Business Monthly - October 2014

COUNTRY FOCUS:
BANKING:
COMMENTARY:
OCTOBER 2014, Vol. 09 No 089
East Africa Edition
Africa’s sovereign debt rally: spectacular footsteps to sin
Borrowing money can become a hideous addiction. In modern practice, the
normal means of extinguishing a public debt is to incur another public debt,
the proceeds of which are used to redeem the maturing obligation. • 32
The quest for cohesion
Barclays Bank courts new strategy amid
New content sharing law
strengthens Zuku’s offensive
• 28 growth in profit and loan book • 34
• 46
COVER STORY
8 Has Africa reached a tipping
point?
NEWS FEATURE
12 Top firms exploring new
corporate strategies
18 US-Africa Summit - a huge
success for Kenya
COMMENTARY:
Has Africa reached a tipping point?
Africa is now the cynosure of the global community due to
unusual, extraordinary circumstances and trends. The big
question is whether African leaders can take advantage of
these unique circumstances and trends by moving decisively
and effectively to turn the continent into a global destination
of prosperity within the next few decades.
• 8
SPECIAL REPORT
38 Kenya’s insurance sector
among fastest growing
globally
PRODUCT REVIEW
54 KCB courts cashless concept
with a broad range of credit
cards
ANALYSIS
64 Capital markets to play
‘transformative role’ in Kenya’s
economy
LAST WORD
68 Ebola - What you need to
know
22 Africa can feed itself
COUNTRY FOCUS
28 The quest for cohesion
COMMENTARY
32 Africa’s sovereign debt rally:
spectacular footsteps to sin
SECTOR REPORT
34 Barclays Bank courts new
strategy amid growth in profit
and loan book
42 Africa and America: Partners
in a shared future
46 New content sharing law
strengthens Zuku’s offensive
SPECIAL REPORT:
Kenya’s insurance sector among
fastest growing globally
According to the Association of Kenya
Insurers (AKI) 2013 Report released in
August 2014, Kenyan insurers collected
premiums totaling Sh86.6 billion in 2013,
up from Sh71.5 billion in 2012. This
translated into a 21.1 percent growth,
which by AKI’s assessment, was marked
as the second fastest growth globally after
Jordan’s 24 percent growth.
• 38
• 54
• 50
50 Kenya’s agricultural sector
needs more than mere
pledges
COLUMN
58 An illumination of corporate
diversification
NEWS FEATURE:
US-Africa Summit - a huge success for Kenya
In August, 2014, forty African leaders convened in Washington,
US, for the iconic US-Africa Summit, among them President
Uhuru Kenyatta of Kenya. Behind the event’s grandeur, however,
was a world power seeking to reestablish its influence in
resource-rich Africa, and a Kenyan President aggressively and
tirelessly pitching Kenya’s bright prospects to deep-pocketed
American investors. Business Monthly investigates.
• 18
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2 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 3

USInESS
Letters
Readers Voice
Dear BM
I wish to thank you for the in depth
analysis evident in all your articles in
the resent six months. BM has really
improved in leaps and bounds. I am
requesting a discourse on firms’ expansion
strategies in order to understand the
current wave of diversifications, mergers
and acquisitions that are taking place
every day. The appointment of more
women into corporate boards also needs
some illumination. Are these hard earned
or corporate ploys benefiting blue-eyed
women only?
The CSR and Corporate Governance are
key areas that you should give attention.
Most of the firms that fork out CSR
goodies and other practices are known to
mal-treat their human capital and suppliers.
Do they deserve awards, in the first
place?
Dr Hezekiah Wepukhulu
Masinde Muliro University of Science and
Technology
Bungoma County
Dear editor
Could you do a piece on corporate and
individual taxation levels in Kenya, with
a possible comparison to at least 3 sub-
Saharan countries and 3 or so developed
economies? I feel we are one of the most
highly taxed countries in the world and
the number of taxes are increasing, both
by the national and county governments.
We also reach the maximum taxation
threshold at very low salaries.
I am requesting your attention on these
topics, as the only Business Magazine
Focus
U
nfortunately, since the publication
of Andrews’ book
on corporate strategy, CSR
has had very limited
impact on the field that
has now become known as strategic
management. This is unfortunate as CSR
is ultimately a strategic issue, one that
cannot be separated from a firm’s overa l
strategy (Andrews, 1971; Carro l and
Hoy, 1984). Indeed, ignoring CSR can
have dire consequences. For example, the
total social costs that must be borne
by many businesses due to socia ly
irresponsible behaviour such as po lution,
faulty/dangerous products resulting in
consumer injuries, worker accidents due
to poor safety conditions) is estimated
a two and half tri lion do lars per year
(Estes, 1996).
If CSR and corporate strategy
are integral, and if ignoring one’s
social responsibilities can render
deep financial consequences (Estes,
1996; Frooman, 1997), then firms
have important decisions to make.
That is, firms need to decide on the
type of CSR strategy they wi l pursue.
Thus, first, as with any good
decision-making exercise, a firm
needs to understand what its options
are with respect to CSR strategies.
Given the significance of CSR
as described in journals such as
Corporate Governance, this article
o fers a point of reference for firms
who may be new to the CSR debate.
Although there are no precise
definitions, Carro l (1979) conceptualises
CSR in the context of economic,
legal, ethical and discretionary
(or philanthropic) responsibilities.
Enderle (2004) suggests firms have
three responsibilities to society: economic;
social; and environmental.
Most conceptualizations of strategic
management suggest that there
are two levels of strategy making:
corporate strategy; and business
unit strategy. Corporate strategy is
34 Business Monthly | DECEMBER 2013 Business Monthly | DECEMBER 2013 35
that bothers to
carry in depth
and breadth educative
articles and
features.
Dr David Owino
Global Executive
Masters of Business
Administration
STUDENT
Strathmore University
Nairobi County
The place
of CSR in
corporate
strategy
By Dr. Hanningtone Gaya
In his ground-breaking book on corporate strategy, Kenneth Andrews of the
Harvard Business School argues that with respect to corporate strategy,
strategists address what the firm might and can do as well as what the firm
wants to do. He also argues that strategists must address what the firm ought
to do. The ‘ought to do ’, in Andrews’ parlay, refers to CSR.
STRATEgY
Column
According to Christine A. Mallin (2007),
corporate governance is an area that has
grown rapidly in the last fifteen years or so.
Mallin states that there has been an explosion
of interest in the corporate and investment
sectors and more and more in universities,
where many are offering corporate governance
as a B. Com or MBA degree modules. Indeed,
some universities even locally have dedicated
taught masters in corporate governance and or
PhD students specializing in this area as their
field of research.
L
board. The thrust of this article is to
i lustrate the objectives of corporate
governance to the firm, to directors,
shareholders and other stakeholders
and to the community at large.
The theories underlying the
development of corporate governance
date from many years earlier
and are drawn from disciplines such
as finance, economics, accounting,
law, management and organizational
behaviour. According to Ma lin
From the above scenario, corporate
governance, in addition to cor-
need to attract investments in order
(2007), businesses around the world
porate social responsibility, is now to expand and grow. Before investors
decide to put their money into a
an integral part of everyday business
life and this short article attempts to firm, they expect a confirmation that
summarize insights into its role, and the firm is financia ly sound and wi l
specifica ly, the responsibility of the continue to be so in the foreseeable
future, be we l managed and post
profits sustainably into the future.
Failure of giant investments a l over
the world, such as Enron, Parmalat
among others, and a number of firms
in Kenya, mainly in banking and
insurance industries, makes the need
for corporate governance, more com-
oca ly, the Centre of
Corporate Governance, led
by Dr. Lazarus Okumbe, has
teamed up with the government
and the private sector
to mount regular hands on courses on
corporate governance to upgrade ski ls of
serving directors. There is a tailor made
course for chairmen of corporations. For
purposes of this article, the writer has
borrowed heavily from the Centre for
corporate governance in Kenya.
The importance of
corporate governance
By Dr. Hanningtone Gaya
concerned with the scope of the firm the citizenship strategy. The shareholder
strategy is firs to be discussed.
in terms of the industries and markets
in which it competes while business
unit strategy is concerned with how Shareholder Strategy
the firm competes within a particular The shareholder strategy represents
an approach to CSR as a com-
industry or market. Thus, four strategic
options are described, including: ponent of an overa l profit motive, one
the shareholder strategy; the altruistic that is focused exclusively on maximizing
shareholder returns. This strategy; the reciprocal strategy; and
stra-
tegic option is best aligned with the shareholder funds for non-commercial
goals means ‘robbing ’ sharehold-
economist Milton Friedman. Although
the rise of investor capitalism and ers of the fu l value of their property
the responsibility to shareholders as rights. Friedman (1970) himself o fers
the focal concern of managers gained a caveat in that initiatives focused on
strong momentum in the 1980s, social responsibility (beyond that of
Friedman (1962, 1970), concerned profit maximization) may be possible,
with the growth of unchecked and but only if they improve the profits of
unquestioned demands of CSR, the firm.
argued decades ago that the only Echoing Friedman’s position,
responsibility of business is to provide some executives plainly see their
jobs, make goods and services that responsibility to society as nothing
are demanded by consumers, pay more than maximizing shareholder
taxes, make a profit by obeying
minimum legal requirements A fairs, 2000). Furthermore, if a com-
value (Centre for Corporate Public
for operation and by engaging in pany is sma l or just starting out, any
open and free competition without activity that diverts attention away
deception or fraud. According to from making a profit may not be
Friedman (1962, 1970), by pursuing beneficial to the survival of such companies
(Spenc et al., 2003). Although
maximum profit and strict accountability
to the owners of capital, the short-sighted, a shareholder strategy
wealth created is su ficient to meet is nonetheless a strategic option with
any social responsibilities. Thus, a respec to CSR. In the next paragraph,
business firm that fulfils its profit the altruistic strategy is discussed
maximizing obligations not only briefly.
secures its own survival, but also
contributes to the overa l wealth
and prosperity of society. Friedman’s
argument represents the neoclassical
economic concept of self-interest, via
the ‘invisible hand, at work in society.
Given its pure economic focus,
the shareholder strategy to CSR is
predominately based on a short-term
vision in that it is primarily concerned
with producing better financial results
over any given previous period.
Is the shareholder strategy a legitimate
strategic option with respect to
CSR? Certainly, as individuals who
place their capital at risk, shareholders
have a right to expect a return on
their investment. However, Friedman
(1970) argues that any use of shareholder
funds beyond the means of
making a profit is a misuse of those
funds. Indeed, if we view a business
from a property-rights perspective, a
human rights case may be made
against CSR in that any use of
Given the significance of CSR
as described in journals such as
Corporate Governance, this article
offers a point of reference for firms
who may be new to the CSR debate.
Altruistic Strategy
It has been suggested that business
firms are not responsible to society,
but rather that the obligation of
social responsibility fa ls upon the
managers of business firms (Andrews,
1971; Murray and Vogel, 1997). That
is, although the firm can be viewed
as an artificial person (Kutch, 1990),
and thus has the ability to do harm or
good, it is ultimately managers that
guide the firm’s social responsiveness.
In this sense, the personal values
of managers and even their religious
convictions say much about
how a firm is predisposed toward
social responsibility beyond profit
maximization (Joyner and Payne,
2002; Angelidis and Ibrahim, 2004;
Hemingway and Maclagan, 2004).
In this CSR strategic option, the
interwoven relationship between the
firm and its community is acknowledged
and understood. Furthermore,
as a member of the community, the
firm recognizes that it must ‘give
something back, in the form of philanthropy,
in order to make a positive
contribution to that community.
Typica ly, philanthropic giving comes
from a firm’s surplus profits and is distributed
according to social value and
social and moral precepts; surpluses
may be channe led to various kinds
of social, educational, recreational, or
cultural enterprises (Carro l, 1979).
Although hard to identify the
real underlying motives (Hemingway
and Maclagan, 2004), this strategy
encompasses ‘doing the righ thing ’
Employment and solutions to
Responsive and accountable cor-
Legitimate corporations that are
pulsory than a voluntary management
best practice.
Where practiced, corporate governance
achieves the fo lowing:
corporations that contribute to the
welfare of society by creating wealth.
emerging cha lenges.
porations.
managed with integrity, probity and
transparency.
holder rights.
democratic ideals, legitimate repre-
Efficient, effective and sustainable
Recognition and protection of stake-
An inclusive approach based on
38 Business Monthly | DECEMBER 2013 Business Monthly | DECEMBER 2013 39
Dear BM
Kudos to your publisher, Dr Hanningtone
Gaya for winning an international academy
best paper award, paper having been
presented at the inaugural sub-Saharan
Africa Academy of International Business
Conference that took place at the ultramodern
School of Business- The Riara
University. I must say that your publisher
is one of the role models for ordinary
Kenyans. Having started from the trenches,
and to have made it this far, is an eyeopener
to young Kenyans yearning for
role models especially the youth who
exhibit very casual attitude towards
higher education in our universities.
I am moved that Dr Gaya is teaching
Marketing and Business Management
at the ultra-modern Riara School of
Business. I trust he will find time to share
his rich experience, depth of knowledge
and mentorship to the many young university
students.
Dr Christine Mwangi
University of Adelaide
Southern Australia
sentation and participation.
with the objective of maintaining and
increasing shareholder value and satisfaction
of other stakeholders in the
Governance is concerned with
the processes, systems, practices and context of its corporate mission.
procedures – the formal and informal
rules that govern institutions, balance between economic and social
It is concerned with creating a
the manner in which these rules and goals and between individual and
regulations are applied and fo lowed, communal goals while encouraging
the relationships that these rules and efficient use of resources, accountability
in the use of power and steward-
regulations determine or create, and
the nature of those relationships. ship and as far as possible to align the
Essentia ly, governance addresses the interests of individuals, corporations
leadership role in the institutional and society. It is about promoting:
framework.
Corporate Governance, therefore, administration of corporations to
refers to the manner in which the meet we l-defined objectives.
power of a corporation is exercised in
the stewardship of the corporation’s
total portfolio of assets and resources and contro ling corporations with a
Fair, efficient and transparent
Systems and structures of operating
Readers’ Voices
We would like to invite your views and opinions on this edition of Business Monthly, on the economy, and on business. We are also seeking columnists,
with a view on real business issues as they are lived and experienced. Please send your letters to info@media7groupkenya.com
4 Business Monthly | OCTOBER 2014

PUBLISHEr’S NOTE
Firm diversification:
Corporate strategy,
greed and ceo ego
The news that Kenya Airways,
the pride of Africa,
is contemplating entering
into the telecom sector,
Equity Bank’s courageous
foray as a major playing,
tapping on the Bank’s more than
6 million customer base, Britam’s
acquisition of REAL, among others,
must be setting the corporate
world ablaze. To help Business
Monthly readers to understand and
appreciate these corporate actions,
this issue borrows from Frank T.
Rothaermel (2013) Concept and
Cases in Strategic Management
and shares with you unadulterated
basis for corporate diversification.
What range of products and services
should a firm offer? In particular,
why do some firms compete
in a single product market, while
others compete in several different
product markets? Coca-Cola,
for example, focuses on soft drinks
and thus on a single product market.
Its archival PepsiCo competes
directly with Coca-Cola by selling
a wide variety of soft drinks and
other beverages, and also offering
chips (Lay’s Doritos, and Cheetos)
as well as Quaker Oats products
(Oatmeal and granola bars).
Dr. Hanningtone Gaya PhD EBS,
Publisher/CEO
Media 7 Magazines Group
Similarly, why do some companies
compete beyond their national
borders, while others prefer
to focus on the domestic market?
Answers to questions about the
number of markets to compete in
and where to compete relate to the
broad topic of diversification – increasing
the variety of products
or markets in which to compete.
A non- diversified company focuses
on a single market, whereas
a diversified company competes in
several different markets simultaneously.
All these and more are
captured in this issue.
Enjoy the read and think critically.
www.media7group.co.ke
EDITOR:
Hilda Gaya
gaya@wananchi.com
gaya@media7groupkenya.com
0722 742287
WRITERS
Boniface Ngahu
Cathy Mputhia
Dan Wachira
Dr. Hanningtone Gaya
Hilda Gaya
Immaculate Wairimu
Lennox Yieke
Murori Kiunga
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6 Business Monthly | OCTOBER 2014

AFRICA
Cover Story
Has Africa reached
a tipping point?
Africa is now the cynosure of the global community due to
unusual, extraordinary circumstances and trends. The big
question is whether African leaders can take advantage
of these unique circumstances and trends by moving
decisively and effectively to turn the continent into a global
destination of prosperity within the next few decades. To
answer this question, it is necessary to briefly review why
Africa is now the toast of the global community.
By Chinua Akukwe and Melvin Foote
Africa, the Toast of the World
The August 4-7, 2014 U.S.-Africa
Leaders’ Summit in Washington, DC
is a case in point. President Obama’s
unprecedented meeting with up to 50
African heads of state and governments
indicates a strategic recognition
of Africa’s growing clout. The
Africa Development Bank and the
World Bank report that Africa is
home to six of the ten fastest growing
economies in the world. For the
first time in five decades, foreign
direct investment in Africa at about
$50billion a year rivals foreign aid.
Official remittances from Africans in
the Diaspora at more than $60billion
now surpass foreign direct investment
and foreign aid, respectively. Since as
much as 75% of Diaspora remittances
are informal as noted by the BBC
NEWS, annual total remittances may
be close to $180billion.
The Mo Ibrahim Foundation
reports that between 2010 and 2017,
Africa will likely record a mind boggling
70% increase in the exploration
of 15 precious minerals coveted by the
rest of the world compared to 30%
increase in Asia and the Americas.
The cost of mineral exploration in
Africa is about one tenth for similar
activities in mineral resources powerhouses,
Canada and Australia, further
enticing savvy global investors and
conglomerates. Africa has huge
untapped potential in tourism, with
estimates that visitors to the continent
may reach 134 million by 2030 from
52 million in 2012, creating up to 10
million jobs. The capacity to generate
renewable energy resources in the
continent is substantial in areas such
as solar, wind, hydroelectric power
and geothermal sources.
Africa appears poised to take
advantage of its immense human
development potentials in coming
decades. Multilateral institutions,
think tanks, investment banks, foundations
and advocacy groups project
that by 2050, Africa will have more
workers than China or India. Africa’s
middle class will increasingly become
a global force in disposable spending,
fuelling accelerated economic growth.
The relatively lower cost of labour
will also attract additional external
investments.
Trade and investment is booming
in Africa. Global investors continue to
buy corporate and sovereign African
bonds, with 2014 figures likely to
outpace record 2013 $16.6 billion
sales, according to the Standard
Bank Group, the largest lender in
the continent. The Bloomberg News
reports that China’s annual trade
and investment portfolio in Africa
is now $200billion, twice that of the
United States and nearly ten times
higher than two decades ago. China
also plans to extend $1 trillion credit
facilities to African countries by
2015. In addition, China’s premier, Li
Keqiang during his May 2014 visit to
Africa pledged assistance in any effort
to connect all African capitals by
high speed rail, according to the Wall
Street Journal.
Additionally, Brazil, India, the
Gulf States, Malaysia, Singapore,
South Korea, Indonesia and other
emerging economic powers have
significantly ramped up trade and
investment partnerships with African
countries. The European Union
Commission indicates that “South-
South” trade overtook “North-South”
trade since 2007. Africa’s trade with
the South grew more than 200%
between 2007 and 2010. Even in new
areas of environmental goods and
services such as renewable energy
technologies, South-South trade is the
fastest growing segment of a projected
$1.9 trillion market by 2020,
according to the United Nations
Environment Program.
Growing unity among South
countries economic powers is creating
unprecedented new global trends.
Brazil, Russia, India, China and South
Africa (BRICS countries) recently
announced two game changing initiatives:
(1) the establishment of a
fully capitalized $50billion BRICS
Development Bank to finance infrastructure
and sustainable develop-
ment projects in poor countries, and
(2) the incorporation of a $100billion
Contingency Reserve Fund to
assist developing countries undergoing
financial difficulties. These two
initiatives take direct aim at current
portfolios of the World Bank and the
International Monetary Fund, respectively,
increasing competitive alternatives
for poor nations.
Formidable Hurdles Remain
Despite these advantageous trends,
Africa faces significant hurdles and
challenges. These hurdles and challenges
have been previously captured
in past publications by the authors.
The Africa Development Bank,
the World Bank, the Mo Ibrahim
Foundation and the McKinsey Global
Institute have also done extensive
work in this area. A continent that
has 3% of the global health workforce
despite accounting for 24% of the
global burden of diseases is in trouble.
Unemployment rates in some African
countries are more than 50 percent.
A continent where the informal sector
accounts for 55% of the GDP
and nearly 80% of the labour force
is living on economic tenterhooks.
Industrialization efforts may remain
stillborn due to untapped 95% hydroelectric
power potential in the continent
and extension of regular electricity
to only a quarter of Africans.
Africa has the lowest share of engineering
graduates in the world despite
the gargantuan challenge of how to
structurally transform its extractive
industries to better meet economic
needs. Despite regular famines over
the past four decades, average budgetary
allocation to agriculture hover
around 6 percent.
Young men and women in Africa
remain largely outside mainstream
political and economic life due to
issues such as highest primary school
drop-out rates in the world, lowest
secondary and tertiary school enrolments
in the world, poor post-education
technical skill sets and
8 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 9

AFRICA
Cover Story
African
leaders need
to make bold,
strategic
decisions
today on
how best to
make Africa
an epicentre
of global
prosperity
in coming
decades
stubborn high unemployment
rates. It is also notoriously difficult to
break into Africa’s entrenched ruling
political and economic class without
‘connections.” This is a dangerous
scenario in a continent with significant
youth population bulge, with
individuals less than 24 years of age
likely to account for 50% of Africa’s
population by 2050.
In addition, regional integration
efforts appear stymied due to a
combination of factors. These include
political squabbles, prohibitively
expensive and ineffective intra-Africa
trade between countries (less than
10% of all trade) and draconian custom
regulations that slow down legal
movement of people, goods and services.
Dearth of reliable air/water/
land transportation network is another
obstacle.
Opportunities for Decisive
Action
No situation, circumstance or trend
remains stagnant. Africa today is the
beautiful bride of the global community.
This scenario can change,
sometimes, with little or no warning.
For example, any African oil producing
country relying on more than
six decades of United States (U.S.)
quest to guarantee oil imports to
sustain domestic demand will be in
for a rude awakening: the U.S. Energy
Information Administration indicates
that domestic oil production quadrupled
between 2008 and 2012 due to
better exploration of existing oil wells
and access to new shale oil formations,
with the U.S. now reducing oil
imports from African countries.
In summary, African leaders need
to make bold, strategic decisions
today on how best to make Africa
an epicentre of global prosperity in
coming decades. Inaction or business-as-usual
responses will not be
sufficient as policymakers worldwide
work overtime to adapt to sometimes
seismic shifts in geopolitical and economies
priorities.
We recommend that African leaders
should consider the following strategic
decisions, taking appropriate
operational action where necessary:
Multi-sectoral Infrastructure
1. Strategy. Targeted transportation,
power and information technology
infrastructure projects can transform
ALL SECTORS of the economy
in the continent.
Industrialization Strategy heavily
reliant on multi-sectoral infra-
2.
structure improvements and built on
a foundation of robust continental
science and technology architecture.
The key is to incentivize small and
medium enterprises to ramp up manufacturing
services and transition into
major operations. Industrialization
requires close collaboration with the
organized private sector, the academia
and labour unions.
Inclusive Economic Growth.
3. Africa cannot afford a jobless
growth trajectory with its army of
unemployed. This effort will require a
sound public sector alive to its regulatory
and enforcement responsibilities;
a thriving private sector committed to
both profit and social responsibility,
and; a vibrant civil society keeping
societal leaders and public/private
institutions on the straight and narrow
path.
Democratic and Governance
4. Reform Strategy to ensure verifiable
citizen participation, assure sanctity
of elections, build strong institutions,
improve transparency, efficiency
and effectiveness of the public sector,
enforce human rights and implement
public safety services anchored on
rule of law.
Regional Integration Strategy
5. built around close working relationship
between the African Union
Commission, the Africa Development
Bank, the United Nations Economic
Africa, the Toast of the World
Light Railway
The construction August in 4-7, 2014 U.S.-Africa
Leaders’ Ethiopia Summit in Washington, DC
is a case in point. President Obama’s
unprecedented meeting with up to 50
African heads of state and governments
indicates a strategic recognition
of Africa’s growing clout. The
Africa Development Bank and the
World Bank report that Africa is
home to six of the ten fastest growing
economies in the world. For the
Commission for Africa and Regional
Economic Communities. The emphasis
will be on tight coordination of
political, policy and technical priorities
at continental and bilateral levels.
Multi-dimensional Youth
6. Development Strategy to secure
Africa’s future. Nothing is more
important at this stage of Africa’s
development. Youth development
strategy should anchor on ageappropriate
schooling, timely access
to health and social services, seamless
transition to young adult societal
Above: Regional
integration:
EAC presidents
jointly launch the
LAPPSET project.
Right:
Industrialization is
a key component
required to spur
economic growth.
responsibilities and incentives to participate
in nation building.
Nutrition Self Sufficiency
7. Strategy. Africa cannot move to
the next level without feeding its own
people. This will require a bottomto-top
revolution in agriculture with
investments in efficient food production,
storage, distribution, consumption
and commercial services.
Africa Diaspora Strategy. This
8. is likely to be one of the toughest
challenges for African leaders
as a new strategy must transition
from symbolism to specific
initiatives and projects. The
Diaspora like its Chinese and
Indian counterparts can play
indispensable direct and catalytic
roles in Africa’s future. Its
remittances sustain households
in virtually every family and
community in the continent. The
next challenge is to transition the
immense investment and technical
potential of African Diaspora
at national, regional and continental
levels in Africa.
Dr. Chinua Akukwe (CAKUKWE@ATT.NET)
is a Board Member of the Constituency
for Africa, Washington, DC. He is a former
Chair of the Technical Advisory Board of
the Africa Center for Health and Human
Security at the George Washington
University, Washington, DC. He currently
serves as a Fellow and Chair of the Africa
Working Group, National Academy of Public
Administration, Washington, DC.
Melvin Foote (MFOOTE2420@AOL.COM) is
the Founder, President and Chief Executive
of the Constituency for Africa (CFA),
Washington, DC. He has more than 35 years
of direct, continuous experience on U.S./
Africa relations.
10 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 11

STRATEGY
News Feature
Top firms
exploring new
corporate
strategies
Rapidly expanding markets, improved
regulation and easier access to wider
pools of capital have prompted an
influx of new firms and products across
major Kenyan industries. Resultantly, the
typical Kenyan boardroom is no longer
dominated by powerful directors who
perennially devise ways of facilitating their
unconscionable avarice. Today’s directors
are actively formulating new market
strategies to retain and expand their
market shares. But as Business Monthly’s
Lennox Yieke reveals, not all of these new
strategies are well informed.
For the purpose of this analysis,
Business Monthly looked at
the telecoms industry, which
besides growing rapidly fast,
has seen major entries in the
recent past, including Equity Bank and
Kenya Airways (KQ), among others.
Diversification
In August, Airtel Kenya and KQ
signed a memorandum of understanding
(MoU) to deliver mobile
virtual network operator (MVNO)
services to the airline, subject to regulatory
approval. Under this agreement,
Airtel will lease a portion its
unused network infrastructure for
a fee to KQ. This will allow KQ to
provide telecoms services such
as customer registration,
SIM issuance, billing, data,
voice and customer care
to its flight customers over
mobile platforms. “Through
this partnership with Airtel, we
are optimistic that our guests will
soon be enjoying a service that allows
them better calling rates while in
Kenya or roaming within the wide
Airtel network,” said KQ CEO Titus
Naikuni in a statement.
While Airtel is in a favorable
position (using its excess frequency to
buoy earnings), KQ appears to have
received the short end of the stick.
The firm is taking what strategic
management scholars would describe
as a ‘conglomerate diversification’
strategy. This is a strategy where a
large firm acquires or ventures into an
unrelated business because the unrelated
business represents the most
promising investment opportunity at
the time.
Although the telecoms industry
presently offers promising investment
opportunities, KQ has greatly misread
these opportunities. The number of
people who regularly use airlines in
Kenya is limited to the middle class
and affluent. This segment is a small
fraction of the overall telecom market.
Moreover, not all Kenyans privileged
to use airlines are KQ customers.
The number of potential customers
for KQ’s telecom offering is thereby
infinitesimally small when viewed in
the broader context of the overall
telecoms market. This means that
even if KQ successfully captures all
of its existing customers with its new
telecoms offering, the market size it
achieves may not be large enough to
generate sufficient revenues to offset
the heavy spending that will be
needed to launch new products, pay
network fees, persuade customers and
ward off competitors. From this perspective,
there is a prescient possibility
that the KQ’s telecoms outfit will
relieve the airline’s coffers of billions
of shillings without a providing a reasonable
return on investment.
KQ’s planned entry into the telecom
market could also be threatened
by other entrants, particularly
the possible entry of Vietnam based,
Viettel. The Vietnamese operator has
bid alongside Nigeria’s Megatech and
South Africa’s MTN for a stake in
Telekom Kenya (Orange). The possible
entry of Viettel into the Kenyan
Upon the
entry of a
firm such as
Viettel, the
market will
become ever
competitive
and
increasingly
crowded. This
will dilute
individual
firms’ market
shares and
diminishing
each firm’s
prospect
of deriving
reasonable
returns on
investment.
telecom market has put existing market
players on high alert, including
Safaricom’s CEO, Bob Collymore; a
man whose reputation for not fearing
competitors and remaining steadfastly
confident in Safaricom’s superiority
notoriously precedes him.
Bob Collymore’s morbid fear of
Viettel is not without reason. “The
Vietnamese are fiercely competitive
and very low-cost,” he told renowned
business news agency, Bloomberg,
during the August US-Africa Summit.
He added that a successful bid for
Telekom Kenya by Viettel would be
a game changer. Viettel not only has
existing operations in Vietnam, but
also in Laos, Cambodia, East Timor,
Mozambique, Cameroon, Haiti and
Peru. All these countries bear striking
similarities with Kenya as far as market
structure and economic trends are
concerned. For this reason, Viettel is
perfectly structured internally to succeed
in a market like Kenya. “Vietnam
(where Viettel is based) is a poor
country…Viettel is therefore expected
to better understand market dynamics
in Kenya as compared even to
Safaricom—whose major decisions,
as well as chief executives officers,
are seconded by Vodafone (40 percent
shareholder)after experience in developed
markets,” said Peter Wanyonyi,
a telecoms analysts as quoted on
Standard Media’s Business Beat.
Such considerations explain Bob
Collymore’s cautious stance toward
the possible entry of Viettel into the
market. “When we look at what they
(Viettel) did in Mozambique, they
changed the game. We’re all going to
have to knuckle down and deal with
that,” Collymore told Bloomberg.
Upon the entry of a firm such as
Viettel, the market will become ever
competitive and increasingly crowded.
This will dilute individual firms’
market shares and diminishing each
firm’s prospect of deriving reasonable
returns on investment. Firms with
small market shares such as KQ will
be worst hit by such developments.
12 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 13

STRATEGY
News Feature
Commendable
Unlike KQ, Equity Bank’s MVNO
ambitions are inspired by a well
thought out strategy. On the one
hand, it has courted a ‘conglomerate
diversification’ strategy by promising
to offer services unrelated to banking
such as voice, data and SMS. On the
other, however, it has taken a strategy
that scholars define as a ‘concentric
diversification’. This is when a firm
acquires or expands into a business
that is related to the firm’s current
business in terms of technology, markets
or products.
Through Finserve, its subsidiary,
Equity Bank plans to leverage on its
existing 8.7 million customers to rollout
mobile money services, an area
closely related to its core banking
service. In previous media briefings,
Equity Bank CEO, Dr. James Mwangi,
touted the mobile money offering as
affordable, revealing that the bank
will charge a fee of 1 percent for
transfers of Sh4999 and below and
a flat fee of Sh25 for all transactions
above Sh5000. This is significantly
competitive when compared with
existing rates.
Even if Equity is able to reel in
half of its existing customers (around
4 million customers) to its mobile
money service, it will undoubtedly
become a formidable force in mobile
payments. But Equity is not about
to settle for 4 million mobile money
customers Safaricom’s M-Pesa enjoys
around 19 million customers. For
this reason, Equity conceptualized the
slim SIM concept.
Slim cards are special film-like
SIM cards that can be stuck on the
back of a regular SIM card to allow
inter-operability between both networks.
This removes the need of having
a dual-SIM phone or using two
separate phones. “Users who want to
stick with their current mobile lines
and at the same time enjoy Equity’s
banking solution will be able to do
so with our slim card,” said Equity’s
Dr. James Mwangi. The positive
impact that this solution will have
on Equity’s prospects in the mobile
money market is immeasurable. By
issuing slim cards, Equity Bank will
widen the scope of its mobile money
business beyond just its 8.7 million
bank customers to include millions
of other users who are not necessarily
Equity Bank account holders but use
SIM cards provided by other telecom
companies. Equity Bank’s plan to
deploy the slim SIM has however hit
a snag. This came after Safaricom
wrote a letter to the Communication
Authority of Kenya (CA) urging the
regulator to prohibit the issuance of
Equity Bank’s slim card on grounds
that it would expose the primary SIM
to risks. “It (slim card) would compromise
the security of the M-Pesa
system and consequently expose
our 19 million M-Pesa subscribers
to irreparable harm,” said Safaricom
in its letter to the CA, adding that:
“In the meantime, we call for the
Communications Authority to prohibit
its use in Kenya.” Safaricom also
argued that Kenya should hire the
London-based Global Association of
Mobile Operators (GSMA) to to give
its views on the matter.
The GSMA has since given preliminary
responses on the thin SIM
matter, telling the Communications
Authority of Kenya that the use of
thin SIM cards which are overlaid
on the primary SIM would compromise
privacy of communication subscribers.
It however added that this
was contingent on quality. “The risks
described above are those considered
to be theoretically applicable to poorly
designed overlay SIM solutions,”
read a section of a letter that GSMA
sent to the CA dated August 18, 2014.
Although Equity dismissed
Safaricom’s allegations as “purely
alarmist and speculative”, its plans
to bring the slim card to market
have nonetheless been stonewalled
by Safaricom’s intervention. Given
GSMA’s response, launch of its new
innovation is further pegged on what
has been described as an ‘independent
quality audit’, as well as parliamentary
hearings. Equity Bank’s inability to
counter this development reflects an
unfortunate drawback in its market
expansion strategy—ignoring government
as a strategic force in a developing
country.
Developing country
In 1980, renowned strategic
management scholar, Michael Porter,
argued that the attractiveness (profitability)
of an industry is determined
by the competition in that industry,
arguing that competition was shaped
by five forces which included: threat
of new entrants, rivalry among existing
competitors, threat of substitutes,
bargaining power of suppliers and
bargaining power of buyers.
However in 1990, Zigli along with
two other researchers saw the need to
expand Porter’s model to fit into the
developing country context. For this
reason, they argued that the government
and logistics (transport, communication,
distribution, warehousing
and information systems) played
a key role in developing countries.
Coincidentally at around the same
time (in 1992), Nairobi University
strategic management guru, Professor
Aosa Evans, conducted a study that
had striking similarities with Zigli’s
1990 study. Both studies established
that government played a dominant
role in influencing business in developing
countries. Aosa’s study found
Even if Equity
is able to
reel in half of
its existing
customers
(around
4 million
customers)
to its mobile
money
service, it will
undoubtedly
become a
formidable
force in
mobile
payments.
that companies operating in Kenya at
the time complained of external interference
and unfair treatment while
carrying out their activities, citing
obstruction and illegal competition.
While there have been notable
reforms adopted since 1992 to make
Kenya a free market, government is
still actively involved in business to
this day. This has greatly impacted
private companies competing with
businesses that the government has
a stake in, especially in legal battles.
“Legal recourse is slow and expensive,
and there is considerable cynicism
about the objectivity of executive
and judicial branch decisions,” reads
a recent Doing Business in Kenya
report on the US Embassy website.
This couldn’t be any further from the
truth when looking at Equity Bank’s
predicament.
The Government of Kenya has
a significant holding of 35 percent
in Safaricom, according to data
published in July. Consequently, the
National Treasury got a Sh6.5 billion
dividend cheque in Safaricom’s
recent dividend payout, making the
telecoms firm the government’s most
profitable public investment in 2014.
Considering that Safaricom still pays
corporate tax to the tune of billions
of shillings, its overall contribution to
the solvency of the Treasury cannot be
sufficiently stressed.
Being a major shareholder while
simultaneously playing the role of
regulator introduces an irrefutable
conflict of interest on the part of
the government. This is because the
government gains materially when
Safaricom makes profits (as shown
by Treasury’s Sh6.5 billion windfall
in dividend payouts). For this reason,
the government may be inclined
to play an inhibitive role against
companies that threaten Safaricom’s
prospects. And this is not to suggest
that any other government in
the same position would not do the
same. It is the rational thing to do.
This assessment, despite coming
14 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 15

STRATEGY
News Feature
off as cynical, derives from the
widely accepted theory of the economic
man, which was propounded
by Scottish moral philosopher and
pioneer of political economy, Adam
Smith. According to Smith, the rational
human is a narrowly self interested
actor who attempts to maximize
utility above all else. By viewing
the situation from this perspective, it
starts making sense why Equity’s new
slim SIM solution (which can greatly
disrupt Safaricom’s M-Pesa) has been
subjected to a drawn-out legislative
process in parliament (among other
hurdles). These developments will not
only create significant time delays
for Equity, but potentially botch the
slim SIM launch altogether; preserving
Safaricom’s and in extension the
government’s good fortunes.
Government involvement is also
reflected in how certain government
agencies dispense their duties. The
Competition Authority of Kenya
(CAK) recently (in July, 2014) upheld
Airtel’s plea and ordered Safaricom
to open its expansive M-Pesa agent
network of over 85,000 agents to
rival mobile cash firms. This came
only after Airtel had pressed for an
unreasonably long time for the end of
Safaricom’s exclusivity contract with
agents which, according to Airtel,
disallowed it the same pervasive reach
as M-Pesa. Airtel first signed a petition
pleading with the CAK to compel
Safaricom to open its agent network
in 2012, indicating that it has taken
two whole years for the CAK to act
on Airtel’s plea. In these two years,
a lot would have changed—as far
as market share is concerned—had
Safaricom’s M-Pesa agent network
been opened up to competitors. Had
this happened, it is conceivable that
Treasury could have earned much less
than the Sh6.5 billion in dividends
that it did from Safaricom during the
telecom firm’s past fiscal year.
While it may be argued that the
competition watchdog’s two year wait
before it acted on Airtel’s plea was
informed by bureaucratic hurdles and
changes in government during the
2013 general election, the fact that
government has a direct interest in
Safaricom makes for the strongest
explanation for CAK’s delay. In areas
where the government has no vested
interests, the competition watchdog
has suspiciously not experienced
delays in decision making. If anything
such areas have seen clinical and
expeditious action on the CAK’s part.
A case in point is how the competition
watchdog dealt with Tuskys recent bid
to acquire Ukwala stores in Nairobi’s
Central Business District (CBD).
Although Tuskys wanted to acquire
six stores belonging to Ukwala in the
CBD, the CAK approved the takeover
conditionally, giving it the green light
to acquire only one and not the other
five. Allowing Tuskys to acquire all six
branches, the CAK said, would have
violated relevant provisions of the
Competition Act.
The competition watchdog’s arbitrary
approach to certain companies
and simultaneous objective stance
toward others fans the notion that
government plays a role in influencing
business in developing countries.
Though an ugly reality, the influence
of government on business in developing
countries can be proved empirically
(as Aosa and Zigli showed)
and journalistically (as presented in
this argument as well as past media
reports from other publishing houses).
Government as a strategic force
is thereby not something that should
be excluded when formulating corporate
strategy in developing countries,
especially now that most industries in
Kenya are taking off.
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16 Business Monthly | OCTOBER 2014

POLITICS
News Feature
US-Africa
Summit
- a huge
success for
Kenya
By Lennox Yieke
In August, 2014, forty African
leaders convened in Washington,
US, for the iconic US-Africa
Summit, among them President
Uhuru Kenyatta of Kenya. The
event was characterized by
powerful speeches, reporters
pressing for quotes, and
photographers jostling for the
best angles to capture the
event in its entire magnificence.
Behind the grandeur, however,
was a world power seeking
to reestablish its influence
in resource-rich Africa, and a
Kenyan President aggressively
and tirelessly pitching Kenya’s
bright prospects to deep-pocketed
American investors. Business
Monthly investigates.
Despite what political
observers construed as
frosty relations between
Kenya and US as a
result of the election of
President Uhuru Kenyatta in 2013,
and his subsequent diplomatic shift
to the East, Kenyatta’s success at the
US-Africa Summit dispelled the notion
that relations between Kenya and US
were strained. In doing so, Kenyatta
proved that Kenya still commanded
considerable sway in US-Africa relations.
Through his delegation, which
included cabinet secretaries such as
Ole Lenku (interior), Henry Rotich
(Treasury) as well as other business
leaders, Kenyatta secured renewed
hope for some of Kenya’s key industries.
Lifeline
Kenya’s textile and leather sector may
receive a new lifeline following signals
that the African Growth Opportunity
Act (Agoa) could be successfully
extended. Agoa, which is set to expire
in September 30, 2015, allows duty
free access of over 6,000 categories
of African goods into the US market,
among them textiles and leather.
Kenya, which replaced Lesotho in
2013 as the largest exporter of goods
to America under Agoa, is a key beneficiary
of the program, raising $33.5
million in revenue and creating over
40,000 jobs in 2013 alone.
The gains under Agoa have largely
been felt in Kenya’s textile and leathers
sector, where duty free exports
to the US have kept the sector afloat
for the past 14 years in which Agoa
has been in place. For this reason,
Kenya is pushing for the extension
of Agoa beyond the September 2015
expiry date. A high-level ministerial
meeting which Kenya was a part of
unanimously urged the US congress
to extend the expiry period beyond
September 2015, arguing that an
extension would help Africa access
new markets.
“In principle, the extension
(Agoa) has been agreed,” said Kenya’s
Industrialization and Enterprise
Development Cabinet Secretary, Adan
Mohammed. “If these programs are
not extended, we could suffer some
shutdowns,” Mohammed added. He
was part of the delegation that accompanied
President Kenyatta to the US.
While no official decision on Agoa
has been arrived at yet, all indications
show that the push to extend the program
will be successful. In the likely
event that the extension bid sails
through, Kenya’s planned revival of
the textiles and leather industry will
receive a much needed boost.
Kenya is seeking to reduce the
exportation of hides and skins in their
raw forms and, instead, wants to process
the raw materials domestically
before selling the finished apparels
to local and export markets. Cabinet
Secretary Adan Mohammed iterated
this, saying: “We are looking at
exploiting our trade in apparels that
has been a major export by targeting
the leather industry. We will no longer
sell raw hides and skins at throw
away prices and deny our pastoralists
value in returns.”
Mohammed’s stance represents
his maiden steps towards promoting
the Buy Kenyan-Build Kenya
initiative, which was crafted by the
country’s branding movement, Brand
Kenya; a board which Media7Group’s
publisher Dr. Hanningtone Gaya
chairs. Brand Kenya’s Buy Kenyan-
Build Kenya initiative seeks to promote
locally manufactured goods
within Kenya and international markets
and is expected to inspire a lot
of value addition in the leather sector,
which has hitherto been exporting
raw hides and skins.
The possible extension of Agoa
will thereby avail a duty free market
for the broader range of textile and
leather products that Kenya expects
to produce under the new value addition
mantra. This should secure a
lot of jobs in the country. Kenya is
already in the process of creating a
favorable environment for investors
looking to exploit the potential in the
leather industry. It plans to expand
the number of tanneries in the country
from 14 to at least 21 upon the
successful completion of mini level
leather processing units across the
country. This expansion is aimed at
creating sufficient capacity to process
the inordinate volume of skins and
hides produced by Kenya’s bulging
livestock population. The country has
17.5 million cattle, 17.1 million sheep,
27.7 million goats and 3 million cattle,
according the Leather Development
Council.
Besides expanding the capacity to
match the overabundance of hides and
skins, legal measures have also been
taken to attract investments in the
textiles and leather sector. As Business
Monthly reported in the June 2014
issue, the government is using a combination
of tax, labor and utility incentives
to reel in potential investors in
Athi River’s upcoming Textile City. The
government will give a 10-year corporate
and withholding tax holiday, VAT
and stamp duty exemptions and utility
Kenya is seeking to reduce the
exportation of hides and skins in
their raw forms and, instead, wants to
process the raw materials domestically
before selling the finished apparels to
local and export markets.
connections to textile firms that set
base in Athi River. To further sweeten
the pot, enterprises that set shop in
Athi River will be cushioned from
annual National Wage Regulations
Orders. Instead, labor issues will be
regulated by a sector inclusive Textile
and Apparel Sector Wages Council,
giving enterprises that set shop in Athi
River discretion in determining the
wages of their workers.
The measures taken to resuscitate
the leather industry in Kenya
will come into greater focus upon the
successful extension of Agoa. This is
because continued duty free access to
a market with high incomes and stable
demand such the US will dramatically
increase the profit margins in Kenya’s
leather industry, making it viable for
the industry to move beyond the basic
exportation of raw materials to
18 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 19

POLITICS
News Feature
the exploitation of opportunities
in value addition. The sector,
according to statements from Treasury
Cabinet Secretary, Henry Rotich, has
the potential to create 800,000 jobs
over the next three years.
Next generation
Apart from the deliberate focus on
Agoa, Kenya also pressed hard to
secure deals in energy and infrastructure.
Kenya managed to secure
a sizeable share of the Power Africa
Initiative, a project unveiled by US
President, Barack Obama, during his
2013 Africa visit. The project aims to
add more than 10,000 megawatts to
Africa’s electricity grid.
Among the investments under
the Power Africa Initiative that
Kenya’s energy sector seized include
a 300MW wind power project in
Turkana, the 61MW Kinangop wind
project, the 100MW Kipeto Power
Plant and another 10MW in a biomass
project. There is also an additional
300MW of geothermal power
to be developed from Lake Bogoria.
Another project under the initiative
will also focus on the establishment
of a Water Treatment and Energy
Recovery facility in Kariobangi,
Nairobi. This project will not only
modernize waste treatment, but it will
also allow Nairobi to generate energy
from waste. “In my view, the power
sector was one of the biggest winners,”
said Energy and Petroleum Cabinet
Secretary, Davis Chir Chir, while
speaking at the US-Africa Summit.
The US’s focus on energy recovery,
renewable energy, and geothermal
sources is expected to broaden
Kenya’s sources of energy beyond
rainfall. This should reduce reliance
on hydroelectric power, which is subject
to the vagaries of rain patterns.
In low rainfall seasons, the cost of
electricity usually tracks upwards,
adding into the already high costs
that manufacturers in Kenya face.
A wider range of sources for energy
in Kenya will also increase electricity
output, further lowering costs for
manufacturers. The high cost of doing
business prompted by high utility
costs is one of the biggest bottlenecks
to expansion in the manufacturing
sector. Reducing the cost of doing
business through expansion in power
supply has therefore been identified
as one of the key ways of expanding
Kenya’s manufacturing sector.
“This (reducing cost of doing
business) is the only way we can
expand the manufacturing sector in
the country, which has been growing
at a very disappointing rate in the last
decade,” said Kenya Association of
Manufacturers chief executive officer,
Betty Maina, in a statement.
Another area that Kenya was able
to secure investments for during the
US-Africa Summit was the transport
sector. Likewise, investments in
transport can also reduce the cost
of doing business. The US Export-
Import Bank agreed to fund General
Electric to the tune of $400 million
for the construction of commuter rail
projects in Nairobi. This will help
ease Nairobi’s notorious traffic snarl
ups, which according to government
statements, cost the city Sh50 million
each day in lost productivity.
Kenya’s successful attraction
of lucrative US investments in the
energy and transport sector will provide
a much needed prod for the
country’s ailing manufacturing sector,
providing millions of jobs for Kenya’s
youthful population. According to
KAM chief executive, Betty Maina,
the manufacturing sector has the
potential to create jobs and wealth. In
this respect, the US-Africa Summit’s
theme, which was ‘investing in the
next generation’, is fitting as the
investments in transport and energy
will undoubtedly reduce the cost
of doing business and inspire the
establishment of more manufacturing
facilities across the country. This will
reverse the deeply troubling youth
unemployment problem in the country
and create sustainable jobs for
the next generation of Kenyans, who
according to multiple reports, including
one from the UN, are expected to
be predominantly youth.
Going by the type of projects
currently being undertaken by the
Kenyan government, it seems rather
obvious that the government is preparing
for the windfall of investments
in manufacturing. There are a slew of
projects aimed at equipping the youth
with the requisite skills for manufacturing
jobs.
As an example, Treasury has allocated
Sh2.5 billion for the construction
of 60 vocational training sectors,
with at least each county getting
one center. This move is deliberately
aimed at plugging the skills gap in
Kenya’s youthful labor force; an obvious
preparation for the major investments
expected in manufacturing
over the next years.
Security
Expectedly, security was an issue that
was meticulously discussed at the
US-Africa Summit. This comes at a
time when increasingly radicalized
terrorists are carrying out brazen
attacks against innocent civilians in
Africa. Kenya, for instance, has suffered
tremendously against the notorious
Al-Qaeda linked Al Shabaab,
which orchestrated the tragic West
Gate Mall incident in 2013 where
more than 60 Kenyans needlessly lost
their lives.
In addition to fighting the constant
threat of Al Shabaab, Kenya is
also the directly involved in a peace
keeping mission in Somalia. For this
reason, it received a sizeable share
of pledges for military, economic and
diplomatic support from the US at the
US-Africa Summit.
Among the security deals signed
between Kenya and the US include
a Customs Mutual Assistance
Agreement (CMAA), which will see
the two countries collaborate on security
and trade facilitation. Under the
agreement, customs administrations
in US and Kenya will have the legal
framework for the fluid exchange of
information to assist in the prevention,
detection and investigations of
custom offences such as trafficking of
The US’s
focus on
energy
recovery,
renewable
energy, and
geothermal
sources is
expected
to broaden
Kenya’s
sources
of energy
beyond
rainfall.
illicit items—drugs, wildlife, humans
and illegal imports, among others.
“We will now start to see more participation
of US firms in communications,”
said Interior Cabinet Secretary,
Ole Lenku, in a brief.
Increased sharing of intelligence
on trade should deal a blow to terrorist
organizations in the country. This
is because it is expected to nab illegal
loggers and poachers. According
to a report by the United Nations
Environment Program (UNEP)
released in June, terror group Al
Shabaab makes between $38 million
and $56 million per year in illegal
charcoal.
The feedstock for this operation is
sourced from illegal loggers in Kenya
and the East African region who use
corruptible custom officers and the
country’s porous borders to facilitate
their trade. With the CMMA in place,
transactions will not only be done
electronically, but advanced software
being used by experts in the US will
remotely monitor activity, nabbing
any illegal traders who have hitherto
made a mockery of Kenya’s customs.
Removing illegal loggers and poachers
out of business will reduce terrorist
activities as terrorists greatly depend
on this pipeline of dirty money to
finance their heinous crimes.
Equal partners
Some observers assess US’s huge
assistance as a deliberate attempt to
dilute China’s growing influence in
Africa. “The US-Africa summit is yet
another opportunity for the US to flex
its muscles and counter China’s growing
influence on the continent,” said
James Shikwati, Executive Director of
Inter Region Economic Network and
Economist.
While the US did not directly
implicate China in anything negative
during the US-Africa Summit, it made
oblique references to the Asian Tiger.
“We recognize Africa for its greatest
resource, which is its talents and their
potential,” President Obama said,
cleverly pointing to China, which has
repeatedly been accused of being in
Africa for the sole purpose of extracting
natural resources from Africa for
further processing in mainland China.
In view of this incessant allegation,
China seems to be changing tact
in Africa. Instead of processing all
the resources acquired from Africa in
mainland China, the Asian Tiger has
begun setting up processing plants in
Africa. A good example is in Ethiopia,
where it has set up operations for shoe
manufacturing firm, Huajian. The factory
has close to 1,750 workers and
sources leather from local and regional
tanneries. Policy makers expect
China to continue embracing this
approach, signaling that China has
started adding more value to Africa.
Interestingly, the US has stopped talking
down to Kenya and is instead
treating her as an equal partner.
The general change in both
China’s and the US’s attitude toward
Africa shows that the resource-rich
continent is finally getting a voice at
the big table. “We want to be a good
partner, an equal partner, and a partner
for the long term,” said President
Barack Obama in his characteristic
eloquence. Obama, who has Kenyan
ancestry, was addressing leaders at
the Summit.
20 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 21

FOOD
News Feature
Africa can feed itself
The population of Africa is estimated to reach 2.4 billion by 2050. With rising
population, demand for food will increase. The challenge will be how to
raise agricultural productivity, feed this population, while not degrading the
environment. The challenge is enormous: Sub-Saharan Africa will need to increase
crop production by 260% in order to feed this projected population. This cannot be
achieved unless there are significantly higher levels of investment in agricultural
research, science and technology. That is why this policy dialogue organized by the
International Development Research Center (IDRC) is timely.
Africa has enormous agricultural
potential. About 65% of the arable
lands left to feed the 9 billion
people in the world by 2050 are
in Africa. We must unlock this
potential. To do so, we must make a fundamental
shift in how we see agriculture.
Agriculture must not be seen as a development
program. Agriculture is a business.
And agricultural research must take this
business perspective. Policy makers too
must change and develop policies to take
technologies to scale for farmers.
A great part of what I do today as
Minister of Agriculture, in feeding the most
populous African nation, draws from my
research experience and practical lessons
learnt in the field. Early in my career at
the International Crops Research Institute
for the Semi-Arid Tropics (ICRISAT) in the
early 1990s, I was part of a team of scientists
charged with promoting high yielding
short statured varieties of sorghum to
farmers.
Convinced we had a solution for farmers,
we went to Southern Mali to promote
the new high yielding varieties. The head of
the village took us on a tour around the village
and opened one granary after the other
and behold they were filled to the brim with
sorghum. To him the problem was not additional
production but how to get market for
the sorghum, as he asked whether ICRISAT
buys sorghum. It was a lesson that changed
my perspective on how to achieve impacts
with research. What mattered here was not
the supply driven technical change but the
development of markets for sorghum.
Our focus must be on the imperative of
creating markets for farmers, taking a whole
value chain, and investing in new product
development to add value to crops. Unless
this is given priority farmers will take up
new technologies and price for their farm
products will decline. From that experience,
as researchers we worked on how to use
sorghum for different products to expand
markets. Today in Nigeria, Uganda and
Kenya sorghum is used to replace malt in
the brewery industry, for animal feed, as
well as for production of ethanol.
I recall my time as a scientist in the mid-
1990s at the West Africa Rice Development
Association in Cote d’Ivoire, when the New
Rice for Africa (NERICA) was being developed.
The new varieties were adapted to
conditions of smallholder farmers and gave
very good yields. The challenge was how
to ensure their adoption by farmers at
scale. This requires public policies that will
increase access of farmers to seeds; fertilizers
and irrigation support to ensure the
optimal yield performance of the new crop
varieties, as well as improved seed systems
that will provide quality seeds to farmers.
As Minister of Agriculture in Nigeria,
with my previous research work and knowledge
of the potential of the improved rice
varieties, we immediately set the target
for Nigeria to become self-sufficient in
rice. This was important, as Nigeria had
become the second largest importer of rice
in the world after China. We immediately
encouraged private seed companies to produce
foundation and commercial seeds,
removed the monopoly of the government
over foundation seeds, and unlocked the
power of seed companies to work directly
with plant breeders to develop their own
foundation seeds. Farmers were provided
with subsidized farm inputs for seeds and
fertilizers via electronic vouchers on their
mobile phones. We launched dry season rice
production to complement wet season rice
production.
The impact was massive. Between 2012
and 2014, 6 million rice farmers were
reached with the improved rice varieties.
Total cumulative cultivated rice area rose
by 2 million hectares. National paddy rice
production rose by an additional 7 million
MT, while net farm incomes of farmers rose
by $2.5 billion, unleashing a wave of prosperity
for farmers and the rural areas. Men
and women, and the youth all launched into
rice production. We had turned the corner
and reached close to 80% of our national
paddy rice need, all within three years. This
points to the need to have supportive policies
to drive impacts of science and technology.
Our new rice policy has attracted
$1.6 billion of private sector investments,
and we expect that Nigeria will become a
net exporter of rice, just like Thailand or
India, within the next four years. Such is
the power of science and technology when
matched with supportive policy instruments
to drive impacts at scale.
The same could be said of cassava.
Africa is the largest producer of cassava
in the world but is surpassed by Thailand
in terms of global value added to cassava.
Nigeria has made huge leaps in cassava production,
with a total annual production of
over 44 million MT, from the research work
of the International Institute for Tropical
Agriculture and the National Root Crop
Research Institute in Nigeria. Varieties that
are tolerant to cassava mosaic virus and
cassava mealy bug have been released with
high rates of returns from the biological
Our focus must be on the imperative of creating markets
for farmers, taking a whole value chain, and investing in
new product development to add value to crops. Unless
this is given priority farmers will take up new technologies
and price for their farm products will decline.
control programs that led to their development.
But farmers always faced a glut as
market for cassava was limited to use for
local foods such as gari and fufu.
As Minister, we launched a major effort
to develop derivatives from cassava, with
a cassava sector policy to support the
use of cassava for high quality cassava
flour to replace some of the wheat used
for bread and confectioneries for which
Nigeria spends over $ 5 billion annually. In
partnership with the International Institute
for Tropical Agriculture and the Federal
Institute for Industrial Research, scientists
and food technologists and nutritionists
were supported to develop and standardize
recipes for making bread from composite
flour from wheat and cassava. Today, over
35 bakeries in the country have shifted
to production of cassava-wheat flour
22 Business Monthly | OCTOBER 2014
Business Monthly | OCTOBER 2014 23

FOOD
News Feature
composite bread, including the
two largest foreign owned supermarkets,
Shop Rite and Park and Shop.
With the establishment of a $60 million
cassava bread fund by President
Jonathan, work started to train thousands
of small master bakers across
the country to shift to the new composite
cassava-wheat flour, including
support for new equipment.
SMEs producing cassava flour
are being supported with funds to
upgrade their facilities to produce
cassava flour, while about 30,000
farmers are being provided support
to establish 6,000 ha of mechanized
cassava farms to produce cassava and
as the composite bread is cheaper
than whole wheat bread.
There is no doubt that investing
in agricultural research pays. The
challenge is always how to ensure that
poor farmers benefit from technical
change. This is where I believe that
public policies are needed to reduce
adoption costs faced by farmers.
While developed countries support
their farmers with massive subsidies,
African farmers, who are poor, are
barely supported. Lacking access to
technologies and with limited financial
resources many do not take
advantage of the benefits that new
technologies can offer. While there is
farmers. The system was corrupt and
benefited rent seekers, not smallholder
farmers. We ended four decades of
fertilizer sector corruption within 90
days and with it the era of government
buying and distributing seeds,
and replaced it with a private sectordriven
system. The role of government
shifted to providing targeted
farm support to farmers for seeds and
fertilizers via electronic coupons on
mobile phones or “e-wallets.”
Between 2012 and 2014, a
total of 14 million farmers received
their subsidized farm inputs using
electronic vouchers on their mobile
phones to directly pay private sector
ment, stimulating economic activity
and creating jobs all across the seed
and fertilizer sector value chains.
At the Rockefeller Foundation
where I worked for a decade, we supported
research scientists in Uganda
to develop new high yielding banana
varieties, using tissue culture techniques.
Yields rose from 10 tons per
hectare to over 30 tons per hectare.
But there was a problem: farmers
could not afford the high cost of
the tissue culture plantlets at over $
1 dollar per plantlet. There was no
financing system to support farmers.
If we could get the banks to lend to
these small farmers, they would adopt
a portfolio of investments to support
the banana value chain in Uganda.
As Vice President at the Alliance
for a Green Revolution in Africa, I
led a team of my colleagues to use
innovative financing instruments to
leverage banks in Kenya, Tanzania,
Uganda, Ghana and Mozambique to
lend over $100 million to small farmers
and input retailers. In Nigeria, we
designed the risk sharing facility for
the Central Bank of Nigeria, which
leveraged $3.5 billion of lending from
the balance sheets of banks to agriculture
value chains. In all these cases,
the default rates by farmers and agribusinesses
has been less than 2-3%,
being made in the use of improved
agricultural technologies, from high
yielding bean varieties in Rwanda,
sorghum and millet hybrids in Niger
and Mali, drought and striga tolerant
maize in Ethiopia, Kenya, Tanzania
and Zambia. The green revolution
is ramping up farm production. But
a significant share of the expanding
farm harvest is lost due to poor
post-harvest systems, and estimates
show that this can be as high as
30-40% depending on the crop. The
total annual post-harvest grain losses
in Sub-Saharan Africa have been estimated
at $ 4 billion. Reducing these
losses will boost agricultural output
There is no
doubt that
investing in
agricultural
research pays.
The challenge
is always how
to ensure that
poor farmers
benefit from
technical
change.
lower cost for flour millers.
Government has also initiated
with the private sector flour millers
the process to establish largescale
high quality cassava flour plants
across the country to ensure regular
supply of the cassava flour. The
inclusion of 20% of cassava flour
in bread and confectionaries at the
industry level will save over $ 1
billion annually in wheat imports
and create jobs and markets for cassava
farmers. Cassava then becomes a
wealth-generating crop. The impact of
research would have reached millions
of farmers and benefited the entire
cassava value chain and consumers,
always debate on subsidies, my position
is that they are needed, especially
in the early phases of agricultural
transformations to ensure that the
poor, especially women, and smallholders
benefit from technical change.
What is important is to develop ways
of targeting support to reach farmers,
while ensuring that the private sector,
not the government, delivers farm
inputs to farmers. This is what we did
in Nigeria.
When I took office as Minister of
Agriculture in 2011, I met a system
where the government for decades
had been directly involved in procuring
and distributing fertilizers to
input retailers. Dignity was returned
to farmers. As farmers expressed their
demand, the number of seed companies
increased from 5 to 80 within
three years. The financial markets
took note and for the first time ever
banks began to lend to seed companies
and agro dealers. Bank lending
to seed companies and agro dealers
rose from $10 million in 2012 to $53
million by 2013, while bank lending
to fertilizer companies rose from
$100 million in 2012 to $500 million
in 2013. Private sector input supply
companies began to build their supply
chains to reach farmers directly
instead of supplying to the govern-
the new technology and reap high
benefits. The Rockefeller Foundation
supported us to innovate with a risk
sharing facility to reduce the risk of
lending to farmers by the Centenary
Rural Development Bank of Uganda.
With $500,000 seed fund to be used
to cover losses from lending to farmers,
the Bank started to lend, first
from the fund of the Foundation, and
later from its own funds. After four
years, the bank found it had lost only
$4,500. We had proved a point: that
lending to small farmers is not as
risky as Banks think in Africa. The
Bank eventually lent $20 million of
its own money to farmers and built up
and in the case of Nigeria it has been
0% for the past three years.
The lesson is clear: greater focus
should be put into the use of innovative
finance instruments to reduce
the risks financial institutions face in
lending to agriculture.
Solving this financial imperative
will help drive the uptake of products
of agricultural research, raise returns
to agricultural research investments
and drive sustainable growth of
the agriculture sector. Science and
technologies alone are not enough.
We must also fix financial markets
to make science work for the poor.
All across Africa, many gains are
and food security. There is need now
for greater research investments to
improve product handing, storage,
and post-harvest processing and food
safety so that the benefits of research
reach consumers.
No challenge is greater for
research in Africa today than how
to support farmers to adapt to climate
change. Climate change will
substantially reduce yields of crops,
livestock and fisheries, and lead to
decline in farm output, farm incomes
and worsen poverty and vulnerabilities.
There is need to develop heat,
drought and flood tolerant crops, forages
that can cope with heat
24 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 25

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News Feature
stress, animals with high stress tolerance
levels, while policies should focus on
improving adaptation for farmers. Improved
land and water management will become
even more important, as well as the use of
agro-ecological approaches. It is imperative
for governments, researchers and the wider
development community to build resilience
into agricultural value chains. Public policies
should support farmers to take up crop
and livestock insurance, as these are beyond
the reach of many poor farmers. We must
not abandon farmers in the face of climate
change.
Despite all the gains being made, malnutrition
remains a perennial problem. Eighty
percent of the world’s stunted children live
in just 14 countries, of which eight are in
Africa. Today there exist bio-fortified crops
such as pro-vitamin A cassava, orange flesh
sweet potato, high iron beans, which are
being grown by farmers in Nigeria, Rwanda,
Kenya and Mozambique. Of the 1.5 million
farming households now growing bio-fortified
food crops, 1.4 million are in Africa.
So, the challenge is no longer the science
of bio-fortification. We know it works. Our
challenge as policy makers now is to build
up demand and scale up bio-fortified crops
to reach millions of households. To achieve
this, we must address supply and demand
side issues, including policy, institutional,
regulatory and financing of nutrition.
The future of Africa depends on what
we do with our kids today. A hungry child
cannot learn and a malnourished kid will
become brain impaired, with low-income
earnings in the future. The greatest contributor
to economic growth is not physical
infrastructure but brainpower or “grey matter
infrastructure.” We must ensure that no
child in Africa goes hungry.
Africa has come a long way with successes
in the transformation of its agriculture
sector through agricultural research.
The future of Africa
depends on what we do
with our kids today. A
hungry child cannot learn
and a malnourished kid
will become brain impaired,
with low-income earnings
in the future.
The seeds of change are everywhere all
across the continent. With the remarkable
political support of the Africa Union, restated
commitments of African Presidents during
the Malabo Summit to give priority to
agriculture, dynamism of the Forum for
Agricultural Research in Africa, and commitment
of the CGIAR and our national
agricultural research systems, Africa will
feed itself.
National governments, development
finance institutions and donors should significantly
increase support for agricultural
research. And we must build partnerships
with farmers – especially women and youth.
We must support agriculture – it pays!
As we build greater farm harvests and
raise incomes of farmers, Africa’s rural economies
will boom. Millions of people will be
lifted out of poverty into wealth. Then you
will hear Africa’s children singing: “better
at last, better at last, thank God Almighty
our lives are better at last.” Together, we can
make this happen.
By Dr. Akinwumi Adesina, Honourable Minister
of Agriculture of Nigeria at the High Policy
Dialogue on “Research to Feed Africa,”
September 1, 2014, Sheraton Hotel, Addis
Ababa, Ethiopia
26 Business Monthly | OCTOBER 2014

SOUTH AFRICA
Country Focus
I came across a construct of social cohesion in the publication
Social Cohesion and Social Justice in South Africa which states
that “Social cohesion is deemed to be present by the extent
to which participants and observers of society find the lived
existence of citizens to be relatively peaceful, gainfully
employed, harmonious and free from deprivation,
whether in terms of basic needs such as food, water,
shelter, in terms of basic human rights such as freedom,
democracy and governance, or in terms of culture,
language and intellectual stimulation.”
The quest
for cohesion
Social cohesion therefore goes
beyond mere slogans and
lofty platitudes about unity
and nationhood. Social
cohesion is about the lives
of real people. In the last two decades
of democracy, we have laid a firm foundation
for our people to transcend the
iniquities of our past. We have sought
to forge a new society in which human
rights are respected, where the essential
humanity of each person is celebrated,
and where all may live in peace and
comfort. We have adopted a democratic
Constitution that aims to transform
South Africa into a more equitable,
integrated and just society.
The Preamble of
our Constitution lays
the foundation for
our nation’s noble
mission of building
opportunity. It is our firm determination
that the circumstances of one’s birth should
be no barrier to the achievement of one’s
aspirations.
Government has embarked on bold
programmes in education, health, infrastructure
development, women and youth
empowerment, rural development and
many others with a singular intention of
moving South Africa forward and enhancing
social cohesion. Cognisant of the fact
that it cannot move South Africa forward
alone Government seeks to work with all
social partners to create an enabling environment
for inclusive economic growth and
job creation.
Social cohesion can best be realised
in a country in which all social partners
work together to ensure that all our people
are educated and have skills, in which all
are employed, in which all enjoy a decent
standard of living, and in which all feel
safe and secure. As we work to address the
material determinants of social cohesion, so
too must we address the attitudes, practices
and prejudices that undermine our efforts
to forge a nation united in its diversity.
Now more than ever, we need to direct
our energies towards the achievement of a
common vision through unified action. We
need to act together, consocial
cohesion when it states: “Believe
that South Africa belongs to all who live
in it, united in our diversity. We therefore,
through our freely elected representatives,
adopt this Constitution as the supreme law
of the Republic so as to:
Heal the divisions of the past and
establish a society based on democratic
values, social justice and fundamental
human rights
Lay the foundations for a democratic
and open society in which government
is based on the will of the people and
every citizen is equally protected by law
Improve the quality of life of all citizens
and free the potential of each person,
and
Build a united and democratic South
Africa able to take its rightful place as a
sovereign state in the family of nations.”
We have chosen national symbols
that are inclusive and aspirational.
Through institutions like the Truth and
Reconciliation Commission, we have sought
to uncover past truths of pain and suffering,
promote meaningful reconciliation,
and clearly delineate the values of our new
society.
We have done all this to build and
enhance social cohesion. But we are still
a society in transition. And despite our
gains, we are in many ways still a divided
country. The Diagnostic Report released by
the National Planning Commission in 2011
describes some of the fault lines in our
society. It says:
“Opportunity is not only defined by
race; it also differs for men and women,
and for rural and urban dwellers. Language
and ethnic background continue to divide
South Africa, as does economic participation,
because those who have work have
access to income and opportunities that the
unemployed do not have.”
The report underlines the fact that the
human cost - and the social cost - of apartheid
is still firmly with us. We are reminded
daily by the lived experiences of our people
of the devastation of poverty, inequality
and unemployment. The material conditions
under which our people live represent
the greatest challenge to the advancement
of social cohesion.
Speaking at the Social Cohesion
Summit in 2012, President Jacob Zuma
said: “The challenges of poverty, unemployment,
homelessness, landlessness, and the
divisions around race, class and gender
make it difficult to arrive at a socially cohesive
and united society as fast as we would
want to. Our responsibility as government is
to lead the South African people towards a
national democratic society. This is a society
that is united, non-sexist, non-racial, democratic
and prosperous.”
In the exercise of this responsibility,
government is investing heavily in building
capabilities and promoting equality of
Opportunity is not only defined
by race; it also differs for men and
women, and for rural and urban
dwellers. Language and ethnic
background continue to divide South
Africa, as does economic participation,
because those who have work have
access to income and opportunities
that the unemployed do not have.”
28 Business Monthly | OCTOBER 2014
Business Monthly | OCTOBER 2014 29

SOUTH AFRICA
Country Focus
It is essential
that everyone
in society
should come
together to
craft a social
compact that
will propel
South Africa
onto a higher
developmental
trajectory and
build a more
cohesive and
equitable
society.”
sciously and deliberately, to ensure
that the differences and discord of the
past do not define our future. We must
work together to harness the energies
of all sectors and social partners to
contribute to this national effort.
Active citizenry is the cornerstone
for achieving this vision. Every
South African needs to see themselves
as a leader and a nation builder.
Every South African has the ability
to lead. They have the ability to set
an example – to be honest, compassionate,
trustworthy and demonstrate
integrity.
Those to whom a lot has been
given should demonstrate solidarity
and lead in helping to empower others.
They have the ability to hold fast
to a core set of values while embracing
change and striving for transformation.
They are able to innovate,
persuade, communicate, empathise
and accept criticism.
These leaders, these ordinary
South Africans, actively promote
meaningful inclusion and help to
overcome barriers. They always seek
to build consensus. They learn each
other’s languages. They understand,
respect, promote and celebrate each
other’s culture. They are tolerant of
those who hold views they do not
agree with. These leaders seek to
empower the otherwise powerless.
Our society continues to be
marred by atrocious acts of criminality
that take place in our homes,
schools and communities. They target
the most vulnerable and often the
most innocent among us. This is an
affront to everything we hold dear.
If we want to rid our society of
crime, communities must fight crime
and corruption wherever it manifests
itself. We must not turn our homes
and streets into safe havens for criminals.
We must not buy stolen goods.
We must not pay bribes. We must not
take something that does not belong
to us. We must revere human life. And
we must protect the vulnerable. We
must always remember that our sense
of nationhood is founded on an appreciation
of the essential humanity of all
people. We are bound by our values to
respect the rights and dignity of those
in our midst who are not of South
African origin.
As the province with the largest
number of immigrants, Gauteng must
lead the way in combating xenophobia
in all its manifestations. The
people of this province must, through
their actions, underscore the fact that
foreign nationals pose no threat to
our desire for social cohesion, nor
do they present any impediment to
the achievement of a common South
African nationhood.
While we have made great strides
in advancing the rights of women
and increasing the representation of
women in public institutions, we need
to do more to protect, advance and
defend the rights of women. Women
still bear the brunt of societal problems
like poverty, inequality, discrimination
and violence. There can be no
social cohesion without a recognition
and promotion of the equal rights
of women and a concerted effort to
improve their economic and social
position.
It is essential that everyone in
society should come together to craft
a social compact that will propel
South Africa onto a higher developmental
trajectory and build a more
cohesive and equitable society. We
must take to heart what our founding
President, Nelson Rolihlahla
Mandela, said at his inauguration:
“We must … act together as a united
people, for national reconciliation, for
nation building, for the birth of a new
world.”
If we are to become a viable
nation, our people need to share a
common identity and a common destiny.
They must feel bound together
by shared values that are reinforced
by shared symbols and institutions.
We should use this time wisely to
reflect on and evaluate our actions.
We should use it to reaffirm our commitment
to building a just, tolerant
and moral society.
We are all born free, with an equal
expectation that we should enjoy the
right to life, shelter, food and security.
We all expect that we will be members
of a society that is cohesive and
prosperous. These rights and expectations
are indivisible. Let us work
today to make them a reality for all.
I want to end with a glance at
the future we all share as we become
more socially cohesive. The National
Development Plan vision statement
says:
“In 2030 South Africans will be
more conscious of the things they
have in common than their differences.
Their lived experiences will progressively
undermine and cut across
the divisions of race, gender, space
and class. The nation will be more
accepting of people’s multiple identities.
We are a people, who have joined
and shared extraordinarily to remake
our society.
We say to one another: I cannot be
without you, without you this South
African community is an incomplete
community, without one single person,
without one single group, we are
not the best that we can be;
We are connected by the sounds
we hear, the sights we see, the scents
we smell, the objects we touch, and
the food we eat and liquids we drink,
the thoughts we think, the emotions
we feel, the dreams we imagine. We
are a web of relationships, fashioned
in a web of histories, the stories of our
lives inescapably shaped by stories
of others.
We share our stories in our
schools, churches, libraries, electronic
media and wherever they may be.
We are inevitably implicated in one
another. Our connectedness across
time and distance is the central principle
of our nationhood.” That is the
South Africa we are enjoined to build
today for our common future.
By Cyril Ramaphosa, Deputy President
of South Africa.
30 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 31

ECONOMY
Commentary
Africa’s sovereign
debt rally:
spectacular
footsteps
to sin
Borrowing money can become
a hideous addiction. As we
all know, the United States
eventually ceased heeding
the advice of its first
Treasury Secretary, Alexander Hamilton
that incurring of public debts should
be accompanied by the means of their
extinguishment. In modern practice, the
normal means of extinguishing a public
debt is to incur another public debt, the
proceeds of which are used to redeem
the maturing obligation. The idea that
a government’s general (not borrowed)
revenues would be sufficient to retire—
often even to service – outstanding debt
is risible. Moreover, year after year,
government budget deficits require
additional borrowings, over and above
what is required to repay the maturing
outstanding debt. Relentlessly remorselessly,
sovereign debt stocks accumulate.
Unsustainable sovereign debt has
been a disorder of the emerging economies
and developed world. Whereas
nations like the US, Canada, Denmark,
Belgium, Malaysia, Mauritius, New
Zealand, England maintain a clean
record, Portugal, Greece, Spain,
Russia and Argentina have maintained
a very bad record. Indeed,
Portugal has defaulted four times
since the late 1800s whereas Greece
and Spain have defaulted five and six
times respectively.
Despite the
underlying risks,
issuing of bonds is
irresistible; and there
will always be takers.
The excellent returns
from bonds have always
dwarfed those of giant economies
like the US. According to
Morningstar, a research firm, the
average return for a mutual fund
investing in emerging market debt
which mainly means government
bonds has returned 10.4% per
annum since 1998 as opposed to
emerging markets stock funds which
have yielded 8.2%
Recently, Greece posted a 74%
loss in investments for its sovereign
debt investors. The case was not
any different for Argentina’s 2005
and 2010 exchange offers. That’s
the futility of investing in sovereign
bonds, even amid the near guaranteed
returns.
While the medium term outlook
for Africa remains rosy, I am most
worried about the long term forecast.
I believe that African nations are foolishly
borrowing and the spree could
translate to massive defaults in years
to come.
According to Standard and
Poors (S&P), the 19 African countries
it rates will borrow an equivalent
of US$ 61 billion from long
term domestic or global commercial
sources this year alone. Out of this
amount, US$16 billion or 26% will be
used to refinance maturing long term
debt. Overall, the total commercial
and concessional debt for the African
nations is projected to increase by
14.6 percent to US$ 392 billion by
the end of the year.
This is both good and bad for the
African economies. It is good because the
ambitions to build infrastructure which has
been limiting growth will come to fruition.
On the flipside, it is bad because it waters
down the sweet growth story that has been
a fresh chapter in the minds of many a business
people seeking alpha. Africa has had a
good growth decade so much so that it has
remained the second growing continent in
the world, second to South Asia.
Africa’s growth rate stood at 4.7% in
2013 and is forecasted to grow at 5.2% in
2014 at the backdrop of increased investment
in natural resources and infrastructure.
This growth story could however be
watered down by the increasing borrowing
if not contained. According to Christine
Legarde, IMF Managing Director, African
nations risk ‘spoiling’ the Africa rising narrative.
Governments should guard against
overloading their countries with too much
debt.
South Africa has been issuing debt for
many years. Ghana and Gabon issued US$
750 million and US$ 1billion respectively
in 2007 followed by Senegal in 2009 (US$.
500 million) and Nigeria in 2011 with a
similar amount. In 2012, Zambia issued
US$ 750 million while Angola issued US$
1billion.
Closer home, Rwanda issued its Debut
bond in 2013 (US$ 400 million) while during
the same period, Ghana reissued US$
1 billion and Nigeria reissued US$ 1 billion.
The two nations have had the highest
rollover rates for both short and long term
borrowings reaching 28 % and 26% respectively.
In the same year, Namibia issued US$
500 million while Tanzania issued US$ 600
million.
Recently, Kenya closed its US$ 2 billion
offering amidst concerns that conditions
were likely to be less favourable owing to
US Federal Reserve tapering. The issue was
oversubscribed like most of other offerings
across Africa.
Now that Africa has the funds, does it
mean that its business on to the next level?
There are underlying dangers depending
on the circumstances at hand, especially if
the funds are diverted from the designated
use to fund more recurrent expenditure or
the government does not generate enough
revenues (‘original sin’) to service the repayments.
Is the wave of default experienced in the
Euro area likely to hit Africa in a decade to
come? The probability is high. But why do
nations default in the first place?
Default, is as old as civilization. The
first default occurred in 377 BC in Ancient
Greece. Arguably, because of uncertainties
and default penalties, governments most
often face two trade-offs: between foreign
repayment and default and between domestic
default and repayment through distortionary
taxation. The government decides
each period whether to transfer resources
away from the economy as repayment of
debt to foreign investors or keep resources
at home and suffer default penalties. When
output is low ceteris paribus, it is more
costly for a risk averse borrower to respect
the contract.
The second trade-on is new and drives
domestic debt and default policies. This
trade-on is drawn along different lines, as
both repayment and default on domestic
debt is a transfer of resources within the
economy. In the case of default on domestic
debt, government suffers default penalties
similar to foreign default penalties. When it
decides to repay however, it needs to finance
this repayment with costly tax collection.
This trade-on draws distinction between
tax-financed and debt-financed expenditure
policies.
Empirical evidence proves that domestic
debt plays an important role in build-up to
sovereign default. Worse still, the government
has the full discretion to allocate the resources
appropriately.
Africa is almost fully out of the donor
aid dependency days. Its competitiveness on
the global space is making it increasingly visible
as witnessed by the growing and favourable
ratings by Ratings Agencies. Presidents
continuously become democratically elected
and formulate forward thinking policies and
agendas. FDI flows too continue to have
an impact on key projects and bottom-line
growth projections.
But even with these good prospects, most
African nations are grappling with problems
of balancing between spending on long term
Demonstrations
during the Greece
financial crisis
projects while meeting short term obligations.
In actual sense, African nations could be borrowing
for short term gains with the belief that
they will kick the pain down the road. A case
in point is Kenya that is fighting a huge wage
bill amidst billions worth of infrastructure
projects. None of the African nations are an
exception. That withstanding, corruption still
remains rife within the continent.
African nations can and will default: it is
unstoppable. While this wakeup call is coming,
it may not be too soon. The effects of this
could however be contained if governance is
kept a core priority while balancing growth
on core areas like healthcare and education.
Failure to generate revenues to repay debt will
be spectacularly sinful.
By Michael Musau, michaelmusau@hmail.com
32 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 33

BANKING
Sector Report
Barclays Bank
courts new strategy
amid growth in
profit and loan book
Half year data released by Barclays Bank in August, 2014 shows
that the top tier lender advanced loans worth Sh11.6 billion in
the three months period between March and June, bringing its
loan book to Sh128.4 billion as at June, 2014.
The growth in Barclays
Bank’s loan book in the first
half of the year was accompanied
by a corresponding
rise in its net income, which
according to statements, increased 13
percent year-on-year to Sh4.2 billion
for the half year ended June, 2014.
Despite the assuredly strong
growth in the first half of the year,
Barclays Bank did not declare an
interim dividend. The bank’s management
nevertheless promised investors
that it would maintain the full year
dividend payout at 50 percent of
net profit; meaning that half of its
income will be distributed to shareholders
at the end of the year. By its
explanation, the decision to refrain
from issuing an interim dividend and
instead issue a dividend at the end
of the year was inspired by the need
to preserve cash in order to comply
with higher capital adequacy ratios
set by the Central Bank of Kenya
(CBK). Barclays will also borrow Sh4
billion from its London based parent
company, Barclays plc, to meet the
higher capital adequacy ratios set by
the CBK. “We plan to take a loan from
our parent. This will be cheaper compared
to issuing a bond in the local
market,” said Yusuf Omari, Barclays’
chief financial officer.
Besides allowing Barclays to
comply with CBK’s higher capital
adequacy ratio, the ability to access
capital at a cheaper price from its
overseas parent may give it a competitive
edge in the course of implementing
its new strategy. Like other
banks in the Kenya market, Barclays
has realized the need to tap into
what the bank’s CEO, Jeremy Awori,
describes as “promising sectors.”
These sectors include real estate and
SMEs. Hitherto, Barclays had taken a
conservative approach toward SMEs
and real estate. However, this has
changed. “We’re not complacent; we
want to grow our loan book in the
promising sectors,” said Barclays chief
executive Jeremy Awori at a press
briefing on August 12, 2014.
Strategic shift
Barclays is currently in the middle
of a strategic shift that will not only
see it delve into the SMEs and real
estate sector, but also increase its risk
appetite. Before, Barclays had more
stringent credit approval processes
for huge loans as the loans had to
be green lighted by its executives in
London and Dubai. This greatly acted
against it as big borrowers turned to
other local lenders who could process
their loan applications faster. The
recent consolidation of all African
subsidiaries of Barclays plc has
however changed the reporting relationships
and Barclays Kenya now
reports to South African unit, Absa.
This realignment will allow Barclays
to furnish the financing needs of big
borrowers in the Kenyan market
much faster, allowing it to grow its
loan book at even more feverish pace.
The new focus on real estate
is also timely. It comes at a time
when the Kenyan real estate sector
is witnessing explosive growth.
According to the Economic Survey
2014, Kenya’s building and construction
sector expanded 5.5 percent in
2013, up from 4.8 percent in 2012.
This growth is expected to persist,
especially after pricing in the positive
effect that increased entry of cement
firms in the country will have on construction
activity.
Nigeria based Dangote Cement
in 2013 announced that it would
establish a cement plant in Kenya.
Initially, the plant was supposed to
produce 1.5 million tons per annum.
The firm however amended its initial
target and expanded the proposed
scale of the plant to 3 million tons per
annum. “We are reviewing plans for
Kenya with a view to increasing the
scale of our proposed factory from 1.5
million tons per annum to 3 MTA,”
said the firm in statements. Apart
from Dangote Cement, ARM Cement
is also keen on increasing its output in
the country and has since announced
that it will commence construction of
a new $300 million plant in Kitui in
October, 2014. The entrance of new
cement firms is expected to markedly
reduce the cost of cement. This,
according to experts, will prompt real
estate firms to construct more, pushing
them to take out more loans from
financiers.
Barclays’ decision to focus on the
real estate sector was also plausibly
informed by increased transparency
in Kenya’s real estate sector. Kenya’s
real estate sector has become more
transparent, according to US-based
financial and real estate consultancy
firm, Jones Lang LaSalle. In a new
report, the consultancy firms contends
that Kenya’s real estate sector is now
in the semi-transparent category, coming
in at position 55 globally up from
67 in 2013. Countries in the report
are grouped into highly transparent,
transparent, semi-transparent, low
transparency and opaque. Compared
with other African markets, Kenya
was only edged out by South Africa,
Botswana and Mauritius.
The study states that concerted
Country Category
South Africa Transparent
Botswana, Semi-transparent
Mauritius, Kenya
Zambia, Uganda Low Transparency
Ghana, Nigeria, Opaque
Mozambique,
Angola, Ethiopia,
Senegal
Source: JLL, Lasalle Investment
Management
efforts by the private and public sector
have led to an improvement in
the quality of data in the real estate
sector. This, according to the study,
justified Kenya’s improvement in
global transparency rankings. “The
strength of market fundamentals data
has also started to improve as private
companies are beginning to collect
real estate data in a systematic way,”
stated the report. “There is a growing
evidence of published property
market research and analysis, with
the increased entry of international
real estate advisers bringing improvements
in data availability, consistency
and collection,” it added.
Barclays is therefore making an
entrance into the real estate sector
at a time when growth is not only
high, but transparency is improving.
Continued reforms in the sector, such
as digitization of title deeds and the
introduction of laws guiding Real
Estate Investment Trusts (REITs),
are great indications that things will
get better. Barclays is thereby likely
to derive a growing portion of its
income from the real estate sector in
the future. Accordingly, it announced
that it would set up a mortgage desk,
signaling its desire to venture into
real estate as soon as possible. Deeper
involvement in real estate will put
Barclays in a position to challenge
players like Kenya Commercial Bank
(KCB) and Housing Finance, who got
in earlier.
New opportunities
Barclays Bank is also eyeing the
SMEs sector. It recently head
34 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 35

TRANSPORT
Sector Report
hunted Standard Chartered Kenya’s
general manager for SMEs, Humphrey
Muturi. At his new station at Barclays,
Muturi will head the business banking unit.
Among his responsibilities, Muturi will focus
on small and medium sized businesses. The
new business banking unit will build its
business through a relationship-managed
model. Muturi, who was quoted on an interview
on the Standard Newspaper, said that
the bank’s exclusive business club will train
its clients “on the hard and soft skills to manage
their business.”
Some of the products in the SME pipeline
include products aimed at supporting
farmers. Muturi also iterated the bank’s
pledge to venture into real estate, saying that
a product aimed at financing commercial
property development from end to end was
in the works. “This (SMEs) is a segment
that can boost Kenya’s economy greatly.
SMEs contribute approximately 70 percent
to Kenya’s economy, so we must include
them in our everyday decision making and
running of organizations,” said Muturi in the
Standard Newspaper interview.
Besides SMEs, Barclays is also exploring
opportunities in investment banking and
is to that effect establishing an investment
This (SMEs) is a segment
that can boost Kenya’s
economy greatly. SMEs contribute
approximately 70 percent to Kenya’s
economy, so we must include them
in our everyday decision making and
running of organizations,”
- Standard Chartered Kenya’s general
manager for SMEs, Humphrey Muturi
banking desk to grow fees from advisory services.
This, according to the lender, will allow
it “to diversify into transactional services
such as debt and equity capital markets as
well as mergers and acquisitions.” The move
comes at a time when there is a growing
demand for deals in the country. According
to a report co-authored by Deloitte and
Africa Assets, 12 deals cumulatively valued
at over Sh9.7 billion were concluded by
private equity firms in Kenya in 2013. In
contrast, 10 transactions and 9 transactions
were posted in South Africa and Nigeria over
the same period, respectively. Overall, the
number of private equity deals struck in East
Africa doubled from 13 in 2012 to 26 in
2013, with Kenya leading the pack. “Kenya
remains an area of interest because private
equity firms see at as the most mature and
diversified market in the Eastern Africa
region,” remarked Ms. Andrea Bohnstedt,
Africa Assets Director.
Another area that has captured Barclays’
attention is the energy sector, including the
capital-intensive oil and gas sector, which
has since received overwhelming attention
following major oil discoveries in Turkana.
CBK reports show that energy is one of the
greatest drivers of credit uptake in the country.
Kenya Electricity Generating Company
(KenGen), for instance, is seeking Sh425 billion
to add an additional 5,000 megawatts
into the national grid by 2018. This is among
the many initiatives spearheaded by the
government with the objective of increasing
energy supply. As the government continues
to carry out its plan of increasing energy
supply in order to lower energy costs and
consequently attract heavy investments in
manufacturing, loan uptake by energy firms
will undoubtedly increase. This is an opportunity
that Barclays Bank has identified.
Accordingly, it will start actively pursuing
lending opportunities in the energy sector,
including oil and gas.
36 Business Monthly | OCTOBER 2014

INSURANCE
Special Report
Kenya’s insurance
sector among fastest
growing globally
According to the Association of Kenya Insurers (AKI) 2013 Report released
in August 2014, Kenyan insurers collected premiums totaling Sh86.6
billion in 2013, up from Sh71.5 billion in 2012. This translated into a 21.1
percent growth, which by AKI’s assessment, was marked as the second
fastest growth globally after Jordan’s 24 percent growth.
While coming in second globally is a commendable
feat, Kenya’s insurance sector
will have to exert more effort if it intends
to meet AKI’s publicly stated goal of
attaining Sh200 billion in gross premiums
by 2015. The goal, which is outlined in AKI’s Strategic
Plan (2011-2016), is still far from attainment, despite the
stratospheric growth in the past year.
Source: AKI Annual Report 2013
According to the AKI report, Kenya’s
insurance penetration—a ratio of premiums
collected compared with country’s GDP—
came in at 3.4 percent in 2013, up from 3.1
percent in the previous year.
By Lennox Yieke
The AKI report further highlighted individual insurers’
stake in the 2013 premium basket, outlining the
changes in market share of each insurer in the fiscal
periods preceding 2013. Jubilee Insurance maintained
its market lead with a market share of 10.00 percent
in 2013.
The report further indicates that Jubilee Insurance
enjoyed a market share of 11.21 percent in 2012. This
illustrates that despite maintaining its lead in 2013,
Jubilee’s market share has suffered significant dilution
over the past year.
As shown in the table, all of Jubilee Insurance’s
closest competitors increased their market shares in
2013 as compared with 2011. Moreover, Britam’s
acquisition of a 99 percent stake in Real Insurance
puts it in a favorable position (with regard to market
share) to launch a formidable offensive against
Jubilee Insurance. This heightened competitive
environment explains the slip in Jubilee’s
Insurance companies market penetration in Kenya (2011 - 2013)
Company 2011 2012 2013
Gross Percentage
Premium growth %
Market Gross Percentage
share Premium growth %
Market Gross Market
share Premium share %
(Sh‘000)
% (Sh‘000)
% (Sh‘000)
market share in 2013 relative to
2012.
According to the AKI report,
Kenya’s insurance penetration—a
ratio of premiums collected compared
with country’s GDP—came in at 3.4
percent in 2013, up from 3.1 percent
in the previous year. Comparatively,
developed markets such as UK and
Japan had penetrations of 11.5 percent
each, while US had 7.5 percent;
for 2013. This disparity between
Kenya and other developed markets
signals the wide scope for growth
in the Kenyan insurance
Market
share %
Jubilee 6,660,922 41.37 10.98 8,085,352 21.38 11.31 8,663,485 7.2 10.00
Britam* 2,349,216 31.60 3.87 3,112,745 32.50 4.36 3,826,506 22.9 4.42
Real* 1,540,421 10.28 2.54 2,217,761 43.97 3.10 2,537,429 14.4 2.93
CIC General 4,580,309 54.68 7.55 6,557,122 43.16 9.18 8,058,182 22.9 9.30
UAP Insurance 4,715,514 21.96 7.77 5,925,796 25.67 8.29 7,686,031 29.7 8.87
APA 5,019,780 8.86 8.27 5,590,038 11.36 7.82 6,553,965 17.2 7.56
ICEA Lion Gen 1,914,916 -2.29 3.16 4,014,690 109.65 5.62 4,563,514 13.7 5.27
*Britam acquired Real Insurance and now has the combined market share of both
Source: AKI
sector, suggesting that the battle for
market share will intensify in the
coming years.
Consolidation
In addition to the huge room
to expand market share, new laws
requiring higher capital requirements
in the insurance industry have also
inspired the rising wave of mergers,
acquisitions and expansion in the sector.
Britam, UAP and CIC Insurance
are all at different stages of fundraising
for expansion through the Nairobi
Securities Exchange.
“We are looking for mergers and
acquisitions and are already in talks
with several companies. We
want quality companies
not just in Kenya, but in
East Africa and internationally.
Jubilee has funding for
this,” said Nizar Juma, Jubilee
Holdings Chairman, during the
firm’s annual general meeting.
Jubilee’s appetite for deals is
not only informed by the need to
grow its capital base, but also by
a calculated response to competitors’
actions. “A number of companies
are announcing mergers and
takeovers and this may result in a
de-facto attempt to challenge our
leadership position,” remarked Nizar
Juma.
There is a sense of unanimity
among experts regarding the need for
forced mergers in Kenya and across
the wider African market. This will
reduce the number of companies with
low capitalization, mitigating liquidity
threats in the market. “There is a
definite need for ‘arranged marriages’
to facilitate the mergers and acquisitions
in order to build scale within
the insurance industry,” said Arnold
Ekpe, former CEO of Ecobank. Ekpe
added that: “regulators should ensure
that the biggest insurance companies
operating in African markets
are local, just like in other global
markets.”
Besides growing through mergers,
acquisitions and capital injections,
insurance companies are also
adopting new channels in order to
not only reach current customers
easier, but explore previously inaccessible
markets. “The future is about
channels rather than products,” said
George Kuria, head of retail and mass
distribution at UAP Insurance. In
this regard, insurance companies are
increasingly integrating their operations
with digital tools. This way, it
becomes possible to reach many customers
simultaneously through various
tools such as mobile and internet
platforms.
The increased use of banks to sell
insurance services has also resulted
in increased uptake of insurance services
in the country. This practice,
which is part of a broader set of
recommendations in the Insurance
Amendment Bill, 2013, allows insurance
companies to leverage on banks’
wider physical footprint to distribute
their products across a greater scale.
Moreover, banks have cleverly bundled
insurance products with some
of their traditional banking products.
This has amplified sales for insurance
companies as the demand for banking
products is typically high. As an
example, banks now require borrowers
to take life covers when they
apply for personal loans. Similarly,
they have also stated the need for borrowers
to insure their businesses as a
requisite for the provision of working
capital.
38 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 39

INSURANCE
Special Report
While the involvement of banks has
been largely positive, insurance agents have
not taken kindly to this new development.
They want banks to stop issuing insurance
to customers, arguing that the practice
is displacing agents from the market.
Bima Intermediaries Association of Kenya
Chairman, Washington Ndegea, said that
agents have lost more than 60 percent of
clients to banks. Ndegea was speaking in
Kisumu in August, 2014, where he met
more than 50 agents in a meeting aimed at
soliciting their views and sensitizing them
on Bima’s bid to acquire self-regulation and
gain official recognition in the industry.
Despite Bima’s legitimate concerns, its
pleas are unlikely to gain momentum or
inspire regulatory changes. Figures from
the Insurance Regulatory Authority (IRA)
show that the number of insurance companies
in 2013 was 48 compared with 43
in 2007. Over the same period, however,
the number of agents has increased disproportionately
from 2665 in 2007 to 4628
in 2013. This high fragmentation in the
insurance agent segment goes against best
practices and compromises quality, encourages
price undercutting, and dilutes earnings
for agents. The sale of insurance products
through banks is thereby likely to persists,
at least until insurance agents consolidate to
form larger sustainable companies.
Mixed bag
Despite what outwardly appears as reassuring
growth, Kenya’s insurance sector still has
a few pockets of weakness. A deeper probe
into the AKI report shows that insurance of
private motor vehicles performed dismally,
highlighting the growing problem of price
undercutting.
Losses in private motor insurance widened
from Sh100 million in 2012 to Sh749
million in 2013, the AKI report shows. “This
can be attributed to the failure by underwriters
to adhere to the prescribed motor underwriting
guidelines issued by the Insurance
Regulatory Authority,” said the AKI in its
report. Comparatively, other classes of risks
brought in reasonable profits for insurers in
2013. The greatest performer was commercial
vehicle insurance, which was ironically a
troublesome class for insurers not long ago
“Most companies have
improved their claims
management process
which has helped in
taming leakages,”
- AKI chief executive, Tom Gichuhi.
due to rampant fraud. The class brought in
profits of Sh1.59 billion for insurers in 2013
compared with Sh1.56 billion in 2012.
The emergence of commercial vehicle
insurance as a key profitability driver was
greatly influenced by the introduction of
structured judicial awards in the PSV
industry. As argued in the AKI report, the
Insurance Amendment Act, 2013, which
introduced the structured compensation
scheme, aims “to proactively tackle the issue
of fraud where persons who seek to benefit
from the use of fraudulent documents will
have the entire judgment cancelled including
facing criminal charges.” Before these
reforms, insurance companies complained
that courts gave awards in an arbitrary
fashion. Sensibly, this loophole provided an
opportunity for fraudsters to relieve insurance
companies of millions of shillings
through exaggerated claims.
Another area that performed commendably
was medical insurance. Medical cover
returned a profit of Sh119 million after making
underwriting losses since records started
being kept five years ago. “Most companies
have improved their claims management
process which has helped in taming leakages,”
remarked AKI chief executive, Tom
Gichuhi. Most insurers are now using biometric
technology to bar impesonaters. In
fact, a number of companies, including local
firms, have come up with solutions toward
this end. Locally based Silitech Technologies
last year launched an internet based medical
scheme management system that uses
biometric identification for authentication of
insured patients.
Overall underwriting income from the
various classes of risks in 2013 was Sh3.41
billion, up from Sh2.78 billion, the AKI
report shows. Investments, on the other
hand, earned firms Sh42.7 billion. The strong
income from investments was largely driven
by the improved performance of equities on
the Nairobi Securities Exchange in 2013.
Moreover, insurers with exposure to the real
estate sector also benefited from increases
in rental income during the year. The Hass
Composite Letting Index, which represents
all rental income in Kenya, shows that rent
rose by 2.3 percent in the first quarter of
2014. It further shows that as at March
2014, rents were 9 percent higher than they
were a year earlier. This explains why firms
such as Britam have doubled down their bets
on real estate.
40 Business Monthly | OCTOBER 2014

POLICY
Sector Report
Africa and
America:
Partners in a
shared future
Africa is not at all the same place it was when
I served as Assistant Secretary of State during
the Clinton Administration. In less than 20
years, in the space of one generation—even as
major challenges remain—Africa has witnessed
remarkable change. Back then, Sierra Leone
was locked in a decade-long civil war with
rebels hacking off limbs and abducting UN
peacekeepers. Today, Sierra Leone still faces
great challenges, not least Ebola, but it is also
contributing, now, peacekeepers to missions
of the United Nations and the African Union.
And, last March, President Koroma decided
Sierra Leone would join the Open Government
Partnership. That’s one generation of change.
Back then, close to 60
percent of Africa’s population
lived on less than
$1.25 a day. Too many
still live in poverty, but
that number has now dropped below
50 percent. And, Africa is home to 6
of the 10 fastest growing economies
in the world, an emergent middle
class, and robust markets for foreign
direct investment. That’s one generation
of change.
In 2000, AIDS was ravaging
Africa, and every projection showed
the disease growing and spreading
exponentially. But through
PEPFAR—where President Obama
has been able to build on an historic
foundation laid by President Bush—
the United States and our partners,
together have broken that curve. We
modernized our approach to match
Africa’s progress, and today, we’re
setting our sights on ending the
scourge of AIDS. That’s one generation
of change.
We can measure Africa’s progress
along any number of dimensions,
but one of my favourites is the
attitudes and ambition of the young
Africans who grew up in this era of
transformation. The commitment of
these young people is the best indicator
of Africa’s progress and the
most reliable predictor of Africa’s
success.
The United States has enduring
connections to people and partners
across Africa, earned through
decades of friendship and investment
in one another. Africa also has
strong ties with other regions and
nations, but America’s engagement
with Africa is fundamentally different.
We don’t see Africa as a pipeline
to extract vital resources, nor as
a funnel for charity. The continent
is a dynamic region of boundless
possibility and, as President Obama
said in Cape Town last year, we’re
building “a partnership of equals
that focuses on your capacity to
solve problems, and your capacity
to grow.”
Those are two important ideas—
capacity and equality. By capacity,
we mean Africa’s ability to ultimately
provide fully for its own
needs, without being dependent on
assistance. We want Africa to create
its own jobs, to feed itself, to care
for the health of its people, and to
prevent and resolve conflicts. Above
all, we want to help Africa build
the human capital that is so crucial
to its future—and that’s what our
young leaders initiative is all about.
That benefits us all. When one billion
Africans can live in greater prosperity,
security, freedom, and dignity,
America is better off.
The second key is equality.
Obviously there are differences of
resources and strengths both among
African countries and between Africa
and the United States, but an equal
partnership means we deal with one
another with mutual respect. We meet
our commitments to one another. We
work through differences together.
Most importantly, equal partners tell
each other the truth, even when we
may not want to hear it.
So, as long-standing friends,
it’s important that we speak to one
another candidly. For all that Africa
has achieved, progress has not come
fast enough nor spread far enough.
Discrimination and habits of corruption
still undermine many countries’
ability to govern effectively. Some
nations hold themselves up as global
leaders on certain issues while insisting
on lower expectations for Africa
on other issues. But, leaders can’t pick
and choose among the responsibilities
that come with being full players in
the community of nations. Leaders
must lead—especially on difficult
issues—and protecting the human
rights of all their people—regardless
of religion, gender, ethnicity, or sexual
orientation—is a government’s first
duty.
Of course, this truth-telling goes
both ways. The United States can also
do better. We have much more work
to do to change out dated mind-sets
in which Africa is often marginalized.
Too many Americans still only
see conflict, disease and poverty, and
not the extraordinarily diverse Africa,
brimming with innovation that’s driving
its own development. We need to
acknowledge that African economies
are already taking off, and that the
United States can do more to compete
to be a full partner in Africa’s success.
So, this is the moment to take
our partnership to the next level.
And that’s why President Obama is
hosting this historic Summit. Nearly
50 African Presidents and Prime
Ministers are scheduled to attend.
We’ll be joined by leaders from civil
society, faith communities, and the
private sector.
We’ve deliberately focused the
summit beyond the crises of the
moment to envision the future we
want and how we can work together
to achieve critical goals—10 and 15
years from now. We’re focused on
three major priorities: investing in
Africa’s future, advancing peace and
stability, and governing for the next
generation.
First, President Obama and
African leaders will expand the trade
and commerce that creates jobs in
all our countries. That’s what the
President’s Doing Business in Africa
campaign is all about—making it
easier for American companies to
invest in African businesses. It’s why
President Obama launched our Trade
Africa initiative to boost regional
trade within Africa while expanding
Africa’s economic ties with the rest
of the world. That’s why Secretary
Penny Pritzker led a delegation of
American companies to Ghana and
Nigeria in May. And, that’s why we’re
dedicating a full day of the Summit to
the U.S.-Africa Business Forum. These
efforts will lead to concrete progress
– increased trade, more investment,
deals that will support African growth
and American and African jobs.
With our partners in every region,
we’re building broad-based economic
capacity. As part of this, President
Obama will work with Congress
to achieve a seamless, long-term
renewal of the African Growth and
Opportunity Act and to make it more
effective.
Sometimes it’s easier for African
nations to trade with Europe or even
the United States than with their
nearest neighbours, so we want to
break down barriers that stymie
regional trade. Since 2009, we’ve
worked with public and private sector
partners in Africa to reduce long wait
times at their borders and to coordinate
customs procedures. It used to
take three days for goods to cross the
border between Kenya and Uganda.
Now it takes three hours—a time
savings worth about $70 million a
year. We’re utilizing Trade Hubs to
improve border management and to
help African firms compete in the
international market.
And one of the best ways we
can support business across Africa
is by expanding access to electricity.
That is the impetus behind President
Obama’s signature Power Africa initiative,
which is working with partners
to double access to electricity
and bring at least 20 million more
households on to the grid across
sub-Saharan Africa. With more than
$9 billion in initial commitments
from the private sector—and much
more coming—we’re developing new
sources of energy and enabling rural
communities to plug into the global
economy. And at the Summit, we will
build on that progress, so that Power
Africa becomes a lasting legacy for
the United States on the African
continent.
Of course, it’s hard to build a
business if you’re struggling to feed
your family or if you’re too sick to
work. While Africa is no longer home
to the majority of the world’s poor,
economic privation is still deeply
entrenched. And, critical to building
Africa’s capacity for trade is investment
in Africa’s development.
Rather than dictating outcomes,
we recognize that Africa’s future will
be determined by its own people. So,
we’ve built our development programs
around African leadership. Our
focus on agricultural development
stems from the African Union’s
Sometimes
it’s easier
for African
nations to
trade with
Europe or
even the
United States
than with
their nearest
neighbours,
so we want
to break
down barriers
that stymie
regional
trade.
42 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 43

INSURANCE
Sector Report
US is stepping up efforts to train peacekeepers
who are professional and effective forces who
can secure the region, and by extension the
global community, against terrorist threats, and
against threats that derive from conflict.
ticularly uneven. We’ve seen significant
improvements in places like
Liberia and Angola, but in the eastern
Democratic Republic of the Congo, in
Sudan and South Sudan, violence and
conflict have become entrenched. In
Somalia and Mali, weak governance
and extremism have enabled terrorist
groups to take root.
Contrary to some claims, the
United States is not looking to militarize
Africa or maintain a permanent
military presence. But we are
committed to helping our partners
confront transnational threats to our
shared security. I say this as the person
who got the 4 am phone call 16
years ago when al-Qaeda bombed our
embassies in Kenya and Tanzania.
Today, al-Qaeda in the Islamic
Maghreb is controlling parts of Mali,
Boko Haram bombs markets and
kidnaps young girls, and al-Shabaab
terrorizes a shopping mall in Nairobi.
That is why we are stepping up our
efforts to train peacekeepers who are
professional and effective forces who
can secure the region, and by extension
the global community, against
terrorist threats, and against threats
that derive from conflict.
For example, the African Union
Mission in Somalia has weakened al-
Shabaab and created the conditions
for Somalia’s nascent government
to operate. African nations provide
AMISOM’s troops, while the United
States and other international partners
help with training, equipment,
and salaries. We’re also supporting
African Union forces working to root
out the Lord’s Resistance Army in
Uganda and Central Africa. Between
2010 and 2013, our cooperation has
brought about a 75 percent drop in
the number of deaths caused by the
LRA and a 50 percent drop in abductions.
Since President Obama took
office, the United States has contributed
close to $9 billion to United
Nations peacekeeping operations in
Africa. Since 2005, the United States
has trained almost a quarter of a
million peacekeepers from 25 different
African countries. More capable
peacekeepers are now deployed
across the continent. Rwandans, for
example, who 20 years ago suffered a
terrible failure of UN peacekeeping,
are today among the largest and most
respected contributors. We’re committed
to making sure that African
peacekeepers have the capacity to
deploy quickly when conflict erupts
in order to save lives and help avoid
costlier international interventions
down the line. That will be a major
focus of our discussions next week –
an area where America will continue
to increase our commitment in the
months and years ahead.
Of course, true peace and security
stem from a deeper place. People
need to feel safe in their homes, confident
that they won’t be targeted or
victimized by corrupt systems. And
that’s why we’re also partnering with
African courts and legal systems and
police departments to strengthen the
rule of law and ensure justice is available
for all.
That brings me to the third major
issue on the Summit agenda: governing
for the next generation. In the
past ten years, 15 new democracies
in every region have taken root in
Africa. Earlier this year, Tunisia, for
example, adopted a new constitution
that enshrines core rights for women
and upholds an inclusive political
process. But, we’ve also seen countries
backslide towards autocracy.
The United States cannot and does
not try to dictate the choices of other
nations, but we are unabashed in our
support for democracy and human
rights. We will continue to invest in
promoting democracy in Africa, as
elsewhere, because, over the longterm,
democracies are more stable,
more peaceful, and they’re better able
to provide for their citizens.
But the reality is, in President
Obama’s words, “across Africa, the
same institutions that should be the
commitment to make food
security a continent-wide priority. It’s
not enough to react to crises—the
latest drought or famine. We must
break the cycle of hunger and poverty.
And that’s why Feed the Future works
directly with smallholder farmers to
make sure people can feed themselves,
by increasing crop yields and raising
incomes. In the past two years, the
New Alliance for Food Security and
the Grow Africa partnership have
helped more than 2.5 million farmers
in ten African countries.
We’re taking the same approach
to global health. We’re not just distributing
medications and administering
vaccines; together, we’re developing
comprehensive health systems
and strengthening nations’ ability to
care for their own people. We’re
reducing deaths from preventable diseases
and improving outcomes, particularly
in maternal health and child
health. And, thanks to the historic
commitments we continue to make,
we are approaching the day when we
can herald an AIDS-free generation.
The second key issue on the
Summit agenda is how we can
advance peace and regional stability.
Here, progress has been parbackbone
of democracy can all too
often be infected with the rot of corruption.”
This is something the people
of Africa know they must tackle
head on—calling their governments to
account and refusing to tolerate kleptocrats.
Wherever Africans stand up to
demand change, the United States will
be there, backing their efforts.
We’re supporting strong institutions
that facilitate the peaceful
transfer of power. So far, eight
African nations have joined the Open
Government Partnership, pledging
to promote greater transparency
and accountability. We are developing
strategies to support civil society,
particularly in areas where the space
is closing for citizens to take action.
We’re working with partners across
the continent to strengthen protections
for women, minorities, and members
of the LGBT community, because
countries do better when they protect
human rights and harness the talents
of all their people.
A major manifestation of our longterm
commitment to Africa’s future is
the President’s Young African Leaders
Initiative. This initiative has struck a
chord in Africa, which is home to some
of the largest “youth bulges” in the
world, and is brimming with talented
young people. Building on the success
of this initiative to date, President
Obama announced that we’re creating
four new Regional Leadership
Centers to provide training, support
for entrepreneurs, and regional networking
opportunities in Senegal,
Ghana, South Africa and Kenya.
Through the YALI Network, we’re
connecting young leaders with one
another and with opportunities here in
the United States. Over the next two
years, we’re going to double the size
of the Mandela Washington Fellowship
Program so that 1,000 young leaders
every year can come to the United
States, develop their skills, build networks,
and then return home and contribute
their talents to moving Africa
forward.
And that’s what the U.S.-Africa
Leaders’ Summit is all about—an
opportunity to recommit to ending
extreme poverty and reaching the
day when families don’t worry about
where their next meal is coming from;
it’s a chance to boost ties of trade and
investment, even as we ensure the
benefits are more broadly shared; it’s a
moment to redouble our joint efforts
to end violence where it has haunted
Africa for too long.
That’s what America is all about
– we’re about an equal partnership
with Africa; one that builds African
capacity, because we understand that
Africa’s success is in our common
interest. And 10 or 15 years from
now, I’m confident that we’ll be able
to look back on this Summit as a
pivotal point.
Across a vast and energetic continent—from
the northern sands
of Morocco to the Maasai Mara in
the east to the tropical forests of
Madagascar—Africans are already
seizing historic opportunities. So, as
we prepare to host this unprecedented
gathering of leaders, we want the
people of Africa to know that the
United States stands ready to join
with you. We share your vision of a
future that is more prosperous, more
equal, and freer—a future that can be
defined by the limitless potential of
what Africa and America can achieve
together, as equal partnersl.
By Susan E. Rice, U.S. National Security
Advisor.
44 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 45

ICT
Sector Report
New content
sharing law
strengthens
Zuku’s offensive
By Lennox Yieke
New content sharing rules requiring
all pay-TV operators to resell premium
and exclusive content such as the
English Premier League are expected
to redefine the pay-TV market.
ing for laws requiring DStv to resell
its premium content. In a letter sent to
the Competition Authority of Kenya
(CAK) barely a month before this
new regulation was announced, Zuku
asked the competition watchdog to
impose a financial penalty on DStv
for refusing to resell its premium content.
In a media statement following
the announcement of the new content
sharing rule by the CA Richard
Alden, Wananchi Group’s chief executive
officer, highlighted the firm’s prolonged
push to compel DStv to share
content on a commercial basis. Alden
Said: “We have been pushing for sharing
of premium content to eliminate
the dominance of one pay TV service
provider which also comes with very
high costs.”
Besides providing room for competition,
the new content sharing rule
by the CA marks a welcome departure
from the old way of doing things.
Before, there was no law to support
demands to compel DStv to
share its premium content. This is
because the CA, which was then called
the Communications Commission of
Kenya (CCK), had to seek authorization
from its parent ministry before
passing new regulations. Now, however,
the industry regulator has acquired
sufficient room to independently legislate.
Readjustment
Although DStv had not officially
responded by the time of going to
press, it had previously said that
coerced sharing of content had been
tried before in countries like South
Africa without much success. By its
explanation, lack of exclusivity erodes
the value of content, translating into
lower earnings for content producers
and leading to low uptake by advertisers.
This notwithstanding, DStv has
taken appropriate measures to adjust
to the impending change in Kenya’s
pay-TV regulatory landscape.
DStv has made public its plans
to launch a dedicated television station
called Maisha Magic for the East
African region. The move is seen as a
deliberate attempt to grow its market
share beyond the typical premium
content audience. In so doing, it will
offset whatever dilutive effects that
reselling of premium content to rivals
may have on its overall market share.
Maisha Magic, which DStv has
already invested Sh1.5 billion in, will
be launched in September 1, 2014. A
similar investment will also be made
in constructing a local production
studio, signaling DStv plans to fully
tailor its program offerings to the
preferences of the East African region.
“About 85 percent of the content will
be from Kenya as we build capacity
for other East African countries,”
said Michael Ndetei, the M-net East
African Director.
Besides offsetting whatever loss
in market share that the reselling of
premium content to rivals will cause,
DStv’s move to create an offering
exclusively tailored for the regional
market is also aimed at capturing
Kenya’s growing TV advertising
spending. By 2017, TV advertising
is expected to comprise close to half
of total advertising in Kenya. This is
aptly captured in a PwC report titled,
Kenya entertainment and media outlook:
2013-2017.
“In 2012, TV accounted for
35.3% of all ad spend in Kenya. But,
with the TV sector expected to grow
Sh1.5b
amount
already
invested by
DSTV towards
Maisha Magic
which is a
television
station
planned to
be launched
by the media
company
dedicated
towards the
East African
region
The new rules, which will
come into force in October,
2014, are part of a broader
set of regulations crafted
by the Communications
Authority of Kenya (CA) that will be
used to license all broadcasters. This
monumental shift in the regulatory
landscape is expected to end DStv’s
monopoly. DStv, which is operated
by South African firm MultiChoice,
controls close to 95 percent of the
pay-TV market. It has been using the
exclusivity of its premium content to
build a moat around its business.
“We are coming up with regulations
that will require all pay television
service providers to share premium
content on a commercial basis,”
said Francis Wangusi, the CA’s director-general.
“I know I am going to
rattle some players but that is it. CA
is the regulator and does not expect
all decisions to please all service providers,”
Wangusi added, intelligibly
alluding to DStv’s displeasure with
the new regulation. Under the new
guidelines, a formula for pricing the
premium content will be arrived at.
This, the CA says, is aimed at making
sure that DStv’s premium content is
not priced at a level that discourages
other providers from buying the
rights.
While this new regulation is
expected to loosen DStv’s firm grip
on the market, it is an irrefutable shot
in the arm for Zuku. Zuku, which
is operated by Wananchi Group,
has been perennially lobbyin
strength over the next five years
– assisted by the emergence of a new
urban middle class with money to
spend on consumer goods – this share
will increase to 45.8% by 2017,” read
the PwC report in part. The report
further contends that overall pay-TV
subscriptions in the country will have
reached 15 percent by 2017 compared
with just 8 percent in 2012,
indicating that the growth in TV ad
spending will largely be fuelled by
increased pay-TV subscriptions.
If DStv can capture a sizeable
audience through its locally tailored
channel, it will be able to divert a
tidy portion of Kenya’s increased ad
spending into into its pocketbook.
This will however not be a walk in a
park as competitors such as Zuku are
expected to increase their offensive,
especially now that the new content
sharing law has opened up some
leeway for growth. According to the
PwC reports, competitors such as
Zuku are: “challenging the incumbent
MultiChoice by diversifying their
offerings and cutting prices.” Zuku is
however not counting on a wider program
offering and competitive pricing
alone to sustain its margins. It has
also diversified into the fixed-line
internet market.
Diversification
The latest industry statistics by the
CA shows that Wananchi Group,
which owns the Zuku brand, substantially
increased its share of the fixedline
internet market over the past
year. The report, which relates to the
period between January and March,
2014, says that Wananchi Group
increased its market share to 44.7
percent from 35.4 percent in 2013.
Liquid Telecoms came in a distant
second after its market share declined
to 17.8 percent from 23.7 percent a
year earlier, the report adds.
Despite Zuku’s stratospheric
growth in the period under review,
other providers in the fixed-line
46 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 47

THE NEW FORD FOCUS
ICT
Sector Report
MORE THAN A CAR
internet market increased their
subscriptions by small margins, signaling
that most of the new subscriptions
over the past year originated
from Zuku. Over the period, Telkom
Kenya netted 1,134 clients to push its
market share up marginally to 11.6
percent. Jamii Telecoms, the owners
of the Faiba brand, added 674
new clients over the period, lifting
its market share to 2.6 percent from
2.1 percent a year earlier. Safaricom
added 564 new subscribers in the
fixed-line internet market during the
period to lift its market share to 7.1
percent. This is a sharp contradiction
to the situation in the mobile internet
segment, where Safaricom commands
a towering 72.1 percent market share.
Zuku’s increased growth in the
fixed-line internet market comes
against the backdrop of growing
internet penetration in the regional
market. The CA report indicates that
internment users in Kenya during the
first quarter of the year rose to 21.7
million individuals compared with
16.4 million individuals in the year
ago period. “It is expected that the
data/internet market will maintain an
upward trend in the coming periods
considering the increasing integration
of ICTs within various sectors of the
economy,” read a section of the CA
report.
While most of the growth in
internet penetration is expected to
continue coming from mobile users,
market watchers argue that Zuku’s
model will allow it to sustain demand
for its fixed-line internet offering. A
report prepared by reportlinker.com
and sold by Analysis Mason contends
that Zuku’s strong focus on the residential
market provided the necessary
impetus to grow its subscription rate.
“Historically, fixed broadband was
perceived in Africa as a privilege of
the enterprise market or a few residential
areas, but Zuku has effectively
challenged this perception by indicating
a growing demand for fixed
broadband in the residential market,”
48 Business Monthly | OCTOBER 2014
notes the report. The report further
says that Zuku’s competitive pricing
has been instrumental in roping in
some mobile internet users into the
fixed broadband market. “Zuku has
streamlined its installation and operations
to offer a service that has reasonable
pricing at a relatively small
premium to mobile broadband offerings
at between sh3000 to sh4000,”
reads the report in part, comparing
these price points to mobile offers,
which present much slower mobile
internet access at Sh2000.
Zuku also has offers that bundle
its internet service with its pay-TV
service. The Zuku Triple Play offering
is a case in point. This offering provides
broadband, TV and voice in one
package. This not only allows Zuku
to leverage the scale of its internet
market to fast-track the growth of its
pay-TV business, but it also places
the telecoms firm in a position to
start streaming content over mobile
devices. Offering content through
streaming over mobile devices such as
smartphones and tablets is expected
to be the next big trend in Kenya’s
pay-TV business. This trend will be
inspired by the growing mobile ad
spending in Kenya. The PwC report
Zuku’s
competitive
pricing
has been
instrumental
in roping in
some mobile
internet users
into the fixed
broadband
market
projects that total mobile ad spending
in Kenya will total $15 million
(Sh120 million) in 2017, compared
with the current $5 million (Sh40
million). This explains why DStv
has been aggressively promoting its
mobile streaming app and mobile
devices such as the DStv Walker.
Despite Zuku’s apparent head
start in the fixed-line internet market,
the future is all but certain.
Other fixed-line internet operators
are actively pursuing expansion plans
to tap into the wide scope for growth
in the market. Liquid Telecom Kenya,
for instance, has rolled out a Sh175
million fiber optic project in Siaya
County. This is the first project of
its kind in rural Kenya and signals
the growing interest to capitalize
on the devolved system of government.
“Rural Internet connectivity is
rather poor in Kenya due to lack of
infrastructure. What Liquid primarily
seeks to achieve in the partnership
with Siaya is open up the county
to new business opportunities and
improve government functionality,”
said Nic Rudnick, Liquid Telecom
Group CEO. The Siaya investment
is part of a broader plan by Liquid
Telecoms to invest Sh4.3 billion in
various counties across the country.
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AGRICULTURE
Sector Report
African leaders who
attended the African
Union (AU) meeting
in June, 2014 at
Malabo, Equatorial
Guinea, expressed
strong unanimity
over agriculture’s
fundamental role
in Africa’s growing
economy, citing, among
other arguments, its
incomparable potential
to reduce poverty
across the continent
This jolt of enthusiasm on
the subject of agriculture
inspired AU member states’
decision to renew their 2003
Maputo Declaration pledges
that require them to allocate 10
percent of their national budgets to
agriculture. But as Business Monthly
discovered, the past decade has been
more talk and less action on the part
of African governments. Only ten AU
member states have followed through
on the Maputo Declaration. Kenya,
which is not one of them, allocated
a measly 3.3 percent or Sh53.3 billion
of national spending on agriculture
for the fiscal period 2014/15.
Business Monthly went behind the
eloquent yet unfulfilled pledges made
Kenya’s agricultural
sector needs more
than mere pledges
in Maputo ten years ago to unearth
the real issues stifling agricultural
growth in Kenya today.
Jane Karuku, president of the
Alliance for a Green Revolution in
Africa (AGSA), firmly believes that
agriculture will create sufficient jobs
to absorb the youth population.
Karuku, who was speaking to African
Business, an IC publication, says:
“There is no other sector, in my opinion
that is going to provide jobs and
absorb the youth bulge.” Karuku’s
statements fit into the greater problem
of youth unemployment, which
could get worse considering the rate
at which the youth population is
growing relative to the number of jobs
the economy is producing. Karuku
however argued that for agriculture to
realize its potential and employ youth
“they (AGSA) shall have to be clever
in how the use agriculture value
chains to excite the youth to start
participating in agriculture.” While
developing value chains is a proven
approach, it needs to be accompanied
with a raft of other measures in order
to achieve overall success.
Market accessibility
Most farmers are still victims of
poverty not because of low productivity,
but due to their inability to
access markets. “We see productivity
increases (after improved access
to inputs, training and so on). But
they will collapse if I’m not able to
sell (crops) and break the cycle of
poverty,” says Karuku in the African
Business interview, explaining that
inaccessibility to markets allows poverty
to persist regardless of farmers’
productivity.
Karuku’s views are iterated
by Sam Nwanze, chief executive
of Heirs Holdings, a firm with a
stake in Rwandan-based commodities
exchange, East Africa Exchange
(EAX). According to Nwanze, farmers
will grow crops and sell them at a
price based on how desperate they are
for cash at the time – they do not play
a role in determining the price even if
their product commanded a premium
on the international markets. This was
the primary inspiration behind the
move to set up the EAX commodities
exchange in Rwanda.
A commodities exchange is an
establishment where farmers deposit
their harvests in professionally managed
warehouses. Upon depositing,
farmers are issued with warehouse
receipts, which can be done by paper
or electronically. The receipts indicate
the type of commodity deposited,
quality, grade, location and ownership
details. This receipt can then be
presented to a financial institution
such as a bank where the farmer can
receive cash upfront up to 70 percent
of the value of the goods. The financial
institution can then recover its loan
when the commodities are sold by
the warehouse. The concept of a commodities
exchange basically creates a
win win situation in that the banks
grow their loan books, warehouses
makes money in storage fees and the
farmer gets a ready market, stable
prices and liquidity.
Following the success of the
EAX in Rwanda, African Exchange
Holdings (AFEX), the parent company
of EAX, announced plans to set
up shop in Kenya. “We focused on the
Rwandan Exchange and got it working
first. Setting up a commodities
exchange has a considerable cost. We
are now setting up our operations in
the Kenyan market,” said Kadri Alfah,
chief executive of EAX in media statements.
While AFEX’s move to establish
a presence in Kenya is commendable,
it is contingent on the successful passing
of a bill to legalize the Warehouse
Receipting System (WRS). By the
time of going to press, the bill to legalize
WRS was still in parliament. If it is
passed, it will enable stored grain to be
used as collateral for loans, allowing
farmers with receipts from registered
warehouses to access loans. Receipts
are not currently listed as negotiable
instruments; something that Londonbased
J. Coulter Consulting says is
common place in Africa. In a report,
the consultancy firm recommends that
warehouse receipts should be given
the status of negotiable instruments.
Although policy makers still need
to hammer out the legal aspects of
setting up a commodities exchange in
Kenya, all indications suggest that an
exchange is imminent. This should be a
game changer for smallholder farmers.
It will allow the farmers to focus exclusively
on crop production while the
warehousing companies focus on the
marketing effort. Before, smallholder
farmers who tried to access larger
markets were brutally turned away on
grounds such the failure of their storage
facilities to meet health standards,
or inability to supply required volumes.
Professionally run warehouses however
meet all required health standards
for storage. These warehouse companies
can also store hundreds of thousands
of tons of produce at any given
time, allowing them to supply higher
volumes to local, regional and international
markets with relative ease.
Besides relieving the farmer the
burden of marketing their produce
independently, commodities exchanges
also ease access to credit, enabling
farmers to restock supplies, expand
operations and meet other financial
obligations.
Most
farmers are
still victims
of poverty
not because
of low
productivity,
but due
to their
inability
to access
markets.
50 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 51

AGRICULTURE
Sector Report
Misaligned interests
Despite all outward appearances, there is a
lack of uniformity in the visions which policy
makers see for agriculture in Kenya. A perfect
case in point is the recent withdrawal of
several multinational corporations such as
Monsanto from research projects on genetic
technology following the government’s 2012
ban on importation of all genetically modified
organisms (GMO).
Since the government ban, the word
‘GMO’ has become a buzzword for sensational
right-wing political discussions. Amid
this zealotry, a lot of the facts have been
misrepresented or totally omitted. First, it
is unknown to many that the controversial
study which prompted the government’s
move to impose the GMO import ban was
recanted. The study, which linked GMO
products to cancer, was conducted by a
group of French scientists which was led by
Gilles-Eric Seralini. The Seralini led study,
whose findings were published in the journal,
Food Chemical Toxicology, was recanted
after it was established that the authors of
the study had not followed internationally
accepted standards of undertaking research.
Despite the recantation of the study, the
process of lifting the GMO import ban in
Kenya has dragged on severely. Over this
period, politicians have fanned unfounded
fears over the health implications of GMO
products. This has been defiantly done in the
face of sufficient empirical and journalist evidence
showing that biotechnology can safely
improve food production without necessarily
attracting adverse health implications. In
fact, Deputy President, William Ruto, previously
argued that African countries needed
to adopt biotechnology to enhance food
production. While addressing African states
at a conference in July, Ruto said: “We need
to ask ourselves: ‘How do we get farmers to
use benefits of science and biotechnology
to deals with the problems of hunger and
poverty?’ We should endeavor to demystify
scientific and technological knowledge for
farmers in our countries so that this knowledge
can be applied to ensure food security.”
Despite the Deputy President’s acknowledgement
of the ability of biotechnology to
transform agriculture, policy makers continue
to stonewall the process of lifting the
ban amid a seemingly outright unwillingness
to make compromises.
Steep costs
While regulation on any scientifically
enhanced food production techniques is recommended
and welcome, the current blanket
ban on all scientific crop production techniques
is an extreme measure. This is because
it harms even non sensitive areas like nonfood
crops such as cotton. This has come at a
steep cost to the already ailing cotton industry,
which could have received a great boon
had the Kenya Agricultural Research Institute
(Kari) not stopped the process of bringing Bt
Cotton to market. Bt Cotton, which has a gene
that is resistant to bollworm, had undergone
successful trials. “We had completed the laboratory
and field trials for Bt Cotton and even
submitted the report to the National Biosafety
Authority as required by law. In fact, the NBA
(government body established to regulate
GMOs) was impressed by our findings,” said
Charles Waturu, one of the lead scientists on
Bt Cotton at Kari. Waturu argues that, had
“Since the government ban,
the word ‘GMO’ has become
a buzzword for sensational
right-wing political
discussions. Amid this
zealotry, a lot of the facts
have been misrepresented or
totally omitted.”
Bt Cotton been brought to market, it would
reduce the need for pesticides from about
twelve times to three times in the crop’s
lifespan. This could greatly reduce costs for
cotton farmers, allowing them to increase
output a time when Kenya depends heavily
on imports to meet her cotton demand.
If policy makers adopt a unified view
on scientific farming techniques—at least
in areas such as non-food crops to start
with—overall acceptance of GMO in food
crops may follow. This may lead to advances
in areas such as maize production, helping
the millions of farmers who depend on maize
farming.
Bt Maize, another GMO research being
undertaken by Kari that has since stalled
after the ban, was touted as a possible solution
to the country’s declining maize yields.
“Bt maize has the potential of increasing the
country’s maize yields, which have stagnated
for a long time now. It is also resistant to
pests like stem borer and grain borer,” said
Dr. Ephraim Mukisira, former Kari director.
Agreeably, maize yields in the country are
low. The Economic Survey 2014 indicates
that maize production fell from 39.7 million
bags in 2012 to 38.9 million bags in 2013.
The ministry of agriculture further projects
a 15 percent year-on-year slip in production
this year, outlining a broader trend of
extended declines in maize output in the
country. To plug the deficit, the government
said it would import maize from Tanzania.
Although the government promised price
stability, Kenyan smallholder farmers run
the risk of being edged out by imports from
Tanzania.
52 Business Monthly | OCTOBER 2014

BANKING
Product Review
KCB courts cashless concept with
a broad range of credit cards
As industries continue to pair
old routines with new technologies,
existing models are
being constantly challenged
with better, more efficient
ways of doing things. In Kenya, an area
such as payments has been magically
transformed by this revolution. Plastic
money and other types of cashless payments
are increasingly becoming the
norm. Progressively, point of sale terminals
for processing card payments are
being adopted by retailers. This is not
just being done by big-box retailers like
Tuskys, but also by local neighborhood
convenience stores.
The growing use of plastic money
has inspired Kenya Commercial Bank
(KCB) to rollout a broad range of credit
cards that not only offer the convenience
and safety of cashless payments,
but also boast of a raft of additional
incentives. Moreover, these cards offer
first-to-market features that have been
purposely tailored for the diverse needs
of different customers. In doing so, KCB
is providing value for everyone.
Business Monthly set out to investigate
the benefits of these cards while
debunking the wild myths about credit
cards that have over the years been
habitually meted out by misinformed
‘financial experts’. In doing so, we identified
the various needs that KCB’s
credit cards meet.
Something for shoppers
Tuskys Card
In collaboration with Tuskys Supermarket, KCB has a
MasterCard dubbed the Tuskys Card. Besides giving you the
convenience that a credit card does, the card can earn you
loyalty points from Tuskys supermarket. These loyalty points
can be redeemed during special offers, allowing you to get
something extra from Tuskys at no extra cost.
A: The Benefits
45 day interest free period. In simple
English: the card DOES NOT ATTRACT
INTEREST on the all purchases made and
paid for within the first 45 days.
Accepted at any MasterCard outlet
worldwide.
KCB Tuskys credit card offers you a
convenient and secure means of payment
at any MasterCard accepting outlet in the
world
KCB credit card allows you to transact on
the internet and make online purchases.
It enables you to withdraw money on any
KCB ATM in the region and any other Visa
and MasterCard branded ATM worldwide.
Line of credit is attached directly to card
account and available to cardholders with
a revolving option.
The cardholder can choose to pay for the
outstanding amount in full.
The credit card bill can be settled via
M-Pesa, Mobile Banking or Internet
banking.
B: The rates and fees.
Joining fee is a one-off Ksh2,000
Annual fee Ksh2,000
Payments on statement must be paid within
the 45 day period to not attract interest. As
you will find out, all other KCB credit cards
also have this compelling benefit.
Interest charged at 3.5% per month on
the daily outstanding balance from one
statement date to the next or at such rate as
the Bank shall determine from time to time.
Late payment – 5% of total amount due on
credit card.
C: Qualifying criteria
If Employed: Copy of National ID / Passport,
Copy of latest Pay slip with a minimum net
pay of Kshs.20, 000, Latest 3 months Salary
account bank statements from any local
bank.
If Self Employed: Copy of national ID and
Business Registration, Bank statements for
the last 6 months.
➢ Open to both KCB and non-KCB account
holders.
Welcome to the
middle class
Kenya’s middle-class is growing
at a feverish pace. Up-market coffee
shops, swanky shopping malls and exotic
luxury cars are increasingly becoming
the norm. One conservative estimate from
the African Development Bank indicates
that the number of Kenyans who fall in
the middle class category has doubled
over the past decade to 6.5 million
individuals, with separate corroborative
reports suggesting that the number could
be larger.
To tap into this middleclass, KCB has
introduced the Gold Visa card and the
International Classic Visa card; two credit
cards that promise to give an out-of-the
box experience for first time credit card
owners as well as individuals with the
need for a higher credit card limit.
The Gold Card
Want a seat at the high table? KCB has you sorted
with the Gold Card. This Visa credit card is the ideal
solution for savvy individuals with the need for a
higher credit limit. What we love about the card is
that for relatively the same rates as the International
Classic card, you get access to a lot more credit.
A: The rates:
Joining fee is Ksh4,000
Annual fee Ksh4,000
Payments on statement must be paid
within the 45 day period to NOT
ATTRACT INTEREST; KCB is yet again
giving you 45 days interest free period on
purchases, this time bigger purchases.
Interest charged at 3.5% per month on
the daily outstanding balance from one
statement date to the next or at such
rate as the Bank shall determine from
time to time.
Late payment - 5% of total amount due
on credit card.
B: The Benefits
Access to more credit
Global card acceptability
Full time customer service support
C: Qualifying criteria
Both KCB and Non-KCB customers
apply.
If Employed: Copy of National ID /
Passport, Copy of latest Pay slip with
a minimum net pay of Kshs.200, 000,
Latest 3 months Salary account bank
statements from any local bank.
If Self Employed: Copy of national ID and
Business Registration, Bank statements
for the last 6 months.
With more money in your card, the Gold
Card naturally opens your life to new
possibilities. You can pay your bills when you
are discussing your next big business deal
at an up-market coffee shop, visit luxury
retail outlets in exotic shopping locations
like Dubai or Durban, or even fuel your car
at Visa accepting service stations. The Gold
Card essentially gives you variety, freedom
and class at a generous rate.
To tap into this middleclass, KCB has
introduced the Gold Visa card, the perfect
card for individuals with the need for
higher credit card limit”
54 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 55

BANKING
Product Review
...for the middle class
International Classic Visa card
Tailored for the needs of a first time credit card holder, KCB’s International
Classic card is available for both KCB customers and those who do not
bank with KCB. We can comfortably say that the card allows you to get
something extra for realistic and competitive rates.
Something for travelers
Serena Card
In collaboration with the prestigious Serena Hotel, KCB is offering
customers who frequently travel a card dubbed the Serena Card. In
addition to presenting customers with the amazing benefit of not having
to convert currencies when travelling around the world, the card is a
gateway to a slew of incentives at all Serena Hotels worldwide.
What inspires our resounding conviction?
A: Great benefits
The International Classic card offers you a convenient and
secure means of payment at any VISA accepting outlet
worldwide. This not only allows you to conduct crossborder
transactions, but allows you to do so without
exchanging currencies.
Halfway through the month and running low on funds?
No need to worry; the card boosts your financial
immunity by eliminating the need to borrow in between
the month.
Line of credit is attached directly to card account and
available to cardholders with a revolving option.
Full time customer care service support.
B: Competitive rates and friendly repayment
scheme
Joining fee is Ksh3,000; this is a one-time payment.
Annual fee is Ksh3,000; this is a recurrent payment that
is made just once a year.
Payments on statement must be paid within the 45 day
period to NOT ATTRACT INTERST; KCB is basically giving
a 45 day interest free period on purchases.
Interest charged at a competitive rate of just 3.5%
per month on the daily outstanding balance from one
statement date to the next or at such rate as the Bank
shall determine from time to time.
Late payment – 5% of total amount due on credit
card.
The repayment scheme also gives the customer a lot
of flexibility as the card holder can choose to pay the
outstanding amount in full without being compelled to
pay in tranches. Moreover, the payment can be settled
via M-Pesa, Mobile Banking and Internet Banking,
eliminating the need for visiting brick-and-mortar
branches to make a simple payment.
What do you need to qualify for the
International Classic card?
Latest 3 months Salary account bank statements from
any local bank.
If Self Employed: Copy of national ID and Business
Registration, Bank statements for the last 6 months.
If employed: Copy of National ID / Passport, Copy of
latest Pay slip with a minimum net pay of Kshs.20,
000, Latest 3 months Salary account bank statements
from any local bank.
Both KCB and non KCB customers can apply.
There you have it. KCB is giving you a card with eased
entry requirements, competitive rates, a flexible repayment
scheme and a raft of mind-boggling benefits. This is truly
a winning offer.
A: The benefits
45 Days Interest Free Period On Purchases.
Flexible Payment Options.
Global Card Acceptability.
Incentives at Serena Hotels worldwide.
KCB Serena credit card offers you a convenient and secure
means of payment at any MasterCard accepting outlet.
The Card can boost your financial immunity, eliminating the
need to borrow in between the month.
KCB Serena credit card enables you to transact on the net
hence make online purchases.
It enables you to withdraw money from any KCB ATM in
the region and any other Visa and MasterCard branded
ATM worldwide.
Line of credit is attached directly to card account and
available to cardholders with a revolving option.
The cardholder can choose to pay for the outstanding
amount in full.
Available for both KCB Non-KCB account holders.
The credit card bill can be settled via M-Pesa, Mobile
Baking and Internet banking.
Access to over 5000 establishments countrywide and 24M
outlets worldwide.
B: The rates and fees
Joining fee is Ksh4,000
Annual fee of Ksh4,000
Payments on statement must be paid within the
45 day period to not attract interest.
Interest charged at 3.5% per month on the daily
outstanding balance from one statement date
to the next or at such rate as the Bank shall
determine from time to time.
Late payment – 5% of total amount due on credit
card.
C: Qualifying Criteria
Copy of National ID or Valid Passport
If employed: Copy of National ID / Passport,
Copy of latest Pay slip with a minimum net pay
of Kshs.50, 000, Latest 3 months Salary account
bank statements from any local bank.
If Self Employed: Copy of national ID and Business
Registration, Bank statements for the last 6
months.
Both KCB and Non KCB Customers Can Apply
The growing
use of
plastic money
has inspired
Kenya Commercial
Bank (KCB)
to rollout a
broad range
of credit
cards that not
only offer the
convenience
and safety of
cashless payments,
but
also boast
of a raft of
additional
incentives.
Corporate clients have something too
Verdict
Corporate Card
Corporations have also not been left out. KCB’s
Corporate Card is a MasterCard that allows a
corporation to gives its senior staff corporate cards
to pay for allowances, corporate travel expenses,
entertainment and so much more. Through this
card, corporations not only give their staff the
comfort and appreciation they deserve, but are
also able to track transactions more effectively,
enhancing financial prudence.
A: Benefits
Releases employees from the hassle
of carrying cash while out on official
duties.
Convenient and easy tracking of
staff allowances
Flexible corporate statements for
easy reconciliation
B: Qualifying Criteria
Banks statements for the last 6
months
Memorandum and Articles of
Association
Certificate of Incorporation
Audited Accounts for the last 2 years
Company Guarantee (internal
form)
Board resolution
Copy of ID / PP of applicants.
Duly filled card application
form
Overall, we give KCB’s credit card
offerings an average of 9 over 10.
Besides providing convenience and
targeting different markets, KCB
has proven that credit cards don’t
necessarily attract usurious interest
rates as previously thought by
many. This misinformed myth, which
originated from self proclaimed
financial experts, has been
debunked.
56 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 57

STRATEGY
Column
As an example and introduction, GE, a multi-business enterprise, has been changing
its corporate strategy by moving away from slow-growing business (appliances and
entertainment) and turning to future-growth industries such as clean-teeth and health care.
More importantly, GE CEO has reduced GE’s exposure to the financial markets by trimming
the GE capital unit. Although GE Capital produced roughly half of GE’s profits (based on onethird
of its revenues), it made GE more vulnerable to changes in the macro environment, as
became painfully apparent in the 2008-2009 financial crisis.
An illumination of
corporate diversification
These changes in GE’s strategy demonstrate
that firms must decide in which
industries and global markets to compete,
and that these choices are likely
to change over time. Answers to these
important questions are captured in a firm’s corporate-level
strategy.
While Business-level strategy concerns the
quest for gaining and sustaining competitive
advantage in a single product market( how
to compete) Corporate strategy involves the
decisions that senior management makes and
the actions it takes in the quest for competitive
advantage in several industries and markets
simultaneously (where to compete). When formulating
corporate strategy, managers must
clarify the firm’s focus on specific product
and geographical markets. Although many
managers and board directors have input in
this important decision-making process, the
responsibility for corporate strategy ultimately
rests with the CEO.
The two generic business strategies
that firms can pursue in their
quest for competitive advantage are
to: increase differentiation (while containing
cost) or lower costs ( while
maintaining differentiation). If tradeoffs
can be reconciled, some firms
might be able to pursue an integration
strategy by increasing differentiation
and lowering costs. To gain and sustain
competitive advantage, therefore,
any corporate strategy must align
with and strengthen a firm’s business
strategy, whether it is differentiation,
cost leadership, or an integration
strategy.
Corporate strategy concerns the
scope of the firm, which determines
the boundaries of the firm along three
dimensions: industry value chain,
products and services, and geography
( regional, national, or global markets).
To determine these boundaries,
executives must decide:
In what stages of the industry
value chain ( the transformation of
raw materials into finished goods
and services along distinct vertical
stages) to participate. This decision
determines the firm’s vertical
integration.
What range of products and services
the firm should offer. This
decision determines the firm’s
horizontal integration, or diversification.
Where in the world to compete.
This decision determines the firm’s
global strategy.
Horizontal, vertical and geographic
dimensions are the basis along
which corporate strategy is assessed.
The three dimensions create a space
in which corporate executives most
position the company for competitive
advantage. The underlying strategic
management concepts that will guide
our discussion of the vertical, horizontal,
and geographic scope of the firm
are economies of scale, economies of
scope, and transaction costs.
Economies of scale occur when a
firm’s average cost per unit decreases
as its output increases. Anheuser-
Busch InBev, the largest global brewer
reaps significant economies of scale.
Given its size, it is able to spread its
fixed costs over the millions of gallons
of beer it brews each year, in addition
to the significant buyer power
its large market share affords. Larger
market share, therefore, often leads to
lower costs. Economies of scope, in
turn, are the savings that come from
producing two ( or more) outputs or
providing different services at less
cost than producing each individually,
though using the same resources and
technology.
The second underlying strategic
management concept is transaction
costs, which are all costs associated
with an economic exchange. This strategic
management framework enables
managers to answer the question of
whether it is cost-effective for their
firm to grow its scope by taking on
greater ownership of the production
of needed inputs or the channels by
which it distributes its outputs ( vertical
integration).
What range of products and
services should the firm offer? In
particular, why do some companies
compete in a single product market,
while others compete in several different
product markets? Coca-Cola, for
example, focuses on soft drinks and
thus on a single product market. Its
archival PepsiCo competes directly by
Coca-Cola by selling a wide variety of
soft drinks and other beverages, and
also offering chips (Lay’s Doritos,
and Cheetos) as well as Quaker Oats
products (Oatmeal and granola bars).
Similarly, why do some companies
compete beyond their national
borders, while others prefer to focus
on the domestic market? Answers
to questions about the number of
markets to compete in and where to
compete relate to the broad topic of
diversification – increasing the variety
of products or markets in which to
compete. A non- diversified company
focuses on a single market, whereas a
diversified company competes in several
different markets simultaneously.
There are various general diversification
strategies:
A firm that is active in several
different product markets is pursuing
a product diversification
strategy.
A firm that is active in several different
countries is pursuing a geographic
diversification strategy.
A company that pursues both a
product and a geographic diversification
strategy simultaneously
follows a product-market diversification
strategy.
Because shareholders expect continuous
growth from public companies,
managers frequently turn to
product and geographic diversification
to achieve it. It is therefore not
surprising that the vast majority of
the Kenyan companies have recently
been bitten by the diversification bug.
However, achieving high performance
gains through diversification is often
not guaranteed. Some forms of diversification
are more likely to lead
to high performance improvements
than others. We now discuss which
diversification types are more likely
to increase value creation, and why.
Types of Corporate
Diversification
To understand the types and
degrees of corporate diversification,
Richard Rumelt of UCLA developed
a helpful classification scheme. A
firm follows a related diversification
strategy when it derives less than 70
percent of its revenues from a single
business activity but obtains revenues
from other lines of business linked
to the primary business activity. The
rationale behind related diversification
is to benefit from economies of
scale and scope: These multi-business
firms can pool and share
Because
shareholders
expect
continuous
growth
from public
companies,
managers
frequently
turn to
product and
geographic
diversification
to achieve it
58 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 59

LEADERSHIP
Column
resources as well as leverage
competencies between different business
lines.
We can further identify two
types of related diversification strategy:
related- constrained and related-linked.
When executives consider
business opportunities only where
they can leverage their existing competencies
and resources, the firm is using
related-constrained diversification.
The choices of alternative business
activities are limited – constrained by
the fact that they need to be related
through common resources, capabilities,
and activities. ExxonMobil’s
diversification move into natural gas
is an example of related-constrained
diversification.
If executives consider new business
activities that share only a limited
number of linkages, the firm
is using related-linked diversification.
For example, Disney follows a
related-linked diversification strategy.
It is active in a wide array of
business activities, from cable and
network television stations and movies
to amusement parks, cruises, and
retailing, which share some common
resources, capabilities, and activities.
Similarly, Amazon.com began business
by selling only one product:
books.
Over time it expanded into CDs,
and later leveraged its online retailing
capabilities into a wide array
of product offerings. Today, it is the
world’s largest online retailer, and
given the need to build huge data
centres to service its peak holiday
demand. Amazon decided to leverage
spare capacity into cloud computing,
offering Internet-based computing
services, again benefiting from economies
of scope (and scale).
Finally, a firm follows an unrelated
diversification strategy when
less than 70 percent of its revenues
come from a single business and there
are a few, if any, linkages among its
businesses. GE, for example, is following
unrelated diversification strategy.
Linkages between household appliances,
TV shows, jet engines, ultrasound
machines, and wind turbines
are not readily apparent. It should
come as no surprise that each of
GE’s divisions has its own CEO and
is managed as a standalone business
with profit- and- loss responsibility.
Perhaps this structure is what Kenyan
firms seeking diversification strategy,
should borrow.
Some research evidence suggests
that an unrelated diversification
strategy can be advantageous.
This arrangement helps firms gain
and sustain competitive advantage
because it allows the conglomerate to
overcome institutional weaknesses in
emerging economies, such as lack of
capital markets and well-defined legal
systems and property rights.
Competitive advantage can be
based on core competencies. Core
competencies are unique skills and
strengths that allow firms to increase
the perceived value of their product
and service offerings and/ or
lower the cost to produce to them.
Examples of core competencies are:
Core competencies
are unique
skills and
strengths that
allow firms
to increase
the perceived
value of
their product
and service
offerings
and/ or lower
the cost to
produce to
them
Apple’s ability to integrate hardware
and software into products
that provide a superior user experience.
To survive and prosper, companies
need to grow. This mantra holds
especially true for publicly owned
companies such as Kenya Airways,
Equity Bank, Britam among others,
because they create shareholder value
through profitable growth. Managers
respond to this relentless growth
imperative by leveraging their existing
core competencies to find future
growth opportunities.
Strategy consultants Gary Hamel
and C. K. Prahald advance the core
competence-market matrix, as a
way to guide managerial decisions
in regards to diversification strategies.
The first task for managers is to
identify their core competencies and
understand the firm’s current market
situation. When applying an existing
or new dimension to core competencies
and markets, four quadrants
emerge, each with distinct strategic
implication.
The lower-left quadrant combines
existing core competencies with existing
markets. Here, managers must
come up with ideas of how to leverage
existing core competencies to improve
the firm’s current market position.
In 2010, Bank of America was the
largest bank in the United States
(measured by deposits) and had at
least one customer in 50 percent of
U.S. households. Just 20 years earlier
Bank of America had been North
Carolina National Bank (NCNB) One
of NCNB’s unique core competencies
was acquisitions.
It bought smaller banks to supplement
its organic growth throughout
the 1970s and 80s, and from
1989 to 1992, NCNB purchased over
200 regional community and thrift
banks, to further improve its market
position. It then turned its core
competency to national banks, with
a goal of becoming the first nationwide
bank. Known as NationsBank
in the 1990s, it purchased Barnett
Bank, Bank South, Fleet Bank,
LaSalle, Countrywide Mortgages, and
its namesake Bank of America. This
example illustrates how NationsBank,
rebranded as Bank of America since
1998, honed and deployed its core
competency of acquiring and integrating
other commercial banks and dramatically
grew its scope to emerge as
one of the leading banks in the United
States. This is the best strategy that
should be followed by many small
banks in Kenya like Consolidated
Bank, National Bank and Post Bank
in order to reap the benefits of scale,
scope and transaction costs.
The lower-right quadrant combines
existing core competencies with
new market opportunities. Here managers
must strategize about how to
redeploy and recombine existing core
competencies to compete in future
markets. At the height of the financial
crisis in the fall of 2008, Bank of
America bought the investment bank
Merrill Lynch.
Although many problems ensued
for Bank of America following this
acquisition, it is now the bank’s
investment and wealth management
division. Bank of America’s corporate
managers leveraged an existing competency
(acquiring and integrating)
into a new market (investment and
wealth management). The combined
entity is now leveraging economies of
scope through cross-selling when, for
example, consumer banking makes
customer referrals for investment
bankers to follow up.
The upper-left quadrant combines
new core competencies with existing
market opportunities. Here, managers
must come up with strategic initiatives
to build new core competencies
to protect and extend the company’s
current market position. For example,
in the early 1990s, Gatorade dominated
the company for sport drinks,
a segment in which it had been the
original innovator.
PepsiCo brought Gatorade into
its line-up of soft drinks when it
acquired Quaker Oats in 2001. By
comparison, Coca-Cola had existing
core competencies in marketing, bottling
and distributing soft drinks, but
had never attempted to compete in
the sports-drink market. Over a 10-
year R&D effort, Coca-Cola developed
competencies in the development and
marketing of their own sports drink,
Powerade, which launched in 1990.
As of 2009, Powerade held about
20 percent of the sports drink market,
making it a viable competitor to
Gatorade, which still holds about 75
percent of the market.
Finally, the upper - right quadrant
combines new core competencies with
new market opportunities. Hamel and
Taken together, the core competence-market matrix provides
guidance to CEOs on how to diversify in order to achieve
combined growth. Once CEOs have a clear understanding of
their firm’s core competencies
Prahald call this combination “mega
opportunities’’ - those that hold significant
future-growth opportunities.
At the same time, it is likely the most
challenging diversification strategy
because it requires building new core
competencies to create and compete
in future markets.
Taken together, the core competence-market
matrix provides guidance
to CEOs on how to diversify in
order to achieve combined growth.
Once CEOs have a clear understanding
of their firm’s core competencies,
they have four options to formulate
corporate strategy:
Leverage existing core competencies
to improve current mar-
1.
ket position;
Build new core competencies to
2. protect and extend current market
position;
60 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 61

LEADERSHIP
Column
Redeploy and recombine existing
core competencies to com-
3.
pete in markets of the future; and
Build new core competencies to
4. create and compete in markets
of the future.
Corporate Diversification
CEOs pursue diversification to gain
and sustain competitive advantage.
But does corporate diversification
indeed lead to superior performance?
To answer this question, we can evaluate
the performance of diversified
companies. The critical question to
ask when doing so is whether the
individual businesses are worth more
under the company’s management
than if each were managed individually.
Research shows that the diversification
- performance relationship
Research shows that the diversification
- performance relationship is a
function of the underlying type of
diversification. A cumulative body
of research indicates an inverted
U-shaped relationship between the
type of diversification and the overall
firm performance.
is a function of the underlying type
of diversification. A cumulative body
of research indicates an inverted
U-shaped relationship between the
type of diversification and the overall
firm performance. High and low
levels of diversification are generally
associated with higher firm performance.
This implies that companies
that focus on a single business, as well
as companies that pursue unrelated
diversification, often fail to achieve
additional value creation. Firms that
compete in single markets could
potentially benefit from economies of
scope by leveraging their core competencies
into adjacent markets.
Firms that pursue unrelated
diversification are often unable to create
additional value, and thus experience
a diversification discount in the
stock market; the stock price of such
highly diversified firms is valued less
than the sum of their individual busi-
ness units. In contrast, companies
that pursue related diversification are
more likely to improve their performance,
and thus create a diversification
premium: the stock price of
related- diversification firms is valued
at greater than the sum of their individual
business units.
Why is this so? At the most basic
level, a corporate diversification strategy
enhances firm performance when
its value creation is greater than the
cost it incurs. For diversification to
enhance firm performance, it must do
at least one of the following:
Provide economies of scale, and
thus reduce costs.
Exploit economies of scope, and
thus value.
Reduce costs and increase value.
In addition to these criteria, CEOs
can enhance performance using a
diversification strategy by:
Restructuring
Using internal capital markets
Although diversification can create
shareholder value in theory, it is
often difficult to realize in practice.
Why then do we see so much diversification
taking place? One answer
is the principal – agent problem,
in which the interests of CEOs and
shareholders diverge. Diversification
generally leads to larger entities and
thus bestows more power, prestige,
and pay on corporate executives. In
this vein, a number of CEOs follow
this strategy strictly to feed their ego
and subsequently, their pockets.
Another reason why we see so
much diversification is that interdependent
competitors in oligopolistic
industry structures are forced to
engaging diversification in response
to moves by direct rivals. Based on
research conducted on competitive
dynamics, following ExxonMobil’s
acquisition of XTO Energy to move
Specifics on product differentiation
Differentiation
Companies that differentiate offer their customers
high perceived-value. To be able to afford to do this
they either increase their price and sustain themselves
through higher margins, or they keep their prices low
and seek greater market share. Branding is important
with differentiation strategies as it allows a company
to become synonymous with quality as well as a price
point. Nike is known for high quality and premium
prices; Reebok is also a strong brand but it provides
high value with a lower premium.
Focused Differentiation
These are your designer products: High perceived
value and high prices. Consumers will buy in this
category based on perceived value alone. The product
does not necessarily have to have any more real value,
but the perception of value is enough to charge very
large premiums. Think Gucci, Armani, Rolls Royce.
clothes either cover you or they don’t, and a car either
gets you around the block or it doesn’t. If you believe
pulling up in your Rolls Royce Silver Shadow is worth
25 times more than in an economy Ford then you will
pay the premium. Highly targeted markets and high
margins are the ways these companies survive.
into the natural – gas sector, other oil
majors also acquired natural – gas
companies in response. In January
2010, the French energy company
Total acquired and equity stake in
Chesapeake Energy, the second largest
producer of natural gas in the U.S.
In Kenya, Safaricom may consider
entering into direct Banking, to protect
their revenue base, should Equity
Bank’s entry into telecoms erode their
market share.
Some researchers also suggest
that bandwagon effects occur – firms
copying moves of industry rivals. A
bandwagon effect can be observed,
for example, in the recent related
diversification moves in the computer
industry, in which hardware companies
have moved into the software
and services sector and vice
versa. Microsoft, Google, Ericsson are
among the latest firms embroiled in
this strategic option. Such integration
In Kenya,
Safaricom
may consider
entering
into direct
Banking, to
protect their
revenue base,
should Equity
Bank’s entry
into telecoms
erode their
market share
between hardware and software leads
to industry convergence and brings
with it a new set of competitors.
Taken together, the relationship
between diversification strategy and
competitive advantage depends on the
type of diversification. There exists
an inverted U-shaped relationship
between the level of diversification
and performance improvements. On
average, related diversification (either
related-constrained or related-linked)
is most likely to lead to superior performance
because it taps into multiple
sources of value creation (economies
of scale and scope, restructuring). To
achieve a net positive effect on firm
performance, however, related diversification
must overcome additional
sources of costs such as coordination
and influence costs.
In the examples so far discussed
in this article, we are in a position
to combine vertical integration and
diversification to understand a firm’s
corporate strategy in a more holistic
fashion. A firm’s overall corporate
strategy concerns both its level of
integration along the vertical value
chain and its level of diversification.
In summary, CEOs should determine
the scope of the firm in such a
fashion as to enhance the firm’s ability
to gain and sustain a competitive
advantage. To delineate the boundaries
of the firm, CEOs must formulate
corporate-level strategy along three
important dimensions: vertical integration,
horizontal integration and
global scope and a combination of
all the three or any two. But corporate
strategy should be an option to
grow the firm and firm value, and
not to fuel a respective CEOs ego and
pocket.
This article is extracted nearly verbatim
from Frank T. Rothaermel (2013:200-
234) and edited by Dr. Hanningtone
Gaya, an adjunct assistant professor of
Marketing and Business Management
at the Riara School of Business- The
Riara University.
62 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 63

MONEY
Analysis
Capital markets to play
‘transformative role’ in
Kenya’s economy
By Lennox Yieke
Capital Markets Authority (CMA) acting CEO, Paul Muthaura,
is upbeat about the capital market’s role in Kenya’s economy,
believing that it will play a transformative role in the coming
years. While addressing the media in September, Muthaura
outlined the measures that would be taken under the Capital
Markets Master Plan (CMMP) to make Nairobi the “heart of
African capital markets.”
Muthaura not only discussed
the CMMP in
intimate detail, but also
shed light on some of
the key sectors that will
leverage on the strength of Kenya’s capital
markets, adding that the master plan
was critical to the realization of Vision
2030. Among the areas that will benefit
from the capital markets include: infrastructure,
energy, real estate and agriculture,
among others.
Investment destination
As expressed in the CMA media
briefing, the process of making Kenya
an investment destination in Africa
will be facilitated through a raft of
measures. Key among them is restructuring
existing financial products to
reflect the realities of today’s global
financial market. As an example, the
CMA is providing the organizational
support for the continued rollout
of Sharia-compliant capital market
products by various market intermediaries.
CMA’s active advocacy for Shariacompliant
products has not only
been inspired by the bulging domestic
Islamic population, but also by
Kenya’s proximity to the Gulf. Kenya
continues to attract increasingly heavy
investments from the predominantly
Islamic Middle East. This has increase
the need to comply with Islamic tenets
of finance. Qatar, for instance, has
pledged to support the development
of Nairobi as the region’s financial
hub to help enhance Kenya’s competitiveness
and attract foreign direct
investment. Speaking in April while
meeting Kenya’s President, Uhuru
Kenyatta, in Qatar, Qatari finance
minister, Ali Al-Emadi, said that “this
(support) will unlock Kenya’s potential
as an investment destination and
we are ready to work with Kenya in
achieving that goal.” During his April
visit to Qatar, Kenyatta was also able
to ink a double taxation agreement
with Qatar, signaling the impending
windfall of investment from the oil
rich Arab country. Before inking this
deal, the absence of a double taxation
agreement was a major hurdle
for Qatari investors looking to pump
money into Kenya’s energy sector.
The double taxation agreement
between Kenya and Qatar will cushion
investors from taxes on repatriated
profits once they (investors) have
paid similar levies in their country
of investment. This, observers say,
should stir increased investments in
Kenya’s energy sector and plug the
current gaping energy deficit, which
has been identified by policy makers
as “a bottleneck to the attainment of
Vision 2030.” Kenya’s energy deficit
greatly inhibits growth in the manufacturing
sector. This is because constrained
energy supply places upward
pressure on energy pricing, making it
costly for manufacturers to expand
operations and create jobs. By aligning
Kenya’s financial products with
Islamic law, Kenya can attract sufficient
investments from Islamic countries
to aid in plugging the energy
deficit.
Going forward, more Shariainspired
products will be brought
to market to drive investments in
energy and other strategic areas of
the Kenyan economy. “CBK has to
date licensed two Islamic banks - Gulf
African Bank and First Community
Bank (FCB), while various other
banks are offering Sharia compliant
services and products through
‘Islamic Windows,’” reads the CMMP
Acting CMA CEO Paul Muthaura at the media briefing Photo/Lennox Yieke
document.
Harvard Kennedy School’s May
2012 forum report on Islamic Finance
says that “there is significant scope
for expanding the industry (Islamic
finance)”. This assertion is supported
by data from separate corroborative
reports detailing the feverish global
spread of Islam relative to other religions.
According to a publication on
Pew Forum, an international organization
that conducts religious research,
the global Muslim population is
expected to grow at twice the rate
of the non-Muslim population over
the next two decades. This growth
in Islam will naturally be accompanied
by a corresponding increase in
Islamic finance. By expanding Shariacompliance
in the financial markets,
Kenya will effectively put itself in a
position to capitalize on the existing
wide scope for growth in Islamic
banking. This will not only attract and
retain Sharia-compliant investments,
but also serve a strategic geopolitical
interest. This is because Kenya will
be able to forge stronger political
alliances with Islamic countries and
dispel the misinformed tabloid-fanned
generalizations about Muslims.
Business Monthly also learnt that
the CMA’s Master Plan would focus
on providing access to international
financial markets in order to support
what it described as “developmental
and economic transformation”
for Kenya. This is timely, especially
when viewed within the context of the
recently issued $1.5 billion Eurobond,
which allowed Kenya to plug its budget
deficit by attracting foreign credit.
Statements issued after the issuance
Eurobond argued that the successful
issuance had opened a window
for domestic private corporations to
also issue their own Eurobonds in
future. When pressed on this matter
by Business Monthly during the
CMA media briefing, acting CMA
CEO Paul Muthaura described it as
an “interesting development”. He further
explained that allowing local
firms to access international financial
markets would allow these firms to
take advantage of the disparity in
interest rates across different markets.
By his explanation, the compara-
By expanding
Shariacompliance
in
the financial
markets,
Kenya will
effectively
put itself in
a position to
capitalize on
the existing
wide scope
for growth
in Islamic
banking.
64 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 65

MONEY
Analysis
President Kenyatta in April talks with the Emir Sheikh Tamim Bin Hamad in Doha Photo/PSCU
tively higher interest rates in
Kenya (when compared with markets
such as US) can make debt securities
issued by local firms more attractive
to foreign investors.
Despite the interesting prospect
of a local firm issuing a Eurobond,
Muthaura explained that the minimum
values of Eurobonds are generally
on the higher end, giving a ballpark
minimum value of between $400
and $500 million. For this reason, he
explained that the successful issuance
of Eurobonds by local firms would
probably happen much further up the
road, adding in his presentation that
the need for revising existing laws was
more pertinent and immediate.
Legal hurdles
According to Muthaura, one key
step in implementing the CMMP
would be to engage with the National
Treasury in order to lobby parliament
to amend certain prohibitive
laws, among them the Statutory
Instruments Act. The Act requires
public participation in policy-making
and statutory instruments development.
Despite the noble democratic
inspiration behind the Statutory
Instruments Act, it is out of touch
with international best practices
which recommend bypassing parliament
in the formation of secondary
financial service regulation.
The CMMP contends that opening
up the process to parliamentary
processes not only unnecessarily protracts
the implementation process,
but opens up the legislative process to
political risks, including where parliamentarians
may be under pressure
from conflicted persons.
Agreeably, delegating secondary
legislative powers to the regulator is
an urgent need given the phase which
Kenya’s capital markets are in. The
market is currently in the process of
integrating both regionally and globally.
As such, the need to harmonize
laws stacks justifiably high on the priority
list. This harmonization process,
however, can be greatly stonewalled
by inefficiencies in the legislative process.
The need for a less bureaucratic
legislative process is a concern that
has not only been expressed by the
CMA, but by international observers.
In the World Economic Forum
Entrepreneurial Ecosystems Report
2013, excessively lengthy law making
procedures were identified by some
participants as a great inhibitor to
business. Kenya should not fall into
this trap, especially considering the
number of small companies that the
CMA intends to list on the stock
exchange under the growth enterprise
segment (GEMs). Presently, the
only company under the GEMs segment
is Home Afrika, a fast-growing
real estate firm that is overseeing
renowned projects such as Longonot
Gates in Naivasha. Under the CMMP,
the CMA targets to list at least 12
GEMs by the end 2016, 27 by the end
of 2020 and 39 by the end of 2023.
Successful listing of GEMs will greatly
enhance the growth of entrepreneurship
by giving small businesses access
to the large pools of capital that their
listed counterparts enjoy. However,
for this (and other plans such as integration
of regional markets) to materialize
within schedule, existing laws
such as the Statutory Instruments Act
will need to be reviewed in order to
comply with international best practices
and create an accommodative
regulatory environment.
Financial assets
According to a report on the
state of East Africa published by
the Society for International
Development, Kenyans are holding
less nonfinancial assets like land and
holding more financial assets like
securities when compared with their
peers in Uganda, Rwanda, Burundi
and Tanzania. Although there is a
heightened appetite for assets such
as insurance and savings among
Kenyans, some individual and institutional
investors under-invest in the
Nairobi Stock Exchange (NSE) or
avoid it altogether due to prohibitively
high fees that brokers charge.
“We often prefer to trade in physical
commodities and make our money
on the price differentials between, for
example the price of maize in Nakuru
and the price in Kisumu,” says John
Mareri, chairman of Nakuru-based
investment group, Zawadi Capital, in
an interview with Business Monthly. “I
understand the workings of the securities
exchange as I have an academic
background in finance” remarks John.
“I however advise our members to
avoid the securities market since the
high broker fees gnaw into our earnings,”
he says.
John, like many other small institutional
and individual investors,
shies away from the NSE due to
high broker fees. Paul Muthaura, well
aware of the negative impact that
high broker fees have on mobilizing
investments on the NSE, unveiled
measures that the CMA has taken to
reduce transaction fees and encourage
higher activity on the market.
“We want to change the historical
conceptualization of NSE brokers as
a cartel,” he said. To do this, the CMA
has significantly cut the licensing
fee for new stock brokers. “After the
demutualization of the exchange, we
have cut the NSE access fee for new
trading participants to Sh25 million.
Renaissance (Capital) paid Sh252
million in 2007 while Equity Bank
paid Sh150 million last year. That
is a very significant difference,” said
Muthaura, adding that fees had now
declined to as low as Sh25 million
and that it could decline even further
in future. The systematic reduction of
licensing fees will attract new brokers.
As more brokers open shop, competition
will increase and transaction fees
will reduce as a function of competition.
“Access to our market has now
become competitive to other markets.
We see with brokers coming on board,
there will be more competition which
might exert some downward pressure
on market fees,” remarked Muthaura.
Muthaura however warned that
lowering of transaction fees by brokers
was not only a function of competition,
but also of the volumes of
transactions. If the number of brokers
increase without a corresponding rise
in the volume of transactions, then
significant declines in transaction fees
will be unlikely. Notwithstanding,
transaction volumes are likely to
increase in coming years. Under the
10-year master plan, the CMA has
a goal of seeing the equity market
capitalization increase to Sh7.2 trillion
from the current Sh2.2 trillion.
Increased capitalization will automatically
be accompanied by higher
volumes of transactions. The impending
launch of new products such as
derivatives for the upcoming commodities
exchange will also attract
interest from new classes of investors
such as hedge fund managers. “We
hope to see the whole continent using
Kenya as the jurisdiction for hedging
and mitigating risk,” said Muthaura at
the media briefing, candidly referencing
to the fast-approaching prospect
of derivatives trading.
The double
taxation
agreement
between
Kenya and
Qatar will
cushion
investors
from taxes on
repatriated
profits
once they
(investors)
have paid
similar levies
in their
country of
investment.
66 Business Monthly | OCTOBER 2014 Business Monthly | OCTOBER 2014 67

XXXXXXXXXXX
Xxxxxxxxxx
EBOLA
What you
need to know
There is currently an Ebola Viral Disease (EVD) outbreak that has affected
several West African Countries including Nigeria, Liberia, Sierra Leon and
Guinea. The Ministry of Health, Kenya is closely monitoring the outbreak
and has put in place measures to prevent introduction of the virus in the
country. This fact sheet provides basic information on Ebola.
What is Ebola Virus Disease?
Ebola Virus Disease is a serious and
often fatal disease caused by Ebola
virus.
What are the signs and symptoms?
A person suffering from Ebola presents
with sudden onset of high fever
plus any of the following symptoms;
headache, intense weakness, muscle
pain and sore throat. This is often followed
by vomiting, diarrhoea, rash,
impaired kidney and liver function,
and in some cases, bleeding through
the body opening, i.e. eyes, nose, gums,
ears and anus.
How is Ebola spread?
The disease is spread through:
1. Direct contact with body fluids like
blood, saliva, vomits, stool, urine and
secretion from wounds of a person
suffering from Ebola.
2. Contact with cloths or bed linens
from a patient with Ebola may also
transmit it.
3. Infection may also occur handling
of infected chimpanzees, gorillas, monkeys,
bats and forest antelopes both
dead and alive.
Who is at risk?
1. Anybody who comes into direct
contact with body fluids such as
blood, saliva, vomits, urine, and other secretions
from an infected person. This may
occur during care of the sick person at home
or at health facility.
2. Persons involved in cleaning and dressing
the body of a person who has died of Ebola.
3. Persons handling animals infected with
Ebola virus such as chimpanzees, gorillas,
forest antelopes, monkeys and bats.
4. Mourners who get into direct contact with
the body of a person who has died of Ebola
as part of burial rituals or ceremony.
How can Ebola be prevented?
1. Avoid direct contact with body fluids from
any ill person or from any person suspected
to be suffering from Ebola.
2. If you must handle a patient with Ebola,
you should wear protective materials such as
gloves.
3. Bodies of people who have died of Ebola
must be handled by special trained people
and buried immediately.
4. In case you accidentally handle a person
suspected to be infected with Ebola, wash
your hands thoroughly with soap and water.
Is there treatment for Ebola?
Currently, there is no specific treatment for
Ebola. Early diagnosis and supportive treatment
such as rehydration with fluids and
blood transfusion can be of great help.
Is it safe to travel to West Africa?
It is advisable to limit travel to only essential
trips. Maximum precautions should be taken
to avoid infection with Ebola by avoiding
contact with a person suffering from Ebola.
Also avoid touching used needles or medical
waste.
What should I do if I suspect Ebola?
Anybody who falls ill and has recently travelled
to West Africa or any other place with
a confirmed outbreak of Ebola is advised to
report to the nearest health facility immediately.
Ebola hotline: 0729-471414 / 0732-353535
www.ddsr.or.ke
New Toyota RAV4 advert to be
picked from monthly Motor
68 Business Monthly | OCTOBER 2014