Beg, borrow, budget, all at once

Last week, East Africa's finance ministers crooned in unison (almost) as they read out the regions budget statements - A.I. can summarize them all for you. The government will be selling some shares soon - you will learn a big word before then. Meanwhile, BlackRock are gone, but the KES is back, and there are always T's & C's when you're borrowing — always remember to read between the lines. Here are 3 steps to raise money as a country in our shoes: make a plan, sell what you own, ask big brother for help.

Here are the week's top stories:

• Kenya's KES 3.9 trn budget read (make a plan)
• Government to sell stakes in 6 listed companies (sell what you own)
• IMF extends Kenya more credit (ask big brother for help)

SPOTLIGHT

Strengthening the core - a bigger base for banks

What happened

Treasury Cabinet Secretary, Prof Njuguna Ndung’u has presented a plan to  raise the minimum core capital requirement for banks from the KES 1 billion to KES 10 billion.

“This is intended to strengthen the resilience and increase the bank’s capacity to finance large scale projects while creating sufficient capital buffers to absorb and withstand shocks posed by the continuous emerging risks associated with adoption of technology and innovations as institutions expand.” said Prof Njuguna Ndung’u on Thursday.

Between the lines

According to data from the CBK, only 15 out of 39 licensed  lenders, in the year ended 2022, could meet the now proposed KES 10 billion threshold if it applied today.

Should you care?

Depending on the timelines stipulated by the CBK, anticipate capital raises, mergers, acquisitions and other strategic corporate activity from the banking sector. This is a positive development for the financial system but worth attention as a bank investor, customer or other stakeholder (read 'nearly everyone').

HEADLINES

The week's big stories

• Kenya's KES 3.9 trn budget read. Kenya’s 2024/25 budget will aim to tackle its debt while protecting its fragile economic recovery at the same time, Treasury CS, Njuguna Ndung’u said on Thursday [download]. “We want to make sure that we revive the economy so that it can generate jobs for the youth. We want to revive the economy so that we can pay our debt,” said the CS. A budget is just a plan. Execution shall be the make or break.
• Government to sell stakes in 6 listed companies. The companies include East African Portland Cement (PORT) with Government stake of 25.3% & NSSF stake of 27%, Nairobi Securities Exchange (NSE) 3.36%, Housing Finance Company of Kenya (HFCK) 2.41%. Stanbic Holdings (SBIC) 1.1%, Liberty Kenya Holdings (LBTY) 0.9% & Eveready East Africa (EVRD) 17.2%. The move complements government plans to offload shares in other state-owned companies. Long overdue. More on privatization in today's 'Explained'.
• IMF extends Kenya more credit. Kenya has reached a staff level agreement with the International Monetary Fund (IMF), finally unlocking the disbursement of USD 976 million. This brings the total IMF financial commitment to Kenya, under the Extended Credit Facility (ECF), to USD 3.60 billion. Kenya is now in a position to pay its maturing foreign debt with the new financing, without exhausting its currency reserves. Saved by the debt?

EXPLAINED

What is privatization?

Last week, Kenya's cabinet approved the sale of it's stakes in 6 listed companies. This is part of a larger privatization plan that has been going on... since I can remember. Here's a quick primer.

Concept

Privatization refers to transferring ownership and control of a business, enterprise, or public service from the government to private entities. This shift can take various forms, including the sale of state-owned assets, public offerings of shares, or management contracts that place operations in private hands.

Purpose

Governments may pursue privatization for several reasons:

1. Efficiency: Private companies are typically seen as more efficient due to profit motives and competitive market forces. This can lead to better management practices, cost reductions, and enhanced productivity.
2. Revenue generation: Selling government-owned companies can provide a significant revenue boost, helping to reduce public debt or fund other governmental priorities.
3. Market liberalization: Privatization can open up industries to competition, leading to improved services and lower prices for consumers.
4. Economic growth: By encouraging private investment and ownership, privatization can stimulate economic growth and job creation.

Challenges & considerations

Privatization can lead to job losses as private companies streamline operations. There's also the risk of creating private monopolies if the market lacks competition. Additionally, public opposition can arise if privatization affects essential services or leads to price increases.

While privatization promises greater efficiency and fiscal benefits, it always requires careful implementation to balance economic gains with public interest. Privatizations also offer investment opportunities & are worth being aware of.

PAUSE

ROUNDUP

Other news

• The KES has climbed to a 15-month high against the USD, backed by inflows from agriculture exports amid reduced demand for dollars among importers. “We have seen some inflows during the week from tea exports. The market’s sentiment around the shilling has also been positive due to expected loan inflows from the World Bank, and the early settlement of the Eurobond that was to fall due this month.” said a commercial bank forex dealer.
• BlackRock, the world’s largest asset manager, plans to liquidate nine exchange-traded funds (ETFs), including the $401 million iShares Frontier and Select EM ETF (FM) Fund which had invested in Kenya. They cited persistent liquidity challenges with delays or limits on repatriation of local currency pointing to an extended liquidation period. This news comes after it emerged in March that BlackRock had made an investment in the NSE after a four-year break.
• CBK has exceeded its KES 60 billion June borrowing target after accepting KES 30bn in an oversubscribed auction of reopened 5-year & 10-year bonds last week. The weighted average yield of accepted bids stood at 18.1645% for the FXD1/2023/005 and 16.3924 percent for the FXD1/2023/010. A majority of the bids were concentrated on the shorter-dated 5-year paper at KES 22.5 bn. The government, in the month of June, was looking to raise a total of KES 60bn through reopening of four bonds earmarked for budgetary support.

One liners

• Kenya on course to becoming middle-income country by 2030 [The Standard]
• Treasury seeks MPs nod for fresh KES 1bn Kenya Airways bailout [Business Daily]
• Cabinet approves Treasury Single Account [Kenyan Wall Street]
• Boom for Co-op Bank shareholders as lender pays out KES 8.8bn dividends [The Standard]
• AfricInvest completes purchase of I&M stake [Business Daily]
• Kenya to raise capital threshold for banks to KES 10bn [Kenyan Wall Street]

REGION

What in the East Africa?

[UG] Uganda’s economy to grow by 6% - Kasaija [Nile Post]

[UG] Uganda to curb commercial borrowing to limit debt build-up [East African]

[UG] MTN's unsold share sale offer oversubscribed [Monitor]

[TZ] NMB shareholders to pocket 181bn/- dividend [Daily News]

[TZ] Tanzania’s GDP to accelerate to 5.4% in 2024, minister says [CNBC Africa]

[TZ] Economists laud ban on foreign currency use in local transactions [Daily News]

[TZ] BoT considers further study on digital currencies [The Citizen]

[EA] East Africa's failure to harmonise taxes impacting trade, says EABC [Daily Monitor]

[EA] High taxes and debt threaten EA growth [East African]

CURIOUS

Two good not to share

One: A.I. tools are rapidly evolving. Continuous learning is imperative in the face of A.I. but is also now more accessible, as the same tools that teach us, can now teach us how they work. A few days ago, Kelvin Onkundi, created & shared a custom GPT that allows anyone to better understand the Kenya Finance Bill 2024. It got me thinking...

ChatGPT - Finance Bill GPT

Get to understand the Kenya Finance Bill 2024

ChatGPT

Two: Wise words

"Move toward the next thing, not away from the last thing. Same direction. Completely different energy."
–James Clear

I was away last week spending my first 'coffee' - no austerity here - and looking after my mental health (as all men should, not just in June). Perfect day to be back. Every day is Fathers Day once you have a child or two...but all the same, Happy Father's Day to me, and to all reading this that it applies to.

Have the best week possible.

Paul & Noelle's dad.

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