Highlights 2014: A year of historic highs and memorable lows in business

It is that time of the year again when we take stock of the 12 months that have been. The business scene has had its fair share of unprecedented successes and upheavals, victories and failures. We look at some of the events that stood out.

Kenya Rebases its Economy

In September, Kenya became a middle income country and Africa’s ninth-largest economy, up from 12th position, surpassing Ghana, Tunisia and Ethiopia.

This came after the country’s rebasing increased its economy by 25.3 per cent. Kenya followed in Nigeria’s mould, whose rebasing saw it overtake South Africa to become the continent’s largest economy.

The other countries still ranked higher than Kenya are Egypt, Algeria, Angola, Morocco, Libya and Sudan.

With the rebasing, the country’s average wealth per person increased to $1,246 (Sh111,330) up from $994 (Sh88,813), after the Government changed the base gross domestic product (GDP) calculation year from 2001 to 2009.

This saw the contribution of various sectors to the country’s economy increase — such as agriculture, manufacturing and real estate — as well as allowed the capture of newly vibrant ones, such as information and communication technology.

However, the increase in GDP per capita does not necessarily mean Kenyans are richer, but it does give the country more leverage when borrowing from external markets.

Government Successfully Floats Sovereign Bond

Kenya successfully launched the largest ever sovereign bond for an African country in June.

The country’s $2 billion (Sh180.8 billion at current exchange rates) Eurobond was oversubscribed, with bids worth $8 billion (Sh723.4 billion) — another African record — coming in from pension funds, insurers and sovereign wealth funds looking for high-yielding investment options.

Kenya is in the process of executing large infrastructure development and is banking on the debt facility to finance projects in energy, port, rail and road.

Capital Gains Tax Makes a Return

After a 30-year stay on the shelves, the Kenya Revenue Authority (KRA) this year finally succeeded in re-instituting the capital gains tax.

The reintroduction of the tax has had numerous false starts for more than 15 years, with critics and lobbyists managing to get the Government to delay its implementation.

However, KRA has this financial year been under immense pressure to increase its revenue collections as the country’s expenses and debt levels grow.

The capital gains tax places a 5 per cent levy on profits made in the transfer of property and sale of securities, with KRA expecting to net Sh7 billion from collections once it goes into effect from January 1, 2015.

Equity Bank launches Equitel telecoms services

This year Kenyans were treated to one of the biggest corporate face-offs after Equity Bank was granted a licence to launch a mobile virtual network operator (MVNO) service. It is running its telecommunications services on Airtel infrastructure.

The decision by Equity to venture into the mobile money transfer business, currently a cash cow for Kenya’s largest mobile service provider Safaricom’s M-Pesa, did not come as a surprise to analysts.

However, the bank was not going to find it easy to steal the spotlight; its plans have been subjected to several months of deliberations that went to court, Parliament and the President’s office.

The biggest controversy has been around Equity’s plan to use Thin Sim technology, which allows users embed a chip encased in plastic on top of their standard Sim cards. This has raised concerns over the safety and privacy of customer data.

In the latest turn of events for Equity’s Equitel network, the High Court last week suspended the Communications Authority of Kenya’s decision to allow the bank to roll its Thin Sim.

Sh15 billion Security Tender finally awarded

In November, the Government signed a Sh15 billion contract with Safaricom, allowing the mobile service provider to build a sophisticated security communications and information sharing system.

The state-of-the-art security system will include high-definition spy cameras networked to a command station fitted with facial recognition systems for isolation and tracking of wanted suspects.

The system, which is expected to help curb the recent spate of terrorist attacks in the country, will go live in Nairobi by the end of the year, and in Mombasa in 18 to 24 months.

Kenya gets high-speed 4G Internet

Kenya recorded another first when mobile service provider Safaricom launched its LTE Advanced (4G) network last month. The launch of the new network provides Safaricom subscribers with Internet speeds up to two times as fast as what they experience on 3G.

Safaricom’s 4G launch has been seen as an attempt by the company to bolster its position in the field of data at a time when mobile service providers are struggling to capitalise on other sources of revenue, such as voice and SMS.

Kenya’s number two telco, Airtel, plans to launch its 4G network early next year.

yuMobile bows out of the Kenyan market

In an interview several years ago, Safaricom’s then CEO Michael Joseph said Kenya’s mobile industry cannot sustain more than four mobile operators at the time.

His words appear to still ring true, particularly after Essar’s yuMobile announced it would be bowing out of the market, selling its assets and business to Safaricom and Airtel.

The deal that was valued at an estimated $100 million (Sh9 billion at current exchange rates) saw Safaricom take up yuMobile’s frequency and phone masts, with Airtel acquiring the network’s 2.7 million subscribers.

yuMobile is bowing out with losses amounting to more than Sh25 billion that it has accrued since it setting up in Kenya in 2009.

Kenya Airways’ sh10 billion loss

Mbuvi Ngunze was officially named the CEO of the national carrier on November 1, taking over from long-serving chief executive Titus Naikuni.

Three weeks later, Mr Ngunze was put to task when the airline reported half-year results revealing a shocking Sh10.45 billion loss.

KQ blamed the dismal figures, the worst to be reported by a listed company, on low passenger numbers, the Ebola outbreak and insecurity.

The Fall and Fall of Mumias Sugar

The fall of Mumias Sugar’s share price to a record low of Sh1.35 from its initial public offering (IPO) price of Sh49.50 has fuelled speculation of a bailout or collapse of a company that once held 60 per cent of the country’s sugar market.

Earlier this year, Mumias Sugar was dropped from the companies that make up the Nairobi Securities Exchange 20 Share Index, with the miller seeing its value depreciate by more than 25 per cent over the last 12 months. The stock closed last week at Sh1.90.

Eveready East Africa Bows Out

It was the end of an era when three months ago, Eveready East Africa Ltd, the largest dry-cell battery maker in the region, announced it would be closing down its Kenyan factory.

The company, which was founded more than 40 years ago, has been going through turbulent times in the market due to an assault from counterfeits, cheap imports and a shrinking consumer base.

The news was a loud indictment on the country’s policy makers, particularly in the manufacturing sector, where players often cite the proliferation of counterfeits and high costs of doing business as impediments to growth.

Nokia No More

For many Kenyans old enough to remember the evolution of the mobile industry in the country, the term Nokia elicits fond memories.

In the late 90s and early 2000s, Nokia dominated Kenya’s mobile phone industry with popular brands like the Nokia 3310, 1110 and 1100 before losing much of its market share to new smartphone entrants.

Last week, Microsoft, which acquired Nokia’s handset division, launched the first Microsoft Lumia mobile device in Kenya, effectively killing off the Nokia brand name in keeping with the global phasing out of the same.

Central Bank of Kenya Launches KBRR

Earlier this year, the Central Bank of Kenya launched a new common base rate calculated every six months called the Kenya Bank Reference Rate (KBRR) framework.

The KBRR is calculated as an average of the 91-day Treasury Bill rate and the Central Bank Rate (CBR) and is currently set at 9.13 per cent.

This effectively introduces a new era in the setting of interest rates and pricing of credit facilities, with banks expected to have transferred all loans to the KBRR by June next year.

Parliament Doubles Kenya’s Debt ceiling

Earlier this month, Kenya set a historically high external debt ceiling after Parliament voted to extend the amount the country can borrow from foreign investors to Sh2.5 billion from Sh1.2 billion.

The move to double the country’s debt ceiling came after proposals from the National Treasury that the country needed to increase its financial muscle to complete several public works projects it has rolled out.

The lessons of quailonomics

Lessons in entrepreneurship are often learnt the hard way, and many Kenyans experienced this first hand when the booming business of quail farming came crashing down earlier this year.

The hype that quail farming was a lucrative venture began late last year, with ubiquitous “testimonials” on how quail eggs can cure cancer, hypertension and impotence, and that quail meat has numerous nutritional benefits.

At one time, quail eggs were selling for as much as Sh100 and enterprising Kenyans soon started building sheds and hatching quail eggs by the thousands.

In February this year, however, the supply peaked and prices crashed to lows of Sh15, leaving many with dead stock and painful losses.

Kenya Orchards Stock Rises by record 3,933 per cent

The rise of Kenya Orchards’ share price from Sh3 in January this year to a high of Sh192 will be a strong case study for many economic majors.

The food processor’s stock appreciation made records as one of the largest gains by a listed company in the history of the NSE over a 12-month period.

The counter is, however, tightly held, with thin volumes of sales recorded despite the positive returns.

Kenya Orchards is mainly involved in the process of canning and processing fruit and vegetable, and is in plans to diversify its earnings by venturing into the production of spices, herbs and seasonings.

Revival of growth enterprise market segment

Kenya launched a trading board for small businesses looking to list on the NSE early last year. The Growth Enterprise Market Segment (GEMS) was meant to provide small and medium enterprises (SMEs) with new avenues to raise capital.

Real estate company Home Afrika became the first company to list on GEMS in July last year, but then the counter went quiet for 15 months.

Towards the close of this year, however, the segment came alive, with manufacturing firm Flame Tree Group Holdings becoming the first to reactivate activity.

Kurwitu Ventures, a Sharia-compliant investment firm, followed shortly after.

Last week, London Stock Exchange-listed logistics and support services firm Atlas become the first GEMS cross-listing.

Over the next weeks, technology firms Empire Microsystems and East African Data Handlers are also expected to list.

NSE Demutualisation

NSE chose this year, when it is celebrating its 60th anniversary, to demutualise, offering Kenyans a chance to buy into the largest exchange in East Africa.

The NSE posted a 663.7 per cent oversubscription during its IPO, with eager investors applying for 504 million shares against a sale of 66 million shares. This made the NSE IPO the largest oversubscription in the bourse’s history.

The firm’s share price rose to record highs of Sh23 from the Sh9.50 debut price in just three weeks, driven by high demand from both institutional and retail investors. It closed last week at Sh18.90.

The self-listing saw the NSE join the Johannesburg Stock Exchange (JSE) as the second exchange in Africa to demutualise and list itself.

Diplomacy and economics at a crossroads

Kenya’s diplomatic ties were put to the test when the country watched helplessly as the East African region dragged its feet in reaching a deal in Economic Partnership Agreements (EPAs).

Negotiations on a new EPA structure between the East African Community and European Union have been in the works over the past decade, but by the October 1 deadline, no agreement had been reached.

Kenya is the only country in the EAC considered a developing country, while its neighbours are still ranked as least developed countries, thus allowing them duty free market access.

As a result, Kenyan exports, which had been enjoying duty free status to the EU, were slapped with between 1.6 per cent and 30 per cent in taxes.

However, last week, the European Parliament said it had no problem reinstating Kenya to the list of beneficiary countries in the EU Market Access Regulation. This means Kenyan exports to the EU could stop attracting duty from as early as January.

Global Oil Prices PLUNGE to five-year lows

Over the last six months, global fuel prices have dipped by more than 40 per cent to five-and-a-half-year lows. The reasons for this are weakening demand from many countries due to slowing economic growth, and increasing oil production. Exacerbating the free-fall is oil cartel Opec’s decision not to cut production to prop up prices.

In Kenya, the drop in prices has, however, not been commensurate with the fall in the price of petroleum commodities, despite the Energy Regulatory Commission (ERC) announcing several price cuts during this time.

Still, last week, ERC unveiled the country’s lowest fuel prices in two years. Petrol dropped Sh4.79 to Sh102.01, while diesel prices decreased by Sh3.67 to Sh90.85, and kerosene by Sh4.94 to Sh71.37 a litre.

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