Nairobi, Kenya Below is a trip note published by Old Mutual Investment Group following a visit by its Equities team to Kenya.
For some time, Kenya has been screening poorly. Valuations have been unattractive and our concern about possible currency weakness has been growing. In my view, the currency has been too stable for a country with a large fiscal deficit (that is, a government spending way more than it collects) and a wide current account deficit (importing more than it exports). South Africa was classified as part of the “fragile 5” and its combined deficits were around 7% of GDP in 2017. The combined deficits in Kenya were more than double that last year. The Kenyan shilling has been trading at around Ksh 102 to the US dollar for the past three years.
To fill the gap, the government has been on a borrowing spree over the past few years. More recently, it has turned to taxes to generate more revenue. In September, VAT of 8% was added to fuel, excise tax on bank transactions went from 10% to 20% and tax on mobile calls and data increased from 10% to 15%. The original plan was to increase corporate tax from 30% to 35%, but this wasn’t passed in the end. These increases in costs come at a time when economic growth has been slowing. Growth has been slow since the government capped the interest rate banks can charge in 2016. Instead of growing lending, many banks invested the collected deposits in government bonds. This helped the government fill its spending gap, but now the slower economy has put tax collection under pressure as company profits slow. In addition, with Kenya as the hub for East Africa, and the neighbouring states of Tanzania , South Sudan and Ethiopia all under pressure, hub activities are also slowing. It feels like the Kenyan government is in panic mode. Spreading its wings
We flew direct from Cape Town to Nairobi on Kenyan Airways. It was chaos at passport control when we arrived late on the Sunday evening. The first Kenyan Airways flight to New York departed that evening. In order to comply with US flying regulations, the passport control process and airport needed to be reconfigured. The increased requirements to process arriving passengers led to bottlenecks similar to those of Nigeria’s Lagos airport. After finally being processed, we then got […]
