The Co-operative Bank IPO is here with us. From Thursday October 30, the bank is inviting you to make an offer on the 701 million shares it’s offering to the public in order to raise Kshs6.7 billion. Unlike the Safaricom issue, it is not a privatisation where the main shareholder has chosen to get out. Cooperative Bank is seeking to raise money to invest in expansion.

Under the Banking Act, there are limits to the amount of money a bank can collect from the public in terms of deposits. Indeed capital-to-deposits ratios restrict the level of deposits, which a bank can collect from the public. The Co-operative Bank of Kenya is at a point in its growth curve where it cannot engage in any meaningful expansion and growth without a massive capital injection.

The more that bank has in terms of share capital the more it’s able to do business with ease as it can lend more. This translates to a better P&L (profit and loss) and hence good returns to its shareholders.

However, even as we discuss the merits of the IPO there is widespread fear that this initial sale might not achieve its goal, at least at this period in time. Who will subscribe to the offer is the big question especially with skittish Kenyans who form the bulk of retail investors.

Co-op Bank IPO is tied to Safaricom’s in the sense many investors have learnt a few lessons albeit not positive. The success of this IPO will hinge on how fast Safaricom investors are willing to forget the bad experience. Many retail investors, and who make IPOs lively, have not forgotten that barely six months into trading Safaricom share has shed 30% of its listing value.

In addition, analysts are predicting a bumpy ride for the mobile phone shareholders, as more investors are willing to offload the stock at any price. This has been witnessed day in and out as supply exceeds demand even as the price goes below the listing price.

Investors have not forgotten the problem with the refunds. Some lost theirs through the confusion while many complained of the process having taken too long. Who can forget the queues snaking in Nairobi streets and the shoving and jostling as investors made their applications?

But what pains most investors is the expected profits which didn’t materialise. Billed as the largest IPO south of the Sahara, there was false optimism that the share would hit a high of Kshs15 and make a new breed of millionaires, just like the KenGen IPO did in mid 2006.

It is not only the retail investors who had misplaced their ambitions. Financial institutions led by banks came on board to finance its customers and are reaping big. And with the share below the listing price, there is widespread panic from all corners as banks try to readjust their non-performing loans in line with the new reality.

Going into the festivities, there is some feeling on the ground that investors might choose to forgo the IPO in readiness for December holidays and January school fees commitments. This argument does not hold water. Despite the high rate of inflation Kenyans are still engaging in their favourite past times i.e. drinking and partying. Money then is not issue. What should be on discussion is how much investors will afford to put in.

Safaricom’s shortcomings are a positive for Cooperative Bank. As of today, no bank, even Equity, has indicated any plans to finance the IPO. We are then going to see only serious investors as opposed to Safaricom where financial institutions went out of their way to dole cash to investors.  And serious investors are what is needed to streamline the Nairobi Stock Exchange.

Many retailers who got in did so for the simple reason that money was available. We can relate this to the speculative attitude adopted by retail investors since KenGen days.

Perminus Wainaina is the CEO of Concept Advisory Services, an investment adviser and stocks agent for African Alliance. He can be reached at perminus@conceptadvisoryservices.co.ke

3:08 PM on Sep. 18, 2008

The launch of Orange brand by Telkom Kenya yesterday at KICC ground is a milestone in Kenya telecommunication industry and specifically mobile telephony sector. According to the Chief Executive Officer of Telkom Kenya Mr. Dominique Saint-Jean, the company now offers several services in one package, with unrivaled value and simplifying the customer experience at competitive prices .

The launch might be the easier part considering the landscape they have to cover in order to gain even 10% percent  of the market shares. Kenyans have a queer calling habits, at the time when Michael Joseph said that most people thought it was a joke but new entrants into the mobile telephony market would ignore this at their own peril. There are a number of things which differentiate Kenyans from other breeds of humankind.

1. The close ties and expectation of the people around us
2. The unique sizes of the families, ok am talking about  how extended is the extended family is
3.   The need to fit in certain class or status. I know most of you will say no to this but truly speaking Kenyans are very class conscious  people
4.  The deep caring mentality of the close friends
5. Love for free things, to be fair let just say cheap things
6. Extraordinary loyalty to specific brands

Taking all the above and you get a unique brand of people with unique habits.

For Orange brand to succeed Telkom Kenya should be ready for epic battle and the followings might come in handy:

Price:

The company should let accident a happen in the mobile calling charges. A dramatic lower calling charges specifically in cross network calls will surely shake up things and having said that Kenyans like free things  or almost free, this will definitely makes them turn and look at the Orange direction. There some fundamentals to be taken care of as far as the pricing is concerned but adopting current revenue maximization as well as quantity maximization would be the best way to go at this time. Orange calling flat rate charges of Ksh.7 per minute for all calls between Orange Mobile, Orange Fixed Plus and Telkom Fixed is a good point to start. But the key here is cross network calls and let me explain why.

People buying lines or phones for the first time consider which network does the majority of their friends and family have to make decision. At the moment with high cross network call charges the new subscribers would consider who they will call frequently and if for example most of these people own Safaricom lines then that seal the deal very easily. Lower cross network calls charges would mean that the decision for new subscribers and even existing ones would not be based on their friends and relatives.Truly the future might be Orange but without considering this most people will buy the lines and keep them in their pockets for calling a few people on the network.

Creating Customers advocates

This a secret weapon most people don’t realize Turn your customers into advocates and keep them on your side  before the competition does. Customer advocates are the key to fueling growth and staying ahead of the competition.  Deliver the perfect customer experience with the right product assortment, and they’ll come to you. Creating customer advocates in a larger aspect is more than just a reward programs. By the way talking about the reward programs Kenyans love them, just look at how many people listen to Classic 105 in the morning to know where the Classic105 Zain man is and you will understand what am talking about.

Excellent Customer Service

One thing most customers hate is the fact that when they have a problem they cannot reach the service provider due congestion or sheer number of people calling at that time and  thus the line is infinitely busy. For heaven sake if you are service provider you have the liberty to create as many lines for your customers to reach you as possible. The reason most of them don’t do this is beyond my pay grade. During the launch of Orange brand the Chief marketing Officer of Telkom Kenya Njeri Rionge eloquently assured the public that all aspects of their customer relationships will be improved and for that most people on the street will say amen.

Cutting age innovation and mixing things up

Lack of innovation. Some businesses never change, but they lose their market share when a new company comes along with a new way of doing things. Take motorola for example. They stayed the same, it was comfortable, and they didn’t see Nokia coming. And bang goes their market share as millions of their loyal customers traipse off to fill their trollies with modern and affordable stuff. Well that might not be the case in the Kenyan market with with innovation driven giant like Safaricom leading the way Orange has to do more than enough. That is why they should mixup things and let innovative accidents happen and the management should ensure they notice potentially useful accidents.

Clear Marketing Startergy

The TV ad war taking shape in Kenya is expected to intensify in the coming months and with Iconet also expected to launch their services soon, it is going to be titanic battle. But could it be that Kenyans are TV ad resistant. I mean we notice the ads for its entertainment value but for not for what the extended purpose is! If that is the case then a strategy change is necessary. More so in terms of how to pass the message to the public.

Ladies and gentlemen could Orange brand be the best thing to happen to Kenya since the coming of Bamba 20?

Author: Kennedy Kachwanya

Website: http://www.whive.com/blog.php?user=kachwanya

The problem of NSE continues with shares prices heading South most of last week. The question on the lips of most commentators is how much worse can it possibly get. Increasingly last week, all too many seem to be pointing finger at the shear number of Safaricom shares plus some hidden hands which might be manipulating specifically the Safaricom share prices.Take a look at the following:

Geoffrey Irungu wrote in Busines Daily “As Safaricom’s share price decline drags down the total board at the Nairobi Stock Exchange, and the fortunes of hundreds of thousands of Kenyan investors” he continued to note ” Since its debut at the bourse, Safaricom has declined by a third, faster than the market average of a quarter, —implying there is more to the share’s slide than the prevailing bear at the market.”

Ng’ang’a Mbugua wrote in Daily Nation “Share prices are low, so why are we not buying?” He noted that when the  prices fall in NSE, the investors run away but sprint back when the prices begin to go up. The result is that many small-scale investors end up buying overpriced stocks and often lose out when the prices decline “to correct themselves” as experts say. Yet they could make more money by buying when the stocks are cheap.

Washington Gikunju writing on Business Daily took a dig at the fact that the banks might be the first victims of deepening prices of the Safaricom shares “Many financial services sector observers fret that the banks doled out too much money after lowering the requirements to the bare minimum. All that was required for collateral by most banks was evidence that the borrower was an account holder with the lending institution.”

If you are an investor in NSE take it easy and breath deeply. You have just survived the worst bear run seen in Kenya market history. I know the gut feelings of most investors at this time is to dump their shares and get out of the market. Well i will tell you not, because you might justify the theory that most people tend to give up when they are just three feet from gold.

Before the listing of Safaricom shares Prof. Anyang Nyong’o warned that the Safaricom shares were overpriced. Being an electioneering period his warning was taken as political brinkmanship. Actually it was the most politicized IPO ever with former finance minister Mr. Amos Kimunya once told Mr. Raila Odinga then ODM presidential candidate that Nairobi Stock Exchange is not a fish market. So with Safaricom shares it might be a case of proper adjustment.

The good news is that by all possible angle you look at it we have reached the bottom of this bear run and sooner than later the stock market prices will start rallying upwards. The factors which have been driving cost of living are cooling off. The oil prices are falling in the international market and we expect them do so in Kenya. The rate of inflation is going down and the liquidity problem which gripped Kenya in recent months seems to have been solved.

Author: Kennedy Kachwanya

Website: http://www.whive.com/blog.php?user=kachwanya

Introduction
To understand this question we must first understand the terms social networks and the labour market. A social network according to the “chatmine.com” glossary is a map of the relationships between individuals, ranging from casual acquaintance to close familial bonds. A labour market as understood in the classical sense defines labour as a commodity subject to the economic realm of demand and supply. The neo classical theory additionally proposes that all participants within the labour market have perfect knowledge about demand and supply in the job market. In reality this is not the case as people tend to rely on others for information. Hence then it is possible to disprove the existence of the perfect labour market in reality and the importance of social networks by showing how social networks bridge the information or knowledge gap between demand and supply within the labour market and also case scenarios how relationships within these networks determine the movement of labour within society.

By doing so I will examine the social factors that form the structure of these social networks.

Job search is defined as the sum total of activities that an individual goes through before he or she is able to find a job that is available. This is a key component in discussing various aspects of social relations.

Inertia is defined as an initial opposing force that resists change from a current format. I will show how inertia as a positive and negative force influencing the labour market.

Ignorance is defined as the lack of information due to lack of awareness of certain conditionality.

Income distribution is defined as the distribution of incomes across various social strata or class within society and specifically the labour market.

Social relations are defined by as the ties between people that are as direct result of lifestyle and education levels.

Inertia as a force in the labour market.
Inertia as described by Granovetter(1995) is the social and/or institutional pressure that creates obstacles to the free movement of labour as defined in economic theory. Social networks like trade unions essentially provide a basis for inertia to act as a force in changes of wages according to the demand and supply of labour. This in turn repudiates the notion of a perfect labour market and shows clearly some of obstacles employers have to surmount while making economic adjustments are due to institutional rules and social agreements that they have no control over. It is also arguable that inertia in social relations may act as positive force in control excessive movement of labour but clear indications are it creates an in efficiency in the labour market that destabilizes the notion that social relations do not influence the labour market.

An example as given by Granovetter includes agreements and other legally binding documents that disallow wage reductions by employers. In this case the rules of engagement within this social network are determined by a set of legally binding rule that state if, how and when labour can shift from one job to another.

Ignorance of social networks and its effects on the labour market.
This can be described as the lack of information or knowledge of social networks by participants within the labour market. In order to examine the effect of ignorance in diminishing the existence of the perfect labour market it is important to analyse the causes of ignorance which may be other factors which I have discussed in this article such as weak social ties and poor education.  This as illustrated by Granovetter(1995 pg 27) in previous research study as the lack of knowledge or inaccurate knowledge by workers of pay terms in other companies. These ideas suggest to me that workers may not be aware of more efficient ways of searching for jobs through social networks either because of their own lack of quality education which limits their resources and social connections to people who matter. This leads me to my next argument, where I define social relations and some of the factors that result in different social relations forming.

Social relations and how they determine movement of labour.
This examines the role played by people who mediate on behalf of the job seeker and their effectiveness in getting the job seeker the job without much effort on the job seekers part. Most of these intermediaries are suitably placed to mediate on behalf of others and usually contribute to the labour movement in the higher paying jobs. Hence higher income jobs tend due to social relations go to those who don’t actively look for them. Granovetter in his journal “The strength of weak ties” tends to take a more logical approach in examining the role of ties between two people in forming relationships that in the future yield positive results with regards to job search. In effect the closer the ties the smaller the informational gap and the faster information will diffuse to a person.

I support this hypothesis with a logical argument similar to that given by Granovetter in his journal “The strength of weak ties”.

Argument:

If Mary has a job offer

If John is Mary’s friend and knows Mary has a job offer

If Peter is looking for a Job and Peter is John’s friend

Then John will tell Peter about Mary’s job offer

This situation is enabled by social and environmental factors that nevertheless contribute to the formation of social networks that at the end of the day determine the nature and direction of job movement. These are:

Income distribution and education status in the labour market.
Income distribution in the job market is not balanced as high paying jobs tend to go to those with more established social networks and as discovered by Granovetter.

The job search process for individuals who qualify for higher income jobs also tends to be shorter then for those seeking normal jobs due to social relations that determine where and to whom these jobs go to. Granovetter using the Reynold study shows the disparity in effort used by those with higher educational status in getting the good jobs. I agree that income distribution  is relative to educational status and that social networks tend to favour those with higher quality educational backgrounds in the labour market.

Performance of workers due to social relations.
Social networks also influence the performance of workers in their new jobs in that those who get referred to jobs tend to do better initially than those who are non referred. Arguably one may think that those who tend to be referred by others for jobs  should theoretically be mentally conditioned to relax in their jobs because they have not spent much effort in looking for work hence do not appreciate the value of the job they have been given. This tends not to be the case as Emilio Castilla in his study of workers in call centres discovered that the effect of referral ties continues beyond the post hiring process having long term effects on the performance of the worker at the firm in a positive way.

In conclusion social relations do seem to have effects within the labour market because the social factors that form these relations adversely affect individuals participating in the job market.

Inertia creates obstacles for employers to adjust wages according to adjustments to demand supply of labour due to established social norms and relations between employers and employees.

Ignorance plays a role in diffusion of information about demand and supply within the labour due to a lack of the minimum social relations to break the knowledge gap.

Social relations and ties build up social networks which influence the movement of labour especially for high paying Jobs. This affects the labour market adversely and leads to what people refer to as unfair income distribution.

Performance of workers is influenced by social ties that result in job referrals and as a result tend to result in higher efficiencies from those who are mostly referred to jobs, as well as those earning the highest incomes.

All these factors show the dependability of labour on social structures that exist in society. The results often are real economic disparities that create the rich and poor divide, as well as what is referred to as the unfair advantage that the rich well educated person seems to have over the average job seeker. This assessment of causality and its effect leads me to ascertain that social networks do matter in the labour market.

References
* Granovetter, M. G. (1973). The strength of weak ties. American Journal of sociology, 78(6), 1360-1380
* Granovetter, M. G. (1995). Getting a Job.  A study of contacts and careers.
* Castilla. E.J. (2005). Social networks and employee performance in a call center. American Journal of sociology, 110(5), 1243-1283

* Definitions: http://www.chatmine.com/glossary/index.htm

General enquiries: info@johnkaranja.com

Write for us: write@johnkaranja.com

Shares information: shares@johnkaranja.com

Forex information: forex@johnkaranja.com

Internet information: internet@johnkaranja.com

Investment information: invest@johnkaranja.com

Although we publish quality and thoroughly researched content we dont advise readers to take everything as gospel. We encourage the reader to reflect and even debate on any item posted here.

As are result JohnKaranja team is not responsible for any loss to the reader.

We do not invest any monies from the readership nor do we expect the reader to request us to do so.

Lastly we request the reader not be guided emotionaly while making any monetary or investment decision based on content on this site.

We wish all the readers the best of luck.

SpaceKenya, a most promising IT solution providing company, based at Nairobi, Kenya is a one-stop shop for all your business needs. We are an Cymap Business certified IT company which besides rendering professional and comprehensive business solutions also caters to a range of services in software and web technology. The acuminous insight of our team has help set standards in this ever evolving industry.

SpaceKenya strives to achieve commercial success through non commercial satisfaction .Customer satisfaction is paramount to us, which we seek by providing quality services at competitive prices .Over 150 successful ventures have proved our trust in ourselves and that of our clients’ in us.