Februaryâ€“ March 2016
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SACCOS OF TRANSFORMATION In-depth Report on Cooperatives in Meru County
Serving the micro and small businesses
SIX SECTORS OF OPPORTUNITY IN KENYA IN 2016 PLUS Your FREE GUIDE to Trading at the Nairobi Securities Exchange
INVESTMENT NEWS 3
Serving the micro and small businesses
INSIDE THIS ISSUE
SPECIAL REPORTS PULL-OUT ON INVESTING IN THE STOCK EXCHANGE
REGULARS Publishers View………… 4 Who will help fight corruption in Kenya?
The last word…………… 30 Saccos: Challenge of being the owner and the customer
Quick News………………. 5 Books and culture..27 Culture and development and their relationship
This is the most comprehensive NSE review with a focus on the small investor. We tell you how to invest, how to judge an investment, how to work with a broker or buy shares on your own and pitfalls to watch for Start on Page 11 TOP INVESTMENT OPPORTUNITIES IN KENYA 2016 This is an overview of business and investment opportunities to be in 2016 Start on Page 7 Small Business Growth Plan continues by telling you how to grow your business. Start on page 25
4 INVESTMENT NEWS Investment News Editor Muli wa Kyendo Associate Editor Emily Muli Contributors Francis Ochieng Wilfred Gachanja Nguli Muli
Marketing Charles Kavuu Sylvia Njuguna Investment News is published bi -monthly by Investment News Ltd, P.O. Box 20257-00100, GPO, Nairobi, Kenya, Tel: 0773991820 , 0721302418,
Email: Editor @investmentnews.co.ke
ISSN 1814 –9966 The Editor welcomes contributions but takes no responsibility for loss or damage.
All rights reserved Copyright: Investment News Ltd
How Should We Fight Corruption and Succeed in Kenya? The case of the former Cabinet Secretary for Devolution Anne Waiguru is a good example of the reasons why we are not succeeding in fighting corruption in Kenya. First, when alerted of corruption in the National Youth Service by the Central Bank, she decided she was a whistle blower. When that failed, she called in the Ethnics and Anticorruption Commission to investigate and report to her. No one expected the EACC to implicate her.
course there were legal issues which the ordinary people apparently assumed were not in their area of competence. Even the Nandi MP Alfred Keter, who is an unrelenting critic of Anne Waiguru, removed his fighting gloves and apparently focused his mind on something else. It would have apparently remained so had the EACC not announced in a record time of one month that they had found her not guilty of any corruption charges.
Finally, she accepted that The issue has now resurfaced there was corruption and and God knows where it will staggering amounts of money end. Out of office and power, had been stolen. Anne Waiguru is obviously She however insisted she uncomfortable. The fanfare was innocent as she was not around her is gone. the accounting officer in her But Kenyans are not ready for ministry. And then she tried her comeback. Obviously, she the usual stuff that has rewill be reappointed to sometarded development in Kenthing else, whether Kenyans ya—she brought in her tribes want it or not, - wapende women and men to insist wasipende. And that is what there was witch hunt about keeps Kenya firmly fixed back her. yards of the Third World, Finally, she did the right whatever else we pretend to thing—she quit. And to most be. Kenyans the Anne Waiguru issue had ended, unless, of
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Quick News Cheap Power May Soon Come to Kenya According to Kengen, the Kenyan power generating company, Kenyans may soon be using cheap power. This is because the dams that generate power are full of water and geothermal power generation is enough to make a difference in prices. This is not a new promise. When geothermal power stations were commissioned by President Uhuru Kenyatta, Kenyans were told to expect cheaper power within a few months. The months came and went. And instead of cheaper power, prices for electricity increased—as indeed the prices of all goods and services increased in the country.
Kenyans were told there had been a delay in adjusting prices. And that was the last that was said about power. It is obvious that something is not right in the power generating company or in the government. Power generating resources litter the country—and people have said some are available in such large quantities that they can even supply the world for years. But we continue to suffer elementary problems such as power outages. And that will be so until we develop new values as a nation and get rid of tribalism, nepotism and corruption.
Oil exploration in Turkana
Ivory Trade—Mombasa Still the Main Gate Way Mombasa is still the main exit point for illegal elephant trade despite the effort by the government to contain the vice. President Uhuru Kenyatta recently followed the example of his predecessors by burning ivory recovered by law enforcement officers.
DNA tests show that a small number of kingpins control much of the multibillion dollar illegal trade, and that "these hotspot are very slow to change.‖
But much to Kenya’s credit, poaching in Kenya has gone down, making Tanzania the major source of illegal ivory in Eastern Africa. The other important sources of illegal ivory are Congo and Gabon.
The biggest buyers of ivory are Asian countries with China taking more than 70 per cent.
Some 50,000 elephants are poached every year in Africa, leaving some only 450,000 elephants across the continent.
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Quick News ny promotions.
Has Corruption Now Hit the Giant Safaricom? Bob Collymore, the CEO of the giant telecommunication company Safaricom has found himself defending his company against accusations of corrupt practices now taking rounds in the social media.
―To be honest some groups participate more than others in the promotions, ― he was quoted as saying, adding that the company tried as much as possible to balance the awards. He said Safaricom does not condone corruption and will cut links with anyone involved in corruption. Collymore declared his wealth last year in a bid to help fight corruption in Kenya. Collymore who is from Guyana said he had a house, cash and shares in different companies worth some Shs227 million saved from his over 30 years of work. He further stated that he earned Shs100 million a year from his employment income. Other company bosses who have followed the example of Bob Collymore include the Kenya Commercial Bank CEO Mr. Joshua Oigara who narrated how he started his career 18 years ago as a teacher earning only Shs5,000 per month.
Bob Collymore: “Safaricom does not tolerate corruption. We will cut links with anyone who is corrupt.” According to the accusers, Safaricom favors one community in its sales promotions. A list allegedly obtained from the company has been making rounds on social media giving details of the promotions. The list shows that most of the winners of the Safaricom’s Shangwe Mtaani came from one community. In a statement, Collymore did not deny the charges, but defended his company by saying that the said community participated more than other communities in the compa-
The 41 year old CEO said that at the time of declaring his wealth (December,2015) his assets were worth Shs350 million in form of land, buildings, motor vehicle, cash bank balance and shares He further said his monthly salary and allowances amounted to Shs4.9 million. More than 60 per cent of Kenyans live on less than one US dollar. The average salary for university graduate teacher in Kenya is less than Shs 30,000 a month, a far cry from Shs4 million. In deed, it is not just corruption but the total imbalance of incomes in Kenya where less than one per cent of Kenyan control more than 90 per cent of the country’s wealth.
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Meru Saccos of Transformation ‘It’s the most effective way to create and distribute wealth’
When Governor Peter Munya talks about the importance of financially empowering all people in Meru County, he isn’t just fooling around because he has already identified the way to do that. “The sacco,” he says, “is the way to go.” And he adds, “My government will put funds into the women, youth and the
general trader saccos to uplift their standards of living.” Why is he so keen on savings and credit cooperatives? Because he wants to lower the cost of loans so that the youth, women and traders can borrow more and invest in income generating businesses. “Meru has over 20 commercial banks but
Happy cooperative leader: The Meru Governor is encouraging formation of sacco to fight poverty
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Governor Peter Munya: He is allocating money to cooperatives for cheaper loans to members
their interest rates are too high. That is why we have come up with this initiative that will enable them borrow three times of the money they save, at a friendly interest rate,” he says. Munya is working on an old tradition in Meru. Ever since the cooperative movement was introduced in the country, the people of Meru took to it like a bee to nectar. There are more than 54 saccos in Meru covering almost every sector of life. There are saccos for water provision, youth saccos, women saccos, farming saccos, traders saccos and even traditional medicine saccos. A traditional medicine sacco, Meru Herbs Rural Sacco had 46 employees and 500 members by the last count. In addition it
had over 100 seasonal employees. . And its am bitio n for 2016 was to increase membership to 1000 and its share capital to Shs 10 million. According to Munya, saccos are the way to fight poverty and create jobs. “We will give most of my government’s funds to the Saccos, because we believe they are an effective tool to fight poverty,” Mr. Munya says. In Meru most households depend directly or indirectly on Saccos for their financial needs. Sustainable Saccos therefore will not only assist the individuals but also spur the economic growth of the county.
women. And they have enjoined the central government where the department of Cooperatives and that of Youth and Gender are helping in recruiting youth and women to join saccos. Early co-operatives in the county were mainly agro-based operating especially in coffee and dairy. And they performed so well that many of the founders of national cooperative institutions such as the Cooperative Bank of Kenya were from Meru. Most famous buildings in Meru town were put up by the cooperatives. They include Meru African Coffee Co-operative Union (MACCU) House, Meru Central Dairy Co-operative Union and Meru Multi-purpose (maize mill) buildings. And recently, Mwalimu building in Meru and Maua Methodist Sacco building to name a few were acquired by Saccos.
Elaborate program to Promote Saccos
They have even extended their influence to Nairobi where they own large buildings such as Imenti and Nyambene houses.
The county Government has come up with an elaborate programme of promoting and developing Saccos in the county. The strategy is to establish three Saccos in every subcounty to empower youth and
Recently Deputy President William Ruto helped raise money for a youth sacco
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SECTORS OF OPPORTUNITY 2016
SIX SECTORS OF OPPORTUNITY IN KENYA IN 2016
Much of the growth of Kenya’s economy in 2016 will be related to the growth of populations. Worldwide, population is expected to grow at the rate of 4 per cent which will bring in 60 million new citizens to the world. And much of this population growth will be in India and Africa – Kenya included.
This means the demand for certain products and goods will increase. Among these will be food needed to feed the growing population. 1)Agribusiness is therefore a natural growth sector. Kenya is already itself experiencing shortages of essential foods such as maize, the stable food. But the government is making great efforts to produce
more food through adoption of innovations and mechanization. Large maize farms have been initiated at the coast, but the supply will be far from sufficient. Other areas of agribusiness expected to flourish include floriculture, horticulture, bee keeping and animal farming. 2 Food Processing and related products: Slaughter houses and animal skin factories as well as cottage industries will be among the top areas of growth. Demand for processed
food will up as p e o p move towns work..
go the l e to for
3. Real Estate will follow the boom in populations. More and more people will move into cities and towns leading to a high demand for houses in these areas. Annually, the demand for housing is estimated at 350,000 units. Indications are that demand will continue to increase for real estate in Nairobi’s suburban areas such as Mlolongo, Kamulu, Kitengela, Kiambu and even in the outer areas such as Kajiado, Thika and Machakos. This demand will continue to be boosted by foreign investors – especially companies and organizations that will target these areas
10 INVESTMENT NEWS for office space, factories and even housing. Nairobi city will continue to be attractive to foreign investors because office space is still relatively cheap in comparison to equivalent cities such as Lagos and Abuja in Nigeria or cities in South Africa. This, of course, has raised real estate prices in the city far out of the reach of the ordinary Kenyan, leaving it more to organizations and companies seeking more space. According to reports, the demand will be fueled by increased purchases from Kenyan diaspora population. 4. Retail property will increase in similar pattern in response to the growing middle class population. Of particular interest will be space for shopping malls and supermarkets which are already spreading all over the country. This demand is forecast however to be more in the areas outside the city as marketers move out of the city and go to other urban are-
as such Mombasa, Nakuru, Kisumu and Eldoret. In Nairobi, we are seeing an increase in the movement outside the city to its suburban areas in response to movement of the middle class residential areas. Retail trader will raise the demand for manufactured goods which are easily mass produced This will in again contribute to the increase demand for industrial space. In recent years, there has been a great increase in areas along Mombasa road where significant construction work has transformed the area. Other towns with significant growth of industries include Naivasha, Mombasa and Kisumu. 5. Courier Services The growth of internet will continue to spur significant growth in a variety of areas of the economy Among these are courier services around the country, and especially in urban areas such as Nairobi. By last year, estimates were putting the growth rate as about 30 per cent and industry was expected to continue and improve on
this growth rate. New entrants in this will continue to be the transport sectors, especially the matatu business which has in recent years improved its services in this area. Efficiency, speed and reliably will continue to be major qualities determining growth. While large companies will continue to rely on diversified nationwide delivery, small companies are going to thrive on offering specialized service within specific areas. Almost anything, including food, can be ordered online and delivered direct to the customer. 6 ICT: The growth of the ICT sector will be spurred by the government decision to supply laptops to primary schools. Manufacturing of the laptops will improve manufacturing of other types of communication technology thus lowering prices and increasing demand. Demand will also increase for repair and spare part shops.
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NSE is one of the most profitable stock markets in Africa
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2016 EDITORâ€™S NOTE Contents: The contents of this guide have been deliberately focused on the local investor - the Kenyan micro, small and medium entrepreneur. Our belief is that individually and in groups such as cooperatives and self-help groups, the local entrepreneur can help counties create wealth. Often however, they are unaware of the opportunities available and the contributions they can make as investors. Our purpose is to provide them with the information and encouragement they need. We will continue to encourage cooperative as the best way for the average investor to pull together as well as access funds for their businesses. Acknowledgement: The Editor acknowledges with grateful thanks, the help of a very large number of information sources who have cooperated in the compilation of this guide. The sponsors have helped in facilitating the gathering of the information and the publication of the guide. I wish to thank particularly the officials of Nairobi Securities Exchange who volunteered to cooperate and help in a variety of ways whenever we needed their help. It is due to the constant help that we now have this guide. The Guide is written by Nguli Muli email: firstname.lastname@example.org
Guide to Trading at the Nairobi Securities Exchange Copyright 2016 Investment News P.O. Box 20257-00100 Nairobi, Kenya. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic photocopying, mechanical recording or otherwise without the prior permission of the copyright owner
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Here is how to make money at the NSE Since its establishment in the late colonial years, the Nairobi Securities Exchange has experienced steady growth to become a top performing market in Africa. In 1994, it recorded
its highest ever performance with an index of 5030. It is still the only licensed securities exchange in the country. The stock market is a place where business itself is sold.
Generally markets are made whenever and wherever uncommitted buyers pay –usually with money, sometimes with goods – for something
But First Learn the Language of the Stock Market Liquidity: Liquidity is the ease by which an investment can be changed back to cash with no major changes in value. Liquidity is determined by how close the ask and bid prices are. The ask price is the lowest amount a seller is ready to take for a security while the bid price is the
highest amount a buyer is ready to give for a certain security. The closer these two prices are, the easier it is to convert your investment to cash when need arises. Shares bought and sold at the Nairobi Securities Exchange are fairly liquid and can be cashed quite easily. With the introduction of the Central Depository and Set-
tlement Corporation, transactions take 5 days to reflect in your account. It is always advisable to not trade in money that you would need urgently as the investment is always a risk. If you need money on short notice, you may sometimes have to sell at a loss as you won’t have time to patiently wait for a stock to appreci-
14 INVESTMENT NEWS provided by uncommitted sellers. The exchange takes place at a price each party cannot better under the circumstances. There are markets for many goods and services â€“ the oldest being the labour market. In the stock market, the value of business is assessed through the price of its shares. A drop in share prices signifies a drop in the value of business while stagnant share prices signify lack of progress for the business concerned. It is also in the stock market that the state tests its support in the broader business community when it tries to raise funds through the sale of its shares or
bonds at a given price. Lack of support is expressed by a reluctance to buy while support is expressed by an eagerness to buy. It is of course, important to remember that stock markets do not reflect the size of their domestic markets. In some countries such as Germany, much of the money for investment flows directly from banks to other businesses without the mediation of the stock market. In others such as the United States, much of the finance comes from retained profits. It is also important to remember that stock markets are affected by international trends in busi-
ness. They are becoming increasingly international. Generally, the individual or private investors in losing out in this trend as more and more institutions such as pension funds and insurance companies have become buyers. What this means is that these institutions are increasingly becoming more powerful and the stock markets are becoming more volatile. Professional managers of the funds, all too aware that they are judged by their performance, follow each other in stampede so as not to be left behind in the market. Volatility is increased by
Speak the Language of the Stock Market formance of a representative 20 companies from a number Indexing: The stock market of industries. On the other index is a measure of change hand, NASI measures the of the market over time. Dif- performance of the market ferent indexing methods are based on the performance of used in different markets all all the listed companies. over the world. The local equities market uses the NSE20 A 2% increase in the market Shares Index and The NSE index means that the total value of the stocks which All Share Index (NASI). make up that index has apThe NSE20 Shares Index preciated by 2%. The figures measures the performance of on their own have little meanthe market based on the per- ing and have to be compared to previous values to make ate in value.
any sense. With this information, you need to interpret the index. The index will drop when many investors sell and thus make the stock prices go down. The reasons behind their selling of stocks should guide your next move. Foreign investors (who make up a large number of traders at NSE) may choose to sell their stocks at a certain time when insecurity in the coun-
INVESTMENT NEWS 15 the growing importance of professional traders who operate on a very short term basis and are similarly given to a herd instinct. The Kenyan stock market is growing and changing as it grows. With new technology and modern methods of communication, more and more individual traders and business people are trading at the stock Launching the new building for NSE market and making wealth can make money trading at the while at it. This special stock market. Guide shows you how you
Speak the Language of the Stock Market try is exaggerated on international media, when there is a drought, political uncertainty or for whatever reasons; and thus make the market index drop. From your own research, you should be able to make a wise move. The index is also important for comparison purposes. If the stock you invest in is consistently behind the index, you might probably need to come up with a new investment strategy. For example, if the index consistently goes up by 2%, your investment should also appreciate regularly by 2%. Securities: Securities may be in form of debt (bonds, debentures, rights) or actual ownership of a company (equities/ shares). Investing in equities means that one can be able
to make money off of capital gains. On the other hand, investing in debt securities allows one to gain interest and keep the initial principal. Debt securities are usually issued for a certain period of time, after which the investor can get back their money. Equities give the shareholder certain rights and some power in influencing the running of a company. Mutual Funds: Investors with a limited level of investible income can put their money in a mutual fund. This will allow you to enjoy a level of diversification you would otherwise be incapable of affording. In this way, mutual funds have a lower risk level compared to directly investing in equities. Depending on your risk tolerance, you can further
reduce your risk levels by selecting a less risky mutual fund. Money market mutual funds are by far the safest you can get. Generally, your returns would be about twice what you would get in a bank. As the investment goes into debt securities such as treasury bills, you donâ€™t have to worry about losing any of your money. Bond funds or income funds offer higher rates though not exactly risk free. These funds are basically invested in government and corporate debt. The level of risk depends on where the money is invested. For example, investing in government bonds will attract much lower risk than investing in companies. The risk level
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‘Can I Invest at the NSE?’ The question that bothers most people is the very basic: Who can invest at the stock market? And the answer is very simple: Anyone... Stock markets such as the Nairobi Securities Exchange are open and cater for everyone. Individuals, companies and organizations can make money at the stock exchange. It doesn't also mater whether you are a Kenyan or not. All it takes is for you to sign up with a broker and follow the steps we shall outline. The limitations are those that you place on yourself. For example, you should
consider a few thing before you jump into the world of stocks and bonds. One of the biggest considerations for an investor with little money is not only what to invest in but also how to go about investing. Not long after you start investing that you may find yourself bombarded with minimum deposits restrictions, commissions and the need for diversification, among a myriad other considerations. In this case, it is better to learn to maximize your profits by minimizing your
costs. Start with the broker first. We said all you need is to go to a broker and open an account and start trading. However all financial institutions require certain minimum deposits. So they will not accept your account unless you reach certain minimums. Before you start your hunt for brokers, remember there are two types— brokers that offer you full service and others who offer commission-based service. Those who offer full service will do everything for you, but the problem is that they will not accept the investor with little money. This means that your best option, if you are a small investor, is the commission or discount broker. Commission brokers can be very low in terms of fees, but you should remember that they are that low because they leave
Deputy President William Ruto (left) opens new NSE building
INVESTMENT NEWS 17 everything to you. They may not give you investment advice if you need it.
Trading at the NSE
You can, of course, avoid brokers all together and buy shares directly from a company through direct stock purchase plans (DSPPs).. You should remember that many of these plans have minimums also. Most companies that have placed shares at the NSE have required a minimum of Shs,5,000 purchase..
Trading is a very simple process. Just follow these simple steps: 1. Locate a suitable broker. All stockbrokers are listed on the official NSE website. 2. Open a CDS account (Central ). This is where all tradable shares are held electronically. Your broker may or may not charge a fee for this service. 3. Identify a stock you In countries where online wish to buy. trading in shares and stocks 4. Inform your broker and has taken off, it is easier to the transaction will be get commission brokers at effected. Transactions take 5 days to reflect in much lower rates. In Kenya, your account. however online trading has 5. Know when to sell. yet to pick sufficiently to make a difference. Opening a CDS Account
Information on how to open a CDS account is available on many platforms, including your chosen broker. Simply, you will: Fill a securities account opening and maintenance form with your CDA (Central Depository Agent) and sign. Attach/ provide two passport photos. Attach/ provide original and copies of your national identification card or passport. Sometimes, a copy of your certified driving license will do. This can be done physically or on the CDA’s websites. Central Depository Agents’ websites will have CDS account opening
What does it mean to own a company’s share? Once you buy a company’s shares, you are a shareholder in that company. In this position, you have a right to attend the company’s Annual General Meeting and, depending on your voting power, influence the company’s direction by tak-
ing part in making major decisions. Generally, as a major shareholder, you have a louder voice when it comes to running the company. However, in practice, this doesn’t happen often, especially in regards to voting out directors; unless a company is
performing poorly or is threatened with a takeover bid. All public companies are required by law to hold Annual General Meetings. Of course, selling your share is done whenever you see fit.
18 INVESTMENT NEWS forms available. In this case, you can scan and send the required documentation.
Markets Authority regulation. You should look into a specific broker to find out if they have lower or negotiable commissions.
Once the CDA receives all your details, they will give you a CDS number.
Identifying a stock to buy Once youâ€™re done with this, look into a specific compaCosts Involved ny and do some backOpening a CDSC account ground research on how may be free or cost a small the company has been peramount of money; never forming in the past and above Ksh. 200/-. The other what it is currently plancost you will incur is a ning. Does it seem hopetransaction fee of 1.85% for ful? Do you find that it has trades worth more than the capacity to grow in fuKsh. 100,000 and 2.1% for ture? lower volume trades. However, this is only the Capital Your broker may offer
Introductions and discussion at the NSE
some advice when it comes to buying and selling stocks. Making profits in trading equities is basically about knowing when to buy and when to sell stocks. Common knowledge dictates that one should invest in sectors that they are knowledgeable about. There are about 11 sectors listed at the stock market. Buying ought to be done in companies whose stocks you believe are underpriced and hence believe you can bank on its future.
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Language of the Stock Market From Page 15 also depends on the interest rate risk; if it goes up, the value of the bond fund goes down. The final category of mutual funds is the equity fund, which carries the highest risk and highest possible returns. Unit Trusts: Just like mutual funds, unit trusts are collective investment schemes. Unit trusts are invested in a wide variety of securities and can afford to guarantee a certain yield at the end of a period as they are managed by professional investors. At Britam, for example, unit trusts investments can have a yield of 10% at the end of the year. Being open ended funds, an investor can choose to redeem their investment at any given time and liquidate their initial investment plus the yield that far. This feature is common to both mutual funds and unit trusts. Dividends: Shareholders may get a portion of the company’s profits, quoted in shillings per share. The annual dividend divided by the cost of a share gives you your yield. The dividend is declared and approved in the company’s AGM and are deposited in an investor’s bank account. However, it is important to
note that the law does not require public companies listed on the stock market to pay out dividends to investors.
sion is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.
Private vs Public Companies: Private companies are those with less than 50 shareholders and whose shares are not available for purchase by the public. Private companies can also be subsidiary companies that are wholly or majorly owned by a larger company. As such, private companies are not required to publish their accounts.
Bull Market: This is when the stock market as a whole is in a prolonged period of increasing stock prices.
Public companies, on the other hand, are companies whose shares are publicly traded. Some may not be listed at the Nairobi Stock Exchange but can be traded Over The Counter (OTC) through broker agreements. Averaging Down: This is when an investor buys more of a stock as the price goes down. This makes it so your average purchase price decreases.
Broker: A person who buys or sells an investment for you in exchange for a fee (a commission). Day Trading: The practice of buying and selling within the same trading day, before the close of the markets on that day. Traders that participate in day trading are often called ―active traders‖ or ―day traders.‖ The Kenyan market has not advanced enough to enable day trading as transactions are completed after 5 days.
Hedge: This is used to limit your losses. You can do this by taking an offsetting position. For example, if you hold 100 shares of XYZ, you could short the stock or futures poBear Market: This is trading sitions on the stock. talk for the stock market being in a down trend, or a peri- Initial Public Offering (IPO): od of falling stock prices. The first sale or offering of a stock by a company to the Blue Chip Stocks: These public, rather than just being are the large, industry leading owned by private or inside companies. They offer a stainvestors. ble record of significant dividend payments and have a reputation of sound fiscal management. The expres-
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STOCK MARKET FRAUD Just like anything else involving money, the stock market has the capacity to attract fraudulent behavior. Here are some of those you should guard against. 1. Broker Fraud Based on the fact that the more you trade, the more the broker makes, cheap brokers may aim to get you to make as many transactions as possible. This is up to you to see through and make your final decision on what action to take at any given time. As much as a broker may try to advice you based on his experience, never take their word for it; go out and do your further research and decide what to do. Broker fraud also occurs when a broker transacts without getting instructions from a broker. This can be settled by reporting to relevant authorities. 2. Front running Brokers, mutual fund companies and other trading institutions may also engage in front running. This is where a broker buys or sells for their own accounts while taking advantage of pending orders from custom-
ers. This is illegal as the broker would be making a profit while making the clients lose money. An example of this is when a broker has, say, 200 000 shares of orders to buy for a client. Before executing this order, they buy 10 000 shares for their own account at the current price of maybe Ksh. 50. After this is done, the clientâ€™s orders are made and this drives the price up to maybe Ksh. 56. The broker makes Ksh 60,000 in just a short while by taking advantage of his fore knowledge of the state of demand and supply. 3. Manipulation of values and artificial fluctuation of values An investor can buy up shares while posting fake bids to make it appear that there is demand for a certain stock. In this way, real demand can be created and thus push the prices up. The investor then sells up their remaining stock at the elevated
price and in a short while, the stockâ€™s price readjusts to its real cost. This form of fraud will generally just affect short term traders. You can avoid it by focusing on the long term. The values of stocks can also be manipulated through spreading of false information on the internet or even in print. 4. Trading based on Information that is yet to be made public In the trading world, this is referred to as gun jumping or illegal insider trading. Insider trading is illegal unless done on information that is already out for the public.
In 1995, the CMA established the Investor Compensation Fund whose function was to compensate investors for losses resulting from broker and dealer fraud. This fund is generated from every transaction at NSE. A small percentage of each equity transaction goes into financing the ICF. Broker companies involved in such practices are usually suspended after complaints are filed by clients.
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Cities of Growth
The Kitengela of Chaos, Dust and Rain – and a Careless County Government? By Muli wa Kyendo Recently, I traveled to Kitengela in Kajiado County and wandered right through the estates. In the town there are giant buildings lining both sides of the main Namanga Road. And in the estates, there are classic residential houses. There is no doubt that Kitengela is fast growing – a prime area for property developers. A few years back, it was a barren part of the sprawl-
ing Kapiti plains and the cost of property was next to nothing. A relative of mine was among the first people to start a small shop and hotel. And although we wondered about the wisdom of investing in the area, we congregated there on weekends for a ―home chat‖ and some goat meat eating, gazing at the sun setting in the west as in days of old.
self researching a story on investment opportunities in Kajiado – a collaborative effort between the then County and Municipal councils and Investment News magazine. Kitengela which had by then grown into a small trading centre featured prominently. The County Council wanted to nurture it to become its main income earner. Its
Research Then one day, I found my-
A section of the main street in Kitengela town
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An artist’s impression of an estate in Kitengela vast land and nearness to Nairobi City and Jomo Kenyatta International Airport were to be main attractions. The recommendations we made were, of course, not followed. But Kitengela grew nevertheless and became a key income earner for Kajiado County. Business Community Unfortunately, the town residents and business community are getting the worst services from Kajiado County. Residential areas are rising up spontaneously. There are no apparent plans. So tracks that have become the roads crisscross all over in the vast plains. As would be expected,
making roads in such chaos isn’t easy. The result is that there isn’t a single tarmac road. The only tarmac road is Namanga Road cutting through the centre of the town. So if you see dark clouds, as happened during the time I was there, you are stressed to conclude your business and flee from the chaos.
cut into the side roads. And that was the worst mistake! Deep gulleys marked the ―roads‖ at every point. And where there were no gulleys, the sides of the rough roads were eaten up apparently by furious rain water making cars to travel pulling precariously to one side.
That is exactly what I did only for heavy rain to catch up with me in the town. And what a mess! I got stuck in the thickest traffic jam, in the thickest rain mixed with dust, in the thickest humanity. I had never seen it! It was 4pm and all vehicles put on headlights. No one could see further than a few yards. I thought it better to
When I eventually escaped the chaos and the foggy rain and was driving along Namanga Road towards Nairobi, I was whistling with joy. Little did I know that the chaos and thick rains would catch up with me at Mavoko– also known as Athi River – another unplanned town. But that is a story for another day.
INVESTMENT NEWS 25
The Small Business Growth Plan The Column that gives you every thing you need to move your business to the next level
Helping Your Company to Grow and Prosper Small businesses are powering economies around the world as they are doing in Kenya. They are creating jobs, exporting to new markets, opening up far flung areas of Kenya and developing innovative new products. And above all they are growing into large enterprises with capacity
to spread to other countries as multinationals. We’ve kick-started a range of information and promotional support services which have joined up with other like minded organizations to promote the growth of small businesses. This way we believe we will
help more people to build a business, hire more employees and work with us to build a better Kenya We are on the side of the hard working heroes of our economy. I hope you will join us to make Kenya a land of plenty for all. —Editor
Now You are Driving Your Business Along the Road to Your Big Dream Let’s compare your business to driving a car and lets put you firmly behind the steering wheel. Throughout the process of driving, you always have a clear idea of where you’re going. If you’re commuting to work, you don’t give up because there’s a detour in the road or you made a wrong turn. You remain thoroughly focused on getting to your destination. It’s the same with your busi-
ness. You have set a goal and you want to stay firmly focused on your goal despite the problems that you find on the way. This goal is the true north of your business, a destination in mind: creating a thriving and world-changing business. I call that a startup’s vision. To achieve that vision, startups employ a strategy, which includes a business model, a product road map, a point of view about partners
and competitors, and ideas about who the customer will be. The product is the end result of this strategy Products change constantly through the process of optimization, what I call tuning the engine. Less frequently, the strategy may have to change However, the overarching vision rarely changes. Entrepreneurs are committed to seeing the startup through to that destination. Every setback is an opportunity to
26 INVESTMENT NEWS learn how to get to where they want to go. In real life, a startup is a portfolio of activities. A lot is happening simultaneously: the engine is running, acquiring new customers and serving existing ones; we are tuning, trying to improve our product, marketing, and operations; and we are steering, deciding if and when to strategize. The challenge of entrepreneurship is to balance all these activities. Even the smallest startup faces the challenge of supporting existing customers while trying to innovate. Even the most established
company faces the imperative to invest in innovation lest it become obsolete. As companies grow, what changes is the mix of these activities in the company’s portfolio of work.
new customers and no new revenue. However, we have learned an incredible amount and are on the cusp of a breakthrough new line of business. All we need is another year.‖
Entrepreneurship is management. And yet, imagine a modern manager who is tasked with building a new product in the context of an established company. Imagine that she goes back to her company’s chief financial officer a year later and says, ―We have failed to meet the growth targets we predicted. In fact, we have almost no
Most of the time, this would be the last report she would give her employer. In general management, a failure to deliver results is due to either a failure to plan adequately or a failure to execute properly. In your small business however, you should regard failures as lessons. You have learnt a way you can’t achieve your goal.
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TRAVEL AND CULTURE
Artistâ€™s impression of the proposed Dubai-style Chinese City in Athi River: Does boom in creativity precede economic development?
Culture and development
A symbiotic relationship Throughout history, cultural development and economic development have maintained a dialectical relationship with each other. History shows that periods of cultural flowering, or of cre-
ative energy, have almost invariably accompanied, or preceded, a spectacular development of the society.
Ancient Egypt. The Egyptians invented almost everything that has made modern civilization and economies possible. But It is true that the greatest the Pharaohs put emphanation on earth was the sis on their culture. In
28 INVESTMENT NEWS Section of the Central business district in Kabarnet town in Baringo County: Does the art improve its business?
deed, it is arguable that the pursuit for cultural perfection was the primary concern. The same can be said about the Greeks and the Romans to whom books , philosophy and the arts were nearly sacred. When we look back at the European renaissance we think of a period in which literature and the arts flourished. But the creative energy released during the renaissance stimulated the spread of learning and knowledge. Paper became inexpensive, and by the ninth century A.D., hundreds of thousands of manuscripts had spread
of national languages in Europe.
At the end of that century there were more than a hundred places in Baghdad where books were made, and at the time of the Mongol conquest in A.D. 1258, Baghdad was reported to contain at least thirty six public libraries. Between the ninth and thirteenth centuries A.D., Arabic could, quite accurately, have been described as the language of civilization, in the same way Latin had been before it, and was to become so again until the emergence
This symbiosis between culture and development is also illustrated by the case of the fourteenthcentury African empire of Mali. In his Atlas of Africa, produced in 1375, Abraham Cresques, the Majorcan cartographer, shows the Emperor of Mali seated in majesty on his throne, holding an orb and sceptre, while the traders of all North Africa made their way towards his country's markets. The maritime nations of Southern Europe recognized Mali, at the time, as one of
INVESTMENT NEWS 29 the great empires of the modern world. Timbuktu, the capital of Mali, was described a century and a half later by Leo Africans as a city of learning and letters. He noted the large market for manuscript books, and reported that more profit was made from the sale of books than from any other merchandise. The Malian cities of Timbuktu and Jenne became, under Emperor Mansa Musa in the fourteenth century, places of scholarship and learning, and the reputation of their schools of theology and of law was well-known in the furthest parts of Moslem Asia. Different cultures perceive the world differently, and these different perceptions, which are almost always based on objective data and situations such as for example, natural phenomena or the natural environment, give rise to different interpretations in different cultural contexts. The various techniques, developed and applied by peoples in the past, to solve practical problems with similar results, in such
areas as navigation, agriculture, medicine, shelter, etc., have demonstrated not only that similar problems can be solved in different ways but also that the type of solution is often inspired by the natural or cultural environment. In the type of development which ignores the cultural dimension, and which depends on the application of external models, the. creative capacities of the local culture are stunted, the capacity of the society to resist the unwanted intrusion of foreign cultural influences and models is weakened, and this produces such cultural anomalies as the wearing of imported clothes designed for a totally different climate, and the construction of sealed in skyscrapers in tropical countries, based on models designed for cold climates whose raison d'etre is to conserve as much heat as possible.
of traditional cultural and social norms, e.g. habits of saving, punctuality, discipline, etc., to accommodate a chosen development model, can result in the formation of new cultural values which need not be based on the negation of traditional values nor on a conflict between the traditional and the modern. What is important is that the new habits be fully integrated into the society's cultural assumptions.
An external experience, technique or model cannot be successfully integrated by mere adoption or reproduction, it needs to be reinterpreted or reinvented in such a way that it can be absorbed through the filter of the society's cultural identity and value system. In Japan and in certain South-East Asian countries; Western economic principles have been successfully re-interpreted in accordance with those The choice of development countries' own systems of model is important, among values and their own ecoother things, because of nomic culture the fundamental changes it can bring about in a society's values. The adaptation
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Cooperatives: The challenge of owning a business and being its customer At a cooperative seminar, we discussed the old adage, "The customer is always right" But what if the customer is also the owner of the business as is the case with cooperatives? Well, the answer was no longer that clear cut â€” understandably because as the business owner, the cooperator has the duty to ensure that the business runs efficiently and profitably. The business owner makes sure that the staff are happy and motivated and satisfied with their working conditions. Upon this hangs the future and profitability of the enterprise. But few co-operators, if any, are able to play their dual roles effectively. An example brought up at the seminar concerned the granting of loans â€” the basic purpose for which saccos actually exist. Many saccos which were otherwise viable, we were told at the seminar, have actually died because of problems arising from granting of loans to members. Trouble often crops up when there is a backlog of loan applications. Among members playing their dual role properly, this should be a problem well understood by all because technically speaking a
backlog is built into the sacco right at the start by the fact that members can borrow upto three times their savings. This means a sacco that depends entirely on member deposits cannot have enough money for everyone to borrow at once. It must look for other sources of money, for example, by offering services such as fixed deposits or withdrawable savings. As owners of the business, sacco members should know this. But generally it's not like that. Members not granted loans will forget that they are the owners of the business They will resort to creating short cuts. Where there are employees, the members soon find they have lost control and the employees have now become the bosses. The other form of reaction is more common - and more destructive. The member will threaten to quit, fret and yell. And often actually break up their sacco. Saccos and cooperatives in general, should spend time teaching members how to be an owner and customer of their own businesses. Then they can work together to find solutions to their problems.
Investment News Magazine - Feb-Mar 2016