for shared economic growth...agreement that gives the under-writer the right to sell investors more...

TREASURYbUllETin

TRANSFORMATION FOR SHARED ECONOMIC GROWTH

TRANSFORMATION FOR SHARED ECONOMIC GROWTH

IMF sees Kenya capital inflows topping Ksh 167 billion.

World Bank commends Kenya’s private sector as investments hit Ksh 44b.

Innovation takes Kenya top of Africa regional trade.

State to accelarate procurement process

A Publication of the National Treasury Feb - April 2015 • Issue No. 009

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J U L Y - S e p t e m b e r 2 0 1 5 • I S S U e N o . 0 1 0

EdItor IN CHIEFDr. Kamau ThuggeEdItorMr. Joseph KipkoechMEMbErsMr. Antony MuriuMr. Musa KathanjeMs. Edna AtisaMr. Lawrence MaingiMr. Michael ObonyoMr. Argwings OwitiMr. Geoffrey MwikambaMr Daniel Njihia

P.O. Box 30007 - 00100Nairobi-KenyaTel: +254 (0)20 22522990733 660606 / 0728 338111Email: [email protected]: www.treasury.go.ke

Comments and contributions can be sent to the Editor on the above address. Contributions may be edited for clarity, space or legal consideration.

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NAtIoNAL trEAsUrYtrEAsUrY bUILdING, HArAMbEE AVENUE

dIsCLAIMEr:Some of the views expressed in this News-letter do not necessarily reflect the position of the National Treasury.

EdItorIAL boArd

ContentsFEb - APrIL 2015 • IssUE No. 009

IMF Lowers Global Economic Forecast For 2015 7

Insurer Investors’ wealth up by quarter in 2014 9

World Bank commends Kenya’s private sector as investments hit Ksh 44 billion 11

Treasury sets terms for counties seeking private funds 12

Safaricom emerges Kenya’s biggest taxpayer for the 7th consecutive year 14

KRA to put more staff on performance contract plan 16

Kenyan flowers to enter EuropeanMarket duty free 17

EAC Most Ambitious Economic Bloc In Africa 22

Sub-Saharan Africa Economy Grew By 4.5Pc In 2014: World Bank 24

Treasury to fast-track regulatory changes in Nairobi Security Exchange firms 26

The National Treasury targets Gulf and Japan bond markets 28

Konza City Underway as 300investors commit funds 30

Sector faces hard times as sugar safeguards elapse 32

AfDB approves Kshs. 12billionfor power access projects 33

East African Community ranked the best in Africa 35

Innovation takes Kenya top of Africa regional trade 37

IFMIS Department, The National Treasury, Fifth Floor, Treasury Building, Harambee Avenue, P.O. Box 30007-00100, Nairobi

Phone: +254 0 (20) 225 2299 Email: [email protected]

www.ifmis.go.ke

INTEGRATED FINANCIAL MANAGEMENT INFORMATION SYSTEM (IFMIS)

I AM FROM NAIVASHA, MY COUNTY IS USING IFMIS.

IFMIS — HELA ZETU, HUDUMA BORAProtecting and utilizing public funds for optimal performance and service delivery to Kenyans

IFMIS is operational in both the National and County Governments.The system guarantees that each expense is traceable, delivering optimal value to Kenyans.

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J U L Y - S e p t e m b e r 2 0 1 5 • I S S U e N o . 0 1 0 J U L Y - S e p t e m b e r 2 0 1 5 • I S S U e N o . 0 1 0

Word from the Principal SecretaryWord from the Cabinet Secretary

Dr. Kamau Thugge, Principal Secretary, The National Treasury.

Henry Rotich, Cabinet Secretary, The National Treasury.

Aligning Kenya to benefit from new investment opportunities

Debut sovereign bond brings home cheap funds

Kenya ventured into the international debt market for sov-ereign bonds in June

2014 and the first sovereign bond was oversubscribed at a lower cost than hoped for.

It attracted $8.8 billion, slightly more than four times the $ 2 billion, or the best case scenario the Govern-ment had presented.

The National Treasury ended up taking $2 billion in two tranches of 1.5 bil-lion over 10 years and a five- year $500 million bond.

Kenya had managed to borrow at 5.875 percent for the five-year portion while

the 10 year bond had a yield of 6.875 percent.Market play-ers said in addition to stabilizing the shilling, the successful issue would open doors for local com-panies to borrow from the inter-national markets in future.

Successful issue Analysts said the successful issue was

taken as a vote of confidence in Kenya’s economy and would give companies the confidence to ini-tiate borrowing plans.

Banks, real estate companies and insurance firms all thronged the bond market looking for mon-ey to develop property, expand operations and fund other corpo-rate initiatives.

All issues were oversubscribed with most insurers exercising green-shoe operations- a provi-sion contained in an underwriting agreement that gives the under-writer the right to sell investors more shares than originally planned by the insurer.

Kenya has tapped the interna-tional market again borrowing Kshs. 68, billion as financing of the states big projects. The ad-ditional amount will be spent in energy, transport and agricultural sectors.

The Kshs. 68 billion interna-tional sovereign bond was issued on the back of the bond issued in June 2014 through a process called a Tap, which means re-opening the bond. This transac-tion is therefore a follow-up of the inaugural $2 billion.

The issue was oversubscribed by 400 percent giving the country a discount on the Kshs. 175 billion received in June.

Due to the favourable yields, Kenya received a premium of Kshs. 4 billion on the issue. On the same note there was a wide-spread geographic investor cover-age led by investors from Europe, mainly from the United Kingdom and America.

The issue comprised a bond of $250 million with a five-year ma-turity at an interest of 5.9 per-cent.

Following the successful issu-ance of the sovereign bond, the government will issue its debut Islamic bond (Sukuk) in the next financial year.

Sukuk is the Islamic equivalent of bonds, and it is structured in such a way as to generate returns to investors without infringing on Islamic law(Which prohibits inter-est).

The issue was oversubscribed by 500 percent giving the country a discount on the

Kshs. 175 billion received in June.

We as Kenyans need to position ourselves to

maximize uptake of capital from the Western and Eastern

investors.

FiSCAl AFFAiRSinVESTMEnT OPPORTUniTiES

The US- Africa forum, fo-cused mainly on business

investment opportuni-ties between the two continents.

America is at long last

eyeing big opportunities in Africa, the same way Asian giants have been doing over the last dec-ade or so.

We as Kenyans need to position ourselves to

maximize uptake of capital from the Western and Eastern investors.

For instance, we have to scale up development planning to re-flect the big opportunities that the rest of the world is seeing Africa, and focus on a large consumer market supported by a fast grow-ing middle class endowed with huge spending power.

Bigger thinking and planning for the longer term national needs, for example Vision 2030 has been an appropriate long-term planning tool from which sector master-plans are being drawn. It is the readiness of such plans that will guide investors on where to put their cash.

To go hand in hand with project planning is the creation of a con-

ducive investment climate that will give Kenya an edge over other African countries competing for the same investments. Availability of reasonably priced energy, efficient infrastructure, sufficient relevant skills, transparent gov-ernance, investor friendly regula-tory framework, sustainable secu-rity and political stability are all essential ingredients of a facilita-tive investment environment.

We should not forget that foreign investors are specifically targeting our counties for investments.

Such investments should be seen to add, not dilute, value to the to-tal national economy.

In most countries, in 2014, the three key drivers of growth were investment, domestic consumer demand and regional trade. Kenya indeed has favourable environ-ment for investment and economic growth.

Thus the financial sector (banks, capital markets, insurance and Saccos) ought to generate high levels of savings and support long term investments.

Foreign investors are thinking big about Africa, particularly Ken-ya and so should we. That is the only way we shall be seen to be equal and credible partners in the investment game.

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Word from the Editor

Joseph Kipruto KipkoechAssistant Director, Public Communication

Investment to spur Economic Growth and Transform Kenya.

Kenya is on the global map as a favourable investment destination in Africa. Kenya International Investment Con-

ference (KIICO, 2014), underscored the governments efforts to make Kenya a global investment destination of choice.

During the KIICO 2014, which was held at Kenyatta International conven-tion centre (KICC), Kenya and particu-larly Nairobi City, was described as an investment hub for East and Central Africa.

Kenya through the Kenya Investment Authority, a statutory body charged with Investment promotions has done its best to strengthen key investment

drivers among them capital markets, taxa-tion, investor protection and corporate gov-ernance, human and social environment, entrepreneurial culture and business op-portunities; which encompass aspects such as innovation capacity, the ease of doing business and the development of hi-tech industries.

By improving Key investment drivers, Kenya like BRICS ( Brazil, Russia,India, Chi-na and South Africa) will develop stronger investment confidence. This will stimulate the economy to generate more employment opportunities for the youth and women, and thus transform their living standards com-mensurate with their middle income status.

There exists investment opportunities in manufacturing, ICT, infrastructure, tourism, mining, agriculture, oil and energy, as well as in the building and construction indus-tries among others.

To make Kenya a darling of local, re-gional and global investors, we must market it to potential investors as the preferential investment destination in the region and on the continent.

It is good news to learn that more than 90 US companies plan to invest in various sectors of the economy in the next three years.

The investors under the lobby, Corporate Council on Africa (CCA) comprising 185 US private companies have promised to start extending their wealth mainly in the health, energy and infrastructure sectors soon.

CCA President and Chief Executive Ste-phen Hayes said US companies are angling to invest in key sectors where immediate deals can be made like in infrastructure, re-newable energy and in health.

“We recognize Kenya’s economy as one of the most diversified with a chance to develop the future of an emerging African market thereby presenting investment op-portunities in renewable energy and new transport infrastructure”, said Mr. Hayes.

RAPID URBANISATION

Kenya Vision 2030 delivery Board Chair-man, James Mwangi called on the inves-tors to tap into Kenya’s rapid urbanization, growing transport infrastructure and energy and enjoy high returns.

He explained that the projects within these sectors are economically viable and estimated to inject about three percent of the gross domestic product ( GDP) and further yield up to between five and eight percent of the country’s GDP through gen-erated investments under a public private partnership framework, joint ventures or sole ownership.

“The seven key infrastructure project components of the Lamu Port, South Sudan- Ethiopia (Lapsset) Corridor Programme re-quire substantial amounts of resources with a budget estimate of $24.5 billion (Kshs. 2.2 trillion) in construction costs”, said Mr. Mwangi.

“ It is estimated that Lamu Port with its 32 berths alone will cost $3.1 billion (Kshs. 279 billion), railway $7.1 billion(Kshs. 630 billion) while the crude oil pipeline will cost a further estimate of $3 billion (Kshs. 270 billion) for Lamu to Lokichar trunk line alone”.

ECOnOMiC TRAnSFORMATiOn

There exists investment opportunities in

manufacturing, iCT, infrastructure, tourism, mining,

agriculture, oil and energy, as well as in the building and

construction industries among others

National Treasury to Raise Spending by 25 Percent to 2.17 Trillion in 2015/16 Budget

The National Treasury will raise spending by 25 per-cent to Ksh2.17 trillion in 2016/16 budget starting

July.According to 2015/16 budget es-

timates, most of the funds have been allocated to energy, infrastructure and telecommunications.

Apart from taxation, the 2015/16 budget targets revenue collection from sectors such as agriculture, manufac-turing, and tourism borrowing from fi-nancial markets, deepening tax reforms to broaden the tax base, reduction of compliance cost,private sector growth facilitation and enhancement of reve-nue yield are expected to generate the additional resources required to finance the budget.

National Treasury targets to in-crease revenue collection from taxes on income, profits and capital gains to Ksh623.2 billion as opposed to 2014/15 estimates which was Ksh532.4 billion.

Collections from taxes on property will increase to Ksh10.07 billion, Capital Gains tax Ksh10billion, value added tax on domestic imported, refunds and re-missions Ksh310 billion, grants Ksh25.9 billion and Ksh219 billion from domestic money market.

On sectors allocation, transport and logistics (roads, railway and ferries) re-ceived Ksh277.5 billion, Energy Ksh55.2 billion, flood control and water harvest-ing Ksh44.2 billion, health Ksh12.9 bil-lion, laptops Ksh17.58 billion, free day secondary Ksh32.7 billion, free primary education Ksh14.1 billion and recruiting additional 5,000 teachers Ksh2.3 billion.

the 2015/16 budget targets revenue collection from sectors such as agriculture,

Kenya’s high public debt is attributed to borrowing to fund major projects

Kenya’s public debt levels is high mainly due to heavy government bor-rowing to fund massive infrastructure projects.

The Annual Public Debt Report shows that the debt to gross domestic product (GDP) has been growing stead-ily since June 2013 from Sh1.8 trillion or 42 percent of the GDP to Sh2.4 tril-lion last year, (47.9 percent).

The report which was released in December last year shows that in 2013, the debt ceiling was raised by the Na-tional Assembly from Sh800 billion to Sh1.2 trillion.

MPs again pushed it to Sh2.5 trillion in December last year. Kenya requires at least Sh5.7 trillion to fund mega pro-jects, including Sh327 billion standard gauge railway, Lamu Port and South Sudan-Ethiopia Transport project, generation of 5,000 MW of power, the Galana irrigation scheme and the crude oil pipeline from Turkana to Lamu. Other initiatives are the Northern Cor-ridor integration projects, the second container terminal and berth, power transmission lines and the tarmacking of 10,000 kilometers of roads.

According to National Treasury Cabi-net Secretary Mr. Henry Rotich, growth of external debt is attributed to the recent floating of an international sov-ereign bond worth Sh176 billion.

The success of the sovereign bond helped to consolidate macro-economic stability by strengthening the shilling, stabilizing import prices and reducing the cost of living”, said Mr. Rotich in his remarks.

At 47.9 percent of the GDP, the pub-lic debt is above the 45 percent Treas-ury threshold and so is the overall fiscal deficit, which stands at eight percent against a target of below five percent.

However, Mr. Rotich said the debt analysis for Kenya indicates that it is sustainable over the medium term.

TREASURY TO RAiSE SPEnDinG bY 25 PERCEnT

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The Insurance Regulatory Authority (IRA) has completed issuance of 2015 licences to over 40 insurance compa-nies operating in Kenya, after a delay caused by a board quorum hitch.

Under the Insurance Act, licensing insurance companies is a preserve of the board, but the regulator lacked quorum for the role.

In a gazette notice on January 30, Cabinet Secretary for the National Treasury Mr. Henry Rotich filled the four vacant slots, setting the stage for competition of the licensing.

IRA had set a deadline of end of February for issuance of the annual li-cences.

The industry regulator said the pro-cess was completed by February 2013 and all underwriting firms that applied were licensed.

Insurance companies are required to renew licences annually as a meas-ure to enhance surveillance on the sector. They must file applications by end of September for licences to be processed by December 31through an electronic platform.

The IRA board comprises of the Commissioner of Insurance Mr. Sammy Makove, who is also IRA Chief Execu-tive Officer, the National Treasury Prin-cipal Secretary Dr. KamauThugge, Re-tirement Benefits Authority Acting boss Mr. Paul Muthaura and the Central Bank of Kenya Governor.

It also includes a nominee from the Insurance Institute of Kenya to repre-sent professionals in the industry.

Those appointed in January were Ms. Alice Njoroge, a representative of the Insurance Institute of Kenya, Ms. Joyce Muchena, Mr. Paul Cheboi and Mr. Douglas Kilanya.

Insurer Investors’ wealth up by quarter in 2014

Insurers granted 2015 IRA business licences

inSURER inVESTORS

Insurers grew funds attributable to shareholders by more than a quarter last year, including paid up share capital and retained earnings, surpassing the Ksh100 billion mark for the first time.

An industry report released by the Insurance Regulatory Authority showed shareholders’ wealth grew to Ksh122.54 billion from Ksh98.21 billion in 2013, a 24.8 per cent growth.

The shareholders’ funds comprised Ksh31.1 billion in paid up share capital, Ksh48.16 billion in retained earnings and Ksh43.28 billion in other reserves.

The ratio of shareholders’ funds to total assets increased to 42.1 per cent from 39 per cent in 2013, the report showed.

The growth signals that established firms are stockpiling their war chests to compete favourably in the industry, which has seen a growing number of mergers and acquisitions, with foreign investor interest rising.

“Going forward, premium growth is likely to accelerate and capitalization increase supported by the capital in-flows from multinational insurance cor-porations,” IRA said.

Insurers Slip back to losses as Medical claims rise by 45 Pc

Medical claims paid out by insurance companies shot up by nearly 45 per cent last year; resulting in the class slipping back to underwriting losses.

Data from the Insurance Regulatory Authority (IRA) shows that Ksh12.3 bil-lion was paid out in claims for covers up from Ksh9 billion in 2013.

Due to the high claims, the IRA said, the class recorded an underwriting loss of Ksh437 million down from a profit of Ksh282 million the previous year.

Underwriting profits are calculated by deducting claims paid out and adminis-trative expenses incurred to manage a portfolio from the premiums collected.

Last year, medical premiums were 25.2 per cent of the general insurance up from 24.2 per cent in 2013.

High claims, which constituted a third of the total general business claims, have however cast a dark shadow over the industry.

of Ksh437 million down from a profit of Ksh282 million the previous year.

I&M Capital Licensed to run Funds

The Capital Markets Authority (CMA) has licensed I&M Capi-tal, a subsidiary of I&M Bank,

to operate as a fund manager.The approval brings the number

of licensed fund managers in Kenya’s Capital market to 24. A fund manager runs a collective investment scheme such as unit trust, registered venture capital company, pensions or an in-vestment adviser.

The CMA has also announced the licensing of Liaison Financial Services Ltd to operate in Kenya’s capital mar-kets as an investment advisor.

The approval increased the number of investment advisors licensed by the authority to 16.

Liaison recently acquired the Afri-can business Knutson Global Incorpo-ration which has been at the forefront of the promotion of asset-backed se-curities (ABS), municipal development bonds (Mini bonds) and consumer lend-ing in Africa.

“The approval will enable Liaison Financial Services Ltd to offer support to and guide firms interested in and ready to execute asset-backed secu-rities transactions in Kenya and other East African states,” said the CMA.

Liaison has predominantly provided services in retirement and pension scheme consulting and administrative sectors.

County Funds are disbursed in time, says National Treasury

National Treasury Principal Sec-retary Dr. Kamau Thugge, has said that county funds are be-

ing disbursed in time and counties have significant balances of unused funds ly-ing at the Central Bank of Kenya (CBK).

In a statement to the press, Dr. Thugge noted that the funds should be able to pay off salaries to their workers.

This comes after governors had ac-cused the National Government and National Treasury of delaying disburse-ments of funds; plunging counties into salary crisis.

According to the figures released for May this year by the Principal Secretary, the counties with the highest bank bal-ances reportedly lying idle at CBK in-clude Lamu Ksh 783 million, Kitui

Ksh 1.8 billion, Turkana Ksh 2.2 bil-lion, Siaya Ksh 1.2 billion and Embu Ksh 868 million.

Those with the least balances were Vihiga, Nairobi, Machakos (one percent each), Kiambu Ksh 128 million, Nyeri Ksh 188 million and Taita-Taveta 183 million.

Dr. Thugge said that as at June 16, this year, counties were collectively holding unspent bank balances amount-ing to Ksh 31.3 billion. He added that throughout the year, the unspent amounts ranged between Ksh 30 billion

and Ksh 40 billion.The Principal Secretary said while

disbursing funds to the counties in any month, priority is given to those with the least fund balances in their bank ac-counts in order to ensure that services are not disrupted. He said by leaving sig-nificant balances lying idle at the CBK, county governments are increasing the costs of borrowing and interest repay-ments for the national government.

He called on counties to regularly update Kenyans on the amounts they re-ceive from the National Treasury, saying it is required by law. The Principal Secre-tary said as at June 16,

Ksh 196.9 billion or 86 percent of the disbursements due to counties for the 2014/2015 had been released.

i&M CAPiTAl liCEnSED TO RUn FUnDS

while disbursing funds to the coun-ties in any month, priority is given to those with the least fund balances in their bank accounts in order to ensure that services are not disrupted

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Underwriting profits are calculated by deducting claims paid out and ad-ministrative expenses incurred to man-age a portfolio from the premiums col-lected.

Last year, medical premiums were 25.2 per cent of the general insurance up from 24.2 per cent in 2013.

High claims, which constituted a third of the total general business claims, have however cast a dark shad-ow over the industry.

IRA board quorum set to hasten licensing of insurers

Issuance of 2015 insurance license is expected to be completed by end-month following the appointment of board members to the Insurance Regu-latory Authority (IRA).

Under the Insurance Act, issuance of licenses to the over 40 insurers is a

Kenya on Right Path in Financial Inclusion

Kenya has made considerable improvement on financial in-clusion since the first official

survey was carried out in the country in 2006.

According to the FinAccess Survey 2013, more Kenyans are breaking the chain of financial exclusion, which is good for the country’s development.

Kenya Banker’s Association chief ex-ecutive Mr. HabilOlaka says for the last seven years, there has been a 15 per-cent increase in financial access.

Back in 2006, those falling under the bracket of financial exclusion were es-timated to be 40 percent in 2009 it re-duced to 35 per cent and in 2013 fell to 25 percent.

Speaking during a CNBC Africa Fi-nancial Inclusion debate in Nairobi, Mr. Olaka said the figures are expected to fall further in a survey underway.

Financial exclusion is the inabil-ity to carry out any money transaction (through banking, mobile, insurance or Sacco services) for example people with low or no income. It is believed to be

one factor preventing poor people from breaking the poverty chain.

Airtel Africa group director for Airtel Money ChidiOkpala, said the East Afri-can region is doing well regarding mo-bile money compared to West Africa.

He said although the digitization of cash is being resisted it cannot simply be swept under the carpet because that is the way to go, adding that telcos are proving to be versatile compared to banks. “While banks require brick and mortar, the mobile phone has nothing of such,” he said.

MasterCard East Africa vice-President Mr. James Wainaina said about 97 per-cent of payments in Kenya are done through cash, but the government di-rective on cashless payments for public service vehicles is likely to change the landscape. “The government has been supportive in a bid to grow financial in-clusion,” he said.

iFC continued high level of activity in Sub-Saharan Africa reflects our support for private sector clients

as they drive local economies forward......

preserve of the board, but the regulator lacked quorum for the role.

IRA was forced to allow insurers to transact business in the meantime via letters of the authorization after vet-ting applications handed in late last year.

“We now have a board and we will issue the licenses. All companies made their applications on time and we are hopeful that the exercise will be com-pleted within the month,” the regulator said in a statement.

Through a gazette notice on Janu-ary 30, 2015 Cabinet Secretary for the National Treasury Mr. Henry Rotich, an-nounced the appointment of four peo-ple to the IRA board for three years ef-fective from January 19, 2015.

The appointees were Alice Njoroge, a representative of the Insurance In-stitute of Kenya, Joyce Muchena, Paul Cheboi and Douglas Kilanya.

Other members of the board in-clude the Commissioner/CEO of Insur-ance Regulatory Authority Mr. Sammy Makove, Principal Secretary for the National Treasury Dr. Kamau Thugge,

Retirement Benefits Authority CEO Dr. Edward Odundo, Central Bank governor, Professor Njuguna Ndung’u, and Capital Markets Authority acting CEO Mr. Paul Muthaura.

Insurers are required to renew licens-es annually as a measure to enhance surveillance on the sector. They must file applications by end of September for licenses to be processed by Decem-ber 31 throughan electronic platform that has hastened the process.

inSURER inVESTORSinFRASTRUCTURE KEY

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Kenya ranked among seven top investment destinations

Mega infrastructure projects, in-creased electricity connections and pos-itive prospects on macroeconomic sta-bility have placed Kenya in a pool of top emerging markets to watch this year.

American business magazine For-tune, published by Time Inc. ranks Ken-ya as one of the seven top investment destinations with high growth prospects among emerging economies globally.

Kenya topped regional and continen-tal giants South Africa and Nigeria to be the most attractive investment hub with friendly environment and policies to help foreign and local investments flourish.

An article in the magazine’s February issue posted on its website says Kenya found its way to the list on concerted efforts in infrastructure development, the power sector and the improving macro-economic stability.

“The World Bank’s 2013-14 ‘Doing Business’ report asserted that sub-Saha-ran Africa has benefited more than other regions from regulatory improvement. Few countries offer greater promise than Kenya,” said Fortune.

Kenya made the cut to the special list of seven that also has India, Malaysia, Indonesia, Mexico, Poland and Colom-bia.

The country’s strengthened security in the wake of the recent terrorist at-tacks –and the decision by the Inter-national Criminal Court to withdraw charges against President Uhuru Keny-atta led to a new measure of stability, said Fortune.

“Implementation of IMF-supported fixes to Central Bank and the National Treasury management ought to keep in-flation in check and the currency stable as well,” said the magazine.

The country now eyes more foreign direct investment flows to boost eco-nomic growth and lower prices of goods

and services through increased compe-tition.

Industrialization and Enterprise De-velopment Cabinet Secretary Dr. Adan Mohamed attributed the good ranking to increased investor appetite for the largest economy in East Africa region.

“The reducing cost of doing business and stable macro-economic environ-ment continue to make a clear signal that Kenya is ready to do business with the World and we are delighted that in-vestors are showing increasingly confi-dence in our country,” he said.

Last year, Kenya toppled South Af-rica and Nigeria in private equity deals at 12 against 10 and nine respectively, according to a survey by advisory firm Deloitte.

The confidence survey indicated Kenya managed to attract attention of foreign investors despite experienc-ing election jitters and terror attacks, pushing the region’s deals in double dig-its to 26.

Fortunate said while Nigeria and South Africa Continue to face more than their share of political and economic

turmoil, Kenya appears headed in the other direction.

“Backed by a majority in both legis-lative chambers, President Uhuru Keny-atta appears poised to advance –delayed plans to develop the country’s power sector and national infrastructure,” said the publication on its website.

The industrialization ministry said Kenya has embarked on an ambitious programme to address challenges on the ease of doing business and has set up a delivery team to make the country a world class investment destination.

Backed by a majority in both legisla-tive chambers, President Uhuru Keny-atta appears poised to advance –delayed plans to develop the country’s power sector and national infrastructure

KEnYA RAnKED

Kenya Ranked third growing economy

Kenya has emerged third in the top 20 fastest growing econo-mies in the World in 2015 ac-

cording to economists surveyed by Bloomberg Business.

Kenya and Nigeria are the only African countries that have made it to the list that places China as the fastest growing economy, followed by Philippines.

Ironically, the survey indicates that Kenya will probably grow six per cent in 2015. Nigeria, Africa’s largest economy, is projected to expand 4.9 per cent this year, according to the Bloomberg Survey released last week.

“China, the Philippines, Kenya, India

and Indonesia, which together make up about 16 per cent of the global domestic product, are all forecast to grow more than five per cent in 2015,” the survey states.

Other countries on the list include-Singapore, United Arab Emirates, Ma-laysia, Peru, Colombia, South Korea, Taiwan, Poland, Mexico, Turkey, Saudi Arabia, Ireland and Kazakhstan.

By comparison, the United States and United Kingdom, which combined account for about a quarter of global growth, are expected to grow 3.1 per cent and 2.6 per cent this year, respec-tively.

Study: Kenyans took Ksh2 trillionloans in 2014

The Euro probably will increase by just 1.2 per cent as European Central Bank President Mario Draghi deals with fragile Greece and embarks on a bond-purchase programme to stimulate the region’s growth.

China still remains the fastest grow-ing G-20 nation, even though the Asian economy is no longer expanding at the pace it did a few years ago. China’s economy grew 7.3 per cent in the fourth quarter of 2014 from a year earlier, and is expected to slow to 7 per cent in 2015.

KEnYA RAnKED

Kenyans borrowed Ksh370 billion more last year compared to 2013,

with the Central Bank of Ken-ya (CBK) attributing this to declining cost of credit.According to the regula-tor’s Credit Officer Survey for 2014, the total value of loans issued by banks stood at Ksh1.97 trillion at the end of last year, a 23 per cent growth from Ksh1.6 trillion at the end of 2013.CBK said demand for credit was driven by lower cost of borrowing, increased invest-

ment opportunities and re-tention of the benchmark lending rate at 8.5 per cent.“The main factors that caused the demand for cred-it to increase were internal

financing loans from other banks, drop in cost of borrowing, increased available investment opportu-nities as a result of a stable macroeconomic environment, Kenya Inter-Bank Borrowing Rate and the retention of CBK rate at 8.5 per

cent,” the CBK said.Unaudited pre-tax profits for banks at the end of last year, however, registered a much slower growth of 13.7 per cent to Ksh124 billion for

2013.This is an indication of the shrinking interest income arising from gradual decline in interest rates. Banks also paid a total of Ksh89.58 bil-lion to depositors in 2014 in interest expenses, a 24 per cent rise from Ksh72.22 bil-lion in 2013.The highest growth for loans was witnessed in the person-al/ household, transport and communication, agriculture and trade sectors.

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A new global index report on think tanks ranks the Kenya Institute for Pub-lic Policy Research and Analysis (Kippra) as the top organization in Sub-Saharan Africa.

The report is based on the perception (opinion) of 20,000 people from across the world with the focus of improving the quality of think tanks.

The 6,618 think tanks across the world, working to bridge the gap be-tween knowledge and policy, according to 2014 Global Go to Think Tank Index Report by the University of Pennsylva-nia, US.

Speaking at the launch of the report in Addis Ababa, Mr. Steve Glovinsky of United Nations Commission for Africa said: “This report is all about putting think tanks on the map.”

“This policy is no more than an ef-fort to highlight some of the leading think tanks worldwide… Inclusion of an institution in the universe of leading think tanks does not indicate a seal of approval or endorsement of the institu-tion or its works. Likewise a failure to be nominated does not necessarily indi-cate a lack of quality and effectiveness

or poor performance,” it says.Help address gapsThe report ranked Imani Centre for

Policy and Education of Ghana and the South African Institute of International Affairs second and third respectively, in Sub-Saharan Africa.

“Such reports will help us to address our gaps and limitations,” said MuluGe-breeyesus, of the semi-autonomous Ethiopian Development Research Insti-tute, which the index ranked 15th in Sub-Saharan Africa.

PROF. ChidozieEmenuga, chief coun-try economist at the African Develop-ment Bank, said think tanks in Africa need to be homegrown and incorporate domestic ideas in order to prepare rel-evant policy prescriptions to decision makers and ultimately bring positive im-pact on the lives of the people.

“Domestication odf policy is very im-portant. It is about localizing thoughts and engaging people who have knowl-edge on Africa. If an idea is working, think tanks need to localize and imple-ment it,” the scholar said.

Should not bind itselfProf. Andreas Eshete of Addis Ababa

University and adviser at Prime Minis-ter’s office in Ethiopia said that for a think tank to be effective in policy preparation that will be recommended for policy makers and implementers, it shouldn’t bind itself with a certain eco-nomic or political ideologies.

Kenya,Germany sign Ksh. 18.5 billion deal

• Kenya and Germany signed agreements to support various develop-ments projects in the country.

• The National Treasury signed two bilateral and Technical agreements worth 14.5 billion; - deals that were en-tered into two years ago but no com-mitments had been made.

• The two countries also agreed on a fresh Ksh. 4.02 billion, bringing the total to Ksh. 18.52 billion.

• During the bilateral discussions in 2013, Germany committed to make available to Kenya a sum of Ksh. 14.5 billion made up of Ksh. 11.2 billion in financial assistance and Ksh. 3.3 billion

Affairs second and third respectively, in Sub-Saharan Africa.

“Such reports will help us to address our gaps and limitations,” said MuluGe-breeyesus, of the semi-autonomous Ethi-opian Development Research Institute, which the index ranked 15th in Sub-Sa-haran Africa.

PROF. Chidozie Emenuga, chief coun-try economist at the African Develop-ment Bank, said think tanks in Africa need to be homegrown and incorporate domestic ideas in order to prepare rel-evant policy prescriptions to decision makers and ultimately bring positive im-pact on the lives of the people.

“Domestication odf policy is very im-portant. It is about localizing thoughts and engaging people who have knowl-edge on Africa. If an idea is working, think tanks need to localize and imple-ment it,” the scholar said.

Should not bind itselfProf. Andreas Eshete of Addis Ababa

University and adviser at Prime Min-ister’s office in Ethiopia said that for a think tank to be effective in policy preparation that will be recommended for policy makers and implementers, it shouldn’t bind itself with a certain eco-nomic or political ideologies.

Kippra tops list of think tanks in survey of 6,618 African agencies

in technical assistance.The areas to benefit are energy, wa-

ter and sanitation, food security and ir-rigation.

• “A substancial portion of the fi-nancial commitment will finance phase one of the Bogoria -Silali block steam development, which comprises drilling of 20 exploration and appraisal wells to be contracted by Geothermal Devel-opment Company, the erection of cor-responding infrastructure , feasibility studies as well as consultancy services,” The National Treasury Cabinet Secretary Mr. Henry Rotich said.

• Mr. Roptich signed the agree-ments with Germany’s Ambassador to Kenya Mr. Andreas Peschke at his Treas-ury Building Office. The ceremony was witnessed by officials from Germany aid and development agencies based in Kenya

• “Kenya is East Africa’s big-gest economy and holds great potential and ambition to be one of Africa’s suc-cess stories. With the signing of these agreements, Germany continues to be a strong partner in the country’s develop-ment and vision,” said Peschke.

• Rotich said the projects, in-cluding water supply, sanitation and health, would be financed from dis-bursements made under the new agree-ment as was agreed in the last bilateral negotiations.

• “These include a loan of 2.1 billion for financing a health insurance scheme for the poor and those in the in-formal sector,” he added

CBK Boss: Confidence in the economy remains strong

• The lending rate to commer-cial banks by the Central Bank of Kenya will remain at 8.5 percent, the Central Bank Monetary Policy Committee (MPC) meeting said.

• The MPC meeting which was chaired by prof. NjugunaNdung’u, CBK Governor, concluded that the monetary policy measures, coupled with the fa-vourable impact of lower international oil prices continued to support price stability.

It however warned that divergent monetary policy paths taken by the

KiPPRA TOPS liST KEnYA,GERMAnY SiGn KSH. 18.5 billiOn DEAl

Safaricom Chief Executive Officer Mr. Bob Collymore

major advanced economies may cause volatility in the global foreign exchange markets.

A new global index report on think tanks ranks the Kenya Institute for Pub-lic Policy Research and Analysis (Kippra) as the top organization in Sub-Saharan Africa.

The report is based on the perception (opinion) of 20,000 people from across the world with the focus of improving the quality of think tanks.

The 6,618 think tanks across the world, working to bridge the gap be-tween knowledge and policy, according to 2014 Global Go to Think Tank Index Report by the University of Pennsylva-nia, US.

Speaking at the launch of the report in Addis Ababa, Mr. Steve Glovinsky of United Nations Commission for Africa said: “This report is all about putting think tanks on the map.”

“This policy is no more than an ef-fort to highlight some of the leading think tanks worldwide… Inclusion of an institution in the universe of leading think tanks does not indicate a seal of approval or endorsement of the institu-tion or its works. Likewise a failure to be nominated does not necessarily indicate a lack of quality and effectiveness or poor performance,” it says.

Help address gapsThe report ranked Imani Centre for

Policy and Education of Ghana and the South African Institute of International

16 17


KRA says exercise duty stamps have pushed up revenue

The new Exercise Goods Man-agement System (EGMS) has increased exercise tax compli-

ance by 45 per cent, Kenya Revenue Au-thority has said.

KRA says the EGMS has also helped reduce illegitimate products from the market.

According to KRA southern region manager Mr. George Muia, the exercise duty stamps which were rolled out on spirits and cigarettes in May 2013, have enabled the tax man to track and trace products, locking out non-compliant goods from the market.

“Sin tax was a major problem previ-ously but with the new management sys-tem, things have changed. The system has seen small companies which were evading tax now complying,” said Muia.

He said a marketing surveillance unit is in place, to monitor stamps in the market and to ensure fake stamps in the market are not in use.

Mr. Muia said the unit has so far seized

450,000 illegitimate products from the market in the last one year mainly from supermarkets and retailer shops.

“Big players are now appreciating be-cause previously, the market had been raided. The system has also increased revenue because every stamp has a counter and reflects in our systems,” said Mr. Muia.

He said KRA will rollout exercise duty stamps on all alcoholic products not ex-ceeding 10 per cent alcohol volume will start in March.

KRA has since advised manufacturers, importers, distributors and retailers to ensure the stamp is affected on every bottle or retail container of ready to drink alcoholic beverage.

Market Public-Private Partnership Projects to attract funds

Kenya should step up the mar-keting of projects under pub-lic-private partnership model

to investors to attract funds.Grant Thornton, a global audit firm,

lauded the public-private partner-ship saying it would enhance economic growth and uplift the country’s profile globally.

Mr. Parag Shah, an advisory partner at Grant Thornton, which is also a tax and advisory firm, said the government needs to promote the new model to in-vestors to enable them understand it and make critical decisions on projects.

Mr Shah made the remarks during a forum organized by Grant Thornton in conjunction with International Project Finance Association, at Villa Rosa Kem-pinski hotel, in Nairobi.

He added: “Sinceindependence, Kenya has not been able to mobilize ad-equate funds to finance projects in en-ergy, road, and water among other sec-tors. The government, therefore, needs to work closely with private sector in order to assemble resources to fund the outlined mega projects, reduce cost of doing business and enhance communica-

tion.”The National Treasury Public-Private

Partnership Unit director Engineer Stan-ley Kamau said the model has been identified as the new frontier take-off.

Slow pace

The forum, which was attended by institutional investors, road contractors and bankers, discussed financing of pro-jects in infrastructure and energy sec-tors in the East African Community.

Some of these projects have taken a slow pace subjecting the country to ex-perience huge power deficits and chal-lenges in transport. Investors have been slow in taking up the projects two years after the enforcement of the PPP Act,” Engineer Kamau said.

Last year, the government convened an international investment conference that attracted more than 1,000 inves-tors. During the meeting, the govern-ment presented a list of mega projects envisioned under the PPP model.

Outlining the progress Kenya has made in energy and infrastructure sec-

tors, Eng. Kamau said PPPs have made little progress due to a number of chal-lenges, including inadequate financing.

Engineer Kamau said mega projects should be remodeled with a view of at-tracting more finance from the private sector.

Since the PPP Act became effective in 2013, however, Kenya has made pro-gress in a number of energy projects.

Currently, 10,000 Km of roads net-work is expected to be built across the country under the PPP programme.

Manufacturers say IMF tax proposals punitive

Manufacturers have warned they could increase prices of some commodities in between

as the government moves to implement the last phase of tax reforms prescribed by the International Monetary Fund (IMF).

The National Treasury has indicated it intends to complete the review of Ex-ercise Duty and Value Added Tax (VAT) in ongoing reforms that started in 2011as agreed with IMF.

Among the impending taxation reforms that manufacturers have indicated will likely push on commodity prices are the planned introduction of inflation-indexed exercise tax and elimination of VAT ex-emptions on all petroleum products in August 2016.

The National Treasury plans to start adjusting exercise duty on select goods every six months from the next financial year, which starts in July, to reflect chang-es in the cost of living.

Cabinet Secretary Mr. Henry Rotich disclosed this in a January 16 Letter of Intent when requesting for the one-year stand-by loan of $688.3 million (Ksh63.09 billion) approved on February 2 to cushion the country against unforeseen shocks to macroeconomic stability.

“We will submit to Parliament by end-June 2015 a proposal to revise exercise rates for selected products, and an auto-matic semi-annual inflation indexation of specific exercise taxes, prevent the ero-sion of exercise revenue in real terms,” Mr. Rotich said in the Letter of Intent to IMF managing director Christine Lagarde.

Some of the exercisable goods likely to be affected in the renewed push include soft drinks, alcoholic beverages, tobacco, fuel, motor vehicles, plastic bags and im-ported second hand computers.

Mr. Rotich has further committed to slap the standard 16 per cent VAT on pe-troleum commodities, including Kerosene and cooking gas, at the end of the three-year transition period in August 2016.

Duty-free stores at Oslo Airport in Oslo, Norway, Europe.

DUTY STAMPS PUbliC-PRiVATE PARTnERSHiP

Money MarketsNairobi bourse ranked third best per-

former in Africa.o East African bourses topped in the

sub-Saharan region with Nairobi Securities Exchange (NSE) ranked third best after Tan-zania and Uganda, fund manager PineBridge

data shows.o The NSE in full-year 2014 returned

19.2 per cent growth, taking account of all listed shares, while Tanzania and Uganda markets traded 22.7 and 14.1 per cent higher respective.

o The worst performers in local currency terms were Zimbabwe where the market lost 19’5 per cent and Nige-ria which lost 16.1 per cent of its value in the year.

o In dollar terms, however, most markets had negative returns. Perform-ers with positive returns where only Kenya, Uganda, Tanzania and Malawi. The worst performers were Ghana, Ni-geria and Zimbabwe.

o Ghana lost 31.9 per cent while Nigeria and Zimbabwe lost 27.9 and 19.5 per cent respectively in the year.

o The Nigerian market dropped by 27.9 per cent on fears of currency devaluation amid falling oil prices.

o The poor returns in most coun-tries in the sub-Saharan region that had to do with the weakening of African cur-rencies vis-a vis the dollar. The green-back has strengthened in the past year, pressuring down other countries.

18 19


Current account pressure

The declin-ing prices of tea now threaten the country’s export revenues and farmers’ bo-nuses. More than 50 percent of the country’s in-come is from ag-ricultural exports such as tea, cof-fee and horticul-ture.

The low pric-es of tea in the i n t e r n a t i o n a l market are also expected to put pressure on the country’s current account. The volumes of tea exports last year also declined by seven per cent to 414,860 tonnes from 443,042 tonnes recorded in 2013.

Earnings from

coffee, an-other key ex-port crop, have changed from Ksh18 billion year on year.

The volumes of coffee ex-port, reduced by 11.6 per cent to 44,887 tonnes in 2014 from 50,795 tonnes in the previous year. The prices were, however slightly higher.

In the last year, the price of tea has declined by nearly a quar-ter to Ksh181 a kilo from Ksh239 at the start of last year. The re-duction is blamed on oversupply in the global mar-ket.

Petitions against State ten-ders must be filed in two weeks

Stabilize local currency

Projects jointly funded by the public and private sector will not be suspended even in the event of dissatis-fied parties challenging their award, the National Treasury has announced in new regulations.

The move by the Treasury, spelled out in new petition rules for public private partnerships (PPP), is intended to quicken the completion of projects.

A petition committee will be set up under the regulations to receive complaints on tendering.

The regulations that detail the process and timelines to be followed by the PPP committee further state that where a petition is not filed within 15 days of awarding a tender, the contract-ing authority can enter into negotia-tions with the successful bidder.

The Treasury’s move is meant to avoid unnecessary project delays through lengthy court and arbitration process which discourage investors.

However, the regulations state

that a tender may be suspended by the petition committee where a petition is against the decision of the contract-ing authority to enter into negotiations with a bidder or if the committee deter-mines that it is just to do so.

The National Treasury regulation adds: “The petitions committee shall require a petitioner to serve respond-ent with a copy of the petition and file an affidavit of service with the commit-tee within three working days of filing the petition.”

The respondent(s) in the petition will be required to file a response within seven working days.

The regulations stipulate that once a petition is filed, the committee will notify the contracting authority within three working days in writing.

PPP projects include manage-ment contracts for public utilities on behalf of government, concessions, leases, build-own-operate-transfer, build-own-operate, and build-lease-transfer.

Kenya is a net import-er of goods and mainly depends on tea, coffee and horticulture for for-eign exchange to meet its import bill and stabi-lize the shilling.

“Tourism, a once vi-brant sector, has been on its knees for years now due to increased insecu-rity.

Horticultural produce, whose main market is the European Union, has been hit by a weak Euro as the world’s second largest reserve currency touched a seven month

low against the shilling this month.

P r e c a u t i o n a r y loan

Previously, analysts have indicated that dras-tic decline in export rev-enue could lead to mac-ro-economic instability in the country. However, the International Mon-etary Fund approved a Ksh63 billion precaution-ary loan to help Kenya weather possible eco-nomic shocks.

The loan is meant to cushion the economy

against vulnerabilities arising from Kenya’s growing integration into global markets, security concerns and extreme weather patterns.

Poor Prices cut tea earnings by 15 per cent

Kenya earned Ksh85 billion from tea exports last year, a 15 per cent drop, compared to a year earlier, due to poor glob-al prices.

Latest data from Kenya National Bureau of Statis-tics shows that the crop,

which has been Kenya’s largest foreign exchange earner for a long time, fetched Ksh85.6 billion, down from Ksh100 billion in 2013

Kenya asks for development support from World Bank

The World Bank as Kenya’s long-term development partner needs to upscale its support to the country’s mega projects that will benefit the people.

The National Treasury Cabinet Sec-retary Mr. Henry Rotich, said the areas of support Kenya needs from the World Bank include agriculture especially ir-rigation projects to enhance food se-curity, energy and infrastructure.

Others are support in promoting the ease of doing business, education and health sectors.

Mr. Rotich made the remarks at the National Treasury during a courtesy call paid on him by the World Bank Ex-ecutive Director Mr. Peter Louis Rene Larose.

In his remarks, Dr. Larose said he was very impressed by the country’s development plan and commended the Government for the excellent work.

He assured Kenya of his full support at the World Bank whenever the coun-try presents its request to the Bretton Woods institution.

Present during the courtesy call were Mr. Henry Mutwiri from the Na-tional Treasury and Mr. Chris Hoveka, Senior Advisor to the World Bank Ex-ecutive Director.

Nairobi Outshines Peers as a Place to Invest In Africa

Discovery of oil, mining and in-vestment in energy, roads and port projects has seen Nairobi

ranked as the most attractive destina-tion for foreign direct investment in Africa.

The Capital city is now the regional financial services hub only rivaled by Johannesburg on the continent.

“Nairobi out-paced 20 major cities in Africa in terms of attracting invest-ments.” Says PWC in a report titled “Into Africa: The Continent’s Cities of Opportunity.”

“Nairobi outscores all African Cit-ies in Foreign Direct Investments(FDI) This is the first time that the country is ahead, in terms of providing the right environment for those looking for op-portunities to invest,” added the re-port.

Twenty African cities considered among the most dynamic and focused on the future are Abidjan, Accra, Ad-dis Ababa, Algiers, Antananarivo, Cai-ro, Casablanca, Dakar, Dar-es-Salaam, Douala, Johannesburg, Kampala, Kigali, Kinshasa, Lagos, Luanda, Lusaka, Ma-puto, Nairobi and Tunis.

The cities were ranked on various variables such as housing, transport, water and power, healthcare, educa-tion, public safety, on the one hand, and GDP, middle-class growth, ease of

doing business and FDI, on the other.The report notes that increasing lev-

els of growth calls for African cities to invest massively in roads, rail, airports, energy, water and sanitation if they are to enjoy the benefits of such growth.

The Central Bank of Kenya (CBK) Governor Prof. Njuguna Ndungu

inVEST in AFRiCA STATE TEnDERS

World Bank Executive Director Dr. Peter Louis Rene Larose

20 21


1

2

3

5

6

4

PHOTO GALLERY

1. Cabinet Secretary for National Treasury Henry Rotich (Left) with Dr. Enos S. Bukuku, Deputy Secretary General, East African Community Secretariat during the East African Community Secretariat Fourth Meeting of the Sec-toral Council of the Finance and Economic Affairs (SCFEA).

2. Dr. Peter Louis Rene Larose, Executive Director World Bank, when he paid a courtesy call on the Cabinet Secretary National Treasury, Mr. Henry Rotich, at his (Rotich’s) National Treasury office in Nairobi.

3. Principal Secretary National Treasury Dr Kamau Thugge, Cabinet Secretary Planning and Devolution Anne Waiguru, Rev Mustava Musymi, Chairman Parliamentary Budget and Appropriations Committee and National Treas-ury Cabinet Secretary Henry Rotich during the official launch of the Pub-lic Hearings for 2014/15 - 206/2017 Medium Term Expenditure Framework (MTEF) Budget.

4. National Treasury Cabinet Secretary Mr. Henry Rotich (Left) and Gabriel Negatu, African Development Bank Regional Director, East Africa (Right) exchange signed documents during the signing of legal documents/agree-ments to guide the management of implementation of Lake Turkana Wind power Project.

5. Prof Njuguna Ndung’u, Governor, Central Bank of Kenya (centre) chats with Rose Mambo, CEO Central Depository and Settlement Corporation (CDSC) and Jimnah Mbaru, Chairman Kenya Association of Stockbrokers and In-vestment Banks (KASIB) during the launch of funds settlement system for equities and corporate bonds at the Sarova Stanley Hotel in Niarobi.

6. Mr. Mutua Kilaka, Principal Administrative Secretary, the National Treasury adressing a past IFMIS conference.

22 23


New CRA Rules Seek Greater Public Input in County Budgets

County governments must re-lease documents on their budgets to the public at least

two weeks before they are formally dis-cussed by a select group of area lead-ers, the Commission on Revenue Alloca-tion (CRA) has said.

In new guidelines on consultation during preparation of county govern-ment budgets, the CRA said the public must also be given a notice of at least two weeks before reconvening the meeting to debate the spending propos-als.

The time lines are intended to en-sure that the public is not caught flat footed as has been the case in the past when many county governments issue a notice only a day to the meeting.

The budget proposals to be discussed under the auspices of the County Budg-et and Economic Forum (CBEF), which is supposed to coordinate and collect views from the public during the budg-eting process in addition to functioning as a think-tank for the county govern-ments in terms of financial and econom-ic management.

As a think-tank, the CBEF is intended

to assist a county government in analyz-ing and identifying priority spending ar-eas as they budget for programmes, and improve coordination between citizens and government during project imple-mentation.

The forum for expanded public par-ticipation in county budget making will enable residents to have more say in where funds are allocated.

“In organizing public consultations, the forum shall cooperate with the Coun-ty Assembly as far as possible to avoid unnecessary conflict. The resolutions`of CBEF shall be documented and made available to the public within seven days of any meeting or activity,” the guide-lines issued by CRA chairman Mr. Micah Cheserem read in part.

The CBEF’s composition is made up of the governor as its chairman, other members of the county executive com-mittee and other representatives who are not members of the county govern-ment but are of equal number to the county officials in the forum. The other representatives are nominated by vari-ous organizations representing interests of professionals, business, labour, wom-

en, persons with disabilities, the elderly and faith-based groups at county level.

“The non-state members of the fo-rum have a responsibility to regularly engage with their constituents, both through sharing information from the forum, andrepresenting the interests of constituencies within the forum,” the guidelines state. Some 19 counties, ac-cording to CRA risk delays in receiving their funding allocations from the Na-tional Treasury after failing to comply with rules governing budget ceiling as laid out under the law.

Under the guidelines, counties are supposed to discuss county priorities to inform major plans by September 1 of any year.

These include long-term integrated development plans and sector plans. By February 28 every year, the forum is expected to have discussed overall esti-mates of revenue, spending, deficit and the ceilings for each sector.

Sector priorities as reflected in the county’s budget estimates are expected to be discussed by the end of April. In mid-June, the public discussion will centre on the budget proposals tabled by the county governments.

The campsites will decentral-

ize management of construc-

tion works and are in turn

expected to provide effective

and efficient management

compared to overseeing con-

struction from a central place.

In January 2015, the firm

recruited 8,000 people to work

and expects to step up hiring in

the coming months as construc-

tion works

intensify.

It intends

to recruit

30,000 em-

ployees.

“ T h e

plant for

m a n u -

factur ing

s l e e p -

ers, which was inspected by

the President last month, will

provide job opportunities and

train large numbers of Ken-

yans. Even after the railway is

complete, the plant will con-

tinue to be operational and of-

fer jobs to locals,” said Li.

Mixing plantsFollowing months of prepa-

rations of the railway route,

CRBC started the laying of the

railway last month and says

that it will be completed on

time. It has built twelve con-

crete mixing plants, with plans

to increase this to 17 plants.

There are 12 laboratories

that have started testing sam-

ples of different materials in-

cluding soil and cement. The

firm plans to have additional

five labs.

When complete the SGR is

expected to significantly im-

prove movement of goods from

Mombasa to the hinterland in-

cluding neighbouring countries

that rely on the port of Mom-

basa for imports.

This will in turn reduce the

cost of doing business as well

as that of transporting goods in

the country and region.

Cabinet Secretary for National Treasury Henry Rotich (Left) with Dr. Enos S. Bukuku, Deputy Secretary General, East African Com-munity Secretariat during the East African Community Secretariat Fourth Meeting of the Sectoral Council of the Finance and Economic Affairs (SCFEA).

From left: Principal Secretary Dr. Kamau Thugge, Cabinet Secretary Henry Rotich and Ag. Director General, Public Debt Managment Esther Koimett

Rail contractor to complete 50pc Civ-il works this year

Fifty per cent of civil works along

the Mombasa-Nairobi Standard

Gauge Railway (SGR) would be

complete by the end of the year.

Most of the civil works involve construc-

tion of auxiliary roads, bridges, underpasses,

overpasses, tunnels and other support infra-

structure.

China Road and Bridge Corporation

(CRBC), the SGR contractor is upbeat on the

initial progress made on the project.

Already, the firm has completed all the

necessary preparation works along the route

including land clearing, staff recruitment,

importing equipment and putting in place

the foundation for the railway.

This sets stage for the actual laying of

the railway line, which the firm started on

January 1 this year. A trial section 500 me-

tres of rail track has already been laid on

MtitoAndei.

The railway, which is a vision 2030 flag-

ship project, broke ground in November 2013

and is expected to be completed in 2017.

The Government, through the National

Treasury, has availed the necessary funding

in conjunction with China.

President Uhuru Kenyatta visited the

site last month and construction camps in

the area where he acknowledged the ongo-

ing work.

“We have made sufficient preparations

for the Mombasa-Nairobi SGR project in

aspects of organization structure, person-

nel mobilization and supply of machinery,

equipment and materials. Everything has

been put in place,” said Julius Li, a CRBC

official.

CRBC has put up 21 campsites along the

route, each of which will oversee the con-

struction of specific segments of the SGR.

CRA RUlES SEEK GREATER PUbliC inPUT RAil COnTRACTOR

24 25


Regulations on Administration of the Newly Created Mortgage Fund Published

The National Treasury has pub-lished regulations on adminis-tration of the newly created

mortgage fund, paving the way for re-lease of the initial Ksh1 billion trances in less than two weeks.

Cabinet Secretary for the National Treasury Mr. Henry Rotich said in the explanatory memorandum to the pub-lic Finance Management (State Officers House Mortgage Scheme Fund) Regula-tions 2015 that interests payable on loans shall be at the rate of at least three per cent per annum on monthly reducing balance or such other rate as may from time to time be determined by the committee.

The regulations empowers the ad-visory committee to allow a borrower who ceases to be a state officer before full loan payment to continue to repay the loan on the same terms as set out in the regulations provided that when the borrower defaults in a period of four months, the outstanding loan will revert to prevailing commercial interest rate.

“Where the commercial rate is ap-plicable, and the borrower is in default for a period of four months, the fund may call in the loan and sell the charged property by public auction or public treaty,” the rules say.

“A borrower may give prior author-

ity in writing for his pension dues to be utilized to clear any outstanding debt in case the borrower retires before paying the loan,” the Rotich regulations state.

The State Officers House Mortgage Scheme Fund will provide a loan scheme to be managed by an advisory committee established within the National Treasury.

The advisory committee of the fund will consist of the director of adminis-tration, director of budget supply, the director of fiscal decentralization (In-tergovernmental Fiscal Relations). The team will approve all housing develop-ment and financing proposals and cri-teria for the beneficiaries of the fund among others.

The capital of the fund consists the initial Ksh1 billion appropriated by par-liament in the current financial year and such other funds in subsequent financial years.

The Salaries and Remuneration Com-mission (SRC) set a house mortgage ben-efit for all State officers in the national government except the Judiciary and Parliament, through the State Officers Mortgage Scheme Fund.

The loan scheme for State officers only exists in the Judiciary and Parlia-ment and not in the Executive.

“The purpose of these regulations is

to establish the State Officers House Mortgage Scheme Fund and set up a clear framework for managing mortgage scheme,” say Mr. Rotich.

Selection 24(4) of the Public Finan-cial Management Act 2012 allows Mr. Rotich to establish a public fund and the regulations on the mortgage scheme for State officers are anchoredin the said provision.

According to the regulations, a loan granted from the fund will be solely uti-lized for purchase on development of residential property for the occupation of the borrower or equity release for improvement of the residential house.

“The loan granted shall be funded at the rate of 90 per cent of the value of the property but shall not exceed the maximum loan threshold set and this shall be based on the ability to pay and repaid by check-off system,” the regula-tions state.

To secure the loan, the administra-tors of the fund will register a charge on any property financed through the loan granted.

A borrower shall take and maintain a life insurance company approved by the committee, the cost of which shall be paid out of the fund and debited in the borrowers account.

“Where a borrower defaults in the repayment of the loan for a period of three months, the advisory committee shall repossess and sell the property to another deserving state officer,” the regulations contained in the Legal no-tice 23 which was tabled in the National Assembly by majority leader Aden Duale states. The regulations also allow the advisory committee to approve the ap-pointment of a tenant purchase institu-tion or a mortgage finance company to administer the fund.

“The Fund, or where applicable, the tenant purchase or a mortgage finance company may charge an interest of not more than two per cent of the value of

the loan to cover management costs,” the regulations read.

The regulations were referred to the committee on delegated legislation for scrutiny by National Assembly Speaker Mr. Justin Muturi. Muturi reminded the committee that the team has 15 days to scrutinize the piece of legislation or it automatically becomes law after expiry

of the deadline, meaning state offic-ers can access the money by mid-April, 2015.

Returns from investment in the pension schemes declined dur-ing the fourth quarter of last

year, compared to the third quarter of the same period under review.

A survey released by Actuarial Ser-vices East Africa, indicated that returns from investment sector recorded an av-erage return of 1.3 per cent of the third quarter.

Despite their low returns, pen-sion schemes are a critical component in economic growth of the economy through provision of a key source of funding for mega infrastructural pro-jects. Employer-based pension schemes currently manage close to Ksh500 bil-lion, compared to the National Social Security Fund’s Ksh136 billion.

The survey seeks to provide data to enable Trustees and Fund managers to compare the returns and performances of their respective schemes with other schemes.

“From the report, the Trustees and Fund Managers will be able to identify which asset categories performed bet-ter and compare the results of their scheme’s asset categories with those of other schemes,” it stated.

The report indicates that mega

schemes of participating firm control about 71per cent of the market share with each scheme investing over Ksh2 billion.

Offshore investment reported an av-erage return of 1.71, up from -0.01 in the third quarter. There are about 1,300 pension schemes in the country control-ling in excess Ksh680 billion. About 30 of these are individual retirement benefit schemes registered by the Retirement Benefits Authority (RBA).

Recently, RBA Chief Executive Officer Dr. Edward Odundo said the regulator is targeting to grow the pension industry coverage to 20 per cent in the next five years The pension funds’ regulator also intends to increase assets from the cur-rent Ksh696.68 billion to reach Ksh1.02 trillion by June 2019. “This will be pos-sible through targeted awareness pro-grammes and products designed to reach out to segmented groups. The authority will also pursue automatic enrollment,” said Dr. Odundo.

He said RBA will create a facilitative legal framework to encourage product diversification and improve returns on savings and review the National Pension Policy to encourage sector growth.

Returns on Pension Invest-ments drop

MORTGAGE FUnD PUbliSHED PEnSiOn inVESTMEnTS DROP

East Africa Community member states will be required to contribute Ksh762.4 million to fund the bloc’s ac-tivities for the next financial year which starts in July.

The decision was arrived at by the EAC Council of Ministers which held an extra-ordinary meeting in Bujumbura, Burundi. The Council also directed each

partner State to allocate Ksh75 million for the Inter-University Council of East Africa’s budget.

Three countries - Kenya, Uganda and Tanzania – which jointly share Lake Vic-toria, have also been directed to con-tribute Ksh47.1 million ($0.51 million) each, towards Lake Victoria Fisheries Organisation’s financial plan.

The council, which had met to con-sider the EAC budget proposals for the next financial year referred the adopted budget estimates to the East African Legislative Assembly (EALA) for debate

and approval.EAC Secretary General Dr. Richard

Sezibera said the community will fo-cus on nine global key priorities.

“These include the implementa-tion of the East African Monetary Un-ion Protocol; consolidation of the Sin-gle Customs Territory; and enhanced implementation of the EAC Common Market Protocol,” Mr. Sezibera said.

The community will also focus on constitution-making process for the EAC political federation, develop-ment of cross-border infrastructure and implementation of the regional industrialization policy.

States to Contribute Ksh270m for Running EAC

26 27


Rotich threat to withhold funds over pending bills

The National Treasury has sound-ed a warning that government institutions which do not clear

pending bills might find it difficult get-ting more money in future.

Cabinet Secretary for the National Treasury Mr. Henry Rotich said the de-partment and agencies must ensure they pay pending bills before engaging in new activities.

“We have had a history of arrears and have a pending bill committee, but the ones that are outstanding must be cleared before engaging into any new project,” he said.

Mr. Rotich who was speaking during a presentation to the Budget and Ap-propriations Committee at County Hall, Nairobi, said the Transport and Infra-structure ministry is said to have one of the largest outstanding amounts owed contractors; Ksh33 billion as at Novem-ber 31,2014. The amount has accumu-lated over time as the ministry takes up new projects, piling up huge bills in the process.

The Cabinet Secretary, who plans to stem runaway expenditure, has hinged the 2015 budgetary policy on creating a conducive business environment, trans-forming agriculture, enhancing food security, investing in healthcare and quality education as well as supporting devolution.

This is set to be achieved through ad-ministrative and legislative reforms, ef-ficiency in governance expenditure and reducing wastage.

However, the parliamentary commit-tee raised issue with various aspects of the Budget Policy Statement (BPS); say-ing that, among others, it did not show the status of programmes.

This is said to hinder the committee from making informed decisions on pro-jects such as the Lamu Port and South Sudan-Ethiopia Transport (Lapsset) cor-ridor.

Committee chairman Reverend Mu-tava Musyimi challenged Rotich’s pres-entation, saying there was need to look into the stimulus packages which are

not active, adding that Jua Kali sheds are lying idle while Polytechnics have not been built as proposed.

“We must find ways to reach out to the poor and get centres of excellence and Polytechnics up and running,” he said, adding that this has contributed to the problem of insecurity that the coun-try is currently facing.

The committees also pointed out there were no clear measures in the BPS showing how it would capture the infor-mal sector in a bid to enhance tax ef-forts, given previous measures through turnover tax bore little returns.

Other concerns raised by the com-mittee included the growing appetite to finance government projects through loans, implementation of the Integrat-ed Financial Management Information System (IFMIS) at the county level and specification of the timelines on the construction of a modern pipeline.

Commentary on Succession at Central Bank of Kenya

Following the exit of Prof. Njug-una Ndung’u from the position of Governor of the Central

Bank of Kenya (CBK), President Uhuru Kenyatta is now expected to appoint a new regulator.

For the first time in Kenyan history, Parliament will be involved in vetting and appointment of the CBK boss as per CBK Act (2012), thus promoting trans-parency and competition in the process.

Beyond the lobbying, political, ethnic and loyalty affiliations and public specu-lations, the President has a duty to be-queath to Kenyans a competent candi-date who will serve in the strategic post of CBK governor to propel the Kenyan economy forward.

The new governor will build on Prof. Ndung’u’s success since the latter over-saw the transformation of the bank-ing sector, especially mobile banking, licensing of microfinance institutions, and stabilized the economy by fighting inflation.

However, the new CBK governor must stamp his or her authority on high inter-est rates charged by commercial banks and make them benefit depositors. Ken-yans expect to see a stronger shilling that has real value.

Prof. Ndung’u successor will also have to maintain or improve on the ster-ling performance exhibited by his or her predecessor.

Some of the factors on the table for appointment to the prestigious post in-clude one’s qualifications and experi-ences. There is no shortage of Kenyans with impressive records in related fields such as economics, banking, finance or law to fill this key post.

The ideal candidate must demon-strate extensive track record in mon-etary management as well as autonomy in a world where economies are rising and falling due to the policies they adopt. The CBK governor is obviously a key player in the economic well-being of a country.

the new CBK governor must stamp his or her authority on high interest rates charged by commercial banks and make them benefit depositors.

ROTiCH TO WiTHHOlD FUnDS SUCCESSiOn AT CEnTRAl bAnK OF KEnYA

28 29


Nairobi, Dar es Salaam set to join Super 10 Cities

Rapid economic growth, cou-pled with discovery of large deposits of oil and gas, are likely to see both Nairobi and

Dar es Salaam join the top 10 “Super Cities” of Africa by 2030, according to Price Waterhouse Coopers (PWC) report.

The report by United Kingdom-based international firm (PWC) also predicts that Dar es Salaam will become bigger city than London by 2030.

Currently, the three biggest cities on the continent are Lagos, Kinshasa and Johannesburg. But PWC predicts that another 10 cities are set to join them in importance by 2030, including Nairobi, Dar es Salaam, Addis Ababa, and Khar-toum.

PWC says the “Next 10” cities are expected to almost double their popu-lation and triple their economic output by 2030, growing by around 32 million people.

Kenya has also been ranked among the most promising global investment destinations with good governance structures that guarantee sustainable growth.

In what may increase the country’s effort of attracting investments, the survey places Kenya ahead of the con-tinent’s economic giants Nigeria and South Africa.

The country has been ranked along-side India, Malaysia, Indonesia, Mexico, Poland and Colombia by top business magazine-Fortune Magazine-as the best places investors should be looking to put their money.

According to the report by American-based publication, Kenya also ranks highest among her sub-Saharan counter-parts in terms of sound regulatory en-vironment that is attractive to foreign

investments.The ranking takes note of the gov-

ernment’s investment in infrastructure development, the power sector and the improving macro-economic stability.

The World Investment Report 2014 placed Kenya ahead of Nigeria and Ethi-opia as the most attractive investments destinations for foreign capital on the continent.

The report, compiled by the United Nations Conference on Trade and Devel-opment, showed that the country was developing as the favored business hub, not only for oil and gas exploration in the region, but also for industrial pro-duction and transport.

PWC says the “Next 10” cit-ies are expected to almost dou-ble their population and triple their economic output by 2030, growing by around 32 million people.

The National Treas-ury issues guidelines to streamline tender awards

The government has moved to stem lopsided awarding of contracts to youth, women and people living with disabilities.

The National Treasury Cabinet Sec-retary Mr. Henry Rotich has directed all accounting officers to ensure none of the three groups get more than 50 per cent of tenders set aside for them.

Mr. Rotich further directed that companies owned by the disabled should not get less than two per cent of tenders set aside.

In a circular dated January 15, 2015, he said: “Persons with disabilities-owned enterprises must be awarded not less than two per cent of the 30 per cent set aside. Of the three target groups, no category shall be awarded more than 50 per cent of the 30 per cent set aside,” reads the circular in part.

The move to issue the circular comes after an umbrella body of people liv-ing with disabilities-Disabled Business Owners Association –complained they were being left out in awarding ten-ders.

Mr. Dagi Kimani, a member of the association, was optimistic the circular will address their grievances.

“We hope this circular will now jolt ministries to give people living with disabilities more tenders,” he said.

The directive also extends to County governments.

In 2013, President Uhuru Kenyatta directed all ministries and State Cor-porations to award the three groups at least 30 per cent of the tenders.

Last year Nominated Members of Parliament Mr. Johnstone Sakaja suc-cessfully moved a bill in the National Assembly, amending the Public Pro-curement and Disposal Act to entrench the 30 per cent Presidential directive into law.

Super-rich Kenyans investing 30pc of their wealth abroad, says report

Wealthy Kenyans are in-vesting an estimated 30 per cent of their wealth outside the country

with Britain being their preferred des-tination.

Knight Frank, the publisher of a new report on real estate and wealth, said the rich were putting money in building of retail shopping property in Britain.

Ultra – high net worth individuals in the country, each with wealth amount-ing to more than Ksh2.8 billion, prefer to put the rest (70 per cent of the total of their investments) in the local real estate sector.

Indian investors were identified as having become the main investors in Kenya’s real estate market with resi-dential property being the main focus.

“Some are diversifying their portfo-lios as they gain more experience with property investing, while others may be from a particular diaspora investing back into their homelands - for exam-ple ex-pat Kenyans,” reads part of the report.

Kenya’s real estate has recorded a rally in the last decade, riding on im-proving infrastructure which has at-tracted investors seeking high returns.

The high – end property prices, how-ever, dropped pace last yearrecording a 1.4 per cent growth lower than the global average of two per cent.

According to the survey, carried out for Knight Frank by Australian research firm WealthInsights, Kenya has 115 su-per – wealthy individuals, 32 of who are centa – millionaires (have more than Ksh9.1 billion) with only one dollar bil-lionaire.

Professionals such as doctors and lawyers were also joining the wealthy.

The preference of Kenyans rich to in-vest in Britain goes against the direc-tion of trade between the two nations, which has lately been on the decline.

The value of goods sold by London to Nairobi declined last year for the first time in seven years, with Kenya’s export to her former colonies declining for the third year in a row.

Britain has, however, remained an attractive destination for investments by the super – rich in Kenya.

The National Treasury Cabinet Secretary Mr. Henry Rotich.

SUPER 10 CiTiES KEnYAnS inVESTinG AbROAD

Nairobi City Kenya

30 31


prospects which include continued investment in in-frastructure development such as construction of the Standard Gauge Railway and mega agricultural projects planned in Tana River delta, manufacturing, retail and other financial intermedia-tion.

Further, the lower oil prices are expected to result in lower production costs and consumer prices, and elevate demand for growth.

“Assuming normal weath-er patterns, inflation is ex-pected to be maintained at a single digit and near the 5 per cent target reflecting an intent to maintain prudent monetary policy and easing of both food and oil prices coupled with a stable ex-change rate for the shilling to major international cur-rencies,” said the BPS.

Assuming normal weather pat-terns, inflation is expected to be maintained at a single digit and near the 5 per cent target reflecting an intent to maintain prudent monetary policy and easing of both food and oil prices coupled with a stable ex-change rate for the shilling to major international currencies

The National Treasury extends online tenders to parastatals

The National Treasury has rolled out Integrated Fi-nancial Management Infor-mation System (IFMIS) e-

procurement to state corporations on a pilot basis.

The initial phase is expected to see the automated procurement system de-ployed in 19 State Corporations housed by the National Treasury.

The system is expected to streamline procurement within the public sector and save taxpayers’ money. The roll-out follows President Uhuru Kenyatta’s directive in August 2014 to all public entities to automate their procurement processes using IFMIS e-procurement. Currently, State Corporations use differ-ent systems to manage their finances.

State CorporationsSpeaking during a consultative forum

between the National Treasury and State Corporations in Nairobi, IFMIS Director Jerome Ochieng said the National Treas-ury will deploy teams to the 19 State Corporations to help them implement IFMIS e-procurement.

IFMIS teams have started visiting State Corporations that are housed by the National Treasury to begin de-ploying IFMIS. We need cooperation to achieve this particular objective,” said Mr. Ochieng.

The IFMIS e-procurement roll-out to State Corporations will be undertaken in phases. The first phase will cover the 19 Corporations under the National Treasury. By end of June, all the set ups of the IFMIS e-procurement system will have been completed in these 19 State Corporations.

IFMIS department will also conduct training for procurement to pay officers from these corporations. The Procure to pay system will be in use by August.

Mr. Ochieng said the National Treas-ury will bear the cost of deploying the IFMIS e-procurement system including training officers from State Corpora-tions on the use of the system. The Cor-porations, however, cover the system’s maintenance costs.

Labour IntensiveThe roll-out of IFMIS e-procurement

to State Corporations follows a com-prehensive analysis of the systems cur-rently in use in these institutions. “The survey of the state Corporations’ cur-rent procurement systems has shown what is on the ground. We now know what we need as we deploy the IFMIS e-procurement system to State Corpo-rations,” said Mr. Ochieng.

The analysis found that half of the corporations are still using manual and labour intensive procurement methods, which could be time consuming and prone to manipulation.

The survey showed that 30 per cent of the State Corporations have partially automated their procurement systems while 14 per cent had fully automated their procurement process.

“Let me say that as we roll-out e-procurement to ministries, I expect all public agencies, institutions including public universities and parastatals to be on this system,” said the President dur-ing the August 13, 2014, launch of the IFMIS e-procurement system.

Treasury in Ksh1.8 trillion budget plan

The National Treas-ury projects to spend Ksh1.8 trillion in the 2015/16 financial year,

or 28.8 per cent of the gross do-mestic product, compared to Ksh1.67 trillion expected to be spent this year.

According to the 2015 Budget Policy Statement (BPS), recurrent expenditure is set to gobble up Ksh987 billion while development expenditure is projected at Ksh627 billion.

Most of the money is expected to come from both domestic and external sources while a strong in-clination towards the international capital markets.

The budget plan, which comes soon after rebasing of the economy late last year, reaffirms strategies under a five-pillar transformation programme.

To this end, the National Treas-ury has hinged its budgetary policy on creating a conducive business environment, transforming agri-culture, enhancing food security, investing in healthcare and quality edu-cation as well as supporting devolution.

“The implementation of the pro-grammes under these five pillars is expected to raise efficiency and pro-ductivity in the economy, and in turn accelerate and sustain inclusive growth, create opportunities for productive jobs and secure livelihoods of all Kenyans,” says National Treasury Cabinet Secre-tary Mr. Henry Rotich.

In addition, the government plans to contain expenditure to enhance reve-nue. “The fiscal space created will (pro-vide) resources to scale up investment in human capital, including health and education, and physical infrastructure, while at the same time providing suffi-cient resources to ensure the success of

devolution,” the statement reads.Framed against a backdrop of an un-

even and sluggish global recovery and holding everything constant, the BPS says growth in Sub-Saharan Africa is expected to weaken from 5.2 per cent in 2013 to 4.9 per cent in 2015-though prospects remain strong on the domes-tic front.

Kenya rebased its economy last year, which increased its size by 25 per cent while GDP is estimated to have expand-ed by 5.3 per cent mainly due to robust growth in construction, information and communication, retail and agriculture sectors.

The framework underpinning the budget statement was, therefore, informed by the country’s growth

TREASURY EXTEnDS OnlinE TEnDERS 1.8 TRilliOn bUDGET PlAn

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Two more State agencies now shift to electronic trade portal

Two more State agencies will fully integrate their opera-tions with the single online portal for lodging trade doc-

uments by the end of the month, raising hope for further improvements in the clearance of cargo.

Kenya Trade Network Agency (Ken Trade), the State agency charged with implementing the Single Electronic Window System (SWS), said the Pests Control Products Board (PCPB) and the Kenya Plant Health Inspectorate Service (Kephis) will wholly shift to the platform that already hosts more than 25 public agencies.

In a statement, KenTrade Chief Ex-ecutive Officer Mr. Alex Kabuga said: “The process of integrating the Kenya TradeNet system with various systems of government agencies and uptake by us-ers since its official launch in May 2014 is progressing well, with stakeholders

Treasury to unveil online platform to track funds use

An online toll monitor real-time spending by State agencies and min-istries is set for launch next month as the National Treasury moves to im-prove management of public funds.

The tool dubbed Business Intelli-gence Dashboard is expected to give accounting officers, including gover-nors, Cabinet and Principal Secretar-ies, a breakdown of expenditure by departments in ministries through an interactive visual presentation.

Procurement and payments data can be queried on the platform, al-lowing for accurate tracking of funds.

Transparency“The dashboard, which runs on

an oracle Business Intelligence plat-form, will give a real time graphical representation of allocated budgets, expenditure levels by different min-istries, departments and State agen-cies and expose day-to-day running of financial activities at a single log in,” said Integrated Financial Management Information System (IFMIS) director Mr. Jerome Ochieng.

He was speaking in Nairobi at a forum for heads of commissions and accounting officers to review Budget absorption in ministries, departments and government agencies.

The Public Finance Management Act 2012 demands that accounting officers prepare quarterly reports of financial and non-financial aspects on implementation of the budget.

The Controller of Budget Ms Agnes Odhiambo lauded the move by the Na-tional Treasury saying that IFMIS tool would promote transparency and en-hance easy reporting.

The National Treasury Principal Secretary Dr. KamauThugge said the tool would boost planning and com-prehensive monitoring of Budget im-plementation.

Cabinet Secretary Mr. Henry Rotich, Mr.Gabriel Negatu, AfDB Regional Director for the East African Resource Centre

• Local suppliers to the $3.8bil-lion (Kshs 348 billion) Mombasa – Nai-robi standard gauge railway must first pay the value added tax for deliveries to China Roads and Bridges Corporation, and be refunded later.

• The Kenya Revenue Author-ity (KRA) said VAT will be refunded on compliance with guidelines set under an interview procurement management framework specific to the 489- kilom-eter railway.

• Goods and services rendered to the SGR project, the taxman said are not exempt under the VAT Act effected from September 2013 before the Gov-ernment signed the project’s funding agreement with China’s EXIM Bank in May last year.

• The National Treasury late De-cember 2014 received Kshs 60.35billion ($659 million) from China Exim Bank after meeting the preconditions in the agreement.

• “In essence therefore, VAT due to SGR purchases is being funded by the government of Kenya from whom KRA is required to collect the money” Commissioner-General Mr. John Njiraini said,

• This, he said, has led to the crafting of a temporary tax framework in which the National Treasury will re-fund VAT and other levies incurred by SGR suppliers.

• “This arrangement will allow project implementation to proceed smoothly within the existing legal con-fines while also removing the risk of non-compliance with VAT requirements from SGR suppliers” he said in Nairobi during a meeting with suppliers to iron

out misunderstand-ing on VAT, which is threatening to derail the already behind-schedule project.

• There are 124 prequalified suppliers for the SGR project, with the number set to rise based on the needs in the 42-month construction period.

• As Kenya im-plements more and

more ambitious projects in its quest to meet Vision 2030 goals, the need will arise to continually review tax process-es to match the new demands, Njiraini said.

• Senior deputy director of Eco-nomic Affairs at the National Treasury Mr Wanyambura Mwambia, said the Government is taking responsibility on behalf of suppliers since official devel-opment funds do not attract taxation.

• However, he said, the arrange-ment on how the refund of money will be sourced is still at preliminary stages.

• The Government has in the past struggled to honor accumulated VAT refund, with pre-September 2013 arrears amounting to Ksh.30 billion and is yet to be cleared.

• Mr Mwambia said the Nation-al Treasury committee will finalize in report to inform on clearance of VAT backlog, where Kshs 10billion had been allocated for this financial year.

• Njiraini said CRBC and its sup-pliers are required to observe strict financial discipline and specific ac-countability rules, including regular submission of information on deliver-ies.

• “If you are not charged VAT, we require you to account. If not, there are consequences”, he said citing sanc-tions and legal suits against those who will breach the law.

• It’s therefore in the interest of the contractor to design appropriate control measures to protect SGR mate-rials from misuse.”

TREASURY TO UnVEil OnlinE PlATFORM MORE STATE AGEnCiES nOW SHiFT TO ElECTROniC

already benefiting from implementation of the Kenya TradeNet system.”

The sugar directorate also plans to integrate its systems with the online platform by the end of this month to help cut costs and time as well as en-hance transparency in importation of the commodity.

This online facility enable parties in-volved in trade and transport to lodge standardized information and docu-ments with a single entry point to fulfill all import, export, and transit-related regulatory requirements.

For hardware and software, the sys-tem encourages interoperability in the systems of stakeholders involved in trade logistics.

Several agencies including the Kenya Bureau of Standards (Kebs), the Kenya Revenue Authority (KRA) and Kenya Ports Authority (KPA) are already op-erating on the platform that also been piloted by other East Africa Community

(EAC) partner state, Rwanda.The implementation of the Kenya

TradeNet system started in 2012 and the system went live in October 2013. It was officially launched on May2, 2014 in Nairobi by President Paul Kagame of Rwanda at the invitation of President Uhuru Kenyatta.

To date, 17 modules have been suc-cessfully implemented with only three still under implementation.

Treasury to refund VAT to supplies of new railway.

...online facility enable parties involved in trade and transport to lodge standardized information and documents with a single entry point to fulfill all import, export, and transit-related regulatory...

34 35


What a Sukuk Bond is and how it Works

The National Treasury, gov-ernment agencies and pri-vate firms are in search for funds in the international

financial markets. The fundraisers are targeting all potential avenues, includ-ing Sukuk and diaspora bonds.

The National Treasury indicated last year that it would issue its debut Sukuk in 2015/2016 financial year, as the in-strument emerges as a potential game changer in Africa’s financial sector.

Sukuk is the Islamic equivalent of bonds, as it is structured in such a way as to generate returns to investors with-out infringing on Islamic law (which pro-hibits ribaor interest).

The sustained increase in commod-ity prices and huge levels of foreign direct investments has compelled many countries and multinationals to venture beyond their borders in pursuit of in-vestment opportunities, leading to the emergence of innovative Shariah-com-pliant products and structures.

These Islamic financial solutions are often demand-driven, largely by inves-tors who have strong preferences for products that are compatible with their faith. Considering the growing share of global GDP of the predominantly Muslim

countries and the huge youth demo-graphic composition of these countries, we are bound to see more demand for Shariah-compliant products and solu-tions in the coming years.

One key area that has witnessed accelerated development in Islamic fi-nance is the global sukukmarket, which has reached a value of $270 billion.

Sukuk offers a wide range of ben-efits to the economy in terms of liquid-ity management, fundraising, balance sheet management and securitization.

A mix of sukuk actively traded in the secondary market helps to manage li-quidity for the Islamic financial institu-tions. For instance, a bank with excess liquidity may opt to invest in sukuk that affords it a return. It can also be traded in the event of need.

Debt and equity

Sukuk can also serve as a tool for fundraising to fulfil corporate objec-tives when the need for funds arises. In the event of a need to have an opti-mum balance between debt and equity on the corporate balance sheet, sukuk unlocks funds tied up in assets through monetization for the purpose of rein-

vestment.In the conventional financial mar-

kets, firms orborrowers engage banks to access loans or tap into the capi-tal markets. The conventional banking market is viewed as the indirect financ-ing market since the borrowers or the firms deal with the banks that play an intermediation role by channelling the surplus funds mobilized to the parties in need. The capital market is seen as di-rect financing because the firms directly engage with investors without going through the market.

In the conventional structure, the bonds serve as evidence of a loan from an investor to the issuer and the repay-ments reflect both the loans capital as the principal and the interest. Sukukis an equivalent of a bond: A “document or certificate that represents the value of an asset.”

Asset-backed securi-ties (ABS)

The other instrument often used in

the conventional debt market is asset-backed securities (ABS), which involve owners of income-generating assets selling them through a securitization transaction or the monetization of the

originators’assets. The payments to the investors are realized from the cash flows generated by the asset under the ABS structure.

While the Shariah-compliant struc-tures do not allow the sale of con-ventional debt, the ABS market has a significant proportion of assets with underlying receivables that may include mortgages, credit card receivables and other loans.

The structuring of sukuk is based on the relationship in the primary markets. If the investors’ interest is to enjoy re-turns, then the primary relationship cannot be a loan transaction. The un-derlying asset should not include re-ceivables that are traded at a discount or premium.

In the secondary market trading of sukuk, there is a need to appreciate the underlying asset they represent band the fact that the Shariah standards do not allow the secondary trading of sukuk that are represented by debts as the underlying assets.

Asset-based and asset-backed sukuk (ABABS)

We also have the asset-based and asset-backed sukuk, whose differences are reflected in the role of the asset in the structure and recourse available to the holders in the event of default. In the asset-backed sukuk, the underlying assets serve as the sole recourse for the investors. In the asset-based sukuk, the holders may not necessarily obtain the asset in case of default, unless the as-sets are charged as security. Their re-course will be to the obligor because, in case of default, the asset will be sold back to the obligor at par.

Sukukoffers opportunities for diver-sification into multiple asset classes for investors. Since it operates on the basis of underlying assets, it limits the oppor-tunities for over-exposure of accessing financing beyond the value of underly-ing assets, thus reducing the prospects of over-indebtedness and its harsh con-sequences for the stability of the finan-

cial market.

Beneficial ownership

It also affords the investor the oppor-tunity of participation in the projects and the beneficial ownership in the un-derlying assets, with the right to receive a share of the rental income or profits from the same asset while bearing the associated risk of such ownership.

Given the huge financing require-ments for instrumental development to support economic development and the competing needs for government budg-ets, sukukmarkets have the potential to be good source of funding for long-term projects.

There is a need for governments to put in place appropriate legal, govern-ance and regulatory framework to facili-tate the issuance of sukuk.

An issue of concern is the prohibitive costs that may stem from taxation as-sociated with the sale of the underlying asset or returns due to the sukuk hold-ers that may either be taken as a return from a debt instrument or taxed as in the case of dividend in an equity case.

The proactive management of the tax regime serves to foster the growth of the sukukmarket that helps to com-plement existing initiatives that seek to channel the world’s growing pool of Shariah-compliant capital to promote development in line with the tenets if Islamic finance, which focuses on social justice and welfare in all economic ac-tivities.

World Bank up-beat on Kenya’s economy

The World Bank has predicted a rosy growth path this year, project-ing a six per cent economic growth on the back of massive investments in infrastructure, favourable external borrowing environment, and a strong economy set to spur local demand for goods and services.

After growing at an estimated 5.4 per cent last year, the institution says Kenya’s economy is set to be among the fastest growing in the region, and challenged the country to translate the growth into more job creations.

Kenya has put in place strong eco-nomic policies which eased pressure ondomestic financial markets despite an ambitious infrastructure develop-ment regime.

Despite the growth of Kenya’s pub-lic debt, the bank said the country is still a low risk area. However, foreign direct investments had declined in a move that is set to make the economy rely on short term inflows.

“Kenya needs to increase the com-petitiveness of the manufacturing sector so that it can contribute more to growth and employment,” said World Bank country directorfor Kenya Diarietou Gaye, who spoke during the launch of Kenya’s economic update re-port in Nairobi.

Ms. Gaye said exports were outper-formed by imports due to a sluggish external demand for Kenyan products, adding that declining production for exports is affecting Kenya’s current account deficit.

The bank suggested that Kenya should streamline the ease of open-ing and closing businesses, deepen the utilization of information technology and reduce regulations.

Going forward, devolution is being seen as an emerging challenge to a thriving business environment due to the threats of regulation that might hamper growth; the same applies to regulations in cross border trade.

WORlD bAnK UPbEAT On KEnYA’S ECOnOMYSUKUK bOnD iS AnD HOW iT WORKS

...Since it operates on the basis of underlying assets, it limits the opportunities for over-exposure of accessing financing beyond the value of underlying assets, thus reducing the prospects of over-indebtedness and its harsh consequences for the stability...

36 37


phere and reached broad consensus,” Foreign Cabinet Secretary Amina Mo-hamed said after meeting Mr. Wang.

Ms Mohamed’s colleagues at the meeting included Ms Anne Waiguru (De-volution), Mr. Henry Rotich (the National Treasury), Eng. Michael Kamau (Trans-port and Infrastructure), Prof. Joseph Kaimenyi (Education), Mr. Davis Chirchir (Energy), Mr. James Macharia (Health), Mr. Fred Matiang’i (Information) and Mr. Adan Mohamed (Industrialisation).

“The presence of my Cabinet col-leagues here is a clear indication of the seriousness Kenya attaches to our bilat-eral relations with China. It is an indica-tion that there is a lot more that we can do together,” Ms Mohamed argued.

In Africa, Chinese firms are involved in more than 1,000 projects in trans-port, mining, construction, energy and even health. In Kenya, they signed 17 agreements last year with the govern-ment covering diplomatic relations, energy, education and health. Mr. Wang was also here to assess and enhance the implementation of these agreements.

But the growing Chinese influence has been criticized before some econ-omists argue the agreements simply mean more debt for Kenya, especially since Kenyans do not know the details

Why China is keen on the SGR project

The Chinese see the standard gauge railway (SGR) being laid from Mombasa as a great pathway to their economic

conquest of the whole of Africa. The Chinese Foreign Minister Wang Yi

appealed to Kenyans to accept the con-struction of the line, saying it will create a link required in Africa for trade with China.

The SGR is actually a key step to-wards implementing the important China-Africa consensus of building high speed railways on the continent, he said in Nairobi.

Mr. Wang said the African Union and China had agreed on a vision to aid re-gional integration through infrastruc-ture. Kenya, he added, is the first step to that vision.

Mr. Wang completed his tour of Africa after visiting Sudan, Cameroon, Demo-cratic Republic of Congo and Equatorial Guinea. It was clear though that his visit was focused on the whole of Africa.

In Nairobi, he met with 10 Cabinet Secretaries most of whom are from line ministries supervising projects managed by Chinese firms.

“We held bilateral talks as well as re-gional and international issues of mutual interest in sincere and cordial atmos-

of most of the loans. Every agreement the Chinese sign is associated with a Chinese implementing firm.

Last year, the Chinese Export-Import Bank signed a loan deal to finance 90 per cent of the first phase of the SGR from Mombasa to Nairobi. The line covering 485 Km is estimated to cost Ksh327 billion. Under the deal, Kenya will cover only 10 per cent of this cost, but a Chinese company will build it.

The Chinese argue after all is said and done, it is the Kenyan people who will benefit most.

“What Kenya needs now is infrastruc-ture development, and therefore it is not about China’s interests. It is more about Kenya’s urgent need of develop-ing infrastructure. That is why China is ready to lend a helping hand when a friend is in need,” Mr. Wang argued.

The initial phase of the SGR from Mombasa to Nairobi is being built by the China Road and Bridge Corporation (CRBC) and is expected to be ready by early 2017. Construction has been de-layed since 2013 due to legal squabbles about tendering as well as how to com-pensate for government-expropriated land.

WTO Ministerial Meeting 2015: Africa’s Chance to Influence World Trade

This year is an important milestone in the history of trade in Africa. For the first time, the World Trade

Organization (WTO) Ministerial Confer-ence will be held in Africa and specifi-cally in Kenya later in December.

In his message titled ‘The WTO at 20’, director general Roberto Azevedo noted that “over the years, the WTO has helped to boost the trade growth, resolve numerous trade disputes and support developing countries to inte-grate into the trading system…”

African countries have participated in numerous WTO ministerial trade talks – Bali, Hong Kong, Doha, Cancun, Seattle, Singapore and Geneva and dis-cussed trade issues which are among key drivers of economic growth and de-velopment.

After the end of World War II, three powerful institutions were formed, namely the International Monetary Fund, the International Bank of Recon-struction and Development (now World Bank Group) and the International

Trade Organization.In 1947, the ITO spearheaded the

General Agreement on Trade and Tariffs (GATT) which, most African countries joined after gaining independence on 1960’s with the exception of South Af-rica and Zimbabwe which had joined as early as 1947.

One of the contentious issues in mul-tilateral talks is market access for ag-ricultural and non-agricultural exports. There is no doubt that improved mar-ket access would see African exporters laughing all the way to the bank, so to speak.

However, African industries need to add value to most of the primary pro-duce. Adding value includes, and is not limited to, packaging and labelling prod-ucts, quality and standards, and safe, environmental – conscious products.

Firms in Africa nonetheless face high production costs due to poor social and physical infrastructure, including power shortages, lack of access to credit and skilled labour, among others.

However, the continent benefits from

a relatively good access when exporting to its partners from outside the con-tinent (facing an average protection equivalent to 2.5 per cent): thanks to preferential agreements such as: the various Generalized System of Prefer-ences (GSP), the Everything But Arms (EBA) initiative, and the African Growth and Opportunity Act (AGOA).

Therefore, for Africa to be successful in the multilateral trade talks, the de-veloped world has to strongly recognize its aspirations, but at the same time, Af-rica clearly has a lot of research to do to assess the impact of trade negotiation proposals. It must also take actions in liberalizing trade and stop dependency on ‘fairness’ to every rule.

Uchumi Supermarket

CHinA iS KEEn On THE SGR PROJECT REGiOnAl TRADE

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KRA’s excise stamp demand unrealistic, says manufacturers

Kenya Revenue Authority (KRA) di-rective to have excise stickers placed on all non-alcoholic drinks by the end of next month is not realistic accord-ing to Beverage manufacturers.

Anup Bid, the Chairman of the Bev-erage arm of the Kenya Association of Manufacturers (KAM) said adequate training and sufficient time must be given to stakeholders as the rollout demands operational changes and in-

vestment in new equipment.“KRA cannot just spring this on

manufacturers without dialogue and sufficient notice”, he said.

The KRA proposed excise stamps on packets and bottles of juice and wa-ter in 2013 as part of the Excise Goods Management System (EGMS).

The EGMS is meant to have the twin effect of increasing tax revenues and reducing counterfeit products in the market.

At the time, the KRA proposed harsh penalties on retailers who ac-cept products without tax stamps.

Beverage manufacturers said KRA is going ahead with implementing the di-rective despite the lack of clarity even after the lobby asked for meetings to sort out the issues.

“We would like to see KRA en-gage us in the process so that we can prepare ourselves and embrace the changes for mutual benefit”, said Mr. Bid.

The National Treasury with the In-ternational Monetary Fund have been pushing to widen the tax base by in-cluding previously excluded goods in the tax bracket.

This has, however, met strong headwinds in the market.

SHillinG DiPS

IMF Lowers Global Economic Forecast For 2015

The International Monetary Fund (IMF) lowered its forecast for global

economic growth in 2015 and called on Governments and Central banks to pur-sue accommodative monetary policies and structured reforms to support growth.

Global growth is projected at 3.5 per cent for 2015 and 3.7 per cent for 2016, the IMF said in its latest World Economic Outlook report, lowering its forecast by 0.3 percentage point for both years.

“New factors supporting growth, lower oil prices, but also depreciation of Euro and Yen, are more than offset by persistent negative forces, including the lingering legacies of the crises and including lower potential growth in many countries,” Ol-ivier Blanchard, the IMF chief economist said in a statement.

The IMF advised advanced economies to maintain accommodative monetary poli-cies to avoid increasing real interest rates a cheaper oil heightens the risk of defla-tion.

If policy rates could not be reduced further, the IMF recommended pursuing an accommodative policy “through other means”

The United States was the one lone bright spot in an otherwise gloomy report for major economies with its projected growth raised to 3.6 per cent from 3.1 per cent for 2015.

The United States largely offset pros-pects of more weakness in the Euro area, where only Spain’s growth was adjusted upward.

Projections for emerging economies were also broadly cut back, with the out-look for oil exporters Russia, Nigeria and Saudi Arabia worsening the most.

The drop in world oil prices, which have fallen more than 50 per cent since June 2014, is largely the result of OPEC not cut-ting supplies, a decision that is likely to change, Blanchard said.

“We expect the decrease in price to be quite persistent,” the economist added, “We expect some return, some increase, but surely not an increase to levels where we were, say six months ago.”

The IMF predicts that a slowdown in China will draw a more limited policy response as authorities in Beijing will be more concerned with risks of rapid credit and investment growth.

Slower 2015 growth in China “reflects the welcome decision by authorities to take care of some of the imbalances which are in place and the desire to reorient the economy towards consumption and away from the real estate sector and shadow banking”Blanchard said.

The IMF also cut projections for Brazil and India.

The forecasts are far rosier than World Bank predictions that global economy woulf grow three per cent this year and 3.3 per cent in 2016.

“Lower oil prices will give Central banks in emerging economies leeway to delay raising benchmark interest rates, although macro-economic policy space to support growth remains limited” the report said.

Head of IFMIS Mr. Jerome Ochieng takes his Excelleny President Uhuru Kenyatta through the IFMIS process

iMF lOWERS GlObAl ECOnOMiC FORECAST FOR 2015

40 41


Caps on foreign ownership in local firms removed

Kenya has removed the limita-tion on foreign ownership of local companies in a move ex-pected to attract new invest-

ments.National Treasury Cabinet Secretary

Mr. Henry Rotich told investors that for-eign ownership caps would only be re-tained in cases where the country has a strategic interest.

In essence, the proposal allows for-eigners to acquire the entire stakes of companies listed at the Nairobi Securi-ties Exchange.

“I have gazette amendments to the Capital markets (Foreign Investors) Regulations to remove blanket limits on foreign ownership on listed companies except in these cases where we have a strategic interest”, Mr. Rotich said.

The Cabinet Secretary was speaking during the listing of Ksh6 billion corpo-rate bond issued by Centum Investment Company.

The bond was the first of a kind at the Nairobi bourse because it allowed

AfDB applauds Kenya’s spending

African Development Bank (AfDB)

outgoing President Dr. Donald Kaberu-

ka has praised Kenya for its utilization

of $ 2.2 billion (Ksh 216.7 billion) in

loans advancement for development

projects.

At a briefing in Nairobi, Dr. Ka-

beruka, whose term ends in Septem-

ber, 2015, said he has seen the money

from his organization bring change in

Kenya’s infrastructure development.

“I am not just told, but I see a lot

of projects either completed or un-

derway, including the

Thika Superhighway, Kenya-Ethio-

pia Highway, Mombasa-Nairobi Power

Line and the

Timboroa-Eldoret Rehabilitation

Project, and this is laudable”, he said.

He cautioned the country against

corruption, saying AfDB would not

condone any sort of fraudulent activ-

ity in the usage of its funds.

“We demand that our money is

used for the intended projects. We

are fighting corruption, not just ob-

serving zero tolerance to it”, said Ka-

beruka.

The outgoing president said he is

proud to have achieved five core feats

during his tenure: infrastructure de-

velopment, creating room for wealth

creation, promoting economic inte-

gration, supporting countries emerg-

ing from conflict and establishing

strong financial roots.

Cabinet Secretary Mr. Henry Rotich, Mr.Gabriel Negatu, AfDB Regional Director for the East African Resource Centre

Kenya Revenue Authority (KRA) tax collections for 2014/15 fi-nancial year surpassed Ksh1 trillion, says KRA commis-

sioner general.Mr. John Njiraini said KRA may have

met the Ksh1.05 trillion target or ex-ceed the trillion mark to Ksh1.1 trillion.

“The exact amount collected will be released later in the month as figures were still being cross checked,” he said.

The chief taxman further expressed confidence the Ksh1.25 trillion target set by the National Treasury Cabinet Secretary Mr. Henry Rotich for this fiscal year that started July 1will also be met.

Speaking during an interview with the media, Mr. Njirainisaid the elec-tronic tax surveillance and service put in place as well as an internal reorgani-zation of its senior staff will make it possible to achieve the 2015/16 budget.

Hitting the history Ksh1 trillion in a difficult financial year where econom-ic growth during the first half slowed down leading to collection ofKsh456. 7 billion by December to 45.38 per cent of full year – is a major achievement.

KRA surpassed marginally the revised Ksh963.7 billion target in the 2013/14 fiscal year, raking in Ksh963.8 billion.

“If we have already been able to achieve an annual growth rate in tax revenue of 15 per cent for the last 10 years, we should see even better achievement in the future based on

what we put in place and the action that we are taking to also encourage Kenyans to partner and work with us,” Mr. Njiraini added.

A report of the Central Bank of Kenya (CBK) Monetary Policy Committee (MPC) has re-vealed that foreign currency

was being used to prop up the shilling.The MPC report showed the mon-

etary authority spent Ksh25 billion in April to help keep the shilling stable and prevent a major slide of the local unit. The amount was more than five times what the bank used in March to intervene in the market.

“The CBK sold $263 million (Ksh25 billion) directly by commercial banks in line with the CBK’s exchange rate policy”, read a report by the bank’s ac-tivities for six months to April this year.

The reserves have been declining this year. At the beginning of the year, they stood at $7.425 billion, meaning they have so far fallen by Ksh69 billion ($705 million) this year.

While some of the reserves have been spent in intervening in the mar-ket, a good amount has been used to pay foreign currency-denominated debt

KRA EXCEEDS KSH1 TRilliOn MARK CbK GOVERnOR TAKES OVER FORMAllY

separate listing of the bond issued by Centum Investment Company.

In the new debt instrument, the re-turn for investors payable to the buyer is pegged to the performance of the stock in the market. If the share price has significantly, the investor will have a much bigger final payout.

In the arrangement, investors get to benefit from the gains booked by the company, in this case Centum, over the interest payment on the loans provided.

Mr. Rotich’s latest move effectively reserves a regulation proposed by one time finance minister Mr. Amos Kimunya who had capped foreign ownership of listed companies at 75 percent.

2014/2015 Revenue Collection: KRA exceeds Ksh1 trillion Mark.

...I have gazette amendments to the Capital markets (Foreign Inves-tors) Regulations...

Foreign Currency being used to prop up the shilling

CBK governor takes over for-mally after ap-proval

Dr. Patrick Ngugi Njoroge has be-

gun his six-year term as the governor

of the Central Bank of Kenya (CBK)

following his official appointment by

President Uhuru Kenyatta on June 19,

2015.

The appointment was made a day

after Parliament approved his nomi-

nation, together with that of Mr. Mo-

hammed Nyaoga as the board chair-

man and Ms. Sheila M’Mbijjiwe as the

second deputy governor.

Dr. Njoroge replaces Prof. Njuguna

Ndung’u whose eight-year tenure ex-

pired on March 4. During his vetting,

he said he will tackle ballooning pub-

lic debt and the weakening shilling as

the major concerns.

He is expected to chair his first

Monetary Policy Committee meeting

on July 7, coming soon after the last

one held on June 9 where the CBK

raised its benchmark lending rate to

10 percent from 8.5 percent, after the

currency slumped and core inflation

quickened.

42 43


Chase Bank becomes first bank to deal in treasury bonds

The Capital Markets Authority (CMA) has approved mid-tier Chase Bank as the first au-

thorized securities dealer, meaning it can bypass brokers to trade directly in bonds.

With the license, the bank buy and sell bonds in the secondary market as well as underwrite issues of such securi-ties.

Commercial banks have been pres-suring the CMA for years to be allowed to trade and buy bonds without going through brokers, in a bid to save on the 0.035 percent turnover commission.

The license is separate from the dealer’s license given to some brokers who trade on their own accounts whose transactions must always go through their brokerage arm under Chinese fire-wall rules.

In a statement issued, CMA said: “The approval will enable the applicant to carry on the business of buying, sell-

ing, dealing, trading, underwriting or re-tailing of fixed income securities”.

The regulator said it had reviewed the bank’s application and was satisfied Chase Bank had met the legal require-ments.

In the past brokers have resisted any move to let banks sell bonds directly in the secondary market since it would deny them commissions. In the perfor-mance of its role, the authorized securi-ties dealer (ASD) is expected to be will-ing to buy and sell a specific securities on a continuous basis as well as be able to originate securities, which it can then buy or sell to investors.

The introduction of the ASDs is one of the objectives of the CMA to deepen the securities market under the Capital Markets Master Plan currently being im-plemented in a 10-year initiative.

The National Treasury recently an-nounced that it would allow primary bond market investors to apply for secu-

rities with as low as Ksh3, 000, as part of the plan.

The Capital Markets Authority (CMA) has ordered stockbro-kers not to process any further

transactions for foreigners wanting to buy into companies already owned 75 percent or more by non-residents.

As at end of March, British American Tobacco (BAT) and Total Kenya were held by foreigners to the tune of 76.14 and 94.19 percent respectively.

BAT was in compliance as at March 2012, but failed the rest in subsequent years.

CMA data shows that Total has in-creased foreign shareholding since 2011. Other companies have also breached the limits at one time or the other in the past decade.

CMA director of market operations said: “Trading participants are advised not to process any further foreign trans-actions in the subject counters until they fall back into compliance through normal market activity”.

The CMA blamed the system used by stockbrokers for being unable to arrest the problem. The regulator, however, said brokers have now been ordered to ensure their infrastructure is able to

prevent flouting of the rules.“The historical systems infrastruc-

ture (trading and settlement) does not have measures in place to enforce compliance with the limits, therefore, orders are not automatically rejected where they will not result in a breach of the caps”, said Mr. Shamiah.

The CMA said the initial challenge came because the regulation was made when some companies had already sur-passed the 75 percent limit. Such com-panies included Total and BAT at the listing stage.

The companies held beyond 75 per-cent by foreigners were exempted from the rule (The Capital Markets Foreign Investors Regulations 2002) at the time.

“Every issuer or listed company shall reserve for local investors at least 25 per centum of its ordinary shares”, said the CMA rules.

The rules add that in the case of ordinary shares of a listed company, “where in the case of public offering, the per centum reserved for local inves-tors is not subscribed for in full by lo-cal investors, the issuer may with prior written approval of the authority allot

the shares so remaining to foreign inves-tors”.

Mr. Shamiah said the listed companies should monitor diversification of inves-tors in their shares.

“The Authority notes that it is the listed companies who have a responsibil-ity to assess their shareholder diversifi-cation, but this can only be done after the fact given the holdings are defined by individual shareholder actions”, said Mr. Shamiah.

Mr. Shamiah said, however, once vio-lation is identified, “remedying the same can be very challenging as it is impos-sible to identify who should be singled among the foreigner shareholders to be required to reduce their holdings.

CMA moves to enforce foreign caps in share sale

MORTGAGE FUnD PUbliSHED PEnSiOn inVESTMEnTS DROP

The 2015/16 budget stands at Ksh2.234 trillion. Last finan-cial year, the budget was Ksh

1.8 trillion. It all looks rosy until one looks at how the money is spent or to be more precise, not spent.

Referred to as the absorption on

rate, the amount of money the govern-ment actually manages to spend every year remains at an average of 50 per cent – having stood at 44.4 per cent in 2012/13.

Economic growth is often tied to pub-lic and private expenditure, and failure to spend budgeted money directly af-fects the rate at which the economy expands.

Low absorption of budget funds has been attributed to a wide range of fac-tors, including court battles initiated by aggrieved parties in government tender-ing processes.

The low absorption of funds per-meates the entire economy from the national, counties, through to the constituencies, thus affecting the government’s efforts to win the war against disease, poverty, illiteracy, insecurity and other developmental aspirations.

This cannot be allowed to continue this new financial year. It is absolute-ly urgent that the entire government and its structures take decisive meas-ures to address this major develop-mentbottleneck of low absorption of funds.

Low Absorption of Funds Affects Economic Developmentthe approval will enable the ap-

plicant to carry on the business of buying, selling, dealing, trading, underwriting or retailing of fixed in-come securities

every issuer or listed company shall reserve for local investors at least 25 per centum of its ordinary shares

44 45


Mumias Sugar Company to pay cane farmers firstcompany stopped supplying electric-ity to Kenya Power. The miller has the capacity to produce and supply 24 megawatts of power to the national power grid.

Mr. Otolo said the Government has agreed to underwrite the rights issue to help the company raise more funds

Mumias and Ken-ya Airways wins Mil-lions in supplemen-tary budget

The second Supplementary Ap-propriations 2015, has been signed into law, allowing the government to access an extra Ksh 70.4 Billion from the Consolidated Fund.

The money rais-es the budget for the current finan-cial year which ex-pires in two days by a colossal Ksh. 200 billion.

In that budget, there is Ksh 3 bil-lion for Mumias Sugar, and Ksh 4.1 billion for Kenya Airways.

President Uhuru Kenyatta signed the Bill in the presence of Majority Leader Aden Duale and National Treasury Cabinet Secretary Mr. Henry Rotich.

The bulk of the money is in re-allocations of the budget, but the overall impact on

the 2014-2015 budget is that it rises from Ksh 1.232 billion to Ksh 1.426 billion.

The Ministry of Agriculture also gets Ksh 8 billion to pay for the fertiliz-er subsidy the gov-ernment gave farm-ers at the beginning of the planting season and to fund National Irrigation Board, and part of the money will buy the maize as soon as the farmers har-vest their crop.

Ksh 138 billion will fund the rail-way and upgrade the country’s air-ports. Interior Ministry received Ksh 9.2 billion to beef up security, the National Youth Service Ksh 4.9 bil-lion, the National Intelligence Service Ksh 1.7 billion and State House Ksh 1.98 billion.

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STATE TEnDERS

Debts owed to cane farmers con-tracted to Mumias Sugar Company will be paid first before the company em-barks on renovation.

The firm’s managing director Coutts Otolo said the sugar miller owes farmers Ksh 600 million. This follows the Gov-ernment’s release of Ksh 1 billion bail-out for the company which was unable to run its operations.

“We are going to pay farmers first. Part of the balance will be used to buy spare parts for renovations to enhance cane crashing capacity”, said Mr. Otolo.

Facing serious financial crunch, the company stopped supplying electricity to Kenya Power. The miller has the ca-pacity to produce and supply 24 mega-watts of power to the national power

grid.Mr. Otolo said the Government has

agreed to underwrite the rights issue to help the company raise more funds

Debts owed to cane farmers con-tracted to Mumias Sugar Company will be paid first before the company em-barks on renovation.

The firm’s managing director Coutts Otolo said the sugar miller owes farm-ers Ksh 600 million. This follows the Government’s release of Ksh 1 billion bail-out for the company which was unable to run its operations.

“We are going to pay farmers first. Part of the balance will be used to buy spare parts for renovations to en-hance cane crashing capacity”, said Mr. Otolo.

Facing serious financial crunch, the

inFRASTRUCTURE KEY

Infrastructure key to equitable redistribution of National Wealth

Infrastructure development is one of the key pillars to a country’s pro-

ductivity and competitiveness, that is, its ability to use available resources ef-fectively.

An extensive and efficient infrastruc-ture network has the potential to unlock economic growth significantly. In fact, it is a basic ingredient for the realization of inclusive economic growth and shared prosperity.

The global competitiveness Index cal-culated by the World Economic Forum places Kenya at position 90 out of 144 economies ranked, which is an improve-ment from previous years.

In the rural areas, farmers need a fast and reliable transport network to take their produce to the market and at the same time reduce post-harvest losses. To harness the advancement of ICT, electricity is necessary and this will boost education and create jobs.

Growing cities and town need decent and affordable housing, clean water, ad-equate sanitation, reliable and afford-able electricity supply, as well as effec-

tive transport systems.Industries also need reliable and af-

fordable electricity supply to keep the cost of production within budget and stabilize prices of consumer goods. The growing population, particularly in ur-ban areas, means investments have to be increase to maintain the same quality of services.

Kenya is emerging as a Silicon Savan-nah of sorts, going by the level of inno-vation in the ICT sector. This innovation can be harnessed to meet the country’s basic infrastructure challenge. This will not only accelerate development, but place the country in a more competitive position going forward.

Kenya’s new status of a lower middle income country has opened an opportu-nity to borrow more within the debt lim-its. Incurring more debts for infrastruc-ture development is good debt and when utilized efficiently, it has the potential to transform the economy into a proper middle income country – in terms of per capita income and actual lifestyles of the citizens.

The ordinary Kenyan immediate con-cern is about getting to work on time and taking produce to markets economi-cally and timely.

They care about affordability of housing, electricity and clean water. They want to access affordable health services and quality education for their children. Kenyans want good living standards and well-paying jobs to tackle the cost of living.

Massive investment in infrastructure is necessary to anchor the country in its new position and make the lower middle income status of the country inclusive and thus boost shared opportunity.

Growing cities and town need decent and affordable housing, clean water,

adequate sanitation

An aerial view of Nairobi city at night showing dream of 24 hour economy

46 47


Treasury’s incentives to spur growth in key sectors

The budget statement de-livered in the National As-sembly by National Treas-ury Cabinet Secretary Mr.

Henry Rotich, by-and-large, shows that the Treasury is keen on protecting the fortunes of key growth sectors such as manufacturing, creative and real es-tate.

The film industry is one of those that received a tax incentive. There have been many attempts to boost the local film industry. There is a National Film Policy whose aim, among others, is to encourage foreign film production com-panies to shoot in Kenya.

There are other incentives in place to boost the sector including regulation reforms, institutional development, ca-pacity-building and marketing. The tax reliefs as read out in the budget is one of the sector reforms.

There are also a lot of incentives in the local manufacturing industry to protect the sector. Duty has once again been levied on imported sugar. This is a move to boost the local sugar industry. Advalorem duty remains at 100 percent which means that one has to pay double the price when they import the com-modity.

The sugar industry has been facing

myriad challenges including high pro-duction costs. This means that import-ed sugar was able to compete with the locally-produced commodity, necessi-tating urgent reforms so as to save the industry from imminent collapse.

The privatization of sugar companies seeks to improve efficiency and to en-sure there is capital injection into the companies to enable them compete. Increased levy on imported sugar is pos-sibly a protective mechanism.

There has been a tax reduction on lo-cal packaging by 15 percent to reduce manufacturing costs and enhance the local industry. Imports on plastic tubes for cosmetics and gas cylinders face in-creased taxation.

Tax on locally bottled water has been removed. All in all, the government has taken measurements to protect key lo-cal manufacturing industries through tax breaks or increased import duty. Manufacturers may have to turn to lo-cally available products so as to reduce production costs.

In the transport industry, road levy has gone up by three percent which means fuel prices will go up. The gov-ernment has been keen on improving in-frastructure, especially roads, and this levy could be one way of raising infra-

TREASURY’S inCEnTiVES

structure finance.There has been a tax incentive in

the shipping industry in the purchase of ships.

The real estate industry has received several boosts as read out in the budg-et. In particular, there is VAT exemption on goods and services in industrial and recreational parks of 100 acres or more in Nairobi, Nakuru, Kisumu and Eldoret. This greatly lowers construction costs. It will also boost development in those areas.

The ICT industry got a boost through VAT exemption on local assembly of electronic devices. The financial servic-es market has received many reforms, one being the increase of the minimum capital requirement for financial insti-tutions and insurance companies. This means smaller and mid-size companies will have to restructure to meet the regulations.

There will be more mergers and ac-quisitions in this sector. Stamp duty has been removed for REITS and asset-backed securities possibly to grow the sector. Pension funds can now invest up to 10 percent of their assets in private equity funds. These are only some of the budgetary highlights.

Treasury trains women,youth and disabled on online procurement

Women, youth and persons with dis-abilities can now apply easily for gov-ernment contracts following successful training of over 4,000 suppliers by the National Treasury in all the 47 counties.

This is expected to help them take advantage of regulations requiring gov-ernment agencies to set aside 30 per-cent of all contracts for business owned and run by the youth, women and per-sons with disabilities.

The ministry has conducted training for people with hearing impairment, to equip them with adequate skills to undertake tender processes using the IFMIS e-procurement platform.

The training is expected to enable entrepreneurs in the special group tap into the vast opportunities availed by the preferential treatment rule.

Financial Management Information Service (FMIS) Director Mr. Jerome Ochieng’ said the initiative seeks to enable enterprises owned by special groups take advantage of the 30 percent

procurement opportunities reserved for them by national and county govern-ments including ministries, State Corpo-rations and government agencies.

“IFMIS system is designed to enable the Government increase and monitor state procurement opportunities to the minority, including women, youth and persons with disability”, he said.

“This is an affirmative action aimed at empowering enterprises owned by youth, women and persons with disabil-ity by giving them more opportunities to do business with the Government”, he added.

Other than the training, the FMIS de-partment also developed a custom com-munication mailer that will enable the special group interact with FMIS officials as well as request for support using the system.

Training for youth, women and peo-ple with disabilities is expected to be conducted for more than 5,000 persons this financial year.

SUPER 10 CiTiES

In June 2013, National Treasury Cabi-net Secretary Mr. Henry Rotich gazetted the Public Procurement and Disposal (Preference and Reservations-Amend-ment) Regulations, 2013 which require all government Agencies to give prefer-ential treatment to businesses owned by youth, women and persons with dis-abilities.

During the training, Mr. Ochieng’ said FMIS plans to use Huduma Centres to help businesses that have difficulties with completing the tender process on-line.

“We are initiating discussions with the Ministry of Devolution and Planning to use the Huduma Centres to provide support to suppliers in respon

48 49


Ethiopia’s government 223.3 billion birr ($ 11 billion) budget for the fiscal year 2015|16, is up nearly 20 percent from the previous year to fund spending on development.

The northeast Africa’s country’s economy is expected to grow by 10.5 percent in 2015-16,according to the world bank, fuelled by its agriculture and service sectors and state-led in-vestments in big infrastructure projects including roads and dams.

The budget which took effect from July 8 as presented by Finance Minister Sufican Ahmed set aside 84.3 billion birr for Capital expenditure and 50.2 billion birr for recurrent expenditure which includes administrative, economic and social services.

Addis Ababa plans to spend 32.9 bil-lion birr on education, up from 24.5 bil-lion in 2041-15.Health spending will to 6.3 billion from 5.1 billion, while more than 2.3 billion birr will go on urban de-velopment including housing.

State-run Ethiopian Roads Authority will be allocated 33.1 billion, up from 29 billion in last financial year.

Africa’s second-most populous nation after Nigeria aims to expand its road network to 136,000 kilometers by the end of this year, well up from 50,000

The implementation of the Integrat-ed Financial Management Information System (IFMIS) in Kenya has attracted several African and Asian countries which have keen interests on the op-erations of the financial management system.

IFMIS Director Mr. Jerome Ochieng’ said Philippines, Liberia, Ethiopia, Le-sotho, Zambia and Uganda have visited Kenya to learn and benchmark with the country IFMIS operations.

Mr. Ochieng’ added that the coun-tries have visited the National Treasury in a bid to learn lessons from IFMIS im-plementation in Kenya.

In an interview with the press today at the National Treasury building in Nai-robi, the IFMIS director pointed out that the IFMIS interface with the payment system at the Central Bank of Kenya to enhance efficiency and transparency in financial services.

“The deployment of IFMIS in Kenya has been a success story in improving

kilometers just five years ago.Major projects begun in the past

decade include a number of dams such as the$ 4.1 billion-Grand Renaissance Dam that will eventually produce6,000 MW of power, and a plan to construct over 5,000 kilometers of railway links Criss-crossing the country.

Some economists say Addis Ababa mist make room for more private en-terprises, which would also help keep down public debt.

The International Monetary Fund (IMF) said last year the country was “on the cusp” of shifting from low to mod-erate risk of debt distress.

Total debt at about 50 percent of GDP was still manageable but tougher of it rose much more ,the IMF said.

Ethiopia plans to launch hydro-power dams and projects over the five years to 2020 that will add an addition-al 12,000 megawatts of electricity upon completion.

With one of the continent’s fastest growing economies, Ethiopia want to become a manufacturing hub and Afri-ca’s top energy exporter by tapping the numerous rivers that cascade through its highlands.

Experts say the Horn of Africa nation has the potential to generate 45,000

public financial management. We do receive delegations from other coun-tries seeking to benchmark their public financial systems with our own IFMIS. This is proof that we are indeed on the right path,” said Mr. Ochieng’.

Meanwhile, the National Treasury has concluded a three week country-wide training for entrepreneurs to equip small and medium businesses with requisite knowledge to undertake online procurement.

Speaking in Nairobi during the Gov-ernment of Kenya Supplier Sensitiza-tion and Training Forum, IFMIS Director Mr. Jerome Ochieng’ said the exercise is critical in enabling state agencies and their suppliers adopt the automat-ed procurement and payment system.

“With the e-procurement system, streamlining of the entire government procurement process is achievable with the aim of sealing loopholes which are erstwhile prominent in the manual pro-cess,” said Mr. Ochieng’.

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Ethiopia proposes record $ 11 billion budget for new fiscal year.

IFMIS Implementation in Kenya Attracts Foreign Countries

megawatts of hydropower.Under a 2010-2015 development

blueprint, the Growth and Transforma-tion Plan I (GTPI), Ethiopia started work on the $ 4.1 billion Grand Renaissance Dam and planned to complete the $ 1.8 billion Gilgel Gibe 3.

Together the dams will boost gener-ating capacity from 2,400 megawatts now to more than 10,000 megawatts upon completion.

Under a new 2015-2020 plan, or GTP 2, that is due to be endorsed by par-liament in September, projects gener-ating 12,000 megawatts added, Azeb Asnake, Chief Executive of State -run Ethiopia Electric power said.

“For this ambitious plan, the idea is to finance at least 50 percent by our own coffers, by the Ethiopian govern-ment, and the rest from different sources,” she said of the projects slat-ed to be launched by 2020.

Ethiopia’s total energy plans could cost the country up to $ 25 billion, Azeb said.

“They could be grants, soft loans and commercial loans from foreign banks, governments and the like” she said.

The over-riding advantages of the IFMIS system, he noted, are efficiency and transparency, adding that the sys-tem allows users to post and process transactions in real time, thus saving time and minimizing errors.

Other than the IFMIS e-procurement module, Mr. Ochieng’ said the National Treasury has also rolled out the plan-ning and budgeting module that en-sures a procuring entity can only pur-chase what has been approved and within stipulated budget.

With the e-procurement system, streamlining of the entire govern-ment procurement process is achiev-able with the aim of sealing loop-holes which are erstwhile prominent in the manual process

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Mr. Henry K. Rot-ich is the Cabinet Sec-retary for the National Treasury. Prior to his appointment in 2013, Mr. Rotich was the Head of Macroeconomics di-vision at the Treasury, Ministry of Finance since March 2006.

As the head of Macroeconomics divi-sion, he was involved in formulation of macro-economic policies that ensured an affordable and sustainable path of public spending aimed at achieving the Gov-ernment’s development priorities.In addition, he was involved in prep-aration of key budget documents including Budget Policy Statements as well as providing strategic coordination of structural reforms in the area of fiscal and financial sector.

Before joining the Ministry of Finance, Mr. Rotich worked at the Research Department, Central Bank of Ken-ya, since 1994. From 2001 – 2004, he was attached to the International Monetary Fund (IMF) Nairobi office where he worked as an Economist.

He also served as a Director on several Boards of State Corporations, among them Insurance Regulatory Board; Development Bank of Kenya; Communications Au-thority of Kenya; and Kenya National Bureau of Statistics.

The Cabinet Secretary holds a Master’s and a Bachelor’s deree in Economics from University of Nairobi, and Master’s degree in Public Administration from Har-vard Kennedy School, Harvard University, United States of America

D r . K a m a u Thugge is c u r r e n t l y the Principal Secretary at the National Treasury. He has previous-ly worked in the Ministry of Finance as Head of Fis-cal and Mon-etary Affairs Department, E c o n o m i c S e c r e t a r y and as Senior Economic Ad-visor.

Before joining the Ministry of Finance, he worked with the International Monetary Fund (IMF) as Economist, Senior Economist and Deputy Division Chief.

Dr. Thugge has played a major role in influenc-ing the design of Kenya’s current fiscal decentralization system and has coordinated the formulation of legislation for implementing devolution, including the Public Finance Management Act, 2012; The Commission on Revenue Al-location Act, 2011; The Independent Officers (Appoint-ment) Act, 2011; The County Government PFM Transition Act 2013; The County Allocation of Revenue Bill 2013; and, The Division of Revenue Bill 2013/2014.

Dr. Thugge is widely published and holds a Bachelor of Arts (Economics) degree from Colorado College, USA; Master’s degree in Economics from John Hopkins Univer-sity, USA; and a Doctor of Philosophy (PhD) degree in Eco-nomics also from John Hopkins University.

Profile: Mr. Henry K. Rotich Profile: Dr. Kamau Thugge

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