CONSUMER PRICE INDICES AND INFLATION RATES FOR AUGUST 2018

CONSUMER PRICE INDICES AND INFLATION RATES FOR AUGUST 2018

Kenya National Bureau of Statistics hereby releases monthly Consumer Price Indices (CPI) and rates of inflation, for August, 2018. These numbers were generated from a survey of retail prices that targeted a basket of household consumption goods and services. The survey was conducted during the second and third weeks of the month, with prices being obtained from selected retail outlets in 25 data collection zones in Nairobi and in 13 other urban centers.

 

Click on this link for more details; Consumer price indices & Inflation rates, August 2018.

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Migori, Uasin Gishu & Kwale Poised to meet revenue targets.

Migori, Uasin Gishu and Kwale are best placed to meet their annual own-source revenue (OSR) targets, new data by the Controller of Budget Office showed, turning the spotlight on other struggling counties.

Analysis of local revenue as a proportion of the annual revenue target indicates tha

 

Migori, Uasin Gishu and Kwale Counties recorded the highest proportion at 72.7 per cent, 69.8 per cent and 68.9 per cent respectively, over the first nine months of the fiscal year 2017/18.

 

By the end of quarter three Migori had netted Sh145.35 million against a full year target of Sh200m, Uasin Gishu had Sh387.54m against an aim of Sh593.54m while Kwale was Sh86m short of its annual collection target of 275m.

 

Conversely, those that recorded the lowest proportion of local revenue against annual targets were Nyamira at 25.4 per cent, Mandera at 20.3 per cent and Kisii at 18.5 per cent — tracking after a national trend of low collections. Statistics showed that in the first nine months of the 2017/18 fiscal year, the aggregate revenue raised by County Governments from own sources amounted to Sh22.23 billion, which was a decline of 11.2 per cent compared to Sh24.71billion raised in a similar period in the previous financial year. This amount accounted for 42.3 per cent of the annual local revenue target of Sh52.52 billion.

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Only 12 counties managed to realise more than 50 per cent of their annual own-source revenue targets by the end quarter three of 2017/18.

Counties that generated the highest amount of local revenue were; Nairobi City, Mombasa and Narok at Sh7.64 billion, Sh1.68 billion and Sh1.63 billion respectively. On the other hand, the lowest amount was generated by Mandera, Lamu and Tana River at Sh46.97 million, Sh41.49 million, and Sh16.19 million respectively.

 

Most counties continue to be dogged by fiscal constraints due to funding gaps occasioned by unrealised revenue projections. To address this challenge, the National Treasury is exploring legal options to capping counties’ OSR revenue growth estimates, based on their historical performance.

 

A number of county governments are under investigation by the Treasury for falsifying their revenue collection figures after an audit revealed a mismatch between expenditure and cash generated.

 

 

A recent audit of bank statements and expenditure returns by the Controller of Budget Office revealed that spending in some counties surpassed their total OSR as well as Exchequer releases from the County Revenue Fund (CRF) to operational accounts.

“Such violations suggest that OSR is being spent at source. The Controller of Budget has analysed counties and identified those where not all OSR is ‘swept’ into respective CRF accounts,” the Treasury said in its Budget Policy Outlook statement for 2017.

The law requires that the total revenue collected by all counties be distributed equitably in accordance with a resolution approved by Parliament.

Several counties were, however, found to have directly spent revenue without approval.

In the 2017/18 fiscal year, the combined county governments budgets approved by the County Assemblies amounted to Sh413.63 billion and comprised Sh266.98 billion (64.5 per cent) allocated to recurrent expenditure and Sh146.65 billion (35.5 per cent) for development expenditure.

 

To finance the budgets, county governments expect to receive Sh302 billion as equitable share of revenue raised nationally, Sh23.27 billion as total conditional grants from the National Government, Sh16.41 billion as total conditional grants from the Development Partners, generate Sh52.52 billion from own sources of revenue and Sh26.66 billion cash balance from 2016/17.

 

The conditional grants from the National Government comprise Sh4.5 billion for Leasing of Medical Equipment, Sh4.2 billion for Level 5 Hospitals, Sh11.07 billion from the Road Maintenance Fuel Levy Fund, Sh900 million for compensation of User Fee Foregone, Sh2 billion for Development of Youth Polytechnics and Sh605 million for construction of county headquarters in Isiolo, Lamu, Nyandarua, Tana River and Tharaka Nithi Counties.

Remember to call your parents today.

http://blogs.worldbank.org/developmenttalk/remember-call-your-grandparents-multigenerational-mobility-developing-world?cid=ECR_E_NewsletterWeekly_EN_EXT&deliveryName=DM4224http://blogs.worldbank.org/developmenttalk/remember-call-your-grandparents-multigenerational-mobility-developing-world?cid=ECR_E_NewsletterWeekly_EN_EXT&deliveryName=DM4224

Strategic Choice. How to make strategic decisions?

Strategic choice

Strategic choice is a key step within the strategic planning process:

  • Strategic analysis (examination of the current strategic position)
  • strategic choice
  • strategic implementation (or strategy into action).

 

Strategic choice

Strategic choice typically follows strategic analysis and is based upon the following three elements.

  • Generation of strategic options, e.g. growth, acquisition, diversification or concentration.
  • Evaluation of the options to assess their relative merits and feasibility.
  • Selection of the strategy or option that the organisation will pursue. There could be more than one strategy chosen but there is a chance of an inherent danger or disadvantage to any choice made. Although there are techniques for evaluating specific options, the selection is often subjective and likely to be influenced by the values of managers and other groups with an interest in the organisation.

In addition to deciding the scope and direction of an organisation,choices also need to be made about how to achieve the goal.

Broadly,there are two ways in which a strategy can be pursued:

  • Internal development (organic growth)
  • External development- merger/acquisition, JV, franchising/licensing.

Generation of strategic options

Three key questions

Strategic options generation is the process of establishing a choice of possible future strategies. There are three main areas to consider.

Porter describes certain generic competitive strategies (lowest cost or differentiation) that an organisation may pursue for competitive advantage They determine how you compete. 

Ansoff describes product-market strategies (which markets you should enter or leave). They determine where you compete and the direction of growth. 

When considering the method of growth the choice may be between models involving 100% ownership (acquisition v organic growth) or a joint strategy (e.g. franchising, joint ventures, etc). 

Portfolio models

A number of portfolio models (e.g. the BCG matrix) have been developed that attempt to both analyse a product portfolio and generate strategies for those products. 

Evaluation of the options

Johnson, Scholes and Whittington argue that for a strategy to be successful it must satisfy three criteria:

  • Suitability – whether the options are adequate responses to the firm’s assessment of its strategic position.
  • Acceptability – considers whether the options meet and are consistent with the firm’s objectives and are acceptable to the stakeholders.
  • Feasibility – assesses whether the organisation has the resources it needs to carry out the strategy.

This criteria can be applied to any strategy decision such as the competitive strategies, the growth strategies, or even the methods of development.

Suitability

Suitability is a useful criterion for screening strategies, asking the following questions about strategic options:

  • Does the strategy exploit the company strengths, such as providing work for skilled craftsmen or environmental opportunities, e.g. helping to establish the organisation in new growth sectors of the market?
  • How far does the strategy overcome the difficulties identified in the analysis? For example, is the strategy likely to improve the organisation’s competitive standing, solve the company’s liquidity problems or decrease dependence on a particular supplier?
  • Does the option fit in with the organisation’s purposes? For example, would the strategy achieve profit targets or growth expectations, or would it retain control for an owner-manager?

Acceptability

Acceptability is essentially about assessing risk and return and is strongly related to stakeholders’ expectations. The issue of ‘acceptable to whom?’ thus requires the analysis to be thought through carefully.

Some of the questions that will help identify the likely consequences of any strategy are as follows:

  • How will the strategy impact shareholder wealth? Assessing this could involve calculations relating to NPV, SVA or EVA.
  • How will the organisation perform in profitability terms? The parallel in the public sector would be cost/benefit assessment.
  • How will the financial risk (e.g. liquidity) change?
  • What effect will it have on capital structure (gearing or share ownership)?
  • Will the function of any department, group or individual change significantly?
  • Will the organisation’s relationship with outside stakeholders, e.g. suppliers, government, unions, customers need to change?
  • Will the strategy be acceptable in the organisation’s environment, e.g. higher levels of noise?

Feasibility

Assesses whether the organisation has the resources it needs to carry out the strategy.

Factors that should be considered can be summarized under the M-word model.

  • Machinery. What demands will the strategy make on production? Do we have sufficient spare capacity? Do we need new production systems to give lower cost/better quality/more flexibility/etc?
  • Management. Is existing management sufficiently skilled to carry out the strategy.
  • Money. How much finance is needed and when? Can we raise this? Is the cash flow feasible?
  • Manpower. What demands will the strategy make on human resources? How many employees are needed, what skills will they need and when do we need them? Do we already have the right people or is there a gap? Can the gap be filled by recruitment, retraining, etc?
  • Markets. Is our existing brand name strong enough for the strategy to work? Will new brand names have to be established? What market share is needed for success – how quickly can this be achieved?
  • Materials. What demands will the strategy make on our relationships with suppliers. Are changes in quality needed?
  • Make-up. Is the existing organisational structure adequate or will it need to be changed?

 Kaplan. 

SOFT SKILLS ARE MORE IMPORTANT THAN EVER BEFORE.

Studying takes you on a path towards acquiring hard skills – the specific technical skills you need to do your job effectively. While these are the skills you’ll list on your CV, today’s employers seek more than this. Increasing importance is being placed on soft skills – personal attributes that enable you to interact well with other people. Here are the reasons why soft skills are more important than ever:

 

1 – HARD SKILLS ARE USELESS WITHOUT SOFT SKILLS

In most jobs, technical skills alone are not enough to be truly effective. A salesperson with an unrivalled knowledge of their product and market will have little success if they don’t have the interpersonal skills needed to close deals and retain clients. A business manager needs to be able to listen to employees, have good speaking skills, and be able to think creatively. All careers require at least some soft skills to make the hard skills valuable.

 

2 – SOFT SKILLS ARE HARDER TO LEARN

Hard skills aren’t necessarily hard to acquire. They can be easily taught, and can be learned and perfected over time. Soft skills are more challenging to develop, since they have little to do with knowledge or expertise, but are closely linked with a person’s character. It takes conscious effort, ongoing practice, and a commitment to self-development to improve your soft skills. Hard skills may look impressive on your CV, but the soft skills are what will set you apart from the many candidates who have similar expertise to you.

 

3 – THE MODERN WORKPLACE IS INTERPERSONAL

Skills such as listening, collaborating with others, presenting ideas and communicating with team members are all highly valued in the modern workplace. Strong soft skills ensure a productive, collaborative and healthy work environment, all vital attributes for organisations in an increasingly competitive world.

 

4 – CUSTOMERS DEMAND SOFT SKILLS

The modern market offers consumers an unlimited number of choices through technologies such as the internet and smartphones. For these consumers, convenience and low prices are easy to come by, so customer service is often what influences the choice to use a particular business. The ability to communicate efficiently and effectively with customers is therefore a vital factor in an organisation’s success.

 

5 – THE FUTURE WORKPLACE WILL RELY ON SOFT SKILLS

Automation and artificial intelligence will result in a greater proportion of jobs relying on soft skills. Thanks to cutting-edge technology, tasks that require hard skills are continuing to decline, making soft skills key differentiators in the workplace. As an example, look at this fascinating study by Deloitte Access Economics, which predicts that two-thirds of all jobs in Australia will rely on soft skills by 2030. This trend will inevitably be mirrored globally.

 

Now that you know the importance of soft skills, which ones do you think you need to develop? Here’s a list of the soft skills that today’s employers value most:

  • Communication (oral and written)
  • Creativity
  • Problem-solving
  • Collaboration
  • Adaptability
  • Positivity
  • Learning from criticism
  • Working under pressure

 

You can improve your soft skills by taking personal development courses or online courses, networking with people both inside and outside your organisation and challenging yourself to take on new tasks. With a strong set of soft skills complementing your hard skills, the most important paving stones to success will be in place.

Opportunity Cost

What is an ‘Opportunity Cost’

Opportunity cost refers to a benefit that a person could have received, but gave up, to take another course of action. Stated differently, an opportunity cost represents an alternative given up when a decision is made. This cost is, therefore, most relevant for two mutually exclusive events. In investing, it is the difference in return between a chosen investment and one that is necessarily passed up.

BREAKING DOWN ‘Opportunity Cost’

What is the Formula for Calculating Opportunity Cost?

When assessing the potential profitability of various investments, businesses look for the option that is likely to yield the greatest return. Often, this can be determined by looking at the expected rate of return for a given investment vehicle. However, businesses must also consider the opportunity cost of each option. Assume that, given a set amount of money for investment, a business must choose between investing funds in securities or using it to purchase new equipment. No matter which option is chosen, the potential profit that is forfeited by not investing in the other option is called the opportunity cost. This is often expressed as the difference between the expected returns of each option:

Opportunity Cost = Return of Most Lucrative Option – Return of Chosen Option

Option A in the above example is to invest in the stock market in hopes of generating returns. Option B is to reinvest the money back into the business with the expectation that newer equipment will increase production efficiency, leading to lower operational expenses and a higher profit margin. Assume the expected return on investment in the stock market is 12%, and the equipment update is expected to generate a 10% return. The opportunity cost of choosing the equipment over the stock market is 12% – 10%, or 2%.

Opportunity cost analysis also plays a crucial role in determining a business’s capital structure. While both debt and equity require some degree of expense to compensate lenders and shareholders for the risk of investment, each also carries an opportunity cost. Funds that are used to make payments on loans, for example, are therefore not being invested in stocks or bonds which offer the potential for investment income. The company must decide if the expansion made possible by the leveraging power of debt will generate greater profits than could be made through investments.

Because opportunity cost is a forward-looking calculation, the actual rate of return for both options is unknown. Assume the company in the above example decides to forgo new equipment and invests in the stock market instead. If the selected securities decrease in value, the company could end up losing money rather than enjoying the anticipated 12% return. For the sake of simplicity, assume the investment simply yields a return of 0%, meaning the company gets out exactly what it put in. The actual opportunity cost of choosing this option is 10% – 0%, or 10%. It is equally possible that, had the company chosen new equipment, there would be no effect on production efficiency and profits would remain stable. The opportunity cost of choosing this option is then 12% rather than the anticipated 2%.

It is important to compare investment options that have a similar degree of risk. Comparing a Treasury bill (T-bill)—which is virtually risk-free—to investment in a highly volatile stock can result in a misleading calculation. Both options may have anticipated returns of 5%, but the rate of return of the T-bill is backed by the U.S. government while there is no such guarantee in the stock market. While the opportunity cost of either option is 0%, the T-bill is clearly the safer bet when the relative risk of each investment is considered.

Using Opportunity Costs in Our Daily Lives

When making big decisions like buying a home or starting a business, you will likely scrupulously research the pros and cons of your financial decision, but most of our day-to-day choices aren’t made with a full understanding of the potential opportunity costs. If they’re cautious about a purchase, most people just look at their savings account and check their balance before spending money. For the most part, we don’t think about the things that we must give up when we make those decisions.

However, that kind of thinking could be dangerous. The problem lies when you never look at what else you could do with your money or buy things blindly without considering the lost opportunities. Buying takeout for lunch occasionally can be a wise decision, especially if it gets you out of the office when your boss is throwing a fit. However, buying one cheeseburger every day for the next 25 years could lead to several missed opportunities. Aside from the potentially harmful health effects of high cholesterol, investing that $4.50 on a burger could add up to just over $52,000 in that time frame, assuming a very doable rate of return of 5%.

This is just one simple example, but the core message holds true for a variety of situations. From choosing whether to invest in “safe” treasury bonds or deciding to attend a public college over a private one in order to get a degree, there are plenty of things to consider when making a decision in your personal finance life.

While it may sound like overkill to have to think about opportunity costs every time you want to buy a candy bar or go on vacation, it’s an important tool to use to make the best use of your money.

What is the Difference Between a Sunk Cost and an Opportunity Cost?

The difference between a sunk cost and an opportunity cost is the difference between money already spent and potential returns not earned on an investment because capital was invested elsewhere. Buying 1,000 shares of company A at $10 a share, for instance, represents a sunk cost of $10,000. This is the amount of money paid out to make an investment, and getting that money back requires liquidating stock at or above the purchase price.

Opportunity cost describes the returns that could have been earned if the money was invested in another instrument. Thus, while 1,000 shares in company A might eventually sell for $12 each, netting a profit of $2 a share, or $2,000, during the same period, company B rose in value from $10 a share to $15. In this scenario, investing $10,000 in company A netted a yield of $2,000, while the same amount invested in company B would have netted $5,000. The difference, $3,000, is the opportunity cost of having chosen company A over company B.

The easiest way to remember the difference is to imagine “sinking” money into an investment, which ties up the capital and deprives an investor of the “opportunity” to make more money elsewhere. Investors must take both concepts into account when deciding whether to hold or sell current investments. Money has already been sunk into investments, but if another investment promises greater returns, the opportunity cost of holding the underperforming asset may rise to the point where the rational investment option is to sell and invest in a more promising investment elsewhere.

What is the Difference Between Risk and Opportunity Cost?

In economics, risk describes the possibility that an investment’s actual and projected returns are different and that some or all of the principle is lost as a result. Opportunity cost concerns the possibility that the returns of a chosen investment are lower than the returns of a necessarily forgone investment. The key difference is that risk compares the actual performance of an investment against the projected performance of the same investment, while opportunity cost compares the actual performance of an investment against the actual performance of a different investment.

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Porter’s Generic Competitive Strategies (ways of competing)

 

A firm’s relative position within its industry determines whether a firm’s profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. The focus strategy has two variants, cost focus and differentiation focus.

 

 

 

 

 

1. Cost Leadership

In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost advantage are varied and depend on the structure of the industry. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. A low cost producer must find and exploit all sources of cost advantage. if a firm can achieve and sustain overall cost leadership, then it will be an above average performer in its industry, provided it can command prices at or near the industry average.

 

2. Differentiation

In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price.

 

3. Focus

The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.

The focus strategy has two variants.

(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser’s target segment and other segments in the industry. The target segments must either have buyers with unusual needs or else the production and delivery system that best serves the target segment must differ from that of other industry segments. Cost focus exploits differences in cost behaviour in some segments, while differentiation focus exploits the special needs of buyers in certain segments.