REVEALED: Strict Rules Under New-look NHIF (SHIF) - Money Weekly News

It is that time of the week again when we take a comprehensive 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.

We start with the recently released Social Health Insurance (General) Regulations, 2023. We shall break down everything you need to know and how SHIF will affect your money. It is worth noting that the 2.75% contribution to the fund by salaried employees will not be capped; hence, high earners will pay much more than the Ksh1,700 cap under the now-defunct NHIF.

Those without salaried income will also be required to contribute at least Ksh300 per month, but they will pay this as a lump sum yearly. In case you are thinking of opting out, the regulations show you will need to be registered for SHIF to access several critical government services.

Elsewhere, the government has proposed to put up some 11 state-owned enterprises for privatisation. This move will see certain parastatals, such as the Kenyatta International Convention Centre (KICC), the New Kenya Co-operative Creameries Ltd (New KCC), and the National Oil Corporation of Kenya, being handed over to the private market.

More on the shrinking employee payslip, the High Court suspended its ruling on the housing levy being unconstitutional up to January 10, 2024, allowing the government to continue collecting the 1.5% levy as the National Assembly regularises the law potentially closing the door on a possibility of a refund or a scrapping of the levy altogether - as many employees had hoped. 

In the farm, tomato farmers are facing a tough time transporting their produce from due to the heavy downpours and floods in some areas, leading to the price of tomatoes tripling. Nonetheless, sugarcane farmers get some relief as sugarcane mills are set to reopen on December 1.

Employment continues to be a headache in the country, with the Federation of Kenyan Employers (FKE) reporting 70,000 jobs have been lost within a year and 40% of employers expressing their intention to cut jobs further.

On investments, more firms listed on the Nairobi Securities Exchange (NSE) are issuing profit warnings. So far, nine companies have done so. This came after the NSE itself issued a profit warning.

Let’s dive in.

Kenya's Social Health Insurance Fund Contributions Draft Released

In its efforts to introduce Universal Health Care, the Kenyan government plans to replace the National Health Insurance Fund (NHIF) with the Social Health Insurance Fund (SHIF).

There is pushback on the reforms proposed by the government on the larger Finance Act, 2023, which houses the overhaul of health insurance in the country. The court has ruled that parts of the Act are not constitutional, including some of the proposed SHIF draft regulations, and has put a hold on its implementation.

Despite this, the Ministry of Health still went ahead and published draft regulations on Tuesday, November 28. Here are some of the proposed SHIF regulations that, if gazetted as is, will affect your money.

• If you are on salary, you will be deducted 2.75% of your gross salary, with another 2.75% contributed by your employer. This will be deducted before your net pay hits your salary account and remitted to SHIF before the 9th day of every month.
• If you are not salaried, you will be required to make an annual contribution of 2.75% of your household income.A determination of your household income will be done by means testing. Your yearly contribution should be made 14 calendar days before the lapse of the period covered by a household's last annual payment.
• The means testing is a proxy that will be determined by surveys that collect household data on household characteristics, household composition, and socioeconomic metrics.
• Those without a salary and who qualify to be regarded as independent households, but are not able to make the annual payment upfront and in full, will receive premium financing from the Ministry of Health and the Ministry responsible for cooperatives and MSMEs in partnership with financial institutions. This financing is essentially a loan that you will have to pay back with interest.
• The advanced loan amount shall be remitted directly to SHIF
• The amount payable by any registered beneficiary of SHIF will not be less than Ksh 300 monthly.
• Any person who has attained age 25 and has no income shall be treated as a separate household and will be required to make the minimum contributions of Ksh300.

The proposed 2.75% deduction is not capped. Initially, the contribution was expected to be capped at Ksh5000, but that has yet to be included in the draft regulations. This means that people in the informal sector will enjoy a 40% reduction in minimum contributions from the current Ksh500 to Ksh300.

However, salaried individuals will start paying much more beyond the current NHIF cap of Ksh1,700. If Ksh1,700 equated to the 2.75% contribution, the gross salary should be Ksh 61,818. Anyone earning more than that will start paying more for their SHIF contributions. 

Nonetheless, if the SHIF would cap the contributions at Ksh5,000, as was initially proposed, this would protect the high earners who make more than Ksh181,818 as gross salary. Anyone making more than this will now pay more than Ksh5,000 in SHIF monthly contributions alone.

Another concern is the provision that public officers or public entities may ask for your social health insurance (SHIF) number as a compliance check before they serve you. That is, you could be denied access to several government services if you are not a SHIF member, or your contributions are not up to date, according to the regulations.

Some of the services that might need you to mandatorily provide your SHIF number include:

• Granting of student loans for higher education
• Appointing persons to hold public offices or confirmation of public appointments
• Procurement of goods and services or asset disposal
• Selling and purchasing of property 
• Acquisition of tax compliance certificate
• Licensing of drivers and motor vehicles
• Registration of a business name, partnership, or corporation
• Issuance of travel permits or passes
• Accessing transfers for social assistance and government subsidy
• Registration of marriages
• Registration of persons

The Ministry of Health has made the draft regulations public and asked the public to submit their feedback before December 12, 2023, 5:00 pm through regulations@health.go.ke. President William Ruto last week said the SHIF would be operational from January 1, 2024.

Kenya Puts 11 State-owned Companies Up For Sale

The Kenyan government has earmarked several government enterprises for privatisation with these plans becoming clear following a notice from the National Treasury on Monday, November 27, announcing the first 11 to be handed over to the private sector. 

Some of the state-owned enterprises marked for privatisation include the Kenyatta International Convention Centre (KICC), Kenya Pipeline Company (KPC), Kenya Literature Bureau (KLB), and National Oil Corporation of Kenya (NOCK).

This move follows the recent signing of the Privatisation Bill 2023, into law granting the National Treasury extensive powers to sell state entities without seeking Parliamentary oversight.

Some of the justifications for this move are to generate additional revenue for the government, reduce reliance on the exchequer for these corporations, and address the entities' poor performance.

The government aims to attract private capital, modernise operations, and bolster profitability by incorporating these entities into the private sector. The President says that some parastatals will be privatised through the Nairobi Stock Exchange (NSE) while others will be sold outright.

Other enterprises proposed for privatisation include Kenya Seed Company Limited, Mwea Rice Mills, Western Kenya Rice Mills Limited, New Kenya Cooperative Creameries, Kenya Vehicle Manufacturers Limited, Rivatex East Africa Limited, and Numerical Machining Complex, Kenya Seed Company, New Kenya Cooperative Creameries, and Rivatex East Africa Limited.

High Court suspends decision quashing Housing Levy

The High Court of Kenya has temporarily suspended its initial ruling declaring the housing levy unconstitutional. The Housing Levy, a component of the Finance Act 2023, deducted from all employees 1.5% of their gross salaries (with an equal match from the employer) since July 2023 is aimed at funding the Affordable Housing Fund. 

The High Court granted a stay to the regulation, allowing the government to file an appeal of the court's initial declaration at the appellate court. The stay has been granted until January 10, 2024.

More Kenyan Banks Defy Tough Times to Register Profit Growth

Kenyan banks continued to release their financial reports this week. Here is a summary of the reports.

Diamond Trust Bank

Diamond Trust Bank (DTB) Kenya reported a 4.3% growth in net profit for the first nine months of trading, reaching Ksh5.99 billion. This growth rate is slower than the 19.1% seen in the same period last year. The profit growth is attributed to a 19.6% rise in net interest income to Ksh20.1 billion. However, the bank allocated more funds for staff payments and potential loan defaults, which led to an increase in operating costs by 40.5% to Sh20.67 billion, affecting profit growth, 

Absa Bank Kenya

Absa Bank Kenya recorded a 14.8% year-on-year growth in net profit for the first nine months to September, reaching Ksh12.3 billion. The growth is attributed to interest income from loans, which rose 33.4% to Ksh39.1 billion. Non-interest income and operating expenses grew consecutively to Ksh10.8 billion and Ksh22.3 billion. Furthermore, Absa reduced its holdings of government debt instruments, focusing on lending to ordinary customers for higher returns. 

Standard Chartered Bank 

Standard Chartered Bank Kenya reported an 11.8% growth in net profit, reaching Ksh9.74 billion for the first nine months of the year, and consequently announced an interim dividend of Ksh6 per share (Ksh2.27 billion). The bank attributes its growth to a 34.6% increase in interest income to Ksh21.2 billion, supported by lending, short-term investments, and improved margins. In addition, assets under management in its wealth management business grew by 21% to Ksh160 billion.

NCBA

NCBA Group has announced a profit growth of 14.4% compared to the same nine-month period to September last year. The profit after tax for the bank was reported at Ksh14.6 billion. The group's regional subsidiaries in Tanzania, Rwanda, and Uganda collectively delivered a profit before tax of Ksh2.3 billion. The profit growth has been attributed to customer deposits, digital loans, and asset growth. NCBA also announced plans to acquire 100% of AIG Kenya Insurance Company, subject to regulatory approvals.

I&M 

I&M Group PLC reported a 13.8% increase in profit after tax to Ksh8.2 billion for the nine months ending September 2023, up from Ksh7.2 billion in the same period last year. The growth was driven by a revenue diversification strategy, with regional businesses contributing 29% to the total operating income, which grew 19% to Ksh29.9 billion. The Group's balance sheet grew steadily, with assets reaching Ksh544 billion.

The Ups and Downs in Agriculture

The past two months have seen tomato prices triple in Kenya. Some of the reasons include low supply because of the rainy and cold weather. Due to the heavy rains, there has been a transportation challenge because of the inaccessibility of some tomato-growing areas. The surge in tomato prices has contributed to a higher annual inflation rate, according to the Kenya National Bureau of Statistics (KNBS) Consumer Price Index.

On the other hand, after a one-month delay, Kenyan sugar mills are set to resume operation on December 1, 2023. This is after the mills were closed for more than four months due to accusations of harvesting immature cane. The sugar industry has faced a severe cane shortage, leading to reduced sugar production and higher prices. The government has resorted to increased sugar imports to address the supply deficit. 

Additionally, Eaagads, a Kenyan coffee grower, has attributed its poor performance to government-led reforms impacting direct coffee sales. Eaagads has reported a 99% drop in sales revenue from Ksh158.9 million last year to Ksh1.1 million for the six months ending September 2023. This drop in sales has resulted in a Ksh33.1 million loss compared to a profit of Ksh37.2 million last year.

Employment Continues to Dwindle Amid Tough Economic Times

Over 70,000 jobs were lost in the formal private sector between October last year and November this year, according to the Federation of Kenya Employers (FKE). This unprecedented job loss has been attributed to a challenging business environment, increased costs, and shrinking returns. Additionally, approximately 40% of employers plan further staff reductions.

FKE President Habil Olaka states that the cost of doing business has become unsustainable since the enactment of the Finance Act 2023, with adverse effects on cash flows and financial positions of enterprises.

In even grimmer job loss news, the Ministry of Labour has summoned the management of Ashton Apparel (EPZ) and Mombasa Apparel (EPZ) for a meeting scheduled on December 7, 2023 over a redundancy notice they issued to 7,850 employees on November 21. According to the notice, the two companies plan to lay off the notified employees on December 23. 

The Labour Ministry is seeking clarification on the layoff and payment of staff dues from the two EPZ companies said to be owned by a single investor and are in the middle of an asset transfer agreement with Gokaldas Exports Limited.

Positively, Co-operative Bank of Kenya has expanded its staff by 457 in the last 12 months, reaching 5,249 employees by September, compared to 4,792 the previous year. The increase in headcount is attributed to the bank's continued branch expansion in the country, with a branch network of 193 by the end of September, up from 181 in the same period last year.

More employment headwinds abound, however, as Bolt Kenya - a digital ride-hailing platform -  in an effort to enhance its safety features and measures, has dismissed over 5,000 drivers in the last six months. The company has dedicated over Ksh20 million to bolster safety initiatives, including an awareness and training program, stricter compliance measures, and advanced reporting mechanisms. Bolt also introduced a selfie check feature in April, prompting drivers to verify their identity with a selfie before offering services on the platform.

Kenya Continues to be Tough Ground for Investors

Crown Paints and WPP Scangroup have joined the list of companies listed at the Nairobi Securities Exchange (NSE) issuing profit warnings, bringing the total to nine for the year. These firms, including Longhorn Publishers, Sasini, Car & General, Nation Media Group, Centum Investment Company, Unga Group, and Kenya Power, anticipate lower earnings, mainly due to a challenging operating environment with increased business costs. 

This is coming at a time when the Kenyan Treasury has increased compensation for investors who lose money when a brokerage collapses from Ksh50,000 to Ksh200,000. The move is intended to boost confidence in the stock market. 

Other News In a Snapshot

• The Employment and Labour Relations Court has blocked the Salaries and Remuneration Commission (SRC) from abolishing the non-practice allowance for public servants, ruling that the SRC overstepped its mandate. 
• Despite soaring prices and economic challenges, Kenyans registered 25% more vehicles in the first nine months of the year compared to last year, with 72,982 vehicles registered, according to the Kenya National Bureau of Statistics. The number is the highest since 2019. 
• The Kenya Mortgage Refinancing Company (KMRC) recorded a 69.03% decline in the uptake of affordable home loans in the nine months to September, with 606 mortgages compared to 1,957 in the same period last year. KMRC, a joint venture of the National Treasury and private lenders, offers funds to participating banks and Saccos for lending to homebuyers at a fixed annual interest rate of 5%, aiming to make homeownership more accessible.
• President William Ruto has announced plans to sign the Startup Bill 2022 into law by April 2024, aiming to bolster the country's startup ecosystem. The bill, in development since 2021, seeks to provide tax breaks, credit access, and a support platform for startups, fostering innovation, job creation, and investment.