There are good things in my country, but there are bad things that if done right, would be good things too, and there are strange things, both good and bad...this is a chronicle of all.
Zain Group to sell Africa business for $12bn • Deal conclusion expected this week • Sale is to French company; if it does not go through, Zain will consider sale to other bidders • Price discounted by value of Zain’s outstanding debts • Possible reputational risk; the change of ownership may be perceived as instability • Change of management may result in upheaval of business operations
Telkom wins first round in dispute over layoff scheme • 597 retrenched employees disputing going on early retirement until the retirement package is determined. • Industrial Court stopped Telkom from proceeding with plans to send the employees into early retirement. • Telkom has obtained a stay on this ruling from the high court. • Next hearing is on June 25. The outcome of the dispute is crucial. If employees win, we should expect a higher cost base for Telkom (Orange) and lower profitability in future, as it will have to maintain the employees on payroll until the employees can go on early retirement.
The only thing anyone should invest in right now are companies that are fundamentally sound, companies certain to weather a difficult 2009 and emerge with minimum scrapes and bruises. What qualifies as fundamentally attractive, you ask? You need a set of screens that tells you if you’re putting your hard-earned (or not) money in an investment that will provide the returns you want. First, does the company have a sustainable business model? The business model simply means the method a company uses to generate revenue, and refers to its position on the value chain. Is the company a producer, landlord, distributor, broker? Is the business model in use viable in the current economic conditions? Are inventories lean, especially for the manufacturing companies? If not, can the company sell this inventory at a profit, or will re-pricing be a necessity, leading to a subsequent shrinkage in profits? Does a company have any new or continuing factors that would be earnings accretive in the next financial periods? New products or clients? Distribution network? Is the company well capitalized such that it can leverage its balance sheet to obtain financing for investment in an environment where credit is shrinking? Check valuations and compare them to similar businesses to gauge performance. The best investment advice comes from Warren Buffet. Look at the business. Go for companies whose business you understand. The more prosaic it is, the better. If you do not understand how they make their money, you have no business putting your money there. But sometimes, fundamentals are not everything. Be on the lookout for anomalies in the pricing of a security. The anomalies represent opportunities to make money while everything is in a whirl. Where has the market overshot it? Which company has been significantly oversold in the bear market run, and is therefore underpriced and a good bargain? Which company is overpriced and should be exited from? In which counters can you average down your cost because of the bear run? Happy hunting, people.
The overlap in customer base is a critical issue for companies that are competing for a share of the Kenyan’s consumer’s income. These include the mobile operators, banks, breweries and consumer/retail goods manufacturers. Rising unemployment figures as a result of a contracting economy will lead to declining income. Additionally, inflation is increasingly stretching the purchasing power of consumers, raising the need to cut back expenditure on some goods. This is the first frontier of competition for companies. Are consumers buying your products?
At the same time, these companies are facing industry-specific concerns. High competition and falling ARPUs in mobile telephony. High costs of operation in the manufacturing space. High competition in the banking sector, and risk of declining spreads from tighter regulatory policies from the Central Bank. Most companies are finding themselves between the proverbial rock and hard place, locked between rising costs of operation and production, and faced with the inability to raise product prices because consumers are increasingly sensitive to such.
How does a company survive then? The answer is innovation. The ability to innovate is a key success factor for companies in the current economic environment. A good example of innovation is the mobile industry. The mobile telephony space is taking advantage of the large proportion of the unbanked population, using what began as money-transfer services and have increasingly evolved into methods of holding small-sized deposits. Further, they have also tapped into an already established distribution network of the PESA point ATM network, thus increasing their coverage and customer base to include the banked population. The creation of synergies between telephony and money services should be significantly earnings accretive to these companies, and allow them to prop up declining margins in other sectors of their business. THis form of out-of-the-box thinking should become the culture to follow, otherwise these companies will face a difficult financial year.
Since the government is running out of money, it has been suggested that some of its 43 ministries need to go. I’m so on that train. And for that reason, here is my suggested list of ministries. And I think it could be condensed further, by someone with an eye more expert than mine.
1.Agriculture
2.Co-operative Development and Marketing (add to 1)
3.Defence
4.Development of Northern Kenya and other Arid Lands (add to 24)
5.East African Community (may be an actual requirement of the EAC, but I don’t think so. Add to 11)
6.Education
7.Energy
8.Environment and Mineral Resources
9.Finance
10.Fisheries Development (add to 1)
11.Foreign Affairs
12.Forestry (add to 8) and Wildlife (add to 40)
13.Gender and Children Affairs(add to 38)
14.Higher Education, Science and Technology (add to 6)
15.Housing
16.Immigration & Registration of Persons
17.Industrialization (just scrap this one. Industrialization will happen as a result of each of the other ministries. Or if you’re finicky, add it to 30)
18.Information and Communications
19.Justice, National Cohesion and Constitutional Affairs
20.Labour
21.Lands
22.Livestock Development (add to 1)
23.Medical Services
24.Nairobi Metropolitan Development (rename Metropolitan Development, Nairobi is not the only metropolis in Kenya.)
25.National Heritage & Culture (What exactly do they do here? Add to 18)
26.Office of the President
27.Office of the Vice-President and Ministry of Home Affairs
28.Office of the Prime Minister (?? I’m yet to establish exactly what he does, except appear on TV. Please, educate me.)
29.Office of Deputy Prime Minister and Ministry of Local Government (Now that Uhuru Kenyatta migrated to the Finance Ministry, doesn’t this structure become irrelevant?)
30.Office of Deputy Prime Minister and Ministry of Trade
31.Planning, National Development and Vision 2030
32.Provincial Administration (add to 27) and National Security (add to 3)
33.Public Health (add to 23) and Sanitation (add to 42)
34.Public Service (add to 33)
35.Public Works (add to 33)
36.Regional Development Authorities (add to 24)
37.Roads (add to 24, that way, people’s buildings are not built on alleged road reserves, because there is coordination)
38.Special Programmes
39.State Law Office (add to 19)
40.Tourism
41.Transport
42.Water and Irrigation
43.Youth and Sports
1 President + 1 Prime Minister + 2 Deputy Prime Ministers + 37 Ministers + 53 Assistant Cabinet Ministers = Total of 94
Then add the verbal-diarrhoearing government spokesman, 43 permanent secretaries, various key secretaries and directors in each of the ministries, and you have an avalanche of salaries. And who is paying them? That would be you and me.
In a Parliament of 222 members, 42% hold either a Cabinet post or an Assistant Minister post. Ridiculous. To make it worse, if any of these people sits on any one of those committees/commission they are so fond of setting up, they will earn something, effectively a second salary. No wonder the government is broke.
According to Daily Nation (Mar 16), the government spends billions on flowers and tea. That is how they use the money you and I slave for. In a country with 10 million people starving, it is morally corrupt, absurdly selfish, even evil, to be spending so much money lining the pockets of few people. And Kenneth Marende (speaker) had the unmitigated gall to speak of philanthropy on the question of MPs paying tax. As though it is a question of philanthropy. Evil, just evil.
I’m frustrated. Some of these people need to go. The rest can multitask or follow them.
COTU Secretary General Francis Atwoli is my hero. This man just might be the most accomplished government critic in Kenya. Not only does he make his point with no ambiguity or bootlicking, but he manages to make it sound as funny as hell. Lately, I've managed to catch him on the prime time news, spewing his particular brand of criticism. Here, I begin a list of his famous quotes, to be updated whenever he utters a new one…
· “We can’t elect people to go to Parliament to steal maize!” - on William Ruto and the maize scandal.
· “You want to go down there (downtown Nairobi), be accompanied by a Kenyan.” - on tourists and insecurity in Kenya.
· “A law maker becomes a law breaker. What a nation!” - on MPs and their refusal to pay taxes like other Kenyans.
Econet, or Yu, just blew the level of competition in mobile telephony space to a whole new sphere. In true low-cost tradition, Econet has introduced a unique tariff in which subscribers will be charged Sh7.50 for the first two minutes of the first call made in a day, but subsequent minutes and calls will be charged at a new rate of Sh0.50 a minute.
Usually, people do not like free things with strings attached. They like free things, period. That said, I do not see how this offer will not be attractive, especially for people who make plenty of calls. Say I spend the requisite Sh15 on the first call to get to the offer zone. If I make calls totaling 60 minutes for the rest of that day, my total expenditure for the day is Sh45.
In my view, Econet is assured of at least Sh15 for every call made by a subscriber wishing to take advantage of the lower call rate. That is an ARPU per call of Sh15, at the very minimum. Very neat. In the battle for subscribers, Econet also pays you 75 cents a minute for every call you receive from a rival network. Makes the bitter pill of shifting from one network to an unfamiliar one much easier to swallow.
What it costs you to make calls: a comparative analysis
Low-cost service provision is a sustainable business model, but only if you can find new ways to keep the competitive edge. Which Econet just did. The response from other providers remains to be seen, but it is safe to say that a quick and comprehensive response is required. In the meantime, ARPU will keep declining until price equilibrium is achieved, and new forms of competition - other than price - take effect.
Sometimes, and I regret that ‘sometimes = too often’ here, you see things in Nairobi just puzzle the hell out of you. On Moi Avenue, near Optica, and on Kenyatta Avenue, near the burnt out Nakumatt, someone has attached a row of shrubs (like the one pictured) to the railings on the pavement. Either this was a misguided attempt at beautification or... I don't know.
