MCIDC Investment Plan Table of Contents 1) Preface 3 2) The Organizational Structure 5 3) Objective of the Investment Plan 6 4) Delegation of Authority 7 5) Reporting Requirement 8 5.1. Quarterly reporting 8 5.2 Annually 8 6) General Investments principles 9 6.1 Portfolio diversification 9 6.2 Investment Strategy 9 6.3 Investment analysis 10 7) Asset Allocation 10 7.1 Traditional markets 11 7.2 Prohibited Investments 12 7.3 Private placement & Unregistered securities 12 8) Agriculture 13 8.1 Potatoes 13 8.1.1 Investment & Return Measures 14 8.1.2 Capital recovery model 14 8.2 Bananas 15 8.2.1 Investment & Return Measures 16 8.2.2 Capital recovery model 17 8.3 Mangoes 17 8.3.1 Investment & Return Measures 18 8.3.2 Capital recovery model 18 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 8.4 Macadamia 18 8.4.1 Investment & Return Measures 19 8.4.2 Capital recovery model 19 8.4.3Macadamia&itsbyproducts 20 8.5 Honey 21 8.5.1 Investment & Return Measures 22 8.5.2 Capital recovery model 22 8.6 Other fruits 23 8.6.1 Investment & Return Measures 24 8.6.2 Capital recovery model 24 8.7 Leather 25 8.7.1 Sector snapshot 25 8.7.2 Export tax incentives 26 8.7.3 Investment & Return Measures 26 8.7.3 Capital recovery model 26 8.8) Real Estate 27 8.8.1 Investment & Return Measures 27 8.9) Hospitality & catering 28 8.9.1 Investment & Return Measures 29 8.9.2 Capital recovery model 29 8.10) Energy 30 8.10.1 Investment & Return Measures 30 9.0) Revision of the plan 31 10.0) Investment Incentives 32 Appendix 1: Table of Assumptions 33 MCIDC Investment Plan 2016-2020 3 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 1.0 Preface Meru county investment and Development Section 4 (2) of the Meru county Corporation is a Meru County Government Investment and development corporation Corporation established vide the Meru empowers the corporation to be capable County Investment & Development of: Corporation Act, 2014 to provide for the i. Taking, purchasing or otherwise establishment of legal and institutional acquiring, holding, charging or framework for promotion and co- disposing of movable and immovable ordination of investment and development property; and for connected purposes in Meru ii. Borrowing money or making County. investments; iii. entering into contracts; and As per Section (3) of the Act, the iv. Doing or performing all other acts or corporation was established to offer a legal things for the proper performance and structural framework for the county offunctions under this Act which may investment and development in order to; lawfully be done or performed by a body corporate. i. enhance financial and economic prudence in county The responsibilities vested on the governmentinvestments; corporation as provided for by section 5 of ii. establish an efficient and effective the Act includes: instrument for managing county v. Holding property and assets on government investments; behalf of the county government iii. enhance competitiveness of county for the purposes of investment and government investments; development; iv. promote local investment and vi. Undertaking investments on behalf economic development; of the county government for the v. enhancecounty revenuebase purposes of generating revenue; vi. provide for mobilization of finances vii. Undertaking any development initiative for investments; for the county with a business or social vii. provide for investment in socially purpose; beneficial projects; viii. Identifying strategic investment viii. facilitate investments opportunities for the benefit of the bycountyresidents; county; ix. Coordinate and facilitate investments ix. Undertaking business ventures in the county and, enable the county solely or in partnership with other government to undertake public entities or persons for the benefit of private partnerships and joint ventures the county; in areasthat are beneficial to the x. Promoting local economic growth county. and job creation; 4 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION xi. Advising and facilitating the county necessary for the implementation of government and county residents on the objects and purpose of this Act; investment opportunities within and xvii. Perform such other functions as may, outside the county; from time to time; be assigned by the xii. Assisting and facilitating investors county executive committee. from within or outside the county to establish investments in the county; xiii. Promoting and facilitating investment in the county; xiv. Acting as the focal agency for investment promotion and facilitation in the county; xv. Advising Executive Member and the county executive committee on necessary policies, programs and plans to be adopted in order to attract investments in the county; xvi. Carrying out such other roles MCIDC Investment Plan 2016-2020 5 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 2.0 The organisational Structure 6 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 3.0 OBJECTIVES The objective of this plan is to provide a Define and assign the responsibilities of all long term policy guidance on investment involved parties; opportunities in Meru County, available Establish a clear understanding for all financing opportunities for these involved parties of the investment goals opportunities and appropriate engagement and models between thecorporation and the Objectives including the various asset private sectors. This plan seeks to profile classes, investment management styles, investment opportunities in Meru County asset by sectors and by specific industries and define a package of incentives to investors, Allocations, acceptable risk and total long assist the corporation in effectively term investment return. supervising, monitoring and evaluating i. Provide guidance and limitations to their investment assets. Those assets are all investment decisions that, in total, held by the corporation as a steward for are expected to produce sufficient the sake of carrying out its mission and levels of overall diversification,risk,and purposes. liquidity within the portfolio, so that all assets are managed in accordance The Meru County Investment & with the long-term objectives; Development Corporation Act section ii. Establish a basis for evaluating 25 (3) states that the Corporation shall investment results; prepare an Investment Plan that shall iii. Ensure compliance with all fiduciary, among other things provide for; prudence and due diligence i. Source of investment capital. requirements that experienced ii. Targeted investment opportunities. professionals would utilize, and with all iii. Investment portfolio. applicable laws, rules and regulations iv. Expected return on capital or from various local,state,federal and investment. international political entities that may v. Specific investment projects and their impact the investments; respective projects appraisals including iv. Outline procedures and criteria to rate of return on investment or capital monitor, evaluate and compare the employed. performance achieved on a regular vi. estimated cost of the investments basis, and report the performance to the Board of Directors; This plan is consistent with the Public v. Manage the corporate assets Finance Management Act (2012) and the according to prudent standards; and Meru vi. Establish the relevant investment horizon for which the corporate’s County Investment & Development assets will be managed Corporation Act (2014) with the purpose to: MCIDC Investment Plan 2016-2020 7 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 4.0 DELEGATION OF AUTHORITY MCIDC and its Board of Directors hold b) A Custodian– To physically maintain all assets as a fiduciary. The Board of possession of investments owned by Directors has delegated authority over its the organization, collect dividend and investment affairs to the management, interest payments, redeem maturing who are further authorized to delegate securities, and effect receipt and certain responsibilities to professional delivery following purchases and experts in various fields. These include but sales. The custodian may also perform are not limited to: regular accounting of all assets owned, purchased or sold; and, a) Investment Manager – With discretion c) Additional specialists -such as to purchase, sell, or hold the specific attorneys, auditors, analysts, investment vehicles authorized by transaction advisors and others may the management to meet the plan’s be employed by the corporation to investment objectives; assist in meeting its responsibilities and obligations to administer investment assets prudently. 8 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 5.0 REPORTING REQUIREMENTS 5.1 Quarterly Section (2) further provides that the annual The Corporation shall provide the board report shall provide information regarding with detailed information about asset the activities and plans of the Corporation allocation, investment performance, future during the year to which it relates sufficient investment strategies, and other matters of to impart an accurate understanding of the interest to the board every quarter. Such a nature and scope of its activities and its report shall include but not limited to; plans and priorities and, without limitation, shall include among other things— a) Then amend quantity of each security or asset purchased or sold, with the (a) Details of the performance of price and transaction date; the Corporation against its key b) An analysis is for each security or asset performance indicators; and of its description, percentage of total (b) Report on the overall status of the portfolio, purchase date, quantity, investment portfolio and profitability average cost basis, current market of each investment venture including value, unrealized gain or loss, and the Corporation’s projections for the indicated annual income and yield at following year. market. c) An analysis for the entire portfolio All portfolios held in all assets classes shall of the current asset allocation by without any limitation be reported in such investment category (equities, fixed a manner as required by this Act. income, cash, alternatives). d) Any other information that the board The corporation will provide an annual require for this purpose. summary of all transactions in each fiscal year, together with a report of investment 5.2 Annually performance for the year by portfolio, to Section 16.(1) of the MCIDC states that the full Board of Directors. Investment “The Corporation shall, within three objectives will be reviewed to determine if months after the end of each financial they are being met. year, prepare and submit to the executive member a report of the operations of the Corporation for the immediate preceding year’’ MCIDC Investment Plan 2016-2020 9 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 6.0 General Investment Principles Introduction: The corporation shall in question and the prevailing economic consider and apply the following principles circumstances. The corporation shall in all investment ventures and undertakings employ all possible means to hedge its either sorely or in partnership with other portfolios against determinable risks and parties. market downturns. 6.1 Portfolio Diversification 6.3 Risk and return play out Refers to investing in different assets The management shall exercise due classes inorder to reduce principle care in dealing with risky investments, overall investment risks and to avoid to safeguard the interests of the public damaging a portfolio’s performance on resources and ensuring that the risk account of poor performance of a single exposure is commensurate enough with industry. Through diversification, we shall the returns pay off. The approach shall minimize or eliminate our exposure to neither be too averse to antagonize its company specific risks minimize or reduce objectives, nor too much appetite for risk systematic riskand moderate the short to result into massive financial loss. term effects of individual assets class performance or portfolio 6.4 Investment Analysis The corporation shall seek to evaluate The Corporation shall seek optimal all investments to establish their risk allocation of investment assets and profiles and returns payout, Capital resources to spread out the risk and commitment shall only be done once a maximize returns. Such diversification thorough investment financial analysis has shall be across not only asset classes but been done and a proven business case geographical parameters as well. established and at the discretion of the management. 6.2 Investment Strategy- This shall inform the rules, criteria and principles of portfolio selection to tailor our investment objectives. The corporation shall employ a blend of active and passive strategies for both short term investment gains and arbitrage opportunities and long term appreciation in value respectively. This shall as well depend on the venture 10 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 7.0 ASSET ALLOCATION This the implementation of an segment’s volatility and offsetting of investment strategy that attempts to losses. balance risks vs. rewards by adjusting the percentage of each assets in an Equities historically have had more investment portfolio according to volatility than fixed incomes and the investors risk tolerance, goals and recommended for an investor or investment horizon. strategy that embraces appetite for risk since they have a high upside potential. Section 23 of The MCIDC Act states Fixed incomes by their nature have a that; Subject toany written law on lower risk profile and so their returns governance of public investments, the are as well moderate .Fixed incomes Corporation shall have powers to— can either be issued by corporates a) Establish subsidiaries, holding –Corporate bonds or the treasury entities or joint ventures for that ideally consist of short term undertaking anybusiness venture securities-treasury bills, and long term for the purposes of realizing its instruments-treasury bonds. objectives; Equities in the long run tend to b) Invest in property or real assets, outperform bills and bonds including bonds, securities, bank deposits, potential for capital gains. Holding trust funds, Treasury Bills or any substantive cash again presents huge investment venture approved by the opportunity cost and risk of value County Treasury erosion. Once ideal liquidity preference has been established then surplus The purpose of this asset allocation should be held in interest bearing is to accomplish the organization’s securities. investment objectives, based on its time horizon, risk tolerances, Further guidelines with regards to assets performance expectations, and asset quality are as below; class preferences for purpose of this p, anoptimalportfolioshall be as below. Equity Securities – may invest in any a) What are traditional markets unrestricted, publicly traded or privately b) Can we elaborate in prose each of placed or listed on a major exchange or the asset classes and why they are a national, over-the-counter market that important to before the table is appropriate for the portfolio objectives ,asset class, and/or investment style. 7.1 Traditional Markets Fixed Income Securities– This refers to Traditional markets ideally include the quality rating of bonds and notes equities and fixed incomes, a proper must be“A”or better, as rated by Standard balance between both the former and Poor’s or Moody’s. The portfolio may the latter is important to help tame a consist of only traditional principal and MCIDC Investment Plan 2016-2020 11 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION interest obligations (no derivatives) with A-, as rated by Standard & Poor’s, as rated maturities of seven years or less. by Moody’s, or better. The assets of any money market mutual funds must comply Cash and Equivalents– This refers to the with this standard and/or the quality quality rating of commercial paper must be provisions for fixed-income securities. Asset Class Lower Limit Strategic Allocation Upper Limit a)Equities 45% 65% 75% Large Cap 25% 30% 45% Small Cap 15% 20% 25% International 10% 15% 20% b)Fixed Income 20% 30% 40% c)Cash and Equivalents 0% 5% 10% 7.2 Prohibited investments out a thorough financial analysis .If a valid These portfolios shall be avoided in investment caseshall be confirmed, general the near run as the markets are not social welfare affirmed and resource well developed locally, their disclosure allocation available then a decision shall requirements are not at the moment be made to acquire not more than 75 % imposed by a statutory body making it not of outstanding shares or additional issue. easy to profile them in terms of risk and The corporation being a public entity shall returns making them not ideal for investing see to it that industries within the county public resources too. of Meru that have got potential of growth supported both technically and financially. They shall include, but are not limited to; In such a situation or circumstances of • Commodities financial distress the corporation shall have • Futures and forwardscontracts and all not less than one third of the total available forms of derivatives seats in the board of the distressed • Options entity to safeguard the interests of the • Swaps corporation and the investing public • Hedge funds The management shall have the discretion Asset Diversification – This refers to of reclassifying any asset class from the Corporation will maintain reasonable prohibited to allowable or otherwise based diversification at all times, no equity on a prudent premise. securities of anyone company should exceed 5 percent of the total equities 7.3 Private placements & Non-registered portfolio nor the total securities position securities (debt and equity)in any one company to Strategic buy-The management shall, on exceed 10% of the portfolio. Reasonable identification of such an opportunity carry sector allocations and diversification must 12 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION also be maintained. No more than20% of the portfolio may be invested in the securities of any one sector. Rebalancing of Strategic Allocation – should be adopted as a risk-management strategy. Once an asset allocation is implemented that matches the portfolio’s risk tolerance, rebalancing approximately semi-annually should allow the maintenance of risk exposure at an appropriate level. MCIDC Investment Plan 2016-2020 13 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 8.0 Agricultural Sector The corporation shall profile investment Globally potato production stands at opportunities by sectors and specific approximately 350 Metric Tones and industries in those sectors. This shall be FAOSTAT projects this number to be guided by the comparative advantages approximately 400 Metric Tonnes by 2021. including natural resource base and raw Investment opportunities exist in materials in those sectors. - Cold storages - Processing – Chips, crisp, starch, We have identified the following sectors animal foods as areas of focus: - agriculture and livestock, renewable energy, tourism and Opportunity – Demand for chips, crisp, hospitality and real estate sectors. These starch and animal feeds is growing locally, sectors are investment opportunities in regionally, internationally. Potato processing shall solve the problems 8.1 Potatoes of post-harvest losses, farm prices, jobs Demand for potatoes is growing annually creation, and capacity building through the at a rate of 3.1% globally. Largely being factory consumed in urban centres.Increasing The informal value chains that currently urbanization also increases demand for market potatoes add no value at all and is potatoes and their processed products. dominated by multiplicity of intermediaries with little co-operation and regulation. Meru is among the 14 chief potato producing counties with Meru potatoes attracting premium prices in major urban centers. 8.1.1Investment & Return Measures Estimated IRR Item Capital Funding Timelines Preference NPM Investment $2,304,231 Internal Funds + Potatoes Private Investors 2017 34.00% 24% 14 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 8.1.2 Capital Recovery Weighted Average Cost of Capital 21.7% Years (n) 10 Capital Recovery Factor 0.25 Initial Investment Kes.145,329,997.00 Desirable Annual Cashflow Kes.36,683,776.29 8.2 Banana processing involved in fruits and vegetables The main fruit crops in Kenya include processing in the country. Meru is one of Bananas (37.6%), fruits contribute the major fruits producing counties and approximately Kshs 60 billion to the currently No. 1 producer of bananas, No. national output which translates to 5producer of mangoes, No. 4 producer of approximately 33% of the total horticultural pawpaw and no.4 producer of passion fruit produce. due to good soils and climate. Fruits production as well as the total The country has been experiencing area under fruits plantation is annually increased fruits production in the recent increasing at the rate of 6% and 15% years. respectively. Increase in production is due to Kenyan highlands account for over 70% • More land under irrigation of all fruits in Kenya’s fruits basket. Meru • Adoption of superior varieties County accounts for over 50% of this • Availability of clean planting materials production from the highland region.The from tissue culture technology. domestic market continues to absorb 7-8 • Farmers exposure to better agronomic times of the export produce despite practices the rapid growth of export market in • Packaging and standardization the last three decades.The domestic The main varieties grown in Meru County demand for fruits is growing at the rate are: GrandNain, Gross Mitchel, and of 5% annually on estimate. The processing Chinese Cavendish, Giant Cavendish, sub sector has not been fully exploited. Dwarf Cavendish, Grand, Shisikame, Most processors import concentrates for Uganda Green, Ngómbe and Gold juice processing. Annually Less than 10% of Finger. They are also available in culture the total horticulture produce is processed technology packaging. MeruCounty for domestic and export market, just about is, currently, the number one banana 450,000 metric tons. Approximately there producer in the country. The table below are about 30 medium and large companies shows production figures. MCIDC Investment Plan 2016-2020 15 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION Year Area (Ha) Production Value (Kshs) Million 2011 6,112.00 272,844.00 2,827.00 2012 6,194.00 288,803.00 2,676.00 2013 6,493.00 307,013.00 3,422.00 2014 6,426.00 215,580.00 2,475.00 Bananas hardly go for any processing There is, currently, no bananaprocessing in this country.A large percentage of facility in Meru County. The corporation bananas is consumed as freshfruit. There shall adopt the model below and gradual is, therefore, potential for processing the scaling up to build and operationalize a products that can be made from bananas banana processing plant in the county. include • Crisps 8.3 Mangoes • Flour Mangoes production has been on the rise • Starch gradually, and so is the value, however 8.2.1 Investment & Return Measures Capital Gap Funding Business Timeline IRR Sector Vehicle $1,453,300 Internal Funds + Joint 2017-2020 23% Agro- Private Investor Ventures Processing 8.2.3 Capital Recovery Weighted Average Cost of Capital 23.33% Years (n) 10 Capital Recovery Factor 0.27 Initial Investment Kes.145,329,997.00 Desirable Annual Cashflow Kes.38,653,372.00 little value addition has been done and this and 18.3% respectively. This presents a presents a business opportunityfor value huge potential with the only large scale addition hence fetching better market processor being Del Monte in Thika. prices. Meru is the 5th ranked highest mango producer at 6.5% behind Machakos, The production statistics support an Migori, Kilifi and Kwale at 8.4%, 9.9%, 14.7% investment case. The corporation plans 16 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION YEAR AREA (HA) QUANTITY “000” VALUE “000 000” 2011 39,367 452.94 112.72 2012 43,777 520.43 6,176.93 2013 46,980 581.29 7,458.56 to partner with the private sector and The resource need, parameters of measure other public entities with the sole aim of and form of engagement are below processing mangoes to juice and tinned summarized. salads. 8.3.1Investment & Return Measures Capital Gap Funding Business Timeline IRR Sector Vehicle $5,000,000 Internal Funds + Joint 2016-2020 22% Agro-Processing Private Investor Ventures 8.3.2 Capital Recovery Weighted Average Cost of Capital 23.33% Years (n) 10 Capital Recovery Factor 0.27 Initial Investment Kes.50,000,000.00 Desirable Annual Cashflow Kes.13,500,000.00 8.4 Macadamia gives motivation and incentive to focus A brief outlook of the macadamia sector resources on processing the product. The below table summarizes the key indicative figures Indicative Figures Parameter of Measure 27,000 Tonnes Average Annual Macadamia production in Kenya Ksh.92 Average on farm price per kg for macadamia America, USA, China, Australia, Asia Main exports destination for macadamia (84%) 1,100,000 Population of macadamia trees nationally 60% Macadamia oil content 20% Approximate waste in processing 5000 Tonnes Annual processing capacity for an average normal factory Sh.3, 000 Price per kg for Macadamia Oil Extractor Sh.1, 276 Price per kg for Macadamia nut roasted MCIDC Investment Plan 2016-2020 17 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 8.4.1 Investment & Return Measures The capital requirements Capital Gap Funding Business Timeline IRR Sector Vehicle $2,500,000. Internal Funds + Joint 2016-2020 130% Agro-Processing Private Investor Ventures 8.4.2 Capital Recovery Weighted Average Cost of Capital 23.33% Years (n) 10 Capital Recovery Factor 0.27 Initial Investment Kes.50,000,000.00 Desirable Annual Cashflow Kes.13,500,000.00 8.4.3 Macadamia and its by-products. 18 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 8.5Honey • Availability of honey procurement, The strengths of Honey Production and processing and marketing facilities processing in Meru include; by both the government and private • Great diversity and availability of bee entities flora • Easy loan facilities from banks • Large honey product and honey • Existence of hive manufacturing production potential organization among many more • Beekeepers are receptive to the new The facts in the table below support our technologies business case. Indicative Figures Parameter of Measure 46 No of clusters to be set across the county 1.9 MnTonnes International market for honey 80% Kenya land suitable for bee keeping $12Bn Global honey market (2015) 700 Metric Tonnes Estimated annual honey production in Kenya MCIDC Intends to employ the clustered branding as well as push the products to industries model, to establish mini the market. processing centers on the entire 46 ward in the county. Our main collaborators are both public and private entities among them Kenya We intend to organize groups of farmers Industrial Research & Development to consolidate production and ensure Institute andInternational Centre of Insect consistence of supply and quality controls. Physiology and Ecology ICIPE among We shall employ common packaging and others. 8.5.2 Investment & Return Measures Below are the investments parameters. Capital Funding Business Timeline IRR Sector No.of Mini- Gap Vehicle processors $500,000. Internal Funds + Joint 2016-2019 55% Agro- 46 Private Investor Ventures Processing 8.5.3 Capital Recovery Weighted Average Cost of Capital 23.33% Years (n) 10 Capital Recovery Factor 0.27 Initial Investment Kes.50,000,000.00 Desirable Annual Cashflow Kes.13,500,000.00 MCIDC Investment Plan 2016-2020 19 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 8.6 Other fruits Meru is one of the major fruits producing The corporation, through support from counties in Kenya. It is currently No. 1 KIRDI shall seek to add value to among producer of bananas, No. 5 producer of others. mangoes, No. 4 producer of pawpaw and • Grapes-Accounts for 0.7% of total No. 4 producer of passion fruit. The county fruits production has huge potential for fruit production • Passion fruits-Accounts for 3.7% of given its good climate, good soils and large total fruits production. fruit production zone. • Avocado-Accounts for 9.6% of total fruits production. Meru produces between 4500-5000 metric Tonnes annually worth 60 Mn 95% of the fruits are consumed are locally shillings in value. consumed with little processing and brings to the economy approximately 60Bn The corporation intends to add value shillings annually which is slightly above to these fruits through a wide strategy 34% of the gross horticultural produce. ranging from cottages, mini wineries to large scale processing plants. Fruits can Nationally, there are approximately 30 share common processing and cheap firms carrying out the business of fruits technology is available in the market to processing majority on very small scale. impleament this. 8.6.1 Investment & Return Measures The matrix of this engagement shall look as below. Capital Gap Funding Business Timeline IRR Sector No.of Mini- Vehicle processors $1,500,000 Internal Funds + Joint 2016-2019 25% Agro- 46 Private Investor Ventures Processing 8.6.2 Capital Recovery Weighted Average Cost of Capital 23.33% Years (n) 10 Capital Recovery Factor 0.27 Initial Investment Kes.150,000,000.00 Desirable Annual Cashflow Kes.40,500,000.00 20 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 8.7 Leather 8.7.1 Sector Snapshot The raw materials outlook Parameter Measure Population of cows (Nationally) 17.5 Mn Population of goats (Nationally) 27.7 Mn Population of sheep (Nationally) 17.1 Mn Population of camels (Nationally) 3.0 Mn Meru Population of beef cattle 250,000 Population of dairy cattle 180,000 Indicative Facts Indicative Parameter of Measure Figures 10.6 Bn Sector contribution to GDP 22,540 Individuals employed by the sector 14 No.of existing tanneries nationally 22 Expected No of tanneries by 2016 85 Leather goods cottages nationally 0 No.of tanneries located in Meru 60% Wet-blue production of the total local capacity 25% Crust leather production of the total local capacity 15% Finished leather production of the total local capacity 25 Enterprises involved in formal production of leather goods nationally 10,000 Hides & skins produced monthly in Meru County 8.7.2 Export Tax Incentives Type KRA Levies of (FOB Vaue) Dep.Veterinary Services (FOB Value) Raw hides & Skins 80% 2% Wet blue leather 0 % 1% Crust Leather 0% 0.5% Finished Leather 0% 0% MCIDC Investment Plan 2016-2020 21 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION With such sure numbers and government as a joint venture with strategic partners incentives, MCIDC plans to inject cash on locations to be determined based on into two mini tanneries over the next five further study. years at a cost of 50 Million to be executed 8.7.3 Investment & Return Measures Capital Gap Funding Business Timeline IRR Sector No.of Mini- Vehicle processors $1,735,234 Internal Funds + Joint 2016-2017 26% Agro- 46 Private Investor Ventures Processing 8.7.4 Capital Recovery Weighted Average Cost of Capital 21.70% Years (n) 10 Capital Recovery Factor 0.25 Initial Investment KES 173,523,436.00 Annual Desirable Cashflow KES 43,800,282.38 8.8Real Estate. • Introduction of a 100% full value of the Housing is key to a revitalized economy. house financing Decent housing is a key pillar of vision • RBA allowing up to 60% of the pension 2030 with approximately 206,000 units contribution to secure a mortgage being required annually against a supply of • Introduction of fixed rate mortgages by 50,000. some financial institutions. On estimate, a total of 4.3 Million units will be produced between 2008-2030 of These statistics present supports our which 52% will be for low income urban investment case. The corporation intends households. Annually urban housing to focus on this segment guided by the production will increase from the current below investment parameters and as it 35,000 units to 343,232 by 2030. shall be reviewed case on case by the management. Strengths of the sector include; • Land reforms by NLC expected to spur growth. 22 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 8.8.1 Investment & Return Measures Segment Yields Investments Structure Funding Industrial 14.0% PPP, Internal Funds + Private Investor Office 10.0% PPP,BOT Internal Funds + Private Investor Retail 12.0% PPP,BOT Internal Funds + Private Investor Residential 9.0% PPP Internal Funds + Private Investor Educational Facilities 11.0% ppp Internal Funds + Private Investor 8.9Hospitality & Catering The County Integrated Development Plan has on it 3 objectives enhancement of Vision 2030 vision for tourism is to hospitality facilities. “become top ten long-haul tourism destination in the world that offers a The hotel industry has approximately 2,500 high value, diverse and distinctive visitor bed occupancy capacity comprising one experience, strongly anchored on quality to three star ratings. and diversity of tourism products. The county comparative advantages are; Three of the four products envisioned to • Geographically strategic on the slopes achieve this, that the corporation shall of Mt.Kenya focus are; • Proximity to Isiolo resort city & • The safari products-Aimed at International airport improving the quality of premium • 80km of Lapsset passing through the safari parks and opening resorts in county underutilized parks • Mt.Kenya National park • Conference and business tourism • Lewa down products-Investing in new and • Buffalo Springs upgrading existing hotel facilities to • Shaba National reserve boost revenue from conference and • Nyambene Conservancy business tourism • Meru National Park • Niche Products-Nurturing and expanding high net value niche The need gap that exists products such as cultural tourism, • Insufficient bed space. eco-tourism, conference tourism and • Need for Inns & Hotels. sport tourism. • Need for Holliday & entertainment joints. • Tour &sightseeing joints. MCIDC Investment Plan 2016-2020 23 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 8.9.1 Investment & Return Measures Project nature Returns Investments Cost Estimate- Funding Measure (IRR) strucure 3Year Strategy Up-grading existing 13% PPP $3,000,000 Internal hospitality facilities& Funds + Acquistions e.g Private Meru County Hotel Investor 8.9.2 Capital Recovery Weighted Average Cost of Capital 21.70% Years (n) 10 Capital Recovery Factor 0.25 Initial Investment Kes 300,000,000.00 Annual Desirable Cashflow Kes 75,725,129.80 8.10Energy Meru County Integrated Development plan 2013-2017. The four sub-sectors of In the Vision 2030 blue print, the concern in the MCIDP 2013-2017 blue Government commits to continued print is Energy, Roads, Transport and public institutional reforms in the energy sector, works, with the vision being to develop including a strong regulatory framework, and promote use of renewable energy encouraging more private generators of sources like wind and solar. power, and separating generation from distribution. New sources of energy will be Meru County can harness atleast 665MW found through exploitation of geothermal of renewable energyresource. Which Power, coal, renewable energy sources, includes solar, hydro, wind and biomass? and connecting Kenya to energy-surplus Good support infrastructure including countries in the region grids and road networks make project development convenient. Generation of Energy for Industries such as Tea Estates is a key goal of the 24 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION Indicative Figures Parameter of Measure TIME FRAME 665 MW Total renewable energyproduction target 2016-2020 byMCIDC 145 MW Total mini-hydro production target 2016-2020 5.5% County Electrification rate 95 Total electricity transformers 2,177 MW Total Installed Capacity nationally (2015) 1,512 MW National Peak Demand 18 No.of mini hydro sites targeted by MCIDC for 2016-2020 development 2 No of petrol stations the corporation plans to 2016-2017 put up 50,000,000 Amount required to put up 2 petrol stations in 2016-2017 the county The corporation shall engage players both in the private and public sector in harnessing this potential under the below parameters. 8.10.1Investment & Return Measures Capital Gap Funding Business Vehicle Timeline IRR Sector To be Internal Funds + Joint Ventures, 2016- 14% Energy determined Private Investor Lease &back 2020 +Govt. transfer, Preference appropriation Shareholding MCIDC Investment Plan 2016-2020 25 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 9.0 Revision of this Plan This plan is a dynamic document, the No venture, viable and feasible shall be management shall have the mandate to disregarded by nature of it not being adjust it annually to reflect the changing conceptualized in this document as long market conditions, adjust for new risks, as a proven business case is ascertained. rebalance the asset classes as well as take advantage of emerging opportunities in the market. 26 MCIDC Investment Plan2016-2020 MERU COUNTY INVESTMENT & DEVELOPMENT CORPORATION 10.INVESTMENT INCENTIVES County Level 7) Industrial Building Allowance- granted 1) Land on long term lease agreements on cost of construction of buildings commensurate with capital recovery used for manufacturing purposes and requirements for specific investment also hotel premises, projects 8) Capital Expenditure on agricultural 2) Flexible and attractive investment land- targeted at farmers who incur models on BOO, BOIT, and such other capital expenditure in the course of arrangements. their operations 3) Waiver of land rates for investments in 9) Import duty set off- allows import duty agricultural and plant approval for agro paid on import of capital equipment to livestock processing plants worth at be set off against income tax payable least US $ 500,000 IN COPEX 10) Rate of VAT- Input for health care, 4) Grading of roads to motorable education and exports of goods and standard to link there factory with services 0% themainroads whereapplicable. 11) Manufacture under bond- also allow 5) Connection to water supply mains for duty and VAT free importation but where technically feasible. require that corporation tax be paid, National Level 12) Manufacture under bond- Allow for 6) Investment Deduction Allowances duty and VAT free importation but (IDA) - introduced in 1991 to require that corporation tax be paid, encourage new investment, 13) Tax Remissions Export Office-VAT refunds since duty on most of their inputs is already at 0%. MCIDC Investment Plan 2016-2020 27 MCIDC Investment Plan Contacts: P.O. BOX 3194-60200 Meru, Kenya Tel: 020 2500 250 Email: info@investmeru.co.ke. Web: www.investmeru.co.ke