The people have spoken

Widespread protests against the Finance Bill reached a new peak across Kenya as the government looked for concessions too little too late. Some tax exemptions were rejected and now, much hangs in the balance for a government that has boxed itself into an unenviable position. Meanwhile Tanzania got a double ratings upgrade and Rwanda had a strong Q1.

Here are the headlines in the week:

• Youth-led protests against the Finance Bill escalate
• Budget concessions may stir trouble with IMF
• Tap sales raise CBK KES 24bn

RUNDOWN

Zero sum game in new bond taxes

Parliament has backed Treasury’s proposal to start taxing infrastructure & green bonds, even as financial experts warn that bond tax exemptions granted to large institutional investors will limit the benefit of the new levy.

What happened

The Finance Bill 2024 has called for the introduction of a 5% withholding tax for residents & 15% for non-residents on infrastructure & green bonds that have a maturity of at least 3 years & that are issued after June 1, 2024.

Between the lines

Investors are likely to ‘price in’ these taxes and therefore demand higher interest from these bonds. This will therefore offset any benefit for the government. Due to existing exemptions enjoyed by some of the larger institutional investors in these bonds, only a small percentage of bond investors will end up being impacted by the tax.

Should you care?

If you are a Kenya bond investor, this has an impact on your bond investment strategy. Market dynamics will likely price in this news at the next issue of an infrastructure bond if the bill signed into law. Secondary market trading of the bonds issued prior to the effective date may also see price changes.

HEADLINES

The week's big stories

• Youth-led protests against the Finance Bill escalate. A bold and new generation of young Kenyan protesters has emerged on the streets forcing the government to back down on some of a slew of unpopular tax proposals. Protesters want the government to abandon its finance bill, saying it will choke the economy and raise the cost of living for Kenyans who are already struggling to make ends meet.
• Budget concessions may stir trouble with IMF. Although the National Treasury had expected to raise Sh346 billion in 2024/2025, the shelving of some of the concessions to proposals in the Finance Bill, 2024, could increase the deficit. The IMF had last week given a ‘thumbs up’ to the Treasury, noting that the new tax measures were necessary as they aimed to grow the tax base and increase revenues.
• Tap sales raise CBK KES 24bn. The Central Bank of Kenya has raised a further KES 23.8 bn from the tap sale of four bonds reopened to investors last week. CBK has struggled to drive investor interest into longer dated bonds in the face of higher interest rates and an inverted yield curve where some shorter dated securities have higher yields than longer dated ones.

SPOTLIGHT

What lies ahead after second reading of Finance Bill

“If the revenue raising measures contained in the Finance Bill 2024 are not approved by the National Assembly, there will be a likely revenue shortfall of approximately KES 200 billion,” –Treasury CS, Njuguna Ndung’u

The controversial Finance Bill 2024 passed the second reading in the National Assembly Thursday amid street protests in Nairobi and other major towns.

The Bill sailed through with 204 votes in favour and 115 against. The bill, which has been a subject of intense debate and public outcry, aims to introduce new tax measures to raise additional revenue for the government’s budget. However, many Kenyans have expressed concerns over the proposed taxes, arguing that they will further burden the already struggling populace.

Despite the protests, the Bill moved a step closer to becoming law. Proponents of the bill argue that the new tax measures are necessary to bridge the budget deficit and fund critical development projects.

Legislators who voted yes noted that the bill will open opportunities for employment especially for teachers, create more money for constituency development, improve infrastructure and increase electricity and water access. Those who opposed the bill said it was a direct ticket to overburdening Kenyans financial with some arguing that the government instead of increasing the taxes should think reducing its expenditure.

Kenya's budget deficit could increase past the KES 597 billion set for the financial year 2024-25, experts now say, which could push the government into more borrowing. A budget deficit occurs when a government spends more than it collects in taxes. Reducing tax rates may also cause a deficit, if spending is not reduced to account for the decrease in revenue. A key contributor to the rise in budget deficit is likely to be driven by revenue shortfalls, where Kenya Revenue Authority (KRA) has continued to miss its targets.

It waits to be seen which way things fall in the week ahead.

PAUSE

ROUNDUP

Other news

• Ethiopia has proposed new banking laws that would finally liberalise ownership rules and allow foreign lenders to establish full operations in the country for the first time. The draft proclamations would permit foreign banks to set up subsidiaries or branches locally or take up to 30% stakes in existing Ethiopian banks. This could draw strong interest from regional heavyweights like Kenya’s KCB Group, Equity Group and Co-operative Bank of Kenya.
• Parliament has rejected a proposal from the NSE & other stakeholders to reinstate stamp duty exemption on property purchased under Real Estate Investment Trusts (REITS).  NSE argued that the exemption, among other reliefs, helped attract 4 REIT funds with a market value of KES 27bn, with more than 4,000 investors participating in their issuance of units.
• The Government is keen on leveraging blockchain to unlock new opportunities for economic development, improve governance, and enhance the overall well-being of its citizens, said ICT-Security & Audit Control Secretary Emmanuel Kata Kimeu. Meanwhile, cryptocurrency firm Worldcoin will soon be resuming registration of users in Kenya after the Directorate of Criminal Investigations was ordered to drop a probe into the company.

One liners

• Shilling Up 17.8% Year to Date [Kenyan Wall Street]
• Kenya Orchards to sell majority stake to investor for KES 210mn [Business Daily]
• Safaricom and Pezesha Introduce ‘Mkopo Wa Pochi’ to Lend Small Businesses [Kenyan Wall Street]
• Kenya Among Countries That Received Largest Amount Of Foreign Aid - Report [Citizen Digital]
• Paris-Based VC Breega Launches US$ 75Mn Fund for African Investment [Kenyan Wall Street]

REGION

What in the East Africa?

[UG] Ugandans in the diaspora tipped on investment options back home [Nile Post]

[UG] NSSF buys 43.3% of MTN’s unsold shares. Details from MTN’s secondary offer indicate that NSSF Uganda increased its IPO holding by 649.6 mn shares, increasing its stake to 2.62 bn shares. The increase signals the Fund’s continued confidence in one of Uganda’s most profitable companies. The Fund primarily earns from interest income, which generates 93% of its revenues, supported by real estate holdings and dividend income. [Daily Monitor]

[TZ] Moody’s, Fitch upgrade to attract more FDIs to Tanzania [Daily News]

[TZ] Banks contribute 18pc of tax revenues [Daily News]

[TZ] 2024/25 BUDGET: Blueprint for thousands jobs. Tanzania is poised to generate between 349,886 and 654,787 new jobs in the next 2024/25 financial year, based on the 49.35tri/- national budget tabled recently by Finance Minister Dr Mwigulu Nchemba. The budget, which has increased by 11.2% from the previous financial year’s 44tri/-, prioritises sectors with significant employment implications. [Daily News]

[RW] Formal financial inclusion in Rwanda grew 39% in 2020-2024 [New Times]

[RW] Rwanda’s economy grew 9.7% in the first quarter of 2024. While Rwanda’s services sector remains a key contributor to the country’s economic growth, increasing by 10% in the first quarter alone, the agricultural performance has been on a downward trend in the previous two years. However, in the first quarter alone, the agricultural sector increased by 7% contributing a total of 25% to overall GDP. [New Times]

CURIOUS

Two good not to share

One: There are three essential attitudes according to best-selling author, Robert Greene that you must always have: Open-mindedness, patience and fearlessness!

Two: Remember this for the week ahead:

“As long as you have the courage to admit mistakes, things can be turned around.”
–Haruki Murakami

In the face of uncertainty, have courage.

As always, have the best week possible.

Yours truly.

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