Never keep cash with you; give it to other people to invest for you
A razor thin wallet, household tensions, school fees and near-empty fuel tanks are common hallmarks of the dreaded month of January.
But at the back of the mind, the majority remain hopeful that 2014 will bring better tidings; a new job, new car, bigger house and more financial stability.
The difference between those who achieve their dreams and those who don’t comes from investment decisions made in January.
For the savvy business people and professionals, the time to reminisce about the December holidays is gone.
They are already ordering consignments of goods from China, poring over the newspapers for the most lucrative government tender, talking to their brokers about which cherry stocks to pick at the bourse, the next land, real estate or car deal to close and the like.
Here are a few tips on where and how to invest and make money in 2014:
The Nairobi Securities Exchange is a red-hot investment option for those with a sizeable risk appetite and the financial space to absorb potential losses.
Investors at the stock market who had a well-balanced portfolio of shares in 2013, made returns of nearly 50 per cent as measured by the NSE All-Share Index, which tracks performance of all companies listed at the bourse.
This means an investment of Sh500,000 in the 61-listed companies jumped to Sh750,000 on average.
The NSE has been on a two-year bull run and all indications are that the share price rally is set to continue for a third consecutive year.
“Investors at the stock market have recorded outsized gains over the past 24 months and I expect a sequence of three years in a row.
The outstanding resilience seen after the Westgate event was a very bullish signifier,” says Aly Khan Satchu, an investment adviser and CEO of Rich Management.
Safaricom was undoubtedly the story of the year having soared above the 2008 listing price of Sh5 per share, more than doubling the investment of an estimated 600,000 people who own the stock.
“Safaricom posted a triple-digit percentage gain in 2013 and I continue to see price appreciation towards Sh13.5,” he added.
The stock market, however, is more suited for investors who hold a long-term view on their investments.
It is prone to volatility that requires patience and good strategy, with resultant loss of investment in some cases.
There are generally two categories of companies listed at the stock market, the mature ones which pay high dividends every year and growth counters that pay low or no dividends but have the potential to increase their earnings hence repay investors through share price gains.
Growth companies that do not pay dividend or pay little but exhibit high growth potential should be viewed with a long-term outlook.
They include Britam, Centum, National Bank, NIC, and DTB among others.
The mature, dividend-rich stocks include cigarette manufacturer BAT, beer maker EABL, cement maker Bamburi, the Nation Media Group and industrial gas producer Carbacid.
An understanding of the growth of companies and the overall economic performance are reliable indicators of which stocks to buy and which ones to sell.
For example, Kenya Airways and KenolKobil recovered from loss-making in 2013 and look set to offer good returns to their investors should their turn-around plans yield good results. But the sugar sector does not look bright, due to market fundamentals.
Johnson Nderi, the ABC Capital corporate finance and advisory manager reckons that investors in the stock market could earn anything between 10 per cent and 15 per cent returns this year.
Farming is becoming the new cool, as young people realise the huge potential and handsome returns that come with soiling ones’ hands.
Besides getting dirty, setting up a value-addition agribusiness represents a massive growth area that has the potential for high returns, according to edible oil manufacturer Bidco’s managing director, Vimal Shah.
“Investment opportunities are huge in provision of goods and services in agribusiness,” he says.
Agribusiness has the potential for high returns both for the small scale investors keen on growing and selling such products as watermelons, onions, tomatoes and capsicum.
Small-scale farmers have taken to using greenhouses that help them control the conditions under which the crops are grown and thereby almost guaranteeing returns.
A greenhouse that costs about Sh180,000, has the potential to return as much as Sh400,000 profit.
Investment in vegetables and fruits that are a favourite with Kenyans especially when their harvesting is timed to coincide with the dry season will guarantee high returns.
For large scale investors, agri-business also offers attractive opportunities such as leasing land for wheat, maize or potato farming.
High demand for Kenyan flowers abroad offers a ready market for horticultural farmers.
Innovative technologies have also attracted young people to the sector as investors in production of commodities, supply of inputs or as markets that offer good returns along the value chain.
Hospitality (hotels, restaurants and pubs) business:
As long as an investor maintains high standards of service in the food business, he is bound to attract big money.
The growing middle class population is demanding comfort, convenience, quality service and a hotelier keen on providing these is bound to get high returns.
The Kenya Hotel Keepers and Caterers Association managing director, Mr Mike Macharia, says the hospitality industry which covers areas such as hotels, restaurants, pubs, travel among others has high growth potential in Nairobi and other major towns in the counties.
“The key is to target counties and towns such as Eldoret, Kisumu, Meru and Kakamega that have been neglected for a very long time.
You can invest in anything from three to five star hotels in these areas and they will do well,” says Mr Macharia.
People will always eat. But they are unwilling to dine just anywhere. If you decide to get into the food business, seek to be unique.
Customers will every day troop into restaurants that offer good food and excellent service.
The key even in the pub business is to guarantee cleanliness, consistency in food quality as well excellent service.
Customers won’t mind paying the extra, if they are assured of quality.
According to Johnson Kimathi, a director at Legend Restaurant in Nairobi, you have to invest big money in hotels and food service to reap big.
“The industry can effectively generate jobs across all levels as other sectors of the economy because it is so reliant on people to provide a service,” he says.
The Kenyan real estate sector has been booming for the past decade or so, lifting most investors in the sector to the millionaire class.
A quarter acre in one of the key towns—say Nairobi, Mombasa, Kisumu ,Eldoret or Nakuru—could earn you millions either through just waiting it out for price appreciation or developing residential or commercial property.
High-rise apartments, targeting mostly the middle to lower income segment of the market where demand is high, can fetch anything between, Sh3 million to Sh8 million depending on the location and quality of finish.
According to Lee Karuri, chairman of Nairobi Securities Exchange (NSE) listed firm Home Afrika that develops mass affordable housing, low-cost houses anywhere in Kenya are likely to earn investors good returns.
The houses costing between Sh1.5 million and Sh3.5 million focused on the lower middle income segment are also a good investment bet for investors this year.
“The focus should be on affordable housing by use of appropriate technology,” he says, adding: “Investors in this area can on average get 20 per cent return on investment”.
Demand for housing the middle to low-end of the market is high compared to the high-end of the market.
“The lower end of the market has a higher margin because this is where the need for housing is highest,” says Zeph Mbugua, chairman of TransCentury, an infrastructure firm.
“Investors in this area should focus on developing good quality houses that can sell for between Sh4 million and Sh6 million,” he says.
Counties offer good opportunities especially as there will be thousands of civil servants looking for homes.
You could pool resources through groups to get into projects that you cannot do on your own.
Just like real estate, land prices in Kenya are responding to demand that has been created by the escalating number of middle class with disposable incomes and are able to service mortgages.
According to Mr Daniel Ojijo, the managing director of Mentor Group, a property company, the middle class population is now demanding quality housing, well designed properties with great finishing and in safe and secure locations.
They are willing and have the ability to pay premium prices for their choices.
Whether you buy a quarter or 2,000 acres, an investment in land has over time proven to pay handsome returns to investors.
To ensure you get the most value in future, always move before the infrastructure.
If you know a road, a hospital is planned at a site in a year or two from today, get in now.
There is always a direct relation between the presence of infrastructure and the value of land, the more roads and access to amenities like water and electricity has, the higher the value.
Buying in areas along the proposed stations on the Mombasa – Nairobi standard Gauge railway (SGR) would be a perfect example of moving.
Also take time to understand long-term government plans like vision 2030 and the master plan for major cities like Nairobi, Mombasa and Kisumu.
It’s in these plans that governments outline future infrastructure projects.
For example, under Nairobi’s Master plan, the government will build the City’s second international airport around Thika.
Give yourself an investing advantage, understand government plans.
For example, before the government builds Nairobi’s Eastern by-pass land around Utawala was going for as little as Sh150,000 some five years ago, now the same parcels are going for an average of Sh1.5 million and rising.
Mr. Ojijo reckons that property sector investments require huge finances to pull off.
“One can either bring up own projects or get a share in somebody else’s project through cost sharing, there is also joint venture where one can have the land and the other party funds,” he says.
Starting in the current financial year, at least 30 per cent of all contracts in ministries and all government agencies will be reserved for the youth, the disabled and women. This opens a big window of business opportunities for individuals and groups.
The main requirement is that you must register a company and get a certificate from the Treasury.
The new rule by government opens a window for Kenyans already employed to do business with the state and make an extra coin.
The beauty of this move by the government is that the projects range from smaller contracts like stationery supplies to bigger ones such as road construction. This makes it possible for Kenyans from all walks of life aged 35 and below to take part.
“The government has opened up awareness of the 30 per cent tender allocation to youth and women and this is a great area to exploit,” says Uwezo Deposit Taking Microfinance general manager, Henry Mutahi.
Analysts say that investors seeking government tenders may focus on areas such as roads, green energy among others.
These are areas where Kenyans with deep pockets can invest in this year.
The emphasis on the public private partnerships (PPP) starting this year following the passage of the PPP law last year now opens up the opportunity for private players to partner with the government to invest in green energy initiatives for good returns.
Government tenders require investors with deep pockets as many of them usually require heavy investment.
Investors are usually paid after say three months after service delivery.
Some payments even take longer and this may not favour the small investor.
The export and import business is an area of high growth especially as the government is keen on promoting its exports relative to what the country imports. Opportunities can be in export of value added agricultural produce.
Paul Mwai, the Afrika Investment Bank chief executive officer, says opportunities for exporting value-dded produce like coffee, tea and horticultural products are still huge given the recovery in the Euro zone after some years of recession.
“Our export market has stagnated over the past three years.
This may be attributed to problems in the Euro zone, but with the ongoing recovery, exports should begin picking up and this is an area that investors can focus on,” Mr Mwai says.
Most of the products from Asia countries that may seem cheap by Kenyan standards are even sold for an even cheaper price.
Chances are that the Chinese imported earphones that you bought for Sh150 on the streets of Nairobi, go for as little as Sh30 in downtown Guangzhou. It’s a business in which margins of 500 per cent is common.
For large scale property developers, importing materials like tiles from abroad may just help you cut extra costs.
One just needs to look at the low number of spaces available at public secondary schools as well as the congestion and the poor learning environments in public primary schools to appreciate the huge pent-up demand for private schools.
For example, of the 839,759 pupils who sat for their KCPE last year, only 650,000 will get admission into public secondary schools.
The rest will have to get places in private secondary schools, a reality that offers a business opportunity for the discerning investor.
With land outside of the major towns relatively cheaper, one can consider gradually building a secondary school.
And as the country’s middle class expands, so will the demand for quality education and opening that wealthier investors could explore by starting high-end schools.
Devolution is not just about politics.
In the past 10 years, expansion of universities means that on average going by the number of institutions of higher learning in the country, every county has a campus or national college.
Yet, though admission numbers have risen to match the expansion in universities, facilities such as hostels have not kept pace.
For example, it’s now common for government-sponsored students to scout for their own accommodation.
This has opened an opportunity for investors to build hostels around universities to give accommodation to students.
Considering the average size of a hostel room is less than your typical room and that an investor can put multiple double-decker beds, the returns from these venture are high.
Your upcountry home that you visit once or twice in a year could earn you income.
Turn it into a hostel or guest house.
This is how families in the West raise extra cash without investing any extra cost.
For large investors, the Cabinet has allowed public universities to get into public-private sector partnerships (PPPs).
The private sector will build the hostels inside universities; operate them for an average period of 25 years before passing ownership to the Government.
A typical 10X10 feet hostel can accommodate two double-decker beds and assuming each student pays an average of Sh5,000 per month, that amounts to Sh20, 000. Very few single rooms can attract a rent of Sh20,000 in Kenya.