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Macro Thoughts

Home Thoughts

“Did you know we know we are all the object of another's
imagination?”― Carlos Fuentes

“... for I had reached a point in my life when I came to view words
differently. A closer look at language could reveal the secret of
life.” ― Ngũgĩ wa Thiong’o, Wizard of the Crow

“Your own actions are a better mirror of your life than the actions of
all your enemies put together.” ― Ngũgĩ wa Thiong’o, Wizard of the
Crow

Banana Leaf Apolo
This casual restaurant on Race Course Road serves its curries on a
banana leaf, rather than a plate. It’s a favorite of British chef Alun
Sperring of the Chilli Pickle restaurant in Brighton, who enjoys the
fish head curry. “This dish has become famous since the ’60s when a
South Indian restaurant owner offered it to entice the local Chinese
clientele,” he says. “The gravy features lots of tamarind, chili,
onions, garlic, tomatoes, coriander, cumin, turmeric and fenugreek
powder served with okra and aubergine and a side of steamed rice. It’s
delicious and as you work through the large bowl of thin gravy expect
a nice burn to build from within.”

Perhaps no event embodies the unyielding abstruseness and the
unforgiving hierarchy of China’s ruling Communist Party as much as its
Party Congress, the government’s most important leadership conference.
Attended by some twenty-three hundred delegates from across the
country, it is held every five years in Beijing’s Great Hall of the
People—and when the weeklong meeting finally begins, one can be
certain that the crucial politicking has already concluded. What
proceeds is a choreographed spectacle bearing fastidiously scripted
speeches, pro-forma elections of what has heretofore been determined
(a leadership reshuffle in the seven-member Politburo, the highest
echelon of power), and, in the case of the 19th Communist Party
Congress, which opened today, high-spirited, propagandistic posters
reminding the masses that “Life in China Is Good! Everyday Is Like a
Holiday!”

This is a message that Xi Jinping, who was appointed President at the
previous Party Congress, in 2012, is eager to instill in a country
that continues to grapple with a vertiginous pace of change and the
outsize influence of politics in everyday life. Xi is almost certainly
guaranteed another five-year term, if not longer. Since taking office,
he has sought to launch the greatest ideological campaign since the
days of Mao. The aim is not so much to bring about a Maoist
revival—the terror of the Great Helmsman’s Cultural Revolution still
haunts the nation—but to reinvigorate belief in and loyalty to the
Party, thereby strengthening the regime’s legitimacy. As he stated
during the last Party Congress, the Party, which must constantly
remain “vigilant,” will always remain “the firm leadership core.”

Xi’s desire to achieve the “China Dream,” defined as the “great
rejuvenation of the Chinese nation,” is categorically distinct, in
scope and ambition, from that of his predecessors Hu Jintao and Jiang
Zemin. Whereas Hu and Jiang were competent if colorless and largely
uninspiring apparatchiks, Xi instantly and aggressively began
consolidating his power, accruing enough political capital to
spearhead the most extensive anti-graft campaign in modern Chinese
history. The choice was a momentous one. When Xi assumed leadership
over the Party, corruption posed the greatest threat to its survival.
In toppling “tigers and flies”—powerful officials and lowly
bureaucrats—he both burnished his image as a model of rectitude and
strategically ousted potential competitors.
Earlier last year, the Communist Party anointed Xi as a “core” leader,
granting him a level of authority that had not been bestowed on his
immediate predecessor, Hu, and advancing him to the revered ranks of
Mao and Deng Xiaoping. Already the head of the Party, the military,
and the state, Xi has also made himself the head of several
commissions, which allows him to weigh in on everything from economic
reform to state security to cyber issues. To be the core leader and
the chief executive licenses him to play an almost imperial role in
shaping the fate of the nation. As Xi has made clear from the outset,
he is intent on both defining a new world order and restoring to
Chinese culture its former esteem.

Yet Xi’s mission should be regarded in the context of a collective and
profound post-traumatic stress disorder, the result of almost two
centuries of cataclysmic events in China, beginning with the
devastation of the Opium Wars, which exposed the country for the first
time in its history to a superior force—Great Britain—and shook the
very meaning of Chinese identity and its inherent sense of
exceptionalism. Xi, and many others in China, long for an era when the
country occupied the pinnacle of civilization. But those days were
accompanied by the absolutism of emperors whose levels of competence
were a matter of caprice. The feudal system protected the cycle of
dynastic succession, which propped up the despotism of those both fit
and unfit for office. For every Tang Taizong, who ushered in the
golden years of the Tang Dynasty, there were many others like Empress
Dowager Cixi, who usurped the throne, crippled the path of progress,
and contributed to the downfall of the Qing Dynasty.

As Xi made clear today, during his three-hour address to the Party
Congress, he sees this moment as “a new historic juncture in China’s
development”—and himself as the man to seize it.

Refining his personal control rather than reforming a sclerotic system
may seem expedient for Xi, and, in the short term, he may be able to
accomplish his immediate goals faster. But setting the precedent of a
modern-day emperor ensnares Chinese politics in a cycle of volatility
and unsustainability that renders an entire nation vulnerable, once
again, to the whimsy of an individual. “Several thousand years ago,
the Chinese nation trod a path that was different from other nations’
culture and development,” Xi said in a speech to the Politburo in
2014. “We should be more respectful and mindful of five thousand years
of continuous Chinese culture.” Xi’s vision for China’s future
suggests a great leap backward, in which old lessons remain unlearned.

China’s parabolic rise has been simply breath-taking. Millions of
Chinese have been lifted out of poverty and China continues to expand
at a pace that other big economies can only dream about. Xi Jinping’s
One Belt One Road [OBOR] program binds the world to Beijing because
all the roads and railways have but one destination and that is China.
Washington has metastized into an epicentre of risk [Donald Trump
refers] and talk of a unipolar US-dominated world have largely
evaporated. President Putin refused to be rolled over by a Victoria
Nuland inspired ‘’Colour Revolution’’ in the Ukraine and drew a line
in the sand and one of the collateral consequences of that was to send
President Putin into the ready embrace of Xi Jinping. In fact, far
from being a unipolar world, we have entered a bipolar or even a
Tripolar world [US, China and Russia]

It was an echo of the famous September 1949 declaration by Mao Zedong,
the party’s revolutionary hero, that “the Chinese people, comprising
one quarter of humanity, have now stood up”.

Apart from a few half-hearted and timid FONOPs [freedom of navigation
operations], China has established control over the South China Sea.
It has created artificial Islands and then militarised those
artificial islands across the South China Sea. It is a mind-boggling
geopolitical advance any which way you care to cut it. China has
advanced its footprint in Pakistan, where it has leased the Gwadar
Port [giving China and Central Asia access to the Gulf region and the
Middle East] for 43 years. Sri Lanka, which gorged on Chinese debt,
has had to disgorge the Hambantota Port to its creditor. And recently,
we saw China formally open a miitary facility in Djibouti.  ese moves
taken together speak to a material Chinese advance.  e pivot to Asia
which was supposed to contain China is dead in the water and China has
sprung that trap.

Accusations of sexual misconduct against Harvey Weinstein haven’t just
rocked Hollywood – they’ve also led to the potential destruction of
his company, Weinstein Co. The privately-held independent film and TV
studio is in talks to sell itself to Colony Capital, the private
equity arm of Colony NorthStar, run by billionaire Thomas Barrack.
News of an immediate sale after a crisis is rare, but Weinstein Co.’s
corporate governance structure and small size leave it vulnerable,
says Larry Hutcher, co-founder and co-managing partner at Davidoff
Hutcher & Citron. Bloomberg entertainment reporter Anousha Sakoui also
tells host Alex Sherman about Weinstein Co.’s recent box-office
failures and traces the company’s history, from Miramax to today.

Large amounts of territory seized by the Kurdish Peshmerga over the
course of multiple years of war with ISIS has been ceded back to the
Iraqi central government in only about 72 hours. Iraqi officials now
say that the Peshmerga is back to its June 2014 borders, the start of
the ISIS conflict.

Iraq’s fast military offensive, bolstered by Shi’ite militias, saw
them seize the oil-rich city of Kirkuk on Monday,expanding into Sinjar
and Khanaqin on Tuesday. On Wednesday, Iraqi forces took territory
near Mosul.

Nikkei 225 on longest streak in 29 years

Euro 1.1808
Dollar Index 93.34
Japan Yen 112.88
Swiss Franc 0.9796
Pound 1.3185
Aussie 0.7863
India Rupee 65.082
South Korea Won 1131.74
Brazil Real 3.1715
Egypt Pound 17.6692
South Africa Rand 13.5318

The dollar rose as high as 113.095 yen JPY= in early Asian trade, its
strongest level since Oct. 6. The dollar last changed hands at 112.97
yen, steady from late U.S. trade on Wednesday.

This week’s rise in U.S. bond yields helped lend support to the
greenback. The two-year U.S. Treasury yield US2YT=RR rose to its
highest since November 2008 on Wednesday on the back of expectations
for tighter global monetary policy.

The benchmark U.S. 10-year Treasury yield US10YT=RR touched a one-week
high of 2.352 percent on Wednesday, and last stood at 2.342 percent,
having risen six basis points so far this week.

After years of surviving a sluggish Italian economy and an historic
collapse in crude prices, a $300 million bet against his company
apparently isn’t enough to spook the head of energy giant Eni SpA.

The short placed against the Rome-based company by hedge fund
billionaire Ray Dalio is not a “big issue," Chief Executive Officer
Claudio Descalzi said Wednesday during a Bloomberg TV interview. The
bet by Dalio’s Bridgewater Associates LP was part of $1.1 billion in
wagers against Italian banks and businesses. It was reported by
Bloomberg on Tuesday.

“This has happened already in the past with hedge funds; they come,
they go," Descalzi said. Given the oil market’s turmoil, “there is a
lot of volatility and the long positions left some years ago." He
wasn’t worried about a drag on investor confidence, he said.

Emerging Markets

Frontier Markets

Angola is not the next Venezuela, the head of state oil firm Sonangol
said on Wednesday while pledging to further cut debt, even if both
oil-rich nations have relied heavily on loans from China.

Venezuela, the Latin American oil behemoth, has found itself
struggling to repay debts to China and Russia that total at least $50
billion. But Sonangol chair Isabel dos Santos said her company was not
on a similar track.

“There is really pretty much nothing in common,” dos Santos said.
“Maybe just the weather.”

Dos Santos told a Reuters newsmaker event that Sonangol has already
slashed $3 billion in debt, and that she has the backing of the new
president for an ambitious reform plans that aims to further cut
debts.

“Our relations are in full alignment,” dos Santos said, adding that
João Lourenço, who took office last month, was “fully aware” of her
plans for Sonangol’s transformation.

Conclusions

Dollar versus Rand 6 Month Chart INO 13.5318
http://quotes.ino.com/charting/index.html?s=FOREX_USDZAR&v=d6&t=c&a=50&w=1

Egypt Pound versus The Dollar 3 Month Chart INO 17.6692
http://quotes.ino.com/charting/index.html?s=FOREX_USDEGP&v=d3&t=c&a=50&w=1

Nigeria All Share Bloomberg +36.34% 2017
http://www.bloomberg.com/quote/NGSEINDX:IND

Ghana Stock Exchange Composite Index Bloomberg +37.12% 2017
http://www.bloomberg.com/quote/GGSECI:IND

Is there a political crisis in Kenya? Would the involvement of foreign
mediators help solve it?
On this issue there is stark disagreement between President Uhuru
Kenyatta and opposition leader Raila Odinga. Kenyatta has been quick
to reject the assertion that a constitutional crisis is looming. He
said: 'There is no crisis and we are not interested in mediation.' For
emphasis, 12 MPs from Kenyatta's Jubilee party have jointly written a
letter reiterating this to the African Union, the European Union, the
United Nations and the United States government.

Odinga, presidential candidate for the National Super Alliance (Nasa),
insists there is a deepening crisis and that the governing Jubilee
party is trying to scupper democratic reforms. He told Africa
Confidential that there are no circumstances under which he would
contest the repeat elections on 26 October: 'The 26th is a no deal,
you can take that to the bank. The 26th will not happen, if it happens
it will not be an election in the Republic of Kenya… there will not be
credibility.'

Odinga appears to concur with Kenyatta over international mediators
but has invested considerable time and energy in an international tour
to win overseas opinion. Outside involvement isn't necessary to
resolve the dispute, Odinga told the Chatham House think tank in
London on 13 October, the solution is in the hands of Kenya's
Independent Electoral and Boundaries Commission. He demanded access to
all digital records at the commission which he insisted would show
vote-fixing by its officials. 'The IEBC should open the servers,' he
demanded.

What happens next?
There will be a flurry of court hearings on the elections. The IEBC
wants to clarify the effects of Parliament's amendments on its
operations. Nasa is going to the Supreme Court to challenge the
validity of the High Court's ruling putting Aukot and the smaller
parties on the ballot for 26 October. It also wants to challenge the
schedule for the rerun.

Odinga said he would contest elections only when Nasa's demands for
reform were met, adding that his supporters, in areas such as Nyanza,
Western and Coast provinces and Nairobi, want a boycott of the 26
October rerun. Should such a boycott gain wide support, Nasa could
argue the rerun – and Kenyatta's presumed victory – will lack
legitimacy. The constitution stipulates that a presidential election
must be held in all 290 constituencies.

The head of the election board told a news conference that technical
preparations for the new poll were on course, but that his attempts to
make “critical changes”, notably to staff, had been defeated by a
majority of commissioners. He also said he had come under pressure to
resign.

“Under such conditions, it is difficult to guarantee a free fair and
credible election,” he said.

But Kenyatta has shown no sign of compromise. In a televised speech on
Wednesday, he said: “We walk towards the declared date of the 26th of
October both as a God-fearing leadership and government.”

Conclusions

“As things stand now, they are not able to conduct an election; if
they go ahead it’s illegitimate,” said Ndung’u Wainaina, executive
director of the International Center for Policy and Conflict in
Nairobi. “If they want, the IEBC can invoke constitutional provisions
and call off the election. Either call off or proceed, but they should
be prepared to live with the consequences.”

Opposition leader Raila Odinga withdrew from the rerun on Oct. 10,
saying the commission failed to agree to reforms including changes to
its staff and systems to ensure a credible vote.

Chebukati said he’s made “several attempts” to institute changes at
the commission, but his proposals have been defeated by a majority of
commissioners. A senior official at the authority said last month the
seven-member commission was split over issues including the removal of
staff suspected of being complicit in the annulled August vote.

For the vote to be credible, Chebukati said the electoral authority
needs to be allowed to work independently and its commissioners must
pledge to serve the nation rather than partisan political interests.

“Only then can I commit to serve as the national presiding officer in
order to deliver a free, fair and credible election,” he said.

“The commission is dysfunctional, there is no doubt about that,” said
Peter Wanyande, a professor of political science at the University of
Nairobi. “They may go ahead and purport to hold elections under these
circumstances. It won’t be credible.”

Paul Virilio, in his book Speed and Politics, says: “ The
revolutionary contingent attains its ideal form not in the place of
production, but in the street, where for a moment it stops being a cog
in the technical machine and itself becomes a motor (machine of
attack), in other words a producer of speed.’’

What is clear is that the advantage of incumbency in fact accelerates
in this round two of the election. Therefore, I expect the opposition
to boycott the election entirely. And that the strategy of tension
will be maintained via degrading and denigrating the en‘tire process.

The historic ruling by Kenya’s Supreme Court last month to annul
presidential elections sent a frisson through much of the continent.
From Johannesburg to Lagos, democrats celebrated a decision that
seemed to strike a blow for institutional independence and send a
signal to incumbents that elections must be free from any hint of
tampering. (There were certainly a few hints of that in Kenya, where
electoral forms disappeared, transmission of results broke down and, a
week before polling, the man in charge of the electoral IT system was
found tortured and killed.)

The Supreme Court was concerned enough to declare the August poll null
and void and to order a re-run. Not only had the judiciary faced down
the executive. The executive, in the form of President Uhuru Kenyatta,
begrudgingly accepted its verdict, even though it had deprived him of
a second term. Kenyans from both sides of the political divide
celebrated what many — if not all — saw as a deepening of democracy.
One exuberant commentator said that Britain — where Supreme Court
judges had been branded “enemies of the people” for ruling that the
Brexit vote had to be ratified by parliament — could learn a thing or
two from Kenyans.

If the gloss on the Supreme Court ruling was mostly positive then, a
month later, much of that gloss has gone. Kenya is stuck in political
limbo. Two things have happened to undermine the hope that
constitutionalism will triumph. The first is that Raila Odinga is
refusing to participate in the electoral re-run, due to take place on
October 26. That leaves Mr Kenyatta as the sole serious contender. If
he wins, opposed by only a clutch of no-hopers, it will be a hollow
finale to what was supposed to be a battle for the soul of democracy.

On the face of it, Mr Odinga’s decision not to run looks puzzling. Why
go to all the bother of challenging the August election and forcing a
re-run, and then refuse to stand?

Yet his reasoning turns out to have some rationale. None of the
reforms to the electoral process that Mr Odinga has demanded have been
granted. The same electoral commission will be in charge in October.
This week, one commission official fled to the US for her life, saying
the electoral board was so partisan it could not hold a credible poll.

Apart from her, the same people Mr Odinga accused of sabotaging the
first vote will preside over the second, employing the same electoral
register, the same procedures and the same — evidently flawed —
electronic tallying system. You do not have to be Einstein to expect
the result to be the same, too.

If Mr Odinga is raining on the democratic parade, so is Mr Kenyatta.
He has accused his opponent of being a sore loser. (This is the fourth
presidential contest in which Mr Odinga has been declared the loser,
though not necessarily the fourth that he has lost.) Worse, after
agreeing to abide by the Supreme Court decision, the president has
adopted language that would make the Daily Mail blush. He has called
the judges “thugs” and has vowed to “fix” the judiciary if he wins a
second term. He has lost no time in bringing the court to heel,
rushing through an amendment to the electoral law preventing the
Supreme Court from annulling a poll unless irregularities have a
material impact on the result.

Almost worse than this tug of war between the main contenders is the
fact that Kenya’s election has now vanished from the polling booth
only to reappear in the courtroom. Mr Odinga’s withdrawal from the
October 26 contest was tactical. He was counting on a previous ruling
that said a re-run could not take place if a candidate died or pulled
out. (He chose pulling out.) That tactic backfired when an also-ran
candidate, who had polled almost nothing in the first round, got the
high court to agree he could stand in the re-run. One constitutional
lawyer said the poll would go ahead because of an interpretation of
the words “and” and “all”.

While highly paid lawyers shuffle in and out of court, many of Mr
Odinga’s supporters have taken to the streets. A few have lost their
lives as a result, shot by police. So convinced are some that they
cannot get justice at the ballot box, there is wild talk about setting
up a breakaway republic. Until now, the idea of secession has never
gained much traction in Kenya despite its complex ethnic mix.

Patrick Lumumba, director of the Kenya School of Law, says one should
not lose faith. However messy, it is important that Kenyans work
through this crisis, if necessary in the courts. He is right. But for
millions of Kenyans who thought that elections were about candidates
and votes, it is not an edifying process to watch.

The management of the shopping complex, which is majority owned by the
wealthy Ndegwa family, says Nakumatt’s agents and employees can now
only access the premises to remove their “stock, items and property.”

Nakumatt was momentarily kicked out of the premises two weeks ago over
unpaid rent, which the owners of the mall say ranges between Sh50
million and Sh75 million.

Par Value:                  2.50/-
Closing Price:           8.65
Total Shares Issued:          6243873667.00
Market Capitalization:        54,009,507,220
EPS:             1.37
PE:                 6.314

FY Electricity revenue 29.369b vs. 29.544b -0.592%
FY Steam revenue 5.189b vs. 6.856b -24.314%
FY Other income 882m vs. 2.210b -60.090%
FY Revenue 35.440b vs. 38.610b
FY Operating expenses [9.691b] vs. [8.948b] +8.304%
FY Steam costs [2.796b] vs. [3.167b] -11.715%
FY EBITDA 22.953b vs. 26.495b -13.369%
FY EBIT 13.709b vs. 16.271b -15.746%
FY Compensating tax vs. [2.431b]
FY Finance costs [3.417b] vs. [3.132b] +9.100%
FY Interest income 1.242b vs. 556m +123.381%
FY Profit before tax 11.534b vs. 11.264b +2.397%
FY Profit for the year 9.057b vs. 6.743b +34.317%
Basic EPS 4.12 vs. 3.07 +34.202%
Diluted EPS 1.37 vs. 1.08 +26.852%
Total assets 377.197b vs. 367.249b +2.709%
Cash and cash equivalents as at 30th June 7.831b vs. 6.756b +15.912%
No dividend

KenGen announced FY 17 results this morning, reporting an EPS of KES
1.37, up 27% y/y
EPS grew mainly on account of a lower effective tax ( 21% vs. 40% the
year earlier) as well as reduced depreciation and amortization
expenses (-10% yy)
Profit before tax grew a marginal 2% yy to KES 11.5bn
Electricity revenue was flat at KES 35.4bn due to reduced energy
revenue following geothermal power evacuation constraints and hydro
challenges over drought
Steam revenue declined 24% yy on account of lack of income from
commercial drilling services
OpEx inflated 8% yy attributable to investment in capacity expansion.
Interest income more than doubled to KES 1.2bn following investment of
funds from the Rights Issue
Finance costs rose 9% yy to KES 3.4bn
Profit after tax settled at KES 9.1bn (+34% yy).

NSE All Share
August 28th        173.47 (2017 High)
October 17th      156.66
-9.690%

NSE 20 Share
August 15th        4,114.01 (2017 High)
October 17th      3,591.62
-12.698%