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ECONOMY: Kenyan Companies Cautiously Venture Into Regional Market

Charles Wachira

NAIROBI, Oct 2 2008 (IPS) - Dr. Manu Chandaria (79) has been lionised as East Africa’s most respected chief executive officer of a company.

In the late 1960s, when the indigenes of the African continent were still tossing up a coin to decide how national resources would be apportioned, the patriarch of the Comcraft Group fortuitously came across someone with foresight who advised him to seek a foothold beyond Kenyan borders for his family business.

‘‘Our advisor Sir Ernest Vasey, who served as a minister of finance in both Kenya and Tanzania before becoming the World Bank’s resident representative in Pakistan, advised us as follows: ‘You are supplying to the whole of the East African region, they have accepted your products, but with the advent of independence you should invest in other countries.

‘‘’If not, you will lose market share, since someone else will start producing in those countries,’’’ reveals Chandaria.

With about 200 subsidiaries, the Comcraft Group, which specialises in producing steel and iron, is today found in over 40 countries spread across five continents.

The Kenyan media puts the corporation’s net worth at 20 billion dollars. But Chandaria chooses to live in a small way.

The legendary rise of the Comcraft Group continues to embolden myriad Kenyan corporations to try and gain entry to the hallowed, enviable but difficult precincts of can-do-can-deal global corporate star performers.

For the past three years two Kenyan companies, the national carrier Kenya Airways and cellular phone provider Safaricom, have shared the coveted prize of the most respected company in East Africa in an annual jamboree. According to Donald Ouma, manager of research and policy analysis at the Nairobi Stock Exchange (NSE), 15 companies out of the 49 that currently trade, have swopped their parochial status for international credentials by enmeshing themselves in foreign markets. The NSE is sub-Saharan Africa’s sixth largest bourse in capitalisation terms.

Conspicuously amongst the 15 local multinationals only one, Diamond Trust Bank Ltd, has a woman, Nasim Devji, calling the shots as managing director and group executive officer.

The most recent foray into the region was by Nakumatt Holdings, owners of the largest supermarket chain in the east African region. The company invested three million dollars to acquire a foothold in Rwanda.

According to Thiagarajan Ramamurthy, Nakumatt Holdings’ operations director, the expansion was natural since the organisation’s long-term strategy seeks to open, respectively, three and four branches in Uganda and Tanzania and an additional one in Rwanda.

This will bring its total to nine branches outside Kenya, besides raising the Kenyan network to 30 from the current 19.

‘‘We will invest an estimated 20 million dollars for the whole exercise. We believe in growth and that local companies have the professional expertise and range of products to compete competitively, if not better than foreign organisations,’’ Ramamurthy told IPS.

The chain had humble beginnings in the mid-1980s in the agriculturally rich town of Nakuru, located 180 km south east of Nairobi, Kenya’s capital.

However, the majority of local companies that have become multinationals are publicly owned. This makes it easy to monitor the financial health of the organisations. But one could argue that this set-up is inherently prone to suffer from bureaucracy which ordinarily slows down decision-making.

The constant upbeat mood of the local economy, first registered in 2003, has encouraged the expansion of home-grown multinationals.

Titus Ruhiu, chief executive of the Kenya National Chamber of Commerce, believes the trend will speed up the integration of the East African Community (EAC), which has been characterised by a now-we-begin-now-we-stop way of working.

In a yet to be released 64-page document, titled ‘‘Strength In Numbers – East Africa’s CEO outlook’’, co-coordinated by international auditing firm PricewaterhouseCoopers, 276 CEOs drawn from across the east African region were asked if they supported integration of the region’s economies.

A full 90 percent answered in the affirmative while the remaining 10 percent expressed fears that Kenyan companies, given a free reign to trade, would obliterate companies from neighbouring states.

The vast majority of CEOs from the region regard regional integration ‘‘as essential to enhancing business operational efficiencies, allowing free movement of resources and making the East African region more competitive in a world that is becoming more and more connected.

‘‘The remaining 10 percent of the CEOs, who disagreed that full integration is the right vision for the region, cite political and social economic imbalances within the east African bloc as their primary concern,’’ director of the survey and country leader of PricewaterhouseCoopers Kenya, Charles Muchene, wrote in the survey.

‘‘Some countries have expressed trepidation about Kenya with its supposedly higher levels of economic development and industrialisation.

‘‘Their fear is that an economic imbalance like this would lead to the demise of industries in other member states when free movement is allowed,’’ Maurice Mwaniki, customs and excise manager of PricewaterhouseCoopers Kenya, added.

Writing in the same report, Francis Kamulegeya, a partner in PricewaterhouseCoopers Uganda, indicated that regional businesses are reacting to market signals and setting the pace of economic integration within the EAC.

Nevertheless, he cautiously added that, ‘‘for many businesses, the EAC is not yet a reality.’’

Countries in the EAC include Burundi, Kenya, Rwanda, Tanzania and Uganda.

According to the World Bank, Kenya tops gross domestic product charts among the EAC countries, registering 29,509 million dollars, followed by Tanzania’s 16,181 million dollars and Uganda with 11,214 million dollars in 2007.

Recent entrants Burundi and Rwanda’s economies are substantially smaller than those of the three founding members of the EAC.

While Kenya’s economy is certainly bigger than those of its neighbours – with exports to Botswana, Rwanda, Uganda, Tanzania, South Sudan and Zambia – the going for Kenyan companies seeking multinational status has been anything but smooth.

When Fina Bank Ltd set shop in Rwanda it had to contend with the problem of the language barrier. French is widely spoken in Rwanda while Kenya is English-speaking. Moreover, the legal systems of the two countries are dissimilar.

Partially state-owned Kenya Commercial Bank, which has a presence in Southern Sudan, has faced the challenge of a lack of a regulatory framework and infrastructure in the region.

Some CEOs feel Kenyan companies’ engagement with the region and continent could go much further. As Linus Gitahi, group CEO of the Nation Media Group, pointed out: ‘‘The South African influence is spreading across Africa, with companies such as MTN, Multichoice, Stanbic, Steers, Nandos and Shoprite extending their reach and becoming household names.

‘‘However, no East African company has as yet left a substantive African footprint. The question we may ask ourselves as business leaders is: why are we not bold enough to tackle the challenge of the continent?’’