Other Constitutional Minefields

Kenyan parliamentarians were shocked last month when they realized that voted in last August contained a clause that required leaders to pay tax.

What other clauses in the new constitution are going to raise some headaches in the next few months and years?

1. Automatic Citizenship: Dual citizenship is allowed - and a born Kenyan does not lose citizenship by becoming one of another country. Also citizenship can be acquired an orphan who under 8 years, or by marriage to a citizen for 7 years, or by having lived in Kenya for 7 years. The 2009 census revealed an interesting dimension to Kenya citizen origins including the Somali Kenyan and other African numbers.

2. Political Parties are Irrelevant/Term Limits ill end Career Politics: Many members of Parliament have set their sights for 2012 on becoming Governors, but these carry term limits (maximum of two). There are now term limits for the Presidents (& Deputy), county, judiciary and government officers e.g. the Inspector General of police will can serve only one 4-year term (which is not enough time for an ambitious leader to carry out reforms), but oddly, there are no term limits for parliament.

Also, in running for any of these offices, independent candidates can avoid messy, expensive, party elections by running without joining a political party; all it requires is obtaining 1,000 signatures for MP and 2,000 for Senate from their constituents. Political parties have one year to comply with political parties act or be disbanded (and time is almost up)

3 Amnesty for corruption: Parliament is yet to enact creation of an ethics and anti-corruption commission, which should be able to review un-ethical actions such as conflicts of interest actions. However for all the talk about extradition of Anglo Leasing and KPLC cases, suspects can’t be tried for acts that were not offences in Kenya, or under international law. These may include corruption-related crimes, which were legislated - in 2003 (for economic crimes) and 2010 (for money laundering). The it wasn't a crime at the time defence has already been brought up.

4. Raise Local Taxes to support Counties: There will be 47 County Governments that will receive and share at least 15% of revenue raised by the state. Using the 2011 numbers announced this week, based on tax revenue of Kshs 634. billion ($7.5 billion), the county governments will split Kshs. 95 billion. Counties may collect property, entertainment and other taxes approved. However, while counties like Mombasa, Nairobi, Narok etc., have significant sources of revenue from (permits, tourism), many counties governments are not currently, self sufficient and will have to obtain new revenue streams. County government may take loans if their assemblies approve, but only if the national government guarantees them.

5 Civil Servants can’t own Matatu’s or Kiosks : Corporate governance is set to improve as the number of state directorships is implied and directors can’t be involved in politics (e.g. chair a company and a political party). Also a person who has been removed from a state office for a violation is not eligible for any other and crucially state officers will not be allowed to have other gainful employment - is this a repeal of the (controversial) Ndegwa Rule that allowed civil servants to engage in private business?

6. Land Use Restrictions: There was a story in the newspapers this week about a land grab in the Tana Delta. The new constitution requires that Parliament ratify concessions of land and mining agreements. This effectively puts an end to the practice of Desert states, foreign universities and corporations signing up farmland for their own food production. Parliament will also set other rules on land investment, minimum and maximum land holding, matrimonial sharing and inheritance

Cheque Truncation Part II

The deadline of new cheque modernization passed this week, on June 1. Yet many bank customers had not yet received new chequebooks, and many more were not fully versed with the process, which entailed a change of chequebooks.

The Kenya Bankers’ Association (KBA) left the public relations of the process to its’ member banks resulting in low awareness and did not communicate till May 31 with adverts in the newspapers re-assuring customers and the public that the old cheques will be used for an indefinite period. This paled in comparison to the introduction of mobile number portability (MNP), in which the regulator (CCK), service providers, and mainly mobile companies carried numerous advertisements about the transition to the new service. (Mobile companies ran extensive promotions to retain their customers or win over their competitors’ subscribers).

There are still many unresolved questions, even with the extenstion:

- Old chequebooks were issued though the month of May, but customers then had to get the new chequebooks at month end. Who bears the cost of printing books that were about to be phased out?
- Do the new cheques clear faster? e.g. 1-day for Nairobi cheques? Speed is important for payments in the age of M-Pesa. The last statistics from the Central Bank (CBK) showed that in 2008, about 50,000 cheques were being cleared daily. Many suppliers now insist on getting paid by M-Pesa (which takes less than a minute) or by real time gross settlement (RTGS a.k.a corporate m-pesa done by banks - but this also carries a high risk of fraud risk of fraud - at 69% of bank crimes)
- What happens to post-dated cheques? These are used for debt repayments and for motor insurance loans (some banks use these for collateral over up to 10 months)
- There is no apparent difference in the design of the old and new cheques. So what has changed to warrant the exercise?
- Are cheque printers (mainly De la Rue) able to print enough chequebooks for a smooth roll out next time?
- Some banks said that old cheques will still be honoured in-house i.e. if drawn to people who also use the same bank, while others told their customers they would not be honored. KBA should communicate a clear deadline when all banks & customers must switch.

For now, the old and new chequebooks are in circulation, but more information has to be provided to resolve the cheque truncation process.

Motoring Moment: Ugly Cars, Overlappers, Thika Road

Overlappers are one of the most irritating nuisances of driving on Nairobi. Over-lappers are drivers who are too impatient to wait their turn in traffic, so they swerve into the lane for oncoming traffic or onto pavements & footpaths, and speed away, only to nudge/cut-in/force/beg for their way back into their assigned lane when they run out of road or meet another car. The habit is believed to have started with Matatu (minibus) drivers who used to be acknowledged as the worst drivers in Nairobi, but has spread to other including ordinary drivers, taxis, buses, governments & diplomatic vehicles.

So we’ve started a new site - Overlap.co.ke ( #overlapKE ) - to rank serial over-lappers and point out over-lapping hot-spots for over-lapping . The police may not be anywhere or have an interest in the reckless road behaviour of some motorists, but there are ordinary motorist who are fed up with the impunity that is symbolized by over-lapping and can send in reports to identity the worst offenders.

Car Use Verification: Odometer tampering is suspected to be a not rare occurrence employed to increase the value or enable the importation of the 5 to 8 cars brought in to Kenya from Japan, Singapore, and Dubai.

However for vehicles shipped from Japan, @Karuoro of Huduma Bora points to the JEVIC(Japanese Vehicle Inspection) site which wary drivers can use to confirm the details of the vehicle they are about to buy, including identification/serial numbers and odometer readings at the time they left Japan.

Road Rage incidents are thankfully still only isolated incidents despite, the build up of traffic gridlock. The use of Police Officers to control traffic is both praised and loathed in different measure. - and a few weeks ago, a truck driver got involved in a major fist fight (longer than several boxing matches) with a traffic policemen.

It was captured on camera (above), and when played on TV caused some debate with different viewers siding with the policeman and others with the driver who was later charged in court.

Thika Road: It's transformation to a super-highway courtesy of engineers from China continues, and they are changing the landscape from Nairobi to Thika - going by the changes at Museum Hill, University of Nairobi, and Globe roundabout. You can follow the changes with this useful Thika Road Blog.

Ugly Cars: via @diasporadical comes two lists of ugly cars that may be less desirable than the controversial Toyota Vitz which is equally loved and loathed around Nairobi. My (least) favorite, it’s the Toyota Will V1, of which there a few around Nairobi, but this odd shaped car does not appear to have an (too embarassed?) manufacturer’s badge.

Bank Enforcement CYA

The Finance Act 2010 is now available at kenyalaw.org.

It covers a lot of grey area generated by the Central Banks of Kenya’s (CBK) handling of the Grand Regency sale and the Charterhouse Bank closure, and gives powers and direction that provide some legal safe cover (but not retroactively).

It requires funds recovered by the Kenya Anti-Corruption Commission to go to the Government's Consolidated Fund (78) and gives CBK powers to (peek and) take action at a bank based on (a banks' own) auditor report (66) and specifies harsher actions that may be taken against banks who violate share capital limits (67).

Other provisions:
- Banks can lend up to 40% of balance sheet to real estate (up from 25%)
- Beer prices up 20%
- Copyright inspectors can summon police officers to arrest piracy offenders (77)
- Abandoned vehicle number plates should be submitted to Government for cancelation (40)

Internet Security in Kenya - Part II

This week, the Kenya Police website was hacked and it sparked some debate on security investments and their effectiveness.

Mid last year, a forum was held in Nairobi to review the state of internet security and some of the findings were that hacking and computer fraud were relatively easy to perpetrate so in some organizations and the problem is only going to get worse owing faster internet speeds and failure to address risks around people, processes, and technology in regional organizations and financial institutions.

Farewell Mars Group Kenya

While the world awaits the release of more cable from Wikileaks, some unfortunate news comes from Kenya where the equivalent of Wikileaks – the anti-corruption watchdog Mars Group Kenya - inexplicably took down their website in mid December.

The reasons for this are unclear, but (via @twitter) it appears it came about when someone tried to create an application to access their vast database - and this provoked the founders to take down the site and post a message that their database and contents therein are copywrited and invited anyone who wanted to use it to e-mail them for permission.

Mars Group Kenya (created by Mwalimu Mati, former Director of Transparency International Kenya) has been a great resource of information for taxpayers, students and analysts looking at corruption. Their site had official and unofficial, unreleased and secret reports of the Kenya government, Kenya parliament and auditors) mainly on corruption in Kenya. Also their budget reports on government spending have come to be appreciated and even caused the Kenya Finance Minister to re-check his numbers going into the 2009 budget.

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

Data Collected but Not Processed

So much data is being collected from Kenya citizens these days at various points of transactions by citizens. This is largely in the form of being asked to produce more and more documents to authenticate/verify information that some of the organizations already know or have in their archives - these include:

- Last week (June 30) marked the tax filing deadline Kenyans who rushed to the revenue authority offices and returned forms, while some even managed to file online
- Government workers & civil servants have been filing their annual income and asset returns for about six years now in a wealth declaration exercise – but the forms are just filed away, and for some who participate such as members of parliament, the rules stipulate that no one can look at their forms ever!
- Mobile phone companies have began to comply with a directive (not a law) that asks mobile phone subscribers to register and verify their data in a bid to crack down on terrorism, money laundering, hate crimes etc. A lot of this information’s is already in the hands of the companies e.g. with Safaricom, post-paid subscribers, M-pesa users and any shareholder who registered for dividends by m-pesa last year has already given all of this information – and Safaricom have now issued a statement that m-pesa and post-pay customers won’t have to re-submit their information. Kahenya views the mobile phone registration exercise as being for national security to build a database on citizens that they can tap into if/when they choose to scrutinize.
- From July this year, it has been mandated that there will be Kenya banks share information in a program to improve the assessment of borrowers capability to repay loans and which is hoped will lower the cost of credit (to good re-payers) and amount of bad debts at banks (by filtering out bad re-payers)
- Some banks have changed, others have not. Some like Barclays ask you to bring in a passport photo to open an account, while others like Equity snap your digital picture in their banking hall after you fill out the forms. Still in a single bank you may have an account, but to open another savings or credit card account, you may be asked to produce photocopy of ID, passport photo, and your bank statement
- My problems with custody registrar services who are one of the largest collectors of photocopies of documents, continues to this day; and CRS appear to have been vindicated by the Kenyan stockbrokers fraternity who have endorsed the Kenya capital markets proceeds of crime and anti-money laundering efforts by way of obtaining as much information as they can to ascertain a customers risk profile, nature of business, sources of funds and they are also to report any transactions greater than $10,000 (~Kshs 800,000)

A lot of the information is in paper photocopy form, and in application forms which thousands of people fill out without reading the fine print of what the information can be used for e.g. Safaricom m-pesa dividend mobile phone dividend payment form explicitly stated

Safaricom recognizes the importance of protecting privacy (3.1)… Safaricom collects personal information that we use to profile m-pesa users (3.2) and administer accounts …Safaricom does not share your information with unauthorized persons (3.3)…and you expressly consent and authorize Safaricom to disclose data relating to your dividends to (among others) Kenya police, central bank of Kenya, Kenya anti corruption commission, the central depository & settlement corporation (11.2)

So there is a massive amount of information being collected, but is it being processed? No and Yes. No because it may at most be at most scrutinized at the point of receipt/approval (mainly only in the case of banks) and then filed away to only be retrieved if an account goes bad.

Internet Security in Kenya

On May 19, Internet Solutions (IS) and Africa Practice hosted a forum on internet security at Intercontinental Hotel for large corporate customers of IS. Speakers included Loren Bosch sales director East Africa at IS, Jason Finlayson of Security Risk Solutions and Collin Mamdoo C. O. O. for East Africa (twitter @collincrm) at IS.

Loren introduced Internet Solutions (IS ) which provides a holistic security solutions which include (they are) cloud-based (hosting, security, back office) connectivity (VPN, fixed & mobile broadband), communication (voice, video, hotspots), and carrier (satellite, last mile fibre & wireless) services In terms of fibre they are a big investor in the Seacom cable. Loren mentioned that most Kenyans experienced a week of slow internet in April 2010 as maintenance work was carried out on a cable that links both the Seacom and TEAMS cables to Europe; however their clients were not affected as IS is also linked via West Africa’s SAT 3.

Jason whose company Security Risk Solutions provides security risk solutions (assess ricks, investigate, fix, help prosecutions etc.) in Kenya and Uganda talked about the state of internet security in Kenya terming it immature, the country has not been exposed to cyber crimes, until now. Kenya has enjoyed security by obscurity as slow network speeds kept the country off the radar and limited the ability to tamper with computers here, – until now with the advent of fibre cable Kenya which mean much faster speeds.

Kenya is:
- Weak in security architecture, processes, and crisis solutions which are all relatively new /immature. There is no regulatory framework to protect customer information, no regulatory compliance, no privacy laws, and big companies are struggling with IS basics.
- CCK is yet to set up a computer emergency response team (ERT) though it is has been budgeted for. Also, our cyber police unit was disbanded two years ago (but has recently been re-activated) and the police do receive some training – while neigbour Uganda Police has an actual electronic counter-measures unit.
- Perpetrators’ are sometimes prosecuted for fraud, but not for hacking or other lesser computer crimes

Its going to get worse in the short run with better fibre speeds and employees with laptops and internet access at home, but do large companies care about security?
- Fibre has brought broadband access and many opportunities for Kenyans, but while fibre means we can do anything, people can do anything to you i.e. (banks/corporates)
- Corporates are aware of this, but often don’t have the budget to implement, or the knowledge disseminated across. The Central Bank of Kenya tied to mandate all banks to have BCP’s a few years ago, but many just downloaded from the net and put their logo on them.
- Computer viruses spread much faster now. In 2009 one virus infected 12 million computers worldwide in 24 hours. And with better access, we can expect more phishing attempts in Kenya – already in South Africa, in the first four months of 2010, they have shut down 400 phishing sites
- The FBI report on the top 10 sources of computer wrongdoing is headed by the US and UK, but with 4 of the top 10 countries being in Africa (Nigeria, Cameroon, Ghana, South Africa), the odds are that in two years, Kenya will join this infamous list

- Also Symantec 2009 report for top attacks listed common ways of malicious attacks such as suspicious PDF’s vulnerability of Internet explorer and media player. Symantec have set up honey pots in Kenya to better study these attacks from 2010. [source report]

SRS found internet security risks at three levels
- People: weak passwords easily deciphered by hackers, staff use portable media, accept social invitations to download files/attachments, share USB sticks, and are vulnerable to social engineering, etc. an example was given of a tester sitting at an empty desk of a worker, calling the IT department and having a password reset over the phone giving them access
- Processes: no app segregation, no use of audit trails, poor controls/security standards. e.g. bank that lost money to fraud had assigned the system admin user name to 50 people
- Technology: companies remain vulnerable because they don’t install patches e.g. to Internet explorer/other popular software some of whose fixes have been around for years. Besides poor patch management, employees now access networks from multiple locations and use more social media at the workplace.

Solutions include:
- Limit systems privileges
- Turn off /remove some internet services
- Test security regularly and practice emergency drills
- Have intrusion detection systems
- Install patches
- Train employees and train bosses
- At the worst companies can pull ban computers or block social media, gmail/hotmail, but that will hamper service deliver. He ended with a quote attributed to a Toyota executive who said that there is no perfect security, only appropriate levels of insecurity

Colin summed it up with a report on new vulnerabilities in the systems
- Social media attacks will be the story in 2010 e.g. hackers using invitations through twitter, skype facebook
- Not just computer but also physical e.g. men in south Africa kidnapping girls they had 'met' through MixIt
- SMS attacks - He landed at Nairobi airport and got an SMS from his Zain line that he had won Kshs 250,000, all he had to do was reply to a number to collect his money
- Attacks across different platforms - while Microsoft is the most hit platform, others like Mac are also being targeted e.g. vulnerabilities have already been reported with the new iPad
- Faster spreads – e.g. zero day viruses. As soon as vulnerability is found, hackers exploit it before a patch can be availed. More hacks? There are videos on youtube that teach newbie’s how to hack
- Security needs to be multi-layer, firewall, anti-viruses, mail filters etc.
- Inside attacks: worst threats /most serious are from disgruntled employees with technical and process knowhow within companies – solution? Pay them their bonuses

EDIT: Pal Kahenya is looking for the best hacker in Kenya and has offered a prize of Kshs 100,000 (~$1,300) to the winner of his challenge.

This time around: Kenya Stockbroker collapse, Report leaks, Credit Reference Live

Time for another this time around post which looks at stories that recur in the business environment

Mars Group Kenya: The an anti-corruption watchdog group is the wikileaks for Kenya, re-publishing hitherto top-secret government reports at their website.

Mars Group research and produce their own reports, but their archives contain a growing list of reports of corruption in Kenya that is worth checking out. This week they have reports done by PricewaterhouseCoopers for the government of Kenya on the collapse of Triton Oil Company and on the misuse of funds for Maize famine relief in 2008. Last month they also released the report on the sale of the Grand Regency hotel. The Triton report shows that:
- At Kenya pipeline company (KPC) the oil collateral agreement was poorly drafted and ambiguous. Also managers had great discretion, procedures were lax /there was inter-departmental conflict (oil was released without verification) and documentation was poor (since documents would get lost at KPC, financers would exchange documents then present them all to KPC at once)
- Triton was aggressive with financing and would arrange for shipment before they got financing. They were stuck at some point and KCB entered into a finance agreement for goods when the ship was already in Kenya
- Bad banking Ecobank have no claim against KPC, while the Fortis claim against Triton is suspect. Also Glencore had stopped financing Triton in June 2008 as they were suspicious about KPC fuel stock claims
- KCB and other financiers did not cooperate with the PWC investigators
- The debt owed to KCB may be substantially lower than KCB claims and they have provided little information to assist in verification of the Triton debt.
- Kenya anti-corruption commission should investigate further staff named in the report

GoK Bond The Government of Kenya is going to raise Kshs 14.5 billion for infrastructure via a third infrastructure bond. How does that compare to a similar bond a year ago?
2009: Kshs 18 billion ($240 million), interest rate 12.5%, minimum bid Kshs 100,000 (~$1,250), maturity 8 years, principal repaid in 2015, 2017, 2021. Funds used for road, geothermal, water projects
2010: Kshs 14.5 billion ($188 million), interest rate 9.75% tax exempt, minimum Kshs 100,000, maturity 8 years, principal repaid in 2016, 2018. Funds used for water, sewer, irrigation, road, and geothermal projects
The 2009 bond was over-subscribed and the only notable difference in 2010 is the lower interest rate offered. The CBK has decided the high cost of loans offered by commercial banks and perhaps by offering the same banks a lower return on government bonds; they will offer more competitive borrowing rates to the public

Credit Reference: February has also seen the licensing of Kenya’s first credit reference bureau – CRB Africa by the bank regulator, the Central Bank of Kenya. Following this, commercial banks have apparently commenced sharing information with the agency. Some of the rules governing sharing of data were highlighted when the credit reference rules were gazetted almost two years ago. These include
- Bureaus may share info only with a customers’ permission (which happens when you sign for a loan)
- They may only share information for business decision making (evaluate credit prospects) and must keep track of all information they share
- Customers are entitled to one free report a year, and within 30 days of a negative referral.
- If a customer complains, and bureau not able to complete an investigation of disputed information within a month, information will be deleted as request by customer
So what information will they compile?
- For individuals: Name Citizenship ID / PIN Postal/ Telephone Credit history (as reported) Court judgments (as reported) Referees
- For companies: Company registration details postal/physical/telephone Credit history (as reported), Court judgments (as reported), Guarantees
Shareholdings/directorships

Stockbroker collapse: This month saw the placing of another stockbroker under statutory management – this time its Ngenye Kariuki Stockbrokers [Last year in March it was Discount stockbrokers that was placed under statutory management]

Despite strong defense from the Kenya Association of Stockbrokers & Investments Banks - KASIB who say the brokers problems were manageable and did not warrant the intervention of the authorities the broker was in a weak financial position.
A summary by Faida Investment Bank, based on the published un-audited results of Ngenye Kariuki showed this
Half year June 2008 versus 2009
June 08 income 35m, expenses, 21 million, pre-tax profit of 10 million
June 09 income 3 million, expenses 10, pre-tax loss of 11 million
Share capital of 50 million, capital reserves of 251 million (which many brokers draw from the sale price in 2006 of Francis Thuo stockbrokers) [and the same amount appears as an intangible asset) at June 2009, the broker had an overdraft position of 63 million and receivable of 127 million which KASIB is laying at the feet of Citibank for withholding funds from the 2008 Safaricom IPO that are owed to several stockbrokers.

Book Review: It’s Our Turn to Eat

a review of the book without having read the book. Note that I generally don’t like read reviews’. If I want to watch a movie or read a new fiction book, I won’t read any reviews of it till after I watch it; this is because reviews tend to contain too many spoilers and plot giveaways.

During the May Day holiday weekend, I finally finished reading It’s Our Turn to Eat – the bootleg version, one which the author warned was not the real copy. It’s a fairly comprehensive e-mail; I’d wager its close enough to the real thing that and that over 90% of the blog readers here have read the PDF (real or faux) - and please don’t ask me for a copy.

The introduction of the book to Kenya, a biography of former anti-corruption Tsar John Githongo (written by Michela Wrong), had three background factors
- John Githongo is a powerful, polarizing person in Kenya; a patriot & champion to some, a traitor & coward to others. While his accounts of events related to Anglo Leasing has been published in his parliamentary reports; not much has been written about Githongo the person this is his story
- While the Government of Kenya never commented or banned, the book, several Nairobi bookshops shied away from displaying or advertising the book. This was because of previous libel awards that bookshops who were near easy targets got fined for carrying books that powerful leaders (Nicholas Biwott) felt besmirched them
- Also at the same time, a PDF version of the book also circulating and was forwarded and downloaded widely The author Michela Wrong and her publishing house realized that there was a leaked version circulating and:

(i) Alerted her friends and the net community that a faux/earlier/incomplete version was being circulated
(ii) Released a low cost e-book to counter the faux copy.

Having only read the faux copy, I can only comment on what’s in it. I have no doubt it comes close to the real thing. I still intend to get a copy of the real book – either buying one from a friend, or having one delivered from abroad - good enough that I want to read the read the book - and not the E-Copy but the actual book; having a book still convey paper books have functionality, and durability that e-books don’t – I can read the book anywhere (matatu, bank queue, at lunch). Demand for the book is make me want to break a vow and obtain a credit card perhaps to buy it from Amazon (UK) or the publisher.

Michael Wrong’s last book I read was In the Footstep of Mr. Kurtz, about Mobutu Sese Seko and his years as President of Zaire (a.k.a the Democratic Republic of Congo.) It’s the definitive book for anyone new to the Congo or wishing to understand the Congo's post-independence history, economy, diversity, people, problems etc. Likewise the Githongo book - focused on high-level government corruption, raw tribal political leadership, ease of corruption, political interference/weakness of judiciary - will be the definitive book of the Kibaki era (Kenya 2002 to the present) and until other government personalities commission their own biographies, this will be the way that the recent political history of Kenya will be understood. It would be nice to read about Michael Waweru on tax collection strategies, Peter Kenneth and the use of Constituency Development Funds, Esther Koimett at the Privatization process, and Kilemi Mwiria on free primary education etc.

Other local reviews of the book.

TrackIt Overkill

KTN have been carrying a sensational three part series on car robberies, with a focus on Track-It. This is a company that installs tracking devices in cars to trace their location if reported as stolen and enable the car to be be recovered by either the company or police



For heavily stolen cars, tracking devices are recommended for owners. Some banks and insurance companies may even insist that they are installed as part of financial contracts. Fleet owners also appreciate using the devices which can assist in fleet management and monitoring

It’s a well researches story, they even obtained a list of alleged track-it customers including three members of parliament, who volunteered for their cars to be ripped apart and checked for the devices, which were apparently not found (KTN reported they found devices in just 50% of the cars they checked)

The saga has played out in an even more sordid as the managing director of that company was recorded on camera offering to bribe the journalists with about $12,000 after admitting it was true that his company had not installed tracking devices in some cars, despite charging their owners 45,000 ~ $560. The devices are small electronic units that are hidden, so that even car thieves won’t know

KTN have led with the story three nights in a row, Nairobi, but is it overkill? urely there are more pressing matters that can be covered in the news. The car theft story has led ahead of political and other events of the day.

Car theft is not a new thing; car jacking have been covered, bus passengers are robbed or terrorized, chopped up cars are fund in agricultural fields and industrial sheds every other week. To spin this story out of three prime time nights is over kill.

Also over looked in the story, and a fact alluded to by the embattled Trackit owner is business competition in the story in the business competition. The owners of the standard/KTN may also be linked to a rival company, industry leader - Cartrack. It would be unsual to KTN to acknopwlede a corporate link, but if thers’s one it should be stated. Maybe it would have been better if another media house e.g. NTV had broken this story, but I doubt if they would have made it a three day special.

e.g. Intel recently posted a query on @twitter on which of the two companies to subscribe to. But after this story is completed and based on the behavior of the Track it boss, that company is finished.

Analyzing Kenya Pipeline

Pre-IPO Peek at KPC

Kenya Pipeline Company (KPC) is expected to be the next big privatization project to help plug the current Government of Kenya budget deficit. The IPO transaction adviser selection process is already underway for KPC and other state corporations

How much can one glean from audited accounts of the giant company? I got hold of a 2007 annual reports of the company – a rare big glossy booklet that mentions every project e.g. SAP, ISO, fibre optics, refurbishments in Western Kenya, Mombasa, Athi River, with lots of graph



KPC still mostly compares itself to other state corporations in terms of goals such as to raise capacity from 440,000 to 880,000 lire per hour by August 2008 - a massive project that later turned controversial and may have cost the last MD (Okungu) his job in January 2009.

Financials
- 2007 revenue of 8.8 billion shillings (~$117 million) (2007 was 8.45 billion and 2003 was 6.5 billion). 2007 Revenue comes from export services (4.3b) , local services (3.7b), and 748 million from kipevu storage fees
- Pre-tax profit of Kshs. 4.3 billion in 2007 (~$53 million)
- Earnings per share was 163 shillings [153 in 2006, 2003 was 29 shillings) – company’s shareholding is made up of 18 million ordinary shares of 20/= par each.
- Dividend paid out of 8.25 per share each year 2007 and 2006
- Cash of 4.5 billion (1.1 billion in 2003) of which 2.5 billion is in treasury securities (which they only started investments in 2005)
- Paid 2.2 billion in direct and indirect taxes and was recognized by Kenya Revenue Authority as a distinguished tax payer
- Total assets of 20.2 billion shillings (18.7 billion in 2006) –however fuel stocks of 13 billion shillings (384,509 cubic metres) that is owned by marketers is not include in their accounts. [2006 was 36 billion comprising 856,958 cubic metres]
2008 decline: summarized KPC financial accounts show revenue declined by 7% to Kshs. 8.2 billion and pre tax profit 54% down to Kshs. 2.6 billion in 2008

Auditors: Accounts audited by controller and auditor general, who hired Deloitte & Touche; who said the accounts were ok except to note that that 1.2 billion receivables (current assets) includes 348 million owed from an unnamed oil company that is the subject for a court case and for which no provisions have been made

Scandals: has been a cash cow for politicians for years with a high turnover of managing directors, manager and directors. Different parts of the report mention Kshs. 967 million pending in lawsuits, 404 million leasehold land unable to develop since it is gazetted forest land, 347 million from Oil Company, 314 million of obsolete spares, and Kshs. 221 million for a finance deal with Triple A that cost the previous MD (Ochuodho) his job. The company also provided Kshs. 382 million of services to National Oil Corp of Kenya (related company as they are both owned by the Government– do they pay all oil marketing fees?

Banking
Bank with NBK, CBA, Stanchart, Co-op. In 2007, they paid off all bank loans (EIB, Stanchart, and CBA) amounting to Kshs. 500 million in 2007, but are still stuck with the 221 million Triple A loan.
- KPC recently signed a syndicated loan of Kshs 8.2 billion with CFC-Stanbic, Barclays, CBA, Citibank, and KCB.

Exports:
- Exports 58% to Uganda, 155 Rwanda, DRC 14% Tanzania 6% Sudan 4% Burundi 3%
- strong shillings bad for export sales
-pricing structure – more expensive at Eldoret and Kisumu means that the company loses revenue if other countries e.g. Rwanda, Uganda remove their oil at Nakuru or Nairobi depots
- 50% of their revenue comes from fuel exports, and With oil being found in Uganda, Sudan, and possibly Congo, is the pipeline capable and adequate to transfer oil from central Africa to the coast at Mombasa?

Others & Non core activities
- will Construct an LPG plant with private sector investors (including Kenya pipeline refineries limited, and now-collapsed Triton) in Mombasa at a cost $50 million and one in Athi River at a cost of $13.5 million by Bharat of India
- Other income includes Kshs. 8 million in helicopter income, and also disposed of 120 million worth of helicopters in the year 2007
- 50 million donated to ministry of youth affairs
- 6 acres worth of land worth 30 million in Nairobi was donated for a street children rehabilitation center
- Spent 114 million in advertising (by a monopoly) and 35 million shillings in legal expenses
- Has shares in petroleum institute of east African and consolidated bank
- Successfully changed their pension from a defined benefit to a defined contribution scheme

Outlook:
- Slight financial dip in 2008 will probably be attributed to the post election disruptions
- Capital spending could be significant as they are extending the pipeline to Uganda (Eldoret to Kampala). Also the company already spends quite a bit in pipeline rehabilitation costs, and won't a complete new pipeline (though more expensive) be a better solution?
- Needs a stronger management team led by a strong MD – like Kengen’s Eddy Njoroge (someone with a legacy to protect who will shun the wheeler dealers) and a stronger board (not just the Energy ministers' cronies)
- Could be a good IPO buy i.e. a cash cow pre-tax profit margins of almost 50%

Other Opportunities
- Bank of Africa: branch managers, assistant branch managers, operations assistants’ recruitment@boakenya.com by 5/2
- Consolidated bank credit manager, administration manager, apply to the Head of HR 51133-00200 by 31/1
- Housing Finance senior relationship manager (mortgage finance), portfolio manager, legal officer, human.recources@housing.co.ke
Dyer & Blair sales agents, and for several hundred other weekly jobs visit Kenyan jobs blog

KCB and Triton

KCB has been rather silent on the Triton matter even as the company’s share price took a mini hit and its profitability outlook was downgraded in some circles.

The last release from their website was in reference to the launch of a Sustainability Report of the group. It’s not online yet, though it will be, an interesting report with lots of rarely disclosed facts on the bank, mostly their corporate social responsibility (CSR) activities, and will be repeated every two years.

in the report
KCB Brand - has a 75% corporate reputation, is the most popular financial brand, and the 4th most popular in Kenya (after Safaricom, Kenya airways and Coca-Cola) according to the Steadman Group.

Silence on Triton can be explained by KCB’s customer privacy guidelines - the bank assures customers of privacy though stringent procedures and guidelines and undertake responsibility for any breach of confidentiality that may arise

Impact of Triton policy on responsible lending requires that the KCB audit committee meets twice a month, credit committee also twice a month to discuss risk profile of bank, and the risk management committee meet quarterly or when required

Corruption & Triton: KCB has zero tolerance to corruption, has 110 ethics champions trained to combat corruption. Also in 2007 KCB exited from transparency international (TI) bribery index, it prohibit political contributions (direct or indirect) from bank funds, and is founder member of Ethical Business Group Kenya?. Report states that 2 staff were dismissed and 9 terminated.

Labour matters
- employees got an average of 39 hours of training a year
- Base salary is equal regardless of gender: for subordinates (male is Kshs. 36,057, female is Kshs. 33,984) clerical (m 58,434 f 63,600), section heads (m 85,770, f 87,684) managers (m 192,090, f 161,138)
- staff include managers (630 males to 287 females), most of whom are aged 30 – 50 years (492 m, 212 f)

Environmental
– all loan projects are required to obtain environmental (NEMA) certification
– KCB will strive to reduce water consumption (estimated at 191,000 cubic meters p.a) reduce energy consumption (5.782 million kwh, consume 312,000 litres of diesel which emitted 248,000 and 838 tons of carbon dioxide respectively)
– KCB will strive to recycle paper, scan documents – encourage customers to uptake e-services (use less paper), participate in tree planting and reforestation,

Empowerment of Kenyans
- loan base rate of 12%
- KCB has 71,000 e-customers (receive information by electronic means - which menas less paper consumed)
- Create wealth nationwide - branches can procure 33% of product in local areas, and KCB has 9 full branches in sparely populate areas
- provide agricultural loans (mavuno for tea farmers and brookside for dairy operators)
- in education sector, partner with AIESEC and the palmhouse foundation

Triton ends well? for KCB: The Triton matter may be a forgone conclusion if the Daily Nation article about an out of court settlement between Government of Kenya and its financiers (KCB, Fortis, Ecobank, Equatorial banks) is true - and that the government (i.e. taxpayers) may pay the financiers off to not go to court over their funds lost with Trition and teh Kenya Pipleince Corporation (KPC). The silence will mean that unsavory happenings at KPC will (maybe) not be exposed further, clearing the way (hopefully) for an IPO of the troubled company.

Regulator reassures depositors

Titanic Triton
The Central Bank of Kenya has issued a statement to reassure depositors at some banks that have had some panicked customers want to withdraw and safeguard their funds at their banks which they believe may be exposed to the Triton fraud and fall – which CBK says is less than 0.002% of the banking sector. Read more

$10 hotel room

Location: zero star, government owned, grilled crowded room
Facilities: No lights, No shoes or belts allowed, no bathroom, no food
Occupants: depends on the concierge

This ‘hotel’ does not sound like an enticing place to be in Nairobi on a Sunday night, especially when you decide to make a midnight run clad almost in pajamas to a 24-hour Nakumatt store - but that’s what the fabulous Kenya Police decided to offer this local investor in the new 24 hour economy.

After some light grocery shopping, I drove out only to have a policeman with a torch flash me down. I stopped thinking it’s the usual (aimless) check for an insurance sticker on the windscreen, or the officer needing a lift? But no:

Kijana you have driven out of there - yes?
Yes
Did you know you have broken the law?
No I did know that?

The two AK47-totting cops enter the car, one in front seat one in the back and command me to turn round, and proceed back to the store parking which I do. They then ask me demonstrate my driving exit route - and I indicate and proceed into the road (its midnight no other cars on road)

Aha kijana you see, you crossed a double yellow line – you should have turned left and gone to the roundaboutbe fore preceding this way

(This is a weak tale as, this is a narrow road which somehow has four lanes in the daytime, with matatus inventing two of their own, while these cops were asleep, or are too busy to help my friend who was car-jacked a mile away last night. Also the road has not been painted in years, and he claims there’s double yellow line somewhere?)

We drive back to their (nest) vantage point to watch for more ‘offenders’ (prey) - and right on cue, a Toyota Land Cruiser speeds out and takes the same offensive line. This prey looks bigger and more promising than my small car and the front seat cop jumps out of the car before i can fully stop to flash down the SUV – which has a Somali-looking driver (Aha, he’s hit the lottery as; expensive car + Somali driver = $$$, right?)

Meanwhile the other cop jumps into the front seat and orders me to park on the pavement. He removes the car key and asks for my driver license which he then reads as he starts to recite the hotel guest options:

Do you have 5,000 shillings (~$75)? (which is the spot fine/bail he says I will have to pay at the police station so that I may go home and sleep in my bed, failure to which it is on to the cell room with no shoes till I appear in court in the morning)
No
He tells me to call my family and tell them I won’t be home tonight. I sit quietly; I have had a rough day but there's no point making it worse - this in an obvious shakedown and the less said the better. These guys are out with AK-47’s to make money not to waste time with paperwork at the station. I remain quiet and he says that when his colleague finishes with the Somali/Land Cruiser driver, we will proceed in tandem to the police station/cells. I have called in enough favours today from friends and no point needlessly burdening them at midnight on Sunday. My new best friend continues to initiate conversation:

Do you have that money?
No
Where do you live?
Down the street
Where do you work?
In town
Do you have family?
Yes
How much do you have? (silence)
Do you have two thousand?
I think I have 1,500
That’s not enough (silence)
Lete hiyo (bring that)
I upturn my wallet with receipts and change from the super market
I only have 650 (about $10),
That’s not enough, no way (More silence)
Lete hiyo I hand over and he throws the key and license back in my lap.
I’ll let you go because, you also have a family.

And out he gets, to join his colleague at the Land Cruiser. I then start up the car and go home where it all seems like a bad dream 12 hours later. Accepting the 'hotel offer' would likely have made a more interesting blog post, but I hope I won’t have to write that one. And all you other 24 hour shoppers should be on the look out for 24 hour predators.

Grand Debate

[EDIT – at the end of the session, members of parliament passed a motion of censure against the Minister for Finance – Amos Kimunya, MP for Kipipiri]

Live on TV - all stations

Is the debate to censure Finance Minister Amos Kimunya for his role in the controversial sale of the Grand Regency Hotel.

Before a rather hostile opposition side, He’s just given a statement where he:

- Outlined his long history as an accountant and a crusader for reforms, revenue gains and tax savings for the Kenyan people numerous times such as with De La Rue, pending contractor bills, Safaricom, Telkom Kenya
- On Safaricom. Mobietelea was there long before he was in government or parliament
- On Alcazar - reputed owner of 11% in Safaricom – he says after Vodafone (K) and the Kenya government, no one else owns more than 1% of the company (after the IPO)
- On the Grand Regency Hotel: it was sold for $45 million {~ billion shillings} in May 2008
- The central bank made the sale and was not under duress.
- The ministry of lands, attorney generals office, prime ministers’ office have all received various reports
- More info forthcoming tomorrow

Safaricom IPO
Day 18 - Deals 5,266 Turnover 439, million ($6.86) million Ave 7.29 Closing 7.25 High 7.50 Low 7.20 Last 7.30 Volume 60.3 million shares - Market still absorbing supply but its very well supported at these levels. The move higher depends on how much more de-leveraging has to be done.

Day 17 - Deals 4,671 Turnover 302 million ($4.7 million) 7.35 High 7.50 Low 7.25 Last volume of 41 million shares - orderly and some sellers came off 7.50 to sell lower. Strong demand at 7.25. Remains constructive. 6.65-8.15 range.
commentary and data courtesy of Rich.co.ke - N.S.E Data Vendor

Kutwa Tuesday

Revelations Chapter 11, verse 1 and 2: Hats off to the business daily for their exposes of the downfall of Francis Thuo stockbrokers. It is an anomaly that brokers don’t have to publish their accounts, oversee each others lapses and gallantly bail each other out, and that white collar crime is something only the faint hearted fail at (they even raided the stockbroker after the company died. I guess the customers of Nyaga stockbrokers will be paid off now that the investor compensation fund is padded with millions from the Safaricom IPO

Thai is good: Kenya Airways will double its service from Nairobi to Bangkok to six flights a week to cope with growing demand – and four will connect to Hong Kong and two to Guangzhou, China. Also msafiri reports that they will get a replacement 737-800 in October, to replace the one which crashed last May a- and another two 737-800 this year. I think they should reduced European flights and focus on Asia and Africa

Kenyan snub: There's no Kenyan presence in the final list of sustainable banking award nominees of the FT/IFC. Earlier, only Equity Bank and Vodafone/Safaricom forBanking at the Bottom of the Pyramid were in but they probably canceled each other out.

ICT watchdog: an initiative formulated at skunkworks forum in March forum has come to fruition with news that the members will form a website to monitor the quality of ICT service in Kenya.

love your sponsors: Mama Mikes have a new venture - Channel Safari to market tourism in Kenya and were featured in the featured in the business daily

Failure to Learn

March 5 2008 marked the end of the 2nd 6 month statutory management period for after the collapse of Francis Thuo stockbrokers. It also came to mark the beginning of a 6th month statutory management period for another stockbroker - Nyaga Stockbrokers which was a much larger operation than the former.

In the collapse of the second stockbroker, there is a failure to learn from the mistakes of the former, and also myopia in regulation and awareness.

The CMA and NSE continue to treat Nyaga and FT stockbrokers like a rogue computer that has gone amok and chewed up stockbrokers funds. It was not - it had directors, managers, and employees. Who are these people? We have not heard any names or their stories, explanations, their questioning/arrest/convictions/disbarment's/fines etc.

It’s a trend we have here: looking at all the recent financial scandals we have had Charterhouse, Invesco, Francis Thuo, Euro Bank, and even the Electoral Commission of Kenya (bad math in 2007) - an organization is condemned (after it collapses), a beautiful report is written (and filed away), while the principals/employees walk away scot free.

From the big scandals of the past, over 40 bank collapses in the 1990’s, including giants Trade and Trust Bank’s not many lessons have been learnt. We have a culture that does not allow us to learn from the past, and dooms us to repeat those mistakes in future. It was only with Goldenberg (and to a lesser extent Anglo Leasing) where after the principals and officers were called forward to explain their odd (& previously secret) actions that some level of truth came out. That should be a model for dealing with other and future scandals; public hearings, not behind boardroom doors, and public reports, which will make it easier for anti-corruption prosecutors.

It is a dark secret in banking that very few employees are ever convicted of financial crimes and scams at their place of employment. What happens to these bank and stockbrokers employees, and where are they now? I don’t want them to move to CFC, but chances are they will get jobs with other brokers and bankers. They will lie low, but it's only a matter of time before the easy money trap sets in again; if they have amassed enough, they may even dabble in politics, or go for MBA’s...

There, I hope they encounter business classes looking at the past scandals, case studies on Goldenberg, Trade, Trust, Prudential Building Society, the genesis of Consolidated Bank, and the collapse of stockbrokers in 2007/08. Etc. Otherwise such events will recur in 2009 and 2010.

But some things can’t be fixed, and one Kenyan bank will collapse about every other year, a trend that is likely to continue as the industry continues to absorb the shocks of the post election period.

Other timely reading
- Are the shocks over? Coldtusker hints at other brokers
- Riba Capital’s infamous rogue broker alters from October 06 and April 2007, the second of which had Nyaga brokers at the top of the list
- Nyaga Stock Brokers
Nyaga Stockbrokers has received a warning from Capital Markets Authority in regard to their issuing of Bouncing cheques something similar to what Francis Thuo and Partners did.

This broker has been struggling for several months to clean up its act to avoid being suspended but the problems have been running deeper with the MD claiming that the only bouncing cheques they issued were those of Eveready IPO refund a claim which Eveready refutes and which other stockbrokers disagree with.

There are reports also that this broker was involved in illegal ‘shorting of the market’ whereby they would sell clients shares without authority on a market peak and buy back on a market slump. The CMA is said to have summoned the broker 2 weeks ago and given them an ultimatum to clean up something which the NSE had raised much earlier. If this does not happen, then we could see another broker going down due to money trouble.

- How to change your broker

LAG

Interpreting a local American Gangster

Having watched ‘American Gangster’ over the weekend then spent a couple of trips around town with a major business player, you get to understand why a certain group of people with mundane jobs can get so wealthy.

It’s understandable how the police do it (roadside bribes), but you can also bodyguards, drivers, personal assistants (PA’s) and even secretaries to that list

They are not necessarily corrupt but they are around centre of power and power players and have a chance to observe. By working closely supporting business and political leaders, they are unique situated to be around when the big deals happen, know what major developments are taking place and are able to spot arbitrage opportunities before anyone else.

Focus on drivers: They are in the company of ministers and other business leaders who talk deals in the cars and over their phones. Like the Frank Lucas character (played by Denzel Washington) in the movie American Gangster, drivers/bodyguards their bosses to meetings and get to see secret deals/big investments develop made by their boss whether it’s a new block of apartments, factory or even a new mistress. They also overhear conversations between the boss and engineer/architect/banker who’s sometimes in the car or over the phone as the boss dashes to/from meeting these same people.

The boss may be buying a building, but his driver may buy a small piece of land in the area or drop a line to a distant buddy to make another small deal. They observe secrets and learn skills at the same time.

Also bosses are human and have a compulsion to brag and backbite like all the rest of us - discussing with their driver the merits or demerits of an ongoing investment, or whether the person who has just hung up is a genius or an imbecile.

So it’s no surprise when a driver retires, he often has a sawmill, matatu or two, and three pieces of land or buildings, with wives scattered all over the country to manage them

His boss never groomed him and he never waited for Christmas or when the bosses’ good fortune sparked a feeling of goodwill and generosity that made him throw some crumbs at his henchmen.

So the driver creates a mini-empire silently over time to cater for his/her retirement, completely legitimate and by one who uses an opportunity to the maximum.