Why 2016 could be tough for Kenyan regulators

Business Beat looks at some of the major events and pending policy changes set to push the country’s business regulators into new territory.

Communications Authority VS Competition authority

The Communication Authority of Kenya woke up to the reports that the Statute Law (Miscellaneous) Amendment Act, 2015 had trimmed its ability to affect anti-competition and market dominance legislation. The law, stealthily passed during the festive season, has since drawn criticism from the opposition and the Law Society of Kenya (LSK), which is moving to court to reverse the President’s decision.

The new amendments came in the midst of a debate on whether Kenya’s leading mobile phone service provider, Safaricom should be declared dominant in some segments of the market and be regulated under special laws or be split into two or three companies.

The interpretation of the amendments and their impact on the resolution of market competition and dominance disputes has brought out sharp differences between the CA and its sister regulator, the Competition Authority of Kenya (CAK). CAK Director General Francis Wang’ombe says that the amendments are not new and that his regulator holds veto power in all matters competition.

“According to the law, in a deadlock between regulators on the dominance of a particular market player then the decision of the Competition Authority holds supreme,” explains Mr Karuiki. “This is an already existing piece of legislation and the Statute Law (Miscellaneous) Amendment Act, 2015 was just emphasizing this,” he said.

“In addition to this, the law further states that in case of uncertainty of what constitutes market dominance, then the highest expert body on matters dominance is to be consulted, which in this case the Competition Authority is.”

In a rejoinder, CA Director General Francis Wangusi has remained adamant that his regulator is best suited to determine and implement market dominance legislation in Kenya’s ICT sector.

“The fact that we might have difficulties in declaring a player dominant does not mean that we cannot apply rules that will govern the dominant player in the case we discover one,” he said. “This is a sector that has a very high evolution of technology and for us to maintain stability, we need to have our law restored and our powers in dealing with competition issues left intact,” he said.

The spat between the two regulators over the regulation of Kenya’s lucrative ICT industry is set to intensify with other government agencies set to be roped in. “We are not all lost to avenues through which to regulate this industry properly and we are in consultation with other arms of government to ensure that our powers in the regulations of matters ICT are restored,” said Mr Wangusi.

Central Bank of Kenya

Next week will mark the six-month anniversary of Dr Patrick Njoroge at the helm of Central Bank of Kenya. In the past two quarters, Dr Njoroge has steered the economy through high interest rates, a volatile shilling and reports of major fraud in at least two commercial banks—Dubai Bank and Imperial Bank that threatened to result in a run on Kenya’s small-tier banks.

The CBK’s monetary policy committee is set to meet next Wednesday and the general opinion is that with the shilling stabilised and inflation within range, the CBK has no reason to cut the base-lending rate to stimulate growth. However, there is concern that the government’s attempt to close a yawning budget deficit in the face of depressed revenue collections and maturing short-term obligations will lead to a crowding out effect in the local market pushing up the cost of credit for consumers and the private sector. “The CBK will have to balance settling maturing debt and re-financing the same and the pressure on rates is expected to persist,” said Mr Maurice Oduor, an Investment Manager at Cytonn Investments.

In addition to this, new mobile virtual network operators and the crypto currency Bitcoin have presented new oversight challenges for the CBK. The regulator’s handling of the Imperial Bank closure has also come under attack from some quarters.

Capital Markets Authority

The poor performance at the Nairobi Securities Exchange (NSE) last year has cast markets regulator CMA under the spotlight with analysts questioning it’s oversight role. CMA, which has had an acting chief executive for the last four years, is under renewed pressure to fill the position left vacant after former CEO Stella Kilonzo stepped aside in 2012 after serving for one term.

Nevertheless, the authority has approved significant new additions to Kenya’s securities exchange in the recent past including Real Estate Investment Trusts (REITS) and new listings to the growth and enterprise markets segment (GEMS).

Two of the newest entrants to list at the bourse; Atlas Development and Home Africa have performed dismally with the former losing more than 80 per cent of its trading value and the later depreciating by 85 per cent from its debut price of Sh12 to Sh1.7 as at close of trading last week.

The performance of these two counters and others like Uchumi and Mumias Sugar Company are set to test the regulator’s oversight role this year even as the market anticipates the introduction of a derivatives trading platform.

Energy Regulatory Commission

Last week, international oil prices fell to a 12 year low of $33 and analysts are saying that the prices might not return to the pre-2014 slump for years.

The reasons given for the drop in oil prices have included a US glut in reserves, China’s economic slowdown, the increase of fuel efficient vehicles and machinery and development of other oil prospecting technologies such as fracking.

Locally, these developments present a special challenge to Kenya’s energy regulator that has come under criticism in the past over the slow transmission of reduced fuel prices in the Kenyan economy, an assertion the regulator’s boss Eng Joseph Nganga denies.

“The price of oil is dependent on a lot of global and geopolitical issues and we’ve always transmitted the changes into the economy to reflect the international crude prices,” Nganga explained.

The ERC is further banking on the enactment of the long awaited Energy Bill 2015, which is due on the floor of the house later this year.

The Bill is expected to significantly affect the country’s residential and commercial energy consumers. “The Energy Bill, 2015 is a game changer in matters energy in this country and we have been engaging with Parliament and the Energy Committee and we expect it to be enacted into law this year,” explained Eng Nganga.

Among the provisions of the Bill is metering that allows small-scale generators of mostly renewable energy store up or sell excess energy through the national grid.

The Bill is expected to make it easier for independent power producers and investors of renewable energy to challenge the monopoly of industry behemoth Kenya Power providing cheaper and more diverse selection for consumers.