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  1. INVESTMENT CHALLENGES WITHIN VISION 2030 PRESENTED AT NSE 29.04.2010 Presented By: Kariithi Murage Murimi CEO & Team Leader, JMG SOLUTIONS The Strategy, Training and Structure Solution Provider E-mail: jmgstrategy@gmail.com

  2. KENYA VISION 2030 • Vision is to become A globally competitive and prosperous nation with a high quality of life by 2030 • We are in 2010—so we have 20 years to go • Key pillars are: • Economic-grow by 10%p.a over next 25years—real GDP growth in 2009 estimate is 2.2% • Social-cohesive and equitable—we have 46% poverty level • Political—issue-based,accountable,result-oriented

  3. KEY CHALLENGE TO VISION 2030 • Not yet known by all Kenyan’s—seen as for Government • Not clearly linked to all devolved units, local government,CDF • Too much short term focus by Key Government decision makers mainly driven by politics • No culture of remaining strategic in issues, we are too carried by politics to make popular statements • Monitoring NOT at local level

  4. CAN CORRUPTION CREATE A FINANCIAL CRISIS The Economist of January 24th-30th 2009 had the following quote: “When people look back on a bubble, they tend to blame the mess on crookery, greed and the collective insanity of others. What else but madness could explain all those overpriced Dutch tulips? CORRUPTION IS A KEY CHALLENGE TO FAIR INVESTMENT DECISIONS

  5. WHO IS LISTENING TO VISION 2030 THE VISION 2030 DEVELOPMENT PROCESS WAS LAUNCHED IN OCTOBER,2006---4YEARS DOWN TO 2010 ARE TO GROW BY 10% PA?

  6. FOUNDATIONS FOR KENYA VISION 2030 • Macroeconomic Stability for Long-Term Development—do you see inflation, public sector deficits, stable exchange rate remaining stable? Challenge is independence of Central bank, Ministry of Finance • Continuity in Governance Reforms—getting political parties to be truly democratic is the key challenge • Equity and wealth creation opportunities for the poor—key challenge is collecting all due taxes,removal of corrupt practices,fair strategic identification of solutions—is it women fund,kazi kwa vijana,youth fund,how do create products and services that customers and law demand? • Infrastructure—mass transport,rail network,rural roads,rural water,rural electricity • Available reliable energy • Science,technology,innovation • Land reform,Public service • Security • Human resource

  7. MAIN CHALLENGES TO THE FOUNDATIONS • Getting security—Kenyans becoming neighbours to each other • Current cost of security is too high for creating business that is viable,security slows rural development as those with money stay away from rural areas due to fear • Science,technology,innovation—investing in education that is strategic to develop this area

  8. Solution to overcome challenge is manage risk--DEFINITION OF RISK MANAGEMENTAustralian/New Zealand Standard on Risk Management AS/NZS 4360 Risk Management An iterative process consisting of steps, which taken in sequence, enable continual improvement in decision-making. It is the logical and systematic method of identifying, analyzing, evaluating, treating, monitoring and communicating risks associated with any activity, function or process in a way that will enable organizations to minimize losses and maximize opportunities.

  9. RISK MANAGEMENT ACTIVITY The methods by which an organization chooses to manage its risks as outlined in its risk register and strategy. This REPLACES the traditional approach that focused purely on INTERNAL CONTROLS.

  10. GALAXY OF RISKS • Reinvestment Risk • Operational Risk • Interest Rate Risk • Systematic Risk • Event Risk • Liquidity Risk • Solvency Risk • Market Risk • Credit Risk • Legal Risk

  11. WHAT ARE THE ASSOCIATED RISKS WE ARE TALKING ABOUT? Risk management requires an entire set of models and tools for linking risk management (business) issues with financial views on risk and profitability. Together they make up the risk management toolbox, which provides the necessary inputs that feed and enrich the risk processes, to finally close the gap between models and management processes.

  12. DIMENSIONS OF RISK MANAGEMENT • Not possible nor desirable to completely eliminate risk • Required to understand all the risks that arise from business and then manage these risks effectively • 3 dimensions - Upside Management – creating and capitalizing on opportunities where an institution has distinct advantages to achieve the positive gains with improved chances of success - Downside Management – instituting controls and counter-measures to prevent or mitigate losses as a result of the constraints posed by the organization's operating environment - Uncertainty Management – applying methods and techniques to reduce the variance between anticipated financial outcomes and actual results

  13. WHY MANAGE RISK • Increase shareholder value - Value creation - Value preservation - Capital optimization • Instill confidence in the market place • Alleviate regulatory constraints

  14. MARKET RISK MANAGEMENT Market Risk is defined as “The volatility of return/potential for loss arising from movements in market factors, causing the net realizable value of financial instruments or securities to change adversely.” It includes the following Risk factors: • Foreign Exchange Rates • Interest Rates • Equity Prices • Commodity Prices • Implied Volatility • Correlation

  15. INTEREST RATE RISK – ASSET & LIABILITY MANAGEMENT (ALM) ALM is defined as “A systematic approach that attempts to provide a degree of protection to the institution for intermediation risk and makes such risk acceptable.” ALM provides the necessary framework to define, measure, monitor, modify and manage interest rate risk. ALM = Insurance Financial Management process involves simultaneously managing the differential rates of return on the assets and the rates on monies used to fund the assets. Rate earned – Rate paid = Spread

  16. MEASUREMENT OF INTEREST RATE RISKQuantification Methodology Maturity GAP Model • Kenya Shilling difference between the absolute value of Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL). • RSA are those assets that are expected to experience changes in contractual rate over a predefined ‘gapping’ period – not universal and vary per institution

  17. MEASUREMENT OF INTEREST RATE RISKQuantification Methodology Steps to GAP Analysis Select time frame to determine whether assets and liabilities are rate-sensitive or fixed rate Assets and liabilities grouped in time buckets or according to intervals to maturity or time until first possible re-pricing GAP = Kenya Shilling difference in RSA and RSL for each time interval Management interprets GAP information directly and indirectly via sensitivity analysis

  18. MEASUREMENT OF INTEREST RATE RISKQuantification Methodology GAP Analysis is used to: Hedge net interest income against changing interest rates Speculatively alter the size of the GAP in an attempt to raise net interest income Evaluate re-pricing date and not maturity date

  19. CONCLUSION – ECONOMIC PILLAR FOCUS TOURISM—Create resort cities,coast,Isiolo AGRICULTURE-development of an agriculture land use master plan. WHOLESALE AND RETAIL TRADE-strengthen informal trade MANUFACTURE FOR REGIONAL MARKET-raise regional market share from 7% to 15% BUSINESS PROCESS OFFSHORING-attract multinationals FINANCIAL SERVICES-more stronger and few banks

  20. CONCLUSION – KENYANS TO OWN VISION 2030 • Validation of Measurement Models---TRAIN MANY YOUTH TO MONITOR VISION 2030 AT THE GROUND

  21. THANK YOU VERY MUCH AS YOU PLAY YOUR MUSIC IN VISION 2030 INNOVATION THAT REALIZES THE CORE EXISTENCE OF ALL STAKEHOLDERS TO LIVE AND LET LIVE