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Foreign investor flight hurt stockbroker earnings on USE




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Uncertainty surrounding Umeme Ltd’s power distribution agreement and foreign-investor flight hurt trading turnover on the Uganda Securities Exchange in 2018, while market players struggled with cost-cutting pressures and lower revenue forecasts, industry insiders say.

Latest data compiled by stockbrokerage firm Crested Capital Ltd shows that total USE turnover dropped to Ush43.64 billion ($11.7 million) in 2018, from Ush96.17 billion ($25.8 million) in 2017, signalling difficult times for market players who earn commissions from stock trading.

Some trading sessions recorded turnover levels below Ush500,000 ($134), even going to zero on one trading day, USE statistics show.

Gross market commission s stood at 2.1 per cent of the value of each trade. Stockbrokers earned 1.7 per cent, while the USE and Capital Markets Authority earn 0.14 per cent each.

The Investor Compensation Fund earns a commission of 0.02 per cent from each stock trade, while the Central Depository System Transaction levy stands at 0.08 per cent. The Guarantee Fund earns a commission of 0.02 per cent from each stock trade.

“Many stockbrokers are bound to register lower profits in 2018 compared with 2017 as a result of lower trading volumes,” said Simon Mwebaze, the general manager at UAP-Old Mutual Financial Services Uganda Ltd.

“For example, profit before tax posted by our stockbrokerage unit fell to roughly Ush35.4 million ($9,500) at the end of 2018, from Ush101 million ($27,105).”

Trading volumes
Total trading volumes declined to 584.93 million shares in 2018 from 680.22 million shares in 2017.

The All Share Index fell to 1,649.39 points from 1,962.39 points during the same period.

The USE’s total market capitalisation increased to Ush27.7 trillion ($7.4 billion) at the end of 2018, from an average of Ush22.5 trillion ($6.04 billion) in 2017, the data showed.
A memo from President Yoweri Museveni questioning the terms in Umeme’s concession agreement sent shivers down investors’ spines in April 2018. Equally, the US Federal Reserve’s decision to raise policy rates prompted some foreign investors to liquidate their assets in emerging markets for fear of incurring high borrowing costs.
These factors led to massive sell-offs among listed companies, dull trading activity in the last six months of 2018, falling share prices and a slight depreciation of the Uganda shilling, analysts said.
The Umeme counter accounted for 51.3 per cent of total market turnover last year, but contributed 10.13 per cent to overall trading volumes on the USE.

The electricity distribution company’s share price fluctuated in the range of Ush300 ($0.08)-Ush350 ($0.09), and fell by 21.95 per cent to Ush300 ($0.08) by the end of 2018.

In comparison, Stanbic Holdings Ltd generated the highest trading volumes, with a share of 82.9 per cent of total market volumes but contributed just 34.09 per cent to overall turnover.
Faced with a harsh business environment, the USE management shed three senior management roles last year in a bid to cut costs and remain afloat.


Those affected were the heads of internal audit and market development, and the personal assistant to the chief executive, The EastAfrican has learnt.

“We did some cost cutting last year and adjusted our manpower base to the bare minimum in order to remain afloat. We are also taking prudent financial decisions this year that will help minimise future cost pressures against the exchange,” said USE chief executive Paul Bwiso.

“The year was tough for us, as was 2017. If the market does not recover this year, stockbrokers will be forced to become creative in order to survive in business,” he added.

A look at local stockbrokers’ earnings for 2017 highlights relatively weak performance, a trend likely to creep into this year’s reporting season.

Total income earned by Crested Capital Ltd dropped from Ush1.8 billion ($483,054) in 2016 to Ush1.4 billion ($375,709) in 2017 while its total expenses declined from Ush1.78 billion ($477,687) to Ush1.5 billion ($402,545).

The company registered a profit of Ush40.7 million ($10,922) in 2016 but suffered a loss of Ush168.8 million ($45,299) in 2017.

Baroda Capital Markets Uganda Ltd’s total revenues rose from Ush102.9 million ($27,615) in 2016 to Ush154.6 million ($41,489) in 2017.

Total operating expenses rose from Ush52.2 million ($14,009) to Ush80.8 million ($21,684) during the same period. Profit before tax increased from Ush50.6 million ($13,579) in 2016 to Ush73.7 million ($19,778) in 2017.

Brighter future
However, the head of Uganda’s Capital Markets Authority Keith Kalyegira foresees a brighter 2019 for the USE.

“While uncertainty related to Umeme’s concession affected stockmarket trading activity last year, latest signs of weakness of the US dollar on the international currency market are likely to entice large foreign investors to explore emerging markets again,” said Mr Kalyegira.

“An improvement in the USE’s banking stocks later in the year may raise optimism about economic recovery and lure more institutional investors back to the stock market.”

Mr Kalyegira said that the lost commission revenue stream on the USE has been partly compensated for by faster growth in licence fees collected from unit trust schemes.

“Total assets held by these schemes grew from Ush20 billion ($5.3 million) to Ush40 billion ($10.7 million) last year and we are optimistic about stronger growth in this segment this year,” he said.

“We are optimistic about generating more revenues from our investment advisory business this year as some pipeline deals reach maturity. Our stockmarket trading outlook is pessimistic and we do not see hope of realising high revenues from that segment this year.

“A decision to cut running costs enabled us save significantly on operations costs,” said Kenneth Kitariko, the chief executive of stockbrokerage and investment advisory firm, African Alliance Uganda.



Sordid tale of the bank ‘that would bribe God’




Bank of Credit and Commerce International. August 1991. [File, Standard]

“This bank would bribe God.” These words of a former employee of the disgraced Bank of Credit and Commerce International (BCCI) sum up one of the most rotten global financial institutions.
BCCI pitched itself as a top bank for the Third World, but its spectacular collapse would reveal a web of transnational corruption and a playground for dictators, drug lords and terrorists.
It was one of the largest banks cutting across 69 countries and its aftermath would cause despair to innocent depositors, including Kenyans.
BCCI, which had $20 billion (Sh2.1 trillion in today’s exchange rate) assets globally, was revealed to have lost more than its entire capital.
The bank was founded in 1972 by the crafty Pakistani banker Agha Hasan Abedi.
He was loved in his homeland for his charitable acts but would go on to break every rule known to God and man.
In 1991, the Bank of England (BoE) froze its assets, citing large-scale fraud running for several years. This would see the bank cease operations in multiple countries. The Luxembourg-based BCCI was 77 per cent owned by the Gulf Emirate of Abu Dhabi.  
BoE investigations had unearthed laundering of drugs money, terrorism financing and the bank boasted of having high-profile customers such as Panama’s former strongman Manual Noriega as customers.
The Standard, quoting “highly placed” sources reported that Abu Dhabi ruler Sheikh Zayed Sultan would act as guarantor to protect the savings of Kenyan depositors.
The bank had five branches countrywide and panic had gripped depositors on the state of their money.
Central Bank of Kenya (CBK) would then move to appoint a manager to oversee the operations of the BCCI operations in Kenya.
It sent statements assuring depositors that their money was safe.
The Standard reported that the Sheikh would be approaching the Kenyan and other regional subsidiaries of the bank to urge them to maintain operations and assure them of his personal support.
It was said that contact between CBK and Abu Dhabi was “likely.”
This came as the British Ambassador to the UAE Graham Burton implored the gulf state to help compensate Britons, and the Indian government also took similar steps.
The collapse of BCCI was, however, not expect to badly hit the Kenyan banking system. This was during the sleazy 1990s when Kenya’s banking system was badly tested. It was the era of high graft and “political banks,” where the institutions fraudulently lent to firms belonging or connected to politicians, who were sometimes also shareholders.
And even though the impact was expected to be minimal, it was projected that a significant number of depositors would transfer funds from Asian and Arab banks to other local institutions.
“Confidence in Arab banking has taken a serious knock,” the “highly placed” source told The Standard.
BCCI didn’t go down without a fight. It accused the British government of a conspiracy to bring down the Pakistani-run bank.  The Sheikh was said to be furious and would later engage in a protracted legal battle with the British.
“It looks to us like a Western plot to eliminate a successful Muslim-run Third World Bank. We know that it often acted unethically. But that is no excuse for putting it out of business, especially as the Sultan of Abu Dhabi had agreed to a restructuring plan,” said a spokesperson for British Asians.
A CBK statement signed by then-Deputy Governor Wanjohi Murithi said it was keenly monitoring affairs of the mother bank and would go to lengths to protect Kenyan depositors.
“In this respect, the CBK has sought and obtained the assurance of the branch’s management that the interests of depositors are not put at risk by the difficulties facing the parent company and that the bank will meet any withdrawal instructions by depositors in the normal course of business,” said Mr Murithi.
CBK added that it had maintained surveillance of the local branch and was satisfied with its solvency and liquidity.
This was meant to stop Kenyans from making panic withdrawals.
For instance, armed policemen would be deployed at the bank’s Nairobi branch on Koinange Street after the bank had announced it would shut its Kenyan operations.
In Britain, thousands of businesses owned by British Asians were on the verge of financial ruin following the closure of BCCI.
Their firms held almost half of the 120,000 bank accounts registered with BCCI in Britain. 
The African Development Bank was also not spared from this mess, with the bulk of its funds deposited and BCCI and stood to lose every coin.
Criminal culture
In Britain, local authorities from Scotland to the Channel Islands are said to have lost over £100 million (Sh15.2 billion in today’s exchange rate).
The biggest puzzle remained how BCCI was allowed by BoE and other monetary regulation authorities globally to reach such levels of fraudulence.
This was despite the bank being under tight watch owing to the conviction of some of its executives on narcotics laundering charges in the US.
Coast politician, the late Shariff Nassir, would claim that five primary schools in Mombasa lost nearly Sh1 million and appealed to then Education Minister George Saitoti to help recover the savings. Then BoE Governor Robin Leigh-Pemberton condemned it as so deeply immersed in fraud that rescue or recovery – at least in Britain – was out of the question.
“The culture of the bank is criminal,” he said. The bank was revealed to have targeted the Third World and had created several “institutional devices” to promote its operations in developing countries.
These included the Third World Foundation for Social and Economic Studies, a British-registered charity.
“It allowed it to cultivate high-level contacts among international statesmen,” reported The Observer, a British newspaper.
BCCI also arranged an annual Third World lecture and a Third World prize endowment fund of about $10 million (Sh1 billion in today’s exchange rate).
Winners of the annual prize had included Nelson Mandela (1985), sir Bob Geldof (1986) and Archbishop Desmond Tutu (1989).
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Agricultural Development Corporation Chief Accountant Gerald Karuga on the Spot Over Fraud –




Gerald Karuga, the acting chief accountant at the Agricultural Development Corporation (ADC), is on the spot over fraud in land dealings.

ADC was established in 1965 through an Act of Parliament Cap 346 to facilitate the land transfer programme from European settlers to locals after Kenya gained independence.

Karuga is under fire for allegedly aiding a former powerful permanent secretary in the KANU era Benjamin Kipkulei to deprive ADC beneficiaries of their land in Naivasha.

Kahawa Tungu understands that the aggrieved parties continue to protest the injustice and are now asking the Ethics and Anti-corruption Commission (EACC) and the Directorate of Criminal Investigations (DCI) to probe Karuga.

A source who spoke to Weekly Citizen publication revealed that Managing Director Mohammed Dulle is also involved in the mess at ADC.

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Dulle is accused of sidelining a section of staffers in the parastatal.

The sources at ADC intimated that Karuga has been placed strategically at ADC to safeguard interests of many people who acquired the corporations’ land as “donations” from former President Daniel Arap Moi.

Despite working at ADC for many years Karuga has never been transferred, a trend that has raised eyebrows.

“Karuga has worked here for more than 30 years and unlike other senior officers in other parastatals who are transferred after promotion or moved to different ministries, for him, he has stuck here for all these years and we highly suspect that he is aiding people who were dished out with big chunks of land belonging to the corporation in different parts of the country,” said the source.

In the case of Karuga safeguarding Kipkulei’s interests, workers at the parastatals and the victims who claim to have lost their land in Naivasha revealed that during the Moi regime some senior officials used dubious means to register people as beneficiaries of land without their knowledge and later on colluded with rogue land officials at the Ministry of Lands to acquire title deeds in their names instead of those of the benefactors.

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“We have information that Karuga has benefitted much from Kipkulei through helping him and this can be proved by the fact that since the matter of the Naivasha land began, he has been seen changing and buying high-end vehicles that many people of his rank in government can’t afford to buy or maintain,” the source added.

“He is even building a big apartment for rent in Ruiru town.”

The wealthy officer is valued at over Sh1.5 billion in prime properties and real estate.

Last month, more than 100 squatters caused scenes in Naivasha after raiding a private firm owned by Kipkulei.

The squatters, who claimed to have lived on the land for more than 40 years, were protesting take over of the land by a private developer who had allegedly bought the land from the former PS.

They pulled down a three-kilometre fence that the private developed had erected.

The squatters claimed that the former PS had not informed them that he had sold the land and that the developer was spraying harmful chemicals on the grass affecting their livestock and homes built on a section of the land.

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Naivasha Deputy County Commissioner Kisilu Mutua later issued a statement warning the squatters against encroaching on Kipkuleir’s land.

“They are illegally invading private land. We shall not allow the rule of the jungle to take root,” warned Mutua.

Meanwhile, a parliamentary committee recently demanded to know identities of 10 faceless people who grabbed 30,350 acres of land belonging to the parastatal, exposing the rot at the corporation.

ADC Chairman Nick Salat, who doubles up as the KANU party Secretary-General, denied knowledge of the individuals and has asked DCI to probe the matter.

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William Ruto eyes Raila Odinga Nyanza backyard




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