Will Equity Bank’s Equitel catch up?



I am usually fascinated by safari rallies; from the cool cars, the excitement, the speed, the dangerous car stunts, the tension, competition… and wuh! The cloud of dust. And now, we are expecting a new driver in town; Equity Bank! Vuuuuum vuuuuuum. I have a feeling this is going to be one interesting rally to watch!

Equity Bank intends to enter Kenya’s booming mobile telecommunication market; which has 80% mobile penetration. It’s the leading inclusive bank in Africa, listed at the Nairobi Stock Exchange and Uganda Stock exchange. It is also the largest bank in the region in terms of customer base with over 8 million bank accounts; which is over 50% of all the bank accounts in Kenya. It has presence in Kenya, South Sudan, Rwanda and Tanzania.

For a long time, things have been rather quiet and stagnant in the telecommunication industry; with YU Mobile finally exiting the market. When I first heard that Equity bank was taking its first foray into telecommunications, I couldn’t help but get excited. I mean, there’s finally a firm that could give Safaricom, which has been the dominating firm in the industry, a run for its money! Apparently, the battle between the two has started long before the actual battle begins. However, Safaricom has every reason to shake to its knees given the fashion and novelty Equity Bank has decided to enter the industry. What gap has Equity seen? What’s its aim? Or is it just on a revenge mission? Hmmm

If I were to give Equity bank a human age, it would be a19yr old with a big risk appetite and unafraid to experiment. We have seen Equity Bank revolutionize banking in Kenya and even penetrated market segments that other financial institutions would never have ventured; it recruited millions of people who had formerly shielded away from banks due to their ‘discriminatory’ practices and little interest in the masses. Just as Equity was starting to reap success, M-Pesa pap! Was rolled out bringing financial services even much closer to Kenyans. Need I mention the ubiquitous M-Pesa shops spread throughout the country? Within a year of launching, M-Pesa had 2 million registered users. Talk of potential! Equity Bank’s market niche is largely absorbed by M-Pesa.

Equity Bank is the first in Kenya and Africa to offer a full banking suite through the Mobile Virtual Network Operator (MVNO). A MVNO is a wireless communication service provider that doesn’t own the wireless network infrastructure over which it provides its services to its customers. A Mobile Network Operator (MNO), like Safaricom and Airtel, owns such infrastructure. Equity bank was awarded in April 2014 the license to operate on MVNO, alongside Zion cell & Mobile pay. The operators will be hosted on Airtel’s unused capacity on the network. From the definition, Equity is the MVNO and Airtel is the MNO; Equity is a customer to Airtel and they both stand to benefit.

But what has been giving Safaricom sleepless nights is the use of paper-thin SIM cards the bank is planning to use. Safaricom has been trying to thwart Equity Bank’s effort to enter the industry by opposing the use of the SIM cards, on the ground that it could threaten the security of its M-Pesa platform. The Communication Authority of Kenya had agreed to give the bank a 1 year trial in order to assess Safaricom’s security claims. The SIM cards will consist of 0.1 millimeter thick film that can be layered on an active side of customers’ original SIM card, without affecting customers’ original service providers’ network reception; this means that customers will not have to migrate to the bank’s mobile SIM or have dual SIM. Isn’t that just genius! It typically transforms your phone into a double SIM. The platform will offer voice and data service on top of the money transfer services; you can text, call browse… just like you do with your Safaricom/Airtel/Orange lines.

The technology is already in extensive use in Asia; MI, a Singaporean operator, offers a dual- SIM solution based on ultra-thin SIM technology, Chinese Banks Wunjin Rural Commercial Bank and Quanzhow City Commercial Bank have developed mobile banking system in the same manner. Equity Bank plans to start using the SIM tech from next month as soon as it gets written approval from the Communication Authority of Kenya and the Kenya Commercial Bank. However, according to current developments, it might have to wait a little longer thanks to the meddling of a parliamentary committee.

The bank says the SIM cards will be available for free to its 8.7million customers; a strategic move for penetration. It expects at least 3million of its mobile banking customers to move to its new network. The bank will no longer need M-pesa service, which it joined in early 2010. It might as well drag Family Bank along given its large shareholding in it.

Equity Bank will definitely not have it that smooth. Safaricom has had a head start in the payment sector with its Lipa na M-Pesa service; which already has 120,000 outlets to the service. Moreover, Safaricom has more than 90,000 M-Pesa agents across the country; Equity Bank has 11,000. And not to forget, there are still other players in the industry; Airtel, Orange; Zion cell & Mobile pay which are yet to roll out their plan.

Since its intention to venture into telecommunications, the bank’s share price has been performing exceptionally well and is expected to go even higher. At a current average of sh57, the bank is valued at sh211 billion, only sh3 billion shy of the 2nd largest company in the market, EABL, and 33billion ahead of KCB. Safaricom remains the most capitalized company at the bourse, valued at sh504 billion.

My conclusion? Buckle up people! I think we are about to experience one heck of a ride! Wuhuu…  #Equitel


Did Nigeria deserve to pop the champagne just yet??


Africa has a new number one; Nigeria. On April 6th 2014, Nigeria thoraxed itself to becoming Africa’s biggest economy in terms of GDP after re-basing, overtaking South Africa. This has brought a lot of brouhaha since then from every corner of the world; writers, bloggers, media houses, social media sites etc. No one should prevent Nigerians from bragging about its new status despite the criticism; I mean, if it was Kenya, hallo! We would brag about it until forever comes and repeats itself twice! Nigeria is christened the giant of the west Africa. It is the 7th most populated nation in the world and Africa’s most populous nation; with a population of around 170 million plus as of July 2011. It is one sixth the population of Sub-Saharan Africa and 3 times the size of South Africa. It is Africa’s leading oil producer, ranked 6th in the world in oil exports and 10th in natural gas revenue.

Re-basing/ re-benchmarking of national account series (GDP), is the process of replacing an old base year volumes of GDP with new and more recent base year. It’s carried out so that a nation’s GDP statistics give the most up to date picture of the economy as possible; for Nigeria, it was more of a political reason, President Jonathan Goodluck is under great pressure to show economic results as he approaches a run for re-election. Many nations do it frequently, but Nigeria last rebased its GDP in 1990. The latest 2014 GDP stands at a cool $510 billion (from $276 billion) and this has boosted the size of the economy to over 60%, moreover, it has also pushed the country to the 24th largest economy of the world. GDP per capita went up from $1555 in 2012 to $2688 taking the country up from 135th position in the world to 121st. GDP per capita in South Africa in comparison is $7508; 3 times bigger than Nigeria’s. Some of the new sectors accounted for which were negligible or non-existent in 1990’s re basing were; mobile telephone market (Africa’s largest with over 125 million subscribers), the music industry and the hugely popular local film industry, Nollywood; accounts for 1.4% of the GDP.The problem of using GDP as an economic indicator is that it only shows how rich a country is and not the individuals. For the ordinary Nigerians, most of who still live less that $2 a day, the re-basing is likely to have very little effect on them. The fact that Nigeria is now number one is not enough to sugar coat the troubling and worrisome facts about today’s Nigeria.nnnnnnnnnnnnnnnnnnnnnnnnn

Nigeria has 101 problems; like seriously. It is a divided nation; the north which is the oil producing states and south, the non-oil producing states. Boko Haram and related groups remain a threat to the stability of the nation. Just recently on April 14th, a week after Nigeria was named Africa’s number one economy, some 270 plus young school girls (who are yet to be rescued) were abducted in the dead of the night from a boarding school in north-eastern Nigeria in what was the most brazen act so far by the Islamist terrorist group, Boko Haram; fears abound that they have been sold to slavery or used as sex slave. Nigeria might be the country with the highest private jet owners in Africa but among the worst and miserable places for wealth redistribution and income inequality in the world; the poor are really POOR, the rich are extremely RICH; after all, the richest black man in the world, Aliko Dangote is Nigerian, with a net worth of $16.1 billion. The country was also ranked LAST out of 80 countries evaluated in 2013 by the Economic Intelligence Unit as the worst place for a baby to enter the world; that is depressing! Other problems in Nigeria include widespread corruption, poor governance, rampant oil theft, slow ports, bad roads, lack of electricity; despite growing investment, the nation only meets 20% of its current electrical power needs. Nigeria is the only oil producing nation without reasonable electricity, drinking water and health care facilities. In addition, the unemployment rate in Nigeria is alarming, 23.9%; this problem is particularly acute amongst the country’s youth population, and according to the National Baseline Youth Survey Report, 54% of Nigeria’s youth population was unemployed in 2012.

Nigeria’s re basing has definitely improved the country’s profile; the balance sheet, it’s credit rating; it has promoted it from being a low income country. Being ranked 24th in the word for a third world country is not a small deal; it’s now ranked with the likes of Norway, Belgium, Argentina, Thailand, Taiwan etc; this means it has a lot of catching up to do; a fly on a bull is still a fly anyway… I’m just saying. It now has to meet expectations for being Africa’s biggest economy. South Africa; the only G-20 member in Africa, is ahead of Nigeria in areas such as infrastructure, income per capita and governance. It will continue to remain the most competitive economy in Africa despite Nigeria’s new status. Nigeria has little to celebrate about and has a long way to go before TRULY claiming the title, ‘Africa’s biggest economy’. They need to hold onto that champagne bottle just a little longer before they pop it to celebrate. #SomeoneTellNigeria


The epic rise and fall of lance Armstrong…



They say that the longer you take to come clean, the more things get dirtier and that success is like fart, it only bothers people when it’s not their own!… and Lance Armstrong’s scandal just proved that! Before the demise of his fairytale career, he was known for his prowess at cycling especially at the Tour De France where he won 7 times in a row, for his successful battle with cancer and the Lance Armstrong Foundation- which fights cancer through a program widely known as Livestrong. The term ‘Armstrong era’ is now apparently a moniker for widespread cheating. Armstrong is now paying heavily for his sins… apart from losing his chairmanship at his own foundation, his sponsors such as Nike and Trek have also fled and he is also being asked to pay back millions of dollars. He recently went on public confession at the Oprah Winfrey Show, but as critics say, he left out the minutiae details.

It all started when cycling colleague Floyd Landis went public in 2010 with his own doping and leveled allegations at Armstrong and this led to investigations on those allegations. Armstrong publicly defiled those who had tried to expose him earlier, ruining some of their lives. “We sued so many people,” Lance said to Oprah- people who were telling the truth and lost to him in court in spite of it. He blamed the culture of cycling during the time he doped saying the practice was widespread and just as much, ‘part of the job’ as water bottles and Tyre pumps. Lance cheated ‘hundreds of millions of times’, as he put it, and it sickens one to the stomach knowing that people still believed him, adored him and many wore the iconic yellow bracelets because he inspired them.


Lance now has to face judgment from a different type of fans; those who have had personal experiences with cancer. Armstrong was diagnosed with cancer in 1996 (stage 4 testicular cancer). The cancer had spread to his abdomen, lungs and brain but he beat the odds to survive- albeit doctors had given him 40% survival chance- and continue his ‘spectacular’ cycling career. He told Oprah that being asked to step down of Lance Armstrong Foundation (which he was the founder) was a low blow and that it hurt like hell. We can’t deny that he raised a lot of awareness and money for cancer but if you think about it, it was more of a way of covering up all his ‘dirty businesses’. His confession is clear but whether the doping had anything to do with his cancer is still unclear. While studies in cells and lab animals have linked doping agents to cancer, evidence in humans is anecdotal at best. For now, Lance Armstrong can be hated and loved in equal measure but the truth of the matter remains, he did inspire many cancer patients and survivors and is still regarded as a hero by some, and that cannot just be erased so easily.


Economics Society

Gani Fawehinmi Square

Nigeria’s oil is both a blessing and a curse

By Paul Henderson

Nigeria is Africa’s largest supplier of oil, and seventh in OPEC; the country produces 2.2 million barrels per day. Therefore it may seem paradoxical to some that the country is in such a relative state of disarray. In fact, oil contributes to 30% of Nigeria’s GDP, 90% of total exports and 80% of fiscal revenues. The problem lies in the fact that its oil refineries are a mess, so much so that it refines only a quarter of its own oil. The rest is exported only to be refined overseas and imported back again- a sad state of affairs. Therefore improving the quality and quantity of the oil refineries in the country is vital. It is the only way for Nigeria to stop its reliance on multinational oil companies.

This is easier said than done though. With a…

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This is for all those who have made it this far…



When an egg is hatched, it doesn’t know whether it’s going to end up being a chick or an omelet! It’s just like life, you never know what’s going to happen.2012 came and went, you made new friends and lost others, tried new things, did something that you are not so proud of/ proud of, found or lost love, succeeded or failed in your plans, maybe you started out with nothing and still have most of it, failed or passed your exams, overcame some of your fears, you got dumped, celebrated your birth day… the list can go on and on and on. Don’t be sad for the misfortunes that hit you during the year, it could have been worse! (Rejoice for the fortunes instead)… besides, when a bird’s dropping drops on your head thank God cows don’t fly! The point is, even with all the dramas of life, you have made it this far! Congratulations, welcome as you enter 2013 & good luck, you may need it!

For those of you who have been living in their little cocoons, it’s about time you got out of it. Get out of your comfort zones and try out that one thing that you’ve always wanted to do. If you have those hidden talents or that great/not so great business idea, bring them out to light because if you continue keeping them to yourself, it’s just like winking at a girl in the dark! In whatever you do, always remember that if you follow excellence success will automatically follow you.

I have a friend who is addicted to making New Year’s resolution list every beginning of each year (just like many others). At the end of the year, she gives it a good cry when she looks at the list and realizes that she hardly achieved anything she had planned for. I call it the ‘onion list’, you look at it and it makes you cry. I used to make my onion lists until the day it hit me that planning isn’t my thing. For the lucky ones, they end up with good onion lists that make them shade tears of joy. If you are one of those hapless people who ends up with the bad onion lists, try not planning for 2013 and see how it goes! As I always say, the best things in life are never planned for… yeah I know, so are the worst!  Be prepared for both, that’s just life!

They say that one day you will watch your life flash right before your eyes, well make it worth watching! … At least for 2013. For now, all glasses up & cheers to the New Year!

If the guy feels he has unfinished business… give him a chance to finish it!!!



With the world’s biggest economy about to go to the polls (in Nov.), pre-election brouhaha is also setting in. The choice Americans makes will have an impact on all of us. The two candidates, Barack Obama (who is running for a re-election) and Mitt Romney, are divided by a thick line. They have totally different mind-sets on how to salvage the American economy, which has been recovering at a snail pace – It’s like giving one an umbrella when it’s raining and giving one an umbrella when it’s sunny. They both do the same job but differently.

Yes, I know… I know, Obama had his chance and he didn’t score 100% (especially not in economics), but he did score something. Is America better off today than it was when he took office? Yes. With the kind of recession that had hit the American economy, there is no way they would have had a miraculous recovery. Ask Bill Clinton, he’ll tell you the same thing!

Both Obama and Romney had a chance to convince Americans (and the world) that they deserve the job. Romney had a first go at the Republican convention, and I must say, he did a good job criticizing Obama and forgot to market himself. He tried to touch people’s emotions by reminding them of all the suffering they’ve had to undergo… from the job loss, to the saving loss, being kicked out of their homes, unaffordable expenses…

“But what could you do? Except work harder, do with less, try to stay optimistic. Hug your kids a little longer, maybe spend a little more time praying that tomorrow would be a better day”

He talked of how Obama has done it all wrong and he was going to do it right, but he didn’t say how. I just wonder what kind of economic elixir he’s cooking up in his mind!

As for Obama’s speech at the Democrats convention, it wasn’t exactly the best of speeches I have heard from him, but at least he was able to market himself. He talked of his successes such as on Medicare, Education (less tuition fees, raised standards for teachers…), oil (they now depend less on foreign oil), the revival of the Motor Industry, end of War in Iran… and oh yeah, Osama is dead!

He admitted that:

“I never said this journey would be easy, and I won’t promise that now… but we travel it together. We don’t turn back. We leave no one behind.”

He also reiterated that their path may be longer, but it leads to a better place. The transition was basically from change and hope to change and patience.

Obama’s main vulnerability is the still – sputtering economy with stubbornly high unemployment rate of 8.3% since he took office vowing to restore it to health. In fact, reports just released show still tepid economic growth – Only 96,000 jobs were added in August down from 141,000 jobs in July. This could mean extra baggage for Obama.

Romney might claim to have the business background, but Obama has the background of being president of the United States of America! I believe in second chances… if second chances didn’t exist, I wonder how many of you would   be where you are today. Obama has been able to test his policies, some worked and some failed, and now he’s wiser. He wouldn’t be asking for a second term if he didn’t want to finish what he started (i.e the recovery). So, if the guy feels he has unfinished business, give him a chance to finish it!

News flash!!!


THIS IS YOUR LIFE. Do what you love, and do it often. If you don’t like something,change it. If you don’t like your job or what you are studying, quit it. If you don’t have enough time, stop watching TV. If you are looking for the love of your life, stop; they will be waiting for you when you start doing things you love. Stop analyzing, life is simple. When you eat, appreciate every last bite. Open you mind, arms and heart to new things. And people, we are united in our differences. Travel often; getting lost will help you find yourself. Some opportunities only come once, seize them. If you want to understand economics better, start a blog about economics. Appreciate the people around you today, for they may not be there tomorrow. If you really want to live life to the fullest, know yourself then appreciate yourself! Don’t waste your life trying to impress others, you will pass through life and realize you really didn’t live it. Appreciate the fact that life is not like a bear commercial, so deal with the ups and downs of life positively. Don’t take life too seriously coz no one gets out alive anyway. If you think you’ve gotten to the end of the road and you can’t walk anymore, fly. If you notice people r giving you all the weird looks and talking behind you back, stop and ask yourself, “am I that sexy?” If you’re done reading and not convinced that this is your life & u r the author of your life, read it again!


Another banking ‘soap opera’… episode 9


So, I was on my way to the shop the other day when I saw something extremely unusual. For a moment I thought I was hallucinating, but nooooo a cat had committed suicide!!! Unless there is another word to describe’ something’ that is hanging DEAD from a rope! I am still bemused by that. Anyway, I guess the poor cat had served its nine lives. Reasons for committing suicide? Beats me! Maybe the economy hit it too hard.   R.I.P puss

That brings us to the BANKS. Banks are like cats – they have many lives. Think of all the financial crises they have survived. They have been to hell and back severally and burned their fingers a number of times. But no matter the rot that eats up the banking system, we still need banks and we keep holding on to the little hope we have left  in them – even after losing billions through them!. If ‘LIBOR’ doesn’t ring a bell, let me try and break it down for you.

LIBOR stands for London Inter-Bank Offering Rate. There are others like EURIBOR for Euro, TIBOR for Tokyo, SIBOR for Singapore etc but the focus is on LIBOR. The interbank offering rate is probably the most important figure in finance. It makes the finance world go round, but apparently, traders have been toying around with it. It determines the prices that people and corporations around the world pay for loans or receive for their savings and also the global flow of billions of dollars each year.

How is LIBOR set? Simple. A borrowing rate is set daily by a panel of banks for ten currencies and for 15 maturities. The most important of these, three month dollar LIBOR, that is supposed to indicate what a bank would pay to borrow dollars for three months from other banks on the day it’s set. The dollar rate is fixed each day by taking estimates from a panel (currently comprising 18 banks) of what they think they would pay to borrow if they need money. The top four and bottom four are then discarded and LIBOR is the average of those left. The submissions of all the participants are published, along with each day’s LIBOR fix. In theory, it’s assumed banks play by the rules and give truthful estimates and that market is also sufficiently small thus banks know what the other is doing. In reality, the system is taunted. The submissions are based on bank’s estimates rather that actual prices at which banks have lent to or borrowed from one another and there is also no reporting of transactions so no one really knows what’s going on in the market. There are problems; those setting the rates have every incentive to lie since their banks stood to profit or lose depending on the days LIBOR, moreover, the transparency in setting the rates may have exacerbated the tendency to lie; weak banks would not have wanted to signal that fact loudly in the market by making high estimates of prices they would have to pay to borrow, that is, if they could at all.

Case of Barclays? Barclays is a 300 year old British bank and it’s apparent it knows the ropes well. Perhaps too well that it thought its dirty dealings would not be uncovered. Recent evidence reveal document detailing a settlement between Barclays and regulators in America and Britain , that employees at the bank and several other unnamed banks tried to rig the number (interbank offering rate) severally. Corporate and lawyers are examining whether they can sue Barclays or other banks for harm they have suffered. That could cost the industry tens of billions of dollars. Some have described it as a ‘tobacco moment’ for the banks, relating it to the lawsuits and settlement that cost America’s tobacco industry more than $200 billion in 1998. Corollary to the scandal, Bob Diamond the chief executive to Barclays, resigned on 3rd July. He retorted in a memo to staff that, “on the majority of days, no requests were made at all” to manipulate the rate. This was rather like an adulterer saying he was faithful on most days.

Barclays is being investigated for two sort of rate fiddling. One of them, which has raised peoples ire, involved groups of derivatives traders at the bank and several other unnamed banks trying to influence the final LIBOR fixing to increase profit (or reduce loss) on their derivative exposures. Barclays was a leading trader at these sorts of derivatives, small moves in the final value of LIBOR could have resulted in daily profits or losses worth millions of dollars. In settlement with the Financial Service Authority (FSA) in Britain and America’s department of justice, Barclays accepted that its traders had manipulated rates on hundreds of occasions.

FSA has identified price rigging dating back to 2005 (which includes 2007 financial crisis), some current and former traders say that the problems goes back much further than that – it was just one of those well kept secrets. As the financial crisis began in middle 2007, credit market for banks started to freeze up. There were; losses on holdings of toxic securities relating to American subprime mortgages, unexpected bombs in the system, banks were reluctant to lend to each other thus causing shortage of funding system wide. With no interbank lending taking place, there were little real data to use as a basis when submitting LIBOR. Barclays maintains that it tried to submit honest assessment in its LIBOR. Funny enough, it was constantly above the submission of rival banks including some that were unmistakably weaker. This raised questions on Barclay’s financial health. Insider traders at Barclays blamed other banks of fiddling their submissions while they (Barclays) were the honest players in the panel. Shockingly, Barclays was instructing its money market team to submit numbers that were high enough to be in the top four and thus discarded – but not so high to draw attention to the banks. It was more of being clean in principle. Over the period of the financial crisis, the estimates of Barclay’s borrowing costs submitted were generally among the top four in the LIBOR panel. Among the bottom four were some to the sound banks in the world with rock solid balance sheets; JP Morgan chase, HSBC. However, among banks regularly submitting much lower borrowing costs than Barclays were those that subsequently lost the confidence of markets and had to be bailed out – like Royal Bank of Scotland (RBS) in Britain.

For now, institutions co-operating with investigations or are being questioned include; Citigroup, Deutsche Bank, HSBC, JP Morgan chase, RBS, UBS. The extent of the banks liability may well depend on whether regulators press them to pay compensation or, conversely, offer banks some protection because of worries that sums involved may be so large as to need for more bail out. For each of their clients who may have lost out of LIBOR, another probably gained. Yet banks will be sued only by those who have lost and will be unable to claim back the unjust gains made by some customers. Some solutions raised to enhance truthful submissions are; to increase the number of banks in the panel and to develop a way that will help counter incentive to banks submitting in the panel.

Is India’s economic oomph cooling off???


With all the economic tension that’s happening in the world, focus has drifted away from India – one of the world’s fastest growing economies (but that title might soon be reverted). From a country that has experienced double digit growth from 2004-2008 (when most economies were declining) is now at a mere 5.3% (second quarter 2012). Comparing 2011 and 2010,

  2010 2011
manufacturing      7.80% 0.40%
agriculture 11% 2.70%
mining 6.10% 3.10%

The only silver lining was in the service sector where it grew from 7.7% in 2010 to 8.9% in 2011. Credit agency Standard and Poor’s recently gave warnings that the growing decline and slow growth could lead to a down-grade of the economy. If nothing is done about this, the ‘I’ on the BRIC might end up standing for Indonesia! So where exactly is the problem?

To begin with, the Indian Rupee has fallen more than 27% against the dollar since July 2011. It is one of the worst performing currencies in Asia this year. However, the Indian chief economist, Kaushik Basu (who is also a leading world economist), insists that the falling of the rupee is not an ‘Indian-based’ problem. He gave examples of the Brazilian real, Mexican peso and South African rand – which have also seen a fall in their currencies. The plummeting currency inevitably brings about inflation and pulls down markets thus adding pressure on the economy that’s already constricted. It’s expected to grow by barely 7% this year – down from the 9% that was announced by the government at the beginning of the year. These figures may be an envy of many economies, but a disappointment to India – it targets to grow at double digits.

The central bank tried buffering inflation by increasing interest rates (it increased it 13 times before pausing in October last year). As a result, investment has been dampened. Moreover, the current account deficit –net earnings from exports minus payment for imports- has ballooned to 4% of country’s GDP.Their exports have gone down due to the decreasing demand in the key markets; US and euro zone. It’s estimated that this year’s exports could be half of 2011’s. Apart from a decreasing demand from Europe as a result of the euro zone crisis, billions of dollars are being taken out of emerging economies to buffer the crisis – India is no exception.

The politics in India might actually be the economic laggard. The congress led government (the weakest the country has had in decades) is characterized by corruption scandals, scams & policy paralysis. Together with the opposition party – Bharatiya Janata Party – the two have made it almost impossible for reforms to take place. Any reforms tabled in parliament by one party is emasculated by the other party – thus the ‘zero’ reforms that would otherwise revive the economy.

Thanks to the country’s debt, the economy lacks the fire power to stimulate the economy to weather another global down town that might be coming soon (with the euro zone morass).The country’s fiscal deficit could be reduced by cutting subsidies (especially on oil). For me, political stability is key to India’s economic revival. The Indian voters are comfortable with the slow growth since all they care about is state handouts, next meal, cricket and religion. It will soon dawn on them that the slow growth will deny them their wants and will then push for reforms that will foster higher growth- for now, I rest my case.

Kenya’s Financial Budget (2012-2013)… exclusive


Pre-budget analysis
I remember the days in primary school when we all used to be squeezed (literally) in the school hall to watch the budget being read {from the stuffiness + the congestion + warmth (remember June is a cold month)… = sleeping time!} with our young minds, the technical terms and little concentration, what do you think we got out of it? Almost Nothing!!! Well, except from the fact that classes were cancelled (less beatings for the day)… fast forward all that to now. The Kenyan budget definitely makes a whole lot of sense.
Kenya’s new financial budget is going to add up to whopping… KSH 1.45 Trillion… never been seen before figures in retrospect to the past budgets. The rest of the East African Community will also be reading their budgets on the same day, and I can bet their budgets will not come close to that figure. Are we being too ambitious? Is it a recipe for disaster? Who will gain and lose? How will it be financed? Are the figures just for show-off??? But again, remember we have a vision to achieve (vision 3020… oh my bad I meant 2030).
Expectations… I expect to see some reforms in this year’s budget – especially to do with tax. Our tax rate is at 30% which is fair enough (most countries are around that). The snag is in the way the tax brackets are taxed. The less affluent citizens fill the pinch more that the affluent. This issue should be seriously revised (the income tax rate has been the same budget after budget). In addition, very few people in Kenya pay taxes (around 2 – 3 million). We have not been able to tap tax from the informal sector (which could chip in a lot if taxed) and capital gain tax (last time applied-1985), not forgetting those who illegally fail to pay taxes. Tax rates should be lowered for small businesses to enable them to come up (since they are the future of the economy). Why so much on tax? Because it‘s probably the only option. Macro economically speaking, the other sources of financing the budget is Borrowing and Aid. The government is already running at a deficit of over 50% of GDP and most countries that would normally aid us are already experiencing their own economic difficulties (you can read more on this from my previous article). So I can tell you this for free, prepare to pay more tax!

Actual analysis
Infrastructure got the biggest share of the cake, a cool 268.1 billion; 123.6 bill went to roads (up from 103bill), 79.9 bill went to energy (up from 57.5bill), 1.4 5bill went to the urban commuter rail (link airport to the CBD). A number of reforms were put forward for the finance sector; consolidate supervision for banks, expand critic information sharing mechanism, implement further reforms of money laundering. With the rise in insecurity in the country – externally and internally- security got 83.5 bill (up from 78bill); 65.5 bill for internal security (1.4bill to purchase new vehicles), 2.5bill to recruit and train 3,500 police officers. Small businesses also got a plus, reforms to remove the bottlenecks was brought forward. The education sector got 233.1 bill (a raise by 9%); 118.7 bill for salaries and additional recruitment for teachers,480 mill for purchase of computers, 8.3 mill for building and improvement, 19.7mill to free day secondary, 300 mill to buy sanitary towels for poor families in primary school. Health care’s share went up by 16.9% (+12.3bill) to 85 bill – for employment of new staff, supplies, construction of health centers, eradicating preventable diseases at constituency level. Drug and alcohol abuse: 1 bill went to NACADA to help in enforcing ‘mututho’ laws. Social safety and security: 9.6 bill to poor and vulnerable members of the society, 4.8 bill to orphans, 1.1 bill to deserving elderly persons (2k per month), 2.1 bill for school feeding program in arid and semi-arid areas, 2 bill to relief food. Agriculture: +8bill to boost irrigation, 1 bill for Agri-business fund,1.5bill for write-off of coffee debts, 2 bill for farming, 1.5bill for unseen risks. Among the gainers were the youth -> 550 mill for labor intensive training and women-> 440 mill. IDP’s got an addition 1.8bill ( a total of 15bill since ’08). Constitution implementation; 17 bill (up 67%) to parliament for essential infrastructure, 15.4 bill (over 100% up) to judiciary to be used in employment, construction and easing of cases, 3bill to constitution reforms., 17.5bill to IEBC. The essentials like kerosene, wheat and maize were zero rated. Taxation; duty was removed for importing analogue digital equipment, beekeeping got exemption for imported input, for telecommunication- duty removed for imported software, on real estate- landlords are now required to pay tax, tax on importation of second hand clothes was reverted back to 1.1mill from 1.9 mill, no one will be exempted from paying tax on virtue of holding a state office – this includes MP’s and expatriates., scrap metal dealers will now have to trace and identify their sources – penalty of 1mill/ 3yr sentence. The NSE has to create a frame work for small and medium sized companies – to give them a chance to raise capital like the large companies.

Post-budget analysis
Gainers; orphans, elderly, youth, women, ICT sector, infrastructure, security, health
Losers; landlords, scrap metal dealers, banks
The minister (Njeru Githae) did not give too much detail in the financing- the devil is in the detail- but he did not disappoint Kenyans. A question of priority comes up especially on the analogue digital duty – the duty should have been transferred to something more essential. Nothing was done on widening the tax bracket. The import duty reduced for second-hand clothes is like giving candy to a baby and snatching it back- I mean, wasn’t it meant to help in the cotton reviving industry??? Kudos for the money allocated to women, but what of men?? My expectations were wrong; much of the financing will come from borrowing and not taxation. It was a nice move to include land owners to the taxing system – albeit this could lead to a rise in rent. The issue of sanitary towels for girls from poor families was also addressed well. The bottlenecks removed for small businesses were great, but the question is, will it really be applied? In general, most of the moves made in the ‘financial cake’ sharing look nice on paper, it’s all a matter of implementation.

Eurozone crisis…


Ring ring ring…. Round three! The rich countries have done it again – pushing the rest of the word into dangerous waters.This time it’s the euro zone sovereign debt crisis which might as well lead to another global recession. From high unemployment in different countries in the euro zone (Spain leading with slightly over 24% as at may 2012, highest in 18 yrs), to the possible Greece exit, to the austerity measure, even a rise in suicides! (for those citizens who can take it no more)… so much is happening. But sovereign debts are not new; previous examples include Argentina in 2001 and Latin American region in the 1980s. However, this is the first time it’s happening to a monetary union. This implies that, unlike Latin America, devaluation is not an option. Furthermore, the European debt is far greater than that of Argentina [Greece’s debt is more than five times bigger ($483 bill vs. $95 bill]). I don’t think there is a textbook solution to the euro zone limbo.

First things first… you need to understand the fact that European crisis is not really a debt crisis (maybe with an exception of Greece), it’s more of a currency crisis. In fact, Spain’s debt ratio to GDP is substantially lower than that of the U.S. German’s debt to GDP ratio is neck to neck with that with the U.S. European countries are bumping up against their ability to borrow in euro. That limit is imposed by the European central bank (ECB). These countries can decide to leave the euro in a bid to print their own currency to solve their problems… but this will not be pain-free!!!

Where did it all begin? The euro zone begun to set up at around 1997 and it was finally set up in 1999. During this period of set up, they agreed on a 3% limit of government borrowing to make sure countries will not accumulate too much debt. This was a nice move… but something happened along the way that contributes to the crisis now. So who broke the rules? Germany and Italy were the first big countries to break the 3% rule. France followed suit. Of the big economies, Spain is the only country that kept its nose clean… well at least until the 2008 recession. So what about Greece? It’s in fact in a class of its own. It never stuck to the 3% rule but manipulated its borrowing statistics to look good (which enabled it to get into the euro in the first place, but it was only uncovered two years ago). From this you may think that France, Germany and Italy should be the ones in trouble for their foolhardy borrowing and Spain should be a ‘safe haven’ right? Well that’s not the case, in fact, Germany is the ‘haven’ – markets have been willing to lend it at historically low interest rates since the crisis begun. The thing is, Spain and Italy had a built up of loans before 2008, not from governments but from private sector (companies and mortgage borrowers) who were taking out loans. Interest had fallen to really low in southern European countries when they joined the euro, and that fuelled a debt fuelled boom. All the debt helped finance more imports by the likes of Spain, Italy and even France. Meanwhile, Germany became a net exporter. The surplus money from these exports was lent out to the southern European nations… you get the twist? In short, government borrowing – which has ballooned since 2008 global crisis- has very little to do with the current euro zone crisis. Spain and Italy are now facing nasty recession because no one wants to spend. Companies and mortgage borrowers are busy repaying their debts. Exports are uncompetitive. Most governments have resulted to austerity measures.

And now eyes are on Greece… ‘Grexit’? Greece is small, but it’s the trouble maker in Europe.Many analysts predict that there is a high possibility of Greece leaving the euro zone. It’s a ticking bomb waiting to explode. The implication of this could be fatal not only to Europe, but to the rest of the world. However, this domino effect will depend on how the situation will be handled. Greece had elections just the other day (May) but it was unable to form a government. Now fresh elections have been called (in mid June) as debates rages about its financial position. European leaders say they will cut off funding for the country if it rejects the bailout agreed in March. This would mean effective bankruptcy for Greece and likely exit from the euro and face a return to the Drachma (its original currency). An almost similar situation happened for Argentina, where it dropped the dollar and adopted Peso (in 2002). The currency devalued by 200% but the economy was able to recover eventually. The worst case scenario is if investors are hesitant to put money into Greece (after it has exited). It will not be able to pay off its debts. But on a ‘lighter note’, since it will now have its own currency, it will be able to print out more money to pay off its debt. However, this is a short term solution for a long term problem (inflation, poverty, devaluation, increased unemployment…). In addition, printing more money in the long term will not help since it will be worth nothing (remember the case of Zimbabwe in ‘08? 100bn Zimbabwean dollar to one U.S dollar!) … call me a skeptic but my glass is half empty on this whole issue.

Are developing countries ready to weather a new global down town?

Well for starters, in my opinion, most developing countries will forever be developing countries. Why? They will never get out of their comfort zones if they know there is always someone to feel ‘pity’ for them and help. We can fight one another, be corrupt, wallow in poverty… all in the name of developing countries – knowing there is light at the end of the tunnel, but one day that light may be a train(s) coming. Maybe that train is the impact we will have (already having) from the euro zone morass.

The crisis is likely to affect developing countries from different angles: Financial contagion may occur in the form of spill overs through financial intermediaries and stock markets. European banks hold a share of Greece’s debt (billions) – Germany having the most followed by France and UK. If Greece defaults payment, all these banks will inevitably go at a big loss. As a result, they may need to cut credit lines with developing countries in order to restore their capital adequacy ratio. From recent estimates, if 80% of Greek’s debt is written off, euro-area banks will lose over €63 billion (which may be bigger if it extends to Spain and Italy). Uncertainty on the full extension of European default may further limit bank liquidity, therefore limiting developing countries to secure credit lines with European banks. Prolonged sell-off in European equity market could lead to fast withdrawal of money in developing countries.

Many investors have also lost their risk appetite due to fears of a new global recession. If there is no investment in these European nations, this only means that there will be no flows to developing nations. But on the brighter side, investors may decide to invest in developing countries since there is less risk. Moreover, many if not all of the European nation governments have resulted to austerity measures thus slashing spending. This means that there is no aid to developing countries, it brings about unemployment thus remittances to developing nations will reduce, and to top it up, demand for products from these developing nations will also decline.

The euro will weaken against the dollar. This affects developing countries in two ways; countries with euro-based exports benefit since their products will be more competitive in the market, although they hold their reserves in euro which could depreciate in real terms. Those that are dollar based will suffer from the appreciation since their products will be less competitive.

Most developing countries could as well sit and wait for the worst to happen. It’s like knowing a tsunami is coming and there you are trying to decide which costume to wear. Or, they could as well do something about it. It’s more of finding a long-term solution. Their governments should find more trading partners (fellow developing nations is a good idea) and diversify their products (most only produce agricultural products). It’s also about time that developing countries stop depending on aid all the time; we need to find alternative solutions to our problems rather than always crying for financial aid. Internal demand should also be encouraged to buffer the effects of ‘market losses’.


Hello world!


welcome to the Crème del crème of blogs. It’s about economics, an insight to the business world,life, inspiration… and anything else i feel like writing. Am not exactly a writer, but am taking my first foray into writing to see how it goes.