Should Kenyan firms be given a second chance?
3 months ago, 17 Apr 07:22
Uchumi and Nakumatt supermarkets are struggling. They have responded by closing some branches to cut costs. Many Kenyans have avoided patronising them because of lack of basic items. Some die-hards like me shopped there till the Sarit Branch was closed a month ago. When I passed there on Thursday, a lot of construction activity was ongoing with Carrefour waiting to take over the space. The closure of that branch was nostalgic, having shopped there for years. Nakumatt’s case is more tragic. We used it as a case study of how you can start a small business in the rural areas; they take the city by storm. We would love to know what really happened to this icon of Kenyan entrepreneurship. The big elephant that used to guard Nakumatt Ukay has been moved to the parking entrance, 100 metres away. What is the symbolism behind that? Chase Bank, once an epitome of relationship banking was put under receivership and later bought by SBM, a Mauritius based lender. I still retain an account with Chase. We can make the list of Kenyan firms that have seen their fortunes fade. Mismanagement has been blamed for the failure of these icons. But the economic conditions have played a role. Uchumi had to compete with private supermarkets that made quick decisions and had less government control. The politicised economic environment last year also played a big role in the misfortunes of firms as we waited and withheld our consumption. The entry of Massmart, owned by Walmart and French-based Carrefour might be a game changer in the retail sector. The new entrants have deeper pockets and can take greater risks. The only consolation for the local players is that they are targeting high-end consumers in big towns. It is unlikely that Carrefour will open a branch in Shamakhokho or Shamata. Enough digression. Should Kenyan firms be given a second chance or they should be left to die and others take their place? The firms where the government has stakes such Uchumi and Sugar mills are likely to get second and third chances. Remember the New KCC, Rivatex, Kenya Railways Corporation and Kenya Meat Commission? Some argue that these serve as an incentive not to improve and make hard decisions. They know serikali iko. The big question is whether the cost of bailouts far outweighs the benefits. Assured of government subsidy, the firms have no incentive to innovate or seek new markets. After all, the bailout money comes from more productive sectors of the economy. Some argue that the services some of these firms provide can be provided more cheaply by the private sector. There is no shortage of banks or supermarkets. The short-term pains will be more compensated by the growth of the more efficient private sector. What worries key decision makers is the political cost if the firms are let to die. Hope you noted how economics has made its way to political discourse around election time. For the private firms, revamping bankruptcy law to ...
Category: business news