Raila, Kalonzo team keeps off national event

Cord leaders Raila Odinga (center), Kalonzo Musyoka (Left) and Moses Wetangula (right) gave Madaraka Day celebrations a wide birth. By LUCAS BARASA lbarassa@ke.nationmedia.com IN SUMMARY One of Mr Odinga’s aides who did not want to be named as he is not authorised to speak on behalf of the Cord leader told the Nation: “My boss could not attend as he was not invited.” Coalition for Reforms and Democracy leaders Saturday gave Madaraka Day celebrations a wide birth. Retired Presidents Mwai Kibaki and Daniel Moi did not also attend the celebrations to mark 50 years of Kenya’s self-rule despite playing a major role in Kenya’ growth. Former Prime Minister Raila Odinga, former Vice-President Kalonzo Musyoka and Bungoma senator Moses Wetang’ula skipped the celebrations at Nyayo stadium, Nairobi. One of Mr Odinga’s aides who did not want to be named as he is not authorised to speak on behalf of the Cord leader told the Nation: “My boss could not attend as he was not invited.” “We had expected that since this is a major celebration to mark 50 years of self-rule, my boss, other Cord leaders, former President Moi and other regional leaders would be invited just as former President Kibaki graced Uganda’s celebrations recently. I think the current administration is overwhelmed,” the aide said. Nairobi Governor Evans Kidero who was elected on an ODM ticket was the top most Cord leader who attended the fete. Dr Kidero was the last to speak before inviting Mining Cabinet Secretary Najib Balala. The PM’s aide said “a nation turning 50 is not a small thing both regional and national leaders should have been invited.” “The leaders could not just attended celebrations as they could be embarassed with protocol guys, saying they were not expected,” he added. Mr Odinga spend his day at his Nairobi home, at times tweeting as the Madaraka Day celebrations continued. A number of Cord leaders including governors, sentaors and MPs, however, attended the celebrations in various parts of the country. Mr Odinga’s group also missed President Kenyatta’s inauguration ceremony in April and May 1, Labour Day. Yesterday was President Kenyatta’s first Madaraka Day since he took office after the March 4 elections. June 1 is the day when Kenya attained self-rule. Fifty years ago today, Kenya ushered in an era of self-rule after decades of colonial self-rule. As Mzee Jomo Kenyatta stood up at Uhuru Park to receive instruments power, the country erupted in song and dance.

IEBC official testifies in favour of Oduol

William Oduol presenting his case to the Siaya County Returning Officer after he rejected results from Bondo, Rarieda and Gem Constituencies on March 6, 2013. Photo/WILLIAM OERI NATION MEDIA GROUP By ELVIS ONDIEKI A presiding officer in the March 4 poll on Monday testified against her employer, the electoral commission, in an election petition. Read (Ballot box seals ‘were broken’) Ms Mary Agunda, who was in charge of the election at Boro Primary School, testified in favour of petitioner William Oduol, who is challenging the election of Mr Cornel Rasanga as Siaya Governor. Ms Agunda told the court that voter bribery was reported at her station, and that there was unusual voter behaviour afterwards. “At around 11am on March 4, an agent for Mr Oduol’s party received a call while in the polling room. She was told that something was amiss outside. I sent her there accompanied by a police officer where they found a man dishing out money to people,” she told Mr Justice Aggrey Muchelule. She said the man, identified as Mr Gelfas Obado, was arrested and upon a police search he was found with Sh4,000 cash. After that incident, she said, voters who came into the polling station exhibited suspicious character. “Several voters who came into the centre about an hour after the bribery incident were asking to be assisted to vote. Not only that, they insisted that they wanted to vote ‘six piece,’” she told the court. However, lawyer Patrick Otieno for Mr Rasanga took issue with Ms Agunda’s testimony. He argued that it was tantamount to disclosing how people had voted, which is in breach of oath of secrecy. Judge Muchelule allowed her to testify and urged Mr Otieno to respond to the issue in his submissions. Ms Agunda was, however, at pains to explain whether the polls team had given her official permission to testify against it. Lawyer Stephen Koppot, for Mr Rasanga, asked her to explain whether the commission had given her written permission to testify against it. She responded that she had notified IEBC via SMS. Mr Oduol wants the court to nullify Mr Rasanga’s election, citing several malpractices among them undue influence from the ODM leadership. He accuses politicians in Siaya of waging a propaganda war against him and glorifying a six-piece voting pattern. The hearing continues.

EA to grow by 5.8pc, above Africa’s average

Wheat farmers in Uasin Gishu County, Kenya. The economies of East Africa are expected to grow, boosted by the agricultural sector. Photo/FILE Wheat farmers in Uasin Gishu County, Kenya. The economies of East Africa are expected to grow, boosted by the agricultural sector. Photo/FILE NATION By SCOLA KAMAU Special Correspondent In Summary New data from the African Development Bank (AfDB) show the five economies — Kenya, Uganda, Tanzania, Rwanda and Burundi — could grow by at least 5.5 per cent in 2013 and 5.8 per cent in 2014. This is above Africa’s average of 4.8 per cent in 2013 and 5.3 per cent in 2014. Latest projections by the International Monetary Fund and the World Bank independently project improved economic conditions in the remaining part of the year, riding on easing inflation across the region. East African economies are expected to pick up in the remaining part of this year into 2014, riding on a strong showing in the agricultural, mining and energy sectors. New data from the African Development Bank (AfDB) show the five economies — Kenya, Uganda, Tanzania, Rwanda and Burundi — could grow by at least 5.5 per cent in 2013 and 5.8 per cent in 2014. This is above Africa’s average of 4.8 per cent in 2013 and 5.3 per cent in 2014. Latest projections by the International Monetary Fund and the World Bank independently project improved economic conditions in the remaining part of the year, riding on easing inflation across the region. AfDB said the Kenyan economy is expected to reach 4.5 per cent growth in 2013 and 5.2 per cent in 2014, slightly below the latest projections by the country’s Treasury, which sees the economy expanding by six per cent in 2013. Kenya’s Treasury said last week the country will grow at a faster rate than in the past two years riding on renewed investor confidence following a peaceful general election and favourable weather conditions that are expected to boost agriculture. Data shows agriculture accounted for 25.9 per cent of Kenya’s GDP in 2012, up from 23.8 per cent in 2011. READ: Agriculture's strong growth spurs Kenya economy to 4.6pc Tanzania’s medium-term growth prospects are around 6.9 per cent and will rise to seven per cent in 2014, through a significant boost from natural gas discoveries. “The boom in natural gas production may eventually result in an even higher rate of growth in Tanzania,” said economists at the World Bank in their latest outlook on the economy. Projections for Rwanda’s economy however remain bleak. AfDB said while Rwanda’s real GDP was on course to grow by a robust 7.7 per cent in 2012, driven by services and industry, growth was projected to slow down in 2013 and 2014, due to foreign aid suspension, tight fiscal and monetary policies and weak global demand. “Growth is expected to be sustained at 7.6 per cent in 2013, driven by an expansion in services and construction, and to stabilise at around seven per cent over the medium term,” said the IMF on May 20. According to AfDB, Uganda’s growth could reach 4.9 per cent in 2013 and 5.5 per cent in 2014 but could be lower if the suspension of budget support, announced by several donors in November 2012 is maintained. “Resource-rich countries continue to benefit from relatively high commodity prices, although easing of global demand has reduced price levels. Good harvests have boosted agricultural production in many countries and also helped to mitigate adverse effects of high international food prices on consumers,” said AfDB president Donald Kaberuka. Burundi is likely to stagnate at four per cent although the mining sector could lift the economy. The economy has grown at an average of four per cent a year from 2005 up to 2012 but is still fragile.

Refinery’s inefficiency, possible closure bad for regional business

East African countries rely on Kenya Oil Refineries Ltd for fuel refining, so its closure will have a huge impact on them. FILE East African countries rely on Kenya Oil Refineries Ltd for fuel refining, so its closure will have a huge impact on them. FILE Nation Media Group By JOINT REPORT The EastAfrican In Summary The complete closure of the refinery, which is a strategic national asset, directly employing about 250 people and supporting over 1,000 families will have far reaching economic ramifications for the region. The entry of Indian conglomerate Essar into Kenya’s oil refining business in 2008 was widely welcomed by East African consumers. The objective of the deal — which saw Essar acquire a 50 per cent stake in Kenya Petroleum Refineries Ltd (KPRL), leaving the government with an equal shareholding — was to finance the modernisation of the Mombasa-based facility and improve its efficiency. Five years later, it has emerged that Kenya is considering closing the refinery in the wake of growing inefficiency. New data compiled by the Energy Regulatory Commission (ERC) shows that Kenya is losing at least Ksh5.7 billion ($68.6 million) due to inefficiencies in refining its own fuel. READ: Financial crisis at refinery as fuel shortage looms in Kenya This is the price difference between products sourced by oil marketers from KPRL and ready processed fuel imported directly from outside markets. As a result, consumers are being forced to pay at least Ksh10 more per litre of fuel. Kenya is considering abandoning the policy that bars oil marketers from importing refined oil products and forces them to buy the products from KPRL. In order to accord KPRL protection, the Ministry of Energy introduced a rule requiring that all oil companies involved in importation of petroleum products purchase them from the facility in accordance with market share. Surplus refining capacity and planned large-scale export oriented refineries in the Middle East and India have put KPRL at a great disadvantage in terms of economies of scale, freight rates and quality specifications. The complete closure of the refinery, which is a strategic national asset, directly employing about 250 people and supporting over 1,000 families will have far reaching economic ramifications for the region. “The continued reliance on KPRL with its outdated refining technology means the country is unable to take advantage of the new diesel engine technologies available in the market, with adverse consequences on air quality and consequent health care costs,” said fuel marketing firms in a joint statement. “Loss of jobs has been put forth as an argument against the refinery’s closure, but this was bound to happen with any upgrade due to implementation of advanced stock management technologies that are less reliant on manpower. Neighbouring countries have lost confidence in KPRL,” they argued. Uganda refinery Opinion is divided on whether plans by Uganda to construct a refinery to process the estimated 2.5 billion barrels of hydrocarbons discovered in 2006 threatens Kenya’s geostrategic importance as the only country with a refinery in the region. Last month, the Ugandan government and companies exploring oil in the country agreed to construct a refinery to cater for the country’s domestic fuel needs and, later, a pipeline to cater for the international crude market. READ: Challenges ahead for Uganda’s pipeline, refinery SHARE THIS STORY 1 inShare According to the Permanent Secretary in Uganda’s Ministry of Energy, Kabagambe-Kaliisa, Uganda’s decision to construct a refinery is in line with Object Four of the National Oil and Gas Policy 2008, which seeks to promote value addition to the country’s oil and gas resources. The plan is to construct a refinery with a midterm (three to six years) refining target of 60,000 barrels per day and expand it in six years. For Uganda, a refinery would improve the country’s balance of payment by reducing the petroleum import Bill, which stands at $2 billion. As for Tanzania, its plans to put up an oil refinery have been stalled for several years as the country struggles to find an investor to take up the huge project. Building a refinery in Tanzania would give landlocked countries like Uganda, Rwanda, Burundi and the DR Congo an alternative to Mombasa. “In the past, there were some business people who said that they were willing and ready to build a refinery but, after the ministry gave them conditions to fulfil, they went away and never came back,” said a source at Tanzania’s Ministry of Energy and Minerals. Revisiting refinery plans Last year Tanzania said it would revisit its plans to construct an oil refinery, after Noor Oil and Industry Technology (NOIT) failed to adhere to contractual agreements. In the absence of a refinery, Tanzania imports all its petroleum products under a bulk procurement system that was introduced in the country by the government through the Energy and Water Utilities Regulatory Authority (Ewura). With 80 per cent of Rwanda’s oil imports handled at the Dar es Salaam port, the troubles at the Mombasa refinery will have little impact on supplies to the country. Rwanda buys the bulk of its fuel from the Middle East and Europe, which comes already refined. Official statistics show that Rwanda imports 154,000 cubic metres of oil annually and only 20 per cent transits through Mombasa while 80 per cent is imported through Dar es Salaam. However, Hannington Namara, CEO of Rwanda Private Sector Federation, said Kenya’s troubled oil refinery will have a negative impact on businesses in Rwanda, describing the facility as strategic. “It is a shame that the refinery is facing operational problems. The Kenya government should step in to help the rest of the community, which depends on fuel supplies from Mombasa,” said Mr Namara. Part of the fuel into Rwanda is re-exported to DR Congo and Burundi. By Kennedy Senelwa, Joseph Mwamunyange and Kabona Esiara

OAU 50 years on: Ambitious dreams, painful realities

IDPs wait for food at a camp in Mugunga, 15km from Goma, DR Congo, on May 25, as the AU celebrated its 50th anniversary. The Union is divided on how to end conflicts in Africa. Photo/AFP IDPs wait for food at a camp in Mugunga, 15km from Goma, DR Congo, on May 25, as the AU celebrated its 50th anniversary. The Union is divided on how to end conflicts in Africa. Photo/AFP By AHMED SALIM Special Correspondent Posted Saturday, June 1 2013 at 17:00 In Summary Instead of venting our frustrations at the AU, perhaps we should pause and realise we are just looking in the mirror? SHARE THIS STORY 0 inShare Related Stories How does the African Union score at 50? The United States of Africa was a concept that was first championed by Jamaican political activist Marcus Garvey in the early 1920s. Decades later, the concept became the late Muammar Gaddafi’s brainchild. It was an ambitious idea that was praised in public but, behind closed doors, ridiculed. Nevertheless, at the time of its conceptualisation, it was the most advanced form of regional integration and laid the groundwork for the Organisation of African Unity (OAU) that became the African Union (AU). Summit that trumped all summits From May 24-27, all of Africa’s who’s who and has been were in Addis Ababa, Ethiopia to commemorate the golden jubilee of the OAU and AU. This “jamboree,” as a former OAU assistant secretary general labelled it, was a summit that trumped all summits. The importance of such a convening was demonstrated by the presence of President Dilma Roussef of Brazil as well as United States Secretary of State John Kerry, who was arriving on the heels of the recently announced Africa trip by President Barack Obama. At the AU headquarters, there were many posters on the theme of “Africa Rising” to signify that 2013 is the year Africa takes ownership of its future. “Our time is now,” a Tanzanian diplomat told me when I asked her about the mood at the summit. “We have a real opportunity to seize the moment and transform our countries for the better.” This optimism was felt throughout the summit, but there was nevertheless an obvious clash between the symbolism and the reality. The juxtaposition of “Africa Rising” and the AU headquarters, a gift by the Chinese, seemed to say that Africa was indeed rising, but not on its own terms. Show me the money One aspect that directly affects the relevance and sustainability of the AU is the issue of funding. Between 2007 and 2012, the percentage contribution of member states to the programme budget of the AU and its organs went down from 27 per cent to 4.8 per cent. During the same period, external funding rose from 73 per cent to 95.2 per cent. This over-reliance on external funding is an existential threat to the AU. At the summit, former president of Nigeria Olusegun Obasanjo, as chairperson of the High-Level Panel on Alternative Sources for Funding for the AU, presented a comprehensive report during a closed session that directly addressed this issue. The recommendations of the report included a $2 hospitality levy per tourist stay in hotels and a $10 travel levy on flight tickets originating from Africa and going to destinations outside; or coming to Africa from outside Africa. The expected revenues are $650 million per year via the tax on air tickets and $113 million a year from the levy on hotel accommodations for a total of $763 million per year. This sounds good in theory, but implementation will be a challenge. A delegate who was in the session expressed frustration at how some of the island countries responded to the suggestions in Obasanjo’s report: “We were talking in circles,” he said. Sadly, one can say the same for many other discussions at the AU. Just a talking shop? One of the most common criticisms of the AU is that it is just a venue for presidents to get together to hear themselves talk. Former EAC secretary-general Juma Mwapachu, when I asked him about the AU in the context of comparing it with the African Development Bank (AfDB), said, “The AU is really the definer of Africa’s political and economic development vision. But the AU does not have resources to invest, and I think therein lies its primary challenge — it increasingly risks being seen primarily as a talking shop.” I had an interesting exchange with a former OAU official who said, “One of the things you have to know about the AU is that people talk a lot. There is a big gap between public positions of principles and assertions of sovereignty, dignity and their ability to deliver. So you talk a lot but do very little.” I pressed him on this and asked whether things got done during the OAU period? The official responded, “Yes, I believe things were much better back then; we had our differences, but things got done. Right now, we just have a jamboree.” Which brings us back to the AfDB. Fairly or unfairly, these two institutions are constantly compared to see which of the two does more for Africa. It was hard not to take note of the close overlap between the key meetings of each institution. The OAU/AU was celebrating its jubilee, while the AfDB was having its annual meeting, only a few days apart. By Sunday morning, it was clear that all the heavy hitters who were at the AU meeting were either on their way or already in Marrakesh, Morocco, where the AfDB meeting was being held. An African voice The primary difference between the OAU and AU is that the OAU’s sole purpose was to liberate African countries from colonialism and thereafter unite against apartheid South Africa. As a result, member states of the OAU had a unified African voice. It seemed easier to align over issues such as apartheid and colonialism, but that unity has faded since the establishment of the AU in 2001. I asked a Tanzanian diplomat whether African countries were less united or more united under the AU. She paused, and answered, “We are united in the sense that we all want infrastructure development and we all understand the resource issues facing the continent. The problem is implementation.” It is hard to say, truly, whether the continent is more united but it is quite telling that many of the conflicts that plagued the OAU are still very much alive today, from Congo to Somalia and Ethiopia-Eritrea in the Horn of Africa, as well as the never-ending stalemate in Western Sahara. And the AU appears unable to articulate an African position on the most pressing challenges facing the continent and beyond. What is the position on climate change and global warming? What is the African position on Syria? The disunity and contradictions of the AU were on display in Libya during the 2011 conflict. The inability to unite with respect to Libya deepened significant fissures within the institution. “Libya was a fiasco,” former OAU secretary-general Dr Salim A. Salim told me. “In Libya, the AU capacity to deal with a crisis of that magnitude was limited. Second, the people who were supposed to project an African position let us down,” namely South Africa and Nigeria who voted in favour of UN Security Council Resolution 1973 that approved a no-fly zone over Libya, authorising all necessary measures to protect civilians. The Libya debacle triggered blame games within the AU that ultimately led to divisions between the Anglophone and Francophone countries and the ouster of Jean Ping, former chairperson of the Commission. African solutions to African problems The Libya case was just another example of how having “African solutions to African problems” is a lot easier said than done. Divisions over how to address various conflicts continue. If the mood in Addis was one of jubilation, the mood on Twitter and other social media outlets was one of disappointment. A diplomat at the summit expressed this disappointment, saying, “There is a serious lack of humanity on the continent.” How can the AU transform itself and start solving important African problems? I asked this of Abdullahi Boru, a Horn of Africa specialist, and he said, “The AU needs to move away from being a club that defends its own.” Does this mean the AU has to think big and bold? Mr Boru answered, “It needs to be ahead of the curve by providing cutting-edge solutions to the new problems that were not around half a century ago when the OAU was formed.” The AU in 50 years So, will we care about the AU in 50 years or will future generations learn about it in classrooms as just another doomed attempt to achieve the elusive United States of Africa? It’s hard to say, especially with the rise of regional blocs like the EAC. There seems to be a feeling that the increase in importance of regional blocs will be at the expense of the AU. Mr Boru agreed, saying, “The regional outfits will make the AU somewhat irrelevant.” I asked Dr Salim whether regional outfits would supplant the AU and he said, “That has always been a debatable point. I have always taken the position that the stronger the regional economic groups, the better for the continental organisation.” Economic integration Clearly, if the AU wants to be still relevant in another 50 years’ time, there has to be a degree of convergence between it and the regional economic blocs. The two areas on which there seems to be strong agreement across the board are infrastructural development and regional economic integration. “There are a lot of points of convergence,” Dr Salim told me while we were in Addis. “We are all basically trying to make ourselves relevant and individually you can’t make yourselves relevant.” I spoke with an Ethiopian development specialist about the AU’s relevance in the future. “I believe the AU is absolutely an important institution for the continent,” he said, making the point that the AU is similar to institutions like the UN and European Union, and as a result suffers the same problems, “but that doesn’t mean we will be better off without it.” Maybe we get what we deserve? The specialist told me, “If the institution is perceived as being indecisive, ineffective and corrupt, perhaps that’s an accurate reflection of many of our countries and leaders across the continent.” How does the African Union score at 50? So, instead of venting our frustrations at the AU, perhaps we should pause and realise we are just looking in the mirror? Ahmed Salim is a programme manager with the Society for International Development. He is based in Dar es Salaam.

Kenya eyes more revenues from oil, gas explorers under proposed rules

The Ngamia 1 site in Turkana where British firm Tullow struck oil. Photo|FILE The Ngamia 1 site in Turkana where British firm Tullow struck oil. Photo|FILE NATION MEDIA GROUP By KENNEDY SENELWA Special Correspondent In Summary Draft regulations prepared by two consultants hired by the government and the World Bank propose a change in the profit-sharing formula and introduce capital gains tax as part of the conditions explorers will commit to before they are licensed to operate in the country. This will see companies pay taxes if involved in share transactions between non-Kenyan entities. Also proposed are tough transfer-pricing rules to seal tax avoidance loopholes. These will also prevent double taxation that could scare away investors. Currently, Kenya has a broad transfer-pricing regime with no specifics on the oil and gas sector. SHARE THIS STORY 1 inShare Kenya is seeking more revenues from oil and gas explorers with proposed regulations that could see firms pay higher taxes and change the formula for calculating proceeds to be earned by government. Draft regulations prepared by two consultants hired by the government and the World Bank — US-based Hunton & Williams and British firm Challenge Energy — propose a change in the profit-sharing formula and introduce capital gains tax as part of the conditions explorers will commit to before they are licensed to operate in the country. This will see companies pay taxes if involved in share transactions between non-Kenyan entities. Also proposed are tough transfer-pricing rules to seal tax avoidance loopholes. These will also prevent double taxation that could scare away investors. Currently, Kenya has a broad transfer-pricing regime with no specifics on the oil and gas sector. Transfer pricing occurs when locally registered subsidiaries are paid an artificially low price for their products by the parent companies registered overseas, which means the former pay artificially low taxes, while the latter profit from the difference. Kenya introduced amendments to the Income Tax Act under the Finance Act 2012, under which oil companies, mining companies and mining prospecting companies will be subject to a 10 per cent withholding tax on the disposal of shares and assets. The Bill does not define “oil companies,” a loophole the new proposals are hoping to seal. Under the proposed changes, capital gains tax was not included in the PSC signed with the oil firms meaning that legally, a sale of shares by a parent company (a non-Kenyan entity) to a buyer (also a non-Kenyan entity) does not attract a tax. This means a company can transfer its indirect interest in a Kenyan entity without incurring capital gains tax on the profit thus made. Capital gains are not taxable in Kenya (while there is capital gains legislation, it has been suspended since 1985). READ: Tough capital laws for oil and gas explorers The consultants argued clarity on capital gains was likely to reduce the potential for high-profile tax disputes, and permit investors to gauge the impact of the tax regime before committing to a transaction. In December, it emerged that the Kenya Revenue Authority (KRA) had written to Cove Energy, the UK oil explorer, demanding up to Ksh3 billion ($35.29 million) in taxes after it sold five off oil blocks in Kenya following its acquisition by a Thai company. Kenya was demanding a cut of the deal that saw assets in Kenya and Mozambique sold to Thailand’s PTTEP in August for Ksh153 billion ($1.9 billion). Oil industry experts said the aim of the tax was to charge the upstream oil and gas companies, borrowing from the experience of Uganda, which through its capital gains tax raised a tax bill of Ksh39 billion ($450 million) when Heritage Oil sold its shares in oil and gas fields to Tullow Oil. “Capital gains tax should not apply if a prospecting company sells part of its stake to another firm with a view to raising funds to accelerate exploration work or getting a strategic partner who is financially well endowed,” said Mwendia Nyaga, the lead consultant at Oil & Energy Services. The regulations are the latest in a raft of policy changes in the wake of increased exploration and mining interest. Canadian firm Africa Oil and partner Tullow Oil have discovered oil in their license blocks 10BB and 13T but still need to confirm commercial quantities. Kenya’s mining industry has largely thrived on secret contracts between government officials and multinational mining companies, sometimes attracting the wrath of communities and civil society groups over allegations of corruption and tax evasion. ALSO READ: Mineral discoveries put Kenya’s policies under the spotlight SHARE THIS STORY 1 inShare The proposed reforms are expected to calm growing uncertainty in the oil and gas business as to whether, in the event of commercial oil and gas production, exploration companies will recoup their investment, and what percentage of the realised revenues the governments will demand. Kenya, like its neighbours Uganda and Tanzania, is turning into a hotspot for oil, gas and mineral exploration, attracting millions of dollars in investments, but oil executives cited governments’ unpredictability as the biggest threat to doing business in the region. “The biggest threat to business is governments shifting the goal posts. In our game, everything is a risk. Tax regimes and laws are changing overnight. To us, this is as risky as drilling a dry well,” said Tim O’Hanlon, Tullow Oil’s vice president for African business in a previous interview with The EastAfrican. “Sanctity of contracts is the only fixed point in a moving world — if it changes after you have taken the risk, that’s a nightmare scenario,” he said. The current model of calculating government revenue based on the daily rate of production (DROP) in production sharing agreements (PSCs) will be replaced by the ratio (R-factor) of the firm’s cumulative hydrocarbons revenues to total costs. Under the current arrangement, the government’s share is calculated from the daily rate of production of profit oil, not of total oil, and the contractor’s income tax liability is settled from the government’s share of production. Despite the fact that Kenya has already discovered gas, the model of production sharing agreement is silent on how gas is to be commercialised. The new proposals seek to combine both oil and gas dealings into one production sharing framework. Increased revenue The move aims to ensure government revenue increases to correspond to hydrocarbons output of licensed firms with production costs and total revenues realised being used to compute the state’s share after a discovery. The R-factor balances taxation with project profitability and ensures the state receives a significant share of money. Ministry of Energy officials said the intended shift to R-factor is meant to ensure government revenue rises progressively with an increase of hydrocarbons production while Kenya remains competitive and attracts investment. “The R-factor is meant to ensure the fiscal regime remains stable as the state does not need to alter terms with the investor if the project turns out be more or less profitable than expected,” said a senior official in the Ministry of Energy. “The current mechanism which is based on total output is less progressive as it does not take account of price of oil or costs while R-factor eliminates separate PSCs for oil and gas” said John Beardworth, Hunton’s lead consultant. “Kenya has had a long exploration history with few discoveries, which increases the risk for investors due to greater uncertainty. With a progressive R-factor, if a discovery is not made, the investor’s loss is limited to costs incurred during the exploration phase,” he said. The R-factor has been successfully adopted in Mozambique and India.

The Africa Leadership Scorecard 2012

Illustrations by John Nyaga.  Nation Media Group

By NMG Africa Projec

 

In Summary

• Download the full report of the 2012 Africa Leadership Scorecard

2012 was an incredible year for Africa. It saw the entry of some new leaders, most notably a transition of leadership to Africa's second female president (by no means a drama-free one). It was also sad for those that lost sitting presidents, John Atta Mills of Ghana, Meles Zenawi of Ethiopia and Bingu Wa Mutharika of Malawi.

 The Africa Leadership Index is a tool of governance-tracking of African leaders developed by Nation Media Group's Africa Project.

It is an aggregate on all major indexes that cover Africa, plus our own (see note on methodology) led by  


LYNETTE MUKAMI.

Now that all the main reports for 2012 have come out, we bring you our ranking of African leaders by governance last year, beginning with the best and running down to the worst.

Note On Methodology

Leaders' grades were derived from how they placed in five respected international indices of governance, plus the Nation Media Group (NMG) Political Index. Their scores in these indices were weighted, then combined to produce a score on 100. The best governors placed closest to 100, and the worst closest to 0.


The scorecard heavily rewards consistency. If an Africa leader scores very highly in one or two areas, but poorly in the rest, he/she will end up with a dismal overall grade. A consistent score across the board, on the other hand, will place him/her highly in the overall standings. The indices were weighted as follows:

Mo Ibrahim Index – 10%
Democracy Index – 10%
Press Freedom Index – 10%
Corruption Index – 15%
Human Development Index – 20%
NMG Political Index – 35%

Leaders were assigned letter grades based on their 0-100 score, derived from the six indices. The best of the group received "A", good performers got "B", passable leaders got "C." Leaders who performed below standard received "D" and "F."

Also, two special categories were added to these basic grades: the Intensive Care Unit (ICU) and the Morgue. Leaders in this range represent the bottom of the barrel.

Mo Ibrahim Index

The Ibrahim Index is the most comprehensive collection of qualitative and quantitative data that assesses governance in Africa. It measures the delivery of public goods and services to citizens and uses indicators across four main categories: Safety and Rule of Law; Participation and Human Rights; Sustainable Economic Opportunity; and Human Development.

 Countries are scored between 0 and 100, where 100 is the best. The 'rank' refers to their position in relation to other African countries; the best governed country takes 1st place, the worst 52nd.
(http://www.moibrahimfoundation.org/en)

Democracy Index

The Democracy Index (2011) is compiled by the Economist Intelligence Unit and seeks to examine the state of democracy in countries. It focuses on five general categories: electoral process and pluralism, civil liberties, functioning of government, political participation and political culture.

Full democracies—scores of 8-10
Flawed democracies—scores of 6 to 7.9
Hybrid regimes—scores of 4 to 5.9
Authoritarian regimes—scores below 4
 

The rank refers to their position in relation to other countries worldwide, the most democratic take 1st place, and the least take 167th.
(http://www.eiu.com/public/)

Press Freedom Index

The Freedom of the Press Index is produced annually by Freedom House advocacy group. The countries are given a total score from 0 (best) to 100 (worst) on the basis of a set of 23 methodology questions divided into three subcategories. Assigning numerical points allows for comparative analysis among the countries surveyed and facilitates an examination of trends over time. The degree to which each country permits the free flow of news and information determines the classification of its media as "Free," "Partly Free," or "Not Free." Countries scoring 0 to 30 are regarded as having "Free" media; 31 to 60, "Partly Free" media; and 61 to 100, "Not Free" media.
(http://freedomhouse.org)

Corruption Index

Transparency International’s "Corruption Perceptions Index" ranks countries according to the perception of corruption in the public sector. It draws on different assessments and business opinion surveys carried out by independent and reputable institutions, and compiles the index to include questions relating to bribery of public officials, kickbacks in public procurement, embezzlement of public funds, and questions that probe the strength and effectiveness of public sector anti-corruption efforts.

The scale is from 10 (highly clean) to 0 (highly corrupt). The rank refers to their position in relation to other countries worldwide, the most ‘clean’ takes 1st place, the least takes 174th.
(http://www.transparency.org/)

Human Development Index

The United Nation’s primary method of measuring development, the Human Development Index is a comparative measure of health, education and income that was introduced in the first Human Development Report in 1990 as an alternative to purely economic assessments of national progress, such as GDP growth. It soon became the most widely accepted and cited measure of its kind, and has been adapted for national use by many countries. It is used to distinguish whether the country is a developed, developing, or under-developed country, and also to measure the impact of economic policies on quality of life. Health is measured by life expectancy at birth; education or “knowledge” by a combination of the adult literacy rate and school enrolment rates (for primary through university years); and income or standard of living by purchasing-power-adjusted per capita Gross National Income (GNI); GNI includes remittances and foreign assistance income, for example, providing a more accurate economic picture of many developing countries.

High Human Development = 0.7 and above
Medium Human Development = 0.450 to 0.699
Low Human Development = 0 to 0.449

The rank refers to their position in relation to other countries worldwide, the most developed will rank 1st place, the least developed will rank 186th.
(http://hdr.undp.org/)

NMG Political Index

The NMG Political Index is an evaluation of a leader’s performance, based on tracking by Nation Media Group journalists. It takes into account how a leader took power; whether they have extended or broken term limits; it measures investment in infrastructure; food security; democratic space; creative public policy and effective of execution; globalisation initiatives; and the extent to which a leader invest in national building. Because it is so ambitious, it has the highest weighting.

10-9 = outstanding
8-7 = good
6-5-4 = average
3-2 = poor
1-0 = truly appalling

Somalia and South Sudan got an 'Incomplete' grade as they were missing values for several indices that made it difficult to grade.

Download the full report of the 2012 Africa Leadership Scorecard