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Thursday, March 5, 2015

Feeling the pinch in Malawi


Tobacco selling season is almost upon us in Malawi and just like every year, the growers brace themselves for the inevitable strengthening of the Kwacha. It's bad enough that interest on farm input loans runs as high as 40% p.a., but to also have to contend with less Kwacha for every dollar in sales proceeds just doesn't feel fair. 

You see, tobacco inflows are concentrated between April and August of every year resulting in an average Kwacha appreciation of 7 - 10%. What this means is that aside from loan interest, the growers will also have to fork out 7 - 10% more to repay Kwacha loans that were created when the dollar was stronger. 

At this point you are probably thinking " why don't they hedge their exposure?" e.g. why don't they; 

1) borrow in dollars; surely interest rates would also be lower. This is possible but the commercial  banks capacity to lend in forex is very limited due to stringent regulatory requirements.
2) hold on to forex until later in the year and convert when Kwacha is weaker. Makes sense but it's unlikely to happen because the growers always need the cash immediately 
3) enter into fx forwards well in advance when the Kwacha is weakest. Good idea but unfortunately the interest rate differential is so huge that the hedge would be useless.

At a glance things look bleak. Well, the good news is that a fourth option exists which involves forming Savings & Credit Cooperative Unions(Sacco's). Sacco's would be able to address the growers' short term liquidity challenges, provide cheaper credit than banks and also allow growers to speak with one voice to lobby the regulator to ease restrictions on dollar denominated lending. Sacco's are major players in many other African countries and I don't see why Malawi shouldn't borrow a 'leaf' from our neighbors.

Monday, September 1, 2014

Are you still waiting for the bubble to burst?

If like me you’ve been waiting for the housing bubble to burst before investing in property all I can say is pole sana(sorry).After much head scratching I have reluctantly accepted to myself that I know very little about real estate and swiftly abandoned any dreams I had of swooping down like a hawk and playing monopoly in real-life. I still don’t know where all the demand is coming from. I still don’t understand why so many developers continue to pump millions into new projects. All I know is that the apartments next door to where I live went from 7.5M to 22M in only 5 years.

Thursday, August 28, 2014

The best way not to get busted by Nairobi’s new speed cops is to

…..slow down! I know it isn’t easy to shake off our natural urge to resist everything that even vaguely resembles bondage, but the guys who make the rules could have got it right this time. To help you make up your mind, I give you 3 reasons why you shouldn’t fight the speed traps


1.
the average Kenyan road user (whether driving, riding or walking) is impatient and careless
2.
the average Kenyan road is unsafe, poorly lit and/or potholed
3.
the average car in Kenya isn’t well maintained


Driving slower will make a huge difference in reducing accidents caused by any combination of these 3 factors.

Tuesday, November 5, 2013

Don't be fooled... starting a business isn't as easy as it looks!

Any one who has tried it, knows starting a business is anything but easy. What you will agree with however is that successful entrepreneurs do share some of the traits mentioned in this article entitled "7 things that entrepreneurs don't do". Not many of us would contemplate even going past No. 1 on the list, yet that level of single-mindedness in the beginning is often what makes the difference between success and failure. What you may call sacrifice, treps do naturally without a second thought; after all whats the point of going to bed when all that will happen is that you will stay up thinking about solutions to the latest business crisis.