By Mark Keith Muhumuza

Kampala — The interconnectedness of the Uganda Securities Exchange (USE) to the Nairobi Securities Exchange (NSE) has a lot to do with the dismal market performance in 2016.

The market had started the year with a capitalisation of Shs24.5 trillion but by Wednesday December 28, with only two days left to trading, it had fallen to Shs20.3 trillion.

The USE has eight cross-listed firms from the NSE, especially on account of commercial banks in Kenya losing value in their shareholding. Kenya Airways, Jubilee Holdings, Centum Investments, KCB Group, Equity Group, UCHUMI, Nation Media Group and East African Breweries are the eight cross-listed companies.

Cross-listing refers to where company shares are floated on a different stock exchange – in this case, a foreign country – after being listed on the primary stock exchange.

In this case, the eight Kenyan companies are listed on the primary market (NSE) but cross-listed on the secondary market (USE).

These companies do have subsidiaries that do business in Uganda.

Capping interest rates

On August 24, 2016 president Uhuru Kenyatta signed into law a law that allows Kenya to cap interest rates.

The following day, listed Kenyan banks saw the value of their shares tumbled sending the stock markets in Kenya and Uganda down into negative territory.

The cross-listed banks from the NSE, KCB and Equity Bank, saw the value of the shares drop by 20 per cent in just two days.

Because of the market movements on the two counters, the market capitalisation of the USE dropped from Shs22.5 trillion on August 23 and to Shs19.9 trillion by end of September 2. That is about Shs2.6 trillion wiped off in a space of two weeks.

Those banking stocks had not recovered since December 28. Year-on-Year, the Financial Times market data for listed stock indicates that KCB is down 28 per cent whereas Equity Group is down 27 per cent.

That means shareholders have seen the value of the shares they hold in the two companies drop significantly.

When a share price drops, it also impacts the All Share Index (ALSI), which shows the changing average value of the share prices of all companies on a stock exchange, and which is used as a measure of how well a market is performing. The USE’s ALSI was about 1,987 points at the start of 2016 but in the last month, it was an average of 1,486 points. That is a drop of almost 15 per cent. That means that overall; the value of the stock exchange was down 15 per cent in 2016.

Trend from 2015

However, the movements of Equity and KCB can only explain about Shs3 trillion wiped off the USE, leaving the other Shs1.4 trillion to other changes in the market but mostly still on the cross-listed firms. All the eight cross-listed firms have shed their share prices since 2015 and this trend continued into 2016.

According to Business Daily, the bear market trend on the NSE has been due to a combination of several factors.

“Besides the regular boom and bust cycles, the NSE’s bear run has been escalated by recent corporate scandals and the capping of interest rates that erased tens of billions of shillings from banking stocks since August alone,” Business Daily reported on December 16. It notes that at least four Kenyan billionaires had been wiped off billionaire list because of the declining performance of the NSE.

For Uganda, NSSF members are expected to feel the full impact of these movements when the half year report for 2016/17 is released. NSSF has investments in Equity and KCB where the value of shares dropped significantly.

It should be noted that cross-listed stocks hardly traded during the year but their impact was fully felt.

Quiet domestic scene

The USE is finally fully automated but that only helps avoid seeing the rather gloomy faces of traders in their red jackets. The automation means traders do not have to be at USE daily to have their trades written down on a white board. This ended in September 2015 when the market abandoned the white boards and open outcry by licensed brokers.

However, last year has been rather uninspiring for the locally listed Vision Group, Uganda Clays, Stanbic Bank, dfcu, Bank of Baroda Uganda, Umeme, NIC Holdings and British American Tobacco Uganda.

According to Mr Paul Bwiso, the CEO of the USE, the performance of the market is related to what was happening in the rest of the economy. “Investors are always looking out for where to make better returns. The emerging markets and the frontier markets like Uganda have seen investors retreat back to the United States after the Fed decision to raise interest rates in 2015,” he explained when the Umeme trading suspension was lifted in November 2016.

By Issa Yussuf

Zanzibar — With increasing production of vegetables and fruits here, some farmers argue that it is high time to restrict importation of such goods from outside the Islands.

“We ask the government to restrict importation of products like vegetables and fruits because we now produce enough in Zanzibar for sale,” Chairperson of Tunamuomba Mungu Cooperative Society in North Unguja Region, Ms Mwanaumar Dadi Akida, said.

She said that they wanted a sure market and therefore, saw no need to import products such as tomatoes, onions and watermelons because production in the islands now surpassed demand.

Some farmers have in several occasions complained about lack of market, blaming massive imports of vegetables and fruits from South Africa and Tanzania Mainland, used mainly in tourist hotels.

The authorities here, including the Minister for Agriculture, Natural Resources, Livestock and Fisheries, Mr Hamad Rashid Mohamed, have been reluctant to restrict importation of farm products, arguing that the locally-produced ones were still insufficient and of low quality, asking farmers in the islands to ensure better crops.

OPINIONBy Prof George W. Kanyeihamba

Under normal circumstances where the economy is doing well, entrepreneurs and industrialists usually keep quiet, shun publicity and quietly enjoy the fruits of their labour.

Therefore, the constant alarms, public utterances and anxieties which have appeared in the media from time to time constitute bad omens for the whole country.

First, there was the heart rendering cry by a onetime claimed richest man in East Africa, Sudhir Ruparelia, when his financial empire and Crane Bank were reported to be in trouble. When the bank’s management was subsequently taken over by the Bank of Uganda, the bottom fell out of that bank.

I had interests in the survival of Crane Bank because as a co-founder and a shareholder of Kigezi Bank of Commerce, I and 320 other shareholders of the latter bank went to court and are still challenging the manner and style in which it was closed and eventually taken over by the owners of Crane Bank.

Secondly, Crane Bank remains one of my personal banks in which I have accounts.

Shortly after the bad news that Crane Bank had become insolvent, the media reported again that the government had extended a contribution to the bank of Shs200 billion.

Many readers thought that the bank’s problems would end with that contribution.

Unfortunately, the media started publishing stories that all was not well between the bank’s owners and the government.

This was followed by the announcement from Bank of Uganda that they were taking over the management of Crane Bank and its branches.

At this juncture, some customers and investors of Crane Bank were advised to withdraw their money from it presumably because it was in danger of disappearing under new management.

I am one of those customers who believed in the proficiency and credible abilities of Crane Bank’s owners and managers and I was advised by close friends in the bank that my money was safe there and I should not heed the alarming advice.

I was also assured by the announcements from the Central Bank that investments in Crane Bank were secure and we should not panic.

Up to now, I have not closed my accounts in that bank, notwithstanding dire warnings and friendly advice that I am mistaken and soon or later will regret the decision to continue trusting the owners and managers of the bank.

The latest media report that the Bank of Uganda is looking for buyers of the bank is not good news for us.

As between President Museveni and the owners of the bank, the President appears to fault the latter. On the other hand, Mr Sudhir places the blame squarely on what he calls President Museveni’s people.

In fact, one of his alleged statements in the media was framed as follows: “Museveni’s mafia have stolen my bank”.

In the High Court, a trial judge who gave the final judgment in the case of Kigezi Bank of Commerce opined that the plaintiffs did not prove that they had lost anything. When Crane Bank was taken over, the respondents in that case which is now in the Court of Appeal were reported to have said they want to stop government from taking over and managing Crane Bank because Kigezi Bank of Commerce, which they call National Bank of Commerce, lost a lot of assets and money when it was handed over to Crane Bank and that they wish to protect those investments and shares.

Without prejudice, this would seem to clearly contradict the judge’s findings, especially when his lordship ignored the earlier ruling of his colleague and its terms and conditions the earlier judge had set that the defendants appear before him and explain their decisions and actions relating to the manner they mismanaged the bank. They failed to obey that order.

Talking to owners and managers of other small banks, especially Ugandan founded and managed, businessmen blaming the government for the misfortunes of the Ugandan economy appear amply justified.

Prof Kanyeihamba is a retired Supreme Court judge. 

ANALYSISBy Bitange Ndemo

My proposal last week to brand Kenyan athletics yielded many responses. Before proceeding to make another proposal for this week, I want to share just two of the comments elicited by last week’s column.

The first one is from Gerald Lwande. Writing from Eldoret, he had this to say:

“Good afternoon Prof. Ndemo. I am impressed with your article on today’s (26th Dec, 2016) with emphasis on the concept of an Athletics Hall of fame in Eldoret. I would like to bring to your attention Precise Genomics R&D Laboratories that has partnered with Strathmore University and University of Brighton – UK to set up a centre of excellence in Sports Medicine and Research in Eldoret town (Nandi road opposite Nandi close). The facility currently hosts high [calibre] endurance (Marathon) athletes such as Wilson Kipsang and Geoffrey Kamworor for training and rehabilitation. As a facility, we had not considered setting up a hall of fame, but – why not? Next time you visit Eldoret, please pay us a courtesy call and we could partner with one of your venture capitalists friends to set up this new idea of a hall of fame.”

I must confess that I did not know that a facility like this one exists in Kenya, but it strengthens my position that we don’t always have to look to government to start projects. There is a major role for the private sTwitter: @bantigitoector and research institutions to take the leadership through collaborations in exploiting opportunities that exist in the country. If we fail, someone else will take care and leave us complaining.

My colleague at the University of Nairobi and fellow columnist Dr X.N. Iraki posed these questions: “Could we possibly open our eyes in the coming year to deal with our own poor judgement, greed and self-centeredness, which have impoverished the people of Africa? Are Africans poorer in judgement, greedier, more self-[centred] than other races?”

POVERTY OF DECISION-MAKING

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I don’t know the answers to these questions but in many forums people have asked similar questions. And as always we fear dealing with such questions, often choosing to move with the crowd even as we witness the suffering of people due to poor judgement by our leaders in virtually every sphere.

However, let us not just blame politicians. For example, our universities, public and private, are failing across the country, yet they are managed by the best brains the country can offer. A recent report by the Commission for University Education (CUE) revealed glaring maladministration at several institutions but the matter was politicised and tribalism unleashed to protect the status quo.

We need much more than rhetoric to deal with the rampant poverty of decision-making.

Let me reveal this week’s proposition. It is an idea I came across while visiting Cape Town with some friends.

Although I am a teetotaller, I escorted my friends to a wine-tasting outing at one of the many Cape Town vineyards. Later we moved on to a nearby a brandy-tasking estate.

I took lots of notes. I began to reflect on why in Kenya we don’t do the same with tea farms in Limuru or Kericho; coffee farms in Kiambu or Nyeri; and even sugarcane in Awendo or Mumias.

THE SAME OLD WAY

More than 50 years since independence, we have not challenged or disrupted any processing and distribution mechanisms that were left behind by the colonists.

Over time, returns from virtually all cash crops in the country have fallen, leaving the farmers poor and frustrated. Too many agencies were created in the middle, further squeezing the farmers into poverty. The Coffee Board, the Tea Board, the Cotton Lint and Marketing Board as well as the Sugar Board failed in their mandate to brand and market the Kenyan produce.

Some of these boards were infiltrated by cartels that virtually killed the industries. We also sacrificed these agencies on the altar of ethnic balancing. As a result, they are all in a mess.

Take the coffee industry, for example. Recent media reports revealed how a whole sector was brought to its knees by price-fixing cartels. The tea industry is no better; it is beginning to falter and incomes are declining.

The sugar industry was politically introduced by Kanu in Nyanza and western Kenya to give farmers some form of cash crop like those in tea and coffee-growing areas. It didn’t matter that feasibility studies showed that it was not feasible in the absence of large plantations. Even a casual observer will tell anyone that Kenya will never be competitive in sugar for as long as it is dependent on small-scale farmers.

Yet Kisii County, with no sugar plantations, is in the process of building a new sugar factory even with the fact that several factories have collapsed in the recent past. Just a few more cases where we have made or are making poor judgements.

BLOCKCHAIN TECHNOLOGY

Although many coffee farms have gone to real estate, new technologies can help us revive them, rejuvenate tea farming and make sugar farming worthwhile. The emergent Blockchain technology is enabling decentralised production while taking advantage of centralised or crowdsourced development.

This new concept is known as distributed production or manufacturing and leverages local manufacturing in a decentralised format by enterprises, creating geographically dispersed manufacturing entities brought together by information and communication technologies. It mimics the cottage industrial model but the product remains uniquely the same.

For example, a new, unique blend of tea can be developed through crowdsourcing. This product can be produced in several geographically disbursed locations but giving basically the same taste.

Some coffee blends are only manufactured elsewhere from the raw material that we export. We then import the finished product. In distributed production, the product will be produced locally using the same formulation used elsewhere. The cost will be minimised while consumption will be enhanced, thus benefiting the farmer.

While this modern method of production may be acceptable in the tea sector, it will be very difficult to disrupt the existing order in coffee and sugar. Ethiopia, however, fought the big boys to gain global recognition and benefits to her coffee. Kenya has yet to understand the global cartels that control the commodity.

ENTREPRENEURIAL OPPORTUNITIES

It is the more reason we need to disrupt the existing order, cut the many middlemen and let the farmer benefit. There is a need for policy change to protect whatever is remaining of coffee.

The endangered Kiambu farms should be turned into tourist locations for coffee tasting just like wine tasting in Cape Town.

The thousands of people who turn up each day to taste wine end up buying and promoting the brand locally and internationally as well as creating employment at every stage.

The sugar sector will be more controversial since it will seek to destabilise local multinationals. It is my contention that sugar production in Kenya would in the long run impoverish the farmers.

What needs to be done is to focus more on manufacturing brandy just like the South Africans do with vineyards. Some of the best brandies exported from South Africa are from wineries.

The more I listened to the descriptions of the brandy, the more entrepreneurial opportunities I saw for young Kenyans. At some point they said the brandy had a woody smell and that made it special.

This indeed reminded me of the clay pots that used to store water, and its beautiful earthy taste. They are likely to produce some unique earthy brandy. This will revive the art of pot making in Kenya with a powerful purpose.

It is time we dealt with the propaganda by multinational companies that local production of liquor is illicit. What is lacking is regulation of liquor production. Americans dealt with bootlegging through production regulation.

LIMITS OF CRIMINALISING LIQUOR

We must face the reality that no amount of criminalising local liquor production will stop its production. The sooner we perfected production, or leveraged Blockchain technology to produce globally acceptable quality liquor, the better.

This brave decision will create multiple jobs as well as improve the safety of liquor in the country. It does not need a genius to build a distillery knowing that the concept has been the same.

I write this knowing that there are moral consequences to such propositions. Yet again it is the act of facing reality that breeds prudent decision-making. We can reasonably talk about responsible drinking. It is utterly irresponsible and poor judgement to think that drinking can be stopped by destroying drinking dens or manufacturing facilities.

John Quincy Adams, an American statesman who served as the sixth president of the United States from 1825 to 1829, said, “If your actions inspire others to dream more, learn more, do more and become more, you are a leader.”

There is much to learn from other successful economies and we can emulate them to jumpstart our development.

South Africa offers us the opportunity to increase demand for our coffee, tea and sugar. It also offers us ideas for spurring local production as a strategy for creating more employment and sustainable development.

The writer is an associate professor at University of Nairobi’s Business School.