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Why Kenya banks are not moving out of South Sudan despite making losses

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Kenyan top retail banks are struggling to navigate the rough terrain in the war-ravaged South Sudan with Co-operative bank falling to an accumulated loss of Ksh3.29 billion ($28.85 million) in the last eight years of operation.

A review of the audited financial statements for KCB, Equity and Co-operative bank show that the latter has made losses amounting to about $28.85 million from the year 2014 to 2021, translating to a loss of Ksh411.78 million ($3.61 million) per annum.

The only profit for the lender which started operations in South Sudan in September 2013 came in the year 2015 at Ksh849.72 million ($7.45 million).

An investment of Ksh2.72Billion

The lender exported its cooperative banking model in South Sudan by investing Ksh2.72 billion ($23.85 million) for a 51 percent shareholding in a joint venture with the Government of South Sudan.

The government of South Sudan holds 49 percent shareholding in the bank on behalf of the country’s cooperative moment.

Last year, Co-op Bank extended this joint venture by three years, arguing that the transfer of the minority stake to the South Sudanese Cooperative movement has been delayed by economic and political challenges in the country.

The civil war

The civil war, which started in 2013 and ended in 2020, led to a massive write-down of assets, loss of revenue and hyperinflation, which resulted in banks reporting monetary losses due to reassessment of assets and liabilities.

Equity Group Holdings (EGH) Ltd recorded an estimated Ksh1.86 billion($16.31 million) in net profit during the period under review translating to about Ksh206.77 million ($1.81 million) per annum, with losses coming in the year 2016 and 2021 at Ksh660 million ($5.78 million) and Ksh200 million($1.75 million) respectively.

On the other hand, KCB’s subsidiary in South Sudan returned a total profit after tax of Ksh6.03 billion ($52.89 million) during the same period, translating to Ksh754.12 million ($6.61 million) per annum.

Seven years of civil war

The seven years of civil war significantly affected the South Sudanese economy primarily because of the collapse in oil production in areas affected by the war.

For instance, South Sudan produced about 500,000 barrels per day before 2012 which fell to about 65,000 barrels per day in 2020.

The country also suffers from weak rule of law, widespread corruption and unstable security situation, compounded by poor infrastructure, lack of reliable transport routes, and poor access to electricity, internet connectivity and extremely low levels of education and skills amongst the population.

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Equity bank

According to James Mwangi, the Equity Bank chief executive officer, political instability, dip in crude oil prices, high inflationary pressures and exchange rate volatility have colluded to slow down the growth momentum of the South Sudanese economy and subsequently impact negatively on businesses including banks.

“We entered the South Sudan in 2009 and in four years, we had become the largest bank there. It was the subsidiary that was able in one year to pay Ksh1 billion ($8.8 million) in dividend. But, in 2013, war broke out and it affected trade,” Mr Mwangi told The EastAfrican in February this year.

“The conflict between South Sudan and Sudan almost made oil exports impossible because Sudan decided to take $26 per barrel as shipment or pipeline fee. Then oil prices went below $30. So, essentially, South Sudan was making nothing and the economy became suffocated. The tensions and political disagreements intensified. The international community seemed to lose hope, funding dried up and the people gave up.”

South Sudanese economy

According to Mwangi the South Sudanese economy ground to a halt, setting off a microeconomic environment where inflation went all the way to 800 percent.

And it was inflationary losses recorded in our books because of the exchange rate, which moved from three South Sudanese pounds to the dollar to 540 pounds to the dollar.

“So you can imagine the imported inflation in a country importing 90 percent of its requirements. Our strategy was to bring down the bank to maintenance and we reduced our branches from 13 to three, and the staff from 480 to 80 just to maintain the licence. There seems to be hope but we have taken a wait-and-see stance. Every year we are hopeful that it will get better.”

Vulnerabilities

According to the World Bank, about 82 percent of the South Sudan which is especially vulnerable to weather, oil price, and conflict-related shock, is poor.

In an earlier interview with Kenya Bankers Association Chief Executive Habil Olaka said Kenyan banks entry into South Sudan is for long term gains.

“Kenyan banks are playing the long game and are not after quick gains. What is happening in South Sudan is the normal speed bumps for a maturing democracy, and it is only those who are focused on the long term and patient enough who will eventually stabilise and reap the benefits,” said Mr Olaka.

Kenyan banks

“It is for this reason that none of the Kenyan banks have pulled out in the face of a tumultuous spell, because the long term still looks promising.”

The three banks (KCB, Equity and Co-operative) including Stanbic bank rushed to South Sudan following a peace deal in 2005, attracted by a large unbanked population and oil wealth.

KCB started operations in the country in 2006, Equity in 2009 and Co-operative Bank was the latest entrant in 2013.

Regional expansion

Analysts at EFG Hermes reckon that while the banks still report monetary losses in South Sudan, the magnitude has declined because the hyperinflation rate has declined, although the profit contribution from South Sudan is much lower than it was at its peak as transaction volumes haven’t recovered.

According to Paul Mwai, chief executive at AIB-AXYS Africa Ltd, regional expansion has not been very successful for Kenyan banks and while there seemed to be a big opportunity when the persistent political conflict has changed the situation and the opportunities are less.

In 2014, KCB shut three branches in South Sudan after the war broke out while in 2017, Equity Bank followed suit and closed seven out of its 12 branches in the country.

Read more at https://thebigissue.co.ke

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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.

Also read: Hackers Make Tactical Change, Now Targeting Small Businesses

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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