Fuel Hits Historic High
This follows an increase in landed costs and the withdrawal of subsidies
👋 Welcome to The Mwango Weekly by Mwango Capital, a newsletter that brings you a succinct summary of key capital markets and business news items from East Africa.This week, we cover Kenya’s fuel prices for the September/October 2023 cycle and Kenya Kwanza’s Medium-Term Revenue Strategy (MTRS).This week's newsletter is brought to you by:
Co-operative Bank of Kenya, the Gold Winner in the "SME Financier of the Year Africa" category!
Kenya’s Fuel Prices Hit Historic High
KES 200 Mark: Kenya’s pump prices hit the KES 200 mark for the first time in the country’s history. The historic rise follows increased landed costs and the withdrawal of fuel subsidies reinstated in the August/September 2023 pricing cycle. Super petrol, diesel and kerosene have increased by KES 16.96, KES 21.32 and KES 33.13 to retail at KES 211.64, KES 200.99 and KES 202.61 respectively for the September/October 2023 pricing cycle.
Rise in Landed Costs: Landed costs rose the most for kerosene, up 22.4% from the previous pricing cycle to reach KES 123.78, equal to 61.1% of product cost. On average, the increase in the landed costs across petrol, diesel, and kerosene was 14.7% in the September/October 2023 pricing cycle as compared to 5.4% in the August/September 2023 pricing cycle and a 0.7% drop in the July/August 2023 pricing cycle.
“The increase this time on the basis of the flat pricing. The landed international cost prices were up by about KES 8.7B. The US, UK, South Africa, Uganda and Tanzania have been hit with this kind of pricing, and this is unprecedented and I wish it was possible to subsidise until we had some covenants with the IMF but certainly the pain is heavy.”
Energy Cabinet Secretary, Davis Chirchir
G2G Fuel Import Deal: The first block payment under the government-to-government (G2G) mechanism for importing petroleum products to the tune of USD 700M per month is expected to fall due by the end of September 2023. The G2G oil deal was initiated in April 2023 to source fuel products directly from the Kingdom of Saudi Arabia and the United Arab Emirates. The government is expected to settle the accrued bill as the 6-month credit period provided for in the agreement elapses at the end of the month. Here is the Energy CS speaking to the National Assembly Energy Committee on the G2G deal:
“G2G is working and helping Kenya significantly today because we're dealing with the sovereign governments as suppliers of these products. Because of our G2G, we have been able to go back to in the last two weeks when we noticed the trend was going off. We went back to the international oil companies and negotiated to bring down the freight and premium. I want to confirm that, for diesel, whereas we've been paying $118 on freight and premium, we've negotiated a discount of $30, and brought that number to $88. Something that could benefit us at the pump up to KES 8 on freight and premium alone.”
“Members may wish to note that freight and premium for diesel in our neighboring country today is running at between $140 to $160. Which is twice what we are paying in Kenya. For PMS chair, we did negotiate down freight and premium from 97.5 per metric ton or meter cube to 90, a flat 90. The freight and premium in our neighboring region today is at 263 times what we are getting in Kenya. And that, if that was the case, that would be another KES 25 on top of the pump, figures which are untenable and we have to talk together on how we are going to secure our economy.”
Energy Cabinet Secretary, Davis Chirchir
Widening USD/KES margins: For August 2023, EPRA’s quoted USD/KES rate was 148.98, while that provided by the CBK was 141.45, bringing the margin to KES 5.05 [August 2022: KES 1.19]. In the week, reports also indicated that retail USD buyers were paying as much as KES 154 for a dollar in Kenyan banks, a margin of more than KES 7 units when compared to CBK’s published rate.
During the week, the CBK issued new FX guidelines aimed at regulating the sale of US dollars by Money Remittance Providers (MRPs) in the country.
"Therefore, to create a fair and orderly market, CBK has restricted selling of foreign exchange by MRPs to customers to a maximum of USD 100,000 per customer per day. MRP's will therefore be required to only sell FX, in excess of USD 100,000 or its equivalent to commercial banks."
Kenya Kwanza’s Medium-Term Tax Revenue Plan
During the week, Kenya’s National Treasury released its Medium-Term Revenue Strategy (MTRS) outlining various reforms aimed at mobilising domestic tax revenues. The strategy covers the period FY 2024/25 and FY 2026/27 and below are some of the key proposals we picked.
Carbon Tax: The government is looking to bring into force a carbon tax which will be anchored on the content of carbon in fossil fuels. As part of efforts to promote the use of green energy, the government will also assess carbon tax incentives in the MTRS.
Tax Band Changes: The government proposes to amend the Income Tax Act to ensure it has a more progressive structure and further seal loopholes that allow for tax avoidance and evasion. Part of the changes further include exemption from tax for pension withdrawals.
Corporate Tax Rate: The proposal in the MTRS is to lower the corporate tax rate from 30% currently to 25% over FY 2024/25 - 2026/27. This is part of efforts to reduce the Corporate Income Tax gap which has since risen to 32.2% in 2020 from 25.5% in 2018.
Motor Vehicle Circulation Tax: Part of the proposal is a wealth tax in the form of an annual tax by motor vehicle owners at the point of insurance cover and an additional tax depending on the vehicle’s engine capacity.
Minimum Tax: The government has brought back the proposal to levy a base minimum tax on all entities in the country regardless of their profitability. There is ongoing litigation at the Supreme Court after the Kenya Revenue Authority (KRA) appealed a decision by the Court of Appeal that ruled the 1% minimum tax on businesses unconstitutional.
Excise Duty: The proposals are to introduce excise duty on coal, and harmonize excise duties on petroleum products, filtered cigarettes, non-filtered cigarettes and other tobacco products. Further, the government is set to review the taxation of alcoholic products to a regime that will tax the products based on their alcohol content.
Value Added Tax: The government is mulling introducing Value Added Tax on education services that are not directly related to education such as swimming. Further, the government is set to introduce VAT on insurance services that have hitherto been exempt from VAT. Other VAT proposals include the increase of the VAT threshold from the current KES 5M and a review of preferential rates, exemptions, and zero ratings.
Betting and Gaming: The government is set to pursue integration with telecoms firms to allow for real-time transmission of data to KRA. In FY 2022/23, KRA reported KES 15.1B, up 23.9% year-on-year in excise on betting and withholding tax on winnings from betting as a result of systems integration with 36 betting firms. Integration with telecoms firms is highly likely to net more from the sector. Notably, Kenyans placed bets amounting to KES 88.5B in H1 2023, 6.2X NSE turnover in the period.
August 2023 Tax Collections: In August 2023, tax revenue totalled KES 162.5B (USD 1.11B), up 8.7% from KES 149.47B (USD 1.25B). For July and August 2023, the tax revenue amounted to KES 317.6B (USD 2.18B) as compared to KES 279.95B (USD 2.33B) in 2022.
You can find the full document here.
Kenya-US Business Roadshow
Ruto Woos US Firms: In the week, President William Ruto was in the United States and part of his itinerary included the US-Kenya Biz Roadshow. This presented the opportunity for the President to market Kenya as a viable investment opportunity for US multinationals including Intel, Google, Microsoft, Apple, John Deere, Levi Strauss, Nike, CAP, and SpaceX.
Safaricom-MPESA Partnership: Among the partnerships that were secured include that of Safaricom and Apple Inc. to integrate mobile money service MPESA and its Paypal platform to extend MPESA’s transaction reach worldwide.
Markets Wrap
NSE: In Week 36 of 2023, Uchumi was the top-performing stock, up 11.1% to KES 0.20. Longhorn was the worst-performing stock, down 16% to KES 2.20. The NSE 20 index rose by 0.2% to 1,541.7 points, the NSE 25 fell by 0.5% to 2548.8 points while the NASI index was up 0.6% to 98.7 points. Equity turnover was down 34.8% to KES 1.2B while bond turnover increased by 42.5% to KES 13.1B.
Treasury Bills: The weighted average interest rate of accepted bids for the 91-day, 182-day, and 364-day were 14.2337%, 14.3686%, and 14.8603% respectively. The total amount on offer was KES 24B with the CBK accepting KES 38.77B of the KES 38.83B bids received, to bring the aggregate performance rate to 161.83%. The 91-day and 364-day instruments recorded 870.79% and 27.81% performance rates, respectively.
Treasury Bonds: The reopened 2-year FXD1/2023/02 and the 10-year FXD1/2016/10 recorded performance rates of 51.47% and 45.70% respectively attracting bids worth KES 18B and KES 15.9B respectively, against a cumulative KES 35B sought. The CBK accepted KES 15B and KES 6.16B respectively and the market-weighted average rates were 17.6% and 18.5%, respectively. In aggregate, the performance rate was 97.17%, with KES 21.6B of KES 34B accepted.
Eurobond Buyback Update: Kenya’s National Treasury is not keen on buying back part of the USD 2B Eurobond that matures in June 2024. The Treasury believes that investors have strong confidence in the government’s fiscal policy stance and are unlikely to sell their bonds before maturity. This means that the government will have to pay out about KES 19.6B in interest on the bond this fiscal year. The decision not to buy back could come as a relief to investors who were concerned that the government did not have enough money to settle the payment due to competing priorities amid a drop in forex reserves.
Market Gleanings
📲 | DhowCSD Launch | This week, President William Ruto, launched the DhowCSD at CBK headquarters in Nairobi. DhowCSD is a Central Securities Depository (CSD) digital platform that allows for investing in government securities. DhowCSD went live on Monday, July 31, 2023, and during the period since the launch, 7,000 new accounts have been created, compared to the total of 44,000 that existed prior to the go-live. The system replaced the old USSD system which had limited capabilities and is available through mobile apps on both Android and iOS.
📈 | CAK Q2 2023 data | Active SIM subscriptions were up 2.7% year-on-year to 66.4M, bringing the SIM penetration rate to 131.3%, up from 130.9% in June 2022. Mobile money subscriptions grew by 2.1% to 37.9M bringing the mobile money penetration rate to 75.1% [Q2 2022: 75.3%]. The aggregate number of mobile data subscriptions edged higher by 3.5% year-on-year to reach 40.3M. Find the report here.
🤝 | Deals, Mergers & Acquisitions | Lipa Later, a Kenyan fintech startup has raised USD 5M in private debt issuance, and is seeking to raise a further USD 20M for expansion plans. Elsewhere the Competition Authority of Kenya(CMA) this week approved the proposed acquisition of sole control of Morgan Air and Sea Freight Logistics Kenya Limited by Kuenhe + Nagel (Kenya) unconditionally. Post transaction the company will control a market share of 21.99% in freight forwarding in Kenya.
💼 | Flutterwave to Launch in Kenya | Flutterwave, a payments services provider, is set to launch operations in Kenya in the next few months. The company received first-name approval from the CBK and is awaiting final approval. Flutterwave plans to deploy USD 50M (KES 7.3B) in the country to set up network and infrastructure, scale up operations and recruit talent. Once approved by CBK, the firm will roll out payment services and cross-border remittances.
🧾 | Kenya’s Fiscal Policy | In an update, the World Bank ranked Kenya a top performer in Africa in active countercyclical fiscal policy:
“Kenya, another top performer whose score increased for 2022, has used this period for consolidation, with a projected decrease in fiscal deficit by 1.2% of GDP. Moreover, this consolidation has come through potentially long-lasting institutional reforms, including harmonisation of tax expenditures and improvements in tax administration, leading to an increase in total revenue of 1.5 percent of GDP."
🧾 | Blank Tape Levy | The Kenya Copyright Board(KECOBO) this week announced the commencement of the implementation of the Blank Tape Levy effective from September 15, 2023. Blank Tape Levy is collected on items that may be used to carry copyright-protected content for private copying payable at the point of entry into Kenya or at the point of first manufacture locally. The levy is a nominal fee imposed on the sale of blank media and devices such as CDs, DVDs, USB drives, and smartphones.
🏛️ | Absa Targets Diaspora | ABSA Kenya has expanded its financial services to Kenyans in the Diaspora through its existing digital platform, making it easier for customers and non-customers living and working abroad to meet their banking, savings and payment needs. The enhancement simplifies the process of sending money and managing finances from other countries. Through this self-service platform, Kenyans abroad can now complete the onboarding process within minutes using their mobile phones or the bank’s online platform
🇳🇬 | Nigeria’s Market Reclassification | FTSE Russel, a subsidiary of the London Stock Exchange Group has downgraded Nigeria from Frontier to Unclassified Market status. The move was prompted by the country’s foreign exchange crisis, which has made it difficult for international investors to repatriate capital. The downgrade will take effect on September 18, 2023, and will result in Nigeria being removed from FTSE Russell’s Frontier Index Series, including the FTSE Frontier 50 Index, the FTSE Ideal Ratings Islamic Index Series, and the FTSE/MV Exchange Index. Nigeria will remain in the FTSE ASEA Pan Africa Index Series, but the implementation of certain corporate events will be suspended until further notice.
Charts of the Week
