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Global Value Hunter

Picking the best low-hanging fruit where few others look -- for cents on the dollar

Why it may soon be a good time to invest in East Africa’s
largest economy -- at beaten down prices

Dar es Salaam to Nairobi map
Tim Staermose goes to Nairobi, Kenya

Just an 80-minute flight northwest of Dar es Salaam lies the sprawling city of Nairobi. Kenya’s largest city is both the safari capital of East Africa and a major business hub with its modern skyscrapers. Many multinational companies, including Oracle and Google have headquarters for their African operations here. In recent times, Nairobi has earned the moniker the “Silicon Savannah” for its high concentration of tech businesses.

It’s amazing how different Nairobi is from Dar es Salaam. Nairobi is nearly 1,700 meters (5,500 feet) above sea level and, with its mild weather, almost reminds me of Europe. Though only just south of the equator, unlike Dar, where the weather is hot and muggy, Nairobi doesn’t feel tropical at all. Temperatures range from 14-28 degrees Celsius each day and humidity is low. The climate is what’s sometimes called “eternal spring.” It’s green and leafy too.

View of a typical green, leafy neighborhood in Nairobi, Kenya.
View of a typical green, leafy neighborhood in Nairobi, Kenya.

But that’s not the only difference. GDP per capita and development is much further advanced in Nairobi, too. Where Nyerere took Tanzania down a socialist path, Kenyatta put his faith in capitalism.
The difference has to be seen to truly comprehend. Kenya leads the world in cashless payments, along with China and the Scandinavian countries. Kenya’s leading mobile phone company Safaricom, one of the largest and most profitable companies in the East and Central Africa regions is a tour de force with its M-Pesa mobile payment system.

On one of my morning walks, I walked past the Safaricom headquarters. It is probably Africa’s most successful company of the last 15 years with nearly 70% share of the Kenyan mobile phone market and a 90% share of the mobile money market. It accounts for a staggering 65% of total Kenyan stock market capitalization right now.

Safaricom HQ
Headquarters of Safaricom, a leading mobile service provider in Kenya and East Africa.

It has made many millionaires and even billionaires in Africa. My friend in Tanzania owns several percent of the company and is a huge fan. 

But, he invested years ago, and says it’s now “fairly valued.” Since African Lions Fund is looking for companies that can both double in size on a 5 to 10 year view, and double in valuation, Safaricom has not been on our shopping list yet. It would take a share price correction similar to what we saw in March 2020 to put it on my radar.

Real estate is big business here too. There are many in-fill developments in the wealthier parts of town. Old houses on big 0.75 acre plots are being knocked down and turned into townhouse and high-rise developments. This is the same thing I saw in Bangkok, Seoul and Jakarta during my time in Asia. Less so in Manila where building covenants on the gated village enclaves of the wealthy prevent it.

In the leafy, wealthier suburbs of Nairobi, such as Muthaiga, or along Mzima Springs Road which I discovered on another morning walk, there are huge houses all on what appear to be 1-acre plots.

In absolute terms, when compared to other cities around the world, property in Nairobi seems cheap to my, as yet, uninitiated eye. High-quality apartments in the leafy diplomatic district I’m staying in, along Riverside Drive, seem available for under $1,000 per square meter or approximately $100 per square foot.

Foreigners can get 99-year extendable leaseholds on land. I’m not sure about apartments and condos.

There are still, however, plenty of unoccupied properties, like this one. Not a blind or curtain in sight. Occupancy near zero I’d say.

Unoccupied Real estate
Luxury apartment, Construction boom in Nairobi

All over Nairobi I see evidence of an apartment construction boom which I’m told turned to bust. While unaffordable for most locals, and finance availability is scarce, prices are a tiny fraction of what near-zero interest rates have wrought in Asia and Europe.

The quality is similar too. These are not shoddily built third-world apartments. They are modern and many are luxurious.


If I were a young person in Hong Kong, or another similarly expensive city with an uncertain future, and I had portable job skills or some business acumen, I might look to relocate somewhere like Nairobi, where you could live in your own place, five times the size of a tiny HK flat and for a quarter the price. Great weather too, especially if you’re not used to the tropical countries where the there’s only three seasons: hot, hotter, and hottest.

In some respects, Nairobi is very modern and developed. In others not. One reason property is relatively cheap? The market is almost totally void of formal borrowed money. There are only 26,000-odd registered mortgages in all of Kenya.

But debt is a growing business here too. There are easy payment plans advertised for stuff like appliances and furniture. “Buy now pay later,” with “three months interest free” offers abound.

Billboard in Nairobi

Kenya is a tech-savvy place with online business almost on a par with the West and Asia

People advertise their websites all over the city. People get on their smartphones and stuff gets done. If you were looking to buy or rent property, it’s a simple matter to just go out and walk neighbourhoods of interest and get direct contact details. Almost anything under the sun can be ordered online and delivered to your doorstep.

One of my meetings last week, looking for possible investments for African Lions Fund, was with a company that has developed CRM and ecommerce software modelled on Sales Force and Shopify, all done in-house here in Kenya.

Kenya’s economy also benefits from money and businessmen coming in from unstable nearby countries seeking safe haven in Kenya. You might have the perception that Kenya is risky, but to a Somali, South Sudanese, or Eritrean, Nairobi is like Zurich or Singapore.

A bright spot this year for Kenya’s GDP has been agricultural, or specifically horticultural produce exports which are doing well during the pandemic: avocados, tea, fruit, flowers and coffee. Most of this goes to the UK and Europe. It’s an important foreign exchange earner, especially in a year where Kenya’s famous tourism industry has been hit very hard.

Much of Kenya is very fertile and agriculture is a big industry. The beautiful red Kenyan soil always amazes me. At one point, I made a stop to shop at the local fruit and vegetable store. There is an amazing range of produce, from pears to mangoes to lychees, to macadamia nuts at the lowest prices I’ve seen. There was literally everything imaginable except, Brussel sprouts. Luckily, mangoes at US$0.70 a kilo made up for it.

There is abundance of food at reasonable prices. Meals at good restaurants run $25 to $50 for a family of four.

But there are some downsides in Kenya. Terrorist attacks have sadly been a fairly regular occurrence. When out and about in Nairobi, one quickly realizes it’s a police state. Constant flash-photography of the cars and people in them from the overhead cameras all along the major transport arteries is one example.

To get a cup of coffee at the nearest cafe, I went through a metal detector, had my phone, keys, glasses, money clip, etc., go through an Xray machine with three security guards watching. The third one scanned my ID and demanded my phone number so the security company could send me a four-digit security code without which I couldn’t enter the complex. It’s important to note that this was the SECOND checkpoint, AFTER I got past the big armoured front gate with sentries patrolling.

But hey, this is not much different from the TSA. And if you’re already used to these measures, this should be a non-issue. Anyway, the world has really gone mad. The response to Al Shabaab terrorist attacks in Nairobi’s Westgate mall back in 2013 has clearly affected basic freedom to a serious degree. And now they have added Covid-19 contact tracing into the mix.

In many parts of Nairobi, they are enforcing a compulsory mask policy. And before we flew to Kenya, we went to the Aga Khan Hospital in Dar es Salaam for the required Covid-19 tests. In Tanzania, Covid tests cost US$100 a head for non-residents. What a racket.

But that’s actually cheap compared to some other parts of the world. My website manager and editor in Thailand has a friend flying back home to France. A few days before the flight, she was informed she needs a Covid test because of a 4-hour layover in Amsterdam. That added $200 to her expenses.

It looks to me as though the era of budget airlines and budget travel is gone. For my family of four, including an infant sharing a seat, the discounted economy flight from Dar es Salaam to Nairobi (again, just an 80-minute flight) including the Covid test, came to $500 a head.

I’m not complaining, just pointing out the reality we now all face. Overall, my trip to Kenya has been great. We also managed to sneak in a Danish Christmas dinner whilst here (cooked by yours truly at my daughters’ insistence.)

Roasted duck
Christmas dinner

I’ve had a series of meetings with company executives, brokers, analysts, and a local family office. Overall, I’d say that while equity valuations are relatively cheap, there is no immediate rush to invest in Kenya. Macro conditions here are challenging for most leading companies. I’m happy with the call I’ve made so far to underweight this market. We have less than 5% of the fund in Kenya at present. That said, I’m looking at some interesting small caps that may be oversold.

Unfortunately, Kenya’s biggest problem seems to be that it is much further along in its financial sector development than neighbouring countries, and it suffers from a debt affliction like the West. Many ordinary people seem to carry revolving debt balances via the various high-interest, short-term loan products accessible on Safaricom’s M-Pesa and other similar platforms via the banks.

Car loans are also big business. I see signs all over town advertising “fast cash” in return for mortgaging your vehicle registration papers. But the biggest borrower of all is the Kenyan government. The debt to GDP ratio has hit 62% and a whopping 41% of the government’s budget goes to service existing loans. Kenya is even in talks with the IMF about a loan and may be seeking to restructure some of its foreign public sector debt, which in 2019 cost a hefty 3.6% of GDP to service.

Kenya's Debt-to-GDP ratio
Source: World Bank

The country needs economic growth to digest all that borrowing and boost tax receipts, but right now growth is hard to come by.

I do think the cycle will turn sometime in late 2021 or 2022. And with valuations cheap, I am on the lookout for stocks to buy here. But again, I’m not in a rush.

Until next time,

Good Investing!

Tim Staermose

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