The Basket Has Become The Market: Why Kenyans Don’t Have Money, Mr President
The Basket Has Become The Market: Why Kenyans Don’t Have Money, Mr President
” For Kenya’s economic machine to work for Kenyans, restaurants should not be importing potatoes and tomatoes (sauce) from Egypt to make fries (chips) for Kenyans. Kenyans should not be brushing their teeth with Toothpaste made in South Africa or Thialand. Kenyan should not be doing their laundry with soap made in Egypt or Germany, yes Persil is made in Germany. Their morning tea should not be supplied by the French, Ice-Cream by the British and eggs by Ugandans while wearing clothes and shoes from China.”
When Kenya was dependent on AID, the President traversed the world convincing investors that we are not a basket case anymore. We did not want help but trade. By trade I suppose he did not mean that we would sell our coffee or tea to the world as we were already doing that. He obviously didn’t mean we had made millions of quality shoes and apparel in Kenya but we were having difficulties accessing the market. We hadn’t started making world class quality furniture either and we were seeking access to the U.S. or Europe.
I infer what he meant was not trade from the fact that trade implies exchanging of goods and services but what he really was asking for was, Foreign Direct Investment (FDI.) He was selling the case that Kenya was ripe for investments. Consistent with this vision, policy changes ranging from immigration (work permit and citizenship) to ease of business registration were made to facilitate flow of investments into the country. I guess he also meant they should invest in Sovereign Bond (Eurobond) because they did. This mistaking investment for trade is the genesis of Wanjiku’s current wallet condition.
At the same time, others had taken notice of Kenya’s potential to bring in unbelievably huge profits by simply opening branches, buying shares into Kenyan companies, making tender offers, making hostile take overs, or buying convertible bonds. In 2012, the consulting firm, McKinsey and Company (Headquartered in New York) released a study of Africa’s consumer titled, The Rise of the African Consumer. It sought to inspire western investors’ confidence in Africa’s (Kenya included) glaring potential; the youthful demographics were beckoning. The strategy was simple, focus on FMCG (Fast Moving Consumer Goods) but to be successful, package these consumer goods for sale in small quantities thus inherently pricing them for Wanjiku. In other words, target the ‘Kadogo’ market, that’s where the money is.
The study itself illustrated P&G’s (Headquartered in Ohio U.S.) Aerial laundry soap success by simply packaging a single use sachet (affordable even in the village.) It also fronted Vodafone (popularly known as Safaricom in Kenya) and South African mobile operator MTN as success case studies in Africa borne out of selling airtime for mere cents. To illustrate, if each of 30 million Safaricom Subscribers bought Ksh. 10 air time daily, it’s daily airtime revenue would be Ksh. 300 million or Ksh. 9 billion monthly. If you add transactions revenue earned from Mpesa’s 17M Kenyan subscribers, the aggregate revenue will open your eyes to the hidden cream in ‘Kadogo’ market or as I call it the Harambee Market. International investors were becoming alive to an unbelievable beauty that’s is Africa.
With this visible and enduring financial success from a “basket case nation”, the world was inspired and started to move to Kenya in droves. Pizza hut, Dominos, KFC, John Deere, Caterpillar, Carrefour GE, Monsanto, Bayer, Basf, etc. In keeping with the times, President Obama, perhaps jealous of China’s quiet and successful inroads into the African economies through multibillion dollar infrastructural development projects, he landed AirForce One to shine a light on the millions of shoppers beyond Masaai Mara. He brought along 200 U.S. investors to scout and perhaps have a piece of this newly found African demographic mine. Even the Sharks traded the Tank for the African sun.
By the way, it was disappointing that when Global Entrepreneurship Summit was underway, Kenya’s entertainment minded media was preoccupied with the Beast (the American Presidential Limousine that inspired the conversation by gassing up at a Shell petrol station in Westlands.) But I digress. It was curious to me that the only interview Obama gave in the country was at Capital FM, which is associated with the Chairman of Centum, a holding company with a well-diversified portfolio in the Kenyan economy.
This is a man the U.S. President had sought to meet in Hyatt Residence in Tanzania in 2013 but Kirubi declined the invitation. My take was that, the ownership of such a holding company would give any investor instant access to Banking, Real Estate, Power Generation, Publishing, Beverage Distribution and Mining in Kenya, all in a single shot. I was thus was not surprised by Obamas interest to meet the largest shareholder of such a company at the climax of Global Entrepreneurship Summit.
Just as now, Africa’s demographics were appetizing; the consumer class was expected to wield over $1 trillion in annual spending power by 2020. Africa stock markets (including NSE) were also digitizing and wooing family owned business to list on the exchanges perhaps to facilitate ease of ownership transfer to the new foreign entrants. Special favorable conditions were created to encourage SMEs to list on the stock exchange. The listing of family-owned Kenyan businesses has not been so successful and thus ownership is still Kenyan. However, there exists backdoor financial instruments to ownership called convertible bonds or simply owning wholly or at least having controlling shareholding in a bank that loans such businesses money.
By 2017, FDI was on full throttle and continues to stream in with each successful story. Due to cultural differences or what is termed in Business Strategy as Liability of Foreignness, foreign companies don’t customarily open businesses in another country bearing the parent’s company name. You many not even be aware that majority of your supplies in the supermarkets and petrol stations are NOT made in Kenya (every product has “Made in…” I hope you start paying attention and you will know ‘why Kenyans don’t have money.’)The brave ones however opened branches bearing their U.S. or internationally recognized brands as they figured the foreign brands like, Dominos, Pizza hut, Kentucky Fried Chicken (KFC), 3M etc. guarantees a certain standard in the consumer’s mind.
Europe was not to be left behind on this race to Africa, in 2018, French group Danone bought 40% stake in Brookside, the company that sells you Ilara, Delamere ,Tuzo, Molo milk and yogurts. Peugot, which is also French, teamed up with Urysia to assemble vehicles in Kenya which was unveiled by Presidents Macron and Uhuru in March 2019. The French didn’t just want to sell you a car made in France or elsewhere (but merely assemble in Kenya), they also wanted to fuel it and sell you foods and snacks on your commute or travel. Consistently, in 2018, Rubis, (a French company) wholly bought Kenkobil which perhaps was inspired by TOTAL petrol stations’ success (also owned by the French based multinational company Euronext through Total S.A.) VW (German) was not left behind and will also be selling you imported cars assembled right in Thika. As for the U.K., well you know the history and we’ve talked about Vodafone but I think for good measure, Ben and Jerry’s ice-cream became available in Kenya about this time.
Time and space constraints robs me the chance to tell you about Japan’s Toyota Takeover of DT dobbie or manufacturing fertilizer in Kenya, Dubai’s takeover of Insurer For All (IFA), Leapfrog acquiring majority shareholding in Resolution Insurance or the Chinese building skyscrapers with imported cement, steel and doors or directly importing motorbikes and clothes to Kenya. But you get the idea. I hope you do. Because therein lies the solution to our money problem, soon to be peace and stability problem.
This vote of confidence by multinational is good for the aggregate Kenyan economy but not for Wanjiku. I will not say not yet because it will never be good for Wanjiku. The entrance of all these multinational companies (and they do have a right to be here) may have employed some of Wanjikus sons and daughters but majority of them are still drowning in unemployment and idleness. Trickledown economics is a theory. Additionally, even if these multinationals employed more of her off-springs, the meager wages would not help in wealth distribution nor money circulation in the country. Differently put, the president would still be surprised at the sight of Wanjiku’s wallet even of all her sons and daughters clocked in somewhere.
The weakness that attends Foreign Direct Investment for the host country is multifaceted; it makes the Shilling expensive when Capital initially enters Kenya (making our export expensive.) Over time though, it drains Capital as the profits made is eventually expatriated to the foreign investors’ account. To illustrate Vodafone U.K. earned Ksh 30 Billion in Safaricom dividends in Sep 2019. On the day Safaricom started distributing dividends on Sep 17th 2019, the Shilling to Sterling exchange rate drop to its lowest that month (a drop of 5% compared to a month earlier.) As Safaricom dividend payout continued, the Shilling had lost another 3.8% against the Sterling from the initial dip aforementioned. It is logical that the Ksh. 30 billion was expatriated and is reflected on loss of the Kenyan Shilling Value during this period. There are also undeniable and predictable quarterly dips of the Kenyan Shilling value that are directly attributable to Capital Flight (Money made in Kenya but not participating in the Kenyan economy as it’s transferred to a foreigners account.) This quarterly dumping of the Kenyan shilling by multinationals creates an opportunity for IMF to LOAN Kenya dollars to mop up excess currency in the fire-fighting, out-of-breath stance called monetary policy. We have not even addressed money that exit Kenya’s economy to pay for debt incurred on unnecessary railways and ports and the soon maturing Eurobond.
However powerful this constant capital exit is, the bulk of capital leakage which deprives our economy the thrust of economical heartbeat called the multipliers effect is that most of the foreign companies that have set up in Kenya do not produce IN KENYA the goods they sell here. They are simply importers (perhaps that’s what informed SGR); the product is MADE somewhere else and shipped to KENYA. While the President should have been looking for markets to sell our products (assuming he had first inspired creation of global standard products in Kenya by this very same youthful demographics) he inadvertently made us the market, a consumer market. The BASKET became the MARKET.
Let’s paint the picture, P&G’s Aerial Soap is made in Egypt but it easily gains Kenya’s market through COMESA treaty. To illustrate, if 20 Million Kenyans bought 1 sachet of Aerial laundry soap which retails at Ksh. 15, that single weekend revenue for the company would be Ksh. 300 Million and Ksh. 1.2 Billion for the four laundry weekends in a month. The bulk of this money has to leave Kenya to rightfully compensate the investor for the risk taken. From my form-2 chemistry, soap is nothing more than sodium or potassium hydroxide mixed with fat or oil. Simply put, any form 2 drop-out can make soap. But I guess in our National Economic Strategy and Vision 2030, we have to import soap from Egypt. Shame on me and you. We are squarely to blame. Yes, you and me. Let’s not just focus on what the President ought to have done and we have every right to zero in on his actions or the lack thereof. We do not see the potential that others abroad have seen because we’re busy buying plots in Joska and crowding Kilimani and Upperhill with unoccupied apartments and offices and filling the rest of the country with bedsitters. How many foreign companies have you seen buy land or build skyscrapers or bedsitters if that’s where the money is? They will sleep in your apartment and work in your office but they’re here to sell you soap, toothpaste, milk, snacks, and ice-cream. Their ROI is a year or at most two while your (and my) Capital lies in idle assets called plots and buildings (ROI 40 year’s minimum). Who will remove this curse? We have aggregate money in common mattresses called deposit taking Banks and SACCOs but we don’t know what to do with it, except buying land and building “gated communities.” The only way to economically liberate Kenya is for Kenyans to PRODUCE most of what we CONSUME right here in Kenya. Period!
If Parliament (the people representatives) want see money flow in Kenyans’ pockets (and as I see it, prevent predictable social instability that attends yawning wealth inequality coupled with educated youthful population deprived of economic opportunity,) it MUST mandate companies operating in KENYA to wholly or partially MANUFUCTURE in KENYA by KENYAN labor (not robots) using KENYA’S raw materials. VW and PEUGOT should use our iron ore; my grandpa used it for his sword and spear and he was considered unschooled. Mandating Kenya’s civil servants to wear “Kitenges” on Fridays is purely ceremonial and inconsequential to the country’s economic plight. Let’s get serious. For Kenya’s economic machine to work for Kenyans, restaurants should not be importing potatoes and tomatoes (sauce) from Egypt to make fries (chips) for Kenyans. Kenyans should not be brushing their teeth with Toothpaste made in South Africa or Thialand. Kenyans should not be doing their laundry with soap made in Egypt or Germany, yes Persil is made in Germany. Their morning tea should not be supplied by the French, Ice-Cream by the British and eggs by Ugandans while wearing clothes and shoes from China. If this persists, we will undoubtedly go south, if we do, the investors will simply exit leaving us worse than he found us but having made a killing while social stability lasted. I’m not naïve to globalization and the degeneration of the idea and identity of a Nation State but the cause and effect of globalization are both reflective of policy choices. Like it or not, the U.S. has woken up to this fact also in their strategy to MAKE in AMERICA.
Do not be deceived, Gross Domestic Product is quite gross (pun intended) as it looks at income made in a country but it does not tell you who made the money and how soon it left the country once it was made. That’s is why the economic metrics on your Presidential desk don’t match up with Wanjikus Mpesa account. If you don’t believe me, study and learn from South Africa; The Whole is Wealthy, The majority of Individuals live in poverty. Let’s not make another South Africa, east of the Lake Victoria.
Common sense policies should prevail or brace for organic resistance. When Marie-Antoinette (bride of France’s King Louis XVI) was confronted by her starving subjects because they did not have bread, she was so out of touch. Her response “let them eat cake.” That sealed the French Revolution. Revolutions are chaotic and are lose-lose for everyone. We have time to divert the current sentiments by making the economy work for everyone. That can easily be done with a pen.
There you have it Sir, in black and white.
By Robert Mwangi
Robert Mwangi holds an MBA in Finance from California State University and is the Author of the Book Dollar Altar available on Amazon.