Uganda Bank Group Faces Challenges

FOLLOWING the recent acquisition by the Exim Group of 58.6 per cent of the former Imperial Bank of Uganda, Exim Bank has said that there will be no job losses at the Ugandan bank, renamed Exim Bank-Uganda.

Exim Bank-Tanzania Chief Finance Officer Suleiman Ponda told Business Times in an exclusive interview that the immediate intervention will be alignment of the bank to the Exim Group, headquartered in Tanzania.

“There will be an alignment of operations, as well as improvement of the Uganda subsidiary’s infrastructure and branches network,” he told Business Times in a telephone interview – adding enthusiastically that “the staff had exhibited an exceptional spirit to the cause of the bank during the period of transition!”

Exim Bank announced the acquisition this week, after the Ugandan bank had been under receivership of the central Bank of Uganda (BoU).

BoU placed the former Imperial Bank Uganda under receivership in October 2013, following a similar action on the parent company by the Central Bank of Kenya (CBBK next-door as accounts of fraud at the lender surfaced.

However, speaking during the acquisition announcement, Ponda said Exim Bank Tanzania Limited (“Exim Bank”) carried out a rigorous due diligence of the bank before buying the stake.

He told the media this week that the acquisition process was completed under purview and supervision of Bank of Uganda.

Following the acquisition, Exim Bank now holds  the majority stake in the newly formed Exim Bank Uganda Ltd, while ‘Amazal Holdings’, the prestigious ‘Mukwano Group’ having diversified business interests within and outside Uganda, holds 36.5 per cent share and the rest 4.9  per cent by Export Finance Ltd.

The bank – which was founded as Imperial Finance & Securities Company Ltd, and commenced operations as a financial institution in 1992 – had 28 branches in Kenya, and five in Uganda.

 “I am happy and excited to announce that Exim Bank has established its foot print in Uganda, in partnership with one of the most eminent and largest business groups in the country,” Ponda bubbled with enthusiasm.

 “There could not have been a more opportune time to make entry into Uganda through such an alliance, when the EAC (East African Community) itself has been actively engaged in leveraging the capacity of all the Community’s member countries in the Region,” added Ponda.

Exim Bank – the largest indigenous Bank in Tanzania – is completing 19 years after its establishment, having started operations with one branch in Dar es Salaam in August 1997!

The bank now has 37 branches at strategic centres across Tanzania, as well as two Subsidiaries overseas. The Bank’s Total Assets were at Tsh1.250 trillion (around US$580 million) as on December 31, 2015 with Shareholders Funds of nearly US$90 million.

Exim Bank-Tanzania has two banking subsidiaries in the Comoros and Djibouti, with the 3rd having been established in Uganda recently!

“The bank has traversed a cherishing journey having faced the nuances of an indigenous bank, and coming out with flying colours, always.  It makes us proud to be continually recognized as ‘One of the Most Innovative Banks in the Region,’” Ponda stated.

Exim Bank-Uganda shall have the privilege of making a strong beginning with a set of five well-established branches in Kampala, and an asset base of nearly $100 million.

Headquartered along Hannington Road with a branch at the ground level, the bank has more than 100 dedicated, loyal staff.

“We are proud to have such a bunch of committed staff,” Ponda stated, adding:  “we are also very thankful to both the Bank of Tanzania and the Bank of Uganda for their worthy approval and valued support in this landmark beginning.”

The expansion will enable Exim Bank to strengthen its presence across East Africa, thereby fulfilling its vision to become a strong regional player – and, in the process, creating a powerful platform for future growth in the region.

Exim Bank has once again exhibited a penchant for spotting the right opportunity. Businesses on both sides of the border are expected to give a thumbs-up to the bank for raising their confidence to explore upon a plethora of opportunities on cross-border trade between the two friendly nations within the East African Community.

Exim Bank has to its credit several pioneering initiatives – the salient being the launch of the first-ever Credit Card in Tanzania way back in the year 2005, doing so in affiliation with MasterCard International.

Exim Bank posted stellar financial performance for the Year-2015, with the bottom line, profit-after-tax, posting a record growth of 80 per cent over the previous year: Tsh30.666 billion (US$14 million).

The Uganda Central Bank Governor, Prof Tumusiime-Mutebile, was recently quoted as saying that the sale of the Imperial Bank stake to the Tanzanian multinational has effectively ended the regulator’s statutory management.

Imperial Bank-Uganda was yet to record a profit, having sunk deeper into the red with a loss of Ksh671.1 million as of December 2014 — up from Ksh63.5 million the year earlier! The bank had commenced operations only in January 2011!

In 2012, the Imperial recorded a loss of Ksh1.7bn. The bank’s Non-Performing Loans (NPLs) stood at Ksh9.12bn in 2014, down from Ksh11.3bn in 2013.

On Oct.13, 2013, the Bank of Uganda – the regulator of the banking industry – announced that it had “temporarily” taken over the management of Imperial Bank-Uganda as a “precautionary measure” to protect customers’ deposits.

By the end of 2014, the Imperial Bank’s core capital had shrunk to USh24.1 billion. However, shareholders – who included the Mukwano Group and the Imperial Bank of Kenya – saved the bank’s capital from further depletion and possible BoU sanctions with an injection of USh2.3 billion from issuing 2,300 ordinary shares of Ush1m each in January 2015. This brought the bank in line with regulatory requirements.

Tanzania Declines Outside Aid

Tanzania’s Finance & Planning Minister Philip Mpango left a few observers somewhat perplexed lately when he seemed to say that he won’t be looking for aid from outside!

At some point, someone said the next government budget for the 2016/2017 financial year is likely to be 80 per cent self-reliant – which, on the basis of economic events taking place, didn’t quite clash with the Minister’s affirmation.

The point is: there is aid that is likely to flow in by itself… Or, if one prefers, investments by various multilateral banks and Funds, not more – and they don’t wait for phone calls!

There were reports of new loan arrangements from the African Development Bank (AfDB). But, it is uncertain how much of this stemmed from the Minister’s efforts – or it is now the AfDB which is looking for ways of engaging with Tanzania, that is: investing in the country!

Not much has so far been heard of Tanzania’s traditional development partners – apart from AfDB and the World Bank, which can predictably act on their own.

Several others are bilateral aid organisations which need to be sounded out, perhaps by NGOs this time around, as it seems!

How far this is the mood across the whole of the government is so far uncertain – as it depends on how rapidly they can complete acceptable Budget proposals for the national Legislature, with the month of May as the deadline, without having to actively seeking out bilateral aid agencies.

So far, however, the government has been able to vastly improve the potential flow of development expenditure compared to the past, and it is this sphere which more or less depended on foreign aid for years! Aid fatigue, rising gold earnings led to some rethinking.

While the much-vaunted gas economy is not coming ashore as rapidly as many would wish, the Budget mentality – tied up with a gas economy – is more or less in place: the whole idea of questioning whether Tanzania is a poor country!

Still, it isn’t what Tanzania has in the ground which makes it less poor than before but what it can collect in revenues, and how far this meets basic or reasonable expectations among the people. MPs won’t settle for less than that!

Tanzania’s place on the global natural resources map has been wobbling, what with divestment in the gold sub-sector owing to declining prices, declining yields and aggressive taxation both at the central and local government levels.

At present, with key mining companies having become more localised as Acacia took the place of Barrick Gold-Africa, and the State Mining Corporation (StaMiCo) trying to fill the vacuum left by other divestments, the picture is different. The gold tag is shifting to lower levels, while the gas label is sticking!

Reports on even greater discoveries of natural gas potential or confirmed reserves only helped to boost the country’s investment picture in the area, with little or no budgetary impact at the moment.

That – and capital gains tax (CGT) from the sale of British Gas to Shell, which no one knows if it will clock the potential US$200m some think it will, or shoot above that figure. And it now seems Tanzania is a bit conservative in the capital gains tax slot at 20 per cent. Kenya’s rate shot from a mere 5-to-35 per cent, while Uganda’s rate stands at 30 per cent!

Analysts are still baffled at the manner in which Kenya’s policy stance has shifted – and how this squares up with existing scenarios for East African integration. The latest Summit meeting of Heads of State had some peculiar ideas both for strategies of integration and the budgetary picture as it emerges, as the presidents seem to be converging on the idea of eliminating secondhand clothing imports. The reasoning for such a move is a bit easy to sketch out, but at East Africa level, rewinds sore issues of which local industries to protect!

While the Heads of State seemed to be thinking that employment was the key reason why secondhand clothing should be removed from the East African market so that the zone can use its cotton to develop its internal clothing industry, the dangers were lurking in the corner. It was clear that selling used clothing is such an important anchor of urban life in Tanzania (and elsewhere in the region) that touching it with a ban could easily spark riots.

The government was still smarting from its move to ban cheap sugar from outside, and then blame traders for hiking the price!

The new protectionist mood in East Africa seemed to augur badly for the completion of moves to cement the European Union’s Economic Partnership Agreement (EPA) with the EAC, already signed in late 2014. The grace period before making budgetary reckoning is mid-2016 – and. we now see a sort of volte face!

As if the Heads of State were listening, retired Tanzania President Benjamin Mkapa took up an invitation to the University of Harare where he delivered a lecture blasting plans to reach an economic partnership accord with the EU!

The more enthusiastic partner states were Kenya and Rwanda, with Uganda a fellow traveller while Tanzania has always been cool to the project – but signed on the bottom-line back in November 2014! It was the same period that the idea of an East African Monetary Union by 2024 was also formally endorsed!

Yet, there is a ‘Mazruian’ situation that comes up, in having a less liberal EAC policy outlook forming a new framework for integration, as it risks bringing the EAC itself to collapse, when each country starts protecting its cloth, tyre and other factories.

The government of Tanzania has released money not just to purchase the 26 per cent shares held by Continental-AG in the Arusha-based General Tyre (EA) factory. It will also be pumping large amounts of money in to revamp it. That means it also lays the rule as to which tyres are sold on the local market: its own first!

As the EAC partner states are sugar importers in the main, rising protectionism may not change things on the ground, although it brings up strenuous policy issues at the local level, especially with regard to inflation. With the inflation rate standing at 6.5 per cent for one or two months now, it is unclear if the pricing of sugar will remain the same when current stocks dry up and new ones are sold. Ministry officials seem to suggest that local producers aren’t hiking prices but it is traders!

In that context, a less liberal government in Tanzania is influencing other countries in the sub-region to practise less liberalism, seek what are usually called ‘local solutions,’ instead of being given policy slates from the EU and the World Bank to follow.

But, precisely on that account: why should East Africa itself have a Common Market, organised on the basis of competition of firms and not planning at a sub-regional level as this failed in 1965? Is it relevant?

Just as there is no panacea for illiberal policies at the local level which reduce the market sphere in favour of planned economy – protecting local industries – so will it be for the sub-region. The sugar firms will have the market to their bidding for a while… But, if they hike prices (as they have always wished) against cheap (or ‘silly’) foreign sugar, it will boomerang.

Cabinet changes will follow, and that won’t be just the restoration of formal liberalism but other ‘vices,’ too!

Airline Shareholders Revolt

IT CLEARLY seems that the days are numbered for the Fastjet Chief Executive, Ed Winter, to stay at the job after one of the low-cost airline’s shareholders initiated moves to oust him – apparently because of below-average performance and the waning of profits in recent times!

Sir Stelios Haji-Iaonnou, the EasyJet tycoon who invested in the Fastjet airline in 2012 is now calling for immediate ouster of the company’s CEO.

The Guardian, a UK-based world-famous newspaper, reported this week that Sir Stelios has repeatedly called for Winter to leave the company immediately rather than wait until a successor is found, as currently planned.

Ed Winter said in January he would step down when a replacement was found. But Sir Stelios has called for him to leave immediately.

To that end, Sir Stelios last week called for a shareholders meeting to oust Winter, whom he blames for the firm having run out of money.

He believes that the operating costs are too high for an airline with just six planes – and has blamed senior management for high spending, virtually ‘burning’ cash!

“Fastjet has a bloated cost base – which was created by Ed Winter and his staff. The only way to reduce the overheads is for Ed Winter to leave the company now – and the Chairman to start serious cost-cutting,” Sir Stelios was quoted as saying this week by The Guardian- UK.

Indeed, Ed Winter announced last month that he was stepping down – but planned to stay on with the company until 12 months after it has appointed a replacement!

However, Stelios wants him to leave at once, partly because of what is seen as unnecessary expenditure amounting to about 80 million pounds over the last three years.

“We do not consider that the current open-ended arrangement whereby he remains as CEO until a successor is found – and then remains on as a consultant for a period of one year – is conducive to cost-cutting,” Sir Stelios argued last month… Adding that, “whilst he remains a Board Director, he will obstruct any cost-cutting!”

Seemingly hammering the nail home, the tycoon revealed that “Ed Winter has refused to diverge from a completely flawed strategy of locating all top management and central functions at Gatwick Airport – near his own home!”

All this comes after Fastjet announced in January this year that its results for the year would be well below market expectations.

Analysts now forecast a US$20 million loss in 2016, compared with a $1.4 million profit in the previous year!

The company’s ambition was to carry more than 12 million passengers a year by cashing in on demand for regional travel from a fast-growing African middle class. But, it has taken longer than expected to set up hubs in countries such as Zambia and Zimbabwe.

Sir Steliois was recently reported as claiming that, if Ed Winter stayed, the CEO would “obstruct” cost-cutting – and blamed the clearly beleaguered Fastjet boss for the airline’s “ridiculously high cost base!”

Liberum, the air carrier’s house broker, forecasts that Fastjet will post an adjusted loss of US$35.3m for 2015 – and a marginal profit of $1.4m this year.

For his part, however, Sir Stelios argued that those estimates – which were arrived at based on Fastjet’s guidance, anyway – were “unrealistic!”

“The Board must move to guide the market on costs and revenues for 2016 as soon as possible, as this cannot happen with Ed Winter in place as CEO,” Stelios stressed.

Fastjet has been hit by the uncertainty caused by last year’s closely-fought presidential election in Tanzania, its largest market. This has led to a downturn in demand for flights.

Sharp falls in the exchange value of the Tanzanian shilling and the Zambian kwacha have also hurt the low-cost airline’s finances.

Now, the airline says it may need to raise funds this year after low demand for flights forced it to issue a profit warning in less than three months!

The company’s shares also plunged more than 40 per cent last week — thereby taking their fall in the past year to more than 70 per cent! The airline is listed with the London Stock Exchange (LSE).

Difficult market conditions in the African airline industry have lasted longer than the Management expected, Fastjet said in a trading update. Results this year will be worse than expected and the company does not expect to generate any cash in 2016!

“The challenging market conditions affecting much of the African aviation industry have been a lot more prolonged than the Management originally forecast,” Fastjet said in a statement.

The airline’s profit warning comes after many global carriers reported strong results in 2015! The International Air Transport Association (IATA) said global passenger traffic rose 6.5 per cent in 2015 – the biggest increase since 2010!

Fastjet said it had more than US$20m of cash available at the end of February this year, and that it had enough to meet operational requirements. But the company also said that it might seek to raise further funds later in the year!

In December last year, Fastjet blamed low demand for travel in its main market of Tanzania, as well as weak African currencies, for lower-than-expected revenues.

The company said that, “based on current Management forecast, the Board expects the results for 2016 to be materially below market expectations – and the group no longer expects to be cashflow-positive for the year.

“The Board may consider raising further funds during the year to provide additional headroom and ensure the company has the necessary resources to fund future growth as market conditions improve,” the statement says.

The company has announced it does not expect to be cash flow-positive this year due to the challenging conditions in the domestic aviation market.

Efforts to expand into Zimbabwe last October increased the challenges, causing Fastjet to issue two warnings on its 2015 revenue – and announced plans to cut capacity and costs.

The airline reported this week that it will start closing routes after burning through cash in its efforts to become the first pan-African discount airline, predicting 2016 earnings will fall “materially” below analysts’ estimates!

Analysts had been anticipating a pretax profit of $1 million this year following a loss of $35 million in 2015, for which FastJet has yet to report figures, based on the average of two estimates!