ACQUISITIONS AND MERGERS BEST WAY TO GROW THE ECONOMY

IF YOU ASKED ME TO NAME THE key institutions which have made a great difference to the functioning of the economy in the last 20 years, my list would include the Central Bank of Kenya, the Capital Markets Authority, the Kenya Revenue Authority and the Retirement Benefits Authority.

And, if you asked me to name an individual who made a big, personal contribution in modernising some of these critical institutions in their nascent stages, I would name former Central Bank Governor Micah Cheserem.

A man with an intuitive mind for spotting talent, his approach was to head-hunt, hire the candidates on Central Bank terms, and then release them to go and work in establishing these key institutions when still in their formative stages.

Indeed, there was a time when the Kenya Revenue Authority, the Retirement Benefits Authority and key departments at the Treasury were all being run by secondees from the Central Bank of Kenya.

We still remember the battles he fought with other power-wielders of the Moi regime to ensure these technocrats were protected from politicians.

His critics would dismiss him as a power-hungry fellow whose only desire was to plant his stooges in key positions and create a personal empire within Government.

But when you look at how these institutions have evolved today and reflect on the power games which the man had to play to see them through their infant stages, you will appreciate that Mr Cheserem was ahead of his peers in appreciating the principle of government by institutions.

Like every human being, Mr Cheserem made many mistakes. But his record is still an engaging lesson on the impact of personality on public office – how an individual can, through sheer will-power, temperament and passion, doggedly fight to ensure key economic institutions are in the right hands.

I have digressed. My intention was not to celebrate the achievements of Mr Cheserem. I merely cite him to stress the point that institutions do matter, and that a public servant running a key economic institution can make a big impact if he interprets his mandate broadly.

Which brings me back to the Capital Markets Authority. In terms of transforming the economic environment of this country, the CMA is one of the economic institutions which have made a big difference.

There was a time when approval for primary share issues was the responsibility of a small committee in the Ministry of Finance composed of bureaucrats with no capacity, nor the training in either merchant banking or finance. This body went by the name Capital Issues Committee.

IF A COMPANY WAS RIPE FOR AN IPO, its proprietors had to go to these arm-chair economists cap-in-hand and beg them to allow the company to do so. Nor did the entrepreneurs have the right to decide on the offer price. The bureaucrats would decide it by fiat. As a result, few companies would come forth to float shares.

I do not want to go into the details of what has happened since the system was liberalised and the CMA established.

The point I want to make is that we are at a juncture where the CMA must re- engineer itself into an organisation that can easily adapt to new global trends.

Today, the trend for companies the world over are mergers, strategic alliances, acquisitions and joint ventures.

Recently, we witnessed the case of Nigeria where authorities there influenced commercial banks to merge into a few well-capitalised institutions with balance sheets that are large enough to allow them to compete globally.

Yet in Kenya, we still follow price control-era rules which only work to impede mergers and acquisitions.

During this year’s budget speech, we all applauded when Finance minister Amos Kimunya announced higher capitalisation requirements for banks and insurance companies.

But how can this happen when companies whose best option to increase capital is to merge with other willing companies continue to be impeded by arcane regulations by the CMA and the Monopolies and Price Commission?

These two institutions have grown into monsters that have totally misinterpreted the spirit of the laws for which they were created. Enlightened regulation promotes growth instead of stifling it.

A merger between Equity Bank and Housing Finance can only be in the interest of mortgage holders in this country, for it will create a group with a much larger balance sheet and with the capacity to support our dwindling mortgage market.

The planned merger between Stanbic Bank and the CFC group is in keeping with trends elsewhere and should be supported.

The Government should encourage Bamburi Cement Ltd and East Africa Portland Cement to merge quickly and create a national Kenyan champion with the regional reach and capacity to compete with producers of cheaper cement from South East Asia.

The current regime for approving mergers and acquisitions is too long and time-consuming.


SOURCE: DAILY NATION