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

Last week, Zhonghzi Enterprise Group, one of the largest shadow banks in China, told its investors that its balance sheet is askew. It owes $65bn against assets worth less than half that, which means it’s likely to default.

China’s share of the world economy is reducing after nearly four decades of unprecedented growth, and the clearest sign is in the property sector, which accounts for a third of the country’s GDP. This will redefine the global economy and with it, politics.

In this week’s issue, more job cuts ahead, Dangote’s refinery is almost complete, and Somalia joins the EAC.

Kenya’s Private Sector Cuts 70k Jobs in a Year, Plans More

Kenyan employers are bracing for impact as the economy slows down, and costs rise.

In a statement last week, the employers lobby group, Federation of Kenya Employers, said that “…between October 2022 and November 2023, we have lost 3% (70,000) of the jobs in the formal private sector and 40% of employers have reported that they are planning to reduce the number of employees to meet the increasing costs of operating in Kenya.”

“…the cost of doing business has become unsustainable…,” the FKE said in the statement.

• Their reasons are multiple, and they mostly stem from the current budget. The lobby group pointed out the direct impact on payrolls, the demand for general wages review, and the risk of business closure.

• The private sector employs more people than the public sector and so accounts for a far larger wage bill, by a factor of 1:2.3.

• But Kenya is still a largely informal employment market, with formal employment only being 17.1%.

These aren’t the only worrying statistics. A glimpse of the government’s statistics shows that there’s been a decrease in the kind of numbers that mean businesses are making money, and hence matter to the bottom line and employment figures.

• For example, statistics by the Kenya National Bureau of Statistics show a decrease in the volume of trade, total export and import values, and the total value of mobile money transactions.

• Rates for commercial banks loans and advances have increased from 12.43% in August 2022 to 13.83% in August 2023.

• Interbank rates have quadrupled in a year, and yet savings rates have only changed marginally.

Why it matters

Private sector employment is critical to the formal economy in many ways. In addition to taxes, it trickles down to the rest of the economy as salaried people pay taxes, spend, and save.

• Losing jobs means that consumption habits are changing (e.g, the drop in total value mobile money transactions) , and some, if not all, non-essentials will be dropped entirely.

• This then creates a death spiral, where businesses need to fire more people because people are not consuming their products and services.

• FKE recommends several things, mainly reviews on VAT on petrol (specifically petrol, which is odd as diesel is a much bigger economic concern), PAYE (to 25%), and corporate tax (to 25%).

In its report, the bipartisan dialogue committee between the government and the opposition recommended a reduction of two major petroleum taxes-Road Maintenance Levy and anti-adulteration levy by Kshs. 5 and Kshs. 3 respectively. This barely touches the surface of the problems.

In the short term, it seems that the die is cast against ease of doing business, and surviving while at it. But, in addition to the opportunity to fine tune business models and adapt them to current realities, the current downward spiral will likely to prove Darwinian for enterprises, and even sectors, as it becomes clearer who can survive and who cannot.

The ongoing job cuts will be a major reason why businesses fail or struggle in future, because of the resultant brain drain and losses to institutional memory, among other things. For individuals, job losses mean immediate financial pain, and a rethinking of whether to go back to seeking jobs in a limited opportunity landscape, or to join the 80%+ Kenyans in the informal sector. Or both.

Headlines to Start Your Week

• The government is set to share data on 7 million of 22 million Hustler Fund accounts who have “proved to be consistent and repay their loans promptly”, with commercial banks for consideration for bigger loans.

• In the latest in our ongoing carbon series, Dr. Yvonne Maingey discusses the climate policy behind carbon offsetting, and the Voluntary Carbon Market. Its a complex world, so its best to also start here and here.

• Latitude59, a tech event organised by the world’s first digital nation and the global unicorn factory Estonia) is coming to Nairobi next month.

• Kenya intends to privatise 35 state companies by outright sale or listing on the stock exchange. Read more.

• At the third edition of Women on Board Awards, corporates, government and communities were challenged to create an enabling environment to allow individuals thrive regardless of their gender. Read More

News Snapshot:

Aliko Dangote, Africa’s richest man, has been building a $20bn oil refinery in Nigeria.

Located on 2, 500 hectares outside Lagos, the refinery is an architectural feat: it required the construction of its own infrastructure including a port, a road, enough cable to circle the globe twice, and moving 65 million tonnes of sand.

The facility, touted as the world’s largest “single train” refinery, aims to significantly reduce Nigeria’s foreign exchange spending on imported fuel. It is expected to start operations in December. Read more

In Listed Companies Last Week

• East Africa’s leading producer of compressed carbon dioxide, Carbacid Investments PLC sent out invites for its AGM, where one of the major issues is likely to be the listed company’s stalled acquisition of BOC Kenya, which makes bulk and packaged gases.

• KCB Group profits rise marginally, assets surpass a record-breaking Kshs. 2trn.

• StanChart net profit up 11.8%, despite the listed lender dumping 50% of its government bonds at a Kshs. 2.3 bn loss.

• Equity bank is in the final stages of closing its acquisition of Cogebank in Rwanda, as its positive numbers are dampened by a 20 per cent drop in its Kenyan market’s profit after tax.

Mogadishu Joins Jumuiya

On 24th November, the East African Community heads of state decided to admit Somalia into the regional body, bringing the number of members to eight.

• Mogadishu now has six months to sign the treaty of ascension to the EAC.

• Somalia’s admission significantly extends the bloc’s coastline, which was previously just Kenya and Tanzania as all other members were landlocked.

• The EAC’s next target members are Ethiopia and Djibouti, which would enhance not just its size and economic potential, but also its problems.

While a powerful body, the EAC is still grappling with basic problems, including the lack of payment by members. One of the main goals of the summit was to hand over the chair of the bloc to South Sudan’s President Salva Kiir.

• In preparation, the EAC waived more than 50% of South Sudan’s outstanding $36 million in arrears, and Juba promptly paid the reduced debt of $15 million.

• South Sudan’s was the biggest debt, followed by Burundi ($15.5mn), and DRC ($14.7mn). The DRC has not remitted any money since joining the bloc.

• Kenya, on the other hand, owes just $20.

Somalia’s admission to the bloc presents several major problems, including security and political stability.

But these are not new to its immediate neighbour Kenya and several other members of the EAC who host refugees from the country and have suffered terror attacks from the militant group Al Shabaab. EAC members Kenya, Uganda, and Burundi have had a military presence in Somalia for more than decade, and have all suffered major troop losses.

Right after the announcement that Somalia would be the EAC’s 8th member was another major sticking point in the bloc: a political confederation. The plan has been in planning for a long time, but “lack of political goodwill” is already a major concern for issues such as funding, making it even less likely that a true and effective political confederation is possible in the near future.

Somalia’s risks and issues are now EAC’s problems. This has always been the case, of course, but it is now formalised. Bringing Mogadishu closer into the economic fold is likely to make it easier to help it grow its institutions, but three decades of such attempts have been undone.

Upcoming Events

• • COP28 Networking Reception: Dubai, Dec 5.

  • 2nd National Conference on Career Guidance & Development 2023: Nairobi, Dec 6.

  • Latitude59 Kenya Edition: Nairobi, Dec 6.

  • SuperReturn Africa: Cape Town, Dec 4-6.

  • International Conference on Business Incubation and Innovation: Nairobi, Dec 18.

Interview of the Week: Interview with Chilekwa Banda, the Chair of Association For Digital Finance Practitioners - Zambia

What Else We Are Reading

China’s real estate crisis has helped create a $37 billion hole in the balance sheet of the country’s largest shadow bank. Fortune, Nov 24th (Paywall)

Africa’s richest man under pressure as giant refinery nears production. Financial Times, Nov 25 (Paywall).

KCB subsidiary, National Bank of Kenya (NBK), is the first bank to post a loss in a profit rich industry. Business Today, Nov 25.

Have a great week!

Partner with Us

Reach out to us [email protected] to learn more about partnership opportunities.