Subject: AGLI--Report from Kenya -- #40 --April 4

Dear All,

Last week Val Liveoak sent me an email asking about an article she had read which told of the frenzy in Kenya to buy Safaricom shares. Since this really is an indication of what is wrong with Kenya, let me discuss it in detail.

Safaricom is the most profitable company in East Africa. It is a cell phone company that just passed the 10 million mark in customers. Celtel, the other cell phone company, has 2 to

3 million subscribers. Since there are only 34 million people in Kenya, at least one out of three people has a cell phone. You can buy a cell phone for $30 now (and probably much less if you get a stolen one). Calls are billed by the second and only the sender is charged.

The charge is high at 21 cents per minute (but there are lots of plan variations). To call the US is 38 cents per minute. So they make a lot of profit. On the other hand they have been a very creative and innovative company. I think that they were the first company in Africa to enable people to send money through their cell phones.

Currently the Kenyan Government owns 60% of the company shares. They are selling 25% of the shares at 5/- each (7.5 cents) and the minimum purchase is 2,000 shares for a total cost of $150. The total for sale of 25% is then 50 billion shillings or almost $800 million. Presently there are 800,000 Kenyans who own shares on the Nairobi stock exchange.

The prediction is that this offer will be oversubscribed by 4 times -- 3,000,000 Kenyans.

If you have a job, you can go to any bank (big ads in the papers) and borrow 10,000/- or more to buy shares. The banks never say what the costs of these loans are. [NOTE /- is the symbol for Kenyan shilling.]

These 3,000,000 Kenyans (almost 10% of the population) are the middle and upper classes of Kenya. The reason for the frenzy here is GREED. People think that they can get the shares now at 5/- and sell them when they can be traded on the stock exchange in June for 10/-, 15/-, 20/- or even 200/- and make a tremendous profit without doing anything except pay back their loans if they have them.

Here are the problems with this reasoning.

First, this offer is gigantic in terms of the economy of Kenya. The 50 billion shillings times

4 (if oversubscribed) will sit in banks for the next three months while the offer is being processed. This is a huge amount of money that the banks are/will be sitting on, but which is not lendable. Therefore interest rates will rise.

Second people are selling shares in other companies in order to buy Safaricom shares so the Nairobi stock exchange is depressed. (Frankly, if I were in the stock market business, I would not buy Safaricom shares, but the other companies whose shares are now undervalued.

But I lack the GREED that Kenyans have.)

Safaricom has big, full-page advertisements in the paper. These include the risks involved which are not insignificant. First, the cell phone market in Kenya is now almost saturated so Safaricom cannot in the future grow at the rate it has in the past. Second, a third mobile phone company is entering the market sometime soon and will create more competition that may lower the costs to customers (as it should), but will also depress Safaricom's profits in the future. There are about twenty other risks mentioned, including the return of chaos to the country.

At the price of 5/- per share the impression is that the stock is cheap. But with 10 billion shares, 5/- may in fact be an overestimate of the value of the company. If you read the financial analysis of the offering in the business section, as I do, you will note that the shares may be vastly over-valued. In other words, what if in June the shares turn out to trade at only

3/- per share? Or 1/-? People will not be able to pay off their loans with the profits from their GREED, but will need to use their regular income to pay back the loan and its expenses.

If this doomsday scenario happens much of the middle class will be in hock. If this happens they will think that they have been deceived by the Government, they will demand redress, and these demands could again turn into violence as the entire economy goes into real shock.

Raila Odinga and the Orange Democratic Movement (ODM) are opposing the sale at this time.

Their reasoning is as follows. A number of years ago the Kenyan Government sold 30% of their shares to Vodafone, a big British telecommunications company. But somehow or other a company called Mobitelea Ventures, which was registered in an offshore haven, ended up owning 5% (now it seems like it is 10%) of the shares of the most profitable company in East Africa. No one knows the identity of the officers or shareholders of Mobitelia. It seems clear that the owners of the Safaricom shares in this company are those politicians and high level civil servants who received bribes to complete the deal. This means that they are worth at 5/- per share, $160 million ( if 5% of the shares) or $320 (if 10% of the shares). This is Kenyan corruption on a grand scale. ODM wants the directors and shareholders of Mobitelea Ventures to be made public before the Safaricom shares are sold. It is easy to see why some people in the Kenyan Government did not want to give up their offices to the opposition which, during the election, promised to investigate this scandal and many others.

Do you remember the looting, burning, police repression, and death in January and February?

Kenya is back to normal, where GREED rules. This Safaricom sale is a clear indication that fundamentally, at the level of what needs to happen to reform this society, the conflict has already been forgotten. This is what happened in 1992 and 1997 when various politicians were assassinated, and what happened with the other simmering conflicts in the country.

As I noted in the last of my nine interpretation of the conflict here, this is a spiritual crisis. If people from top politicians and civil servants down to the many buying the Safaricom shares continue to put their own selfish interests ahead of the interest of the society and the country as a whole, then my friends, I think we will see another round of violence in a few years. Kenya needs to practice "Love your neighbor as yourself", "do unto others as you would have them do unto you," and other spiritual concepts that put others, society as a whole, ahead of GREED.

In response to the question that I posed in my March 30 report, Kenya's gift to America is Barack Obama.

Peace,

Dave