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.

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Lands ministry criticizes Jomo Kenyatta

A top official in Kenya’s Ministry of Lands has blamed founding leader Jomo Kenyatta for the country’s land conflicts, in remarks likely to justify land-driven ethnic clashes.

Permanent Secretary Dorothy Angote said that, “the colonialists left behind a lot of money to resettle the landless but the money was diverted.” Addressing a workshop, the Permanent Secretary admitted that, “the ruling class used land to bribe politically-correct individuals, rejecting the plight of landless Kenyans.”

Kenya is grappling with a land distribution crisis that has assumed violent characteristics due to ethnic politics. High population growth is placing increased pressures on land for farming and settlement. Most of Kenya’s population is concentrated on less than 30% of the land. Politicians, eager to win votes from their own ethnic groups, have in recent years demanded for land settled by immigrant communities. In parts of the Rift Valley, large numbers of Kikuyu, Kisii and Luhya farmers have been evicted by Kalenjin youth who went ahead and subdivided farms amongst themselves.

The Coast province is also home to large numbers of immigrants. Lands Minister James Orengo has said that he will review land ownership in favor of local ethnic groups. The remarks have intensified ethnic tension at the coast as unemployed coastal youths demand for what they call, “the land of our ancestors.” Dr Orengo has expressed opposition to the settlement of Europeans in coastal villas.

Ethnic clashes following disputed elections in December 2007 have been blamed on land pressure in areas settled by immigrant ethnic groups. The peace accord negotiated by former United Nations Secretary General, Koffi Annan, and which formed Kenya’s coalition government, was mandated to explore the land situation in order to avert future clashes. However, discussions on land reform appear to have stalled as the coalition parties get engrossed in government affairs.

After Kenya’s independence in 1963, President Jomo Kenyatta announced that land ownership will be on the basis of “willing-seller, willing-buyer.” The government would neither confiscate land from anyone, nor would it give it away for free. Kenya’s independence constitution gave its citizens the right to purchase property anywhere in Kenya. The policy served Kenya well, until the 1990s when populist politicians incited desperate youth to invade farms on ethnic grounds.

The remarks are likely to put Ms Angote into conflict with President Mwai Kibaki, who retains much respect for Kenya’s first president. Indeed, President Kibaki served in Kenyatta’s cabinet and was a baptismal godfather to one of Kenyatta’s sons, Uhuru. In 2003, when he assumed Kenya’s presidency, President Kibaki ordered the Central Bank to put Kenyatta’s portrait on all currency notes and coins.

Former President Daniel arap Moi wanted to cut a different image from Kenyatta but he did not tolerate criticism of his predecessor. Moi served Kenyatta as Vice President for 11 years. Had Ms Angote made the remarks during Moi’s presidency, she would probably have lost her job before the workshop was over.

Criticism of Kenyatta’s policies by a highly placed government official will complicate the land debate in Kenya. If anything, it may justify the actions of those elements that wish to drive out immigrant ethnic groups from certain districts. All in all, more blood is likely to be shed before a solution is found.

Land debate in Kenya marred by politics

Debate over a new land policy for Kenya is mired in controversy, fuelled by civil society activists and reflective of the country’s political divide.

A recreational park in Kiambu, just north of Nairobi. The privately-owned park was once a coffee farm.

A recreational park in Kiambu, just north of Nairobi. The privately-owned park was once a coffee farm.

A new national land policy proposes a ceiling on individual land ownership to ensure no single individual owns too much land. The policy proposes the repossession of idle land for the settling of the landless and reduction of colonial era 999 year land leases to 99 years. There will also be a tax on idle land, especially in urban areas. Foreign ownership of land will be restricted in order to give greater opportunities for Kenyans to own land.

If the new land policy is implemented, powers of allocation of land will be devolved to local authorities. Under current laws, the President and the Commissioner for Lands can allocate public land without involving local authorities. In past years, the law was used to reward political cronies of past presidents with public plots. Land set aside for schools, roads, churches and sanitation facilities was literally up for grabs. The result was a growth in unplanned settlements lacking playgrounds, parking areas or space for mains services.

Critics of the new laws say that universal ownership of land is a myth that Kenya is attempting to achieve at the expense of land rights. There is little idle land in the country, says representatives of land owners, and it cannot be enough to settle all the landless in Kenya. The Kenya Land Alliance, a body representing land owners, says the law is a threat to property rights and likely to stifle investment.

Ranchers in Laikipia and Machakos have also come up against the proposed land laws. The ranchers say that most of their land is semi arid and therefore unsuitable for the settlement of subsistence farmers. In Taita Taveta, owners of expansive sisal estates also cite the harsh climate of the area as unsuitable for settling the landless. “If you settle people there, they will be depending on famine relief every year,” a resident of the area told the Nairobi Chronicle.

Land owners have asked the government and civil society activists to observe global trends in land ownership in order to avert a catastrophe. Statistics indicate that though the number of farmers in the United States declined in the 20th Century, American food production went up. By 2006, there were less than 3 million farmers out of a total population of close to 300 million. “It just goes to show that it is not necessary for every Tom, Dick and Harriet to own land,” argue land owners, “politicians are using land as a scapegoat for poverty, because it is easy to blame land owners for the poverty of the majority.”

Tied with the ownership of land in Kenya is the controversy over ancestral land rights. Minister for Lands, Dr James Orengo is quoted as saying that the constitutional provision that gives Kenyans the right to live and work anywhere is, “not right.” According to Dr Orengo, people should only own land within their ethnic homelands. It is this kind of logic that is largely blamed for ethnic and political clashes that have rocked the Kenya intermittently since the 1990s. This year, close to 1,500 people died when disputed elections led to ethnic clashes. Over 350,000 were evicted from their homes on grounds that they were not indigenous to those areas.

Further to the debate on land laws, Dr Orengo, said last week that the government will not renew leasehold titles that are currently expiring. Most urban leaseholds run for 99 years, meaning the leases expiring today were issued in the 1900s. Many parcels of land within the Nairobi city centre were issued back then. The announcement sparked anxiety among property owners, forcing Dr Orengo to clarify that extensions will be given especially if the land had been extensively developed. For instance, said Dr Orengo, if there was a skyscraper on the land, then an extension was likely to be given.

A growing population still clinging to traditional values is exerting pressure on the land. Every household desires to own a piece of land for psychological security and satisfaction. Consequently, forests have been cut down to make way for settlements with drastic results on weather patterns. Encroachment on forest land has resulted in the drying up of rivers and longer dry spells. In other parts of the country, populations are spreading to low-lying drylands where food harvests can never be enough even with good rains. Land parcels, traditionally handed over and divided among sons, have become to small for meaningful agricultural activities.

Politicians in Kenya use land to win over voters, hence the politicization of the land debate. Few politicians have the courage to tell their people that the era of free land is over. Its hardly surprising, then, that politicians are in the fore-front in demanding that the government confiscate land from ranchers, multinational plantations and commercial farmers. Some politicians even threatened to lead “Zimbabwe-style” land invasions to recover what they refer to as ancestral lands.

As the land debate rages, agricultural production in Kenya has been in steady decline. Kenya produces less of most commodities than it did thirty years ago. This includes coffee, tea, milk, wheat, barley, cotton and pyrethrum. From being a net exporter, the Kenya of today is a net importer of food. Even maize has to be imported to satisfy national demand due to a larger population.

The only agricultural sector that has grown in recent years is the export of flowers and french beans, collectively referred to as horticulture. The horticultural industry is wholly private-sector driven. It was began by commercial farmers who used fresh water from Lake Naivasha to irrigate the volcanic flatlands of the Rift Valley floor. Currently, horticulture has become so huge that it earns Kenya more money than tourism.

Lake Naivasha is a unique terrestrial phenomenon: its a fresh water lake without an outlet. But apart from geographical lessons, Kenya’s politicians can take home vital truths on the management of Kenya’s land resources for the ultimate benefit of all its people.