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PROCUREMENT & LOGISTICS

Africa’s Leading Supply Chain Journal

July, 2017 Issue No.: 12/2017

KSHS. 400.00 TSHS. 8,000.00 USHS. 12,000.00 RFR. 4,000.00 USD. 5.00

Management

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Africa Logistics Properties breaks ground for ultra-modern warehousing facility

NakumattGovernment lead mediation with creditors

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Kenya’s KSh 48 billion pipeline upgrade contract cost to be audited

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KENYA Ongoing Drought Will Result In Growth Slowdown In 2017


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Procurement & Logistics Magazine @ LogisticsProc EDITOR IN CHIEF Okumu S. Biko SUB-EDITOR Malachi Motano GRAPHIC DESIGN Amon Kibet AUDIENCE DEVELOPMENT MANAGER Emily Martin WRITER Faith Nyaberi EDITORIAL OFFICES Proc & Logistix Consult P.O BOX 40619 00100 GPO Nairobi-Kenya, Mobile + 254713727860 Tel +254 0204404488/02044002479 info@procurementandlogisticsonline.com www.procurementandlogisticsonline.com ADVERTISING For information on advertising in future Issues of the magazine, please contact: OKUMU STEVE BIKO +254 721 986284 E-MAIL: adverts@procurementandlogisticsonline.com SUBSCRIBER CUSTOMER SERVICE

Procurement & Logistics Management Magazine monthly publication a year and circulated to professionals in the Supply Chain industry, members of relevant associations, government bodies and other personnel in the procurement, logistics and finance industries as well as suppliers in Africa. The editor welcomes articles and photographs for consideration. Material may not be reproduced without prior permission from the Publisher. DISCLAIMER: The publisher does not accept responsibility for the accuracy or authenticity of advertisements or contributions contained in the Journal. Views expressed by contributors are not necessarily those of the publisher. © All rights reserved. No part of this publication may be copied or reproduced without prior permission from the publisher.

Dear Reader,

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elcome to another edition of Procurement and Logistics Management Magazine as we continue to update you on the current business affairs in the supply chain industry. In this July edition, we have focused on investment with Africa Logistics Properties – an integrated property investment and Development Company breaks ground for ultra-modern warehousing facility at the industrial park- Tatu City. The facility which will offer a total floor space of 50,000 square Kilometres in three units stand is set to be the largest ultra-modern facility available to the rental occupier market within the Sub-Saharan region. The Magazine also highlights how the leading retail chain supermarket, Nakumatt, is staring at pos¬sible shutdown after a delay in concluding a long-awaited $75 million cash injection from a strategic investor continues to sour its relations with suppliers. A piling debt has aggravated the retailer’s financial position as key suppliers continue to withhold stock and unionized workers have faced delayed salary payments. Our esteemed writers have not forgotten the environmental matters where we are seeing Kenya banning use of plastic papers from September 01; the Cabinet Secretary, Environ¬ment and Natural Resources (in a gazette notice dated February 27, 2017), put a stop use, manufacture of possession to this mock tradition and a fine of up to Sh 4 million is to be imposed on rule breakers. According to the United Nations Environmen¬tal Agency, Kenyan supermarkets use 100 million plastic bags every year, hence a top chal¬lenge for urban waste disposal in Kenya. The plastic bags contribute to the 8 million tons of plastic that leak into the ocean every year. However, The Kenya bureau of standards approved biodegradable materials to replace polythene bags. Still on the matters of environment Kenya‘s mining firms are required to hire locals and show evidence of how they plan to replace expatriates with Kenyans, this is in accordance to Employment rules to be approved by the Government. According to the Mining Cabinet secretary, the regulations takes into ac¬count issues of mandatory employ¬ment of Kenyans in the mining and mineral-related projects. In ICT, Kenya has received accolade for having fastest Internet speeds in Africa, though there are concerns that the cost of connectivity is preventing Kenyans from enjoying faster brows¬ing benefits. The 2017 edition of State of the Internet Report indicates that Kenya currently leads on the continent with Internet speeds averaging 12.2Mbps for the first quarter of this year. Other stories making our headlines include Kenyans to wait longer for cheaper Turkana wind power as uncertainty hangs over the ambitious Wind Power Project expected to inject 310 megawatts of cleaner energy into the national grid, Likoni’s new ferry from Turkey, Bamburi cement offering insurance to its retailers, Kenya Railways to launch online payment system, Israel to open two trading hubs in West and South Africa and Kenya’s e-commerce is taking a new direction, thanks to internet penetration. These are just but highlights, get your copy for these stories and many more. On behalf of the editorial team I wish you a nice time.

ENJOY YOUR READING

Okumu S BIKO

CEO & Chief Editor


CONTENTS COVER STORY 20

Africa Logistics Properties breaks ground for ultra-modern warehousing facility

BRIEFS

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Nakumatt, staring at possible shutdown 5. Kenya bans use of plastic papers from September 2017 6. Kenya‘s mining firms Hire locals as Evidence 7. Kenya tops in Internet Speeds 8. Cold room logistics 9. Likoni’s new ferry from Turkey 10 Bamburi cement offers insurance to its retailers 11. Kenya Railways to launch online payment system

PROCUREMENT TIP 12. Customer is the king in business 13. Types of Taxes in Kenya and Rates

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INVESTMENT 16 EAC should invest in Rail and Energy to realise economic multiplier effect

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MARITINE TRAINING 18. Maritime training takes shape as Kenya gears up for ‘Blue Economy’ 19. Maritime course for MKU Mombasa campus

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EVENTS 22. COMESA Kigali Forum 22. The 3rd edition of China Trade Week Kenya.

PROCUREMENT 26. Siginon Logistics eyeing the Outsourcing market

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TRANSPORT AND LOGISTICS 28. Jomvu Superhighway

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on its way 29. Kisumu gets Corporate Taxis

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AVIATION ROUNDUP

E COMMERCE 14. Kenya’s e-commerce is taking a new direction, thanks to internet penetration

34. Lufthansa steps up number of flights to Nairobi 35. Kenya Airways small investors to suffer in bailout plan

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INSIGHT

Nakumatt strugling to avert possible shutdown

Nakumatt CEO-Atul Shah

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enya’s leading supermarket, Nakumatt, is staring at possible shutdown after a delay in concluding a long-awaited $75 million cash injection from a strategic investor continues to sour its relations with suppliers. A piling debt has aggravated the retailer’s financial position as key suppliers continue to withhold stock and workers have gone for months without pay. Nakumatt has consistently declined to reveal to how much it owes suppliers saying it did not want to discuss the issue publicly “due to existing contractual limitations” but it is believed to run in the tens of millions of dollars. Shoppers in Nairobi and Kampala are getting used to the empty shelves and the absence of certain popular brands in various outlets as suppliers

withdraw services until their bills are settled. The retailer’s management has acknowledged the retailer is facing challenges paying up but was doing its best to normalize operations and address the stock-outs. “The stock out situation is regrettable and sincerely keeps us awake,” CEO Atul Shah told Quartz by email. “It is not a deliberate outcome and it’s not something that we would have wished to see.” The inability to generate cash quickly enough to pay both workers and creditors has put Nakumatt in a precarious spot and the possibility of going out of business is slowly coming closer to reality. But chief marketing officer, Andrew Dixon, a veteran of UK retail giant Tesco who joined in January to lead turnaround efforts hopes the deal will be finalized in July. The financing deal in which it would cede 25% of its stake to an unnamed foreign investor has been delayed since anuary. Nakumatt’s troubles could also seem as an early indicator of challenges ahead for Kenya’s expanding consumer base who have favored its stores particularly in the capital Nairobi. International investors, who have been betting on the expansion of Af-

rica’s middle class, would have had an eye on the chain which has more than 60 stores in Kenya, Uganda, Tanzania and Rwanda. The family owned retail giant last week shut three branches in Uganda as part of the ongoing restructuring process initiated to stem extreme financial pressure that has resulted from a huge mountain of debt. Knight Frank Uganda, the property manager of the Acacia Mall, Village Mall and Victoria Mall, says Nakumatt ceased being a tenant of the three shopping centres on June 28. The troubled retail chain in April closed another Ugandan branch over a rent dispute. The latest closures brings to five the number of Nakumatt outlets operating in the neighbouring country. “Nakumatt has had some performance issues and we felt that they were not adding much value to the three shopping malls. We shall redevelop the spaces over the next five months to add value to our shoppers.” Uganda’s minster for veterans, Bright Rwamirama, two weeks ago took Nakumatt to court seeking to be paid Sh58.6 million in rent arrears that he, and other partners, are claiming from the retailer for use of their premises in Mbarara

COME BACK STRATEGY

Nakumatt Supermarket

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Retail market in Kenya is a multi billion empire has ranked as the continent’s second most developed behind South Africa. It has indeed attracted increased interest from international retailers who are investing and expanding their business in the country. Nakumatt Supermarkets announced plans to close its poorly performing branches in Kenya and Uganda as part of cost-cutting measures aimed at saving the retailer KSh1.5 billion annually. Last month it closed its Haile Selassie Branch located at the Kenyatta University Plaza, Nairobi. Mr Atul Shah, Nakumatt managing director, says the business has also frozen recruitment of new staff. Nakumatt has announced that it has started reducing its store keeping unit (SKU) exposure by delisting slow-moving products. Already, the retail chain has cut the types of juices it sells from 26 to eight while it now only offers three types of water brands – Keringet, Dasani and Blue Label – down from 12. “We have embarked on a shelf stocks optimisation programme to enable us retain a lean variety of profitable retail products,” said Mr Shah. The retailer has also decided to shut down one of its two warehouses (where it stores imported goods as well as furniture and electronics) along Mombasa Road as part of the consolidation. Nakumatt is banking on cash injection from a new strategic investor to address frequent stock outs at its outlets.

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INSIGHT

Government-mediated negotiations with its creditors

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roubled retail chain Nakumatt opened governmentmediated negotiations with its creditors, aiming to resolve a debt crisis that has pushed it to near collapse. The retailer failed to attract investors by pushing the family owned business with two tough options of either liquidating the business or restructuring its operations which are family managed. Trade PS Dr Kiptoo have stepped in to mediate the creditors impasse; he maintains that Nakumatt’s private ownership means it has to independently reach an agreement with its bankers and suppliers – who are owed billions of shillings – with the State merely acting as a mediator. “The situation is not good. The government is not a Nakumatt shareholder, but my involvement is to see how we can bring all parties to reach an amicable solution,” Dr Kiptoo said. The PS said the retailer is too big to fail and that its collapse would have serious ramifications on the economy. “It would be bigger than Chase Bank and Imperial Bank combined. This is why we are working hard to ensure the retailer stays open,” he said. Nakumatt was expecting a sixweek phased injection of Sh7.7 billion from an unnamed private equity fund beginning March, but failure to secure the funding has deepened its longrunning challenges such as widespread product stockouts and failure to pay employees.

Restructuring

It has also emerged that Nakumatt has appointed audit firm KPMG to spearhead its restructuring and that the audit firm – with the help of select commercial banks – has set up a special account to handle the retailer’s income and expenses. Operating a central transactional point means Nakumatt is opening up to outsiders, hoping to offer its creditors assurance that the business is being run professionally. Opening of this account could see suppliers, some of whom have stopped stocking the retail chain, resume their engagement with Nakumatt on the assurance that the account’s administrator will ensure debts

Dr.CHRIS KIPTOO Ps Trade Ministry

are paid promptly. In the event that revenue channeled to the account is insufficient to fully settle the retailer’s liabilities, the commercial banks offering the facility will extend an overdraft. Andrew Dixon, the retailer’s marketing director, said KPMG is working with the retail chain to help refine its restructuring plan. “KPMG is working with Nakumatt as our appointed advisers on a mutual arrangement to further refine our corporate restructuring strategy,” said Mr Dixon, adding that the requisite account has been established. Dr Kiptoo said that he has, on several occasions, met the retailer’s management, suppliers, and bankers and was looking forward to meeting its landlords. To get out of its current predicament, Nakumatt could pursue a number of options, including issuing equity to reduce debt, selling assets as well as renegotiating loan agreements with its lenders. Standard Chartered , Diamond Trust Bank , KCB Group and Bank of Africa are some of Nakumatt’s bankers. The four lenders in late 2015 bankrolled Nakumatt’s expansion in western Kenya where it acquired Yako Supermarkets’ stores in Kakamega, Bungoma and Busia. Nakumatt recently closed one of its two warehouses on Nairobi’s Mombasa Road and is planning to close several non-performing outlets to rein in its expenses and reduce the

liquidity pressure it is facing. “Any restructuring will be done when there is full disclosure of the situation. People cannot engage without facts,” said Dr Kiptoo, in reference to the appointment of KMPG to spearhead Nakumatt’s turnaround. “Nakumatt has to do some form of restructuring. They do not have an option. I, however, will not dictate which route they should take but the solution must be long-term.”

Regulate sector

To stem what seem to be perennial problems in the retail sector, the government says the industry needs to be adequately regulated. Uchumi Supermarkets, which is also experiencing financial constraints that have forced it to divest from Uganda, is looking to voluntarily convert 50 per cent of the debt worth Sh1.8 billion to suppliers into equity. The loss-making retail chain, which is about 15 per cent owned by the government, has opted for this unorthodox restructuring method in addition to securing funding from a strategic investor. Last year, the Trade ministry constituted a taskforce – made up of the Kenya Manufacturers Association, and associations representing suppliers and retailers – to interrogate the industry in a bid to promote good business practice between suppliers, retailers and manufacturers. The aim of the task-force is to address concerns raised by suppliers, retailers and manufacturers on crucial matters such as late payments, building synergies that facilitate ease of trade and developing a shared vision for all stakeholders. It is to provide a platform for developing a framework by which late payment culture in Kenya among other issues will be addressed. Dr Kiptoo said he expects to receive the taskforce report on June 28, allowing the government to roll out a code of practice and regulations that will help bring “stability in the retail industry.”

Kenyas retail outlet numbers

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BRIEFS

Kenya‘s mining firms Hire locals as Evidence

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Dan Kazungu, Mining Cabinet secretary

enya‘s mining firms are required to hire locals and show evidence of how they plan to replace expatriates with Kenyans, this is in accordance to Employment rules to be approved by the Government. This will lead to increase in job creation through use of local expertise in

the mining industry, the entire mining value chain and to retain the requisite skills within the country. “The regulations takes into account issues of mandatory employment of Kenyans in the mining and mineral-related projects,” Dan Kazungu, Mining Cabinet secretary says in an explanatory memorandum on the Mining (Employment and Training) Regulations 2017. He further said that the employment and training is to conform and comply with constitutional provisions and ensure Kenyans benefit from exploitation and utilisation of environment and natural resources. Mr Kazungu is seeking MPs’ approval of the regulations. Mineral licence holders will be forced by law to employ only Kenyans at junior and mid-level positions. Kenya has proven deposits of titanium, gold, gemstones and coal as well as deposits of rare earth minerals,

copper, niobium and manganese The Mining ministry was created to spur growth in the sector and diversify the economy, which is based mainly on services and farming. Kenya earned Sh23.2 billion from minerals last year. The law will also apply to applicants or holders of any licence for cutting, polishing, processing, refining and smelting of minerals in the country. The regulations stipulate that where an experienced expatriate is needed, a plan for progressive replacement of the expatriate by a Kenyan shall be required. Where an applicant for a licence intends to recruit an expatriate, Mr Kazungu will require a detailed curriculum vitae of the person, the position to be filled, the job description and a statement as to why the work cannot be done or the position occupied by a Kenyan.

New mining fee in Tanzania

Undervalued

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he Tanzanian government, Finance Minister Dr Phillip Mpango, introduces a clearing fee of one percent of the value of minerals that will be paid in clearing houses before export, as he tabled the 2017/18 national budget.

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Direct exportation of minerals from the mines to other countries will not be allowed and would instead establish clearing houses. The clearing houses are based at international airports, mining areas and other areas where the minerals will be verified and issued export permits.

PROCUREMENT & LOGISTICS MANAGEMENT JULY, 2017 Issue No.: 12/2017

The move comes after a special committee formed by the President reported that mineral ores destined for export were being undervalued. The report showed that an average of 1,400 grammes of gold per tonne of mineral sands in containers, yet the Tanzania Minerals Audit Agency (TMAA) indicated an average of only 200 grammes. The committee also reported disparities in copper and silver ratios, while no royalty was paid for other compounds like iron, sulphur, rhodium, iridium, and lithium despite there being smelted from the concentrates.


BRIEFS

Kenya tops in Internet Speeds

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enya has received accolade for having fastest Internet speeds in Africa, though there are concerns that the cost of connectivity is preventing kenyans from enjoying faster browsing benefits. The 2017 edition of State of the Internet Report indicates that Kenya currently leads on the continent with Internet speeds averaging 12.2Mbps for the first quarter of this year. This has catapulted the county ahead of its sub-Saharan Africa peers, including South Africa (6.7Mbps), Morocco (5.2Mbps) and Nigeria (3.9Mbps). Kenya has further been ranked ahead of several developed countries, including Canada, the US and Sweden in terms of mobile Internet connectivity, with the country averaging 13.7 Mbps. With more than 90 per cent of users accessing the Internet through their mobile phones and smartphones becoming increasingly cheaper, Internet service providers have sought to increase their mobile offerings in a

bid to tap into the lucrative market. Telkom just launched it’s 4G network across nine towns in the country, attracting new subscribers with a Sh4,000 per month unlimited data plan targeting home and business users. This came hot on the heels of Safaricom’s 4G extended roll-out to different parts of the country amid a revamped strategy to deliver high speed fibre to homes through the newly created Safaricom Home Corporate Unit. These gains are, however, eroded by the high cost of data with the Alliance for Affordable Internet indicating that Kenya lags behind countries like Mauritius, Sudan, Egypt, Tunisia and Morocco in terms of Internet affordability.

A more accurate measure of Internet use is not based on counting the individual number of SIM cards purchased

Cheap Turkana wind power delayed

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enyans are to wait longer for cheaper Turkana wind power as uncertainty hangs over the ambitious Wind Power Project expected to inject 310 megawatts of cleaner energy into the national grid. The scheme had faced a series of setbacks, mostly due to problems securing financing which delayed construction. Founder of the project, Carlo Van Wageningen, said most of its 365 wind turbines had been erected and the last batch of 30 was due to arrive

lake turkana turbines

in the port city of Mombasa early next month. The world’s biggest wind turbine maker, Denmark’s Vestas Wind Systems is supplying the turbines for the 70 billion shilling ($674 million) project. The initial deadline for completion of setting up the evacuation lines was set to be on December 31 last year but was pushed forward to June 1 after the government and the project entered a last-minute agreement at the end of last year. Kenya is increasing electricity

generation and investing in expanding and reinforcing its grid to keep up with growing demand for power and to reduce frequent blackouts. It relies heavily on renewables such as geothermal and hydro power for its electricity supply. Kenya Electricity Generating Co produces the country’s only wind power, but its capacity is just 25.5 MW, whereas the Lake Turkana project will provide 310 MW in total, adding to Kenya’s total current power generation capacity of about 2,341 megawatts. Van Wageningen said the 428 km, 400-kilovolt powerline running from Loiyangalani in northern Kenya to Suswa, will link Lake Turkana Power to the national grid should finally be ready by the end of June. This means for another month, cheap power will be going to waste in the desert while Kenyans continue paying high tariffs for electricity. Consumers are already supposed to pay Sh 4.6 billion to a special fund created to cushion the investors of the project to take care of risks that may accrue with Kenya Power’s payment obligations.

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BRIEFS

COLD ROOM LOGISTICS

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refrigerated container or reefer is an Intermodal container (shipping container) used in intermodal freight transport that is refrigerated for the transportation of temperature sensitive cargo. While a reefer will have an integral refrigeration unit, they rely on external power, from electrical power points (“reefer points�) at a land based site, a container ship or on quay. When being transported over the road on a trailer or over rail wagon, they can be powered from diesel powered generators ("gen sets") which attach to the container whilst on road journeys. Refrigerated containers are capable of controlling temperature ranging from -30C, -40C, -65C up to 30C, 40C.

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Valuable, temperature-sensitive, or hazardous cargo like fresh farm produce or pharmaceuticals often require the utmost in system reliability.

NOTE: The reefer cannot be loaded in double-stack on rail flatcar.

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PROCUREMENT & LOGISTICS MANAGEMENT JULY, 2017 Issue No.: 12/2017

The reefer has become a common temperature-controlled transport unit used to insure load integrity since it can accommodate a wide range of temperature settings and accordingly a wide range of temperature sensitive products. Some now ensure an atmosphere-controlled interior. Also, it is a versatile unit able to carry around 25 tons of refrigerated cargo and is fully compatible with the global inter-modal transport system, which implies a high level of accessibility to markets around the world. Valuable, temperature-sensitive, or hazardous cargo like fresh farm produce or pharmaceuticals often require the utmost in system reliability. This type of reliability can only be achieved through the installation of a redundant refrigeration system. A redundant refrigeration system consists of integrated primary and backup refrigeration units. If the primary unit malfunctions, the secondary unit automatically starts. To provide reliable power to the refrigeration units, these containers are often fitted with one or more diesel generator sets. For rail movements, diesel generators are used to provide power to about 8 reefer containers. It is important to underline that the refrigeration units are designed to maintain the temperature within a prefixed range, not to cool it down. This implies that the rail-bound shipment must be brought to the required temperature before being loaded into a reefer, which requires specialized warehousing and loading / unloading facilities.


BRIEFS

Likoni’s new ferry from Turkey

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new design ferry to be procured at the Likoni Channel has began its journey from Turkey. Mv Jambo is to ease services at the busy channel, it’s at the Özata Shipyard in Turkey and is expected to arrive in July. The ferry will officially be launched by President Uhuru Kenyatta in July. The doubled-ended ferry which has an overall length of 84.6 metres has been crowned with Kenya and Turkey flags.

Second ferry

The second ferry, MV Safari, is expected to be delivered in November 3, 2017. The vessels were purchased from Turkey at a cost of Sh1.9 billion and will bring the total number of ferries at the Likoni crossing to seven. They are expected to help decongest the sea channel that transports an estimated 330,000 people and 5,000 vehicles every day. “Our team is in Turkey to inspect the progress and the construction which is complete for the first ferry. The

shipment of MV Jambo will start early June and by July 27 we expect it to be at our premises. MV Safari will be delivered on November 3,” said KFS boss Bakari Gowa in a past interview. Each ferry will have a seating capacity of 1,391 passengers and a designated area for people living with disabilities, the elderly and expectant women. Currently, commuters – including the sick – must stand while travelling in some of the ferries including MV Nyayo, MV Harambee and MV Kilindini. The vessels with the capacity to carry 64 vehicles will also have two rescue and emergency boats on-board, the plans show.

Washrooms

Unlike the old ferries, the new ones will also have washrooms for passengers. In the new ferries, passengers will be on the upper deck and vehicles in the lower one. “We expect the August and December holidays to best as we will have free flow of services,” Mr Gowa said.

Our team is in Turkey to inspect the progress and the construction which is complete for the first ferry. The shipment of MV Jambo will arrive by July 27, we expect it to be at our premises. MV Safari will be delivered on November 3 PROCUREMENT & LOGISTICS MANAGEMENT JULY, 2017 Issue No.: 12/2017

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BRIEFS

Bamburi cement offers insurance to its retailers

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Sanlam-Kenya

amburi Cement has offered more than 800 of its retailers a Sh150 million medical insurance scheme for inpatient and outpatient services. It is dubbed “Afya ya Nguvu”. The firm said it would reward resellers for loyalty, retention and growth of market share. Sanlam General Insurance is the underwriter of the scheme to be administrated by Alexander Forbes, which will make available a 24-hour call centre and manage the day-today operations of the scheme. Bamburi Managing Director Bruno Pescheux said the decision to introduce Afya ya Nguvu is informed by a market survey which showed that very

few of the company’s retailers had medical insurance. “Afya ya Nguvu was born out of the realization that, as a cement manufacturer, we need to reward the loyalty of our retailers. We also need to provide additional incentives to sustain good performance and entrench a culture of continual improvement,” said Mr. Pescheux. Sanlam General Manager, Group Corporate Business, Mr. Evans Nyagah described Bamburi Cement’s commitment to the well-being of its stakeholders as trailblazing. The move to secure the general risk of Bamburi Cement’s retail force provides a good platform to speed up insurance penetration in Kenya.

Kipevu terminal to get a new oil jetty

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new oil jetty is to be constructed at the Mombasa port to handle refined and crude oil from large tankers. The jetty near Dongo Kundu will handle tankers with a deadweight of up to 200,000 tonnes. The existing Kipevu oil terminal, which can handle vessels carrying up to 80,000 tonnes, will be linked to the new jetty via an undersea pipeline. Kenya Ports Authority head of project development Dan Amadi said a contract for building the terminal would be awarded later this year.The Danish engineering firm Niras, which designed the jetty at a cost of $1.7 million, will supervise the construction. The Kipevu terminal, built in 1963, lacks capacity to meet East Africa’s demand for oil products currently 450 million litres a month. The new jetty also seeks to address safety concerns because the existing terminal is sandwiched between docks that handle container cargo.

326 million litres

A dozen companies that tendered bids to construct the jetty are being considered for the job, which is estimated to cost $1.2 billion and to take 30 months to complete. The ones in the running are Sinopec International Petroleum Service Corporation, China Gezhouuba Group, Boskalis Dredging & Marine Experts, China CAMC Engineering and Besix, CMR & Van Oord. The new terminal will have a two-way crude oil pipeline linked to the Kipevu oil storage facility. The facility will have space for 326 million litres of fuel but its operational capacity will be 269 million litres. Four docks have been provided for and three will be built in the first phase. They have a capacity to handle all petroleum products currently imported for the region.

An aerial view showing an oil tanker off-loading crude oil at KPA's Kipevu Oil

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BRIEFS

Kenya Railways to launch online payment system

Since launch we have experienced a daily surge in passenger numbers. The growing numbers demonstrate the vital role Kenya Railways plays in our nation’s transportation system; we are definitely off to a strong start.

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Passengers queue to board a train at the SGR Mombasa Terminus

enya Railways willunveil a new online ticket payment platform to ensure convenience in travel for all customers. This comes as relief to many passengers who had complained about the lack of booking and online payment systems. The railways has also revealed that seven thousand customers have so far travelled on the newly launched Madaraka Express between Mombasa and Nairobi, the highest number ever recorded in one week. The first phase of the Standard Gauge Rail service, which was launched by President Kenyatta, is currently operating with scheduled passenger trains

from Nairobi and Mombasa running on a daily basis. Kenya Railways Managing Director, Mr. Atanas Maina said, “Over the last week we have experienced a daily surge in passenger numbers. The growing numbers demonstrate the vital role Kenya Railways plays in our nation’s transportation system; we are definitely off to a strong start.” “With demand for our services at an all-time high we are looking forward to scheduling additional trains. The combination of state-of-the-art design, unrivalled comfort and convenience means that we are well placed to meet the growing demand as passengers increasingly opt for our services over other existing means,” he further explained. Kenya Railways currently charges Sh 700 for a ticket on economy one way between Mombasa and Nairobi and Sh 3,000 for a first class ticket.

Israel to open two trading hubs in West and South Africa

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srael Prime Minister(PM) Benjamin Netanyahu announces that Israel will open two trading hubs in West and South Africa. The Prime Minister has also offered to partner with African countries in technology, agriculture and security. According to Netanyahu, the development of the two trading hubs will increase trade between his country and the continent. Netanyahu disclosed that the benefits Israel gets from successful countries like Russia, China and India, they’re the same benefits he wants to give to people of Africa as the First Prime Minister of Israel. He was speaking during the 51st ECOWAS Summit 2017 of Heads of State in Liberia’s capital Monrovia on Sunday. Benjamin Netanyahu is the first

non-African leader to ever address an ECOWAS Summit and also the first Israeli leader to visit West Africa since the 1960s. He called on the West African leaders to support the reinstatement of Israel as an observer in the African Union.

Israeli Prime Minister Benjamin Netanyahu announch the creation of two trading hubs in West and South Africa

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PROCUREMENT TIP

3 Ways To Make Customer Service Your Best Supply Chain Strategy Should your customers call the shots in regards to delivery expectations within your company?

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uite a counterintuitive thought, isn’t it? You know your business best, so shouldn’t you design the shipping processes of your business? Jim Tompkins, CEO of Tompkins International disagrees, according to his recent blog. “The days of telling customers what to expect are behind us…customers’ expectations are that your supply chain be personalized to their personal expectations,” he wrote. “Customer expectations are not consistent with what companies offer. Expectations are not being met because company supply chains are not properly designed to meet these expectations in a way affordable for the company.” The 2016 State of Small Business Report found 43 percent of SMB leaders hope to improve customer retention and experience. But how can you possibly strategize and set goals for a supply chain that will constantly change from client to client? It seems a bit overwhelming, but absolutely necessary as customers become more demanding, and business leaders fight to respond to those demands. Also consider statistics highlighted in a recent Retail Industry Leaders Association study: • 56 percent work for companies that will increase spending on supply chain process improvement this year • 26 percent of executives say their companies are prioritizing “enhanced cus tomer service” as their primary supply chain strategy, up from 11 percent in 2015

These new pressures are leading retailers to rethink their overall supply chain strategies, prioritizing customer service on multiple levels. Here are three things to get you started toward a more customer-centric supply chain. Improve relationships with logistics providers Building strong rapport with your suppliers and can help overcome growing challenges of customer relationships. The more businesses turn to third party logistics (3PLs) providers, the more necessary it is for a collaborative and strategic approach to these results in effective partnerships and enhanced customer service from shipping to the customer. You can outsource many services to a trusted 3PL, from inbound/outbound transportation, contingency planning, technology systems, and vendor management. Building these relationships help to meet customer demands and keep operations running efficiently and effectively.

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To meet changing customer demands and keep operations running efficiently. Dr. C. John Langley, author of the 2010 3PL Report, believes running an effective and lean operation shouldn’t undercut customer service. “Working closely with providers facilitates service improvements because it helps them gain detailed knowledge of shipper requirements,” Langley told Inbound Logistics. “It also makes it easier for providers to determine what issues are most important to their customers.” Keep customer feedback top of mind Always operate with your customers’ needs in mind. You never know who will cross paths along the much interconnected supply chain. Bad service at one point can snowball all the way to the end user, damaging your reputation in the process. That is why it’s imperative to understand your customers’ needs every step of the way. When you know what they are looking for, you can align your processes, services and people to those requirements. Tracking customer feedback results in more personalized solutions, improving prospecting for new customers and goal setting with current customers. Inventory Control System helps Rainguard Jim Butts, vice president of 3PL Eden Prairie compares this unique customer service to a logistics neighborhood

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watch. He said when you have access to accurate real-time metrics for customer behavior, you can pinpoint problem areas and take corrective action. This allows a positive influence throughout the supply chain, and your customer can make better decisions with your help. Don’t overthink it The internet has trained all of us to get what we want, when we want it within a few clicks of the mouse. A transaction happens easily and seamlessly. Think about your supply chain in that respect. Can you improve your customers’ experience to reflect what you’d expect in a transaction? For example, is your inventory readily available? How quickly can you ship items or perform your services? What type of guarantee or commitment can your customer’s expect when they order from you? Bottom line to survive in today’s business culture, you must provide excellent performance, exceed customer expectations, provide affordable services, all to increase customer satisfaction and success. An inventory management system can give you the data you need to identify problem areas, from shipping to the end user. The metrics you can access in invaluable to close the critical gaps in customer service may experience. Still not convinced? The fourth annual Chief Supply Chain Officer Report surveyed 1068 supply chain professionals, across an array of industries and locations. The research found quite an upsurge in in the complexity, volume and urgency of demand in the supply chain. It also showed that the control of big data analytics is of utmost importance when improving customer service in the supply chain. This means to understand and effectively use real-time accurate data is imperative. Further, those polled said overwhelmingly that “enhanced customer service and loyalty is the top choice for how a high-performing supply chain impacts the business – 45 percent say this has ‘very high’ value.” A customer-centric supply chain comes from harnessing data from both long-term and short-term demand. An inventory management system provides that information as well as connects this data with an overarching view of your supply chain. It empowers your company to maximize customer satisfaction. Having a supply chain to meet these personalized expectations will not only result in happy customers but also happy shareholders. Companies will not only be satisfying the customers’ expectations, but they will also avoid incurring unnecessary costs to the company.


PROCUREMENT TIP

Types of Taxes in Kenya and Rates

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he following are taxes administered in Kenya and the rates for each category. The taxes are collected by KRA and submitted to the Treasury for budget allocation.

Direct Taxes

Income Tax Department administers various direct taxes, which have different rates Pay As You Earn (PAYE) PAYE is a method of collecting tax at source from individuals in gainful employment. The employer deducts a certain amount of tax from his / her employee’s salary or wages on each payday then remit the tax to the Authority. This relieves the employee from paying taxes at the end of the year and shifts the responsibility to the employers. Every individual who receives income is granted a tax credit or a tax relief from the Authority, this is known as Personal Relief. Insurance relief and mortgage relief are also available for eligible persons. The total tax credit is spread evenly during the charge year. At the end of the year, an individual will submit his self-assessment on total income received from various sources. Should the tax credit be lower than actual tax charged during the year, the balance of tax due will be payable. Corporation Tax Corporation tax is a form of income tax that is levied on companies. Resident companies are taxable at a rate of 30% w.e.f year of income 2000 while non – resident companies are taxable at a rate of 37.5%.w.e.f year of income 2000. Withholding Tax Withholding taxes are deducted at source from the following sources of income: Interest, dividends, royalties, management or professional fees, commissions, pension or retirement annuity, rent, appearance or performance fees for entertaining, sporting or diverting an audience. Withholding tax rates 2000 2001 2002 2003 a)Resident withholding tax rates in respect of i) Divided Income: 10% 10% 10% 10% ii) Qualify Divided which is also the final tax 5% 5% 5% 5% iii) Interest, discount, or original issue discount arising from: Bearer instruments (W.e.f 11th June, 1998) 25% 25% 25% 25% Government Bearer Bond 15% 15% 15% 15% iv) Qualifying interest arising from: Housing bonds10% 10% 10% 10% Bearer Instruments (w.e.f 1st July, 1996) 20% 20% 20% 20% In any other case (w.e.f 1st July 1996) 15 15% 15% 15% v) Commission payable by Insurance Companies to Insurance Brokers 5%] 5% 5% 5%

Insurance Agents 10% 10% 10% 10% Income Tax in respect of gross proceeds from certain specified Agricultural produce. W.e.f 1.1.2000 15.6.2000 2% 2% 2% 2% vii) Royalties 5% 5% 5% 5% viii) Consultancy, Agency fees 2% 2% 10% 5% Contractual fee 5% 3% b)Non-resident withhold tax rates in respect of i) Management and Professional Fees 20% 20% 20% 20% except commission to overseas agents for flower exports ii) Royalties 20% 20% 20% 20% iii) Rent, premium or similar considerations for the use or occupation: Of immovable property 30% 30% 30% 30% Of movable property 15% 15% 15% 15% except aircraft leasing iv) Dividend Income: 10% 10% 10% 10% v) Interest other than ix) below 121/2% 121/2% 15% 15% vi) Pension or Retirement annuity 5% 5% 5% 5% viii) An appearance or performance for purposes of divert ing an audience 20% 20% 20% 20% ix) Supporting, assisting or arranging an appearance 20% 20% 20% 20% x) Management and Professional fee121/2% 121/2% 121/2% 121/2% xi) Interest (see Para 5 (2)(h) 9th schedule) 10% 10% 10% 10% xii) Interest on bearer instruments 20% 20% 20% Advance Tax Advance tax is applicable to Matatus and other Public Service Vehicles. It is not a final tax, but a tax partly paid in advance before a public service vehicle or a commercial vehicle is registered or licensed.

The current rates

For vans, pickups, trucks and lorries Kshs.1, 500 per ton of load capacity per year or Kshs.2, 400 whichever is higher. For saloons, station wagons, mini-buses, buses and coaches, Kshs.60 per passenger capacity per month or Kshs.2, 400 whichever is higher

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E - COMMERCE

Kenya’s e-commerce is taking a new direction, thanks to internet penetration

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nternet penetration has been instrumental in shaping e-commerce in Kenya from an otherwise mortar and brick industry. This has given traders a global reach as well as rendering fair playground for stakeholders. Jumia Group Managing Director Sam Chappatte says internet connectivity and adoption of smartphones has helped Kenya tower most African countries on the e-business front. At least 67 percent of Kenya’s population has access to the internet helped by readily available broadband infrastructure as well as the preference for smartphones among Kenyans. This has helped create new business opportunities such as e-commerce. Most e-commerce customers and traders have the smartphone as their point of internet connection. Wide internet infrastructure has helped Kenya tower most African countries in e-commerce. Online retail marketplace, Jumia currently attracts more than 4 million web visits monthly. Jumia which is celebrating its fifth anniversary has awarded vendors and partners for outstanding accomplishments across the e-commerce system. Twenty seven businesses were feted during the ceremony. Chappatte, “When you think about ecommerce in Kenya, which guys immediately come to your mind as the kings and queens of the business? OLX? Jumia? Cheki? Pigiame? Mamamikes? Rupu? How popular do you expect those guys to be on social media?” They should have hundreds of thousands of likes and followers? Similar to the likes and following celebrities, popular brands and favoured TV shows have, right? You’ll be surprised.

OLX Kenya

This is the default online classifieds site in Kenya, thus not a true ecommerce platform. The reason it is not an ecommerce business unit is because its sole purpose it to link buyers and sellers, then the buyer and seller can transact off-line or online depending on the arrangement between them. Still, OLX has the biggest social media appreciation having more than 700,000 Facebook likes and takes position 24 in Kenya under Alexa.com ranking making it the sixth most preferred local website by Kenyans. On Twitter however, OLX has a

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different story. After being on Twitter since May 2012, OLX has managed to gain slightly less than 4,000 followers.

8000 likes on Facebook and a mere 900 followers on twitter. You thought it was a myth that Kenyans don’t read?

Pigiame

Hellofood

This is the OLX competition and are operated by Ringier. They haven’t invested on media ads as heavily as OLX but their focus on “buy-it” instead of the OLX’s approach of “sell-it” (see OLX Kenya should also promote buy-it slogan) seem to be giving them an upper edge in social media interactions. Although they have only 142,000 likes on Facebook and 2000 followers on Twitter, their typical social media updates receive more engagement.

Cheki.co.ke

Cheki is similar to OLX but only links car sellers to buyers. When it comes to cars, Kenyans love them more than books (see text book centre below). Over 60,000 Kenyans like Cheki. co.ke Facebook Page and over 2,000 follow them on Twitter. There used to be a time that reading was the gateway to quality driving. Things change. This might explain why Kenya drivers are the worst globally.

Jumia Kenya

This is the most preferred local ecommerce website in Kenya, taking position 15 in Alexa.com’s ranking and the third most preferred local website. But the story is very different when it comes to social media appreciation. You won’t believe this but only 6,500 Kenyans like Jumia Kenya’s Facebook Page with exactly similar number following them on Twitter.

BataKenya

is a longtime shoe manufacturer and retailer in Kenya. Their products have stood the test of time and proven to work. To market their brand, they have tried their best to popularize their brand online. They have over 71,000 likes on Facebook and over 9,000 followers on twitter.

Text Book Centre

Text Book Centre (TBC) is the biggest and most diversified book-seller in Africa.The firm supplies general books and educational materials to professionals, schools, colleges, universities, international organizations and nongovernment and government organizations countrywide.They only have about

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Hellofood is an online platform where people can easily order food online and have it delivered to them in no time at their home or in the office. They have 12,000 likes on Facebook and 1,745 followers on twitter.

FargoShopping

You were once told that Fargo Shopping was going to change the e-commerce landscape in Kenya. According to social media appreciation though, and given that Alexa.com is yet to recognize them in Alexa ranking algorithm, they have many miles to go. They only have 2,100 likes on Facebook and 68 followers on Twitter.

Rupu.co.ke

This is another by Ringier and a direct competition to Jumia Kenya. Although not as popular by web traffic as Jumia Kenya, they have over 156,000 Facebook likes and 13.5K Twitter followers. There you go Kenyans, you show more love to non-ecommerce platforms like OLX and Cheki that allow you to shop offline, and almost no love to pure ecommerce players like Jumia. My conclusion is that you do not like the idea of shopping online – and I mean shopping, not window shopping. If there is one thing that’s clear, the ecommerce players have tried their best to make products and services available online. It is you and probably me that have failed to do online shopping as expected. What is the hindering you? What are you scared of? Are you scared of losing money? Is the delivery time too long? Are the savings too little? Is Internet too expensive? Is shopping via mobile phones too tedious? Is publicity by ecommerce players lacking? Or is it that we don’t have physical addresses for deliveries to be effected? Talk to us. Tell us why you still shy away from shopping online. In the next article, we will try and discuss those hindrances one by one and show you why you must change your attitude towards ecommerce in Kenya. In the meantime I ask, do you want us to remain in the number one position as the most tech savvy country in Africa? You only need to do one thing – shop online. For instance, don’t go to the supermarkets, both Naivas and Uchumi have working online shopping portals.


E - COMMERCE

Challenges facing E-commerce in Africa

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frica’s recent economic growth rates and rising youth population have meant more and more entrepreneurs are looking there for potential business opportunities. The typical strategy is to introduce new companies by recreating foreign business models on the continent. But for e-commerce start-ups, it’s not that easy. The reality of internet business in Africa deviates from what is obtainable in Western world. The optimism about Africa clouds some obvious challenges any operator in the continent will confront. The following factors are the key reasons the African internet business ecosystem especially e-commerce is not very profitable:

Distrust

Rich Africans have yet to embrace online shopping, due to online fraud. In Nigeria, for example, where phishing is common, people are skeptical about putting their credentials online. Without attracting the best spenders, the sector will continue to serve primarily college students and a younger population. Some of the companies offer cash-on-delivery to mitigate this challenge.

Cost of broadband

Africa enjoys tremendous growth in mobile internet which is the popular means for people to access the web. While using Facebook may be free on some telecom networks, watching a three-hour educational piece of content on Coursera or MIT edX will require a $50 prepaid internet expense in Congo. With the high cost of bandwidth, video-based internet businesses in Africa struggle; the market leader, Irokotv, relies on the diasporas for most of its revenue.

Logistics

Amazon.com and eBay are great companies that depend on the U.S. postal system to serve their customers. I sell my own books online in U.S.; once a buyer makes payment, I drop the book off at the post office to close the transaction. In Africa, it’s more complicated with non-functioning postal systems. Online businesses operate delivery motorbikes, which increase the cost of doing business there.

African open market

In Africa, there are “markets” everywhere, starting with the security guards who run stores in front of their masters’ mansions. There are open markets, supermarkets, and even unemployed youth selling things at traffic stops in major cities. An e-commerce company must beat these entities on prices to be competitive. Because nearly all e-commerce firms are formalized for access to the banking system, they pay taxes. In Rwanda, an 18% VAT can put an online business at a disadvantage when the informal competitors do not collect same.

Fragmented markets

For all the efforts to make Africa appear as one market, it is not. A company has to set up country-specific sites because of barriers from cross-border payments, languages, cultural differences, and other factors. This affects economies of scale and impacts efficient allocation of capital with duplication of resources across the region.

Literacy rates

Even if all the infrastructure and integration issues are fixed, illiterate citizens may be unable to participate directly on e-commerce sites that require reading and writing skills. Chad, Niger, and Burkina Faso, for example, have literary rates less than 30%. Without investing in the education of these citizens, the pool of potential customers for web entrepreneurs is greatly reduced. There are some companies attempting to tackle these issues. Take Jumia, a leading online retailer in Nigeria that sells everything from home goods to mobile phones to health and beauty supplies. Founded in 2012 with connection to the German Samwer brothers, which specialize in cloning American web businesses in Europe and elsewhere, it has more than 1,500 staff. It raised $150 million in new funding on a valuation of $555 million last November. Jumia is not alone; there are web firms like Konga, Olx, and Souq with millions of dollars in funding operating in Africa. The problem, though, is that while Jumia and others may be successful by market share, they are still not profitable. According to Rocket Internet’s 2014 public listing, Jumia had $28 million in net revenues, with $32 million in losses.

Any startup with few millions of dollars in funding can jump in preeminence in the region because Africa has a poor pool of companies. There are 3,186 companies in the continent (in all sectors) with revenue of above $50 million. So when a firm raises $100 million, it can beat anyone for market share because there are so few companies — especially in the web sector — that can challenge it. But then the company is required to seed a sector in a place with low internet adoption and high illiteracy rates with most of the customers fragmented and out of reach. The result is lack of scale and that affects profitability. E-commerce in Africa could be very profitable; it will just take time and effort. Leaders of the continent must understand that besides launching websites, there are many elements entrepreneurs need to be profitably successful. These include more integration of the disparate African economies; investing in infrastructures like postal system, broadband, and transportation networks; setting up a pan-African system to prosecute fraud and improve business trust in African internet; and most importantly, improving literacy rates. To make the web work for business, African leaders need to focus less on how to improve the number of total domains registered and instead fix the physical business ecosystem which they continue to neglect in order to unleash the wealth-creating powers of the web in Africa. The internet is redesigning commerce and will continue to reshape industrial sectors. Africa cannot afford to avoid participating in the opportunities the internet is enabling through expansion of markets. But entrepreneurs particularly those in web-based businesses need to realize the hurdles they’ll have to overcome in order to be both successful and profitable in the continent before they jump in.

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INVESTMENT

EAC should invest in Rail and Energy to realise economic multiplier effect By Malachi Motano

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ommunity (EAC) should priroritise on infrastructural investments for example rail and energy sectors which have great multiplier effect on their economies. According to Brtiam assets managers report, railway transport could reduce production costs by 10 per cent by easing decongestion in the region hence enhance economic growth. EAC electricity costs average 18-22 dollar cents per Kilowatt Hour, much higher than Ethiopia at 5 dollar cents per Kilowatt Hour. EAC collaboration, according to the report, has the potential to reduce electricity costs by Sh200 billion per year. Kenya, Tanzania, Uganda, Rwanda, South Sudan and Ethiopia are part of

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the East African Railway Master Plan to connect the cities of Mombasa, Nairobi, Kigali, Kampala and Juba by 2018 at a cost in excess of Sh3 trillion. Kenya has so far finished the first phase of Standard Gauge Railway (Mombasa to Nairobi) that intends to reach Uganda, with construction works for phase two that connects Nairobi to Kisumu already underway. Plans are also underway to build three oil pipelines between Kenya, South Sudan, Ethiopia, Uganda and Tanzania to transport both crude and processed oil. Total costs are expected to exceed Sh800 billion; planned refineries in South Sudan and Uganda could cost up to Sh500 billion. The infrastructure funding gap in both rail and energy sector in Kenya

currently stands at Sh2.7 trillion. “Private-Public Partnerships provide a good platform for private sector involvement in infrastructure projects. The banking sector in East Africa is relatively well developed, and could play a key role in financing infrastructure investments in the region,” the report states. Poor infrastructure, poor access to financing and unfavorable tax rates are some of the reasons why East African countries are ranked lowly in terms of global competitiveness. According to AfDB, the poor state of infrastructure in Sub-Saharan Africa cuts national economic growth by two percentage points every year and reduces productivity by as much as 40 per cent.

Private-Public Partnerships provide a good platform for private sector involvement in infrastructure projects. The banking sector in East Africa is relatively well developed, and could play a key role in financing infrastructure investments in the region,” PROCUREMENT & LOGISTICS MANAGEMENT JULY, 2017 Issue No.: 12/2017


BRIEF

Kenya’s KSh 48 billion pipeline upgrade contract cost to be audited

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enya’s auditor-general has been directed to audit on the KSh48 billion 450 Km Mombasa-Nairobi oil pipeline upgrade tender awarded in 2014 to Lebanese firm Zakhem International Construction. The directive by parliament is meant reevaluate whether tax payers got value for money in the project. The report expected within 90 days from June 14 is to establish the veracity and validity of the extensions of time that pushed up the cost of the project further by KSh11 billion. The Senate Committee on Energy chaired by Baringo Senator Gideon Moi has asked the auditor to establish the suitability and capacity of the contractor —Zakhem International Construction (ZIC) and project consultant Shengli Engineering & Consulting Company Limited — to undertake the project. Zakhem won the tender to replace the 43-year-old pipeline between Nairobi and Mombasa in 2014 amid a cloud of controversy of foul play and allegations of being blacklisted in several other countries. The completion date of the project moved to June 2017 at an estimated KSh10.8 billion ($106.4 million) due to the two extensions, which is over and above the initial contract cost of Sh48 billion. Zakhem managing director Ibrahim Zakhem is demanding KSh11 billion, which he claims arose from the variation of time taken to complete the project owned by the Kenya Pipeline Company (KPC). Attempts by the Energy Committee to meet Mr Zakhem in person have to date proved futile. The Public Investment Committee had in February ordered KPC to suspend the Sh11 billion claim by ZIC. They later demanded an additional Sh11 billion for the contract. Though legally a company can vary its tender by 25 per cent, an avenue used by many firms to get more money from State corporations, Zakhem’s demand has raised eyebrows in Parliament. The financing of the pipeline was a major undertaking and a $350 million loan facility was arranged by KPC with

a banking consortium that included CFC Stanbic Bank, Citibank Kenya (Citi), Co-operative Bank of Kenya, Rand Merchant Bank and Standard Chartered Bank.

DEALMAKER

The deal was brokered by London’s East End lawyer Sanjeev Dhuna, a partner with London’s Allen & Overy, who is regarded as a fabulous dealmaker in the law firm. (He was the man who advised StanChart on the financing of Bharti Airtel’s $10.7 billion purchase of Zain Africa). Dhuna raised the $350 million for the project and KPC was to fund the other costs through its reserves. Zakhem has been one of the politically correct engineering firms in Kenya ever since they arrived in the 1970s. A well-known family enterprise still led by its founders George Zakhem — author of Men Who Dream Can Do — and his brother Abdallah, the Kenyan business was started by the latter, managing director of Zakhem International Construction Group in Kenya from 1970 to 1982. According to Kenya Pipeline Company (KPC) Managing Director, the contractor, Zakhem International,

is working on final bits, installation of the eight mainline pumps that have arrived in the country. The KPC boss also noted that pipeline’s four stations would have two mainline pumps each.

PROJECT GOAL

Once complete, the new line expected to adequately serve the country’s demand with a projected supply of 6.8 billion litres in 2020. The new pipeline upgrade project will be ready for commissioning by June 2017. The pipeline will improve reliability into the counties by increasing product availability and volume in Nairobi. From Nairobi, spur lines will be fed into Western Kenya, Central Kenya, Rift Valley and South Nyanza regions. Also the new pipeline upgrade will also improve the reliability of fuel supply to the export market of Uganda, Rwanda and eastern Democratic Republic of the Congo. With approximated flow rate of 1 million liters per hour, the new line will remove an average of about 700 oil trucks from the road daily at maximum utilization thus improving efficiency.

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MARITINE TRAINING

Maritime training takes shape as Kenya gears up for ‘Blue Economy’

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enya Maritime Authority (KMA) has initiated a number of programmes that are promoting maritime training and education in the country. The authority, through collaboration with the other key institutions in the sector, has developed curriculums, laying down the foundation on which the country will meet its future workforce needs. With six institutions, both in private and public sectors now offering various courses on maritime, KMA Director General Mr. Cosmas Cherop says that the country is now able to meet its immediate human resource demands and Kenya, as it seeks to fully exploit its ‘Blue Economy’, is on the right path. Since 14th May 2010 when Kenya joined a list of International Maritime Organization (IMO) member countries who were giving “full and complete effect” to the provisions of the Standard of Training Certification and Watchkeeping (SCTW) Convention and Code, the country’s maritime training has taken a dramatic turn in the recent years. The White List status gave the country an affirmation that maritime education met the standards required for the growth of the industry and the economy in general. It further meant that Certificates of Competency (CoC) issued in Kenya would be accepted worldwide, opening opportunities to obtain jobs on foreign going ships. Having achieved the coveted White List status, which had eluded the country since the first attempt was made to have Kenya listed in 2001, KMA, in collaboration with Kenya Institute of Curriculum Development (KICD) developed syllabi (previously non- existent) to enhance maritime education in Kenya. “This was to ensure standardized training in all institutions offering various maritime related courses,” Mr Cherop said. Today, Jomo Kenyatta University of Agriculture and Technology (JKUAT), which was recently selected by IMO to host the regional Maritime Technology Cooperation Centre (MTCC) for the Africa region, has become the first Kenyan University to offer degree courses in Marine Engineering, a move that is

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expected to channel more graduates, who would previously seek training from overseas institutions at prohibitive cost. Apart from JKUAT, more maritimerelated courses have been developed by other institutions. Technical University of Mombasa (TUM) and Bandari College are training Diploma in Marine Engineering and Nautical Science, Craft Certificate in Marine Engineering and Nautical Sciences. TUM is also offering Artisan course for seafarers while Bandari is also offering Basic and advanced STCW Proficiency Courses, which are also offered by Indian Ocean Maritime Training Centre (IOMTC), a private institution. Kisumu Maritime Centre (KMC) is offering Coxswain courses which Bandari College also offers.

(REPORT BY FEDERATION OF EAST AFRICA FREIGHT FOWARDERS)

This was to ensure standardized training in all institutions offering various maritime related courses

flag state control. If a ship is flagged by a non-White List country, it can be denied entry, inspected intensely, or detained when attempting to enter a port. If a mariner has a license (Certificate of Competency) from a non-White List nation, they will probably be denied their Certificate of Equivalency, and they will also be rejected as a valid manning solution for White List-flagged ships. In addition, that mariner’s training and sea time might be heavily scrutinized or not accepted at all toward a CofC from a White List country.

Full Compliance

What is the “White List”?

The White List distinguishes the nations that have displayed and established a plan of full compliance with the STCW-95 Convention and Code. Developed by an unbiased group of “competent persons” at the IMO, the White List was created using criteria such as what system of licensing the administration has, training center oversight, process of certificate revalidation, flag state control, and port state control.

What if a country is not on the “White List”?

Though there is no actual “black list”, non-compliant nations are often described as being on a “black list”. Handling a non-White-Listed nation involves both port state control and

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To be on the “White List” a nation must be fully compliant with the STCW95 Convention and Code. Full compliance involves the following: • Must provide detailed information to the IMO regarding administrative measures enacted to ensure compliance, education and training courses, and certification practices. • All information is reviewed by panels of “competent persons”, who are nominated by Parties to the STCW. Those persons report their findings to the IMO Secretary General who reports to the Maritime Safety Committee (MSC) on all Parties that fully comply. The MSC produces a list of all Parties in compliance.


MARITIME TRAINING

Maritime course for MKU Mombasa Maritime Studies campus

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ount Kenya University (MKU) has been given the green light to offer maritime and transport logistic courses. The Kenya Maritime Authority (KMA) authorized MKU to offer certificate and diploma programmes at its Mombasa campus after reviewing the university’s facilities and resources. Classes started in May with more than 200 students enrolled. Speaking on the sidelines of the just-ended 42nd Kenya Secondary Schools Heads Association (Kessha) Annual Delegates Conference, MKU Director of Marketing, Mr Boniface Murigi, said that they were pleased as an institution to offer courses in maritime. “Our presence in the port city of Mombasa gives us an advantage to engage in provision of such courses that have a ready market within the Kenyan coastal belt,” Murigi said. Mount Kenya University is a private higher learning institution located in Thika, it has campuses all over Kenya, Rwanda and South Sudan.

Maritime Studies is an interdisciplinary academic field that embraces the liberal arts as the foundation for exploring humankind’s critical and continually evolving connections with the world’s waterways and watersheds. It encompasses the liberal arts in recognized humanities and social science disciplines such as History, English, Geography, Economics, Political Science and Anthropology. It highlights the social and cultural side of the human/water relationship, but recognizes and explores the links between human activities and the composition and the condition of the coastal and marine environments. Some of the institutions providing maritime studies combine a broad grounding in technical and scientific coursework with the study of courses in arts and humanities. Kenyan universities have been urged to be more aggressive in offering maritime related courses to save the country from a possible future crisis of shortage of the industry personnel. The East Africa Branch, Institute of Chartered Ship Brokers (ICS)- an international professional membership organization for the shipping service delivery with 25 branches worldwide- said that the universities in Kenya do not treat maritime training program development with the seriousness it deserves.

“The existing degree programs are not properly designed and most of the lecturers are wanting,” the Institute’s Branch Chairman, Mr. Robert Watene, told participants in this year’s World Maritime Day workshop held in September in a Mombasa hotel, adding that the Government has also not been very keen to support maritime training and education in the country. A significant number of maritime experts such as marine pilots and engineers in the country have been trained overseas. Kenya, according to Mr. Watene has a good number of well trained experts in almost all the maritime clusters who can be utilized to improve the existing maritime education curricula and create a vibrant work force. “Unfortunately those who have been trained in these institutions have not been properly utilized to improve Maritime Education and Training (MET),” Mr. Watene told workshop participants. Appreciating the human resource needs for realization of the maritime sector contribution to economic growth, the Kenya Maritime Authority (KMA), as one of its core mandates, has initiated a number of programmes to promote maritime training and education. In collaboration with other institutions, the authority has developed a national curriculum for maritime training of seafarers and land based maritime transport service providers. In June this year, 47 seafarers in Lamu were issued with certificates after completing basic safety training at Bandari College in Mombasa. Head of Maritime safety at KMA, Wilfred Kagimbi said this will prepare them to benefit from upcoming opportunities in the ongoing LAPPSET project and other offshore oil and gas jobs in the sector as well as improve their ability to be employed for local and international fleet jobs.

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COVER STORY

Africa Logistics Properties breaks ground for ultramodern warehousing facility

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frica Logistics Properties (ALP) has begun construction of a Usd60 million logistics and distribution warehousing complex at Tatu Industrial Park in Tatu City. The facility which will offer a total floor space of 50,000 square Kilometres in three units stand is set to be the largest ultra-modern facility available to the rental occupier market within the Sub-Saharan region. Toby Selman is ALP CEO, “Our distribution and logistics centre at the Tatu Industrial Park offers international modern facilities for the rental market, and we plan to roll out similar world class developments across key African capital cities.” He says ALP’s vision is to fundamentally improve supply chain infrastructure across Africa and disrupt the current status quo of poor quality ‘go down’

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warehousing. The multi-tenant facility will not only allow multi-nationals and light industrial warehousing but also give access to SMEs. “As we start construction of our first two projects in Kenya, we are already building a pipeline of future projects across Sub-Saharan and North Africa cities to create the continent’s future.” The project will see more that 200 people benefit from the employment opportunity during construction and upto 500 more permanently employed once complete. “The addition of Africa logistics properties at Tatu Industrial Park confirms our location as the hub for logistics and warehousing in East Africa, says Stephen Jennings, founder and CEO of Rendeavour, Tatu’s City owner and developer. He says, “Clearly, there is a great opportunity for Kenya and other coun-

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tries in the African region to upgrade supply chain infrastructure, and his company is in a position to maximize it for the host nations. The global institutional shareholders in the project include, International Finance Corporation, CDC group, Africa-focused UK asset manager Mbuyu capital, DOB Equity and Maris.

Our distribution and logistics centre at the Tatu Industrial Park offers international modern facilities for the rental market, and we plan to roll out similar world class developments across key African capital cities.”


COVER STORY

Kenyan growth cramped by warehousing shortage

A

lmost two thirds of companies in Kenya are facing warehousing shortages, according to a poll released today by Tilisi Developments Limited, the first mover in Kenya’s emerging Grade A logistics real estate sector. Of 52 companies polled across Kenya’s manufacturing, FMCG, pharmaceuticals, logistics, import, export, retail and e-commerce sectors, 62 per cent reported that they had experienced some kind of warehousing shortage in the recent past. “Of the 62 per cent of warehousing users that have experienced warehousing shortages, 35 per cent said they had to rent out extra space, 10 per cent were forced to deliver the goods directly to the clients’ premises rather than storing them, incurring extra costs, 12 per cent expanded their own warehousing space, while six per cent did not find any solution,” found the report. The companies polled also reported constraints caused by the quality of their warehousing, with 60 per cent of users, spanning both warehouse owners and warehouse tenants, highlighting quality issues. These included poorly ventilated spaces, leakages, power shortages, and poor structural planning, which was causing difficulties in accessing goods within the warehouse. Respondents said this had increased the rate at which their stock was getting contaminated, and in cases where food and flowers were being stored, it was accelerating their deterioration. “Kenya has experienced exponential growth in various sectors of its

economy and population. Yet, this has been in contrast to the slow growth of quality warehousing to support and sustain it. This has led to a country experiencing a demand that is vastly outstripping its supply,” said Kavit Shah, co-CEO of Tilisi Developments Limited Tilisi launched the country’s investment in a Grade A Logistics Park as a new real estate segment two years ago, last month selling 49 acres of serviced warehousing land to Africa Logistics Properties, which has been funded by the IFC, CDC and others to drive a new wave of warehouse building across Africa. “We are now seeing other warehousing projects emerging too, and it is clear that the need is acute,” said Kavit. Of the companies polled by Tilisi, half said they had sought new warehousing facilities, but pharmaceutical and food producers reported a scarcity in warehousing with cold storage, and of temperature controlled warehousing. The international logistics companies also reported that modern wellconfigured logistics space and height was scarce, with the majority of Kenya’s warehousing currently falling short of international standards and constructed for small traders, rather than large companies. However, investment in warehousing remains low. The 2017 Nairobi City County Permit Activity Reports from the Kenya Property Development Association (KPDA) reported 2,303 planning permits approved by Nairobi last year. Of these, only 199 were in the ware-

house class, while commercial properties registered 809 applications. Yet, Kenya is among the top five flower exporters in the world, alongside The Netherlands, Columbia, Ecuador and Ethiopia. In 2014, Kenya earned $531m from floriculture industry, exporting 125 tonnes of flowers. But research has shown that poor cold chain management sees about 20 per cent of the value of flowers wasted, equating to a loss of $100m for retailers, in addition to considerable losses for producers. This has led to some occupiers developing their own storage space, but now reporting space constraints in achieving further warehouse expansions. Of the respondents with in-house storage space, proper planning has ensured they have no issues with truck movement around their warehouses. But the respondents who were renting warehouses reported difficulties in both truck access and parking, with 40 per cent of the companies reporting that truck access to their warehouses was problematic. The research also found that warehouses around the airports and shipping docks were providing better quality facilities than those located away from towns, but that this had led to higher demand for the urban facilities, and rising rents. “The reality is that in achieving adequate storage, companies are being forced to turn to Do-It-Yourself solutions in this one area of the real estate industry, in a way that is pushing them into building approvals, planning and servicing, adding new paper trails, and raising profound infrastructure challenges,” said Ranee Nanji, Co-CEO of Tilisi.

About Tilisi

Tilisi is a 397-acre mixed-use urban development, distinctly zoned into residential, commercial and logistics precincts. Set just 30 kms from Nairobi’s CBD, at the intersection of Limuru Road and Waiyaki Way, the development offers outstanding access and infrastructure. The development is owned and managed by a consortium of longstanding and experienced Nairobi-based developers. The master-planned suburb has been inspired by the vision of achieving a managed development in Kenya with world class infrastructure.

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EVENTS

The 3rd edition of China Trade Week Kenya.

T

he Chinese are holding a trade event again, after their first amazing event in Kenya reached many kenyans. This proved that this platform was required to bring together high-end Chinese manufacturers from China, and business owners and entrepreneurs from Kenya. The event starts from 29th June- 1st July 2017, at The Kenyatta International Convention Center(KICC), Nairobi, Kenya. SME’s wanted to purchase high volumes of products from China but didn’t want to risk doing business with face-

less companies online, or didn’t have the time or funds to travel to China. China Trade Week brought 150 certified manufacturers to Kenya to connect the business community of both countries. The feedback they received last year was highly positive, as many exhibitors secured business prospects or left with the intention of setting up a local office. China Trade Week 2017 promises to be bigger and better than before, with over 500 quality Chinese manufacturers showcasing thousands of products across a spectrum of industries.

After last year’s feedback we have concentrated on 3 halls, building materials and energy in hall 1, and hall 2 dedicated to the lighting industry. In halls 3 they have something for everyone including auto parts, textiles, agriculture & machinery and of course electronics. They also have seminars taking place in hall 1 giving experience and advice on how to practically and safely source products from China. It is only with strong partnerships that they are able to attract the level of professionals to the event, thanks to their partners KEPSA, KNCCI, KenInvest, EACCIA, CCPIT & KICC.

COMESA Kigali Forum

M

ore than 300 economists, researchers, government officials and trade experts are in Kigali for the Third Common Market for Eastern and Southern Africa (COMESA) Annual Research Forum. The five-day forum brings together leading policy research think tanks, academia, and the private sector from the 19 COMESA member states commencing from Monday to Friday 26 – 30 June 2017 in Kigali, Rwanda. Under the theme, “Boosting intraAfrican trade through regional economic communities: Perspectives from COMESA regional integration programme,” the forum seeks to strengthen the participation of governments and key stakeholders in the regional market integration, the COMESA Director for trade and customs, Dr Francis Mangeni, said. He added that the meeting also

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seeks to create a common understanding on the region’s research priorities for COMESA as the largest regional economic community in Africa.

Private sector welcomes the initiative

Meanwhile, Geoffrey Kamanzi, the Private Sector Federation(PSF) director for trade facilitation and negotiations, said the summit is an opportunity for the business community to share with policy-makers some of the bottlenecks the business community faces while conducting cross-border sale. The regional body recently urged member states to expedite seed regulation harmonization programme to help increase access to quality and improved seeds by farmers and boost production and household incomes as well as ensure the bloc is food secure. According to Argent Chuula, the Chief Executive Officer of the Alliance for Commodity Trade in Eastern and

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Paul Kagame Southern Africa(ACTESA) at COMESA, lack of quality seed contributes significantly to food insecurity and nutrition deficiency in the region as only a handful of countries are food secure and vibrant. The Kigali Forum is organized by COMESA with financial support from a $3 million grant provided by the African Capacity Building Foundation (ACBF) to enhance the capacity of the Secretariat in economic and trade policy research and analysis. Two previous forums took place in Kampala (2015) and Nairobi in 2016.


PROCUREMENT & LOGISTICS MANAGEMENT JULY, 2017 Issue No.: 12/2017


BRIEFS LEASING

Leasing considerations

A

lease is defined as a contract between a lessor and a lessee for the hire of a specific asset for a specific period on payment of specified rentals. The maximum period of lease according to law is for 99 years. Previously land or real estate, mines and quarries were taken on lease. But now a day’s plant and equipment, modem civil aircraft and ships are taken.

Lessor

The party who is the owner of the equipment permitting the use of the same by the other party on payment of a periodical amount.

Lessee

The party who acquires the right to use equipment for which he pays periodically.

Elements of a Lease agreement •

Names of the parties of the agreement. • The starting date and duration of the agreement. • Identifies the specific object (by street address, VIN, or make/model,serial number) being leased. • Provides conditions for renewal or non-renewal. • Has a specific consideration (a lump sum, or periodic payments) for granting the use of this object. • Has provisions for a security deposit and terms for its return. May have a specific list of conditions which are therein described as Default Conditions and specific Remedies

Lease Rentals

This refers to the consideration received by the lessor in respect of a transaction and includes: • Interest on the lessor’s investment. • Charges borne by the lessor. Such as repairs, maintenance, insurance, etc. • Depreciation. • Servicing charges. At present there are many leasing companies such as 1st Leasing Company, 20th Century Leasing Company which are doing quite a lot of business through leasing, It has become an important financial service and a lucrative avenue of making sizable profits by leasing companies.

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Sales Aid Lease

Under this arrangement the lessor agrees with the manufacturer to market his product through his leasing operations, in return for which the manufacturer agrees to pay him a commission.

Specialized Service Lease

In this type of agreement, the lessor provides specialized personal services in addition to providing its use.

Types of Leases Financial Lease

This type of lease which is for a long period provides for the use of asset during the primary lease period which devotes almost the entire life of the asset. The lessor assumes the role of a financier and hence services of repairs, maintenance etc., are not provided by him. The legal title is retained by the lessor who has no option to terminate the lease agreement. The principal and interest of the lessor is recouped by him during the desired playback period in the form of lease rentals. The finance lease is also called capital lease is a loan in disguise. The lessor thus is typically a financial institution and does not render specialized service in connection with the asset.

Operating Lease

It is where the asset is not wholly amortized during the non-cancellable period, if any, of the lease and where the lessor does not rely for is profit on the rentals in the non- cancellable period. In this type of lease, the lessor who bears the cost of insurance, machinery, maintenance, repair costs, etc. is unable to realize the full cost of equipment and other incidental charges during the initial period of lease. The lessee uses the asset for a specified time. The lessor bears the risk of obsolescence and incidental risks. Either party to the lease may termite the lease after giving due notice of the same since the asset may be leased out to other willing leases.

Small Ticket and Big Ticket Leases

The lease of assets in smaller value is generally called as small ticket leases and larger value assets are called big ticket leases.

Cross Border Lease

Lease across the national frontiers is called cross broker leasing. The recent development in economic liberalisation, the cross border leasing is gaining greater importance in areas like aviation, shipping and other costly assets which base likely to become absolute due to technological changes.

Leasing growing business strategy Merits of Leasing •

• •

• •

Demerits of Leasing • •

Sale and Lease Back Leasing

To raise funds a company may-sell an asset which belongs to the lessor with whom the ownership vests from there on. Subsequently, the lessor leases the same asset to the company (the lessee) who uses it. The asset thus remains with the lessee with the change in title to the lessor thus enabling the company to procure the much needed finance.

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The most important merit of leasing is flexibility. The leasing company modifies the arrangements to suit the leases requirements. In the leasing deal less documentation is involved, when compared to term loans from financial institutions. It is an alternative source to obtain loan and other facilities from financial institutions. That is the reason why banking companies and financial institutions are now entering into leasing business as this method of finance is more acceptable to manufacturing units. (The full amount (100%) financing for the cost of equipment may be made available by a leasing company. Whereas banks and other financial institutions may not provide for the same. The ‘Sale and Lease Bank’ arrangement enables the lessees to borrow in case of any financial crisis. The lessee can avail tax benefits depending upon his tax status.

• •

In leasing the cost of interest is very high. The asset reverts back to the owner on the termination of the lease period and the lesser loses his claim on the residual value. Leasing is not useful in setting up new projects as the rentals become payable soon after the acquisition of assets. The lessor generally leases out assets which are purchased by him with the help of bank credit. In the event of a default made by the lessor in making the payment to the bank, the asset would be seized by the bank much to the disadvantage of the lessee.


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BRIEFS PROCUREMENT

Siginon Logistics eyeing the Outsourcing market

S

iginon Logistics is eyeing the growing market for outsourcing of logistics services. The services are in high demand from manufacturers, retailers, disaster and health sector players who are looking for cost-effective and efficient transport solutions. Siginon Global Logistics, the group’s distribution logistics arm, is offering outsourcing of demand forecasting, inventory management, warehousing, logistics communication, material handling, and packaging and transportation services for firms. ‘The nature of investments required in distribution logistics is capital intensive and would cripple

26

industries whose core business falls outside of logistics. Siginon has made these investments and offered them as a service in line with the customer’s needs,” said Siginon Global Logistics Operations Manager Winstone Akweyu in a statement. He said the firm had invested in warehousing space, customised vehicles and logistics software. “We have invested in refrigerated trucks to facilitate distribution of temperaturecontrolled shipments such as vaccines,” added Mr Akweyu. What is 'Outsourcing' Outsourcing is the process of delegating a company's business process to third parties or external agencies,

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leveraging benefits ranging from low cost labor, improved quality to product and service innovation. When outsourcing transgresses national boundaries and is managed by companies located in other countries, outsourcing takes the form of offshoring. Outsourcing is a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally. Outsourcing is an effective costsaving strategy when used properly. It is sometimes more affordable to purchase a good from companies with than it is to produce the good internally.


BRIEFS PROCUREMENT Reasons for Outsourcing 1. Lower operational and labor costs are among the primary reasons why companies choose to outsource. When properly executed it has a defining impact on a company's revenue recognition and can deliver significant savings 2. Companies also choose to outsource or offshore so that they may continue focusing on their core business processes while delegating mundane time consuming processes to external agencies 3. Outsourcing and offshoring also enable companies to tap in to and leverage a global knowledge base, having access to world class capabilities 4. Freeing up internal resources that could be put in to effective use for other purposes is also one of the primary benefits realized when companies outsource or offshore 5. Many times stranded with internal resource crunches, many world class enterprises outsource to gain access to resources not available internally 6. Outsourcing, many a time is undertaken to save costs and provide a buffer capital fund to companies that could be leveraged in a manner that best profits the company 7. By delegating responsibilities to external agencies companies can wash their hands off functions that are difficult to manage and control while still realizing their benefits 8. Outsourcing and especially offshoring helps companies mitigate risk and is also among the primary reasons embarked upon 9. Outsourcing also enables companies to realize the benefits of re-engineering 10. Some companies also outsource to help them expand and gain access to new market areas, by taking the point of production or service delivery closer to their end users To summarize among the reasons to outsource, companies undertake outsourcing and offshoring for a variety of reasons depending upon their vision and purpose of the exercise. While this may vary from company to company, the fruits of labor are visible among some of the leading enterprises world wide, where in outsourcing and offshoring have become a core component of day to day business strategies.

“

The nature of investments required in distribution logistics is capital intensive and would cripple industries whose core business falls outside of logistics. Siginon has made these investments and offered them as a service in line with the customer’s needs,�

Cons of Outsourcing Loss of Managerial Control

When you sign a contract to have another company perform the function of an entire department or single task, you are turning the management and control of that function over to another company. You will have a contract, but the managerial control will belong to another company. Your outsourcing company will not be driven by the same standards and mission that drives your company. They will be driven to make a profit from the services that they are providing to you and other businesses like yours.

Hidden Costs

You will sign a contract with the outsourcing company that will cover the details of the service that they will

be providing. Anything not covered in the contract will be the basis for you to pay additional charges. Additionally, you will experience legal fees to retain a lawyer to review the contacts you will sign. Remember, this is outsourcing company business. They have done this before and they are the ones that write the contract. Therefore, you will be at a disadvantage when negotiations start.

Threat to Security and Confidentiality

The life-blood of any business is the information that keeps it running. If you have payroll, medical records or any other confidential information that will be transmitted to the outsourcing company, there is a risk that the confidentiality may be compromised. If the outsourced function involves sharing proprietary company data or knowledge (e.g. product drawings, formulas, etc.), this must be taken into account. Evaluate the outsourcing company carefully to make sure your data is protected and the contract has a penalty clause if an incident occurs.

Quality Problems

The outsourcing company will be motivated by profit. Since the contract will fix the price, the only way for them to increase profit will be to decrease expenses. As long as they meet the conditions of the contract, you will pay. In addition, you will lose the ability to rapidly respond to changes in the business environment. The contract will be very specific and you will pay extra for changes.

Tied to the Financial Well-Being of Another Company

Since you will be turning over part of the operations of your business to another company, you will now be tied to the financial well-being of that company. It wouldn't be the first time that an outsourcing company could go bankrupt and leave you holdingthe-bag.

Bad Publicity and Ill-Will

The word "outsourcing" brings to mind different things to different people. If you live in a community that has an outsourcing company and they employ your friends and neighbors, outsourcing is good. If your friends and neighbors lost their jobs because they were shipped across the state, across the country or across the world, outsourcing will bring bad publicity. If you outsource part of your operations, morale may suffer in the remaining work force.

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BRIEFS TRANSPORT AND LOGISTICS

Mombasa-Jomvu Superhighway on its way

C

onstruction of the Mombasa-Jomvu superhighway is set to start after the Sh6.5 billion contract was awarded. Kenya National Highways Authority (KeNHA) Director General Peter Mundinia has said that the third China Engineering Company has been awarded the tender and will construct the 10 kilometre road that will expand the current single-two roadway into a dual carriageway with six lanes in 30 months. The road once complete will ease transportation of cargo from the port of Mombasa to Nairobi and neighbouring countries of Uganda, Rwanda and the Democratic Republic of Congo. “We will also provide nonmotorised transport network and adjacent truck parking areas including service lanes to improve accessibility to surrounding business areas

and port related activity centres such as Container Freight Stations (CFSs),” said Mr Mundinia. He spoke on Tuesday when members of KeNHA board led by the chairman Erastus Mwongera inspected construction works on Dongo Kundu bypass. The project, which is phase one of turning the 41.6 kilometre Mombasa to Mariakani road into a dual carriageway, is funded by the African Development Bank (AfDB) and the government. At the same time, Mr Mundinia said KeNHA was waiting for bids for the construction of phase two and three of the Dongo Kundu bypass. The first phase, the Kipevu 11-kilometre stretch between Mombasa port and Miritini is 70 per cent complete, Mr Mwongera said. Early this month, the KeNHA advertised for the tender for construction of phases two and three of the project after the government secured funds.

Phase two of the project is 8.9 kilometres between Mwache Junction and Mteza, while phase three is the 6.9 kilometres between Mteza and Kibundani, linking the highway with the Likoni-LungaLunga road. “We expect that the bids will be out on August 23rd after which we will do the evaluation and award the contract. The entire bypass will cost about Sh39 billion and will be complete in four years because most of the works will be done in the ocean,” said Mr Mundinia. The 26-kilometre Dongo Kundu road linking Mombasa-Nairobi highway with Likoni-Lunga Lunga road is also referred to as the Southern bypass and seen as the solution to the perennial problem of congestion at the Likoni ferry, which is blamed for underdevelopment of the south coast. Over 300,000 people and 5,000 vehicles use the channel each day, which has overwhelmed the Kenya Ferry Services (KFS) with the five ferries breaking down frequently, resulting to delays.

Jomvu bypass

We will also provide non-motorised transport network and adjacent truck parking areas including service lanes to improve accessibility to surrounding business areas and port related activity centres such as Container Freight Stations (CFSs)

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ECONOMIC OUTLOOK

KENYA Ongoing Drought Will Result In Growth Slowdown In 2017 BMI View: A drought and deceleration in credit growth has led us to revise down our 2017 forecasts for real GDP growth in Kenya as economic activity will remain weak over H117. The outlook remains positive beyond 2017, with the economy’s headwinds expected to be short-lived.

W

e have altered our forecasts to incorporate a dip in real GDP growth in Kenya over 2017, as the impact of an ongoing drought compounds the headwinds posed to the economy by declining credit growth. We are generally positive towards the long-term growth prospects for the Kenyan economy, but have expected a deceleration in growth in 2017 after the government announced a cap on commercial bank lending rates in August 2016. However, the severity of the ongoing drought has led us to make further downward revisions to our growth forecasts for 2017, to 5.2% from 5.6% previously. Kenya is still highly dependent on the agriculture sector, despite being one of the more diverse economies in Sub-Saharan Africa. The strong correlation between crop yields and real GDP growth rates over the past 25 years is indica-

tive of the key role farming plays in sustaining economic activity. Given the severity of the drought, our Agribusiness team is now in the process of revising down our forecasts for production of key crops over the next few months to reflect negative growth. Farming remains the country's largest employer and accounts for 30.0% of GDP. With farms struggling to maintain levels of output and the cost of living increasing due to food shortages, we expect growth in private consumption will begin to decelerate, particularly among the poorer elements of the population. Weaker export revenues will also add headwinds to GDP growth in 2017 as the drought affects some of the key goods Kenya sells abroad. Agricultural products accounted for 47.1% of the country's total merchandise exports in 2015, making the sector a key earner of foreign currency

Drought Will Not Derail Long-Term Growth

Despite the headwinds posed by drought over H117, these will not lead to any significant change in our otherwise positive outlook for the Kenyan economy. While any slowdown in agriculture will have a significant impact, other sectors will likely continue to post strong growth. Our Infrastructure team has long highlighted Kenya as a regional outperformer, with a number of large projects expected to continue attracting foreign investment into the economy and sustain growth in the construction industry. Over a more long-term basis, we see the oil sector becoming a significant driver of real GDP growth as crude production comes online from 2020. The strength of these sectors will see Kenya remain one of our top picks in East Africa over coming years, despite an expected slowdown in 2017

DATA & FORECASTS

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BRIEFS REPORT

Direct Procurement- What the law stipulates

R

ecently the Kenya’s Independent Electoral and Boundaries Commission (IEBC) used a direct procurement method to award a tender valued at over Kshs 2.5 Billion to a Dubai based firm Al- Ghurair Printing and Publishing to print over 120million ballot papers to be used in August 8 polls. This move elicited a myriad of reaction from public and political parties led by NASA. Questions remain on whether the commission violated procurement procedures or it was right to do so. We take you through circumstances under which the Public Procurement and Asset Disposal Act 2015 allows direct tender procurement system to be used by a public entity.

Direct Procurement •

A procuring entity may use direct procurement as allowed under sub-section (2) as long as the purpose is not to avoid competition. • A procuring entity may use direct procurement if any of the following are satisfied (a) The goods, works or services are available only from a particular supplier or contractor, or a particular supplier or contractor has exclusive

30

rights in respect of the goods, works or services, and no reasonable alternative or substitute exists (b) Due to war, invasion, disorder, natural disaster or there is an urgent need for the goods, works or services, and engaging in tendering proceedings or any other method of procurement would therefore be impractical, provided that the circumstances giving rise to the urgency were neither foreseeable by the procuring entity nor the result of dilatory conduct on its part; (c) Owing to a catastrophic event, there is an urgent need for the goods, works or services, making it impractical to use other methods of procurement because of the time involved in using those methods; (d) The procuring entity, having procured goods, equipment, technology or services from a supplier or contractor, determines that additional supplies shall be procured from that supplier or contractor for reasons of standardization or because of the need for compatibility with existing goods, equipment, technology or services, taking into account the effectiveness of the original procurement in meeting the needs of the procuring entity, the limited

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size of the proposed procurement in relation to the original procurement, the reasonableness of the price and the unsuitability of alternatives to the goods or services in question; (e) For the acquiring of goods, works or services provided by a public entity provided that the acquisition price is fair and reasonable and compares well with known prices of goods, works or services in the circumstances. • A public officer who contravenes the provisions of subsection

Commits and offense

An accounting officer of a procuring entity shall adhere to the following procedures with respect to direct procurement (a) Issue a tender document which shall be the basis of tender preparation by tenderer and subsequent negotiations. (b) Appoint an ad hoc evaluation committee pursuant to section 46 to negotiate with a person for the supply of goods, works or non-consultancy services being provided; (c) Ensure appropriate approvals under this Act have been granted ; (d) Ensure the resulting contract is in writing and signed by both parties


BRIEFS REPORT

Rwandese company to introduce Bodaboda app in Kenya

S

afe motors is seeking to establish a new market to install an Uber like application to Bodaboda operators in Kenya. This has been precipitated by the high number of Boda bodas in the Kenyan market that continues to increase day by day. The company is expected to launch the new application to Bodaboda operators in Kiambaa after five of their chairmen visited the country three months ago to get first-hand information on how it works. Speaking in Kiambu, directors of the company said it would now be

safer to request a Bodaboda, security being guaranteed and also offer sanity in the business among operators. “The main intention is to ensure that operators conducted their business in conducive environments and also make sure that confidence to their clients is bestowed,” says Project Coordinator Karanja Thariki who sponsored the riders to Rwanda.

The main intention is to ensure that operators conducted their business in conducive environments and also make sure that confidence to their clients is bestowed

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INDUSTRIALIZATION

Kenya bans use of plastic papers from September 2017

P

lastic bags are a distinct feature in every Kenyan home. Kenyans joke that one of the true marks of being a patriot is having a big plastic bag containing smaller plastic bags hanging behind your kitchen door. Our mothers did it, and thus the tradition must continue. However, an announcement by the Cabinet Secretary, Environment and Natural Resources, Judy Wakhungu (in a gazette notice dated February 27, 2017), is threatening to put a stop to this mock tradition. A fine of up to Sh 4 million is to be imposed on rule breakers. United Nations Environmental Agency reported that Kenyan

supermarkets use 100 million plastic bags every year, hence a top challenge for urban waste disposal in Kenya.The plastic bags contribute to the 8 million tons of plastic that leak into the ocean every year. Kenyans will have to go back the ways of old, carrying kiondos that have long been regarded old school and other environmentally friendly bags to the sokos (fresh produce markets) and supermarkets. Kenyans are quite conflicted on the ban. Kenya’s previous attempts in 2007 and 2011 failed due to lack of of good will from the government. Environmentalists see the ban as a step in the right direction as Kenya can begin the journey towards restoring the glory of the land, rid-

ding the country of the eyesore that is pollution. Kigali, Rwanda is a good example of a clean country free from the polythene, it is literally a breathe of fresh air to be there, not like the blocked ditches and mountains of trash common in Nairobi City, Kenya. Rwanda is the only country in the region which has effectively banned use of plastic bags in 2006. Manufacturers have protested the move and the Members of Parliament who seemed to initially back the plan, demanding its reversal. The light non-biodegradable plastic bags which are primarily used for packaging remain to be top environmental nuisance across the region.

Kebs approved biodegradable materials to replace polythene bags

K

enya Bureau of Standards(KeBS) has approved biodegradable materials such as canvas, polypropylene and clothes, of which they’re available in the market, after the ban of polythene paper bags. There would be no renewal of permit for polythene manufacturers after August 28th.

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Quality verification

The Environment and Natural Resources ministry banned the use of plastic bags currently used for commercial and household packaging. The ban also covers importation and manufacturing of such products. Kebs Quality Assurance and Inspection Director Eric Chesire explained the stringent measures Kebs has adopted

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to get rid of uncertified products off the market and ensuring that consumers only get best quality products. This is to get rid of uncertified products off the market and ensuring that consumers only get best quality products. The ministry will continue with market surveillance to get rid of low-quality products sold to unsuspecting consumers by con retailers and manufactures.


PROCUREMENT LOGISTICS July - August, 2016 Issue No.: 04/2016

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AVIATION ROUNDUP

Lufthansa steps up number of flights to Nairobi

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he German Carrier Lufthansa will increase its flights along the Frankfurt-Nairobi route from five to six per week beginning June 21st 2017. The Airline will boost Kenya’s tourism sector as the tourism high season begins next month. Coast hotels that were shut down for the low season in April expected to re-open by the end of this month. Nyali International Beach Hotel in Mombasa is set to undergo renovations at a cost of Sh 100 million to give the facility a facelift. During the high season, the hotel is to register between 80 per cent and 100 per cent occupancy bolstered by both local and international visitors. The hotel is marketing itself heavily to woo local tourists from the capital to take advantage of the new rail for weekend stays. Nairobians are expected to capitalise on the faster passenger trains to visit Mombasa, the hotel offers pocket-friendly holiday packages. Swiss International Air Lines has also announced plans to raise the number of flights between Zurich-Nairobi from five per week to six beginning July 6th 2017. It will operate the six flights on Mondays, Wednesdays, Thursdays, Fridays, Saturdays and Sundays. Lufthansa and Swiss International also offer passengers flying from Nairobi a wide network of connections from its Zurich hub to major European, North American and Asian cities. The Lufthansa Group East Africa regional Sales Manager, Tobias Ernst, said he was excited to support Kenya tourism sector by providing more capacity for visitors.

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lufthansa and Swiss International offer passengers flying from Nairobi a wide network of connections from its Zurich hub to major European, North American and Asian cities.

PROCUREMENT & LOGISTICS MANAGEMENT JULY, 2017 Issue No.: 12/2017


AVIATION ROUNDUP

Kenya Airways small investors to suffer in bailout plan

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enya Airways complex bailout plan to hit its investors hardest, in the proposed capital optimisation programme which was on Wednesday presented to the National Assembly for approval. The national carrier has reached a deal with key creditors and major shareholders to convert the Sh 25 billion debt it owes the government and about Sh 23.25 billion commercial loans from 11 domestic banks to equity, a deal endorsed by the Cabinet. KLM Dutch Royal Airlines, which holds a 26.73 per cent stake in KQ, has also agreed to inject $100 million (Sh 10.33 billion) fresh capital into the airline, in the complex capital optimisation arrangement. The Treasury has also agreed to guarantee $750 million (Sh77.51 billion) that KQ owes local and international lenders, including $525 million (Sh 54.26 billion) facility with Export-Import Bank of the US. The 11 local creditors have also agreed to form a Special Purpose Vehicle to convert their cumulative Sh23.25 billion loan to equity. They are KCB, Equity, Cooperative Bank, Diamond Trust Bank, Commercial Bank of Africa, I&M Bank, NIC Bank, National Bank, Ecobank, Chase Bank (under receivership) and Jamii Bora. The KQ top leadership, led by chair Michael Joseph, is confident the plan will free more cash to help turn around the loss-making airline in three years. The airline cut full-year net loss for period ended March 31 by 61.10 per cent to Sh10.20 billion while total operating costs dropped 12.37 per cent to Sh105.38 billion. Revenue, however, dropped 8.51 per cent to Sh106.28 billion due to reduced capacity, although passenger numbers grew 5.4 per cent to a record 4.46 million. KQ rebounded to an operating profit of Sh897 million in the period from Sh4.09 billion loss a year earlier. Local banks, who will now be shareholders, will only secure the guarantee by committing to offering financial support to the airline if and when required as committed shareholders.

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The KQ top leadership, led by chair Michael Joseph, is confident the plan will free more cash to help turn around the loss-making airline in three years.

Former Kenya Airways chief executive Mbuvi Nguze with chairman Michael Joseph at an investors’ briefing in Nairobi PROCUREMENT & LOGISTICS MANAGEMENT JULY, 2017 Issue No.: 12/2017

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AVIATION ROUNDUP

World’s largest Airplane revealed

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he world’s largest plane has been unveiled by Microsoft co-founder Paul Allen after it left its hangar in the California desert for the first time. Allen, who was obsessed with rockets as a child, co-founded Microsoft with Bill Gates in 1975. He left the company in 1982 because of health reasons but retained a sizeable stake in the company. The plane has a wingspan longer than a football pitch.It stands 50 feet high, has 28 wheels and is expected

to have a range of 2,000 nautical miles, flying at the altitude of around 35,000 feet, roughly the same as commercial planes. The wingspan makes it the largest plane in the world The “Stratolaunch” has a wingspan of 385 feet, weighs up to 580 tons and has six jet engines. But it isn’t meant to carry passengers. The plane is designed to launch rockets into space from the air, saving jet fuel compared to the process of launching them from the ground and

vastly reducing the cost of sending cargo into space. It was moved out of its hangar for “aircraft fueling tests”, according to Stratolaunch Systems, putting the end to its construction and paving the way for ground flights. It expects to demonstrate its first launch as early as 2019. The Stratolaunch project was first announced in 2011. It is designed to be able to launch multiple rockets, and doing so from a moving aircraft can evade the weather problems that afflict many rocket launches. It isn’t the only company to attempt to launch rockets from planes. Sir Richard Branson’s Virgin Orbit announced plans to do so from a Boeing 747-400 jet in 2015.

The “Stratolaunch” has a wingspan of 385 feet, weighs up to 580 tons and has six jet engines.

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PROCUREMENT & LOGISTICS MANAGEMENT JULY, 2017 Issue No.: 12/2017


AVIATION ROUNDUP

Diplomatic crisis in the Gulf region

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atar Airways suspended its flights to Saudi Arabia due to escalating diplomatic crisis in the Gulf region. Saudi Arabia, Egypt, the United Arab Emirates and Bahrain severed ties with Qatar Monday, opening the worst rift among some of the most powerful states in the Arab world in years. Oil giant Saudi Arabia accused Qatar of backing militant groups and broadcasting their ideology, an apparent reference to Qatar’s influential state-owned satellite channel Al Jazeera. “(Qatar) embraces multiple terrorist and sectarian groups aimed at disturbing stability in the region, including the Muslim Brotherhood, Islamic State) and Al-Qaeda,” said SPA, Saudi’s state news agency. Kenya and Qatar enjoy cordial diplomatic relations as exhibited by Emir Sheikh Tamim bin Hamad Al–Thani’s visit to Nairobi last April to ink partnership deals touching on higher education and scientific research and cultural co-operation. Foreign affairs secretary Amina Mohamed has called a meeting to discuss Qatar’s diplomatic fallout with its Middle East neighbors over claims of supporting terrorism. Qatar Airways is gearing to launch direct flights between Mombasa and Doha next year, adding to the daily one it operates to Jomo Kenyatta International Airport (JKIA) in Nairobi. Kenyan travel agents Monday warned customers that travelling to and from Qatar’s capital Doha may not be as straightforward as usual following closure of borders and airspace. Qatar Airways flies to nine cities in Saudi Arabia.

(Qatar) embraces multiple terrorist and sectarian groups aimed at disturbing stability in the region, including the Muslim Brotherhood, Islamic State) and Al-Qaeda,”

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PORTS

Namibia World’s largest diamondOUTLOOK hunting ship Unveiled

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ining giant De Beers has launched a state-of-art £122m exploration ship that will scan for diamonds on the seabed off the coast of Namibia. The mv SS Nujoma is equipped with sonar technology and a drilling device that can probe the ocean floor and take samples more quickly and efficiently than previous vessels. It looks to maintain high production levels until 2035. Mining is the biggest contributor to Namibia’s economy in terms of revenue. The mining industry is regulated by the Diamond Act, 1999. In 2006, the Government confirmed a royalty schedule that originally had been introduced in 2004. A 3% royalty was levied on the market value of base, precious, and rare metals and nonnuclear mineral fuels. A 2% royalty was levied on industrial minerals and nuclear mineral fuels. Bruce Cleaver, De Beers’ chief executive, said the Nujoma was a “huge step forward” for the miner’s six-strong fleet in Namibia. The 12,000-tonne, 113-metre-long SS Nujoma was built at a cost of $157 million and is named after Sam Nujoma, Namibia’s founding president. “I am very, very confident this (vessel) will allow us to continue to extract 1.2 million carats a year,” De Beers CEO Bruce Cleaver told Reuters by telephone.

He said he was “cautiously optimistic” about diamond sales in 2017 and in terms of value there have been “some small positive movements” but it was too early to declare a trend. Anglo American and De Beers rely heavily on diamonds. They are central to its portfolio of assets as they tend to hold value when bulk commodities fall in price. Diamonds are also important to Namibia as they generate 20 percent of its foreign export earnings. Namibia receives 80 cents of every Namibian dollar generated by Debmarine Namibia, its 50:50 joint venture with De Beers. Marine diamonds are particularly prized. They are generally more valuable than land-based stones because lower quality gems are washed away by waves. Debmarine Namibia produced 1.2 million carats of diamonds in 2016, a level De Beers says it can maintain until 2035 when its license expires on a 6,000 square km area. The SS Nujoma is the sixth diamond exploration vessel to join Debmarine Namibia’s fleet. It can hunt for diamonds at more than double the speed of its predecessor, De Beers said. De Beers has a budget for landbased exploration of about $35 million to explore in Canada, Botswana and South Africa.

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The long tradition of mining in Namibia has been renewed with the reopening of the Tsumeb-area copper mines and smelter, the opening of the Skorpion zinc project, the expansion of the fluorspar and the gold mines, and continued offshore diamond development of the past few years. Extensive exploration in Namibia for base metals, diamond, gold, natural gas, and uranium has been attributed, in part, to the rise in world commodity prices. Potentially new mine development and new value-added gemstone cutting and polishing, metal-processing, and other mineral-based manufacturing industries could maintain the mineral sector’s position as a significant segment of the economy of Namibia for the foreseeable future. With a climate that is among the driest in the world, the lack of water resources will continue to be a constraint on mineral development in Namibia, as will the availability of fuel and electric power. New investment to develop the country’s natural gas resources and harness the hydroelectric power potential, and the recently proposed (2006) introduction of nuclear-powered electricity-generating plants, will influence the future economic growth of Namibia. The expansion of regional transportation infrastructure in northern Namibia could see the Port of Walvis Bay become an alternative route for mineral exports from southeastern Angola, Botswana, and Zambia

The Stratolaunch has a wingspan of 385 feet, weighs up to 580 tons and has six jet engines. But it isn’t meant to carry passengers.

PROCUREMENT & LOGISTICS MANAGEMENT JULY, 2017 Issue No.: 12/2017


PORTS

World-class Cruise Terminal in South Africa

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waZulu Cruise Terminal Pty Ltd (KCT) as its preferred bidder for the design, development, financing, construction, operation and maintenance of the new cruise terminal facilities at the port of Durban on a portion of land measuring 27 800 meters at “A” and “B” Berths at point precinct, for a period of 20 years. South Africa’s Transnet National Ports Authority(TNPA) confirmed the decision, which was made following a lengthy and complicated procurement process, on May 30. KwaZulu Cruise Terminal Pty Ltd is a joint venture between MSC Cruises SA (a subsidiary of MSC Mediterranean Shipping Company SA) and Africa Armada Consortium (a black empowerment partner). KCT’s equity is currently divided into 70% ownership by MSC Cruises SA and 30% ownership by Africa Armada Consortium. It is classified as an EME (Exempted Micro Enterprise) and is anticipated to grow into a QSE (Qualifying Small Enterprise). This would be a major boost for the country’s coastal and marine tourism. The Durban cruise market had grown from 75 947 passengers ten years ago to 191 412 passengers last season. Already we have at least 20 international cruise liners operated by 14 cruise lines calling at South Africa’s ports. “It is an impressive, bold and great step for tourism, and particu-

larly so for the maritime sector and the general oceans economy,’ said the organization. KwaZulu Cruise Terminal Pty Ltd (KCT), had put together an exciting concept and had the experience to deliver a facility that would be the jewel in the crown of the Port of Durban. It would be an asset within Durban’s “Smart People’s Port” that would create more opportunities for surrounding communities to participate in the local economy. Ports are a catalyst for growth and through projects like this we begin to see government’s Operation Phakisa: Oceans Economy programme in action, which strives to unlock the economic potential of our oceans. As the national ports authority, we have a responsibility to the country to help address the three scourges plaguing South Africa – unemployment, poverty and inequality – by making business opportunities available for businesses owned by previously disadvantaged individuals to operate within the port environment. Geneva, Switzerland-based MSC Cruises SA is the world’s leading privately-held cruise company and the fourth largest overall. It is the market leader across the whole of Europe, including in the Mediterranean, South Africa as well as South America and operates globally with direct offices in 45 countries and over 180 ports. The company operates one of the

more modern and technologically advanced fleets at sea. Its 12 cruise ships cruise year-round in the Mediterranean and the Caribbean. Seasonal itineraries cover Northern Europe, the Atlantic Ocean, Cuba and the French Antilles, South America, Southern Africa, China and Abu Dhabi and Dubai. In 2014, MSC Cruises launched an investment plan to support the second phase of its growth through the order of a total 11 new, next-generation MSC Cruises ships through 2026 for a total investment of €9 billion. The company is the first global cruise line brand to develop an investment plan of this length and magnitude, spanning a horizon of over ten years. MSC Cruises feels a deep responsibility for the environments in which it operates, and was the first company ever to earn the Bureau Veritas “7 Golden Pearls” for superior management and environmental stewardship.” MSC Cruises SA has over 13 years’ experience of operating Cruise Terminals and has international experience in operating Cruise Terminals around the world including the following: Marseille (France), Genoa (Italy), Civitavecchia (Italy), and Naples (Italy). Africa Armada Consortium Pty Ltd is a black economic empowerment investment company aimed at empowering its black investors through participation in economic activities, in particular port and logistics developments.

PROCUREMENT & LOGISTICS MANAGEMENT JULY, 2017 Issue No.: 12/2017

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ENERGY

Chinese firm to fix Kenya’s electricity deficit

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e have analyzed the energy situation in Africa, with particular focus in Kenya, and established that the country’s power needs can be easily met by use of our cutting-edge technology,” Officials of Dongfang Electric Cooperation (DEC), disclose. The Chinese enterprise dealing in the production and supply of power generating equipment indeed holds the opinion that if Kenya explores its rich natural resources to the maximum, the country will have no reason to import power given that sufficient energy can be produced locally and cheaply. Zhou Jie, The General Manager of Dongfang Electric Corporation says, “Kenya is well-endowed with natural resources. These reserves can be used to generate own electricity. You must use your own resources. There is no need to import power when you have plenty of reserves.” He says the East Africa nation (Kenya) will surpass its present potential only if it can independently attain and sustain domestic power needs. Zhou, “The country can realize its own power requirements. We can help generate power that is affordable. Imported electricity is expensive. You cannot develop adequately with this practice.” The officials from China alludes to the fact that Kenya is hugely endowed with numerous coal deposits spread across the country. According to Zhou, the country should henceforth think about exploring these reserves for the benefit of the people. They insist that the available coal reserves can easily be used to inject more power into the national grid even as they allayed fears that this could come with environmental and health hazards. The officials believe that, the technology currently allows exploration of these mines and subsequent setting up of coalpowered power plants with minimal or no damage to the environment. They argue that pollution should not be an issue if everything is done according to plan. DEC is well-known for its capacity to produce and transmit thermal, wind, nuclear, solar and hydro power as has been the case in the over 70 countries which it has so far established operations. “This is what we intend to bring to Kenya. Our intention is to feed more megawatts of power into the national grid to deal a death blow to constant power

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outages, which we believe is hampering business and industry,” says Zhou Kenya being a country that is highly dependent on hydroelectric power, DEC is expressing willingness to be part of, and or join forces with the government to help expand this source of energy. The Chinese company wants to get involved in Kenya’s geothermal power generation saying the sector has a huge potential and its innovations in this field will help yield bountiful positive outcomes. According to his deputy Hu Xiaohui, Kenya must now consider development and expansion of renewable energy sources such as thermal, wind, solar and nuclear in order to fast track realization of much-needed industrialization. He feels the cost of renewable energy generation has reduced dramatically over the last few years due to breakthroughs in technology. He says the firm’s ability to produce and transmit sufficient energy will be demonstrated immediately after the completion of one of its maiden projects in Lamu that set to begin before the end of the year. Lamu project, according to the company, is in the financing stage where Chinese banks are carrying out their evaluation of the project before the final release of the required funds. Xiaohui confirms that DEC will provide all the power generating equipment for the project which is earmarked to cost in excess of US $ 1.4 billion. It is expected that after its completion, the coal power plant will generate 3 units of 350 megawatts of power each. He notes, “Our equipment order is

PROCUREMENT & LOGISTICS MANAGEMENT JULY, 2017 Issue No.: 12/2017

already signed. We are waiting for the contractor to issue us with notice to proceed, then we will continue.” The 1,050 MW of power will be channeled to the national grid and is expected to boost the country’s energy demands. From the onset, the project will make use of imported coal but a substantial percentage of the same resource to be used later on in the project will originate from Kitui County’s Mui basin where large deposits have so far been discovered. However, to guarantee production of safe, clean, and reliable constant supply of electricity, the Chinese executives are urging the Kenyan government to embrace other forms of energy which can easily be produced locally. The two officials disclosed that there have been talks between their company and Kenya’s energy ministry on possible areas of cooperation. They, however, were quick to point out that no concrete offer has so far been put on the table for consideration.

The country can realize its own power requirements. We can help generate power that is affordable.


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Procurement and Logistics Magazine July 2017  
Procurement and Logistics Magazine July 2017  
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