“The waste of scarce resources in Africa’s energy systems remains stark and disturbing. Current highly centralized energy systems often benefit the rich and bypass the poor and are underpowered, inefficient and unequal. Energy-sector bottlenecks and power shortages cost the region 2-4 per cent of GDP annually, undermining sustainable economic growth, jobs and investment. They also reinforce poverty, especially for women and people in rural areas. It is indefensible that Africa’s poorest people are paying among the world’s highest prices for energy.” ~ Excerpt from the Foreword by Kofi Annan in the AFRICA PROGRESS REPORT 2015
“… and all consumers know, when the producers name the tune, the consumer has to dance.” ~ Gil Scot Heron, B-Movie
The Kenya power sector is many things to many people. For some, it is a shining African example of a successful power sector while for others, it is a scandal-ridden den of thieves. For some, it is one of the world’s leaders in green energy and for others it is an unapologetic advocate of coal power. As with many countries, amidst the conflicting politically-driven narratives, it is often hard to separate truth from opinion. Tabled plans serve complicated and disguised agendas of both local and international interests.
Currently, Kenya has an installed capacity of about 2600 MW. This is about one-twentieth the size of South Africa’s grid and more than twice that of Uganda’s.
Despite the bad press, there is much in Kenya’s power sector to be upbeat about. Compared to others in the region, the sector has performed well. Kenya Power has a reputation as a credit-worthy off-taker. The sector is, to a large degree, privately owned, funded and operated. It is “open for business” and, eventually, it gets projects done. Much of the time (but not all) companies in Kenya’s power sector are profitable. By fortuitous accident of location and resource availability (geothermal, wind and hydro), the sector is mostly green. The sector has been able to innovate, complete projects and grow power generation with steady increases in supply and demand over 20 years. With donor support for the Last Mile Programme, it has managed a massive expansion, doubling its customer base in 10 years. Kenya Power, KenGen, the Energy Regulatory Commission (ERC), parastatal agencies and independent power producers (IPPs) have talented staff who enjoy competitive salaries and benefits.
Currently, Kenya has an installed capacity of about 2600 MW. (Ministry of Energy online statistics do not include recent solar, wind and geothermal projects.) This is about one twentieth the size of South Africa’s grid and more than twice that of Uganda’s. Recent additions of wind (300 MW from Turkana) and solar (50 MW from Garissa) have ratcheted down fossil fuel-fired thermal generation and greatly increased capacity to meet peak demand, as shown in Table 1.
Whether the reputation is deserved or not, Kenya’s electricity sector is much-liked by African energy investors. With over 1100MW of power-producing wells, Kenya is in the global top ten of geothermal electricity producers. Turkana Wind is the single largest sub-Saharan wind power project on the continent. At 50MW, Garissa solar is the largest solar project in the East Africa region. Today, tabled investments in geothermal, wind and solar are under way that will double Kenya’s power output in 10 years and most of these are environmentally-friendly (the proposed Lamu coal plant notwithstanding). With 60 per cent of the population connected to the grid, Kenya has the highest electricity access in the region and a higher per capita electricity consumption than Nigeria.
Exceptionally expensive electricity
So, from the above, everything would seem to be satisfactory with the Kenya power sector. But not all is well. In a 2015 assessment, Power Africa lists major “bottlenecks”: inadequate early stage capital for project financing, land/right-of-way risks (i.e. for transmission projects) and IPP “procedural” and process issues. In addition, it points out that the inadequate transmission and distribution infrastructure prevents optimal deployment of the available power resource.
Kenyan industrialists put it more bluntly. For them, exceptionally expensive electricity is among the main causes of manufacturer and investor migration to neighbouring countries. Given the comparatively low-cost hydro and geothermal power in the system, they have long expected reduced power costs. And this is a something the government has long promised but been unable to deliver.
Although murky deals have much to do with the problem, two factors drive continued high consumer power prices. First, we can thank the unbundled power sector. In 1996, at the behest of the international community, Kenya unbundled its power sector. According to a logic pushed by the World Bank, separate companies would independently manage costs, raise finance and increase competition. They would build management efficiency and help to overcome corruption and debt accumulation. Separated entities would enable Kenya Power to place the burden of electricity costs firmly on the shoulders of consumers as there is no subsidy in the payment formulas used to calculate consumer bills.
The unbundling of the power sector and the incorporation of IPPs had a number of positive outcomes. But they did not put to rest the central problems facing the Kenya power sector, nor did they reduce energy costs.
Second, for high power prices, we can thank diesel-fueled thermal power generators. These generators, which are necessary to meet peak loads and supply power when drought reduces hydropower output, add disproportionate long-term costs to power supply. Though they usually supply less than 15 per cent of the overall supply capacity, their costs to consumers (via fuel cost charges) make up an outsized part of the monthly consumer bill.
Kenya Power: An ignoble history
The unbundling of the power sector and the incorporation of IPPs had a number of positive outcomes. But they did not put to rest the central problems facing the Kenya power sector, nor did they reduce energy costs. To understand the situation today, it helps to review the sector’s past and how the donor-sanctioned unbundling of power altered its course.
At independence, East Africa Power Company Limited (EAPCL), a Nairobi Securities Exchange-listed company, included generation systems in Nairobi, Mombasa and the Tanganyika Electricity Supply Company (that became Tanesco). In 1954, the Kenya Power Company had built transmission lines to connect Kenya to Uganda’s Owen Falls Dam. In 1964, EAPCL sold its stake in Tanesco and it was much later renamed Kenya Power and Lighting Company (KPLC). Initially, most of its power generation was from the Tana River Development Company and hydropower accounted for 72 per cent of the country’s electricity.
The development of Kenya’s vast geothermal potential began in 1981 when the European Investment Bank kick-started the drilling of the Olkaria wells. After the first successful geothermal projects, many other financiers followed.
During the Daniel arap Moi era, high-level cartels used the energy sector investments to build political power and business empires and to fund political campaigns. Between 1983 and 1992, the power sector was plagued by scandals that had repercussions on the rest of the economy and which affected relationships with donor partners and investors. Multiple shady deals from the period, such as the Turkwell Gorge and the Ewaso Ngiro dam feasibility (it was never built), are still debated. Whatever the reality of these still-disputed deals, an outcome of the mismanagement was the withdrawal of donor support for the power sector. Following the Turkwell Gorge saga, a consultative donors’ group meeting (which included the World Bank and the International Monetary Fund) imposed an embargo on Kenya’s energy sector, which stalled international power project investments for almost a decade.
The World Bank and the donor community re-engaged with Kenya in 1996 with a plan to restructure the energy sector. The programme, which was part of global World Bank liberalisation initiatives, would pressure state-owned electricity companies to “unbundle” production, distribution, transmission and regulation. This resulted in the privatisation of power production to KenGen and independent power producers. KPLC was responsible for distribution and transmission and for creating an Energy Regulatory Commission to oversee the sector. The international community anticipated that unbundling would improve the overall management of the sector, increase transparency, expand opportunities for international investment in power projects, and lower prices.
Unlike other regional power sectors (e.g. South Africa, Tanzania, and Ethiopia), Kenya eagerly went along with unbundling, perhaps because it saw business prospects in this restructuring. However, under the new rules, the same cartels responsible for tarnished projects in the previous decade contrived new opportunities for themselves. Focusing on thermal power, insiders profited hugely from the entrance of new IPPs into the unbundled sector.
Contracts for thermal generation companies are attractive; it is almost impossible for IPP players to lose money. First, simply for being there, IPPs receive a “capacity charge”, paid according to the size of the generator. Whether or not they are deployed, contracts stipulate that the IPP is paid for being on standby and ready to supply power. Secondly, all thermal IPPs are paid per kilowatt-hours supplied at a fixed rate that is well above that paid for hydro or geothermal power providers. Thirdly, IPPs receive a “fuel pass-through payment” to cover the costs of fuel purchased. (Unsurprisingly, most thermal IPP companies come from the same business ecosystems as petroleum companies.)
From the very start, the processes of awarding thermal IPP contracts were contentious. There were conflicts of interest in ownership, unusual tendering procedures and allegations of insider trading. During poor rainfall periods in 1999 and 2000, diesel plants made money and consumers suffered. In 2000, while KPLC and KenGen flirted with insolvency, the government had to take an emergency $72 million loan to pay for fuel for generator IPPs. A 2003 parliamentary investigation committee blamed KPLC for mismanaging water from dams and creating artificial power shortages to boost thermal power generator sales.
Starting in 2008, and with the support of donor partners, the government introduced standard feed-in tariffs for wind, solar, geothermal, biomass and biogas, which would attract renewable IPPs. However, the feed-in tariffs did not fast track wind or solar. Instead, between 2008 and 2016, petroleum-fueled IPP and KenGen generation rose from 22 per cent to 35 per cent of the overall generation capacity, while by 2016 wind (from Ngong) amounted to less than 1 per cent of the installed capacity.
If the objectives of unbundling of the sector was to open up opportunities, in the 15 years that followed, it was mainly IPP thermal generation players that benefited from these opportunities. As noted earlier, geothermal power sources also increased significantly during this period, but consumers mostly were impacted by the costs of the long-term agreements signed with thermal IPPs that continue to haunt the sector until today.
Under pressure from the private sector to reduce prices and improve sector performance, the Jubilee administration has made some progress. Several new geothermal plants have been added, Turkana wind and Garissa solar are in place, and there is a considerable pipeline of projects on the way. But the litany of power sector maladministration continues. Sector agencies have been accused of procurement abuses on goods that range from poles to transformers, prepaid meters and drilling rigs. Employees set up “tenderpreneur” companies to do inside deals. On what seems like a daily basis, journalists report on the corruption and leakages in the sector.
From the very start, the processes of awarding thermal IPP contracts were contentious. There were conflicts of interest in ownership, unusual tendering procedures and allegations of insider trading.
So, even though power purchase agreements are being signed, capacity is being added and poles are being strung, the sector’s leaders have not brought down prices. Kenya’s power is still three times as expensive as power in Ethiopia and sector governance remains opaque and inefficient. Consumers are being warned by the regulator that prices are likely to rise.
Centralised or decentralised power: That is the question
The Kenyan government’s plan to address expensive power is to increase supply and to renegotiate unwieldy Power purchase agreements (PPA). However, in response to high prices and continued supply problems, and, in a trend that may foreshadow the future, local industry is exploring alternatives that allow them to control their own power supplies.
If the grid doubles in size in five years, Kenya Power will have to buy this power and sell it to consumers. With recent solar, wind and geothermal additions, and with another 400 MW from Ethiopia, the Kenya grid will have a growing oversupply of power.
Jubilee’s Big 4 industrial agenda requires low-cost electricity for urbanisation, population growth and economic development. Its political platform promised major power supply additions from the start, and its Least Cost Power Development Plan calls for 3000 MW additions that will double the current grid size by 2024. This includes scores of planned KenGen and IPP projects in wind (Kipeto, Ngong Phase III, Chania, Prunus, Meru), solar (Kopere, Alten Malindi, Quaint, Gitaru and others), geothermal (over 1000MW) and coal (Lamu). But even if all of the above power projects can be completed more cost-effectively and with less political influence than in the past, it is not clear that increased supply will reduce power costs. In 2019, current peak demand is just above 1800MW, compared to a healthy production capacity of about 2500MW.
If the grid doubles in size in five years, Kenya Power will have to buy this power and sell it to consumers. With recent solar, wind and geothermal additions, and with another 400 MW from Ethiopia, the Kenya grid will have a growing oversupply of power. Globally, few economies anywhere have expanded fast enough to double power demand in less than a decade and Kenya’s economy today is not poised for double-digit growth. An oversupply of power will create more, not less, problems for Kenya Power and its consumers. This comes at a time when Uganda and Ethiopia also have oversupplies and are looking to sell their surplus power. Common sense says that if the economy took 60 years to grow demand for a 2600MW grid, it will not be able to absorb an additional 3000MW in less than a decade.
Meanwhile, unhappy with expensive and often unreliable power, big customers have begun to produce power on site for their own needs at financed prices that are more attractive than Kenya Power rates. On the order of 25MW of embedded power has been installed in Kenya in the past five years, mostly in the form or solar PV but also from biogas and geothermal sources. In 2019, an additional 20 MW is likely be added. Malls, flower farms, factories, tea estates and universities are taking up embedded solar systems because they are reliable, they help control costs, they meet growing consumer demand for green power and they increase productivity. As shown in Table 2, companies are finding that they can manage their energy costs in ways that support their bottom line – at prices that are lower than Kenya Power rates.
Although thus far the tally of embedded solar power projects is relatively small, the trend should be of concern to power sector leaders. This is because the top 6,000 power consumers (i.e. those consuming 15,000 kWh/mo) account for about 60 per cent of Kenya Power revenues. These players are watching the early adopters and meeting with the financiers and installers of embedded power systems. Trends for self-production of power will not go away.
With the rapidly decreasing costs of solar, wind, biogas and energy storage technologies, producing one’s own power is increasingly viable. Globally, scores of companies are developing technologies and raising finance that can make consumers energy independent and enable them to sell excess power to the grid. Indeed, embedded solar and biogas and, increasingly, battery storage, are being actively promoted for industries, commercial establishments and households in developed countries. National power production profile curves in California, Germany and Australia now show impressive inputs from wind and solar power. A large portion of these are from household and commercial systems. As batteries get cheaper, more customers will opt to manage their own energy supply. As technology improves and costs go down, decisions will increasingly be driven by company (and household) bottom lines.
A Green New Deal for Kenya?
Although Kenya’s new Energy Act allows for net metering and distributed generation (i.e. self- production of power and sales of excess to the grid), the government and Kenya Power have been less enthusiastic about promoting embedded power. As elaborated above, the government’s focus is on centralised generation projects. This is unfortunate because it is clear that, globally, a tipping point is near. Lower-cost renewables and storage are changing things quickly, enabling large companies and developments to fully manage their own power production and, moreover, to remove part of the financing burden from the state and IPPs.
The biggest question facing the power sector is this: How will it lower costs, compete and improve overall performance for a population promised 100 per cent electricity access in a global business environment where customers can increasingly generate their own power more efficiently than the power company? To survive, the power sector must anticipate changing technologies and business models or it is likely to suffer some of the same consequences that land line telephones did when they were overwhelmed by cellular technology.
Globally, whether East Africa likes it or not, the world is entering the sunset stages of the fossil fuel age and power sector business environments are unfolding very differently than they were just a few years ago. They are moving toward distributed power technologies that can improve grid stability, create jobs and add economic value. In order to fight climate change and clean up the environment, international leaders are looking to green technologies, electric cars and renewably-powered smart and decentralised grids. The good news is that this is no longer science fiction – it is reality.
Rather than fight the inevitable, Kenya – which already has a reputation for having a “green power sector” – should become a regional leader for decentralised clean energy and plan for it. Just as was done with cellular phone networks, power sector planners should rethink their strategies so as to embrace the new realities.
First, power sector planners should move away from IPP-driven exclusively large-scale project approaches that are top-down, opaque and, increasingly outdated. Though economies of scale and stable power requirements demand that there will always be large-scale power suppliers, there is also a need to recognise the developing niches for smaller decentralised power providers and the ways in which they can help improve the overall grid.
Second, planners should give consumers a larger stake in the sector and encourage them to finance and produce their own energy. Large consumers using decentralised solar, geothermal and storage should be incentivised to supply their own power and to sell their excess power to the grid. Since such large consumers make up the bulk of Kenya Power’s demand, their decisions will increasingly affect the prices and power generation choices of millions of smaller commercial and household consumers.
Thirdly, by opening up the sector, and setting targets for smaller-scale decentralised and embedded solar, wind, biogas, geothermal and storage, planners will create jobs for the financiers, developers, manufacturers and installers of these technologies. In developed economies, decentralised solar players create far more jobs than large-scale power projects, jobs that are high quality and available for local small and medium enterprise players. Given the right policy environment, the Kenyan private sector is well-equipped to move into this space and to develop new efficient business models.
Fourth, the power sector should focus on its core business: efficiently distributing and transmitting power. Many recognise that unless considerable improvements are made in the country’s distribution and transmission infrastructure, generation capacity will be added in vain. Kenya Power – and the central investments in its infrastructure – need to be targeted at poorly performing parts of the distribution and transmission system. By allowing decentralised producers to add needed capacity, the power sector can simultaneously refocus its investments on Transmission and distribution improvements and reduce the need for expensive upgrades to sites where energy is self-produced.
Finally, Kenya should seek to be the hub for international electrification connections between Ethiopia, Uganda, Tanzania and SADC markets. By building up the transmission connections between these countries, it will increase local electricity supplies, lower prices and increase income opportunities from the wheeling of electricity between countries. Lower priced electricity, especially from Ethiopia, will force down prices and enable local industry, and eventually stimulate the inevitable transition to electric transport.
I Transact, Therefore I Am: A Case for the Humble Marketplace
13 min read. OBY OBYERODHYAMBO explains why ordinary markets, which sell innovative products derived from our cottage industries, also act as purveyors of our culture while presenting a unique solution to the economic, health and environmental challenges facing us.
At the risk of bringing the wrath of philosophers upon me, I wish to borrow from the famous maxim cogito ergo sum by French philosopher Rene Descartes – which translates to I think, therefore I am – to define present humankind: I transact, therefore I am. This is no way a reification of consumerism, or a deification of capitalism, and how the market has become definitive of our era; it comes from a deep observation of the single thing that defines us humans today: markets and trade transactions.
Modern civilization is premised on structures and systems that make trading and legal transaction possible. There is no community that does not have markets and that does not have market systems for legal transactions. All communities frown upon any exchange that is not transactional; that is simply called theft.
Though humans have preferred to distinguish themselves from other animals on the basis of their rationality, what really defines us is interdependence – the realisation that we need each other in order to survive, and that we basically cannot do without one another. This common human need for the other transcends the individual to communities and embraces entire nations. Even the most individualistic eccentric, with delusions of self-sufficiency, quickly realises the mutual need humans have for each other, and the primacy of structures for transaction. Nations maintain diplomatic relationships on this principle, and despite the dominance nature of the global powers, forums, such as the United Nations General Assembly, are ideally supposed to be an equitable marketplace of ideas where both the powerful and the not so powerful, the wealthy and the financial minions exchange and interact. The most basic transactional platform is the marketplace.
A while ago, while pondering this piece, I sought opinions from several professionals. I needled them to reflect on the state of markets in Kenya. Each one, without exception, responded by focusing on the financial, stock and commodities markets. My interlocutors were not all economists or engaged in the financial sector; in fact few were, and this is the poignant point.
In the psyche of most people, the “market” is conflated to mean local and international stock, bond, securities, forex and derivatives markets. Few think outside this frame and the managers of our economy are guiltiest on this score. It is not surprising that there was a look of utter surprise when I revealed that the market I was interested in was the kawaida or ordinary market – the soko, chiro, ndunyu that is the massive open air market teeming with kawaida people in Karatina, Kongowea, Gikomba, Muthurwa, Toi, Kapsoit, Luanda, Kibuye and many other places. The livestock markets in Suswa, Koriema, Lubao and Kibokoni that specialise in cattle, goats, dogs and fish, respectively, and the MwembeTayari, SokoMjinga, SokoMoi, Marigiti, Mbero and Rongai markets that have acres and acres of farm produce strewn all over, usually displaying the most unhygienic handling. Even Village Market, Maasai Market, or Kariakor that specialise in curios or material culture, but which are basically outlets for tourists to purchase memorabilia and trinkets, and which hardly provide a forum for engagement with our rich material culture.
Once the surprise faded off their faces, each one was challenged to ponder why it is that the kawaida (ordinary) markets were rendered invisible in discourses around GDP, economic performance and human resource deployment, whereas there were millions of individuals directly or indirectly engaged in markets as traders, service providers and clients. Why is the ordinary market, with the potential to provide the impetus for innovation that would provide much-needed employment for the youth, totally ignored?
In the psyche of most people, the “market” is conflated to mean local and international stock, bond, securities, forex and derivatives markets. Few think outside this frame and the managers of our economy are guiltiest on this score.
The challenge extended to questioning why the resilience of the kawaida markets to sustain the social and economic well-being of communities is not factored in our economic growth models. Why is it that though the monies that circulate within kawaida markets is significant there does not seem to be a fair estimation of it in our economic projections?
I was also most intrigued by the human interaction and the resultant social and cultural dynamics evolving around markets, but found scanty studies on the phenomenon. I further pushed my respondents to think of the reasons that led to the waning in prominence of markets that in the past were important meeting points for communities and their commodities. Today these markets have become totally eclipsed by virtual markets that serve the interests of a minority. Corollary to this is what is lost when these interactions fizzle out. Markets must have created social cohesion premised on co-dependence. Language and common practices evolved to ensure the harmony upon which markets thrived. The intercultural interactions gave rise to multicultural creative and expressive forms.
Angela Ka-yee Leung et.al, in a study published in American Psychologist, empirically demonstrate that exposure to multiple cultures in and of itself enhances creativity. They argue that the extensiveness of multicultural experiences greatly enhances creative performance, as well as the creativity supporting cognitive processes that make an individual more creatively versatile. Cross-cultural exposure, such as what kawaida markets provided, increased the capacity for creativity, invention and innovation.
A confluence of needs and cultures
The centrality of markets in African life can be appreciated from the mention of markets in African literature and even in songs. Activities on designated market day, and at the market are pointers to such significance as proverbs like “Every marketplace has its own madman” denote. Any authentic work of African fiction invariably has a market scene. The marketplace facilitated more than simple economic engagement; it allowed people from diverse communities to interact and exchange. In exogamous communities, market day was an opportunity to forge future romantic relationships. It could be argued that the marketplace was the dating sites that pre-dated the digital era.
Actual markets, in contrast to virtual ones, are physical spaces that evolve to enable transactions between buyers and sellers. There is a confluence of needs: the needs of a seller with commodities to dispose of, and the needs of a buyer who lacks the commodity on sale. Each is driven to the market by their needs. The existence of markets underscores a reality that no individual, community or region is self-sufficient and therefore must transact. A description of the evolution of Dagoretti in Nairobi as a significant meeting point between Kikuyu farmers and the pastoralist Maasai shows how markets fostered both co-existence and rivalry: “19th century Dagoretti was part of the rich food- producing Kikuyu country and was populated with Maasai and Kikuyu people as it lay on the edge of Maasai country. Kikuyu farmed sugarcane and banana among other crops, while Maasai kept cattle. The two groups cohabited and their lives together ebbed between trade and raid.”
“Ebbed between trade and raid” meant that even as they had a transactional relationship, there were times when they would raid each other. This notwithstanding, there was still a strong relationship between the two communities that allowed for social interaction and cross-cultural mingling.
Kisumu, the third-largest city in Kenya, evolved from a marketplace as the Kisuma name suggests. Sumo is a food security strategy practiced by the Luo where regions that have not enjoyed a good harvest would visit relatives in food-secure regions to borrow grain. In subsequent seasons, the favour would be returned.
The knowledge that those with bumper harvests today might face hardship in the next season entrenched the interdependence. What is today Kisumu was a central place that allowed for transactions between different communities around Winam Gulf all the way to the hills of Nyangóri to Nandi Hills and the present day Kericho. Many towns in Kenya have evolved from such humble transactional markets.
On market days, communities were brought together and even hostile neighbours managed a truce to allow for transaction. An important aspect of these transactions is that there arose between the traders an in-between population and language. Languages of commerce also emerged and these elements of culture ensured that there was social cohesion, if not total harmony.
Kisumu, the third-largest city in Kenya, evolved from a marketplace as the Kisuma name suggests. Sumo is a food security strategy practiced by the Luo where regions that have not enjoyed a good harvest would visit relatives in food-secure regions to borrow grain. In subsequent seasons, the favour would be returned.
The para-linguistic nature of the communication between neighbouring communities would be a fascinating area of intercultural studies. Picture a conversation at the Lubao market in Western Kenya between a dog seller and a dog buyer. What attributes of the canine would the seller extoll in order to secure a deal? Each context is unique. For instance, a goat seller in Koriema in Baringo or Kiamaiko in Nairobi, or a cow seller in Suswa, or even a fishmonger and the buyer at Jubilee Market in Kisumu wishing to purchase a specific species of fish develop their own transactional language.
In many Kenyan livestock markets, there is a distinct bargaining method used to arrive at consensus on a price. The seller and the buyer shake hands while mentioning a price and as long as the price is not agreed upon, the hand is let go. This is repeated several times as the two parties haggle to reach a middle point, and once the negotiated price is mutually arrived at, the handshake is held; a deal has been arrived at. Only after this does money and the livestock change hands.
What is demonstrated by this shared common culture and the rules of engagement are two subtle messages: that the parties are equal and that the transaction is negotiated to the satisfaction of both parties. No one leaves the deal feeling like they have been shafted. This is important because social cohesion must be maintained even after the deal is done. This is a far cry from the skulduggery that defines trade outside of the kawaida market where kickbacks, price-fixing, price variation and other unscrupulous practices are the nature of the transactions.
The existence of markets underscores the centrality of equality between the two transacting parties. Both parties must be willing to acknowledge a “deficiency” – something they lack which the other party has. The transaction only works because the buyer has something of value which they offer to the seller in exchange for the desired product. The transaction is only successful if there is a mutual agreement on the equivalence in value of the transacted items. There is an inherent danger if the parties have no consensus on the value of the transacted items.
Another factor of the market is that the interaction between the parties must be premised on a malleability – a willingness to evolve new identities, characteristics and behaviours. No one leaves a market in the same state as they entered it. Since it is a platform for exchange, markets therefore exist on the principle of fairness – both parties in the transaction must agree that the exchange satisfies their notion of equivalent value. In order to arrive at this mutuality and symbiotic co-existence there must be ways in which cooperation and understanding is built and maintained between the two parties. There are shared values that arise from the familiarity between the sellers and the buyers. This cordial relationship promote an ethic of quality products and honest exchange.
Markets are, therefore, an indicator of whether an economy is productive, or has been rendered purely consumer-oriented and parasitic. Whereas the stock, bond, securities, forex and derivatives markets might not reveal the underlying inequalities, the kawaida markets cannot hide the extent of symbiotic co-existence between parties.
Goods available on the market is indicative of what a region produces and consumes, and this balance or imbalance immediately exposes the power dynamics between these communities, nations or regions. The kawaida market is the platform where local contextual everyday problems find solutions. Whether the challenges emerge from energy, water, food security, health or climate, the solutions can only be invented, innovated and made available at the local kawaida market. The local stock exchange will not be able to reflect and respond if a community is facing an energy crisis and the locals cannot boil their githeri or fry their mbuta. Neither will the forex market respond to a water crisis where women have to travel miles to get the precious liquid for their families. Nor can the bond market respond to the food security that might threaten a region when army worms have invaded their maize farms. The securities market cannot respond the to the health challenges caused by malaria. The need to develop innovative solutions actually rests in the kawaida market.
Kawaida markets as hubs for innovation
William Kamkwamba’s story has been immortalised in a film titled The Boy Who Harnessed the Wind. In 2001, Malawi, his home country, was facing a terrible drought, and the subsequent famine was made worse by abject poverty. Imported maize from Tanzania was highly-priced and the desperate locals could not afford their staple nsima. Disaster was imminent.
William, 14 years old at that point, was meant to transition to high school, but his family could not afford school fees and he had to drop out of school. The farming community he hailed from faced a series of combined problems: poverty, food insecurity, unpredictable climate and erratic rain patterns, poor educational infrastructure and unsustainable eco-unfriendly energy.
Markets are, therefore, an indicator of whether an economy is productive, or has been rendered purely consumer-oriented and parasitic. Whereas the stock, bond, securities, forex and derivatives markets might not reveal the underlying inequalities, the kawaida markets cannot hide the extent of symbiotic co-existence between parties.
Driven by the desire to solve his community’s problems, William, inspired by diagrams in a Physics textbook in the local library where he sought refuge after dropping out of school, sought to build a windmill that could generate electricity that could be used for pumping water for irrigation of their farms and also provide lighting and charge mobile phones that a few in their community-owned. Once he built his windmill from discarded scraps from a junkyard, and managed to generate enough electricity to power his family’s radio and a few light bulbs, it can be said, the rest is history. His innovation was scaled up and a water pumping windmill was built that could enable irrigation as well as light up the village, the local school and provide a model for others to copy throughout Malawi. William went on to recruit many other young Malawians into building windmills to solve the problem of lack of sustainable energy, reliance on rain-fed agriculture and resultant poverty.
A few years ago, at the height of the Hyacinth menace in Lake Victoria, Kisumu Innovation Centre (KICK) came into the picture by innovatively using hyacinth to produce paper, ropes and other materials with the weed. The moment of glory for their innovations came during the memorial service for the late Nobel laureate Prof. Wangari Maathai when it was revealed that the unique casket in which her body lay was manufactured by KICK from hyacinth. It is in this eco-friendly casket that she was cremated. The young men and women at KICK responded to the local problems of youth unemployment, environmental degradation, and poor garbage disposal by promoting the recycling and re-use of waste to create environmental sustainability.
Prof. Wangari’s decision to opt for cremation, and to cap it off in a hyacinth casket, showcased two levels of innovative thinking: it made the point that trees need not be cut down to build coffins, and it also challenged people to adopt more environmentally-friendly body disposal methods using eco-friendly solutions. When one thinks of the number of trees felled just to build caskets, which are used just for a short while before ending up being buried in concrete vaults, the hyacinth casket is nothing short of genius.
There are 4.4 million disabled people in Kenya and 67 per cent of these are unemployed and living in poverty. For those who cannot afford basic wheelchairs, their movement is restricted and some end up wasting away. A young Lincoln Wamae decided to tackle this challenge by making electric wheelchairs. He collects most of the parts from junkyards and assembles the motorable wheelchairs. He says that he began his innovations as a hobby and it has now evolved into a thriving business. He obtains the batteries from old discarded laptops and by so doing is actually contributing to solving the problem of e-waste. His lithium-iron powered wheelchairs have made these life-changing gadgets available to those who would only have dreamt of them.
Prof. Wangari’s decision to opt for cremation, and to cap it off in a hyacinth casket, showcased two levels of innovative thinking: it made the point that trees need not be cut down to build coffins, and it also challenged people to adopt more environmentally-friendly body disposal methods using eco-friendly solutions.
The same can be said of Simon Karumbo who has made a 100 per cent solar-powered vehicle. He responded to the challenge of youth unemployment as well as climate change and energy challenge by innovating on energy-saving solutions. He controversially went ahead to invent a bed that generates energy when animated activity is performed on it.
Innovation is not only in technology-based solutions. Every market in Kenya has a section where the vibrant trade in second-hand clothes happens. There are usually heaps of clothes neatly segregated by type to allow for easier picking. There is even some level of specialisation: shirts, trousers, ladies’ clothes, children’s attire and shoes.
The mitumba traders traverse the county with bales of clothes worth millions of shillings. They hire thousands of youth as clothes sellers. Young men and women sell second-hand clothes in a well harmonised promotional sing-song, urging buyers to explore the displayed wares. “Ni ya leo, ni ya leo, akina baba, akina mama, ni ya leo ni ya leo.” This translates to: It’s today’s fashion, for men and women. It’s today’s item.
The youthful traders have innovated marketing strategies based on an intimate knowledge of their clients’ needs. The youthful sellers, aware of the desire of their clients to purchase the latest fashion trends, use their singing to reassure buyers of the contemporariness of the fashions. At a certain point they tease the buyers by telling them, “Chagualeo, chaguasasa, kuonanakushikashikani bure, kubebandiopesa”, which translates to: Look and touch [items on sale] is free and one only pays if they wish to carry an item away [buy].
The sing-song promotion is picked up by the hundreds of sellers and engulfs the entire market in a well-choreographed performance. At its peak, it’s reminiscent of a pantomime and the sellers even wear some of the clothes on sale to add colour; cross-dressing is common. It reminds one of a Bollywood film segment. In an environment where marketers are competing with multiple sellers, the innovative, attention-grabbing pantomime works more effectively than giant billboards or loud-hailers.
Potential for a thriving cottage industry
Innovation by the youth has demonstrated that there is a great potential for a thriving cottage industry-based economic growth model that will also provide thousands of jobs. A cottage industry is a small-scale, decentralised manufacturing business often operated out of a non-designated industrial complex or purpose-built factory. Cottage industries often focus on production of high-skill, labour-intensive goods as opposed to mass-market items.
Today cottage industries seek to serve a market looking for original hand-crafted products as opposed to mass-produced, name brand products. In the past, items that found their way to the kawaida market were products from cottage industries. The clay pots, the wicker baskets, leather bags and other household items had a long supply chain that ensured employment for those who dug up clay, kneaded it, moulded pots, fired them and those who transported them. The supply chain of a papyrus mat standing at a market is even longer and includes people harvesting papyrus in boats on floating islands.
Beyond that, the cottage industries maintain a link to traditional artisanal skills passed on from one generation to the next. Cottage industries are responsive to emerging challenges. I recently witnessed some young artisans in Holo Market in Seme repairing handles of pangas and knives using discarded plastic. Anyone who has bought the mass-produced Chinese farming implements know how vexing the short life of their handles are. The youth who once worked in metal foundries, collect the plastic, and then melt and mould it into a handle that will probably outlast the implement.
In many markets today you will encounter young men and women pressing (using innovatively made blenders) and selling fresh sugarcane juice blended with ginger, lemon and mint. Every seller has arrived at a unique recipe and this nameless cocktail is drunk more than the mainstream juices or carbonated drinks. There are those who blend vegetable juices and even groundnut juice laced with omugombera. Mondiawhytei an indigenous tree that acts as an appetiser, breath freshener and is rumoured to be an aphrodisiac. There are refreshing juices made from a combination of all manner of fruits and vegetables.
Innovation by the youth has demonstrated that there is a great potential for a thriving cottage industry-based economic growth model that will also provide thousands of jobs.
In parts of the coastal region, there are the signature cassava crisps, the sweet potato cakes and biscuits from Kabondo. There is a young entrepreneur in Kisumu who is rearing and promoting edible crickets that are added into wheat dough to make highly nutritious biscuits. There are many more innovations in the kawaida markets that are solving local problems, as well as providing solutions to global challenges, such as environmental degradation and climate warming.
There is a colonial hangover in the way that modern African economies perceive markets that is constantly receiving push-back from the innovators. The fixation with stock, bond, securities, forex and derivatives markets while ignoring the markets where a majority of the citizens have developed innovative approaches and ingenious solutions to local as well as global problems is counter-intuitive, counterproductive and inimical to development.
Kawaida markets, which sell the innovative products derived from our cottage industries, also act as purveyors of our culture while presenting a unique solution to the economic as well as the health and environmental challenges facing us. The stock, bond, securities, forex and derivatives markets are important because these open us up to a global economic system, but the space in which we transact our livelihoods is the kawaida market where the traders and buyers meet.
A thriving innovative hub connected to local markets provide platforms for creative solutions to the world’s needs while offering the youth a livelihood. Communality and social cohesion is built premised on the mutual need for one another and fairness is the ethic that guides transactions in kawaida markets. What defines us humans is that we transact: we do so in recognition of mutual needs and inter-dependence, and we negotiate seeking a fair exchange from each other. We transact, therefore we are.
‘This land is broken.’ Reflections on Changing Perceptions of Morality in Capitalist Societies
8 min read. To claim that society is in moral decline is a misnomer, argues JORG WIEGRATZ. Instead, we need to note that the moral structure and moral grammar in society is in fact changing under the weight of capitalistic forces shaping society.
“We develop new principles for the world out of the world’s own principles. We do not say to the world: Cease your struggles, they are foolish; we will give you the true slogan of struggle. We merely show the world what it is really fighting for, and consciousness is something that it has to acquire, even if it does not want to.” Karl Marx, Letter from the Deutsch-Französische Jahrbücher to Ruge (1843).
The state of morals in contemporary society, especially regarding money and business matters – i.e. issues to do with earning a living, hustling, putting food on the table, surviving, making profit, hunting riches, acquiring wealth – is a popular topic in public columns in Uganda, Kenya and elsewhere. As highlighted in an earlier blog, a number of analysts’ diagnoses is that we are living in times of moral decline and crisis, as evidenced by widespread and institutionalised economic fraud and other malfeasances in the economy.
Here, I want to argue for a shift in analytical perspective. I want to analytically treat phenomena that are declared to be examples of moral decline (or alternatively, moral bankruptcy and immorality) as instances of something else – an ongoing and profound moral transformation in societies undergoing a comprehensive capitalist restructuring of their polity, economy and culture.
This analytical move implies that we forget for a moment the prognosis of a decrease, thinning out, or dwindling of morals and instead focus on changes of morals in the economy, shifts in society concerning what is regarded as acceptable and unacceptable economic practice, in particular, in the economic sectors, locations (markets, factories, banks, etc.), professions, and so on. And to be more precise, not just shifts regarding notions of acceptable/unacceptable, but also regarding what constitutes legitimate/illegitimate, right/wrong, good/bad, praiseworthy/blameworthy, proper/improper, or desirable/undesirable practice. Of course, you can replace practice with economic order, ‘economic relationship, economic processes, economic outcomes and so on in order to track moral changes in these matters too, but for practical purposes let us focus our analytical eyes on practice.
Daniel Kalinaki, a leading newspaper columnist in Uganda whose insightful analysis I eagerly read every week, recently wrote something to the effect that empathy is on the decline in daily life in contemporary Uganda. His column was titled “At what point does a society lose all sense of empathy? Are we there yet?” There are passages in it, such as, “An entire generation [of young Ugandans] has grown up parentless, valueless and mannerless.” The text ends with: “We are no longer raised by the village but by wolves. This land is broken. This society needs healing. Urgently.”
Arguably, Kalinaki (like other authors that run this line of analysis) writes as if there is indeed an end point concerning cultural decline, as if “all sense of empathy” can indeed ever be lost in a society of nearly 40 million people, as if people really grow up totally valueless, as if a society can really be broken, and, as if it is clear to the analyst when a society has reached rock bottom after which there is no further cultural decline i.e. the absolute end of empathy.
Arguably Kalinaki does not discuss moral decline as such but moral change i.e. a change concerning under what conditions, for what reason, how, to whom, and regarding what people show empathy in today’s Uganda. He, like columnist Yusuf Serunkuma, myself and others, is in fact an analyst of moral change in a rapidly changing country. A significant change in the moral climate in society intrigues us and we try to nail down the nature and causes of that change. In sum, we try to understand what it is that is changing, how, why, and to what effect. Perhaps, above all, we try to figure out how we got here.
Capitalism and its discontents
The spread and intensification of capitalism, as writers ranging from Karl Marx to Edward P. Thompson emphasised, brings cultural-economic change i.e. shifts in dominant norms and values, notions of acceptable practice, boundaries of what is doable, permissible, normal, taken for granted and so on. These processes are conflictual; some actors want the status quo to remain, others want change. Put simply, capitalism, over time, makes the previously unacceptable practice acceptable, at least acceptable to the extent needed to spread, normalise, and routinise the practice. It alters what was previously regarded morally wrong, immoral, and abnormal into right, moral, normal. The unthinkable and outrageous becomes everyday reality and taken for granted moral taboos weaken and dissolve.
In short, capitalism forever alters the moral structure and moral grammar in society, especially with regards to the economy. Importantly, it doesn’t dissolve moral order altogether (“All that is solid melts into air…” as says the Communist Manifesto) but creates new moral new order(s), new orders of right/wrong, good/bad, acceptable/unacceptable, etc. That is why, analytically speaking, the moral decline/bankruptcy assumption is so restrictive; it does not allow us to identify, track and explain this ever-evolving order. It presumes that there is indeed a clear end point concerning the moral regression of humanity, whereas in reality the story of moral change is of moral order alterations on the planet that continue till we have arrived at the figurative “last man standing” moment.
The spread and intensification of capitalism, as writers ranging from Karl Marx to Edward P. Thompson emphasised, brings cultural-economic change i.e. shifts in dominant norms and values, notions of acceptable practice, boundaries of what is doable, permissible, normal, taken for granted and so on.
That said, many people – both professional and non-professional analysts – notice and comment on moral shifts on what is regarded normal and acceptable. For instance, some people, especially older generations who have witnessed and lived under somewhat different moral orders, say that the current norms (culture and moral order more broadly) are upside down. This is arguably a commentary on the large-scale socio-cultural processes that are unfolding in large cities such as Kampala and Nairobi. Of course, these shifts in moral order are generally highly complex processes, not necessarily linear, with various components and sub-components.
This includes changes in how people relate to one another, how they assess their own economic action and that of others, their relationship with money and wealth, and how they define ideas such as individualism, freedom, success, and power. This requires an (re-)assessment and de-/attachment vis-a-vis various social values such as achievement/personal success, enjoyment/pleasure, and self-direction (that serve individual interests) as well as group security, conformity to social expectations, concern for others’ welfare (that serve rather collective interests), and so on.
How did we get here?
Interestingly, in the 19th century Marx had already noted a point or trend that Kalinaki observes in 21st century Uganda. Marx wrote that only “bourgeois society, the society of free competition … [is characterised/constituted by networks of] individuals who remain indifferent to one another”. In other words, we are dealing with a change process that seems inherent to/characteristic of capitalist transformation, driven by larger, historical forces encompassing vast time-space zones.
The United States, the leading example of today’s capitalist market society, is usually a good ground to search for the latest (and sometimes most shocking) moral shifts in global capitalist civilisation and market culture. Just check out what goes on in terms of commercialisation of childhood there: the competitive beauty contests for young girls, the commercial shows, the business models around childhood. Children and teenagers are now on social media channels like YouTube and Instagram – not seldom, supported and cheered on by their parents – to market products and earn significant amounts of money.
The most cutting edge examples, the latest pushing of moral boundaries, is not just coming out of the US. It is only a matter of time, in my view, until the same marketing strategies (i.e. modern day child labour) will be used on Ugandan and Kenyan children. Ugandan artist Fresh Kid might well be the first Ugandan child to become an academic case study of that sort of commercialisation of childhood years down the road; the Ruparelia group, linked to tycoon Sudhir Ruparelia, has just started its relationship with the child (giving him a scholarship of the Ruparelia Foundation to start with).
Again, one key question for this and any case of moral-economic change under capitalism is: how did we get here? When did we start selling stuff to kids, making them (and their parents) objects of profit-oriented business strategies, and targets of relentless marketing campaigns? When, how, and why did we start selling kids unhealthy, health-endangering food that makes them addicted and obese?
When did we start telling people, and the poorest in particular, that taking a loan (i.e. being indebted) is a good, desirable thing? When did we start putting up commercial betting businesses and gambling shops in the poorest neighbourhoods? When did these practices become part of common sense i.e. morally acceptable? What changes in culture, politics and economy were required for these practices – and the underlying business models and ways of thinking and feeling – to become widespread and seen as normal (instead of abnormal and demanding outrage and protest)?
Again, one key question for this and any case of moral-economic change under capitalism is: how did we get here? When did we start selling stuff to kids, making them (and their parents) objects of profit-oriented business strategies, and targets of relentless marketing campaigns?
How did matters of economic and political power (i.e. specific class interests) drive this change? How did public disagreement, criticism, struggle and resistance of some groups shape and later change (but not entirely stop) these processes? When, how and why did we (or rather they – the powerful actors) make all the other unsettling, weird, dubious, shocking practices in the capitalist economy sufficiently acceptable and normal to become taken-for-granted routine practice? To ask these questions about moral change is to focus on the major enabling conditions, factors and actors that can trace and explain these major change trajectories?
The “sugar daddy” phenomenon
Against the above, let’s go to an illustrative example from the region – a recent report about sugar daddies in Kenya. In an exemplary fashion, it highlights the moral change process I am talking about here: “[In] Kenya, and in some other African countries, ‘sugar’ relationships seem to have become both more common and more visible: what once was hidden is now out in the open – on campuses, in bars, and all over Instagram…[We] have arrived at a point where having a ‘sponsor’ or a ‘blesser’ – the terms that millennials usually apply to their benefactors – has for many young people become an accepted, and even a glamorous lifestyle choice. Estimates suggest that about 20-25% of female students nowadays have a sponsor/transactional sexual relationship with an older man.”
Arguably, this “sugar daddy” phenomenon and related practices and underpinning morals did not exist in this particular way even three decades ago. Of course, this practice and related morals are contested and some observers will declare it all as immoral, a reflection of moral decline. But it is highly instructive to start seeing and studying these phenomena from a moral-economic change perspective, thus, identifying the drivers, the enabling conditions, and so on.
Importantly, note that this phenomenon has grown in other countries too, including in the UK and other “developed” countries (see here for an overview of sugar daddy websites and their instructive titles – e.g. Whats Your Price’, Established Men, Find Rich Guys’ Rich Meet Beautiful, Miss Travel).
One of these agency website notes: “In 2017, 100,000 U.K. students registered on Seeking Arrangement, which represented a 72 percent increase from the previous year, in order to find some relief from tuition, student loan debt, and other college-related costs. The presence of a monthly allowance and a financial arrangement adds to the allure of the lifestyle. Finding the right Sugar Daddy can help a Sugar Baby stay ahead of the game and get the education they need without the burden of a mountain of student loan debt.”
These days we even have websites that have “virginity for sale” to the highest bidder (google sugar daddy virginity sale for more details). Again, how and why did we get here?
When did we start telling people, and the poorest in particular, that taking a loan (i.e. being indebted) is a good, desirable thing? When did we start putting up commercial betting businesses and gambling shops in the poorest neighbourhoods? When did these practices become part of common sense i.e. morally acceptable?
The above phenomena reflect the dynamics of – and different takes on – the changing notions of morality with regards to earning a living, surviving, hustling, escaping poverty, making fast and easy money, striking riches, climbing the social ladder, managing economic pressures, and living different lifestyles in a world that is quite morally fragmented anyway.
In that regard, always keep in mind that what one observer might assess as a world or society with regressive morals, one that is in moral decline or crisis, another might assess that society as one experiencing moral progress (“We never had it better”, Things are improving”, “Let’s have fun”.)
Moral views these days are in some ways highly individualistic and personal, depending, amongst others, on one’s position, perceptions and experiences in economic life (and thus in economic hierarchy, class structure etc.).
Note that the above mentioned report about sugar daddies ends with a protagonist asking: “What is wrong about sex anyway?…People just make it sound wrong. But sometimes, it ain’t wrong at all.”’ There you go…
When Family Means Business
9 min read. Family-owned businesses are the backbone of the global economy yet many do not survive one or two generations. DARIUS OKOLLA provides a glimpse into large family-owned businesses in Kenya, and assesses their fortunes in an uncertain political and economic environment.
The Korean economic landscape is dominated by chaebols, Americans have conglomerates, the Japanese have Zaibatsus, Germans have Mittlestands, while Kenyans have, well, let’s call them Mamols – a cluster of faceless, powerful, family-owned enterprises whose stake in the economy is massive and diverse and which form the core to the competitiveness of the Kenyan economy. Mamols, the word derived from native Dholuo for tendril-like tentacle plants that intertwine their way into multiple nearby vegetation to form a strong mesh-like interconnected undergrowth.
Kenya’s economy, as currently constituted, represents a feudal-like family economy dominated by a few well-capitalised family-owned units at both the top and mid-tier. At a glance, the majority of the 7.4 million small and medium-size enterprises (SMEs) in Kenya are conventionally family businesses owing to their initial source of capital, ownership and day-to-day operations.
A chaebol, or in our case a mamol, is a large industrial firm that is run and controlled by a founder and his or her family. Their internal make-up is that of a large number of diversified affiliate brands, products and markets under a patriarch whose power over the business operations often exceeds legal authority.
There are significant differences between Japanese aaibatsus, Korean chaebols, Kenyan mamols, and American conglomerates, key among them being the source of capital. The aaibatsus organised around a bank, chaebols were prohibited from owning a bank, their American counterparts go to Wall Street, while Kenyan mamols rely on internal revenues and private equity for growth.
The constitutive nature of these businesses is any profit-making venture patronised by two or more family members in its workforce and the majority of ownership or control lying within that family. Traditionally, such corporate structures place the founding patriarchs and matriarchs at the helm and family members in ownership positions, allowing them to exert direct control across the board. Family-level investments are known to tap into the general social immobility of capital, which tentatively guarantees that if properly transitioned, the resources can stay within the family for anywhere between five and six generations.
Family-owned businesses are the backbone of the global economy. The Conway Centre for Family Business estimates that 35 per cent of Fortune 500 companies are family-controlled across the full spectrum of firms, from small niche outlets to major brands. In fact, family businesses account for 50 per cent of the U.S. gross domestic product, generate 60 per cent of the country’s employment, and account for 78 per cent of all new job creation.
The East Africa region has a wide array of such firms, which shrewd private-equity investors can explore in the medium to large segment with market caps of between $10 million and $100 million. The research firm Asoko’s data identified over 10,000 firms in this revenue bracket across a diverse range of markets in East and West Africa.
The Conway Centre for Family Business estimates that 35 per cent of Fortune 500 companies are family-controlled across the full spectrum of firms, from small niche outlets to major brands.
Unsurprisingly, only a handful of the thousands of family-owned firms in Kenya reach elite status or provide strong products, brands, and services across the region, thus significantly influencing the export basket. Extrapolation of local studies indicates that there are 645 family-owned firms earning between $10 million and $100 million annually in East Africa, with nearly three out of every four of these companies being Kenyan, followed by Ethiopia, at 17 per cent, Zambia, at 5 per cent, and Uganda, Rwanda and Tanzania, at 2 per cent each. Asoko’s research further identified 490 family-owned Kenyan firms earning annual revenues in excess of Sh1 billion across a wide range of industries; of the 490, 14.3 per cent, or 70 companies, earn more than Sh5 billion, 22 of which earn over Kshs 10 billion every year.
Within these hallowed halls of prime family-owned enterprises that churn premium products, there exist complexities and contradictions cutting across the family-business divide in which virtues and vices on one end diffuse to the other end with speed and ferocity. Much more intuitively, their very nature as family-owned businesses results in unique models of starting, running and decision-making, the end result of which is usually a surprising litany of dilemmas: political interference, their worries about work and sibling rivalry, inheritance squabbles, and most of all, the fears for the heirs.
Locally, the roughly 500 sprawling family-run conglomerates with at least $10 million in revenues are the understated cornerstones of Kenya’s economic, political and social landscape. Taken together, they make up the silent pillars of the nation’s versatile economy and include the likes of KenPoly, and ICEA Lion, with Ramco being among the oldest of them all. Unlike the globally renowned family-owned firms like Walton, the Korean Chaebols or Japanese corporate giants, most African Kenyan Mamols in particular, prefer to court as little publicity as possible partly because corporate culture generally abhors uncourted publicity given the landmines of publicity.
The PwC 2018 Family Business Survey indicated expected revenue growth in 82 per cent of the family-owned enterprises – a major feat in this era of fiscal constraints and declining exports in the country occasioned by high energy costs and over-taxation. The top obstacles to surmount are corruption (72 per cent), accessing the right skills and talents (52 per cent), prices of inputs (52 per cent), competition from cheap imports (52 per rcent) and the pressure to innovate (50 per cent).
Locally, the roughly 500 sprawling family-run conglomerates with at least $10 million in revenues are the understated cornerstones of Kenya’s economic, political and social landscape. Taken together, they make up the silent pillars of the nation’s versatile economy…
These massive firm’s opaque and often unexamined governance and ownership structures and oversized influence, coupled with their cosy relationship with regulators, often lends credence to fears of influence-peddling. No doubt, as the fiscal condition of the political economy under the Jubilee government tightens, it will cast an intense spotlight on these firms, just at the time when many are navigating murky generational transitions. Absent are clear models of generational transition of wealth acquired and sustained through the patriarch’s political or social patronage, which leaves the heirs ill-prepared for their inherited fortune.
Given the nature of our political economy, most of these firms rely on close cooperation with the political structures for their operations, inducing decades of political goodwill, and support. The guarantee could be in the form of subsidies, loans, and tax incentives only imagined by their rivals. That the president, cabinet secretaries, and top bureaucrats can trace their political fortune to the attendant patronage of family capitalism gives the best glimpse of these firms’ impact in our political infrastructure.
In Latin America, family capitalism is at its most efficient in the pursuit of political power and using tentacled connections to launder public and private resources. In Argentina, the family-owned firm’s goal is political conquest with presidential and gubernatorial positions as the ultimate prize.
In keeping with the largely conservative investment decisions of these investors, 60 per cent of them populate the agricultural, industrial and manufacturing sectors of the economy. A survey by consultancy firm Knight Frank shows that these clusters have allocated 25 per cent of their investment portfolios to equities, 22 per cent to property and 22 per cent to cash or cash equivalents, with only 3 per cent in private equity and another 3 per cent in luxuries stuff such as art, wine and luxury cars.
Given the nature of our political economy, most of these firms rely on close cooperation with the political structures for their operations, inducing decades of political goodwill, and support. The guarantee could be in the form of subsidies, loans, and tax incentives only imagined by their rivals.
Curiously, Kenya’s leading family-owned enterprises are still within the first three generations of ownership, a fact tied to the barely 60 year-old independence in this 100 year-old plantation. Large industrial firms like Ramco, which traces its roots back to precolonial 1940s, signals a growing sustenance and entrenchment of these Mamols into the heart of the nation’s political economy. Ranci is currently chaired by one of the sons of the original patriarch who is subordinated by members of the third generation, a feat replicated by only one other company, which is on its third generation of leadership from within the family.
Lots of other mamols are still being ruled by first- and second-generation leadership and often silently face precarious generational transitions. Surprisingly, about 17 per cent of the top family-owned conglomerates have a succession plan ahead of the global 14 per cent average. The generational divide, coupled with increasing complexity and diversity of skills that the firm needs as it grows, predisposes the second or third generations who take over the reins of family businesses to be more open to outside investors, and hiring of experts. Globally, just 30 per cent of family businesses make it through the second generation, with only 13 per cent passing three generations, which is the context within which lots of these huge Kenyan firms exist.
What’s their story?
As the founders phase out, there’s the compelling case of having fantastically wealthy heirs dealing with wealth that is inherited rather than earned, which may predispose them to hubris. The perpetuation of the firm is not a great deal more fulfilling to them as it was to the founders. Despite being vibrant contributors to the economy, family-owned businesses face corporate governance issues, political wheeler-dealing and flaky succession plans whose overall impact limits the company’s lifespan. In total, just over half of Kenya’s family businesses reported having a succession plan in place, with two-thirds indicating that the next generation was already part of the business.
The litany of generational differences, fraying and differing visions of the future and emerging challenges and gaps compel the patriarchs to invoke external talents to increase the talent pool available for operations. Consequently, a more recent survey has revealed that family businesses in Kenya are in robust health, with revenues expected to continue growing in four out of every five firms.
According to the Finnish Family Firm Association 2009 report there are three prime ownership models in these family-owned firms: first, the owner, active in governance with three overlapping roles as manager, family member, and owner; second, the owner, non-active in governance, is a family member and owner; and third, non-owning, active in governance family member has two roles as owner and as manager. A non-family member active in governance can be a member of the board or management; also a non-family member can be owner as a capital investor or as a managing director who owns shares of the family firm.
Then there are the family members, who have no role as owners or managers and who are typically spouses (in-laws), trustees and next of kin. Relatives of most of Kenya’s stock market billionaires prefer to stay out of the public limelight, avoiding governance roles, such as directorships, in the portfolio companies where their families control major shareholding.
The Family Business Survey 2018 shows that the Nairobi Securities Exchange (NSE)’s main value proposition to mamols – visibility, access to financing and a divestment platform – appeal to the 46 polled companies whose turnovers range from Sh500 million to more than Sh10 billion. Eighty-five per cent of the Mamols rely on internal cash and 83 per cent on bank lending/credit lines, while 59 per cent prefer private equity at a higher percentage than the global average of 39 per cent.
What complicates analysis of these behemoths is that Kenya is known to have a large group of politically-connected superrich families who have hidden their wealth in trusts and a labyrinth of companies to evade taxes. In 2015, a list of 191 individuals and 25 offshore companies linked to Kenya was leaked from the Mossack Fonseca legal firm and published in what came to be known as the Panama papers. The companies and individuals held the cash equivalent of over Sh15 trillion laundered and transferred from Kenya.
The dark side of family businesses
During the United Nations International Day of the Family in Nairobi, Justice Aggrey Muchelule said that the Family Division has resorted to alternative dispute resolution mechanisms in the quest to resolve the over 13, 000 succession cases over family-owned assets left behind by parents, spouses or other benefactors. Court and political battles over large firms and other properties left to heirs of prime family-owned firms in Kenya pop up regularly even where there is a will. Few of these cases arrive at amicable solutions.
The properties in dispute range from shares to money stashed in banks and tax havens abroad and businesses and other assets, but land still remains the most contested asset; some of these cases have been unresolved since the 1980s. Mbiyu Koinange, James Kanyotu, Gershom Kirima, Jenga Karume, and JM Kariuki’s families are among the affected as the Unclaimed Financial Assets Authority (UFAA) has had to seize their dividends and shares following family feuds over ownership and succession.
Despite their tenacity, the family business model often tends to undermine its own longevity, profitability and efficiency through political favouritism, succession by unfit heirs, endless feuds, and sleaze, including excessive and unnecessary luxury spending on the company’s tab. Examples of drastic declines in family fortunes can be found in Russia and the Middle East.
Locally, while addressing the family of the late Murang’a-born oil tycoon Thayu Kabugi during his burial, President Uhuru Kenyatta, whose family has a major controlling stake in the Kenyan economy, reflected that assembling an estate worth billions of shillings was not a simple task as it takes a lot of struggle, toil and back-breaking work. “But we are seeing a situation whereby families of these icons of our economy go after each other’s throats days after the demise of their economic fortune heroes. That is not the way to go and I would urge all families to desist from such tussles,” he said.
The looming political and economic crises simultaneously plaguing the country has exhausted the country’s political-economy’s capacity to self-correct. A major hit to the economy, the population bulge, massive corruption, and the upcoming elections and referendum will reorient the list of families that control the national pie by raising a few while sinking others. It shouldn’t be lost to us that those who’ve stashed Sh15 trillion abroad stand a better chance of surviving the storm and snapping up the auctioned assets at dirt-poor prices and entrenching their family capitalism for another generation.
Despite their tenacity, the family business model often tends to undermine its own longevity, profitability and efficiency through political favouritism, succession by unfit heirs, endless feuds, and sleaze, including excessive and unnecessary luxury spending on the company’s tab.
An annual study was released ahead of the 2019 World Economic Forum that shows that globally wealth is consolidating back into the hands of a few, with 26 billionaires owning as much as the lower 3.6 billion people in the world. Combined with declining social safety nets, the family business model remains the short-term cushion and guarantor of social mobility for large swathes of the population.
Family businesses range in size, turnover, ownership structures and profitability, from small roadside stalls to behemoths straddling national boundaries. Despite all the squabbles and relational upheavals, family businesses remain a critical means of wealth transfer and generational transition of wealth, opportunity and income.
Politics1 week ago
End of Uthamaki? The Disillusioned Kikuyus
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