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

Last week’s fuel price anxiety in Kenya was postponed with increased subsidies, but the politics of fuel pricing are only just heating up. Stay updated on The Kenyan Wall Street.

In this week’s issue, Malawi ups its austerity measures, Kenya’s second largest supermarket chain’s growth strategy becomes clearer as private equity competition in Kenya’s retail market heats up, and NALA gets its license in Rwanda.

Stay in Malawi, President Chakwera Tells Government

Last week, Malawi’s President Lazarus Chakwera suspended international travel for his government, including himself, as the country enhances its austerity measures.

• In August, Chakwera’s Treasury Secretary McDonald Mafuta Mwale restricted government travel, which meant that Cabinet level travel already needed the approval of the President.

• The government has also reduced fuel allowances for Cabinet members, after an initial reduction in 2022.

• In addition to the ban, Chakwera’s government will lower income taxes, and increase civil servant salaries, in the next budget.

Malawi is in debt distress and its economic recovery was worsened by two tropical storms in 2022, interruptions to electricity supplies, shortened seasonal rains and spillover effects of global events such as the Russia-Ukraine conflict.

Similar to multiple economies in Sub-Saharan Africa, Malawi is currently under an IMF program to save its economy, which is currently grappling with high inflation and fuel shortages.

• Malawi’s currency, the Kwacha, has lost more than 40% of its value this year, in the most recent devaluation by the country’s central bank. The currency was first devalued by 25 percent in May 2022.

• Malawi has been facing foreign currency shortages since 2009. It devalued the Kwacha in May 2012 before the currency lost another 32% in value.

• Currency devaluations are an important bit of the IMF’s financial assistance. Other preconditions include fiscal reforms that include reducing public spending and increasing tax revenues.

Austerity measures often just mean reduced public spending, but a ban on government travel has a limited impact on financials, but it is a good political tool.

When President Chakwera cancelled two foreign visits, to Rwanda and Austria, in June 2022, his finance minister estimated it would save the country $261,000.

• Chakwera’s government, which came into power in 2020 on the promise of riding the country of corruption and creating one million jobs, will face the electorate again in 2025.

• Banning international travel is mostly a political decision that allows politicians to win favour with electorate, but there’s little evidence that it’s an effective austerity measure.

• Government austerity has direct effect on people though, because government spending is still the most effective economic driver in many African countries.

Headlines to Start Your Week

• The Kenya Shilling’s rapid depreciation against the dollar and other currencies has had immediate effects. Here’s a glimpse: it has increased Kenya’s national debt and debt service significantly, and put Kenya Power’s financials in the red.

• Ten Counties have been selected to pilot an assessment for viability of green bond as an alternative source of funding to various capital-intensive projects in the devolved units.

• 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.

• Kenya’s ongoing fiscal reforms have outpaced other major economies in the Sub-Saharan region, according to a report by the Fitch Group-owned BMI Research. But can Kenya stay the course?

• East Africa is currently experiencing unusual rainfall, and is bracing itself for what likely comes next: drought. Here’s why that matters.

News Snapshot: NALA Licensed in Kigali

East African fintech company received a license from the National Bank of Rwanda on Nov 16th. The Payment Service Provider license comes two years after the company begun operating in Rwanda and in that time, it has processed 10k+ transactions.

With the license, NALA can now offer payment gateway services, pursue direct integration with telcos and banks, and offer payment processing on behalf of third parties.

In Listed Companies Last Week

• Co-Op Bank of Kenya Group recorded a net profit of KSh 18.4 billion at the end of the third quarter of 2023, marking a 7.6% growth in earnings.

• CIC Insurance Group Plc has begun a staff rationalization program that will see it reduce its workforce by 75 employees out of a total of 728 across its four companies.

• Bamburi Cement has agreed to sell its Ugandan business, operated by its local subsidiary Hima Cement, to the Sarrai Group for US$120 million. The news had an immediate effect on Bamburi Cement’s stock price.

Kenya’s Quickmart has a Left-Hand Side Strategy

Kenya’s new retail giants, Naivas and Quickmart, are in a breathless competition for market share.

• Their stores have popped up everywhere: in new malls, in old malls once occupied by their now dead former competitors, in new buildings and in any space available. Sometimes, within spitting distance of each other.

• This Private Equity (PE) driven expansion epitomises the private equity model, where investors pump in money to rapidly grow enterprises, and then dump/sell their shares long before the bubble bursts.

• The new purchasers tend to be other PE firms, of course. But the lessons of previous PE-funded expansions in the corporate sector (Java, Art Caffe, Nairobi Women’s Hospital e.t.c) show that often, the opportunity is already existing.

If you haven’t noticed yet, Quickmart (and increasingly, Naivas) is often on the left as you leave urban areas, cities and towns, and this isn’t incidental. The retailer is placing itself where you can get to it easily, whether by matatu or a personal car, as you head home. Since its merger with Tumaini in 2019, Quickmart has more than doubled its branch network.

“We are a shop that is among the people, that’s the difference” Peter Kang’iri, CEO Quickmart, recently told The Economist (See “What Else We are Reading” Section below).

• Naivas has doubled its branch network in five years. It now has 10, 000 employees on its payroll, an average of 100 staff per branch. Quickmart has 6, 000 in its 50+ branches. This makes the two retailers bigger employers than companies such as KCB, Safaricom, and other gems of the Kenyan enterprise sector.

• The expansion of the retail market is good for the economy. While other sectors are struggling, the fact that the retail competition is still creating direct and indirect employment is positive.

• There’s ripple effects as well-of their presence and rapid expansion; from rents to new markets for suppliers of the wares the supermarkets sell. Count in there as well taxes, and the haircut bargains shoppers enjoy in this extreme competition.

While the model is asset light (meaning they lease the space and set up branding and operations), it is capital heavy. The three musketeers Nakumatt, Uchumi and Tuskys failed because of many reasons, among them being that they had little to no corporate governance. Their failure also proved that there’s nothing like too big to fail in the formal retail market.

• Another glaring risk is the effect of the current economic depression on retailers.

• As disposable incomes shrink, triggered by layoffs, the increase in price of fuel and with it nearly everything else, and the never-ending increase in taxes, retailers may have to start planning their future with more realistic goals in mind.

• And then there’s the fact that there are many, smaller, cheaper retailers closer to home that often sell what we need in units (and even cheaper). And, they don't have to worry about which side of the road they are on because they are where they need to be.

Upcoming Events

• ASEA (African Securities Exchanges Association) Conference: Nairobi, November 22-24.

• Equity Bank Q3 Results: Nairobi, November 20.

• KCB Group Results: Nairobi, November 21.

• Annual Tax Conference: Nairobi, November 23-24.

• The MSGBC Oil, Gas & Power 2023: Nouakchott, November 21-22.

• Latitude59 Kenya Edition:  Nairobi, December 6.

Interview of the Week: Investing Like an Executive with Samuel Kariuki of Mi Vida Homes

What Else We Are Reading

Africa’s Supermarket Revolution: The Economist, November 16th, 2023. (Paywall)

“Anything that’s the something of somewhere is the nothing of nowhere,” Sillicon Valley investor Peter Thiel on Wasoko: The Atlantic, November 9th, 2023 (Paywall). 

Food is the biggest driver of Kenya’s imports as orders for major capital goods falls: Business Daily, November 19th, 2023.

Have a great week!

Partner with Us

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