Govt Presses On With Affordable Housing Plans - Money Weekly

It is that time of the week again when we look at the news headlines over the last seven days and dissect those that can affect your money. 

Welcome to yet another edition of Money Weekly from Money254.co.ke

This week:

• The Ministry of Lands, Public Works, Housing and Urban Development has published  the Draft Affordable Housing Regulations 2024 that will govern how the affordable housing project will be undertaken. 
• Fuel prices dropped for the fifth month in a row on the back of a recovering shilling, giving relief to motorists and electricity consumers.
• Public servants' allowances account for 40% of the wage bill. The recently concluded Wage Bill Conference resolution was to reduce the national wage bill to match the constitutional cap of 35% of the country's annual budget.
• The Energy and Petroleum Regulatory Authority (EPRA) has been conducting tests on liquefied petroleum gas (LPG) storage and filling stations to assess their adherence to safety standards and government regulations.
• Non-performing loans are on the rise, prompting banks to set aside more money to cater for loan defaults. Banks have even resulted in loan restructures and write-offs to mitigate the situation.

For this and much more. Let’s dive in.

What You Should Know: Affordable Housing Act Draft Regulations 2024

After a protracted legal battle and political opposition, President William Ruto’s Affordable Housing project is on track with the Ministry of Lands publishing the draft regulations this week. 

Here are some of the regulations contained in the draft Affordable Housing Regulations 2024 that you should know about;

• Every citizen shall be required to pay 1.5% of their salary or gross income as the Affordable Housing Levy.
• Employers shall deduct and match the said amount and remit it to the Fund.
• The Cabinet Secretary of the National Treasury has the power to issue exemptions to payment of the Levy where necessary.
• The levy should be remitted to the Fund before the ninth of every month, failure to which a penalty of three percent (3%) per month will be imposed on the amount that remains unpaid.
• The Affordable Housing Fund will be managed by a board whose mandate is to oversee the development of affordable housing and associated social and physical infrastructure.
• Every county will have a County Rural and Urban Affordable Housing Committee that will coordinate with the National Affordable Housing Board.
• The Board can contract with private institutions to develop and construct affordable housing units or supply goods and materials used in the construction.
• While undertaking the construction, the Board has to ensure they use locally available material, ensure labour is sourced from local communities, and prioritise internships for students from a nearby university or technical vocational institution.
• To be eligible for a house, you have to make an application to the Board. The applications should be accompanied by proof of requisite deposit, copy of national identity card, a copy of  Kenya Revenue Authority's (KRA) personal identification number (PIN) and a tax compliance certificate.
• In allocation of houses, the Board shall give preference to marginalised persons, vulnerable groups, youth, women, and persons with disability.
• The interest on a loan taken under the Affordable Housing Act is payable on a reducing balance.
• One can also make voluntary savings to the Fund to raise a deposit for an affordable housing unit.
• Once a housing unit has been assigned to an individual, the individual may not sell or transfer ownership of the property without prior written consent from the Board.

Relief as Fuel Prices Drop

Fuel prices have been dropping for the last five months consecutively, thanks to the recovering Kenyan shilling against the dollar. In a recent announcement, the Energy and Petroleum Regulatory Authority (EPRA) announced a further drop in pump prices. 

Super petrol in Nairobi fell from Ksh199.15 to Ksh193.84, while diesel fell from Ksh190.38 to Ksh180.38. Furthermore, kerosene prices dropped by Ksh18.68 to Ksh170.06.

Fuel prices dropped despite an increase in the price of fuel in the international market. The strong recovery of the shilling has been a significant factor in reducing prices. In last month's calculations, the regulator used an exchange rate of Ksh148.02 compared to Ksh133.54 used in this month's calculations.

Moreover, the reduction in fuel prices has also led to a reduction in electricity prices. Household electricity prices will drop by Ksh3.3 (13.7% drop) for a unit of power to cost Ksh20.96 compared to last month's Ksh24.3.

Public Servants Allowances

In the three years ending June 2023, public servants took home an average of Ksh416 billion in allowances per year, accumulating to Ksh1.25 trillion in total allowances earned over the period. 

Government data shows that for every Ksh1,000 that a public servant earned, they received Ksh400 in allowances. 

In the year ending June 2023, public servants' allowances amounted to Ksh440 billion, while their basic salaries amounted to Ksh660 billion. Therefore, for every Ksh1.5 that a public servant earned, they were paid Ksh1 in allowances. 

The bulk of the allowances that made up the Ksh1.25 trillion went to:

• House and commuter allowance: Ksh600 billion
• Hardship and Annual leave allowance: Ksh200 billion
• Travel: Ksh125 billion
• Other remunerative and facilitative allowances: Ksh324 billion

However, this might not be the case for long after the just concluded National Wage Bill Conference 2024, where the Salaries and Remuneration Commission (SRC) committed to getting the wage bill to under 35% of the country's annual budget by 2028. President Ruto, in the same conference, asked for a speedup of the goal to 2027.

Here are the resolutions from the conference:

• All ministries, departments, and agencies (MDAs) must revise their action plans to lower the wage bill to 35%.
• County Executive Committees (CECs) are required to revise their action plans to achieve a wage bill-to-revenue ratio of 35% by June 2024.
• All institutions are directed to review and streamline their staff structures.
• The Salaries and Remuneration Commission (SRC) will supervise the removal of redundancies and overlapping responsibilities between national and county governments.
• All government entities must transition their payrolls to the new HR system by June 2025.
• The SRC will initiate a crackdown on public servants with fraudulent certificates, requiring them to reimburse all earnings obtained through such certificates.

LPG Plants Under Scrutiny

In the period between July and December 2023, the Energy and Petroleum Regulatory Authority (EPRA) conducted routine compliance tests on 18 liquefied petroleum gas (LPG) storage and filling stations. Of the tested LPG storage and filling stations, only 65.3% of them passed the threshold. One third (34.7%) failed to meet the required standards.

Among the things that EPRA was testing for were emergency preparedness, risk management, maintenance and safety.

EPRA also conducted the test on bulk LPG road tankers and found them to have an 82.07% compliance level.

The report by EPRA comes months after the February illegal filling station explosion in Embakasi that claimed the lives of 10 people and closure of 49 unauthorised filling stations

Bad Loans Soar

Loan defaults soared in 2023, necessitating banks to increase their provisions for projected credit losses. In the year ended December 10, Kenyan listed banks set aside a total of Ksh120.8 billion for loan provisions, which was a Ksh46.6 billion increase from the previous year’s provisions, which totaled Ksh74.1 billion.

These provisions were as follows:

• Equity: Ksh35.5 billion
• KCB: Ksh33.6 billion
• DTB: Ksh10.3 billion
• Absa: Ksh9.2 billion
• NCBA: Ksh9.1 billion
• Stanbic Bank Kenya: Ksh7.2 billion
• I&M: Ksh6.8 billion
• Cooperative: Ksh5.5 billion
• Standard Chartered: Ksh3.3 billion
• Housing Finance: Ksh300 million

According to Absa Bank Kenya Chief Finance Officer Yusuf Omari, loan defaults have become more prevalent due to the tough macroeconomic environment brought about by high interest rates, higher taxation, and the inaccessibility of foreign exchange.

Banks have also taken the initiative to address the bad loans through write-offs and restructures. An example is that Absa has restructured Ksh2.1 billion worth of loans, while NCBA Group has written off loans amounting to Ksh12 billion.

Investor News Round Up

Treasury Bills Interest Rates Fall

Interest rates on Treasury bills have dropped in the last weekly auction. The biggest drop was the 91-day Treasury bill, which fell from 16.72% to 15.73%, followed by the 364-day Treasury bill, which fell from 16.98% to 16.53%. The 182-day Treasury bill fall was negligible but stood at 16.86%. 

The 91-day Treasury bill interest drop is the largest experienced in the last 9 and a half years. 

This trend indicates that interest rates on government securities are set to come down. The fall in rates has been instigated by the improved government’s fiscal outlook, especially after the partial refinancing of the $2 billion 2024 Eurobond.

Bonds Maturity Falls

The average time for bond maturity dropped in January to 7.8 years from 8.9 years in the same period last year. The reduction in maturity period is a result of the government issuing more short-term bonds amid a rise in interest rates. Nonetheless, this trend points to increased refinancing pressure on the government.

NSE Wealth Drops as Investors Take Profits

Wealth on the Nairobi Securities Exchange (NSE) dropped by Ksh127.4 billion in the last two weeks on profit-taking by investors. The market capitalisation that had reached a one-year high in March at Ksh1.84 trillion dropped to Ksh1.712 trillion. Experts attribute this drop to profit-taking by investors after bank shares, which are some of the stocks that rose in value significantly in the year leading to March 2024, started falling in value.

Retail Investors’ Share of Government Debt Grows

In the last three years, retail investors have grown from being the smallest lending segment to the government to the third, trailing only commercial banks and pension funds while surpassing insurers and parastatals. Here is how the share of government lending stood as of April 5.

• Commercial banks: Ksh2.41 trillion
• Pension funds: Ksh1.54 trillion
• Retail Investors: Ksh658.32 billion
• Insurers and parastatals: Ksh650.96 billion

Retail investors consist of self-help groups, private companies, educational institutions, religious institutions, saccos, and individuals.

Government News Round Up

KRA’s Move to Curb Tax Loophole

Kenya Revenue Authority (KRA) is set to install a new transfer pricing database. The database will enable KRA officers to have a more transparent picture of the transactions made by multinationals in a bid to seal loopholes for tax evasion. 

Transfer pricing is an accounting practice where companies charge other divisions or subsidiaries of the parent company for goods and services provided. The practice is lawful and many firms use it for tax savings purposes; however, the practice can also be abused to dodge taxes.

CBK To Regulate Credit Guarantee Companies

The National Treasury has expanded the Central Bank of Kenya (CBK’s) mandate to have the apex bank regulate credit guarantee companies. Credit guarantee companies are businesses that guarantee a lender by absorbing the lender’s credit risk in the event of a default. In the new mandate, the CBK shall be expected to:

• Issue new licences to credit guarantees businesses
• Designate capital adequacy standards and other requirements
• Prescribe minimum liquidity requirements
• Outline permissible and prohibited activities
• Oversee the integrity of the credit guarantee businesses

Treasury to Keep Bailing Out Kenya Airways

Kenya Airways (KQ) has confirmed that Treasury has made a written commitment that it is standby to support the national carrier as it implements its recovery programmes to improve its financial performance. The airline has been experiencing delays in securing a strategic investor. 

However, the commitment by the Treasury is a U-turn from the pledge in the 2023 budget policy statement, which indicated that the government was committed to developing a turnaround strategy for the airline but without a financial plan.

Agriculture News Round Up

UK Waives Flower Exports Duty 

The United Kingdom (UK) has suspended trading tariffs for importing flowers. This move is most likely going to benefit countries like Kenya, where the farmers are expected to take advantage and export more flowers, increasing their earnings. The 8% tariff suspension is expected to last until June 2026, with the possibility of extension before the lapse date.

Kenyan cut flowers dropped to a five-year low in 2023, amounting to Ksh73 billion compared to Ksh104 billion in 2022.

Poultry Farmers Protest Against Open Market 

Through the Poultry Breeders Association of Kenya (PBAK), poultry farmers are protesting the push by the United States (US) government to open Kenya’s market to finished agricultural products. The push by the US government is being done under the proposed US-Kenya Strategic Trade and Investment Partnership (STIP).

Increased Milk Production

The first quarter of 2024 saw a 27.7% increase in milk purchased by processors from farmers to 216.6 million litres. The Kenya Dairy Board data shows that this is also a significant increase compared to the 169.6 million litres bought last year in the same period. Increased rainfall made fodder more affordable for farmers, resulting in more milk production.

Tea Prices Fall

Tea is facing a price fall as the beverage is being rejected over quality concerns and increased competition from other producers. Nonetheless,  tea production has been on the rise owing to the October rains last year and expected to increase due to the ongoing rains.

Between January and April, the volume of tea presented at the Mombasa auction increased by 20.7% compared to the same period last year. Jumping from 120.53 million kilograms to 145.5 million kilograms.

The price of tea in Sale 14 averaged $2.18 (Ksh283.4) per kilogram, which is a 6.8% drop compared to the same sale last year, which averaged $2.34 (Ksh304.2), according to data from Tea Brokers East Africa Limited (EATBL).

Other News in a Snapshot

Diaspora Remittances: Diaspora remittances in march grew by 5.7% to $407.8 million (Ksh53.2 billion) compared to February. However, this was lower than this year's highest month in January, which was $412.4 million (Ksh 54.4 billion) Compared to the same period last year, this month's remittances grew by 14.2% from $357 million (Ksh46.5 billion). The US was the largest source of remittances. Furthermore, remittances remained the major forex exchange earner for Kenya.

Classification of Green Economic Activities: The Central Bank of Kenya (CBK) has published the draft of the proposed Kenya Green Finance Taxonomy (KGFT). This proposal aims to classify economic activities that can be considered green for the purposes of funding from investors. The CBK is currently seeking input from interested stakeholders to help improve the draft.

Increased Seed Demand: The Kenya Seed Company is targeting to produce 50 million kilograms of maize seed as it expands its acreage under maize seed production from 36,000 to 41,000. This comes amid increased seed demand from farmers. The Kenya Seed Company has, however, warned farmers against fake seeds in the market and urged them to be more vigilant to avoid being duped.

Access to Financial Services: A study conducted by Tala, a digital lending firm, has shown that there exists a gender bias against women when accessing financial services such as loans. Additionally, more men use a bank account regularly compared to women. According to Tala’s General Manager, Annstella Mumbi, “Should these numbers be anything to go by? As players in the credit market, we must intentionally equip our female customers with knowledge and skills to enhance their strategic business ability.”