhaps?)
- Bottle top lotteries (check under your bottle cap & win) are banned (47) as no promotion can be run that encourage alcohol consumption

- Also while EABL's Tusker brand has bailed on the world famous Safari Sevens rugby tournament (now known as the Safaricom Sevens), alcohol cant be sold at the event which also features schools rugby competition (46) – will the organizers exclude schools and any spectators under 18 from the tournament?