De La Rue offices in Ruaraka, Kenya. The British currency printer has
dropped a demand to be given a 10-year contract to exclusively print
Kenya’s currency notes as a prerequisite to forming a joint venture with
the government. PHOTO | FILE
NATION MEDIA GROUP
British currency printer De La Rue has
dropped a demand to be given a 10-year contract to exclusively print
Kenya’s currency notes as a prerequisite to forming a joint venture with
the government.
De La Rue said in a brief seen by The East African
that in view of the expected sharp rise in demand for bank notes within
the East African Community under the planned single currency regime,
its board has reversed the decision to make a 10-year contract a
precondition of entering into the joint venture.
The
Kenya government is to purchase a 40 per cent share in the British
company’s local subsidiary, in a deal whose negotiations have dragged on
since 2006.
Treasury Cabinet Secretary Henry Rotich
said on Friday a memo had been forwarded to the Cabinet last month
seeking approval for the establishment of the joint venture.
“Yes,
I have heard that they have dropped the precondition. But that was part
of the negotiations. What we are focusing on now is to have the
transaction first approved by Cabinet before we can deal with the finer
details of the whole deal,” said Mr Rotich.
The
decision by De La Rue to step down on its demand is expected to reduce
opposition from critics of the joint venture — mainly MPs and civil
society — who had argued that the British firm was keen on locking out
rivals from the lucrative currency printing business by insisting on a
10-year exclusive contract.
“I can confirm that De La
Rue has done all we can to address any issues that have been preventing
the joint venture agreement from being concluded,” said Rob Hutchison,
De La Rue’s head of communications
.
.
“We believe that
there is now a compelling argument for the joint venture to be given the
go-ahead and we believe it also has the support of the governor at the
Central Bank,” said Mr Hutchison.
In May last year, De
La Rue had said it would close its local subsidiary if the Kenya
government did not grant it exclusive rights to print currency.
The
firm had told the parliamentary Public Accounts Committee, which was
investigating the 10-year exclusive contract, that its business would be
unprofitable if it were denied the currency printing deal. The CBK has
said in the past that it would not guarantee the firm the business of
printing Kenya’s currency.
The joint venture
arrangement was first approved by Cabinet in 2011, but the two parties
are yet to consummate the deal. The proposed arrangement has been at the
centre of protracted administrative wrangles within the government,
parliament and the courts.
LEGAL OPINION
In
late 2011, Attorney-General Githu Muigai, in a legal opinion,
recommended that the deal be held back pending resolution of two court
cases filed by members of civil society challenging the transaction.
The
two cases pending before the High Court of Kenya claim breach of the
right of access to information and the lack of public participation in
the process.
With the change of heart by De La Rue, the
brief shows, the UK firm says it will make the proposed joint venture
the centre of currency production for the EAC ahead of the start of the
10-year countdown to the bloc’s single currency, following the signing
of the Monetary Union Protocol in late 2013. (READ: Leaders sign EAC Monetary Union Protocol)
The firm is positioning itself for the business of printing the EAC single currency.
Data
from the currency printer show the approximate annual supply to Kenya
over the past five years has been 500 million banknotes. Under an EAC
single currency, the firm says, the required volume of notes across the
region including South Sudan would increase from 1.9 billion a year to
around 2.4 billion notes per year by 2018.
Under the
joint venture, the GoK will earn 40 per cent of the profits from the De
La Rue Kenya factory, on top of what the Nairobi-based factory claims it
currently returns to the Kenyan economy in terms of employment and
economic linkages — an estimated Ksh1.3 billion ($15.29 million) per
year.
The British firm has had a monopoly of printing
Kenya’s currency since January 1993, when it signed a 10-year contract
with the government of former president Daniel arap Moi.
Proponents
of the venture argue that having a fully fledged banknote printing
facility based within the EAC will mean a short transit distance from
the factory to the vault, reducing the security risks of shipping and
the large cost of air freight.
Again, it would make it
easier for banks to call for small amounts of cash at a time rather than
making bulk shipments of currency from another part of the world, as it
is the arrangement currently.
De La Rue argues that the Nairobi facility, under a joint venture, can be used to export currency to over 30 other countries.
However,
the status of the second precondition for the venture set by the
British firm is not clear. De La Rue was pushing to have the government
grant it an export processing zone licence with liberal tax privileges.
The
firm, in its submissions, said it has experience of joint ventures with
other countries, for example in Sri Lanka (where the company has a
60/40 arrangement as proposed in Kenya).
This story was first published in The EastAfrican
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