Cyber related frauds in our financial sector driving up the cost of doing business in Kenya.

The last 15 years has seen Kenya and the African continent as whole make gradual strides in having its populace achieve tremendous progress in computer literacy, this is attributable to the governments’ initiative of   removing import duty on ICT software’s plus the presence of over four undersea cables players thus making the same cheaper to Kenyans as well as attracting foreign investors. The dividends are already being felt  – the emergence of  ICT incubators such as the  IHUB in Bishop Magua Centre a centre for budding techprenuers, Tech giant IBM is already investing in the countries budding tech savvy innovators amongst other tech players in the market , the increased uptake in ICT related courses across the nation  and the hard efforts of the  information Permanent secretary  Bitange Ndemo of  driving the government effort of ensuring that all the 47 counties have fibre optic connections hence lowering the internet’s costs  and lastly the promise by the current President Uhuru Kenyatta   to provide free laptops to those joining primary schools in  January 2014 – all these is meant to spur economic growth in the country  as Kenya tries to move away from trading in perfect markets to the imperfect markets.

However it must be illustrious that the surge in the uptake of technology related courses due to the conducive atmosphere the government is offering is becoming a breeding ground for externalities that will require both human and technological mitigations premised on John Elkingtons’ Tripple Bottom Line Approach a term coined in his 1997 book Cannibals with Forks: the Triple Bottom Line of 21st Century Business where the model advocates for treating employees right, but furthermore also the community where your business operates. In this part of the Triple Bottom Line model, business not only ensures a fair day's work for a fair day's pay; but also reinvesting back some of its gains into the surrounding community through sponsorships, donation or projects that go towards the common good such as afforestation, supporting clean energy initiatives and recycling of waste products . This reinvestment can usually be written off come tax time as part of business operating expenses. The human spillover effects of cyber related frauds across the banking, insurance and all the other related stakeholders that eventually dents their respective reputational risk, insurance costs and generally the cost of doing business hence affects investor confidence.

With over than 9 years experience in the insurance industry i reckon that most Kenyan blue chip financial organizations in the country are investing a lot in new markets regionally, fending off foreign competition,  product innovations and at the same time falling prey to the ingenuity of the young tech savvy graduate employees  who have knack of understanding their organizational processes and IT systems and using their technical knowledge to engage in malpractices, a major part of these perpetrators  are young graduates with gross  income levels  lesser than  $500  per month  in country with an estimated GDP - per capita (PPP) $1,800 (2012 est.)according to the CIA fact book - where the housing sector players charge exorbitant rental  prices and the mortgage lending institutions charge higher interest rates on credit facilities, which is  detrimental to their income savings -   yet exposed to dealing with huge sums of money   hence the temptations that eventually crop in their minds , this  has forced major banking and micro finance   institutions pay higher premium rates for  bankers blanket, shares  and Fidelity Guarantee Policies to insurance firms who in turn because of the high claims costs opt to reinsurer these policies given their liability effects on their balance sheet.

Way forward for dealing with these cyber crimes will involve top management enroll for refresher courses in ICT related courses tied to cyber risks and their mitigation there off as well as the new emerging forms of white collar crimes ,  better crafted  Escrow agreement with the software vendors to safeguard firms against pronounced hacking malpractices, stricter rules on deregistration of the fraudsters from their respective professional bodies as well  the generational gap issues have to be addressed that is to say top level management  have to nurture these young talents by co-opting  them in their organizational strategies however , this can only be achieved through  better rewards such as better remuneration that can guarantee them better housing and other benefits such employee share option schemes -  financial firms and the economy at large ought to come up with policies that will ensure fair employment practices that are geared towards depolarizing income levels , it must be known income disparities and the cost of one living greatly affects their professional ethics in service delivery.

Is Africa becoming a captive of the Flying Geese Model ?

The last one decade has seen Africa  experience quite a number of foreign firms across the globe ranging from manufacturing firms, ICT firms and financial services discipline either relocate or  shift their global offices or set up what I may term as technologically  dead end  activities  that are  labour intensive thence achieving their economies of scale given that having those functions administered in their home countries is more expensive but cheaper in developing countries due to cheap labour coupled with the tax incentives offered to these foreign firms in the name of “free trade” and subsequently the comparative advantage of countries like Kenya, Ethiopia, Ghana and Nigeria in using  labour intensive technologies that  are industrious  in the global chain of production  one may postulate why speak about this model, my home country Kenya has  seen the entry of Chinese motor vehicle maker, Foton, which is investing Sh1.6 billion in an assembling plant in Nairobi. The budge is set to intensify competition in the new vehicle market among local dealers and has further signed an agreement with Thika-based Kenya Vehicle Manufacturers to assemble for them, according Foton East Africa general manager Calvin Guo said the company sold 1.2 million units worldwide last year. This means the Monopolies and Price Commission will have to cave in to Michael E. Porter‘s five market forces to adapt to these emerging demands, their Asian counterparts Japan through its Brand Toyota Kenya has invested KShs 500 million in a truck and bus assembly plant in Mombasa Kenya’s coastal tourist  city  complete with a new showroom to improve marketing according to their Hino Motors general manager Kazuhiko Wanabe said it expects to produce 40 trucks and buses each month but will increase production to 200 units within a few months of operation. Toyota hopes to sell 1,200 Hino units by 2015 all these Asian Companies are taking advantage of the tax incentives on import of completely knocked down units (CKD) — the parts needed to assemble a vehicle — which are zero-rated in Kenya as opposed to a 25 per cent import duty on vehicle imports - all done and dusted as envisaged in the governments' master economic blueprint dubbed  Vision 2030.

Further in the electronic Industry Korean electronics supremo Samsung is set to unwrap a television, laptop and printers’ assembly plant in Kenya by end of year  - as its gateway to the horn of Africa and the great lakes region according to the firm’s top management the venture is likely to absorb more than 900 locals in terms of employment - the firms overall target is to realize more than $2 billion revenues by 2015 in the great lakes region and  by large the horn of Africa considering the gradual return to normalcy by our neighbors’  Somalia , the firm is also setting an assembly plant in Abyssinia present day Ethiopia to tap into the growing  bourgeoisie  class , bearing in mind its other assembly plants in South Africa , Sudan and Senegal. The recent Jubilee Coalition manifesto on providing free laptops to those pupils joining class one in primary school from January 2014 though ambitious could end unlocking the dormant potential in our youths who get exposed to the digital age in their late twenties - despite its inherent challenges.The textile industry is not worth writing about given the predicaments it has faced from importation of second hand clothes, to the Export Processing Zones  facing industrial strikes, high energy costs inter- alia despite having a 25% tax holiday for 10 years in short you do not expect to compete with countries that are technologically advanced in the textile industries vis a vis the labour intensive ones even in the face of the famous AGOA agreement unless you emulate them.

In a nutshell as we become captives of the flying geese model as a nation we can only diversify our labour markets by offering incentives to those university graduates on internship or in college by subsidizing their study costs especially the ones pursuing the STEM degrees  and urge the government to pursue  Equity banks’  model  of the “Wings to fly “, offer more incentives for those coming up with new inventions and innovations  through their firms or on individual basis  and or further  pursue bilateral engagement for instance the  Kenyan Korean approach on nuclear studies where the country  now has 11 students undertaking master’s courses in nuclear engineering in preparation for 2022 generation of electricity , when Kenya will start using nuclear energy anchored with the likely revenues from the oil in Turkana and  titanium in kwale can be channeled  towards this end  -  in the end transfer  new forms flying geese models to the rest of the world.

Tapping into the Kenyan Diaspora remittances

Fellow Kenyans it must be noted that the brain drain experiences from the late 80’s through the 90’s has seen the unprecedented growth in diaspora remittances with the real effects beginning to be felt in February 2012 when inflows amounting to USD 103.97 million were recorded and the trend has remained slightly over USD 100 million with variations, full data as obtained from the central bank clearly depicts the trends as below.

Source:  www.centralbank.go.ke,2013.

 

Further, it must be noted that in as much we applaud diaspora remittances as source of income to the country, as country we must deeply address the following issues; Is our education policy operating fully in tandem with our industrial growth policy, on this front i would say that the recent initiative by the ministry of Labour transforming the Directorate of Industrial Training (DIT) into National Industrial Training Authority (NITA) is step in the right direction where as an employer one of the membership benefits is that she can claim for training sponsored to employees within the reimbursement guidelines of NITA. This mainly covers professional and short courses related for performance improvement in the area of operation, are our employers practicing one of the basic tenets of Triple Bottom Line Approach in management of their human capital, do the various employers have a minimum starting salary for fresh graduates to enable them fulfill basic but decent Maslow needs   in lieu of the various incentives that the government is setting up to cushion for their training costs. 1n 1914 , Henry Ford saw the need to increase his factory staff salaries by 5 dollars each per day in order to boast his car revenues and the rest was  history for one of the U.S largest car manufacturer.

Though this does not exhaustively tackle what needs to be done and how it needs to be done it’s imperative to discern that brain drain denies the country the best human capital, it only benefits developed countries who take advantage of the inability by the poor countries that can’t afford to remunerate their best brains commensurately, this explains why a major part of our sons and daughters are holed in the U.S, U.K and the North America etc due to the income polarization strategy adopted by the rich countries.

However, the paradigm shift brought by huge sums of money being sent back to their ancestral is a grey area that key policy makers and investors need to tap into , the question that lingers on mind is can our financial  markets  think of floating a diaspora bond for specific activities such as investing in a housing Bond ,an Energy bond and or  REITS ( Real Estate Investment Trusts) some of the key pillars in our Vision 2030 industrialization dream -  it must be noted an average income of between kshs 6-8 billion per month from Diaspora remittances dazzles an investors mind, this explains why the USA congress is pushing for the legislation of the  Dream Act to capitalize on the immigrant skills and labor  by offering them citizenship this decision  is basically informed  from the point of view of  funds being sent by these folks back to their ancestral lands across the shores of the Atlantic ocean ,  On January 11, 2011 the state of California reintroduced  the granting of  undocumented students access to an estimated $88 million in private financial aid in the form of scholarships and grants which  allows undocumented students who meet criteria for in-state tuition to apply for financial aid under the California Dream Act, we have also seen billionaire Bill Gates successfully mobilize a consortium of tech giants such as Microsoft and Google to have visa work restrictions relaxed for international students with STEM degrees (Science, Technology, Engineering and Mathematics) instituting a 29 month extensions on work visas after graduation and a path to permanent residence and eventual citizenship. The same organizations are also knocking our doors here locally where they are setting up their research labs and or shifting their global offices right here in Kenya a case in mind is tech giants such as IBM which has signed contracts with several banks in Kenya: Credit Bank, Co-operative Bank, Family Bank, National Bank of Kenya and National Industrial Credit (NIC) Bank. The agreements are amongst more than 20 similar deals that IBM has signed with banks across Africa in 2011 in line with the rapid growth of the financial services sector and as technology enables a wave of innovation in African banking premised on Kenya being a leader in mobile money payment solutions and innovations on the continent.

 

This explains the concept of the best way to attack is to defend, in essence we have seen many learning institutions being granted charters to run as universities and public universities running parallel programs popularly referred to as module II students this has reduced the need to fly out for further studies inter alia and forced the foreign institutions to set up their offices locally and enter into affiliations with our learning institutions in order to leverage on their incomes.In conclusion the proposed diaspora policy by the immigration and foreign affairs ministry should look into possibilities of teaming up with the capital markets authority and the relevant stakeholders  to float a diaspora bond in order to mitigate against losses arising from brain drain, exploitation of the diaspora Kenyans from their relatives and friends by offering them an avenue that will ensure that returns from their investments are safeguarded through a structured investment vehicle - its only through such diverse strategies the balance of payments can be addressed.

Vital Lessons for President Uhuru Kenyatta’s Administration.

The Supreme Court’s ruling validating the late Mzee Jomo Kenyatta’s son as the fourth elected president of the republic of Kenya - ushers in a complex of issues that will require both short and long term panaceas as he begins his new term under the new constitution which  has to be jealously protected -  already we are seeing the legislators groan about their pay perks even before they start serving Kenyans and even talking about amending the law to phase off the salaries and remuneration commission  , we are also foreseeing a tussle  between the appointed  provincial administration and the elected county governors clash over roles and  mandate  i guess the courts will  have a field day in interpreting the constitution and ensuring its implemented to the letter, these and the numerous election manifesto promises  form part of the seen and unforeseen  challenges that lie ahead of him.

At 51 years of age Uhuru becomes one of Africa’s youngest leaders which is a departure from the past and some current African regimes,  he has approximately ten years   to show Kenyans that he is not a ‘George Bush Junior’ advancing the seniors policies in the middle East during the Gulf war he can actually challenge us and prove his political  nemesis  wrong by fighting the elephant in Kenyan politics christened Tribalism that  has over time, been perpetuated by  the Kenyan plutocrats at the expense of their humble and hardworking  bourgeoisie  and proletariat tribesmen  for their own imperialist interest. To quote our fallen father of  economics one (Adam Smith, 1776), we get our daily bread not for the kindness of the baker but for the bakers desire to make money we are just but unintended by product of the bakers greed in simple terms if there was a means to which the ruling class could expand their imperialist cum capitalist thoughts without having to go to polls and trooping their ethnic communities around them they could as well do away with their votes, the message here is for the president to move with speed and heal the disgruntled voices in the regions that did not vote for him and pursue willfully  both social welfare and development economics which the new constitution has clearly outlined and walk the nation to the  path of prosperity this not only creates harmony and stability in the republic but averts an  alawitism state of affairs where minority groups are funded by foreign interest to destabilize  the country , it must be noted that rich nations are only interested in having the poor countries remain poor by taking advantages of their divisions , take a look at the Syrian quagmire and quandary between the Alawites and the Sunni Muslims and the role of the West in that everlasting christened religious war. Back home we still have to deal with threats from Al shabab , the Mombasa republican Council Separist group and the Mungiki Sect  just to name but a few if not fully addressed could degenerate into fanatic and harmful groups.

In the wake of globalization where understanding geopolitics is a virtue worth emulating in this step i wish to salute the president elect for having made contacts with the BRICS when the IEBC announced that he had won the presidency however my earlier article on this blog titled “Demystifying Obamas  in Presidency Africa” generally explains the pros and cons  of dealing with the worlds two  emerging economic blocs the Bretton Woods Policies and the Brics Policies , for a number of years the bretton woods institutions having been preaching palliative economics and advancing David Ricardo’s comparative advantage Textbook economics which do not favor  poor countries rich in mineral resources  and raw materials .we  have seen how harsh textbook economic  donor conditions messed our economy in the early 90s  and what benefit  emulative economics can do to an economy in terms of embracing technology ,diversity  in innovations  a case in point is how MPESA has transformed our economy by creating jobs , this is what the new president should focus on  inter alia.