Top Kibaki era firms now fall on hard times

Few would appreciate the impact of a regime change more than the ‘club of 29’ thought to have been close to retired President Mwai Kibaki.

Through TransCentury, the elite businessmen, who include Michael Waweru, a former Kenya Revenue Authority commissioner-general, were the face of success.

Other prominent personalities include Eddy Njoroge, a former KenGen managing director, and Jimnah Mbaru, the current chairman of the Kenya National Chamber of Commerce and Industry.

Though they were individually successful in their respective careers by 1997 when they formed their chama, it is under President Kibaki’s administration that their collective fortunes soared.

Biggest investment

The crisis at their firm, which is a separate legal entity, may not reflect on their personal finances, but how times have changed.

Earlier this week, Mauritian lender SBM Bank Kenya announced plans to liquidate TransCentury’s biggest investment, East African Cables, for its failure to repay a Sh285 million loan.

This amount is exactly what the firm booked in profits in 2006. It would seem like a small amount to default on, considering the profile of the men behind TransCentury and whose troubles can be linked to the policies of the Jubilee administration.

It is under President Uhuru Kenyatta that Kenya has reported the fastest rate of new power generation.

Millions of households have also been connected to electricity since 2013, nearly tripling the connectivity.

The twin events should have been a boon for EA Cables, which invested heavily in capacity expansion in anticipation that Jubilee would implement its manifesto to connect 100 per cent of households to the grid by 2022.

Yesterday, the company pled its case in public after the suspension of its shares from trading at the Nairobi Securities Exchange (NSE) on Monday.

“The company has continued to actively engage all lenders and has made significant progress to complete the remaining phase, which includes the debt with SBM Bank Kenya Limited,” wrote Virginia Ndunge, the company secretary.

Besides the loans extended by SBM, the firm has other debts in excess of Sh2 billion for which it has had to renegotiate repayment terms.

Equity Bank, which also recorded the fastest growth around the same time as EA Cables, came to the rescue of the cable manufacturer by buying loans that had either fallen due for repayment or were already in default.

It had also sought and was granted debt forgiveness amid the financial crisis that is threatening the cables firm with bankruptcy.
So how did the enterprise owned by business geniuses get here?

A director at Doshi Group, a local company which is involved in cable manufacturing, believes he has an explanation.“All these mega projects have been funded by money from foreign investors who attach conditions to the loans or grants,” said the director who requested that his name not be disclosed so as to not offend the State.

Among the conditions the director alluded to was that any inputs used in projects, such as Last Mile connectivity, are not subjected to import duty.

With that, the floodgates opened to cheap imports, as any reasonable supplier would take the opportunity to maximise on profits. Any projected benefits of the projects on promoting local manufacturing would, as a result, be wiped away.

Removing duty on locally manufactured goods only intended for use in donor-funded power projects would be nearly impossible to implement, as it would likely be abused by the same manufacturers.

The State should have figured out a way to extend the same tax breaks for local manufacturers to enable them to compete with any imports, our source said.

In the last week, local dealers have aired similar sentiments, claiming that foreign contractors were grabbing most of the supply and installation jobs at Kenya Power. This formed wider concerns raised about the dominance of the Chinese in the local market.

It is on this point that the Kibaki men might just have negotiated a way out, seeing as to how their business interests were threatened by importation.

Mr Waweru, the chairman at EA Cables, is believed to have been close to Kibaki, who picked him for the top job at the revenue collection agency.

In this critical position, access to the president is largely unfettered, especially in the present situation where the State needs KRA to mobilise resources to fund ever-soaring national needs.

Mr Njoroge and Mr Mbaru were key players in the Kibaki administration, both landing plum positions in a vote of confidence in their capabilities, as they also doubled as trusted advisors.

The former was appointed to head KenGen, the country’s main power producer, in March 2003 soon after Kibaki formed his first government.

Central figure

Mbaru, on the other hand, was a central figure in the National Economic and Social Council, which was Kibaki’s think-tank for economic reform.

But in an illustration of the changing times, Waweru has repeatedly pleaded with the government to cushion businesses like his from cheap imports, especially from China.

He has had to make his requests for an intervention that would protect local and regional industries through the Foreign Affairs ministry.
“Discuss with the government … measures to be taken to stop Chinese industries from flooding Kenya and the EAC (East African Community) with sub-standard products that have put our products in disrepute. All our investments in making quality products and popularising our products are now in vain,” he said.

According to Waweru’s sentiments, local manufacturers were losing out to Chinese firms that were marketing their fake products as if they were manufactured in Kenya.

It is clear that his prayers may not have received as much attention as he wanted as contraband products keep being seized. In recent months, these goods have been found in retail outlets, while others have been intercepted before they got customs clearance.

Back when he was chairman at EA Cables, Zephaniah Mbugua consistently reported to his shareholders that the company was investing in capacity expansion to take advantage of emerging opportunities.

New connections

It was testament to his conviction that government contracts were theirs for the taking.“We also note with appreciation on-going programmes by regional governments to rehabilitate existing grids, increase new connections and enhance power-generation capacity.

These initiatives have undoubtedly created more demand for our products,” Mr Mbugua told investors in 2010.

Among the opportunities were State commitments made towards grid extension programmes, which would require substantial inputs of cables, the main business of the company.

But with the change in fortunes and regime, business slowed down, hitting the company’s finances and ultimately its manufacturing operations.

Ishmael, the proprietor of Mombasa-based Pwani Cables and Electricals, said working with the firm became “extremely difficult” as orders were hardly ever received on time, prompting him to change suppliers.

He may have been speaking for many other dealers who severed links with the struggling company and moved on to imports or other manufacturers.

TransCentury had earlier in 2006 invested in Rift Valley Railways, which would manage railway operations, a deal it may have secured through its proximity to the owners to the then administration.

Credit: Source link