Kenyans angered by out of touch leaders

As the year 2008 draws to a close, the problems afflicting the Kenyan people continue to mount by the day, resulting in rising anger that could be a danger to stability.

There are alarmingly frequent shortages of basic consumer commodities, such as food, sugar and fuel. Price hikes are the natural result of shortages, further putting pressure on an economy that is still recovering from the post election violence.

The worst thing about the current shortages is that they are caused by politicians, a rapacious taxation regime and lack of co-ordination within government. The commodities are stockpiled in warehouses and depots but they simply cannot get to retail outlets.

Apart from scarcity in essential commodities, Kenyans are still reeling in shock at how they were manipulated by politicians into butchering their neighbours on ethnic grounds. Today, the same politicians are in bed with each other, sometimes in the strictest sense of the term.

A recent road accident involving Prime Minister Raila Odinga’s son and a grandson of founding president Jomo Kenyatta, opened Kenyan’s eyes to the treachery of politicians. While ethnic groups are up in arms against each other, the children of big-shots were busy partying at 3am on a week day.

The mishandling of internally displaced persons (IDPs) has contributed greatly to discontent with the Kenyan government. After the post elections violence and the formation of the Grand Coalition between President Mwai Kibaki and Prime Minister Raila Odinga, it was generally assumed that all efforts would be made into getting the displaced back to their homes. Unfortunately, divisions within the giant coalition prevent this from happening.

Prime Minister Raila Odinga and his ODM party is opposed to the return of mostly Kikuyu settlers into the Rift Valley. Whereas most of the Luo, Kalenjin and Luhya who fled the Kikuyu heartland are back to their old jobs, it is still too dangerous for the Kikuyu to return to ODM strongholds. Some have reportedly been killed in the Rift Valley when they went back to their homes. Others gave up and are resettling themselves elsewhere – with little government help.

One IDP committed suicide in Nairobi’s Dagoretti area after his meat hawking business was shut down by the National Environment Management Authority for alleged pollution of the environment. Another IDP took up a taxi business in Kerugoya but was shot by police who mistook him for a criminal. IDP women, frustrated at the government’s apathy, demonstrated in Nairobi and were clobbered by riot police. Many such tragic cases have been reported.

The indecision of the government over implementation of the Waki and Kriegler Reports has proved beyond doubt that Kenya is a ship without a captain. Though legislators are congratulating themselves for ‘sending’ the Electoral Commission of Kenya home, it still took almost a year to accomplish. Besides, serious constitutional challenges lie ahead in the wake of the last minute decision which, in reality, was meant to protect politicians from the International Criminal Court.

Indeed, Vice President Kalonzo Musyoka came to ECK’s defence. Could it be because the ECK’s Chair, Samuel Kivuitu, is from the same ethnic group as Kalonzo?

The refusal of government officials to pay tax has surprised both local and international observers, while the Kenya Communications Bill 2008 is an anachronism in the 21st century.

Meanwhile, the government is attacking private corporations for ‘exploiting’ consumers. This is seen as an attempt to deflect public anger over rising prices and shortages in commodities. However, private entreprise is being blamed for conditions not of its own making. Doing business in Kenya is extremely challenging as companies struggle to break even amidst poor infrastructure, corruption and arbitrary laws. It costs more to transport cargo between Nairobi and Mombasa than it costs to ship similar cargo between Japan and Mombasa.

Blaming private enterprise for exploiting Kenyans sounds more and more like the rumblings of a communist-style purge against ‘exploiters.’ Price controls will create worse shortages and spark off the rise of a black market. Unfortunately, Kenyan leaders will be the driving force in a brutal black market that will rival Zimbabwe’s. Members of Parliament have already been implicated in creating maize shortages.

The problems in Kenya, to paraphrase a Nigerian writer, are first and foremost a failure of leadership. Kenya’s leadership is disconnected from its people through the lack of ideology, short-sighted deeds and insulting words. Kenya’s leadership lacks the vision to drive the country forward and instead is regressing towards infantile politics of chest-thumping and group orgies.

The description of Kenya’s leadership used here should not be construed to mean a particular individual. The problems with Kenya’s leadership are bigger than the personalities involved for they all exhibit the same qualities. For instance, replacing President Kibaki with Raila Odinga will not bring about any changes. Removing Kibaki, Raila and Kalonzo then replacing them with Mudavadi, Ruto and Balala will simply be a game of musical chairs. All these people are part of the problem and can never be the solution.

Kenya’s leadership and its government has lost touch with its own people. The government does not know what the aspirations of the people are, it does not know the challenges that ordinary people face in daily life and neither does it care for the future. National leaders seem to think that increasing salaries, creating commissions and sub-dividing districts will placate the anger of Kenyans.

Already, the money for such tactics is running out. What then?

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Fuel crisis sign of failed government

Corruption, negligence, poor management and harsh taxes are to blame for the ongoing fuel crisis, say oil industry workers.

Public transport vehicles (matatus) at a Nairobi fuel station.

Public transport vehicles (matatus) at a Nairobi fuel station.

For many years, there was little expansion of storage and oil transmission networks. At Kipevu oil terminal in Mombasa, storage tanks built more than 20 years ago have not been extended.

Over the past five years, heavy demand from Kenya, Uganda, Rwanda, Southern Sudan and the Democratic Republic of Congo has stretched storage capacity to its limits.

Oil shortages have become so bad that unless remedial action is taken, flights at the Jomo Kenyatta International Airport will soon be grounded.

The oil pipeline from Mombasa to Nairobi, managed by the state-owned Kenya Pipeline Corporation (KPC), was recently upgraded at a cost of billions of shillings. The upgrade was supposed to enhance capacity from 440,000 cubic metres to 880,000 cubic metres. President Kibaki himself commissioned the upgraded system just weeks ago.

Its now been revealed that in spite of the billions spent on the upgrade, KPC only manages 550,000 cubic metres on a good day. Rampant power blackouts, system breakdown and vandalism of the pipeline means that the maximum 880,000 cubic metres flow is unlikely to be achieved.

A section of oil workers who talked to the Nairobi Chronicle say that the statutory requirement that oil companies process crude oil at the Changamwe Oil Refinery is a major contributor to fuel shortages. The colonial era facility is so derelict that major oil companies have pulled out, leaving their stake to the government. Changamwe is prone to breakdowns, and it cannot process unleaded petrol and low-sulphur diesel.

“Kenyans don’t know that they are buying leaded fuel mixed with imported unleaded fuel because our refinery cannot produce unleaded,” discloses an oil worker. And because Changamwe produces diesel with high sulphur content, its product has to be ‘blended’ with imported diesel in order bring down sulphur to acceptable levels.

“This refinery should be shut down and a new one built from scratch,” concludes the oil worker.

But the government insists that Changamwe is viable and has invited Libyan investors to rehabilitate the refinery. Apparently, the government lacks the massive funds needed for upgrading.

The oil industry says the imposition of advance tax by the Kenya Revenue Authority has worsened a bad situation. KRA introduced advance tax as a means of curbing the dumping of duty free fuel meant for export into the local market. With this measure, KRA collects taxes at the port of Mombasa before fuel is distributed to consumers.

In effect oil companies must pay billions of shillings to the KRA before they are allowed to sell. Consequently, they must borrow to pay the tax. When advance tax was introduced, the price of fuel immediately shot up by Shs3 a litre due to interest payments for tax loans. In a global financial environment where credit is hard to come by, oil companies will find it challenging to borrow to pay advance tax. Already, one oil company – Triton Petroleum – fell into receivership this December.

Incidentally, Triton is said to have hogged up more than half the storage capacity at Kipevu even though the company has a meagre 4% market share. The hogging of space has denied other oil companies storage, forcing oil-laden ships arriving at Kilindini to drop anchor in the high seas while waiting for the Kipevu tanks to be emptied. Of course, the shipping companies impose delay surcharges on oil companies and this cost is passed to consumers in the form of high fuel prices.

Arbitrary enforcement of standards by the Kenya Bureau of Standards (KEBS) and the KRA are adding to the woes afflicting the oil industry. In November, KEBS turned away a gas ship claiming that the gas was, “below standard.” The move, which caught importing oil companies unaware, resulted in a month long shortage of LPG in the country. Industries cut production as households turned to charcoal for their cooking needs.

“Nobody knows which standards KEBS and KRA are imposing,” says an oil industry insider, “the rules change everyday. What is legal today may become illegal tomorrow without any communication or consultation. Its a very unpredictable working environment.”

Corruption is a major cause of the worsening oil shortages. Like everything else at the port of Mombasa, shady deals are common during the import clearing process.

The management of KPC is influenced by political horse-trading, meaning that top executives at the corporation may not be fully conversant with the dynamics of the international oil market. As the industry struggles with shortages, KPC is busy investing in offices and gymnasiums.

The fact that importation of oil is managed by a committee in the Ministry of Energy doesn’t make matters any better. A fully, liberalized environment perhaps would improve efficiency instead of the current regimen of a half-liberalized, half state-controlled industry. As though that were not enough, some major oil companies are owned by politicians.

In spite of the bad situation, the government plans to micro-manage the oil industry. From January 2009, price controls may be imposed to “protect consumers from exploitation by multi-nationals.” The government is also encouraging state-owned National Oil Corporation of Kenya (NOCK) to expand its operations in retailing and distribution of fuel though its prices are the same as those of multinationals.

As Kenya’s oil industry gets chaotic, multinationals are deciding to leave. The ruling elite are reportedly salivating at the prospects of grabbing huge chunks of the lucrative oil market but it is the ordinary consumers who will pay through the nose for scarce fuel.

Indeed, as Kenya’s second president used to say, “bad politics equals bad life.”

Co-op Bank plans IPO despite objections

In spite of consumer inflation driven by rising oil and food prices, the Co-operative Bank will go ahead with its initial public offering (IPO) at the Nairobi Stock Exchange.

There are fears that the IPO will be undersubscribed. Investor disappointment caused by the near-fiasco of the Safaricom IPO earlier this year is still fresh, and could dampen demand for Co-op Bank shares.

The IPO’s lead sponsoring broker has warned against the venture at a time of worldwide economic uncertainty and inflation. Mr James Wanguyu of Standard Investment Bank was quoted last week as calling for the IPO to be postponed till next year. However, Mr Wanguyu has since changed his mind to support the IPO.

Acting Minister for Finance, John Michuki, has also dismissed calls for a postponement of the Co-op Bank IPO.

The Co-operative Bank of Kenya, Kenya’s fourth largest, hopes to raise Kshs10 billion (US$136,900,000). According to a press statement, the money will finance the bank’s mortgage products, information and communication technology infrastructure and expansion of the branch network.

Back in 2006 the KenGen IPO made history by attracting the largest number of individual investors ever seen in the history of the Nairobi Stock Exchange. Economic fundamentals were different back then, with 6% economic growth, a stable political environment, a boom in consumer spending and billions of shillings in remittances from the diaspora.

Today, consumers are hit by inflation rates of close to 30% due to rising prices for fuel, electricity and food. Post election violence after the December 2007 polls has greatly reduced confidence in the economy whose growth rate this year is expected to fall below 4% at best.

Hundreds of thousands of families, which had invested in previous IPOs, were rendered destitute in the violence as farms and property were looted. Political infighting within the ruling elite hasn’t done much to restore investor confidence in the Kenyan economy.

Gloomy economic forecasts have resulted in job cuts among Kenyan industries. Companies are complaining of reduced consumer demand coupled with higher energy prices. Cuts in electricity and water supplies have added to a worsening of the country’s economic situation.

Economic uncertainties, mostly in the United States, have greatly affected the flow of remittances by Kenyans living overseas. Quite a number of them have already lost their jobs. Unlike previous share offerings, Co-op Bank’s IPO is unlikely to attract much interest from the diaspora.

The fiasco that was the Safaricom IPO tarnished the reputation of the Nairobi Stock Exchange. Apparently, planners at the stock exchange, Capital Markets Authority and the Central Depository had greatly under-estimated the logistics of having so many shares introduced at once. Safaricom shares, by themselves, currently constitute almost a third of all shares at the Nairobi Stock Exchange.

To start with, few people got the actual shares they had applied for. Many ended up with so little that their allocations became meaningless as far as investment is concerned. Cash refunds took too long to process; in some cases individual investors waited months to get back their money. There were allegations that brokers were trading with the cash, hence delays with the refund cheques. It was further claimed that the Central Bank of Kenya issued instructions that refund money be released slowly in order to prevent a crash of the Kenyan currency.

And because of the huge number of Safaricom shares, the share price did not shoot up as expected. Indeed, Safaricom shares are currently trading more or less around the IPO price of Kshs5 (US$0.068) a share. The result has been tangible disillusionment among the mass of retail investors.

Co-op bank hopes that its improved performance after a loss-making streak will attract ordinary Kenyans. Furthermore, Co-op is placing huge bets on an enthusiastic response from the co-operative society sector, which is the bank’s core business. Co-op says it has put in place an automated IPO processing infrastructure that will enable it make refunds within a short time.

Co-operative Bank made a profit of Kshs1.7 billion (US$23 million) for the last financial year ending 30th June 2008 and has a target of Shs3.3 billion ($45 million) for the current year.