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Economists differ with Uhuru on loans expenditure

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Economists have differed with President Uhuru Kenyatta over his claims that the public debt that the Jubilee Administration has incurred has been used to expand the country’s economy.

President Kenyatta has thus far remained defiant that his administration has allocated the borrowed money to stimulate the country’s economy by closing the country’s huge infrastructure gap.

Speaking during a press briefing on Tuesday, ICEA Asset Management Head of Research Judd Murigi said that the country’s stock of public debt has largely been driven more by recurrent expenditure at both levels of the government.

“Recurrent expenditure may have comprised over 70% of national government spend between 2013 and 2018 accounting for the majority of increase in debt,” said the researcher.

According to Murigi, devolution has had a negative effect on the country’s economy with most counties unable to maintain the fiscal discipline required to effectively run the government .

The researcher says that the increase in public debt by Ksh2.7 trillion between 2013 and 2018 reflects the excess of government expenditure to the tune of Ksh9 trillion against revenue collections of Ksh6.2 trillion.

{Read: Counties to be hit with drug shortage due to huge debts}

“Recurrent expenditure compromised almost 60% of the total government spend of Ksh9 trillion while development expenditure accounted for one quarter of government spend while county allocations constituted 15% at Ksh1.3 trillion over the past five years,” said Murigi.

Murigi’s comment’s back Director of Research and Planning at the Office of the Controller of Budget Joshua Musyimi’s claims that the government is struggling to pay salaries over the huge public debt.

Appearing before the senate Finance Committee, on February 21, 2019 Musyimi expressed his concerns over the government’s insatiable borrowing appetite and just fell short of saying that the country was headed for an economic crisis.

{See also: EAC partner states hosts high level Oil & Gas stakeholder forum}

“We are collecting Ksh1.6 trillion as revenue every year and servicing debts to the tune of Ksh1.1 trillion annually. What we are left with cannot even pay salaries,” Musyimi told the legislators.

 





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KISERO: What KCB-NBK merger means

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Columnists

What KCB-NBK merger means

A National Bank of Kenya branch. FILE PHOTO | NMG 

The Press statement by the Kenya Commercial Bank (KCB)announcing its move to acquire the National Bank of Kenya(NBK) through a share swap did not give much detail.

The statement only said that the deal would involve 10 ordinary shares of NBK for every one ordinary share of KCB. If it works, we will have seen the end of one of the most troublesome chapters in the country’s banking sector. Even though NBK has a weak balance sheet, it will bring to the table strong customer-facing assets for the combined entity. It has retained branches in exclusive locations at airports, ports of exit and entry into the country, giving it advantage when it comes to inter-trade business.

Secondly, it has over the years retained exclusive viable public sector clients. In the past, NBK was the designated bank for receiving landing fees for all aircraft landing and taking off from Kenya. It retains a substantial part of the business.

NBK used to be the banker for the largest employer in the country — the Teachers Service Commission. It still retains a substantial portion of the business. It used to be the designated banker for receiving payments to Kenya Revenue Authority and still retains a big chunk of this business.

So, what are the likely outcomes of the proposed merger? First, the government’s stake — now at 17 percent — is bound to increase with consequences for the corporate governance of the largest bank in the country.

The public float, a broad and impressive spectrum currently holding in excess of 80 per cent, may also suffer dilution.

When the details of the transaction are finally put out, it will be interesting to see how the vexing issue of the mainly government-owned preference shares in the books of the bank — which have always been the deal breaker for investors interested in buying the bank — will be treated.

NBK has a peculiar capital structure of having normal ordinary shares and at the same time preference shares with equity-like features that, unlike normal preference shares, allow these securities to share in the profit of the bank.

Indeed, transaction advisers hired in the past to sell the bank have advised that no sale transaction of the NBK is possible unless the preference shares are converted into ordinary shares first, and on a 1:1 basis.

Predictably, the National Social Security Fund (NSSF) has been opposed to the 1:1 conversion formula, arguing that such a move would dilute its current near majority 48 percent stake of ordinary shares of the bank.

This is because, when the 1:1 conversion formula is applied, the Treasury’s stake rises to 70 percent of ordinary shares from the current 23 percent, giving it power to make unilateral decisions on the future of the bank.

It will be interesting to see how the National Treasury and KCB will navigate through this shareholding quagmire.

With the shares of the NBK currently trading at its lowest multiples and at a steep discount on the book value, this transaction could put the government and the NSSF in a position where they can start realising a return on their investments in the bank.

The two investors have not been able to earn a return either by way of capital appreciation or dividends from the billions they invested in the company in nearly two decades. But more significantly, a takeover of NBK will serve as a strong signal that distressed State-owned banks will no longer be artificially kept alive even after they have long outlived their usefulness.

Indeed, many of the State-owned banks have been in poor financial health, only managing to limp along because of support and regulatory forbearance from the Central Bank of Kenya (CBK) .

A good number are currently suffering crippling liquidity problems, forcing them to resort to complete dependence on the CBK discount window for liquidity. In the interbank market, they are unable to access liquidity easily because the large banks are not willing to lend to them, choosing to deal only with their large peers.

How I hope that the proposed merger of NBK and KCB will just be but the beginning of structured changes that will eventually give us a long-lasting solution to widespread distress within the State-owned segment of the banking sector.



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Keter defies GDC board on chief executive new term

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Economy

Keter defies GDC board on chief executive new term

Energy Secretary Charles Keter. FILE PHOTO | NMG 

Energy Secretary Charles Keter has defied the board of Geothermal Development Company (GDC) in extending the term of the firm’s CE0.

Mr Keter has offered GDC boss Johnson ole Nchoe a one-year contract despite the board’s verdict to seek a new managing director.

Mr Nchoe, whose three-year term ended on Wednesday, sought a contract renewal. This triggered a board review that gave him a score of poor.

The board gave him a score of 39.6 percent for the six months to December and 39.8 per cent for the year ended June last year with both scores categorised as poor.

“He sought a contract renewal and we said no based on his appraisal,” said a GDC director who sought anonymity fearing reprisals from Mr Keter.

“The board spoke, but the CS had a final word that was contrary to the resolution of the directors.

“This is out of step with good corporate governance.”

Mr Nchoe, who was picked to head GDC in April 2016 on a three-year contract, previously worked at Kenya Power as IT and telecoms chief manager until 2013 when he joined a group of consultants in Liberia on a donor-funded plan tasked with helping the West Africa nation rebuild its electricity network.

He protested the poor review from the board, arguing it was designed to embarrass him.

“He felt strongly that the evaluation was designed to embarrass the person of the CEO and was inconsistent with the good board evaluation results,” said board minutes capturing Mr Nchoe’s protest.

The one-year contract extension is tied to the fact that Mr Nchoe will next April attain the mandatory retirement age of 60.

His predecessor, Dr Silas Simiyu, also fell out with the board, prompting his resignation in March 2015 after he was adversely mentioned in tender irregularities.

Eight months after Dr Simiyu’s exit, the board suspended six GDC managers including acting CEO Godwin Mwawongo, company secretary Praxidis Saisi and tender committee members Mr Abraham Saat, Mr Peter Ayodo, Mr Caleb Mbayi and Mr Nicholas Karume.



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UK forms special team to aid Kenya seize graft assets

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Economy

UK forms special team to aid Kenya seize graft assets

UK High Commissioner to Kenya Nic Hailey. FILE PHOTO | NMG 
 

The British government has formed a special team to help Kenya trace and recover assets that are proceeds of corruption and hidden in London.

High Commissioner to Kenya Nic Hailey said specialist UK government financial analysts and investigators have been posted in Nairobi where they are working with their local counterparts to bust suspected corruption syndicates.

Dozens of Kenyan State officials and business people have appeared in court since May on charges related to the alleged theft of hundreds of millions of shillings from public coffers in a new drive to tackle widespread graft.

“They are tracking every financial dealings of suspected individuals to block corruption networks,” Mr Hailey said, arguing the UK is committed to supporting Kenya’s efforts to nab graft barons and send them to jail.

“Where people are hiding money in the UK, or where we can help convict the corrupt in Kenya, we will give every possible support.”

Mr Hailey spoke when the newly appointed UK Director of Public Prosecutions Max Max Hill met his Kenyan counterpart Director of Public Prosecutions Noordin Haji in Nairobi and announced the progress of the new collaboration to help Kenya’s war on graft. Speaking at a press conference after meeting Kenyan officials, Mr Hill who is the head of the UK’s Crown Prosecution Service, the chief agency for conducting criminal prosecutions in England and Wales, said his office had embarked on investigations into corruption.

“We are pursuing several live cases but I can’t comment on them because they fall under different legal jurisdictions,” he said at a media briefing.

Mr Hill, who also met the Chief Justice David Maraga, vowed his UK office would do all it can to help Kenya trace its looted billions including those stolen during the Moi-era.

The Kenyan Judiciary has been on the spot for alleged delay in the handling of graft cases compared its UK counterpart.

“Our co-operation with Kenya also entails looking at the fight on corruption as a whole, including the justice procedure,” said Mr Hill.



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