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What’s the impact of World Bank and the International Monetary Fund (IMF) increased lending to Kenya?

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World Bank and the International Monetary Fund (IMF) have stepped up lending to Kenya over the past three years, which has seen Chinese loan deals reduce, firming the grip of Bretton Woods institutions on East Africa’s biggest economy.

Data from the National Treasury show World Bank’s total lending rose by Sh517 billion from June 2019 to Sh1.125 trillion in December, with the bulk loans coming in the wake of Covid-19 economic hardships.

The IMF lending grew from Sh158.5 billion to Sh207.5 billion in the same period while Chinese loans increased by Sh125 billion to Sh786 billion.

This is a departure from lending trends in the first term of President Uhuru Kenyatta’s reign when Nairobi was a major beneficiary of China’s loans for the development of mega infrastructure projects such as roads and a modern railway over the last decade.

Beijing became the largest bilateral creditor after its loans to Kenya grew from Sh63 billion to Sh478 billion in President Kenyatta’s first term.

In the first term that ended in August 2017, the IMF loans to Kenya grew from Sh73.7 billion to Sh77.6 billion, while those from the World Bank increased by Sh208 billion.

The accumulation of Chinese debt has caused anxiety among analysts and activists in recent years as the loans increased to hundreds of billions of shillings in just a few years while its repayment terms are not made public.

The most notable project funded by the Chinese is the standard gauge railway (SGR), whose commercial viability has been the subject of intense scrutiny.

But for nearly four years now, Kenya has abandoned expensive commercial debt to cut back on ballooning repayments while the Covid-19 pandemic squeezed revenue collection.

As part of that strategy, it has secured hundreds of billions from the IMF and World Bank, a key plank being direct lending for the budget to top up the public purse for items like paying civil servants salaries.

Under the administration of former President Mwai Kibaki, Kenya kept away from this type of credit, with most of the support from institutions like the IMF and the World Bank coming in the form of project support.

The shift followed a deteriorating cash flow situation, marked by falling revenues, worsening debt service obligations, and the effects of the Covid-19 pandemic.

The World Bank loans are now more than all of Kenya’s bilateral loans combined, which stand at Sh1.09 trillion from countries like China, Belgium, the US, France, Japan, Germany, Austria, Spain, Italy, Finland and Denmark.

This has offered the World Bank and IMF influence on Kenya’s economic policy planning that would require the government to implement tough conditions across many sectors, including a freeze in civil servants’ pay and the imposition of new taxes.

Typically, World Bank loans have zero or very low-interest rates and have repayment periods of 25 to 40 years, with a five- or 10-year grace period.

President Kenyatta, who took the helm in 2013, has overseen a jump in public borrowing.

Total debt stands at 70 percent of gross domestic product (GDP), up from about 45 percent when he took over — a surge that some politicians and economists say is saddling future generations with too much debt.

The government has defended the increased borrowing, saying the country must invest in its infrastructure, including roads and railways.

The shifting lending trends emerged as China signalled a reduction in loans to Kenya and other African countries in coming years after it cut financial commitment to projects in the continent as much as a third in the next three years.

President Xi Jinping, in December, at the Forum on China-Africa Cooperation (FOCAC), pledged to invest $40 billion (Sh4.54 trillion) in African countries for three years.

That represents a 33.33 percent drop from the $60 billion (Sh6.81 trillion) the world’s second-largest economy has committed to African countries in the last two FOCAC summits, which take place every three years.

Lower funding to Africa, research economists say, could be a pointer that Beijing is starting to see signs of reduced benefits from the cash it commits to the continent.

China’s influence on Kenya’s mega projects development started gathering steam with the construction of the Thika Superhighway between January 2009 and November 2012 for nearly Sh32 billion in the last term of President Kibaki.

China Road and Bridge Corporation, a subsidiary of China Communications Construction Company, has since bagged the lion’s share of Kenya’s mega projects — at least two railways, two ports and road projects.

The plan to cut cash flows — which largely come in form of credit lines, investment and trade finance — comes in the wake of rising indebtedness by African countries, worsened by economic fallout emerging from the pandemic.

Countries such as Zambia have struggled to service external debt in recent years and became the first one to default on Eurobond while Ethiopia’s risk of default has heightened on the back of unfolding civil war which has hurt economic prospects.

Kenya, on the other hand, was forced to drop a bid to extend debt relief with Beijing beyond June after Chinese lenders, especially Exim Bank, opposed the deal reached by the world’s richest countries under the Debt Service Suspension Initiative framework.

This followed a stand-off that had seen Chinese financiers delay disbursements, resulting in a cash crunch for Chinese-funded projects in June.

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Three Global Firms Signed By Nairobi Financial Hub On Its Launch

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Three companies were signed by Nairobi’s international financial centre on the day of its launch. The three include Prudential plc, ARC Ride Kenya and AirCarbon Exchange (ACX).

The Nairobi International Financial Centre (NIFC) is a special economic zone for financial firms.

Prudential, one of the world’s biggest insurers and asset managers, became the first firm to formally join the NIFC.

Singapore-based global carbon exchange ACX came along with Prudential. It seeks to set up a carbon exchange in Kenya.

Check out: Why Buyers Are Now Running Away From Popular Used Toyota Cars

NIFC has also admitted ARC Ride Kenya. It is a new start-up that is going to establish an electric vehicle assembly plant in Nairobi. The plant will produce two and three-wheeled electric bikes and scooters.

Also, the Financial Centre is determined to bolster the manufacturing sector in the country. It has signed an MoU with the Kenya Association of Manufacturers (KAM), to help increase financing and investment in the sector.

NIFC authority has hinted at being in discussion with other participants seeking to join it and will give official news soon.

“Last year Prudential Plc, one of the world’s biggest insurers and asset managers, made a commitment to relocating their Africa headquarters from London to Nairobi and join the Centre. Today we are proud to announce that Prudential becomes the first firm to formally join the Nairobi International Financial Centre,” Vincent Rague, Chairman NIFC Authority.

After many years of waiting, the hub will eye large foreign firms, boosting capital flows to Kenya and the region.

The authority has singled-out four sectors that it will prioritise for growth: financial technology, green finance, investment funds, and becoming a hub for regional multinationals.

The NIFC general regulations have been enacted, as the initial set of tax incentive proposals have been passed.

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Certification from the NIFC Authority must be applied by Firms considering conducting business through the NIFC.

A 15% corporate tax will benefit firms operating a carbon market exchange or emission trading system under the NIFC. The 15% advantage will happen for the first 10 years of operation.

Companies certified by the NIFC Authority and have invested a minimum of Sh5 billion will benefit from the certainty that, the Capital Gains Tax applicable at the time they make their investments will remain unchanged during the lifetime of the investments.

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Hackers Make Tactical Change, Now Targeting Small Businesses

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Traditionally, cybercriminals have been targeting big companies with aim of demanding ransoms running into millions. Nonetheless, the trend no longer holds, as new studies have shown the shift in hackers’ interest from big companies to small and medium ones.

Studies have shown that hackers are shifting their focus to small online businesses which they believe are more vulnerable.

Experts have warned that these SMEs and payment portals, especially those relying on mobile payment solutions, are now facing high risks of cyber attacks coordinated by these hackers.

Speaking during the inaugural Africa Cybersecurity Congress held in Nairobi, Hadi Maeleb, Agora Group co-founder and CEO said the threats to online businesses were growing at a high rate.

Further, he stated that more than 90% of business owners are unaware that their enterprises are at risk, despite the high growth rate of the attacks.

“Cybercriminals are now targeting small businesses more as they have realized that these enterprises do believe they would be exposed due to their comparatively low turnovers until they lose their data and payments are compromised,” said Mr Maeleb.

With the adoption of e-commerce platforms, State agencies, financial institutions, healthcare, energy and utilities have persistently faced cyber-attacks in the recent past.

According to CAK- Communications Authority of Kenya’s first-quarter data (between January to March 2022), a total of 79.2 million cyber-attacks were reported. This has prompted the government to issue 28,848 advisories in an attempt to fight the rising attacks.

Invest in Cybersecurity

Mr Maeleb noted that business owners should invest in cybersecurity tools as there is no magical solution to cybercrime.

“This ‘democratization’ of cyberattacks is expected to push losses due to business interruption, financial theft, personal data breaches and even ransom payments over the Sh4 trillion mark by end of 2022,” he said.

At the peak of the pandemic, several states adopted tough lockdown measures such as social distancing, working from home, and online learning.

Also read: Why Buyers Are Now Running Away From Popular Used Toyota Cars

Hackers shifting focus to small businesses.

This adoption of digital solutions such as e-commerce, remote working and banking went up as Kenyans turned to online platforms to curb the spread of the coronavirus.

“Unfortunately for them, the business of cybercrime has evolved to a point where attacks like ransomware are now sold as a service,” he added.

Even though these measures triggered the adoption of digital platforms, they also increased vulnerability such as ransom, data breaches, harassment, cyberbullying, and data breaches.

Kenya’s ICT Policy which came into effect in 2006, is credited for creating an enabling environment for the growth and usage of technology.

Kenya’s ICT Policy which came into effect in 2006, is credited for creating an enabling environment for the growth and usage of technology.

To achieve Kenya’s Vision 2030 goal of a regional ICT hub, the tech sector was expected to contribute directly and indirectly to an additional 1.5% of Kenya’s GDP by 2017/2018.

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Why Buyers Are Now Running Away From Popular Used Toyota Cars

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As it has been noted that Kenyans are now running away from the popular used Toyota car models, contrary to what has been a tradition in the country. The rise in their costs has seen even dealers cut down on imports of these vehicles due to decreased demand.

Traditionally, popular models such as Toyota Premio and RAV4 have been synonymous with middle-income earners over the years. However, this is no longer the trend.

Car dealers say more Kenyans are now going for vehicles such as Nissan Sylphy and Mazda, which cost less compared with popular Toyota models.

Toyota Vs Nisaan and Mazda models

According to Charles Munyori, the secretary-general of Kenya Auto Bazaar Association, Nissan Sylphy and Mazda’s CX5 and Axela, are quickly gaining popularity among Kenyans.

Mr Munyori said the price of a Toyota RAV4 has short up to Sh3 million currently from Sh2.8 million in February while a Premio is going for Sh2.2 million from Sh2 million four months ago.

On the contrary, Mazda Axela is now selling for Sh1.6 million with Nissan Sylphy (Blue Bird) going for at least Sh1.5 million.

Currently, consumers find these brands to be the best alternatives to their preferred models, as they are relatively cheaper and good.

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With the rising household costs, these car prices are making them affordable to most Kenyans as they struggle to balance the high cost of living.

“We are seeing a shift where Kenyans are now moving from the popular brands such as Toyota Premio and RAV4 to other models. This shift has been occasioned by the high cost that these cars are now fetching at the market,” said Mr Munyori.

“In fact, most of the car dealers are hardly bringing in Premio and RAV4 models because they are not moving and they will tie up money that they would need for importation of more vehicles,” he said.

Ex-Japanese vehicles

Ex-Japan vehicles dominate the Kenyan second-hand sector with a more than 80% market share.

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The buyers in the sector prefer these cars as their spare parts are easier to obtain locally compared to other brands. Additionally, buyers believe that the resale value of Toyota vehicles are higher than that of other brands like mazda or Nissan.

Reasons for risisng vehicle cost

The rising cost of vehicles in the country has been linked to the unavailability of dollars locally, a shortage of electronic chips in Japan, and a weakening shilling against the dollar.

The country is currently experiencing extreme dollar shortage, that one has to wait for at least three days to get $20,000 or $25,000 from the banks.

“We have to wait for like nine days in order to accumulate $80,000, and this has seen car dealers delay in making their orders. We are really feeling the impact of the dollar shortage in the market,” Mr Munyori said.

banks have imposed regulations on dollar purchase. This has forced traders to face difficulty in meeting their obligations.

Industrialists are forced to start seeking dollars in advance. The shortage puts a strain on supplier relations and the ability to negotiate favourable prices in gap markets.

On the other hand, Semiconductors are used in making electronic devices. Their shortage has forced the vehicle manufacturers to scale down the production. The quantity and quality cannot be maintained with decrease in one of the crucial raw material.

Finally, the shilling has persistently remained weak against the dollar. this has made it costly for importers shipping in goods.

The shilling has hit a record low trading at of Sh 117.06 against the dollar. This predicts a continued rise in imported goods, and signifies a further dollar shortage crisis.

The continuous depreciation in shilling stability is attributed to increased demand for dollars from importers. This highly arises on importaion of crude oil and merchandised goods.

It should be noted that most external debt is repaid in the dollar. Therefore, a weakened shilling increases prices of imported goods, and puts pressure on the country’s debt repayment.

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