By Maria Macharia

Nairobi — AN expert is encouraged at the uptake of digital innovation in Kenya, among other East African countries. Gilbert Saggia, the Managing Director: East Africa at SAP Africa, pointed out Kenya has made a significant progress in areas like cloud adoption, which were beneficial to the economy. “Kenya, and East Africa in general, is enjoying the positive impact of digital innovation,” Saggia said. He said for example, companies like Kenya Electricity Transmission Company had automated their business processes by moving entire infrastructure transmission projects from manual to SAP HANA.

“This is a positive stance to demonstrate that the country need to run smarter and efficient,” Saggia said. On the other hand, Commercial Bank of Africa’s investment in its workforce is yielding high returns. It started with the integrated SAP SuccessFactors platform, which allows CBA to plan, reward and retain its human capital, track performance against targets and engage in continuous learning and development.

Roopa Karemungikar, Managing Director of Altura, an SAP partner, said the ability to align all business processes across different countries would help CBA reduce paperwork, increase productivity and automate the bank transfer of salaries. With the internet of things (IoT) disrupting the African market, industry analysts, Frost & Sullivan forecasted significant growth within Kenya’s ICT market in 2017.

This would be fuelled by connectivity and convergence. Services at the Mombasa port are improving and much faster following Kenya Ports Authority’s switch to a new operational system. This has placed the port at 70 percent in the journey towards becoming a paperless port. The African Digitalisation Maturity Report indicates that Kenya has an extensive ICT infrastructure including mobile internet access. The country is more diverse and services centric which helps drives the expansion of digital services. – CAJ News

By George Kamau

International credit rating agency Moody’s expects Kenya’s debt to rise to 60 per cent of GDP by mid-next year, heralding higher financing costs for the private sector.

Moody’s expects the government debt burden which stood at 56.4 per cent of GDP by June this year, to continue rising due to high budget deficits and interest payments.

The agency is concerned by Kenya’s rate of accumulating debt that it has started looking at whether it needs to lower the country’s ability to repay debt, in what is referred to as credit rating.

A downgrade in national credit rating would make it difficult for Kenyan companies to source cheap funds from international markets while also forcing commercial banks to hold higher bad loan loss provisions in line with the new accounting standard that is expected to take effect in January.

That would force them to raise interest rates and, with current regulatory ceilings, to reduce credit to riskier segments of borrowers.

“Unless a decisive policy response is introduced, the upward trajectory in government debt will see debt-to-GDP ratio surpass the 60 per cent mark by June 2018,” said Moody’s.

Currently the debt position is Ksh4 trillion ($40 billion) as per data from CBK which is more than double what the Jubilee administration inherited, Ksh1.7 trillion ($17 billion) in 2013.

The government has taken up commercial debt, which has seen its interest payments rise to 19 per cent of its revenues, up from 10.7 per cent when the Jubilee government came to power.

Kenya has gobbled up debt as Treasury Cabinet Secretary Henry Rotich sought to fund ambitious development projects steered by the Jubilee government amidst weak revenue collection.

“Due to the erosion in government revenue intake in the last five years and increased recourse to debt from private sources on commercial terms, government debt affordability has deteriorated,” notes Moody’s.

Liquidity problems

If Moody’s downgrades the country from its current rating of B1, investors will be forced to increase the price of their cash to the economy as they factor in a higher risk premium. Higher prices may scuttle government plans to issue a new sovereign bond through which it plans to raise $2 billion in the current financial year.

Commercial banks will also be forced to hold higher provisions for loan defaults following the introduction of new accountings standard (IFRS 9) which requires banks to consider the possibility of government defaulting on its Treasury bills and bonds.

Moody’s believes that the Kenyan government may get into liquidity problems due to high loan repayments which may force it to source new and expensive debt to ensure it does not default.

“A key area of focus in the rating agency’s liquidity analysis is the government’s increasingly large roll-over of Treasury Bills, which amounted to 9.4 per cent of GDP in June 2017, and the external debt payments to private creditors, including the $750 million Eurobond due in June 2019,” said Moody’s.

Fitch, another international rating agency, has also indicated that it could downgrade Kenya’s credit rating due to its debt position. Fitch had noted that the country was spending a larger proportion of its revenue in paying debt, compared with its economic peers such as Uganda, Rwanda and Ghana.

Fitch gave Kenya a B+ rating with a negative outlook due to the country’s debt position.

Kenya, however, insists that its debt is manageable and has headroom for more. Mr Rotich believes that Kenya can comfortably borrow up to 74 per of its GDP.

By Collins Mwai

Three public agencies have teamed up to tackle the growing black market forex operations in Kigali.

The new coalition comprises the central bank, Rwanda National Police and the Local Government ministry, according to officials.

The partnership comes amid widespread concerns over the growing black market operators in the forex business in different parts of the country.

The New Times recently highlighted how the operators were thriving in the city.

The recent increase in operations has been partly blamed on the tightening of regulations in the sector, which forced out small operators and led them to operate illegally.

Central bank governor John Rwangombwa said the inter-agency partnership will activate operations to rid the city of black market traders as well as sensitise them to form associations.

He said there is some black market activity at the moment but downplayed it as ‘not that big a threat’.

“The stability of the market we see today gives us confidence that the problem is not big,” he said.

Rwangombwa said black market operations are often successful in instances where there is shortage of foreign exchange among registered operators.

The central bank injects about $5 million weekly to support demand from international trade.

“Black markets are often successful where we have a shortage of foreign exchange in the formal set up, we do not see that in our market today, we sell dollars in the market to support the demand of international trade,” he said.

The New Times has also learnt that beyond ‘small scale’ black market operators, who are common at border points and in the capital Kigali, there are also large scale operators who often deal with corporations and business people to change large sums of money.

These larger scale operations often thrive due to lack of capacity and flexibility by banks of facilitate currency change, especially of large volumes of money at negotiable rates.

Police say that they are working with stakeholders to enforce the law. In a recent interview with this paper, Police spokesperson Theos Badege called on the public to report such cases.

“We work closely with the central bank and the licensed forex bureaus to protect our currency. Law enforcement operations have been focusing on Kigali city, especially around the old post office area, and at major border points. We urge the public to report such malpractices,” he said.

City of Kigali spokesperson Bruno Rangira added that such illegal operators in Kigali and their clients will face arrest just like hawkers in the city.

In the midst of a Forex currency crisis, the National Bank of Ethiopia (NBE) has devalued Birr by 15pc and raised the interest rate by two percentage points to seven percent. The devaluation pegs the Ethiopian Birr at 26.91 to the dollar, up from 23.40 Br on the official market. It will be effective from tomorrow, October 11, 2017.

The Central Bank justifies the move as an effort to control the inflationary pressure and prop up export earnings. The export proceeds have been stagnant at around three billion dollars for the past three years, whereas inflationary pressure has been in the double-digits for the past two months, having reached 10.8pc in September 2017.

Yohannes Ayalew (PhD), vice governor and chief economist at the Central Bank, announced the adjustment today in a press conference where only the state media was invited to attend.

Seven years ago, the government had made a 17pc devaluation resulting in inflation that had reached as high as 40pc.

“Since investment return is high in Ethiopia, the devaluation won’t cause an inflationary pressure and adversely affect import,” said Yohannes.

For more than half a year, the official exchange rate stood at around 23 Br to the dollar, while black-market traders sold a dollar for nearly 29 Br.

The current devaluation surfaced almost 11 months after the World Bank (WB), in its fifth economic update, suggested the government devalue the currency to raise the country’s competitiveness in the global arena. The recommendation, however, was rejected at the time by Yohannes, although the real effective exchange rate (REER) has appreciated in cumulative terms by 84pc since the nominal devaluation in October 2010.

The nation’s commercial banks are told to transfer 30pc of their foreign currency earnings to the central bank, part of a series measures regulators took to complement the devaluation of the Birr against a basket of major currencies.

The National Bank of Ethiopia (NBE) has devalued the Birr by 15pc, hoping to see exporters encouraged to sell more.

The big prize goes to exporters. In a directive issued on Monday, exporters are privileged to retain 30pc of their export earnings, an amount which has been at 10pc. However, they are told to spend their retaining of forex on imports only related to their businesses.

The directive, which instructs banks to transfer all the “windfall profit” from currency adjustment, is seen by authorities complementary to the devaluation of the Birr effective as of today, October 11, 2017. During the past devaluation, seven years ago, the payment demanded from the banks was only 75pc of their windfall earnings.

The transfer was made in a bid to reduce the burden on the Commercial Bank of Ethiopia (CBE) in the allocation of Forex for the procurement of strategic goods such as petroleum and sugar, and payments made to cover the country’s bills for shipping imported items, according to a source close to the case.

By George Kamau

Kenya Airways is asking the government – its largest shareholder – for tax breaks and protection from what it terms unfair competition from other carriers as it struggles to stay afloat.

The airline’s chief executive Sebastian Mikosz, said KQ has made a presentation on policy changes they would want put in place in order to give the national carrier a lifeline.

The KQ management will meet state representatives after the presidential election rerun is done.

Top on their list is tax breaks, which are cited for the airline’s high ticket prices. The managers said taxes contributed to more than half of the ticket price.

They also noted that KQ’s major competitors such as Ethiopian Airlines and the Gulf carriers, Emirates, Etihad and Qatar, were huge beneficiaries of government incentives and protectionism and seek similar treatment.

Staffing issues

The CEO noted some countries did not have staffing issues such as those experienced by KQ as they do not allow airline staff to join labour unions and their pilots are banned from selling their services abroad.

KQ is reeling from poaching of staff, mainly pilots and engineers, by the Gulf carriers who dangle huge pay cheques free of taxes and easy access to loans.

Mr Mikosz who joined the airline five months ago said they could be forced to hire foreign pilots to temporary fill its current shortfall. Last year the airline lost 55 pilots to rivals, leaving it with 434. This is a deficit of ten pilots.

The airline plans to train its own pilots, noting that the internally-trained staff did not leave during the aforementioned exodus.

KQ has also started reviewing its network in a bid to ensure it maximise rewarding routes. The airline will from October 29 abandon the Hanoi-Hong Kong route to redeploy its aircraft to the US route it shall ply from next year.

Kenya Airways will from next month discontinue flights to Hong Kong and Hanoi route.

The discontinuation is part of a plan in which the airline is seeking greater efficiency on its network.

The route changes were first announced last week by the airline’s chief executive Mr Sebastian Mikosz.

The airline says that it plans to reroute the aircraft used to fly to Hong Kong and Hanoi to African routes.

More seats

“This network change will also allow KQ to allocate more seats across its African network where the demand outlook remains strong and capacity insufficient on certain routes,” the airline said.

Last week, the airline had also indicated that the aircraft currently used to fly to Hong Kong and Hanoi could also be used to fly to the United States once Kenya Airways commences direct flights next year.

Customers flying to Asia will be served through Kenya Airways’ partners.

The airline retains a daily flight to Bangkok and Guangzhou.

Business Daily

By The Citizen Reporter

Dar es Salaam — Petra Diamonds Limited says it has received authorisation from the government to resume diamond exports and sales from the Williamson mine.

The ban had been placed after a consignment of diamonds was impounded at the Julius Nyerere International Airport (JNIA) on August 31 on allegations of undervaluation.

“The exact timing and process for the next diamond parcel export to Petra’s marketing office in Antwerp and subsequent sale will now be finalised between Petra and the Tanzanian government,” a statement released by Petra on Wednesday said.

The government initially said it had confiscated the impounded consignment but later said the ministry of Energy and Minerals said further investigations were taking place to determine the circumstances of the undervaluation.

Criminal proceedings were launched and two government officials have already been charged in court for occasioning a Sh3 billion loss to the government.

A resolution has not yet been reached with regards to the parcel of 71,654.45 carats from Williamson that was blocked for export. The Company will provide an update on this as soon as practicable,” Petra’s statement reads in part.