Where is the Dollar?
The DP and CBK's Governor are in direct contradiction on the state of forex reserves
๐ 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 Fuliza's rates reviews, Unga Group's FY 2022 results, and the Deputy President's remarks on the dollar shortage.First off, enjoy our weekly business news in memes brought to you by Mwango Capital:
DP vs CBK
The DP Speaks: Deputy President Rigathi Gachagua, appearing on Citizen TV last night, said that Kenya did not have enough foreign exchange to import fuel as of Saturday, 2nd October. This marks the first time this year that a top government official in the new administration has directly commented on the adequacy of forex reserves issue, putting the Central Bank of Kenya (CBK), which has been in denial about the existence of a forex crisis, in a tough spot as it tries to calm the nerves of investors.
โThere was a forex problem because of state capture. Very senior people in government own certain banks; they got involved in this forex business, and Central Bank was no longer in charge... Yesterday (Saturday), we had a crisis because the Central Bank did not have enough foreign currency for oil imports.โ
Deputy President, Rigathi Gachagua
Contradicting the CBK: The DPโs comments are in direct contradiction to those of CBK Governor, Dr Patrick Njoroge, who had earlier said that the forex crisis was behind us. They however seem to agree that the cause of the crisis was some banks that acted in a rogue manner.
Midnight Response: The CBK responded to the comments just past midnight Kenyan time by saying, among other things, that oil marketers obtain their forex reserves from commercial banks and that the Central Bank had adequate foreign exchange reserve cover.
"First, following the complete liberalization of the foreign exchange market in the 1990s, all foreign exchange for private transactions is obtained from commercial banksโฆCBK does not supply foreign exchange for transactions other than for the National Government (i.e., the government's imports or debt service payments) or CBK's operations. Oil importers, therefore, obtain their requisite foreign exchange from the commercial banks and not CBKโฆSecond, CBKโs foreign exchange cover remains adequateโฆThe CBK foreign exchange reserves, therefore, continue to provide adequate cover and buffer against shocks in the foreign exchange market.โ
For Context: For the past few months, several companies including Kapa Oil and Pwani Oil have pointed out challenges in accessing dollars in the market for their imports. The situation was so dire that the Kenya Association of Manufacturers asked for CBKโs intervention. โWe call upon the Central Bank to release dollars for importers to access to pay specific billsโ. In May this year, Rubis Energy, in its annual report, stated that its high forex exposure was โmainly concentrated on the Ringardas (Nigeria), Rubis Energy Kenya, and Dinasa (Haiti) subsidiaries due to difficulties in sourcing USD.โ Overall, the situation has been rather challenging this year as the shilling dipped to record lows against the dollar.
Forex Cover: Notably, Kenyaโs forex reserves are down 15.8% this year to stand at USD 7.4B as of last week. Also, the total oil imports to Kenya have almost doubled in the last 12 months to August 2022 to USD 5.3B [Aug 20211; USD 2.8B].
Fuliza Rates Reviewed
New Framework: In a joint press conference attended by President William Samoei Ruto and the CBK governor Dr Patrick Njoroge,ย NCBA, KCB, and Safaricom announced that Fuliza would implement discounts on daily maintenance fees on drawdowns across various ranges between KES 1 - KES 70,000 starting 1st October. The daily maintenance fees have been waived for the first 3 days for drawdowns below KES 1,000. Access fees would however be maintained at 1% for all drawdowns.
Rutoโs CRB Agenda: At the media briefing for the revamped Fuliza offering, the President pointed out that his administration would be working with the private sector to reduce the cost of credit. This is in line with his inauguration speech commitment to shift the Credit Reference Bureau (CRB) framework to a system of credit score rating that would provide borrowers with an opportunity to manage their creditworthiness.
โThe assignment that I will be going to give to these two gentlemen is to work with you in the private sector to develop a product where Shiko, a mama mboga in Ruaka and a boda boda person can also have access to credit at single-digit rate, and I am willing to work with you in a public-private arrangement so that we can mitigate some of the risks that come with lending to that category of Kenyans.โ
The President also highlighted the progress made on Kenyans listed at the Credit Reference Bureau.
โFirst I am very happy that between 4 and 5 million Kenyans will by the beginning of November, they will be out of the blacklisting. That is very important. Very important because these 4 million Kenyans have been excluded from any formal borrowing because of blacklisting.โ
According to the Managing Director of Metropol Corporation, a credit-management company, 19M Kenyans are currently in the Credit Reference Bureau System with 6M blacklisted.
Ruto Addresses 13th Parliament
Inaugural Address: Last week, President William Ruto gave his inaugural address to the 13th Parliament. Below are some of the key highlights from his address:
Taming Recurrent Expenditure: President Ruto has instructed the National Treasury to work with ministries to cut the expenditure by KES 300B in this yearโs KES 3.3T budget. The President says this will help to cut the use of borrowing to finance recurrent expenditure and will help accelerate the governmentโs national savings contribution.
Tax System: President Ruto has pointed out that his government is set to propose tax measures that will result in a hierarchy that taxes wealth, consumption, income, and trade in that order of preference.
Savings: In its plan to overhaul the social security infrastructure in the country, the Government is proposing a national savings drive to encourage people in the informal sector to set up their retirement savings plans. The government will contribute KES 1 for every KES 2 contributed, up to a maximum ofย KES 6K.
NG-CDF: President Ruto has called for the alignment of the KES 44.3B National Government Constituency Development Fund (NG-CDF) kitty with the Constitution.
Ongoing Drought: The government has embarked on the distribution of relief supplies to 3.5M Kenyans affected by drought in 23 arid and semi-arid counties.
Find the speech here.
Unga Group FY 2022 Results
Unga-Nutreco JV: Earlier this year, Unga Group got regulatory approvals to form animal feed Joint Ventures (JVs) in Kenya and Uganda with Nutreco International, a Dutch animal nutrition and aquafeed multinational. The aquafeed JV in Kenya will help increase its fish feed production capacity to meet demand across the East African Community member states.
Input Costs Impact Sales: Revenue grew marginally by 1.23% to KES 18B with the firm attributing the pace of growth to price adjustments to offset increases in raw material costs. The firm recorded an operating loss of KES 502M compared to an operating profit of KES 616.2M in FY 21. Finance costs grew 77.6% to KES 267.5M.
Net Income Up 6%: Profits from discontinued operations amounting to KES 802.3M helped Unga record KES 311.36M in profit,ย a 6.1% increase. The net income for the year is inclusive of gains attributable to the transfer of assets to the venture companies and the sale of property. Earnings Per Share (EPS) was up 4.6% to KES 2.48.
Last Week on Mwango
In this section, we highlight the most important analyses and discussions that we did on Mwango Capital:
MwangoSpaces on the impact of rising excise duties
Debt Markets
T-Bills Market: In the short-term markets, the performance rates for the 91-day, 182-day, and 364-day papers were 128.24%, 30.49%, and 11.34%, respectively. The aggregate performance rate was 38.80% while the acceptance rate was 27.7%. This was quite an undersubscription compared to the previous auction whose acceptance rate was 72.4%. The weighted average interest rate of accepted bids across the three papers was 8.952%, 9.631%, and 9.905%, respectively.
Bond Market: On a Week-on-Week basis, turnover in the bond market rose by 6.8% to reach KES 3.245B compared to that of KES 3.03B registered in the previous week. Separately, on October 5, the CBK will be auctioning Reopened FXD1/2017/10 and FXD1/2020/15 as part of a wider market operation seeking to raise KES 60B.
What Else Happened This Week
๐ Rising Inflation: Inflation for Sep 2022 rose by 70 basis points to 9.2% from 8.5% in August 2022. The Food and Non-Alcoholic Beverages rose the most (15.5%) while the Insurance and Financial Services Index rose the least (0.5%). Notably, the current inflation rate is 70 basis points shy of the yield on the 364-Days Treasury Bill which was 9.9% in last week's auction.
โ๏ธ Kakuzi Seeks Reprieve: Kakuzi and its Board of Directors have petitioned the Capital Markets Tribunal to stop the Capital Markets Authority (CMA) from investigating it over allegations of shifting profits abroad and corporate governance breaches perpetrated by its majority shareholder Camellia Plc. Last month, the CMA extended the investigation to the Board after questioning its CEO and CFO over the allegations.
๐ Falling Cement Prices: In the period from March this year, the price of a 50KG bag of cement has fallen from a range of KES 800 - KES 1,000 to currently retail between KES 630 - KES 680. The cost of cement remained elevated earlier in the year as manufacturers passed to consumers high production costs occasioned by global supply chain disruptions.
Interest Rate Watch
๐ฐ๐ช Kenya: The Monetary Policy Committee (MPC) of the CBK has hiked the key interest rate by 75 basis points to 8.25% on the backdrop of inflationary pressures. This is the second hike by the CBK this year, bringing the size of cumulative hikes to 125 basis points. Inflation in Kenya for September 2022 was 9.2%, outside the CBKโs target of 2.5% - 7.5%.
โI think I have explained what informed it. The risk that the MPC saw in the sort of increase in the inflation outcomes and also an increase in inflation expectations. So in that sense, it was important to deal with it. It is true it operates by increasing the cost of credit, that is sure, but I think the issue here is what is your number one evil. And inflation is the number one evil in this regard.โ
Central Bank of Kenya Governor, Dr Patrick Njoroge
๐ณ๐ฌ Nigeria: The MPC of the Central Bank of Nigeria increased its key interest rate by 150 basis points to 15.5% in a bid to narrow the real interest gap and tame inflation which stood at 20.52% as of August 2022.
๐ฆ๐ด Angola: In a trend reversal, the National Bank of Angola cut its key interest rate by 50 basis points to 19.5% from 20% - the first rate cut in 3 years. The MPC has cited the consistency of the slowdown in the evolution of prices in the national economy in its decision. Inflation in Angola eased to 19.8% in August from 21.4% in July.
๐ฒ๐บ Mauritius: Monetary authorities in Port Louis last week raised the Key Repo Rate by 75 basis points to 3% in its MPC meeting. Rising inflation globally influenced the MPCโs decision to hike rates. Mauritius' August inflation stood at 11.50% compared to 11% in July.
Charts of the Week
