April 4, 2008
Last week Val Liveoak sent me an email asking about an article she had
read which told of the frenzy in Kenya to buy Safaricom shares. Since
this really is an indication of what is wrong with Kenya, let me discuss
it in detail.
Safaricom is the most profitable company in East Africa. It is a cell
phone company that
just passed the 10 million mark in customers. Celtel, the other cell
phone company, has 2 to 3 million subscribers. Since there are only 34
million people in Kenya, at least one out of three people has a cell
phone. You can buy a cell phone for $30 now (and probably much less if
you get a stolen one). Calls are billed by the second and only the sender
is charged. The charge is high at 21 cents per minute (but there are
lots of plan variations). To call the US is 38 cents per minute. So they
make a lot of profit. On the other hand they have been a very creative
and innovative company. I think that they were the first company in Africa
to enable people to send money through their cell phones.
Currently the Kenyan Government owns 60% of the company shares. They
are selling 25% of the shares at 5/- each (7.5 cents) and the minimum
purchase is 2,000 shares for a
total cost of $150. The total for sale of 25% is then 50 billion shillings
or almost $800
million. Presently there are 800,000 Kenyans who own shares on the Nairobi
stock exchange. The prediction is that this offer will be oversubscribed
by 4 times -- 3,000,000 Kenyans. If you have a job, you can go to any
bank (big ads in the papers) and borrow 10,000/- or more to buy shares.
The banks never say what the costs of these loans are. [NOTE /- is the
symbol for Kenyan shilling.]
These 3,000,000 Kenyans (almost 10% of the population) are the middle
and upper classes of Kenya. The reason for the frenzy here is GREED.
People think that they can get the shares now at 5/- and sell them when
they can be traded on the stock exchange in June for 10/-, 15/-, 20/-
or even 200/- and make a tremendous profit without doing anything except
pay back their loans if they have them.
Here are the problems with this reasoning.
First, this offer is gigantic in terms of the economy of Kenya. The
50 billion shillings times 4 (if oversubscribed) will sit in banks for
the next three months while the offer is being processed. This is a huge
amount of money that the banks are/will be sitting on, but which is not
lendable. Therefore interest rates will rise.
Second people are selling shares in other companies in order to buy
Safaricom shares so the Nairobi stock exchange is depressed. (Frankly,
if I were in the stock market business, I would not buy Safaricom shares,
but the other companies whose shares are now undervalued.)
Safaricom has big, full-page advertisements in the paper. These include
the risks involved
which are not insignificant. First, the cell phone market in Kenya is
now almost saturated so Safaricom cannot in the future grow at the rate
it has in the past. Second, a third mobile phone company is entering
the market sometime soon and will create more competition that may lower
the costs to customers (as it should), but will also depress Safaricom's
profits in the future. There are about twenty other risks mentioned,
including the return of chaos to the country.
At the price of 5/- per share the impression is that the stock is cheap.
But with 10 billion
shares, 5/- may in fact be an overestimate of the value of the company.
If you read the
financial analysis of the offering in the business section, as I do,
you will note that the shares may be vastly over-valued. In other words,
what if in June the shares turn out to trade at only 3/- per share? Or
1/-? People will not be able to pay off their loans with the profits
from their GREED, but will need to use their regular income to pay back
the loan and its expenses. If this doomsday scenario happens much of
the middle class will be in hock. If this happens they will think that
they have been deceived by the Government, they will demand redress,
and these demands could again turn into violence as the entire economy
goes into real shock.
and the Orange Democratic Movement (ODM) are opposing the sale at this
time. Their reasoning is as follows. A number of years ago
the Kenyan Government sold 30% of their shares to Vodafone, a big British
telecommunications company. But somehow or other a company called Mobitelea
Ventures, which was registered in an offshore haven, ended up owning
5% (now it seems like it is 10%) of the shares of the most profitable
company in East Africa. No one knows the identity of the officers or
shareholders of Mobitelia. It seems clear that the owners of the Safaricom
shares in this company are those politicians and high level civil servants
who received bribes to complete the deal. This means that they are worth
at 5/- per share, $160 million ( if 5% of the shares) or $320 (if 10%
of the shares). This is Kenyan corruption on a grand scale. ODM wants
the directors and shareholders of Mobitelea Ventures to be made public
before the Safaricom shares are sold. It is easy to see why some people
in the Kenyan Government did not want to give up their offices to the
opposition which, during the election, promised to investigate this
scandal and many others.
Do you remember the looting, burning, police repression, and death in
January and February? Kenya is back to normal, where GREED rules. This
Safaricom sale is a clear indication that fundamentally, at the level
of what needs to happen to reform this society, the conflict has already
been forgotten. This is what happened in 1992 and 1997 when various politicians
were assassinated, and what happened with the other simmering conflicts
in the country.
As I noted in the
last of my nine interpretation of the conflict here, this is a spiritual
crisis. If people from top politicians and civil
servants down to the many buying the Safaricom shares continue to put
their own selfish interests ahead of the interest of the society and
the country as a whole, then my friends, I think we will see another
round of violence in a few years. Kenya needs to practice "Love
your neighbor as yourself", "do unto others as you would have
them do unto you," and other spiritual concepts that put others,
society as a whole, ahead of GREED.
In response to the question that I posed in my March
30 report, Kenya's
gift to America is
Report: 1 | 5 | 10 | 15 | 20 | 25
30 | 35 |
36 | 37 | 38 |
39 | 41