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China In Africa: It’s a Numbers Game

Over the past two decades, China has grown into the undisputed champion of Africa’s infrastructure financing needs but as the popular adage goes, there is no such thing as a free lunch.

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China’s growing global dominance got a publicity boost this April 2019 with the latest Forum on Belt and Road International ( BRI) Cooperation. The annual event brought world leaders from 37 countries, 5000 delegates from 150 nations and representatives of 90 international organisations to Beijing for the BRI conference that culminated in a resolution to continue strengthening ties and promoting global growth and economy through policy coordination among participating economies, infrastructure connectivity, trade investment and industrial cooperation

To Africa in particular, China has become a significant economic partner. China has catapulted from being a relatively small investor in the continent to becoming Africa’s largest economic partner, providing infrastructure and investment loans that have helped the continent record massive expansion of roads, rail and other utilities. Obviously, the forum is crucial in strengthening existing relationships and opening new opportunities for cooperation.


To date, it is difficult to understand the full extent of China’s blueprint in Africa due to the data knowledge gap that exists. This vacuum has fueled urban legends and sensational stories, everything from charges of neocolonialism, persistent yet unfounded rumor that Chinese firms use convict labor en masse, to even a Chinese settler colony in Africa. However, to dispel or confirm these narratives Africa must take a critical review, audit and examination of its principal relationship with China and what it portends for Chinese influence and footprint in the continent.

Trade

Since the turn of the 21st century, China has catapulted from being a relatively small investor in the continent to becoming Africa’s biggest economic partner. Africa-China trade increased from $13 billion in 2001 to $188 billion in 2015—an average annual growth rate of 21 percent. China has far surpassed Africa’s longstanding trade partners such as France, Germany, India, and the United States. According to a McKinsey and Company report dubbed Lions and Dragons in 2015, total goods trade between China and Africa amounted to $188 billion—more than triple that of India.


Statistics from the General Administration of Customs of China, in 2018, indicate that China’s total import and export volume with Africa was US$204.19 billion, a year-on-year increase of 19.7%, exceeding the overall growth rate of foreign trade in the same period by 7.1 percentage points. Among these, China’s exports to Africa were US$104.91 billion, up 10.8% and China’s imports from Africa were US$99.28 billion, up 30.8%; the surplus was US$5.63 billion, down 70.0% year on year. In December last year, China’s total imports and exports with Africa were US$18.27 billion, up 15.5% year on year and 2.1% month on month. Among these, China’s exports to Africa were US$9.55 billion, up 3.9% year on year and 3.0% month on month; China’s imports from Africa were US$8.72 billion, up 33.7% year on year and 2.2% month on month; the trade surplus was US$840 million, down 68.7% year on year and up 13.5% month on month. In 2018, the growth rate of China’s trade with Africa was the highest in the world.

China and Infrastructure

China has a long history of infrastructure investment in Africa, and this remains the country’s most visible legacy to this day. In the 1970s, China constructed the 1,710 km Tanzania-Zambia railway (Tan-Zam Railway completed in 1976), which linked landlocked, mineral-rich Zambia to the Indian Ocean. China’s aid for the project consisted of a nearly one billion interest-free loan, over one million tons of machinery and materials, and 50 thousand laborers to undertake construction efforts. Zambia’s first president, Kenneth Kaunda, hailed China’s support, and claimed the railway served as “a model for south-south cooperation.”


However, one of the megatrends of our times has been the growing presence of China in Africa’s infrastructure sector. Over the past two decades, China has helped to meet some of Africa’s infrastructure financing needs and is now the single largest financier of African infrastructure,financing one in five projects and constructing one in three mega projects.

Most funded projects are in the Transport, Shipping and Ports sectors (52.7 per cent), followed by Energy and Power (17.6 per cent), Real Estate (15 per cent, including industrial, commercial and residential real estate) and Energy and Power (13.1 per cent)

To date China has participated in over 200 African infrastructure projects. Chinese enterprises have completed and are building projects that are designed to upgrade about 30,000km of highways, 2,000km of railways, 85 million tonnes per year of port output capacity, more than nine million tonnes per day of clean water treatment capacity, about 20,000MW of power generation capacity, and more than 30,000km of transmission and transformation lines.

Foreign Direct Investment

China is poised to become Africa’s largest source of Foreign Direct investment. At the current growth rates, China will be Africa’s largest source of FDI stock within the next decade. China’s financial flows to Africa are around 15 percent larger than previous estimates. This discrepancy is found because official figures, which rely on banking-system data, do not cover informal money-transfer methods often used by smaller businesses. These methods include “mirror transfers,” in which a local payment is made into the Chinese account of an associate or family member, who in turn makes a local equivalent payment in Africa to the beneficiary’s bank account.

Aid

China is the second- or third-largest country donor to Africa Chinese official development assistance (ODA) and other official flows (OOF) to Africa together amounted to $6 billion in 2012. Chinese foreign aid expenditures increased steadily from 2003 to 2015, growing from USD 631 million in 2003 to nearly USD 3 billion in 2015. The United States promised somewhat more—$90 billion in the same period—but Chinese aid is more sought after. Unlike Western assistance, which comes mainly in the form of outright transfers of cash and material, Chinese assistance consists mostly of export credits and loans for infrastructure (often with little or no interest) that are fast, flexible, and largely without conditions. Thanks to such loans, the International Monetary Fund estimates that, as of 2012, China owned about 15 percent of sub-Saharan Africa’s total external debt, up from only 2 percent in 2005. And McKinsey & Co. reckons that, as of 2015, Chinese loans accounted for about a third of new debt being taken on by African governments. 

Debt

Most of China’s loans to Africa go into infrastructure projects such as roads, railways and ports. China’s loan issuance to Africa has tripled since 2012. New debt issuance by Chinese institutions to African governments increased dramatically in the past five years, rising to some $5 billion to $6 billion of new loan issuances each year in the 2013–15 period. The McKinsey report suggests that in 2015, these loans accounted for approximately one-third of new sub-Saharan African government debt. Most of these loans are linked to infrastructure projects, such as China EXIM Bank’s $3.6 billion loan to finance the Mombasa-Nairobi Standard Gauge Railway in Kenya. From 2000 to 2017, the Chinese government, banks and contractors extended US $143 billion in loans to African governments and their state-owned enterprises (SOEs).


In 2015, the China-Africa Research Initiative (CARI) at John Hopkins University identified 17 African countries with risky debt exposure to China, potentially unable to repay their loans. It says three of these – Djibouti, Republic of Congo ( Congo-Brazzaville) and Zambia – remain at risk of debt distress derived from these Chinese loans. In 2017, Zambia’s debt amounted to $8.7bn (£6.6bn) – $6.4bn (£4.9bn) of which is owed to China. For Djibouti, 77% of its debt is from Chinese lenders. Figures for the Republic of Congo are unclear, but CARI estimates debts to China to be in the region of $7bn (£5.3bn). Angola is the top recipient of Chinese loans, with $42.8 billion disbursed over 17 years. Yet, Chinese loans are currently not a major contributor to the debt burden in Africa; much of that is still owed to traditional lenders like the World Bank.

Business

According to the McKinsey report , there are about 10,000 Chinese-owned firms operating in Africa today. Around 90 percent of these firms are privately owned. State-owned enterprises (SOEs) tend to be particularly in specific sectors such as energy and infrastructure, the sheer multitude of private Chinese firms working toward their own profit motives make Chinese investment in Africa a more market-driven phenomenon than is commonly understood. Chinese firms operate across many sectors of the African economy. Nearly a third are involved in manufacturing, a quarter in services, and around a fifth in trade and in construction and real estate. In manufacturing, an estimated 12 percent of Africa’s industrial production—valued at some $500 billion a year in total—is already handled by Chinese firms. In infrastructure, Chinese firms’ dominance is even more pronounced, and they claim nearly 50 percent of Africa’s internationally contracted construction market.

One-third of Chinese firms based in Africa reported profit margins of more than 20 percent in 2015. They are also agile and quick to adapt to new opportunities and they are primarily focused on serving the needs of Africa’s fast-growing markets rather than on exports.

Agriculture

According to CARI China has acquired 252,901 hectares of land in Africa. Cameroon alone accounts for 41% of all lands actually acquired: driven by two large purchases of existing rubber plantations (over 40,000 hectares each) in 2008 and 2010.China has also established 14 agricultural centres across Africa.

China has also taken an increasingly hands-on role in its work and investment related to African agriculture, leasing and developing land and in many instances being accused of “grabbing” large swathes of it. But as Deborah Brautigam’s reports the assumptions about China’s role in Africa are often not borne out in reality and the areas of land “grabbed” for investment are small compared to the vast areas identified by some.

Security

Over the past decade China’s role in peace and security has also grown rapidly through arms sales, military cooperation and peacekeeping deployments in Africa. Today, China is making a growing effort to take a systematic, pan-African approach to security on the continent.

China is now the second-largest contributor to the peacekeeping budget. Chinese personnel have served on missions in Africa for decades, but until 2013 they were small contingents in unarmed roles such as medical and engineering support. China now provides more personnel than any other permanent member of the Security Council – they numbered 2,506 as of September. Chinese peacekeepers now serve in infantry, policing and other roles in Africa.

In 2017, China established a 36 hectare Djibouti military facility.with a ten-year lease at $20 million annually. It has been described as a support base for naval anti-piracy operations in the Gulf of Aden, peacekeeping in South Sudan and humanitarian and other cooperation in the Horn of Africa, but has also been used to conduct live-fire military exercises.

Labour and Population

The number of Chinese immigrants in Africa has risen sevenfold in under two decades, The Annual Report on Overseas Chinese Study said the African continent was home to more than 1.1 million Chinese immigrants in 2012, compared with less than 160,000 in 1996, adding that 90 percent of the current total arrived after 1970. Initially, most labourers coming to Africa were from retail industry but today with the closer relationships with Africa, Chinese intellectuals and skilled professionals have settled in Africa.

The number of chinese workers by the end of 2017 was 202,689. In 2017, the top 5 countries with Chinese workers are Algeria, Angola, Nigeria, Ethiopia, and Zambia. These 5 countries accounted for 57% of all Chinese workers in Africa at the end of 2017; Algeria alone accounts for 30% of the numbers. These figures include Chinese workers sent to work on Chinese companies’ construction contracts in Africa (“workers on contracted projects”) and Chinese workers sent to work for non-Chinese companies in Africa (“workers doing labor services”); they are reported by Chinese contractors and do not include informal migrants such as traders and shopkeepers.

Media

There has been a significant increase of Chinese media on the African continent in recent years. This has taken place across various levels, including infrastructure development, training of journalists, production and distribution of media content, and investing directly in African media houses and platforms. The increased media footprint is widely seen as a way for China to extend its ‘soft power’ on the continent. But this is not the first time that China has established a media presence on the continent. As far back as the 1960s and 1970s, Chinese media was active in Africa.

However, since 2012, state-run media outlets have also pitched up in the continent, among them the Africa bureau of China Global Television Network (CGTN based in Nairobi) and China Daily Africa newspaper. China also takes African journalists to Beijing for training, while state-linked firms have made investments in local media outlets including buying a 20% stake in South Africa’s Independent News and Media firm (INMSA). The Beijing-based StarTimes Group has also become one of Africa’s most important media companies, increasingly influential in the booming pay-TV market. As it spread its foothold in Africa, the company has embarked on a project to provide solar-powered satellite television sets to 10,000 villages across Africa.

*****

China has not “taken over Africa”; she has merely joined with earlier groups of imperialists in grabbing a part of the African bounty. As a newcomer, her presence is more visible, but not yet as substantially deep-rooted as the long-standing European imprint.

She comes with two key differences: first, China does not yet have the military and diplomatic capacity to replace any of those Western powers in physically securing and enforcing the various trade routes and treaties needed to keep the global trade machine, upon which they all depend, running. Second, therefore, this venture cannot be implemented remotely, but by human displacement. Even a settler-overlord project may not work. What could work is one where millions of Chinese people are steadily shipped over to “yellow” Africa as a continuation of the anti-black ethnic cleansing and encroachment the Asians began centuries ago in South Asia.

The Africa of the ordinary people must therefore assert itself and force its concerns on to all public agendas. The struggle now is to hold a public conversation independent of these various imperialists and their allies.

Sources: McKinsey and Company report. Compiled by Mdogo.

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The author is an analyst based in Nairobi, Kenya.

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Kings, Presidents and Tyrants: Uganda, 1500 to Present

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1500 – 1852  – Bunyoro Kitara Kingdom: Bito dynasties of Buganda, Bunyoro and Ankole founded by Nilotic-speaking immigrants from the current southeastern Sudan. Expansion of Buganda at the expense of Bunyoro and take control of the territory bordering Lake Victoria from the Victoria Nile to the Kagera river.

1862 – The first European, British explorer John Hanning Speke visits Buganda.

1875 – Christian missionaries are allowed to enter the realm of Buganda King Mutesa 1.

1890 – A treaty signed between Britain and Germany gives Britain rights to what was to become Uganda.

1894 – Uganda becomes a British protectorate.

1900 – Britain signs an agreement with Buganda giving it autonomy and turning it into a constitutional monarchy controlled mainly by Protestant chiefs.

1958 – Uganda granted internal self-government.

1962 – Uganda becomes independent with Milton Obote as prime minister and with Buganda enjoying considerable autonomy.

1963 – Uganda becomes a republic with Buganda’s King Mutesa – Edward Luwangula Walugembe Muteesa II –  as president.

1966 – Milton Obote ends Buganda’s autonomy and promotes himself to the presidency.

1967 – New constitution vests considerable power in the president.

1971 – Milton Obote toppled in coup led by Army chief Idi Amin.

1972 – Around 60,000 Asians Ugandan citizens expelled by Amin from Uganda.

1976 – Idi Amin declares himself president for life and lays claims to parts of Kenyan territory.

1978 – 1979 – The Uganda – Tanzania war known as the Kagera War in Tanzania and The 1979 Liberation War oust president Idi Amin from power.

1979 – Tanzanian forces invade Uganda, unifying the various anti-Amin forces under the Uganda National Liberation Front. Amin flees out of the country; Yusuf Lule installed as president, but quickly replaced by Godfrey Binaisa.

1980 – After elections Milton Obote returns as the president of Uganda.

1985 – Milton Obote is deposed in a military coup and replaced by Tito Okello. The new military leaders Tito Okello, Bazilio Olara Okello and Gad Wilson Toko hold onto the presidency for under a year before they are also ousted from power by the National Resistance Army (NRA) on January 26, 1986.

1986 – Yoweri Museveni becomes president after National Resistance Army rebels gain control of Kampala.

1993 – Yoweri Museveni restores the traditional kings, including the king of Buganda, but stripped of their political power.

1995 – The new constitution legalises political parties but maintains the ban on political activity.

1996 – Museveni returned to office in Uganda’s first direct presidential election.

1998 – Ugandan troops intervene in the Democratic Republic of Congo on the side of rebels seeking to overthrow Kabila.

2000 – Ugandans vote in favour of continuing Museveni’s “no-party” system rejecting multi-party politics.

2001 – Museveni wins a new term in office, beating his rival Kizza Besigye by 69% to 28%.

2005 July – Parliament approves a constitutional amendment which scraps presidential term limits. Voters in a referendum overwhelmingly back a return to multi-party politics.

2005 November – Kizza Besigye, opposition leader is imprisoned shortly after returning from exile having undergone a trial in a military court on various charges including treason and illegal possession of firearms. Supporters claim the trial is politically motivated, and take to the streets. Besigye is released on bail in January 2006,  ahead of presidential elections.

2006 February – President Museveni wins multi-party elections, taking 59% of the vote against the 37%  of his rival, Kizza Besigye. EU observers highlight intimidation of Mr Besigye and official media bias.

2010 October – Constitutional Court quashes treason charges against opposition leader Kizza Besigye.

2011 February – Museveni wins his fourth presidential election. Challenger Kizza Besigye alleges vote-rigging and dismisses the election result as a sham.

2011 April – Kizza Besigye arrested several times over ”walk-to-work” protests against rising fuel prices.

2016 February – President Museveni wins re-election against veteran candidate Kizza Besigye, amid opposition, Commonwealth, US and European Union concern about fairness and transparency of the electoral process.

2017 January – President Museveni appoints his son, General Muhoozi Kainerugaba, as a presidential advisor

2017 April – Former musical artist Robert Kyagulanyi Ssentamu popularly known by stage name Bobi Wine wins a by-election to become the legislator for Kyadondo County East against formidable opposition and draws attention in Uganda and abroad.

2017 December – Parliament votes to remove the age-limit for presidential candidates, clearing the way for President Museveni to run for another term.

2018 – The arrest and torture of Robert Kyagulanyi Ssentamu known as “Ghetto president” ignites popular protests with demands for his release.

2019 – Ugandan Musician and opposition leader Bobi Wine announced he’ll run for president in 2021, in an effort to thwart President Yoweri Museveni, who has been in power in Uganda since 1986

2020 – Political fever spikes as Uganda elections near with Bobi Wine running in 2021. Kizza Besigye challenged Museveni four times since 2001 and is no longer going to contest any election organized under the ruling NRM. Gregory Mugisha Muntuyera, the former Forum for Democratic Change (FDC) president,  and Bobi Wine have joined forces in a new alliance called the United Forces of Change.

Source: News Articles, BBC News , World History Archive

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The Drivers of Inflation During the COVID-19 Pandemic

The drivers of inflation during the COVID-19 pandemic period resulted from demand-pull inflation, cost-push inflation and money supply.

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Jane Muthoni can still put together a tasty ‘ugali-madondo’ dish, a local specialty of Makongeni composed of maize flour and beans in a savory stew.

Trouble is, the dish and other tasty delicacies cost a lot more to make now than they did back in 2015 when she started the business, thanks to the hidden economic forces.

To operate her popular cafe, known by locals as a “kibanda”, Muthoni says she has to pay three times as much for charcoal, and 30 percent more for kerosene, her primary cooking fuels. On top of that, the price of food ingredients is also up – maize flour is up more than 12 percent.

While not all items in the Kenyan economy are experiencing this price inflation, the rising costs are putting extra pressure on businesses that are already struggling with losses related to the health impact of the COVID-19 pandemic.

Inflation generally refers to the upward price movement of goods and services in an economy. It represents the overall loss of purchase power of money. The more prices soar upwards, the less each Kenya shilling is worth.

The Kenya National Bureau of Statistics (KNBS) measures inflation using the Consumer Price Index (CPI). CPI is measured by a weighted average cost of a basket of selected goods and services such as food, housing, health, transport and so on. The inflation rate is typically the average change in the CPI over time, say year to year.

Muthoni, like many other Kenyans, does not necessarily understand why the prices of the items change over time.

This article assesses three drivers of inflation during the COVID-19 pandemic.

1. Demand-Pull Inflation

When the market demand for goods and services, such as flour, beans, charcoal, transport and others that Muthoni needs to run her çafe, outgrows the market supply, it causes demand-pull inflation.

It starts with an increase in demand by consumers, and sellers will react to that demand by increasing their supply. This leads to pressure on the scarce supplies making sellers raise their prices. This is one of the scenarios that result in inflation.

A marginal increase in inflation is observed between March and April in the graph above. This can be attributed to the demand-pull inflation as Kenyans were driven to panic buying and stocking of essential supplies such as food in anticipation of what would happen following the confirmation of the first COVID-19 patient in the country. The growth in aggregate demand resulted in a reduced availability of these goods causing higher prices hence the slight increase in the inflation rate.

Muthoni grappled with this increased cost on food supplies for her cafe which raised her expenses – cutting into her profit margins.

Another reason for demand-pull inflation could have been the depreciation of the Kenya shilling which in turn would increase import prices and reduce prices of exports. This meant fewer people had capacity to import while exporters would earn more. Since Kenya relies heavily on imports, this resulted in a growth of the total demand of goods and services in the economy

To mitigate the effects of the COVID-19 pandemic to the Kenyan economy, the Government approved tax reduction and relief measures that were effected from the 25th April 2020.

This meant that taxpayers had more disposable income. It would be expected that the tax reduction would have raised demand, which would drive the price of goods and services upwards.

However, the reverse is observed on the chart above as the inflation rate steadily decreased from May onwards. This can be explained by the fact that some Kenyans lost jobs (estimated at 1.7 million by the KNBS), some received pay-cuts whereas others, in informal employment, were not eligible.

2. Cost-Push Inflation

When supply costs of goods and services rise due to increasing cost of production or raw materials, and demand remains the same, prices will rise. This will cause cost-push inflation.

Cost-push inflation can be attributed to the expectation of inflation where people foresee prices for goods or services rising. The marginal increase in inflation observed between March and April can be attributed to the uncertainty of the effect of the COVID-19 pandemic.

This could have affected Muthoni’s business as the increased cost of food supplies was transferred from the farmers to producers, from wholesalers to retailers and finally borne by customers like her.

The depreciation of a currency rate can also cause cost-push inflation as it leads to an increase in the prices of imported goods such as raw materials for production. In return, producers transfer this growth in prices to consumers, which results in inflation.

3. Money Supply

All the currency and other liquid assets in an economy is referred to as money supply. It includes both cash and deposits that can be used almost as easily as cash. When there is more money supply in circulation, it will increase market demand. This in turn can lead to more domestic (local) production or an increase in prices. If domestic production is fixed, then any increase in market demand of goods and services will cause a rise in prices leading to inflation.

In response to the COVID-19 pandemic, the Central Bank of Kenya (CBK) reduced the Central Bank Rate (CBR) to 7.25 percent from 8.25 percent and Cash Reserve Ratio (CRR) to 4.25 percent from 5.25 percent to avert a severe economic and financial crisis. This resulted in more money supply, of Kshs 35.2 billion. This offered banks additional liquidity and funds to lend.

While this offered Muthoni a chance to secure a bank loan, she was not confident that her cash flows would sustain its repayment as her customers kept reducing by the day.

The chart above reveals that the increase in money supply did not cause an increase in inflation. This could be attributed to growth of domestic production at the same rate as money supply, implying that the money is absorbed in production.

It could also be attributed to low circulation of the money in the economy. When the average number of times that money is spent on goods and services is low despite an increase in money supply, the prices are likely to remain low as observed at the peak of the COVID-19 pandemic period.

Was the inflation rate uniform for all the basket items though?

The change in Basket Consumer Price Index was different across various categories.

The main driver for the decline in the inflation rate is consistent decrease in food and non-alcoholic beverages prices from May onwards. This can be linked to the reduction of VAT from 16 percent to 14 percent.

In contrast, the cost of transport increased sharply between June and July. This is attributed to an increase in demand for people travelling following the lifting of the cessation of movement into and out of the Nairobi Metropolitan area, Mombasa county and Mandera county on the 7th of July, 2020.

The cost of alcoholic beverages, tobacco and narcotics remained relatively stable until June when prices started to decline owing to reduced demand as a result of the suspension on the operation of bars.

Muthoni and colleagues dealing in restaurants and food businesses were allowed to remain open only for take away services. However, the demand for restaurants and hotels is seen to dip during the peak period of the COVID-19 pandemic, but things seem to be looking up from the month of August as prices for their services have gone up by close to 3 percent.

Since schools and learning institutions have been closed since March, the prices for education services have barely changed.

The drivers of inflation during the COVID-19 pandemic period resulted from demand-pull inflation, cost-push inflation and money supply. Despite the almost consistent decline in the inflation rates, the change in the Consumer Price Index did not depict a similar trend for all the goods and services.

Additional contribution by Purity Mukami.

This article was first published by Africa Uncensored’s Piga Firimbi

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Kenya Transactions in FinCEN Files Raise Suspicions Around Coffee and Ivory Trade

Twenty-four Kenyan financial institutions were named in the reports as either beneficiaries’ banks or banks through which companies and individuals made suspicious payments from countries that include the United Arab Emirates, Nigeria, the United Kingdom, British Virgin Islands and China.

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At least 53 Kenyan companies and individuals appear in a leak of banking records submitted to the US Department of Treasury as suspicious financial activity, according to an analysis of leaked bank documents by Africa Uncensored.

The documents, submitted by some of the world’s largest banks to the US Department of Treasury’s Financial Crimes Enforcement Network, also known as FinCEN, were obtained by BuzzFeed NewsBuzzFeed News shared the documents with the International Consortium of Investigative Journalists (ICIJ) which coordinated 110 media partners around the world.

The size of the leak, 2,100 suspicious activity reports filed by U.S. banks, or SARs, is unprecedented.  While the documents are not evidence of wrongdoing, they provide a unique, bird’s-eye view of global illicit money flows often obtained through corruption and other crimes.

What is a SAR?
Twenty-four Kenyan financial institutions were named in the reports as either beneficiaries’ banks or banks through which companies and individuals made suspicious payments from countries that include the United Arab Emirates, Nigeria, the United Kingdom, British Virgin Islands and China.

“Banks are at the heart of the finance industry. Both legitimate and illegitimate finance moves through financial institutions. Big money is not carried in suitcases but through very respectable banks and other international financial institutions”, says Alvin Musioma, executive director of Tax Justice Network Africa.

Additional reporting by Africa Uncensored also linked shareholders of Commercial Bank of Africa — now named NCBA Group — which is co-owned by Kenya’s first family, to a company that received millions of US dollars in potentially suspicious payments for coffee and DVD players.

The Coffee Case

The New York branch of Standard Chartered, which acted as an intermediary bank, flagged payments sent to a company called SMS Ltd which the bank identified as having addresses in Kenya, Afghanistan, Uzbekistan, Russia and Bulgaria.

In the reports, the bank described SMS Ltd as being “in [the] pharmaceutical and medical products” industry. However, the bank noted, the companies sending the payments were in completely different lines of businesses, including commodities trading, vegetable oil production, and coffee exports.

Of the $14 million that SMS Ltd received between 2005 and 2013, $3.3 million was paid by Kenyan entities. More than $2 million of that was from two coffee Kenyan dealers, East African Gourmet Coffees Ltd and Servicoff Ltd. In fact, the companies are connected to each other and share company officers with companies linked to the Kenyatta family.

According to company registration documents, East African Gourmet Coffees’ directors include an obscure company with no online presence, New Start Nominee Limited, and two individuals, Kibet Torut and Peter Kimathi Kinyua, who also owns Servicoff Ltd.

One of the shareholders of Servicoff Ltd is  Ropat Nominees Ltd, the second-largest shareholder of NCBA Group, co-owned by President Kenyatta’s family via their company Enke Investments Limited.

The two Ropat Nominees’ directors co-own other companies, including one with John Stuart Armitage, who appears in numerous companies owned by Kenya’s first family. The company, Southbrook Holdings, was recently at the centre of a contentious land sale deal involving the president’s mother.

Contacted by journalists, Peter Kimathi Kinyua said that Servicoff Ltd’s payments to SMS Ltd (registered in Kenya as Sustainable Management Services Limited) have been for the purchase of coffee. He declined to comment on the involvement of Ropat Nominees Ltd except to confirm that the company is part of the nominee shareholders.

“We normally deal with SMS – Sustainable Management Services, a coffee marketing agent at Nairobi Coffee Exchange,” said Kibet Torut while denying knowledge of SMS Ltd and the transactions quoted from the suspicious activity report, in an email response.

Kinyua was appointed by President Uhuru Kenyatta as board chairman for Kenya Forest Service in 2018.

Both Kinyua and Kibet Torut denied having any business ties to the president.

According to their website, Servicoff Ltd, has been growing, processing roasting and blending coffee since 1969. The company shares an email domain name with East African Gourmet Coffees Ltd, the other coffee dealer named in the bank’s report.

Import records confirm that Servicoff has been shipping Washed Kenya Arabica AA coffee since 2007, mainly to the U.S.

The bank report also noted that SMS Ltd had received $1.3 million from Louis Dreyfus Commodities Kenya, listed as a commodity broker in the SAR, the local branch of a global trade firm headquartered in Switzerland that deals in the coffee business too. Africa Uncensored has identified that one of the directors behind the Nairobi branch of Louis Dreyfus is Alexander Mareka Dietz, who is also a director in a company with Udi Mareka Gecaga, a one-time brother-in-law to President Kenyatta.

Reporters were unable to reach Dietz, and automated replies to emails sent to the company address indicate that only approved senders are able to email the company.

Company records obtained by Africa Uncensored reveal that Sustainable Management Services (SMS) Limited is wholly owned by East Africa MM Co. LLC, which is registered in the US state of Delaware, a recognised haven for shell companies due to its reputation for corporate secrecy and tax breaks.

On a US coffee seller’s website, SMS Ltd markets Kenya AA coffee that is handpicked by many small-holding farmers in central Kenya.

According to the Kenya Biogas program website, the company is “one of the partners working with coffee farmers through targeted capacity building on climate change through projects.”

A snapshot of their website in 2016 reveals that SMS Ltd is a group company of Ecom Agro-Industrial Corporation Limited, which is registered in Switzerland with the Esteve family its ultimate beneficial owner. Ecom’s website lists an office at Tatu City coffee park in Ruiru, Kenya where SMS Ltd is located, according to its Facebook page. [3] The Esteve family also runs ECOM Coffee, a leading global coffee miller and coffee trader.

Screenshot of ECOM’s website

Screenshot of ECOM’s website

Screenshot of Sustainable Management Services Ltd’s Facebook page

Screenshot of Sustainable Management Services Ltd’s Facebook page

However, according to the FinCEN files, of the 201 transactions SMS Ltd received totalling over $14 million, more than half came from a Dubai-based vegetable oils production company for the purchase of television and DVD player.

When asked by journalists to comment on why a Kenyan company with a Delaware-registered shareholder markets coffee from Kenyan farmers to Kenyan companies exporting to the US, Musioma, the Tax Justice Network Africa executive director, had this to say:

“The fact that we are talking of companies being registered in tax havens and coming in, speaks of the lax laws we have when it comes to beneficial ownership. You might find that there is a conflict of interest here emanating from the directors of these companies being the ones that are involved in those transactions”.

Reporters were unable to reach SMS Ltd. Emails to the parent company in Switzerland went unanswered.

Victoria Commercial Bank and Middle East Bank (MEB) Kenya Ltd did not respond to questions concerning these transactions, some of which were processed by the banks.

Standard Chartered Bank, whose New York branch filed the suspicious activity report, did not respond in time for publication.

“No More Bullshit”

In another set of transactions in a separate suspicious activity report reviewed by Africa Uncensored, a would-be fashionista named Joyce Oweya Anyumba — a 33-year-old with addresses in Buruburu, Nairobi, and Mombasa — held an account with the Barclays Bank of Kenya from 2015.

Her industry included interior design, curio and African wear, according to Barclays’ report.

However, between July 2015 and October 2016, the account sent and received about 63 wire transfers totalling to $197,094.51. Anyumba received funds from banks in Qatar, the US, Australia, China, Germany and Sweden; she also wired a total of $1234.45 in small payments to individuals in the US, Australia, Canada, Sweden, China and Singapore that the bank could not verify.

The transactions were flagged by the bank because of unidentified sources of funds, unclear economic purposes of the transactions, and potentially being third-party payments.

The justifications for the payments included descriptions such as “bill settlement”, “construction of house” and “consultation fees”, according to the bank’s report.

Other payment details included “government first payment”, “gift finalization of matters discussed”, and “supplier invoice payment to be forwarded”.

One sender from Australia made 13 transfers worth almost $12,000 to Anyumba within a year. The payment details included the mysterious notes: “supplier invoice the money better come back” and “supplier invoice make good on your promise no ivor no more bullshit.” The bank noted in its report: “ivor probably meaning ivory.”

Anyumba denied knowledge of these transactions in an email.

“Am sorry sir, I don’t know what you’re talking about,” said Anyumba when we asked her to confirm the above transactions. She did not reply to our follow up emails on her age, address and whether she is in the business of selling clothes and interior design materials.

There is no legal trade in ivory in Kenya, according to Dr Richard Thomas, the head of communications for TRAFFIC, a UK-based wildlife trade monitoring organisation. “It doesn’t come as any surprise to hear you say there’s essentially no record of [the parties]”, Thomas told reporters.

“Wildlife is like any other commodity that’s traded: there’s buyers and sellers and money changes hands. International commercial ivory trade is banned under CITES, but the trafficking of it takes place, run by largely Asia-based organised criminal syndicates. One effective strategy to targeting such networks is through following the money”, said Thomas.

Other senders of money to Anyumba include an American man with a history of shoplifting and bankruptcy, according to the bank’s suspicious activity report.

The account was expected to have an annual turnover of about 16 million Kenya shillings ($160,000), according to Barclays, but the customer received significant transactions whose real economic purposes could not be identified.

“Barclays Kenya has filed a SAR on Anyumba with their local regulator and is in the process of exiting the relationship,” the report noted.

The Kenya branch of Barclays Bank — now known as ABSA Bank Kenya PLC — had not answered our questions regarding the specifics of the transactions by the time of publication.

Musioma listed some general concerns of suspicious trade through Kenya because the country serves as a hub for drug smuggling and illicit trade in all kinds of goods, including ivory and smuggled minerals.

“All these monies are not carried in suitcases or wheelbarrows. The banking sector is at the centre of it. And I don’t think that both the Central Bank and regulators are doing enough to stretch banks in terms of punitive measures,”  said Musioma.

Many of the transactions flagged as suspicious by banks in the FinCEN Files involve recipients and originators from Kenya and other high-risk jurisdictions, including Cyprus, Mauritius, Moldova, Latvia, Afghanistan, Russia and Turkey.

Musioma likened banks to providers of “getaway cars” in crime and corruption in the country — the so-called intermediaries in terms of them providing the oil to enable corruption. “So, the fight against corruption, illicit financial flows and money laundering and all these other crimes can never be won without bringing in the central role banks play”.

Much more could be done to address the role of Kenyan banks in money laundering and other financial crimes, according to Musioma. For example, increasing the punishment for banks who break regulations designed to prevent illicit flows, improve due diligence in the banks’ compliance procedures, and address the issue of the revolving door.“ We have seen people moving in from the banking sector to become regulators and that will create a conflict of interest in the banking industry,” he said.

With Kenya working on being a regional financial centre, through the Nairobi International Finance Centre (NIFC) the regulation and enforcement of the financial sector must be tightened, the tax expert concluded.

Additional reporting by Juliet Atellah, data journalist at The Elephant.

John-Allan Namu, Martha Mendoza of AP and Kira Zalan of OCCRP contributed to this article.

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