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Satchu's Rich Wrap-Up
Monday 13th of March 2017

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Macro Thoughts

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13-MAR-2017 :: US economy blowing hot, Fed rate hike due @TheStarKenya

The US Federal Reserve meets this week and a rate hike of 25 basis
points is fully priced in. The US interest rate curve has been backing
right up with US three-month Libor ending the week at a 94-month high:
1.12 per cent. Most economists feel the FED is way behind the curve,
and this is evidenced by the gap between the federal funds rate and
the cost of money indicated by the Taylor rule at more than three
points, the widest since 1977. George Soros wrote his seminal book –
Staying ahead both Curve – and every bond trader wants to be ahead of
and not behind the curve, as I suspect all of us want to be in our
lives, as well. The US economy is ''blowing hot'' and the rate hike
this week is expected to be a part of a series of rate hikes. It is
this higher rate structure which is underpinning the dollar.

A stronger dollar tends to puncture commodity prices and over the last
few sessions, we have seen both blow-outs and slow punctures in this
space. Crude-oil sank below $50.00 in New York to close at December
lows of $48.75 a barrel. OPEC, which is led by Saudi Arabia, had been
on a Kamikazi mission to destroy the Shale Boys by pumping up the
volume in 2015 and 2016 before doing a 360 degree turn in Q4 16, and
dialing down the volume. The problem is that Shale has been able to
turn up its volume by more than OPEC can turn its down. It's a
delicious catch-22.

OPEC's braggadocio had veiled this reality but last week crude oil
crashed as the markets lifted the veil and OPEC was found to be
General Butt Naked (for reasons of accuracy, Joshua Milton Blahyi
better known by his nom de guerre General Butt Naked, is a former
commander of forces under the wider control of Liberian warlord
Roosevelt Johnson). It surely suits President Trump's MAGA Agenda to
encourage the Shale Folks to turn it up some more. This price trend,
which I expect to accelerate, is set to put breaking-point pressure on
oil producers. The Treasuries in Riyadh, Luanda, Caracas and in so
many places had been betting on a price rebound (by borrowing more). I
believe we had a Wizard of Oz like lifting the curtain moment for OPEC
last week. ''It’s Like Dorothy and the Wizard of Oz. When Dorothy’s
world ended in a terrible storm, she found herself beginning a great
adventure. She went looking for the fabled wizard in the Land of Oz
who was going to solve all of her problems and save the world. But
when she got to the Land of Oz and found the wizard, she discovered
that behind the great curtain there was a scared little man.” OPEC is
that ''scared little man''. Gold traded below $1,200 last week and is
expected to move decisively towards $1,150.00.00

This week the European election season kicks off in earnest in Europe
with the Dutch parliamentary elections. President Erdogan once again
proved himself a tremendous and quality asset for the European
far-right. The dispute between Turkey and the Netherlands hit a new
low Sunday, with a Turkish minister escorted out of the country as
persona non grata, less than a day after Turkey's foreign minister was
denied entry, prompting President Recep Tayyip Erdogan to call the
Dutch "Nazi remnants". The diplomatic standoff was over plans by
Turkish government officials to campaign in the Netherlands for a
referendum back home. Family and Social Policies minister Fatma Betel
Sayan Kaya had arrived in the country from Germany, but was prevented
from entering Turkey's diplomatic compound in Rotterdam, setting up an
extraordinary standoff with armed police. She was later sent under
escort back to Germany. The direction of travel the world over has
been in the populist direction – from Brexit to Trump and Geert
Wilders – surely will post his Freedom party's best result ever and
the Turks will surely have juiced that some more. We then have an
election in France where Marine Le-Pen and her Front Nacional are
fighting for the keys to the Elysee Palace and the French Presidency.
And later in the year we go to Germany. The Right has the wind in its
sails but in Europe the elections are not of the winner takes all
variety. It would require a very big tide a Tsunami even to carry
Gert, Marine and others into power. The Euro, counterintuitively might
rally ''bigly'' if a coalition blocks Gert in the Netherlands and the
French second round vote blocks Le-Pen.

Here in Africa, Nigerian President Muhammad Buhari returned after a
50-day ''medical leave'' and interestingly left his Deputy Professor
Yemi Osinbajo in charge, a decision which was probably informed by
events around the return of former President Umaru Yar'Adua from Saudi
Arabia in February 2010. President Yar'Adua was returned in an
ambulance and kept alive on the grounds of the Aso Villa and in an
Intensive Care Unit. Osinbajo has moved with precision and some
smoothness and even got a hearty congratulatory birthday note from the
''feisty'' and admirable Aisha Buhari. Osinbajo has loosened the forex
controls around the Naira and given my outlook for oil prices, the
moment is now upon Nigeria as to whether they own the process around
the Naira devaluation (it is inevitable) or the moment owns them.
Osinbajo should have Egyptian President Abdel Fattah al-Sisi on speed
dial (Egypt devalued and the world did not end) and get on with

I was in Lusaka this weekend and it was greener than an Augusta green.
The South of Africa has had its best rains in years. When Agriculture
does well, African economies tend to hum. I expect SADC growth to
outperform in 2017.

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Indian Ocean Dipole

For those who are Weather enthusiasts, the current drought conditions
in East Africa is being caused by an ''obscure'' climate Phenomenon
called the the Indian Ocean Dipole (IOD) [an oscillation of sea
surface temperatures in the Indian Ocean] It wasn’t until the 1990s
that Japanese scientists discovered the Indian Ocean Dipole, a warm
pool of water that migrates between western and eastern “poles” and
affects atmospheric temperatures and rainfall. The phenomenon occurs
in cycles of positive (warmer) and negative (cooler) sea temperatures,
but it has become more extreme in recent years due to climate change.
A negative Indian Ocean Dipole results in less rainfall over East
Africa, and that’s contributing to the current drought that aid
agencies warn could trigger mass famine. The Scientists found that
before 1924, the IOD occurred approximately every 10 years, but since
1960, IOD events have been occurring approximately 18 months to three
years apart.The researchers suggested that global warming effects on
the western Indian Ocean have driven the observed shift in IOD
variability and note that the IOD has replaced the El Nino-Southern
Oscillation as the major driver of climate patterns over the Indian
Ocean region. It is this negative Indian ocean Dipole which has
parched the Country and the region.

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3-Month Libor ends the week at a 94-month high: 1.12%

Home Thoughts

I am still reading The Wizard of the Crow. Its a remarkable Book about
the President Daniel Arap Moi Administration.

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A landmark of postcolonial African literature, Wizard of the Crow is
an ambitious, magisterial, comic novel from the acclaimed Kenyan
novelist, playwright, poet, and critic.

Set in the fictional Free Republic of Aburiria, Wizard of the Crow
dramatizes with corrosive humor and keenness of observation a battle
for the souls of the Aburirian people, between a megalomaniac dictator
and an unemployed young man who embraces the mantle of a magician.
Fashioning the stories of the powerful and the ordinary into a
dazzling mosaic, in this magnificent work of magical realism, Ngugi
wa’Thiong’o—one of the most widely read African writers—reveals
humanity in all its endlessly surprising complexity.

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The world is facing its biggest humanitarian crisis since the end of the second world war, with 20m people facing starvation and famine in Yemen, Somalia, South Sudan and Nigeria @UN
Law & Politics

Some 6.2m people need help in Somalia, of whom 2.9m are in dire need,
4.9m in South Sudan and 1.8m in north-eastern Nigeria.

Kenya and Ethiopia are among other countries suffering severe droughts
but their governments have a better capacity to cope.

Famine is declared when daily mortality rates are two or more deaths
per 10,000 people and 30 per cent of children suffer from acute
malnutrition, among other criteria.

Mr O’Brien stressed that the looming catastrophe was “man-made” and

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Micromanager-in-Chief: Narendra Modi Upends How India Is Run WSJ
Law & Politics

NEW DELHI—Indian Prime Minister Narendra Modi stunned the country in
November when he canceled nearly 90% of its paper money. For weeks,
tens of millions of people lined up daily at banks to redeem old
bills. Sales at cash-dependent businesses collapsed. The growth of
Asia’s third-largest economy slowed to a two-year low.

It was a quintessential move by Mr. Modi, planned in secret with a
handful of close advisers. He announced it to the country only hours
before it went into effect. His own cabinet ministers knew just 20
minutes before the announcement.

Backed by a rare majority government, Mr. Modi, 66 years old, has
emerged as India’s most powerful leader in a generation. He is
changing the way the country is governed, keeping cabinet ministers on
a tight leash and micromanaging the stubbornly independent

After starting his days with yoga at 5:30 a.m., the prime minister
dominates the crafting of his administration’s marquee initiatives,
even coming up with their names. Four months after the currency swap,
Mr. Modi hasn’t budged from his argument that its benefits—less tax
evasion and more digital payments—will outweigh the pain.

The prime minister recently set up an online dashboard called
Drishti—Hindi for “vision”—so Mr. Modi and his advisers can monitor
the work being done by federal departments.

Shekhar Gupta, a political analyst in New Delhi, said the cash
exchange shows what can go wrong when “one man comes up with the ideas
and everybody else just implements.”

Mr. Modi’s steel minister, Chaudhary Birender Singh, said there is no
doubt in the administration about who is in charge. “As the saying
goes, a prince should be both loved and feared,” he said.

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"I did not resign," Bharara said on Twitter on Saturday afternoon.
Law & Politics

“I did not resign,” Bharara said on Twitter on Saturday afternoon.
“Moments ago I was fired. Being the US Attorney in SDNY will forever
be the greatest honor of my professional life.”

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its a good old-fashioned Purge @PreetBharara @realDonaldTrump
Law & Politics

Argentina's Foreign Minister today: "We have a PhD in
protectionism, nationalism, populism. We can attest these solutions
don't deliver." @prchovanec


This was indeed one of the richest countries in the world a century
ago. Lessons to be drawn pretty clear. Paweł Świeboda‏ @pswieboda


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China Seeks Stronger 'Great Wall of Iron' in Xinjiang
Law & Politics

President Xi Jinping said Friday that Xinjiang, the northwestern
province that’s home to a large Muslim Uyghur minority group
population, should strengthen its "great wall of iron" to safeguard
social stability and national unity, the official Xinhua News Agency

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Currency Markets at a Glance WSJ
World Currencies

Euro 1.0697
Dollar Index 101.38
Japan Yen 114.74
Swiss Franc 1.0086
Pound 1.2177
Aussie 0.7565
India Rupee 66.55
South Korea Won 1146.53
Brazil Real 3.1389
Egypt Pound 17.5055
South Africa Rand 13.1378

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Trump Administration Is Said to Be Working to Loosen Counterterrorism Rules New York Times

The Trump administration is exploring how to dismantle or bypass
Obama-era constraints intended to prevent civilian deaths from drone
attacks, commando raids and other counterterrorism missions outside
conventional war zones like Afghanistan and Iraq, according to
officials familiar with internal deliberations.

Already, President Trump has granted a Pentagon request to declare
parts of three provinces of Yemen to be an “area of active
hostilities” where looser battlefield rules apply. That opened the
door to a Special Operations raid in late January in which several
civilians were killed, as well as to the largest-ever series of
American airstrikes targeting Yemen-based Qaeda militants, starting
nearly two weeks ago, the officials said.

Mr. Trump is also expected to sign off soon on a similar Pentagon
proposal to designate parts of Somalia to be another such
battlefield-style zone for 180 days, removing constraints on
airstrikes and raids targeting people suspected of being militants
with the Qaeda-linked group the Shabab, they said.

The move to open the throttle on using military force — and accept a
greater risk of civilian casualties — in troubled parts of the Muslim
world comes as the Trump administration is also trying to
significantly increase military spending and cut foreign aid and State
Department budgets.

Under those rules, cabinet officials generally must agree in
high-level deliberations that a proposed target away from a
traditional war zone poses a threat to Americans. That is intended to
limit strikes targeting generic groups of suspected low-level foot
soldiers. And there must be “near certainty” that no civilians will be

By contrast, in a standard war zone, military commanders can approve a
strike without interagency review in Washington, and some civilian
casualties are acceptable under the laws of war, as long as they are
deemed necessary and proportionate to a legitimate military objective.

Military operators have chafed under the 2013 rules, but the Obama
administration saw them as a signature accomplishment in the era of
drones and open-ended war on terrorism. In his last year in office,
Mr. Obama issued an executive order requiring the government to
disclose annually its official estimate of civilian and combatant
deaths from counterterrorism airstrikes away from war zones.

As a result, Mr. Trump’s national security advisers — first Michael T.
Flynn, who has since resigned, and now Lt. Gen. H. R. McMaster — have
slowed the review process down while letting operations in Yemen, and
soon Somalia, play out as test runs, the officials said.

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Djibouti: The country of merely 900,000 people roughly the size of
Israel hosts most of the world’s strongest military powers, all
clustered in a small space.

The United States, France, China, Japan, Italy and Spain are already
there. Saudia Arabia is currently building a base – as part of a major
drive from Asian and Middle Eastern nations to get into Djibouti.

“Djibouti offers foreign armies a permanent location to project their
power onto the continent and safeguard their own security interests,”
Tim Walker, researcher at think tank Institute for Security Studies
(ISS), tells dpa.

“Africa is becoming the new battleground to fight Islamist terror,
with Djibouti as a strategic geographic location,” agrees analyst Ryan
Cummings of security consultancy Signal Risk.

Djibouti borders the Bab el-Mandeb strait, the intersection of the Red
Sea and the Gulf of Aden, a gateway to the Suez Canal. Its port is an
important intersection between Africa, Europe, the Middle East and

The conglomeration of China, Japan, Saudi Arabia and the UAE
establishing and reinforcing bases in the Horn of Africa is “very
symbolic”, says Cummings, a sure indication for new military interest
in Africa from Asia and the Middle East.

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President Paul Biya, who has been in power since 1982, is SSA's second-oldest ruler, after Robert Mugabe of Zimbabwe

President Paul Biya, who has been in power since 1982, is sub-Saharan
Africa’s second-oldest ruler, after Robert Mugabe of Zimbabwe. Yet
despite his age, he has mastered social media, in the sense of
figuring out how to silence digital dissent.

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President Muhammadu Buhari of Nigeria in Abuja, the capital, on Friday. Credit Nigerian Presidential Office, via Reuters

“This is a day of joy,” Mr. Buhari’s spokesman, Femi Adesina, said in
a video posted on Friday. “It’s a splendid day. It’s a day to give
glory, honor, majesty to God in Nigeria. The president is back.”

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"I have heard commentators suggest we should follow Egypt's example and free the naira," Emefiele said, according to THISDAY newspaper.

"What they do not tell you is that following their currency
adjustments inflation today in Egypt is over 30 percent. Is that what
we want in Nigeria?" he said.

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Ivory Coast to Review 2017 Budget Amid Slump in Cocoa Prices

Government is faced with ‘new expenses,’ spokesman says
Cocoa price dropped by a third since middle of last year

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Africa's top brands are losing out at home to international rivals as an economic downturn bites Quartz Africa

In 2016, low commodity and oil prices subdued the growth of African
economies to their lowest levels in over two decades. The sluggish
growth also damaged the place and value of African brands. Last year,
the share of African brands among the most admired and valued
companies fell from 23% in 2015 to 16% among international brands in
2016, according to Brand Africa 100, the non-profit which values and
ranks the continent’s best brands.

The list was culled from over 11,000 brand mentions cited through a
mobile survey by consumers in 19 African countries, who collectively
represent 74% of the continent’s population. The grading was then done
through a blend of a brand’s financial performance and consumer

African brands represented 0.75% of the value of the top 100 most
admired brands, and non-African brands clinched the list of top three
brands in all African markets. The only exceptions were in Nigeria,
where telecommunications company Glo featured at number 3; Kenya,
where Safaricom came at number 2, and alcoholic beverage Tusker ranked
at number 3; and the Azam Group at number 2 in Tanzania.

Position        Brand
1       MTN
2       Glo/Globacom
3       Dangote Group
4       Anbessa Shoes
5       Safaricom/MPESA
6       Tusker
7       Mukwano Products
8       DStv/Gotv/Multichoice
9       Shoprite
10      Tiger Brands

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Rift Valley violence sparks fears ahead of Kenyan elections @FT
Kenyan Economy

James Tangin is visibly angry as he picks through the ruins of his
burnt-out home, the ashes still smouldering, and tries to make sense
of an attack on his village.

“We’re not bandits or cattle thieves,” he says, shaking his head.

Kenya’s Rift Valley region has been the scene of deadly clashes in
recent weeks between cattle rustlers and farmers. But Mr Tangin and
his fellow villagers in Chepkalacha, where more than a dozen houses
were destroyed, accuse the police of attacking their homes this week.

“I have no idea why the police did this,” says Mr Tangin, a teacher.
“We all ran into the forest at the first sound of gunfire.”

The police refused to comment on the allegations. But the raid comes
amid concerns that an escalation of violence in the Rift Valley is
being fomented by politicians as east Africa’s dominant economy gears
up for elections in August.

The unrest is blamed on “land invasions” — nomadic herders driving
their livestock on to farmers’ land, ostensibly in search of grazing
as the country suffers from drought. But politicians have been accused
of encouraging the invasions to push out their opponents’ supporters,
appease their own voters and profit from sales of stolen livestock.

“This is not about the drought, this is about power, wealth and
politics,” says Kipruto Kimosop, a human-rights activist in Baringo
who plans to run for a seat in the county assembly at the elections.
“Politicians are exploiting this for political expediency. And
business cartels are exploiting the insecurity to steal more livestock
to make more money.”

Nomadic herders who have driven their livestock on to others’ land or
have been caught stealing cattle and sheep, particularly in Baringo
and Laikipia counties, say they are struggling to survive during a
severe drought. Cattle rustling and so-called “land invasions” have
blighted parts of rural Kenya for decades, particularly among the
Pokot, Samburu and other tribes.

But the scale and timing of the current violence worries many.

Kalonzo Musyoka, an opposition leader, believes it is no coincidence
that the unrest is happening months before Kenyans vote in the local
and national elections.

“Why should this escalate six months before an election? You speculate
on all manner of outcomes,” he says. “We only hope this will not be
replicated in other parts of the country.”

The government has responded by declaring 19 areas “disturbed and
dangerous” and recruiting hundreds of police reservists in the
affected regions.

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CIC Insurance reports FY 16 EPS -83.721% Earnings here
Kenyan Economy

Par Value:
Closing Price:           3.60
Total Shares Issued:          2615538528.00
Market Capitalization:        9,415,938,701
EPS:             0.07
PE:               51.42

CIC is the leading provider of micro insurance and other financial services

FY Gross written premiums 12.334289b vs. 11.439541b +7.822%
FY Gross earned premiums 11.745036b vs. 12.638444b -7.069%
FY Reinsurance ceded [1.713735b] vs. [1.909518b] -10.253%
FY Net earned premiums 10.031301b vs. 10.728926b -6.502%
FY Investment income 1.287790b vs. 1.537813b -16.258%
FY Total income 13.060879b vs. 13.826552b -5.538%
FY Claims and policyholders’ benefits expense [6.469473b] vs.
[7.283698b] -11.179%
FY Commissions expense [1.538723b] vs. [1.379772b] +11.520%
FY Operating and other expenses [4.649528b] vs. [3.823833b] +21.593%
FY Total expenses [12.955203b] vs. [12.487303b] +3.747%
FY Profit before taxation 114.388m vs. 1.339086b -91.458%
FY Profit for the year 188.185m vs. 1.136604b -83.443%
FY Forex loss on translation [256.411m] vs. [282.179m] -9.132%
EPS 0.07 vs. 0.43 -83.721%
Cash and cash equivalents at 31/12 4.379452b vs. 4.567893b -4.125%
Total assets 26.826687b vs. 24.920235b +7.650%
Total equity 7.479463b vs. 7.830483b -4.483%
Dividends 0.105/ share vs. 0.105/share –

Company Commentary

Profit of the Group was adversely impacted by

1. Depressed NSE prices resulting in further unrealised losses of 143m
2. Change in reserving methodology by IRA which increased our life
Business reserves by 704m
3. Aggressive provisioning of debtors in our General Insurance
Business resulting run an additional 326m provision
4. loss of 297.5m following hyper-inflation reporting in South Sudan
as a result of SSP devaluation
5. 89m loss from school fires i 2016

Maintaining Dividend


Soft results.

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Kenya Shilling versus The Dollar Live ForexPros 102.49
Kenyan Economy

Nairobi All Share Bloomberg -8.15% 2017


122.47 +2.62 +2.19%

Nairobi ^NSE20 Bloomberg -7.00% 2017


2,963.08 +11.93 +0.40%

Every Listed Share can be interrogated here


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Lifting of British travel ban a boon for Lamu, Manda island
Kenyan Economy

On Thursday, the UK Foreign Office amended its warning against Kenya,
saying British tourists can now travel safely to the two places

read more

Crown Paints shelves plans to expand to region @bd_africa
Kenyan Economy

Crown’s operations in Kenya, Uganda, Tanzania and Rwanda are facing a
cash crunch with the firm’s CEO Rakesh Rao saying it is “tough to do
business in the region.”
“Things are hard across Uganda, Tanzania and Rwanda,” he said.
“The major problem we have is a cash crunch; demand has slowed down
and money is not coming in.”
Two years ago, the firm embarked on an aggressive regional expansion
plan to Rwanda and Tanzania to reduce its reliance on Kenya and
benefit from potential growth opportunities in the new markets.
In 2014 the company announced plans to set up factories in Ethiopia
and South Sudan, but has now put them on hold, saying it will only
distribute to these markets from Kampala or Nairobi.
Crown Paints has posted losses in its subsidiaries in the past
financial year — with the units posting a combined loss of Sh240.3
million in the year ended December 2016.
Crown Paints Tanzania posted a loss of Sh199 million; Regal Paints
Uganda Industries posted a loss of Sh35 million; and Crown Paints
Rwanda a loss of Sh4.5 million.
The firm, which is listed on the Nairobi Securities Exchange, said it
would invest $3.6 million (about Sh369.4 million) in 18 months in the
Tanzanian subsidiary and $2.25 million (about Sh230.85 million) in the
Rwandan branch.

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by Aly Khan Satchu (www.rich.co.ke)
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March 2017

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