2012/2013 KENYAN BUDGET – THE RENT BURDEN

After the reading of the budget by the finance minister, it’s now time to look at the figures and see whether they make sense or they were just but another budgetary pronouncement out of protocol.

The Minister and his ministry this time round worked so hard and came up with a 1.45 trillion worth of budget. That by itself was very good of them since it’s a sign of growth in our economy, hence the need for more resources. The problem comes when allocations are miscalculated, and sources of funds not well thought of.

Taking for example the newly introduced tax on rent income for landlords, one is left wondering just what kind of policy makers we`ve got in this country. First I would like to put it clear that this move is a very good one; but it`s untimely; and that makes it bad!

Once the new tax is enforced, the landlords will automatically transfer it to their tenants since they are out to make profits. Anything that comes between them and their profits must therefore be eliminated by any means even if it means “penalizing” their own clients for it.

ISSUES TO CONSIDER WHEN INVESTING IN REAL ESTATE

So you want to invest in real estate but you don’t know just where to start. Well before you embark on this lucrative venture, there are a few things you need to have in mind, so as to make the right investment decision by the end of the day.


Investing in property varies from residential to commercial. However, on this article I will dwell more on investing in residential properties; as this is the common start-up area for many novice real estate investors.

As you venture into this investment, you need to consider the following factors critically to avoid unprecedented losses:

• Location and Population

In real estate, location is key. Where you locate your business has a correlation with the revenues you generate from your investment at the end. Ensure your business is located in an area with relatively high population and high prospective population growth rates. Remember the people are your clients and you need to be closer to them.

• Infrastructure

The place you decide to locate your residential property should be easily accessible. People need to travel to their work places with ease and therefore good roads and railway networks are essential factors to consider.

In addition, communication infrastructure is also very crucial with factors like internet connectivity, telecommunication networks and other media coverage factors being relevant for consideration.

Sewer systems too and availability of water, are all very important to the people and therefore should never be ignored.

UHURU AND MUTHAURA STED-ASIDE

I was talking to a friend over the weekend about some business we want to start when the issue of management game up. My friend was of the opinion that if countries were run as companies, maybe we would not be having the problems we have in many of our governments globally.

Talking of company-like-run-countries, he said that every country should have specific objectives that it pursues. In addition to that, the managers of this country, in this case the political leaders we have, should be gauged according to how efficient they are in resource use and how effective they are in achieving the objectives the country sets for itself both in the short term and in the long term.

This idea pushed me to thinking and I realized that each country has its own prime objectives which it calls its national interests. However, the managers of the country are never accountable since the national interest in many occasions, is unknown to the common citizens who are the shareholders of this country-company. 

Dwelling still on the company; we all know that when the managers of the company are caught up in misconduct, the company has to suspend them at least to allow for investigations to clear their names. If the managers fail to pave way for free and fare investigations and stick to their posts with their bad reputations, the company if listed in the NSE or even Wall Street, will end up being punished by the market and the value of its stock will go dwindling down. Sometimes the market may react even to rumours of bad reputation for managers of a given company, and punish it severely until corrective action is taken.

INVESTMENT BANKING - A SNICK PREVIEW!

Investment banking is field of banking which offers various services to the companies. These activities include sale and purchase of shares for their clients as well as provision of financial guidance to investors. They also represent their clients in mergers and acquisitions and in initial public offers (IPOs).

Investment banks engage in various activities in pursuit of their goals. However, the businesses carried out by most large investment firms include:

1.       Sales and trading business managed by the Trading Division, which provides investing, intermediating, and risk-management services to institutional investor clients, performs research, and also participates in nonclient-related investing activities;

2.      Investment banking business managed by the Investment Banking Division, which focuses on capital raising and M&A transactions for corporate clients and capital raising for government clients;

3.      Asset management business managed by the Asset Management Division, which is responsible for managing money for individual and institutional investing clients.

For one to qualify to practice as an investment banker, some skills are relevant as without them the job would prove mind bogging and impossible. The skills include:

Key Skill Area                                      Requirement

People skills:                                           High

Sales skills:                                              Medium

Communication skills:                         High

Analytical skills:                                    High

Ability to synthesize:                            High

Creative ability:                                    High

Initiative:                                                Medium

Work hours:                                           50-120/week

In addition to the above skills, one must have a bachelor’s degree program in business, accounting or finance. These programs take four years to complete and are available at colleges and universities.

Through this type of program, aspiring investment bankers land entry-level positions as financial analysts. The level is being an associate, which calls for the same skills but in larger volumes. It also calls for more advanced qualifications academically such as an MBA majoring in finance or economics, CFA – (Chartered Financial Analyst) or even CMA – (Certified Management Accountant).

Investment banking is a high work, high risk, and high reward profession. When you start your hours will typically be long but the work can be exciting. Be prepared for moments of frustration where you are stretched too thin and moments of exhilaration where everything clicks.


Biz quote: An investment banker's work is dictated by the different financial needs of clients. (© Jose Luis Pelaez, Inc./Corbis.)

THE ECONOMICS OF: KENYA vs AL-SHABAAB WAR

They say that despite the political reasons given for war, the genuine reason is always economic. This can be well understood by looking at the war that Kenya is currently engaged in against the al-shabaab militia in Somalia.

It all started when the al-shabaab began attacking the sovereignty of the Kenyan nation by kidnapping tourist from the country. It later rose to two other Spanish workers at the Daadab refugee camp being kidnapped by the same group of terrorists. It might not appear to be such a big issue as to lead to the Kenya Army to embark on a mission it has never tried out since independence in 1963; especially considering the fact that it is three people who have been kidnapped. However, lovers of Kenya and Kenyans themselves understand the magnitude of these acts of terrorism and how they stem to the core of the Kenyan economy.

Kenya is one of the many developing countries which depend on agriculture for their economic development. In Kenya though, the second best contributor to the country’s GDP is tourism. It is in this sector of tourism that much revenue is generated from to fund development projects in other sectors of the economy. Therefore, anybody or anything threatening this sector, is in actual sense threatening the Kenyan economy and as such is also threatening its people.

The kidnapping of these foreigners poses a great threat to the tourism sector as it portrays Kenya as insecure; and thus very few tourists would risk their lives by visiting Kenya. Reduction in the number of tourists visiting Kenya translates to less revenue being collected by the government, a bigger budget deficit, less development projects, high unemployment rates both directly and indirectly and many more economic storms. Whoever would cause such a downturn to the Kenyan economy, would be indeed an enemy of Kenya; no wonder the Kenyan Minister of Defence Prof. George Saitoti termed the al-shabaab as “the enemy”.

KENYA`S CRISIS!!!

Talking of hard times, Kenyans can better explain that. It`s a trying time for all Kenyans irrespective of their social class. Everyone is feeling and is being affected by the current economic situation prevailing here.

The shilling is depreciating like never before and soon it might fall with a thud. This has resulted to our imports being very expensive and hence, citizens have to dig deeper into their pockets to acquire the necessities they need in their daily lives. Oil prices are on the rise, and all other commodities will follow suit, adding more pain to the already sore wound.

Inflation is the term technocrats will use to explain this situation of prise hikes in the markets. From a one digit inflation rate, Kenya is now experiencing a double digit inflation rate. The latest statistics showed that inflation had risen to about 17% in the month of September. This is quite alarming! However, it does not stop at that: more rises in the inflation rate is still expected as long as the eurozone crisis is not resolved fast enough for the international economy to stabilize.

As if that is not enough, Kenya`s stock market is also in chaos. The Nairobi Stock Exchange has been worse hit in the current economic downturn. It was reported that it was the worst performing bourse among the 16 top bourses in Africa after experiencing the highest percentage fall in its index.
That notwithstanding, a severe drought just hit Kenya leaving the lives of many in the mercies of food donations.

Looking at all this together, one is left but to wonder: is it really that we are such desperate, or are there some supermasters behind our economical heart failure?

KENYA`S EXTERNAL BORROWING DECISION

The government of Kenya has opted to go for external funding in order to bridge its budget deficit. The government hopes to raise Ksh. 45bn ($500M) through issuance of a 10yrs Eurobond. Treasury claims that this is in line with the government policy of maintaining a stable and affordable interest rate within the economy.

This might sound alarming to many, considering the current debt crisis in Greece; but the policy makers are wise and I tend to support them on this.

Internal borrowing goes in form of the treasury bills and bonds. These government papers attract a high rate of interest (about 9%-12%) as compared to fixed deposit or savings investments which offer much lower returns.

When the government borrows internally, many people run down their savings in order to buy the government papers which offer high returns. Institutional investors such as the insurance companies and the commercial bank too run for the same treasury bills.