The Weekly Brief, by The Kenyan Wall Street, is a newsletter that goes out to 20k+ subscribers every Monday morning at 9 am (EAT).

It is the last Monday of the 77 weeks of January. This is great news, especially since the region is still experiencing erratic weather patterns that have seen the month experience unusual heavy rainfall.

In this week’s issue, East African Breweries (EABL) released its results last week, and although its sales and volumes are up, its share price tanked to a record low.

Ghana has a new refinery, and is planning many more oil and gas projects as it seeks to improve its economy, and Kenya’s parliament is considering a bill to improve terms for investors and companies in Special Economic Zones (SEZ).

EABL Share Price Tanks on FX Losses, Excise Duty Demands

East African Breweries Ltd’s (EABL) stock tanked to an all time low on Friday, Jan 26th, immediately after the conglomerate released its 2023 financial results.

• It was the lowest price since Q1 2009, when the stock was quoted at 123.45.

• The stock reached its high in 2013, when it was quoted at 341.02, but the height was short-lived.

• Despite some highs since, it has not been quoted above 300 since April-June 2015, according to stock price data on its website.

The stock was quoted at KShs 104.50 on Friday following the news that its profits had declined 22 per cent. The previous day’s price was KShs 118.25, which was a mild spike from a relatively stable range since it begun recovering on December 22nd from a dip that begun in late July 2023, following the Finance Act 2024, when it was priced at KShs 164.

Although the company’s tax burden remained relatively unchanged by the new law, the law changed the excise duty cycle to 24hrs, placing significant pressure on its liquidity and working capital.

‘’Our bottom line has been impacted by increased costs of inputs, currency devaluation and rising interest rates,” EABL Group Managing Director and CEO, Jane Karuku, said.

• The company’s foreign exchange losses spiked by more than 1, 100% in 2023, shooting from KShs. 209 million in 2022 to KShs. 2.3bn in 2023.

• FX losses for Kenyan manufacturers have increased due to the rapid depreciation of the shilling.

• For EABL, this is compounded by the fact that it now has to import a significant proportion of its ethanol.

Why it Matters

Founded as Kenya Breweries in 1922, the century-old brewer is one of the NSE’s blue chip stocks, and one of Kenya’s biggest sources of excise duty.

Even for the brewer, whose net sales rose by 16 per cent and its volumes by 2 per cent, the combination of rising cost of inputs, currency devaluation and interest rates has wiped out gains.

Its woes, and the subsequent investor reaction, is indicative of the effect of macroeconomic and tax policies on manufacturers. It is more likely than not that its share price will recover in the medium term. In the short term, there are few indications that there will be any shifts to, for example, ease liquidity pressure on excise duty payers.

The bourse has been unattractive to new listings for close to a decade.

Headlines You Might Have Missed

• Kenya Plans to Toll More Roads to finance road maintenance.

• Global economic growth is expected to slow down in 2024 despite declining inflation rate, the United Nations (UN) says in a report.

• Media houses, which were already struggling to stay afloat, are now facing new headwinds after the government tightened control over advertisement.

• The Edward Ouko-led Pending Bills Verification Committee has scheduled dates for submission of the claims for various ministries, departments and agencies with the last date being the 2nd of February.

NEWS SNAPSHOT: Kenya Considers Law to Improve Special Economic Zones

The Special Economic Zones Authority (SEZA) Amendment Bill 2023 is a proposed alteration to the Income Tax Act aimed at granting more incentives to companies operating within Kenya’s many gazetted SEZ’s. 

The key takeaways from the draft include: 

• Extending the SEZ license term from 1 to 10 years.

• Changing the schedule of Corporate Income Tax on SEZ-based operations – 0% for domestically-sourced income for the first 10 years (down from 10%), 15% for the second set of 10 years, and the standard rate afterward. 

• Increasing the fine (300,000 KSh to 5,000,000 KSh) and minimum imprisonment term (6 months to 1 year) for SEZ operators and developers failing to comply with the necessary licensing and account requirements. 

Read the full story here.

Ghana Brings New Refinery Online, Plans More Oil & Gas Projects

Ghana’s new refinery in Tema, a city on the Bight of Benin, begun operations this week, after it was officially commission by the country’s president Nana Akufo-Addo on Thursday, 26th Jan.

• The $1.98 billion refinery, known as Sentuo Oil Refinery, has the capacity to refine two million barrels per year.

• According to President Akufo-Addo, the project is scalable to five million barrels per year.

• Ghana’s crude oil production capacity stood at 173 thousand barrels per day in mid-2023.

The West African country has 17 ongoing projects in oil and gas, as it seeks to boost production and refining. One of them, the Pecan Conventional Oilfield, whose first phase will cost $1.5 billion, is scheduled to begin production in 2025.

“By processing our crude oil domestically, we are creating opportunities to add value, transform raw materials into finished products, and increase the competitiveness of our manufacturing sector,” the country’s president said, “This refinery stands as a good example of our “Ghana made” (Made-In-Ghana) initiative, where we prioritise local production for the benefit of Ghanaians.”

Ghana currently imports 97% of its refined petroleum products, making it heavily reliant on global fluctuations, a factor that has worsened as the country’s works its way out of an economic crisis.

“This over-reliance not only poses economic challenges such as high cost, and the constant drain on our foreign currency reserves, but also limits our ability to control prices and ensure a stable supply”, he added.

Ghana plans to double its oil output in the short term.

Upcoming Events

• Digital Retail Africa 2024: Johannesburg, 31 Jan.

• 7th Annual CEOs Breakfast: Nairobi, 8 Feb.

• Africa Tech Summit Nairobi: Sarit Expo Center, 14-15 Feb.

• Africa Agri Expo: Nairobi, 19-20 Feb.

• Africa Media Festival: National Museum, 21-22 Feb.

• Global Black Impact Summit: Dubai, 27 Feb.

What else we are reading

Makueni County may have pioneered a successful model that stopped illegal sand harvesting and promoted sustainable practices. But can it work elsewhere? Inside the Crime Rings Trafficking Sand. Scientific American (Link).

Kenya has lost $200mn worth of exports to Uganda, its largest regional market, since October 2023, new data shows. The East African (Link).

Burkina Faso, Niger and Mali have quit ECOWAS, although the regional bloc says it is yet to be notified of the withdrawal. Al Jazeera (Link).

Interview of the Week

Interview with Sonia Kabra, the co-founder at BuuPass.

Have a great week!