THE WEEKLY DIGEST EST. 2016
A WORD FROM THE EDITOR
[9th-18th October 2016]
The world of finance of economics is an intriguing and ever changing one, and we are determined to bring you the most up-to-date issues facing world economies. From the US elections and their possible implications on the economy, to news happening around the African continent. We have you covered. As the world economies undergo rapid transformations and new frontiers are reached, we want you to be part of this revolution. Part of this second renaissance that will be remembered for centuries to come. So sit back, relax and be part of the economic uprising through a deep understanding of the issues facing our world. So without wasting any more time, shall we begin?
WHO ARE WE AGAIN? Strathmore Centre for Value Investing (SCVI) is a research centre under the Strathmore Institute of Mathematical Sciences (SIMS) - formerly SFAE - based in Strathmore University. Started in 2014 under the leadership of our Director, Ishmael Maina (CFA), the centre is growing by leaps and bounds with the goal of being the foremost undergraduate research institute in Quantitative Finance and Economics with a bias towards Value Investing. SCVI Insight is the publications and corporate communications arm of the Centre. It currently produces The Weekly Digest, one of 3 planned publications by SCVI Insight. The other two will be called The Monthly Report and the The Quarterly Review. Our vision is to become the foremost platform for young undergraduate researchers and writers in Strathmore University. We believe in the value of â€˜learning by doingâ€™ -emphasized and highlighted in our publications and projects. Thank you for being a part of our story - which is just beginning!
THE REGIONAL BEAT Maureen Jebichii
The WHO Call: Surge Sugary Drinks Prices
If you love sugary drinks, then better start looking for a plan B or enter into a contract with Coca-Cola before it’s too late. With the rise of people suffering from lifestyle diseases World Health Organization (WHO) are not leaving anything to chance. WHO is advocating for higher prices on sugary soft drinks arguing that sugary drinks is a major cause of diabetes and obesity and as a measure to fighting these diseases; sugary soft drinks should cost more. They suggest that; prices of sugary soft drinks to be increased by 20% through taxation. That is, for a 500ml Fanta orange, it will cost Ksh 72 up from Ksh 60. Economic implications: The demand for soft drinks will reduce as high prices have an inverse relationship on demand (law of demand), the decreased demand may end up hurting soft drink manufacturers and distributors.
The Illiterate Generation Y?
In matters education, shuddering reports have revealed that education in Tanzania is in a poor state. Amazingly, 44% of class seven candidates in Tanzania cannot read a basic class 2 Kiswahili book. On the brighter side though, the government is trying to rectify the situation. A five mechanism plan has been instituted which for the most part focuses on improving quality of learning. Economic implications: A literate society is a major key to development and provision of skilled labor required in industries. A lot needs to be done
And Another Blow for KQ....
“Haki yetu, jasho letu” A phrase associated with teachers and doctors but this time round Kenya Aviation Workers Union (KAWU) are borrowing a leaf from them. KAWU has given KQ upto Friday the 14th to either employ the 1000 sub-contracted non-unionized employee (staff in customer care and finance departments) on terms as those of unionized staff or they down their tools. But might this be the last nail to hammer KQ? Or we still need Job’s faith to hope for a better tomorrow for KQ? But wait, this may not just be it as KQ announces 58 percent drop in losses despite the strike threat. Economic implications;Striking pilots and workers means operations will be halted and this will cause more losses for KQ as income from flights tickets and other daily activities won’t be realized.
We Want Out! Burundi Says. Burundi is set on removing itself from The International Criminal Court and is not mincing words about it. Members of parliament came out in masses and voted overwhelmingly towards the same, citing a plot to harm Burundi as their major reason. This comes in the wake of plans by ICC prosecutor to launch investigations into allegations raised against the country. Economic implications; This May not be the best move since this may see the perpetrators of crimes against humanity goes unpunished. We are also uncertain on how western powers may react to this move, and this uncertainty may cause money outflows from investors. Not totally good for the economy
Not Just Yet; South Africa’s Stand.
Hopes were shattered after South Africa’s president remained non-committal on easing of visa rules to South Africa. Dismayed Kenyans sought to understand why processing of a South African visa required a week’s wait and payment of Ksh 4200 while South Africans acquire Kenyan visas for free once in the country. Jacob Zuma however cited security reasons asking for more time to strategize Economic implications; A small hitch. Better economic times lie ahead however following the cementing of military and financial cooperation deals.
Umoja Ni Nguvu-Unifying East African Tourism
Umoja ni nguvu, utengano ni udhaifu. Kenya, Rwanda and Uganda are teaming up to market tourism as one destination for the three countries. This is aimed at attracting more tourists; as this will allow for a variety of tourism products for prospective tourists. This strategy is boosted by the one visa plan for East Africa countries which will allow ease of movements across the three countries which was impossible before as tourists had to acquire different visas for the different countries. Economic implications; This will boost the tourism sector which in return earns the country more income and in the long run boost the GDP.
Longhorn’s New Marketing Strategy With the flagship of the LAPPSET programme, Longhorn publishers are set to shift its content to a digital platform. The LAPPSET programme will require digital learning content available in soft copy other than the hardcopy textbooks. This saw Longhorn Publishers develop their digital content as the government and the Kenya Institute of Curriculum Development are set to allow private sector provide content for the digital programme. Economic implications; Ease of access to books as they will be available online rather than having to go to a book Centre. If managed well, it may greatly improve the quality and level of literacy in the country.
Of Uneducated Scholars
The Kenyan education sector seems to be in a crisis, and finger-pointing seems to be the order of the day as the root causes are looked into. Reports have shown that little learning occurs in Kenyan public schools. Astounding statistics reveal that half of class four children cannot perform class 2 tasks while seven out of ten lower primary school are not fit to proceed to the next level. This poor performance has been attributed to high student teacher absenteeism, ill prepared teachers and insufficient resources. Economic implications; This is a terrifying trend that calls for urgency as an ignorant and illiterate population will be a big blow to our economic development.
NEWS FROM AROUND THE WORLD SOUTH AMERICA Micere Murimi
Power Struggles: Venezuela’s Dark Side
Venezuelans lost composure when a blackout interrupted a World Cup qualifying match against Brazil; local fans could be heard chanting antigovernment slurs at a time when calls for a referendum to impeach the president have intensified. Citizens were left with their glasses empty from the sheer embarrassment of the power cut and having lost the match.
Economic implications; The tense political climate is likely to cause anxiety thus leading to a decline in the investment sector of the country.
Peace without Peace?-Colombia’s Paradox Despite having his peace deal rejected after a rigorous five years of negotiation, Colombian President Juan Manuel Santos found a silver lining after being awarded the Nobel Peace Prize for his efforts in bringing a 50-year war with Marxist rebels to an end. The award seeks to encourage Colombians to continue in their quest for reconciliation. Economic implications; Recognition by the Norwegian Nobel Committee may ease some tension that arose when the peace deal was rejected, thus promoting economic activity.
Walls Tumbling Down: Time to Go For Javier Duarte, life has taken a turn for the worst after being stripped of his party rights. The governor announced his resignation months before the scheduled end to his term. The move was in response to allegations of corruption and the murder of journalists. Mexico’s federal attorney general’s office is set to take over investigations. Economic implications; Taking serious action against irresponsible bureaucrats may serve as a wake-up call to leaders, which could result in better government performance.
Wells Fargo CEO Calls it Quits
After a hours in front of a committee and a brutal lecture from Senator Elizabeth Waren,Wells Fargo CEO, John Stumpf finally decided to call it quits. This is attributed to the Wells Fargo scandal where employees set up fake accounts for customers in order to meet aggressive and over ambitious goals by setting up fake accounts. It’s not only gloom and doom for Mr.Stumpf though. He’s retirement features a ‘golden parachute’ of $134 M! Not bad, not bad at all. Economic implications; The thorough investigation into the Wells Fargo case may make Wall Street banks more cautious in their dealings, and also make retail banks strive to keep away from any legal action. No one is safe
Will the Trump Train Prevail?
With about three weeks to the most anticipated event of 2016, things just keep getting more heated. The US election has all the makings of a soap opera. Whether it’s Trump’s lewd comments about women or Clinton’s ‘too cosy’ relationship with wall street bankers ,the election could take any turn,and investors are watching. Both a Democratic or Republican presidency may have deep economic implications for USA. Particularly, Donald Trump’s position on NAFTA, the Trans-Pacific Partnership and NATO is what investors are wary of and will keep a close eye on, if ‘The Donald’ wins. Economic implications; : Donald Trump has been regarded as one of the risks to economic stability in 2016,his policies may affect not only economic ties with some countries, but also diplomatic relationships with crucial US allies.
Cautious Canada; Avoiding The Global Financial Crisis 2.0
The Central Bank of Canada has rolled out new rules that aim to tighten the mortgage environment in Canada, and hence ease speculation that there is a housing bubble in Canada. Home prices are already significantly lower in some parts of Canada. This also done in a bid to prevent Canada’s seemingly overheated housing market from compromising its economic growth. Economic implications; :These changes will reduce home buyers abilities to borrow and increase lender’s funding costs. This will cushion against the possible negative effects of a housing bubble.
AFRICA AT LARGE
The Living Dead-Malawi’s President Problem It is quite sad that in Africa when a public political figure or even a socialite goes missing for a while the only presumed rumours that can be heard from ear to ear is either of an illness or death. This has recently been seen in Malawi where the president has not been heard of since September, Eventually the Malawian government put out an ill-tempered press harrumphing that the president was in “very good and robust health” and still carrying out his duties in America. This is not the first case of an African president gone missing after president Mugabe was presumed dead after a visit to Dubai he famously quoted “It’s true I was dead. I resurrected as I always do.” Economic Implications: If the issue is not well addressed, there might be political instability and unrest in the nation, hence possibly scaring investors away.
Inflation Still to rise in the UK.
The Egyptian Puppet Parliament Does the legislature of Egypt have an actual say on what happens in the country or are they just a charade put by the government to ensure the government gets what it wants? A rare resistance to the president was only seen recently when the group of law makers went against the president to ensure it was harder to remove them in power, even after the president suggested that this group should be trimmed down. This has been seen as an opposite of what has been happening in Egypt with the parliament supporting the government in almost everything Economic Implications: an issue with the governance of a country can deter investment, waste national resources and increase insecurity.
Is Germany forsaking UK?
The Weeping Lawyers of Cameroon
Apple; Italy, here we come! Earlier this year, Apple announced it would be building its first ever App Development Center in Naples with the intention of giving students the practical skills and training to create their own iOS apps as part of a free nine-month course. As reported by the Guardian, the center opened late last week, located in the city’s University of Naples Federico II. It is not surprising that in a period of only 11 days, 4000 individuals from around the world had applied to the center Economic Implication: ; This could greatly reduce the number of youth who leave the country to find jobs abroad by training job creators instead of job seekers.
How would you feel after toiling for such a long time to get a degree it became non-applicable to your work life? This has been one of the issues facing the Cameroon judicial system as the country sees protests from this lawyers against what they describe as government’s negative attitude towards the common law practice in that instead of harmonizing this bijural system they were thwarting it. Economic Implications: An unsound judicial and legal system may put into question the political structures of the country and the nature of the court system and legislature.This is not a good thing for the political stability of the country.
The governor of the Bank of England, Mark Carney, said on Friday that inflation would rise on products such as food because of the fall in the value of the pound. Already, yields on 10year UK government bonds have risen more than 10 basis points to 1.149% - their highest level since the Brexit vote. However, even though Carney suggests that the sterling’s fall will help the economy adjust, the going will get tough for those with the lowest incomes
Economic Implication: Rising inflation is definitely a win for Brexit because a slowly increasing price level will keep businesses profitable and increase consumption by preventing consumers from waiting for lower prices. Britain is Germany’s fifth-largest trading partner and its third-largest export market after America and France. In addition, Britain is the biggest foreign investor in Germany and some 2500 German firms have subsidiaries in Britain, employing about 400,000 people there. It is therefore reasonable to think that Germany would go easy on Britain in its coming negotiations with the EU, maybe even lending a hand by stopping tariffs against Britain. However, this will not be the case as Angela Merkel, the German Chancellor, will not be swayed. Economic Implication: The UK may probably have lost a very important ally in this Brexit war, hence causing further uncertainty in the EU-UK relations post-Brexit. This uncertainty may cause volatility in the stock market and therefore scare investors.
SOUTH EAST ASIA
INDIA, RUSSIA & CHINA
The King Rests: End of an Era
We Don’t Want You No More-China’s Economic Nosedive “I’m over you my dear” is all the world seems to be screaming at the world’s second largest economy. Chinese exports have been reported to have taken a nose dive in dollar terms last month compared to last year as the global demand for their goods remain sluggish. Sad right? A 10% drop is quite huge a thud, considering the overseas shipment were once major contributors to boosting economic growth, says the General Administration of Customs.
The death of King Bhumibol the beloved but powerless ceremonial leader of Thailand has brought new issues to light. His death might mean the severing of diplomatic relations between Thai and the West. This is brought into play by the likelihood of his not so popular successor siding with the Junta which is aligning itself with China rather than the West.
Economic Implications: Strained relations with the West a major trade partner may mean reduced trade which might offset the economy of Thailand.
Economic implications: When a country exports goods and services, they sell them to a foreign market which in turn brings money to the exporting country and thus an increase in GDP. The reverse is also true.
Tanking On South East Asia With increasing oil production in South East Asia in the past one and a half years different companies’ nicknamed ‘teapots’ have come along. Both major players such as VTTI the storage part of oil bigwig Vitol and start-ups are making strides to provide containment units to different oil producing nations in the region with Malaysia, Singapore and Indonesia being the major focus point.
Cheers to New Partnerships. Russia and Turkey, despite all odds are still determined more than ever to foster economic growth and strengthen diplomatic partnerships. They call the new arrangement the ‘Turkish Stream’. The two country’s energy ministers were accorded the honours of signing this deal, aimed at bringing gas from Russia to Turkey, then distribute to European Union nations.
Economic Implications: Increased foreign investment will boost the economy and lead to increased job creation. This may however lead to imbalanced regional growth as there will be more development in oil producing nations than in non oil producing nations.
Economic implications: The partnership will not only enhance economic growth between the nations, but also comes to show how little reliance the ‘outcasts’ have little dependence on Western powers.
The South East Asia Market Goes Digital With increased digital and internet consumption ecommerce in South East Asia has hit new highs with analysts valuing the digital market at 11 billion based on online shopping alone and expecting it to double over the next five years.
Kirana Vs Wal-Mart. Have you run out of groceries and way too busy for the hustle and bustle of the grocery shop? Well, India’s Grofers was established just for you. Albinder Dhindsa, a co-founder of Grofers says they would love to serve the local market, targeting the common man but eventually grow with time.Now to the big question; what do they do?Grofers offers delivery services from Kiranas (retail shops) to homes, giving Wal-Mart and other chain supermarkets a run for their money. Guess what they use …motorbikes. I guess ‘nduthis’ do offer more than meets the eye. The order requests are made online. Economic implications: ; The increased number of start-ups indicates the ecommerce industry is growing and thus more job opportunities are expected to be created.
Economic Implications: Digitization of trade might mean inreased growth of the banking industry due to increased use of credit cards. This in turn leads to economic growth.
Editor : Ronald Wakhu
[07 OCT 2016]
Sub-Editor (Digest): Julie Songok The Regional Beat: Elizabeth Kalu Milka Alubokho Maurine Jebichii South East Asia: Gloria Kendi Joel Ndege India, Russia & China: Ivy Mwende Patsy Mugabi Millicent Menya
South America: Julie Songok Micere Murimi North America: Ronald Wakhu Mwende Muna Africa at large: Koki Gachui Pauline Odhiambo Europe: Val Chweya Cathy Nabatanzi Team Administrator: Rose Kagumba Design: Adrian Myall
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