70,000 Formal Private Sector Jobs Vanish Amidst Challenging Economic Landscape
Amidst a challenging business environment characterized by soaring operational costs and diminishing returns, the Federation of Kenya Employers (FKE) has reported a staggering loss of at least 70,000 jobs in the formal private sector between October of the previous year and the present month. The FKE, in a statement released on Friday, highlighted the severe repercussions of the high cost of doing business in the country.
FKE President Habil Olaka, addressing the media in Nairobi, expressed concern over the unsustainability of the business landscape following the enactment and implementation of the Finance Act 2023. He revealed that approximately 40 percent of employers are contemplating further reductions in their workforce to cope with the escalating costs of operating in Kenya, exacerbating the already significant three percent decline that has transpired, resulting in the loss of 70,000 jobs.
The adverse effects of these changes, according to Olaka, extend beyond direct impacts on payroll, encompassing a reduced demand for general wages review, an increased risk of business closure, and a surge in employee layoffs. Moreover, the exorbitant cost of power in the country has contributed to heightened operating costs, while the depreciation of the shilling has compounded the situation, particularly impacting businesses reliant on imports, including crucial machinery and equipment for the manufacturing sector.
MARKETS
East African Securities Markets Experience 17% Decline in One Year Amid Foreign Investor Exodus
East African securities markets have witnessed a significant downturn, registering an average decline of 17 percent over the past year. This downward trend is attributed to the persistent trend of foreign investors divesting from blue-chip companies in the region. Instead, they are diverting their investments towards high-yielding opportunities in the United States and Europe. The allure of increased returns is fueled by rising interest rates in the developed markets.
The most severely impacted market is Kenya, with the Nairobi Securities Exchange (NSE) All Share Index (NASI) plummeting by a staggering 30.74 percent. The index fell sharply from 129.02 on November 14, 2022, to 89.35 as of November 13, 2023. Following closely is the Uganda Securities Exchange (USE), where the USE All Share Index witnessed a substantial drop of 27 percent, declining from 1,230.28 to 896.25 within the same timeframe. Meanwhile, the securities markets in Tanzania and Rwanda experienced more moderate declines of 6.67 percent and 2.48 percent, respectively. In Tanzania, the DSE All Share index decreased from 1,870.06 to 1,745.24, while in Rwanda, the RSE All Share Index saw a decline from 147.5 to 143.83 during the review period. The collective impact underscores the challenges faced by East African markets in retaining foreign investor confidence.
The exodus of foreign investors is a clear indication of their preference for the perceived stability and lucrative opportunities offered by the US and European markets, further compounded by the attractiveness of higher interest rates in those developed regions
BANKING
Standard Investment Bank (SIB) Introduces Shariah-Compliant Division, SIB Najah, and Unveils Flagship Product MansaX Shariah
Standard Investment Bank (SIB) has marked a significant milestone with the introduction of its Shariah-compliant investment banking division named SIB Najah, accompanied by the launch of its flagship product, MansaX Shariah. The unveiling of this division aligns with the Capital Markets Authority's (CMA) push for inclusivity in the market, enabling the full participation of Shariah-leaning investors. Ugas Sheikh Mohamed, Chairman of the CMA, emphasized at the launch event in Nairobi that the presence of Shariah-compliant products in the market is not a religious matter but rather a market issue. He highlighted the exclusionary impact of certain existing products, such as government-run affirmative action programs, and underscored the need for proactive efforts to address financial literacy challenges, especially regarding Shariah-compliant products.
Abdullahi Omar Adan, Executive Director for Islamic Investment Banking at SIB, shared insights into the division's scope, stating that it will strategically invest in equities, fixed income, corporate finance, and wealth management. The move towards providing Shariah-compliant options reflects a commitment to meet the diverse investment preferences of the market. Kiprono Kittony, Chairman of the Nairobi Securities Exchange, commended the launch as a positive development in the market, dispelling the prevailing narrative of market challenges that had overshadowed performance throughout a significant part of the year.
COMPANIES
East African Portland Cement Company (EAPCC) Unveils $200 Million Investment for New Clinker Factory in Kajiado
East African Portland Cement Company (EAPCC) has revealed plans to invest Sh30.53 billion ($200 million) in the establishment of a state-of-the-art clinker manufacturing facility in Kajiado. This strategic move aims to enhance the company's production capacity and reduce overall production costs. The new facility, situated on a sprawling 300-acre plot, will operate under the renowned Blue Triangle brand. EAPCC anticipates that the planned factory, with construction details expected to be finalized in 2024, will boast an annual clinker production capacity of approximately 5,000 tonnes. The produced clinker will not only support cement manufacturing for the company but also be supplied to neighboring markets, providing a potential avenue for increased revenue.
Currently, EAPCC faces limitations in clinker production at its Athi River factory, impacting its competitive position in the market. Recognizing the growing demand for clinker and the need to secure a robust supply chain, the company is strategically expanding its production capabilities. This move aligns with the broader trend within the local cement industry, where companies are actively boosting clinker production to address supply deficits and gain a competitive edge through cost-effective acquisition of this crucial component
ENERGY
Kenya Power Granted Approval to Recover Sh6.5 Billion Lost Revenue
In a significant development, the Energy and Petroleum Regulatory Authority (EPRA) has authorized Kenya Power to recoup the Sh6.5 billion in revenue lost during the tenure of President William Ruto's administration. The loss occurred when President Ruto's government extended a temporary tariff cut, initially implemented by his predecessor, for an additional three months after assuming office. Kenya Power revealed in its latest annual report that it has received clearance to recover the funds foregone during this extension. This decision holds the potential to impact the electricity bills of over 9.2 million customers, especially in the current economic environment characterized by escalating fuel costs, currency depreciation, and ongoing electricity tariff reviews.
The background to this situation lies in the one-year 15 percent tariff cut initiated by retired President Uhuru Kenyatta, effective from January to December of the previous year. During this period, Kenya Power received compensation from the government to offset the financial impact. However, the subsequent Ruto administration extended the tariff cut by an additional three months until April 1 of the current year, without establishing a mechanism for compensating Kenya Power for the revenue loss during this extended period. This oversight has now emerged as a critical concern for consumers, potentially leading to an increase in power bills. Currently, domestic consumers are paying approximately Sh33.10 per unit of electricity, reflecting a 26 percent increase from the Sh26.29 rate recorded in December.
CAPITAL MARKETS
Central Bank of Kenya Targets Sh25 Billion in Six-and-a-Half-Year Infrastructure Bond Tap Sale
The Central Bank of Kenya is currently active in the market, aiming to secure Sh25 billion through a tap sale of a six-and-a-half-year infrastructure bond. Initially, the bond, which sought Sh50 billion during its first auction earlier in the month, witnessed an overwhelming response, with a 77 percent oversubscription leading to bids totaling Sh88.9 billion. However, the government's fiscal agent accepted bids worth Sh67.1 billion. A key factor contributing to the popularity of infrastructure bonds is their attractive high returns, coupled with the exemption from taxes on the interest paid. In contrast, interest income on other government bonds is subject to taxation ranging between 10 percent and 15 percent based on the duration. The tax-free paper, with a 6.5-year tenure and an average yield of 17.93 percent, will remain available for purchase until December 6, or until the target amount is reached, following a first-come, first-served basis. Notably, this bond currently boasts the highest return among the outstanding debt securities listed on the Nairobi Securities Exchange (NSE). The Central Bank of Kenya has been responsive to investors' demands for higher rates on T-bills and bonds, reflecting a need for compensation against risks such as inflation and the weakening of the local currency. As of October, Kenya's inflation reached 6.9 percent year-on-year, up from 6.8 percent the previous month, according to the Kenya National Bureau of Statistics.
WHAT YOU MUST HAVE MISSED
Somalia admitted as a member of the East African Community
Somalia has been admitted as the eighth member of the East African Community on Friday November 24, 2023, just over a year after the latest entrant, the Democratic Republic of Congo (DRC) was admitted into the bloc.
Mogadishu’s admission into the bloc was approved by the region’s leaders during the 23rd ordinary summit of the heads of state held in Arusha, Tanzania, on the same day, after successful negotiations that lasted close to a year.
The African Development Bank is set to make an equity investment of Sh1.5 billion ($10 million) in Dhamana Guarantee Company
The African Development Bank is set to make an equity investment of Sh1.5 billion ($10 million) in Dhamana Guarantee Company Ltd to revive the corporate bond market in the region. Dhamana will be based in Kenya, and its establishment is expected to help borrowers to raise funds from institutional investors such as pension funds and insurers to fund infrastructure market. Its credit guarantee activities should provide investors with the necessary comfort to support the allocation and intermediation of pools of private institutional investors’ funding into infrastructure.
Standard Chartered Bank Kenya has declared an interim dividend of KES 6 per share
Standard Chartered Bank Kenya has declared an interim dividend of KES 6 per share amounting to KES 2.27 billion after posting 11.8 percent growth in net profit for the nine months ended September.
The lender said it will make the payment on or about December 28 to ordinary shareholders who will be in the share register as at the close of business on December 14. Net profit grew from KES 8.71 billion to KES 9.74 billion, mainly supported by a 34.6 percent growth in net interest income to KES 21.2 billion