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Sights and Sounds of Zanzibar

About three years ago, we chose to spend part of the December holidays as tourists in Zanzibar. It was still at the time when the travel advisories against Kenya were in full effect following the Westgate terrorist assault. We flew into Zanzibar’s Kisauni airport, where, quite blissfully, there was a separate immigration counter for East African Community(EAC) citizens, contrary to the Dar es Salaam Julius Nyerere International Airport’s legacy of treating all arriving visitors as one heaving block of unwelcome travellers.

It took about an hour to drive to our destination in the northern part of the island, where we were going to stay at a villa belonging to a South African owner. We did however get pulled over twice on the otherwise uneventful journey. The first time was by the Zanzibar tourist police who wanted to check the “papers” of our van. The “papers” were found to be in good order and we were happily waved along.The next incident was not so easy. Two regular policemen wearing the full white Zanzibari police uniform, buttons agonizingly stretched across their corpulent bellies, asked Kiba our driver for his driving license, PSV license and rate card in that order after taking a long, languorous look at the license stickers on the windscreen and finding no fault. Of course, Kiba couldn’t produce a rate card since the van belonged to the villa’s owner, so he was told that the policemen would keep his driving license until he could find it. The cops were quite pragmatic and told Kiba to take down their mobile numbers and give it to any cop who might stop us ahead so that they could explain that they were in possession of the license.

After a few minutes, one cop asked Kiba to step out of the vehicle for a “conversation”. Money changed hands, the driving license was released and we were dispatched on our merry way. Total time taken for the transaction: 15 glorious minutes of our precious holiday. Kiba was visibly embarrassed and bristling with anger at the capricious display of greed in front of his visitors. We chuckled and consoled his morose spirit with the fact that we were coming from a country where our own Kenyan traffic cops would make his Zanzibari traffic cops look like omena at a Nile Perch beauty parade.

View of Stone Town, Zanzibar
Image from http://theseyyida-zanzibar.com/

Zanzibar is a beautiful island with a heritage quite similar to Lamu. Arab, African and Indian influences have melted into a traditional, conservative Islamic culture. Stone Town, which is the main city on the island is a tourist haven with several narrow winding streets dotted by the ubiquitous curio hustlers cajoling you to visit their shops that have the same kikoys, African traditional masks, paintings and batiks. I spoke to one boutique owner, marveling at how they were lucky to still have tourists in Zanzibar, as our villa owner had told us that they enjoyed bookings eleven out of twelve months in a year. She was not as bullish, however.

She told us that most of the tourists to Zanzibar were typically on a Kenya-Tanzania-Zanzibar circuit and the events in Kenya had significantly impacted the numbers coming through to Zanzibar at that time in 2014. This conversation was replicated two months ago when I was on a working visit to Kigali, shortly after the August 8th 2017 elections here in Nairobi. The general manager at the hotel I was staying at was lamenting at the impact the Kenyan elections were having on visitors to a city some 1,200 kilometres south west of Nairobi. He said the exact same thing as the Zanzibari boutique owner. A large number of tourists to Rwanda were usually partaking in a circuit that started in Kenya. Cancellations to Kenya therefore meant that the whole circuit, including Rwanda would be cancelled.


Image from https://www.neverendingfootsteps.com

That our fortunes (and our sticky-fingered traffic cops) are intertwined within the East African Community is an unassailable fact. The intangible but very apparent influence that Kenya has on the region’s economy should give some pause to the proponents of the monetary (and doubtful political) union for the EAC.Our seeming inability to arrive at a mutually agreeable political solution is one that is of our own Kenyan making, and should never be exposed to the wider, unsuspecting regional citizenry. Or perhaps the opposite is true: a regional constituency might require a very different big picture thinking at the political level, making Kenyan tribal issues the non-issues that they need to eventually become.

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Twitter: @carolmusyoka

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Elvis has left the IEBC building

Following the dramatic resignation of Commissioner Roselyn Akombe mid last week, the immediate thought that came to mind to summarize the sensational exit was:“Ladies and gentlemen, Elvis has left the building. Thank you and goodnight!”

The phrase “Elvis has left the building” was often announced at the end of Elvis Presley’s concerts to encourage rabid fans to accept that there would be no further encores, and that they should pack up and go home. The phrase has morphed from its American pop culture origins into a generally accepted euphemism for someone’s departure, dramatic or otherwise.

On August 14th 2017, shortly after the elections, I opined in this column that the corporate governance structure of Kenyan constitutional commissions and the Interim Electoral and Boundaries Commission (IEBC) in particular, was a unique mongrelization of the executive and oversight roles of a body corporate. The IEBC Act creates a commission made up of 8 members and a chairperson. The Act also creates the role of a secretary to the commission, who shall be the accounting officer of the institution.

A look at the act makes for fairly interesting reading. At no point is the chairman referred to as an executive chairman, nor are the commissioners defined as executive. This executive role can be viewed as being derived from both Article 88 (4) of the Constitution read together with Section 4 of the IEBC Act which states the role of the commission is to oversee the mandate of providing elections and referendums as well as and determining electoral boundaries in Kenya. Section 5(4) of the IEBC Act then gives the executive power to the commissioners when it states that the chairperson and members of the commission shall perform their functions as provided in the Constitution, and the secretariat shall perform the day to day administrative functions. And just for avoidance of doubt, Section 7 (2) of the IEBC Act, states that the commissioners are expected to serve on a full time basis.

Section 10 creates the role of the secretary to the commission who, under subsection (7) (a),shall be the Chief Executive Officer, under subsection (7) (c) shall be the accounting officer and, most importantly, under subsection (7) (e)(i) shall be responsible for executing the decisions of the commission.

The act thus blesses the CEO with full time commissioners whose decisions he is responsible for executing, while he remains the accounting officer for the financial outcomes of the organization. But the events of last week, following Ms. Akombe’s resignation and the Chairman Chebukati’s stinging indictment of his own commissioners displayed the inherent weaknesses in the mongrel governance structure.

In an ordinary public or private corporate institution, a non-executive board provides oversight and strategic direction to the executive management who undertake the day-to-day operations. By separating the two, it creates a layer of accountability for the executives as well as a point of reference for major decisions that need “independent” eyes to probe the justification and rationale that guided the thinking behind the decision. Equally important, it allows the chief executive a safe landing in the event that external stakeholders question the decision, as the CEO can simply point upwards and say:“the board approved the resolution.” If you need a recent illustration, look no further than the recent case of the Kenya Airways chairman Michael Joseph who vigorously defended the airline’s CEO’s decision to hire five Polish nationals.

However in the case of the IEBC, Chairman Chebukati is, for all intents and purposes, a CEO of an executive team of commissioners who do not have the safety structure of an oversight board to provide strategic guidance and independent thinking that questions those very decisions.

Those decisions must be taken in utmost good faith. Article 250(9) of the Constitution of Kenya states that a member of a commission, or the holder of an independent office, is not liable for anything done in good faith in the performance of a function of office. This is further entrenched in Section 15 of the IEBC Act that provides the same protection from personal liability for commissioners and officers for acts done in good faith. If Ms. Akombe and Mr. Chebukati’s allegations last Wednesday are to be believed, then good faith has also left the building. All the commissioners and the officers of the IEBC must remember that they will be personally liable for any action, claims or demands that may arise in future for decisions taken in bad faith.

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Twitter: @carolmusyoka

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Election Promises and Pipe Dreams

[vc_row][vc_column width=”2/3″][vc_column_text]Read my lips: no new taxes” was the watershed statement of George Bush Senior’s presidential career. He first stated it at the August 1988 Republican National Convention as a pledge not to tax the American people further, as per his campaign platform. It is believed to have helped him win the election in November that year. However in 1990, the Democrat controlled Congress came to a budget agreement with his administration that ended up increasing taxes in order to reduce the existing budget deficit. His Republican opponents during party primaries, and Democratic Party candidate Bill Clinton in the main presidential campaigns, derisively reminded him of his failure to live up to the campaign promise. “Read my lips: I lied” was their snarky counter claim.
Sneaking in between Bush Senior and Clinton was Texan billionaire Ross Perot who was running as an independent candidate. The growing federal budget deficit and fears of professional politicians allowed Perot’s candidacy to flourish as a credible alternative. By June 1992, Perot led national public opinion polls by 39% compared to 31% for Bush and 25% for Clinton. The presidency was his to lose if pollsters were to be believed. Part of his campaign bellowed against the growing levels of internal and external debt that were driving the enormous budget deficit. A few fatal missteps led him a drop in popularity, including dropping out of the race in July and re-entering the race in October. He still finished with a decent 19% of the popular vote in the main November 1992 election which was the most won by a third party presidential candidate since Theodore Roosevelt in 1912.

The first part of the July 24th 2017 Kenyan presidential debate featured three independent candidates. On the podium was the potentially fiery intellectual collective of Dr. Ekuru Aukot, Dr. Japhet Kaluyu and Professor Michael Wainaina. But alas, if anything, what we saw was that collective intellect being cremated, ignited largely in part by the fire of moderator Yvonne Okwara’s sunny disposition. Just as I was thinking: I can’t see the difference in any of you, Yvonne stepped into the realm of my audience world and noted how all the candidates sounded the same. From the Rhumba hit: “I will get all youth laptops” to the country music song: “I will cut the cost of living” and the reggae riddim: “I will reduce taxes” we were treated to promise after eye rolling promise of what they would do. The ubiquitous cherry on the icing of the political promise cake was the “I will get rid of corruption” mantra that only lacked strains of Bach’s Cello concerto in G minor playing in the background, to give it the gravitas it struggled to generate.
What would have made a significant difference in the candidate rhetoric would have been the “how”, not the “what”. How will all those promises be met, particularly where economic impact is being dangled like a cold can of beer at a crowd of rugby fans? Dr. Aukot slyly asked the audience to check out his manifesto on his website ekurunzai.com during his talk time which I did. On the site, Dr. Aukot leads with what he will do with taxes in four bullet points that each start with the words abolish, waive, waive and abolish. I can hear the guys in the hallowed Treasury building snorting with derision. How can you run, let alone grow your economy by abolishing and waiving all manner of taxes unless you’ve got some new ones hidden under your collar? Neither Dr. Kaluyu nor Professor Wainaina provided additional insight on how they would deliver on what they were promising for the economy nor did they provide links to any websites.
Ross Perot’s 50-page economic proposal included cuts in domestic spending, an increase in income taxes for the wealth and an increase in petrol tax in order to eliminate the budget deficit in five years. According to exit polls, majority of Perot’s supporters were white males, with 63% aged between 18 and 44 and about two thirds had not received a college degree. Wanjiku would understand if you told her that in order to improve her life, you would tax wealthy Kenyans more and use those taxes to pay for her kid’s education or her health.
Bill Clinton aptly campaigned that year: “it’s the economy, stupid!” to summarize everything wrong with George Bush. Future independents would do well to hire economists as key campaign consultants. In the meantime, vote wisely tomorrow.

[email protected]: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]

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Confluence of Political and Economic Risks

I recently dined with a European diplomat who asked the ubiquitous question that foreign residents in this country like to do: “What do you think will happen at the next Kenyan elections?” Before I tell you what I answered, I have to state categorically and most unequivocally that I am neither a political analyst nor commentator. I do, however, occasionally comment on the confluence of politics and economics as often happens invariably. That confluence is particularly necessary in the banking industry, where I spent many happy years, when analyzing credit risk of a customer for a term loan of not less than five years.

Within the duration of that loan such a customer is bound to cross the Kenyan election cycle. Depending on the nature of the customer’s business, the company is likely to have difficulties in loan repayments due to cash flow constraints occasioned by poor sales, deplorable debt collections or, heaven forbid, destruction of the company premises therefore impacting on the ability to produce the goods and services that are being procured. My answer to the diplomat saw him imperceptibly swallow and he leaned forward in interest.

“There will be bloodshed in 2017 as the historical patterns demonstrate it.”

“What do you mean?” he whispered.

“In banking, we look at historical behavior as a strong barometer of what future behavior is likely to portend. To understand our history of political violence, you have to start in 1992 when the first multi party elections were held,” I began. “In that year, you had an incumbent who was running against a very strong and credible opposition. That was when Kenya endured the first of several bloody episodes of tribal clashes.” I went on. “In 1997, the same incumbent was running for his second and last term as president. He had the benefit of the state machinery behind him, as well as a fragmented opposition. This time, the political waters were muddied in the coast region, where the pre-election clashes were largely centered. The coastal tourism economy very nearly collapsed and the hotel industry underwent massive bankruptcies.”

“Well what do you make of the peaceful election in December 2002?” the diplomat asked. “Doesn’t that destroy the pattern of electoral violence?”

“Actually, therein lies the pattern,” I responded. “Every time an incumbent is stepping down, there has been a peaceful transition in Kenya. It happened in 2002 and in 2013. But whenever there’s been an incumbent fighting to maintain the status quo, there has been bloodshed; ergo 1992, 1997 and 2007. The 2017 elections are a status quo event. The pattern will be the same.” My lunch partner mulled over this for a few minutes and promptly changed the subject.

In 2008, a few banks took advantage of the politically instigated clashes in the beginning months of the year to blame the growth in non-performing loans. Some of this was not entirely true and was a slick way of reporting previously suppressed bad loans. But you’d think that the regulator would have cottoned on to the games being played. It didn’t. It is not difficult to see why, when you look at the kind of pedestrian analysis the banking supervision department at the Central Bank of Kenya (CBK) undertakes. In the recently released 2014 Bank Supervision Annual Report, the Central Bank dedicates the monumental amount of three sentences to analyze the 2014 asset quality of the entire banking industry. I will pick two of the three sentences as an illustration:

“ The lag effects of high interest regime in 2012/2013 and subdued economic activities witnessed in the period ended December 2014 impacted negatively on the quality of loans and advances. As a result, non performing loans (NPLs) increased by 32.4% to Kshs 108.3 billion in December 2014 from Kshs 81.8 billion in December 2013.”

When your non-performing asset book increases by a third, it requires a fair amount of explaining beyond the vanilla high interest rates and subdued economic activities reasoning. There should be a fairly robust amount of granularity around the specific industries driving the poor performance of loans. It is an open secret that the central government endured inordinate cash flow challenges in 2014 that impacted key suppliers of services, particularly in the construction industry. This would invariably have a knock on effect to the suppliers of construction companies such as cement, cable and ballast for example. But this is what should be of concern as we hurtle towards an election cycle in the next two years. The retail loan book across the banking industry is the single largest loan segment with 3.6 million accounts grossing Kshs 516 billion and accounting for 26.6% of total loans in the market. This is ahead of trade at Kshs 375 billion (19.3% of total loans) and manufacturing at Kshs 237 billion or 12.2% of total loans. Retail loans, codified by the CBK as personal/household loans, are consumer loans and in this market represent the largely salary check off loans that pepper many banks’ unsecured loan offers. It’s highly likely that the bulk of these loans are used to purchase consumer items such as cars, furniture and electronics rather than investment in income generating activities. A political event such as post election violence, followed by an economic downturn caused by reduction in productive capacity of Kenyan companies will lead to retrenchments. You can also never underestimate the capacity of cheeky borrowers to take advantage of politically volatile environments to stop repaying loans due to destruction of work places and such like sob stories. I saw it happen in 2008.

A notable risk therefore sits in the banking industry come 2017: any delays in government payments (partly occasioned by tax collection difficulties on the part of Kenya Revenue Authority) together with probable election related violence will negatively impact bank loan books. Don’t be surprised if you find difficulty getting an answer on your loan application that year. Your bank is just not that into you in an election year.

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Twitter: @carolmusyoka