kenya emerges as africa's service hub
The nature of business is changing in Kenya, as traditional multinational manufacturers scale down and move out, and information, financial and service industries set up and expand pan-African bases in the continents lifestyle city.
The last two years have brought scare headlines to one of Africas top business cities:Are the multinationals leaving Kenya?, prompted by the flight of foreign investment. Yet, at the same time, a new generation has been moving in. In the last two years, Google, Zain, Young & Rubicam, Microsoft, Samsung, PZ Cussons, Hewlett-Packard, Nokia, General Electric, Erricson, Vodaphone, Cisco Systems, Biersdoff, and TNT Express have all launched or enlarged their East African operations in the city.
The shift is creating a new kind of East African hub, where advantages of education, technology and location are acting as magnets, while low-cost, labour intensive manufacturing is wilting against the competition from cheaper bases elsewhere.
Set mid-continent, Nairobi has long had an edge as a regional air hub. Internet services have also blossomed in the country, although until now based on slow and expensive satellite connections.
A further step change is now imminent in both air and telecom connections. The expansion of the Jomo Kenyatta International Airport, due for completion this year, is set to double the airports passenger handling capacity from 4.4 million a year, to nine million. And the construction of a 9,300 mile underwater broadband fibre optic cable is promised for completion before year-end. Traversing the India Ocean, to connect Southern and Eastern Africa with international grids in France and India, the link will bring faster, cheaper net surfing speeds.
This emerging technological sophistication is already accelerating the pace of work life in Nairobi. Information communications, media, advertising and PR are all plugging up market gaps in Kenya, and in turn are laying down new and useful corporate resources.
But the real draw, beneath the bonuses of connectivity, is the countrys exceptional education levels. With now the highest literacy rate in Africa, and a burgeoning pool of graduates and post-graduates, Kenyas pick-up into services is being fuelled by its greater capacity to provide sophisticated staff and manpower.
In this, many new middle-class Kenyans are entering the game as entrepreneurs, according to Enablis, an entrepreneur support network, which established its East Africa arm in October 2007 in recognition of the growing number of opportunities in the country for small, medium and micro enterprises (SMMEs).
Moses Mwaura, the Regional Director for Enablis East Africa, believes that technological and educational advances in the country have been a blessing for local budding business owners.
We tend to support young entrepreneurs who do not have capital to set up large businesses, but tend to be well educated. A lot of people go into soft services, such as graphic design and entertainment enterprises that do not need a lot of investment, and are able to work from just a laptop, he said.
The local market now enjoys a rich supply of university educated English speakers. Human capacity is a big plus for Nairobi, said Mr Mwaura. As such, Nairobi is fairly sophisticated in finance compared to other countries in the region Nairobi can speak the international finance language, he adds.
Another bonus for Nairobi is the increase in office locations, which used to be expensive and long-term investments. The Eden Square Business Centre, which opened two years ago is one example that caters for flexible and short stay office options.
International office suppliers, Regus has also launched its own brand in Nairobi, which provides space for SMMEs and multinational movers Google, Renaissance Capital and Prosperity Capital.
Then there is the geographical location of Kenya. Chris Harrison, the Africa Chairman for advertising and marketing firm, Young and Rubicam, commented last year when the worlds largest ad agency moved its African HQ from Johannesburg to Nairobi that the move would allow it to focus on continental markets outside of Africas strongest economy.
Business outside South Africa would be better run somewhere that is outside the distractions of that very big and powerful market.
Kenyas central time zone has also been cited as a locational bonus, in near synch with Europe and the Middle-East. And many who live in the city cite its beauty, set in rolling, tree-covered hills, and sophistication, offering many hundreds of restaurants and activities, shopping malls, parks and easy rides to safaris, lakes and weekend leisure.
So what has triggered flight of the older generation of producers, set against this rosy picture of business advantages.
Economically, Kenyas first big economic boom since independence half a century ago was brought to an abrupt close at the beginning of 2007 by a political crisis caused by flagrant poll rigging. In a nation that many had hoped would lead the way in bringing democracy to Africa, the cheated poll triggered two months of violent protests and the displacement of hundreds of thousands of rural Kenyans, seeing the harvest disrupted and laying the basis for food shortages, rampant inflation and GDP contraction.
It was a set that threw the country off a path of 7 per cent GDP growth, but also brought to a head many factors that had been hurting traditional manufacturers, and ahd seen many international corporations with long established factory and agricultural bases in Kenya boarding up and downsizing their production operations.
Steady hikes in manufacturing costs have been the core problem, chief among them soaring energy prices. In 2008 alone the cost of electricity rose by 51 per cent, taking the cost of Kenyan electricity to twice that of Egypts, and five times that of South Africa.
Susan Kikwai, Managing Director of the Kenya Investment Authority (KIA) speaking about the realities that have deterred many transnational firms, cites electricity costs as the countrys single largest deterrent.
The cost of power is too high and this is discouraging foreign firms from investing in Kenya, she said at an investment workshop, pointing to the fact that Kenyan manufacturing was losing out to competition from other African nations.
As well as deterring new entrants, this has seen established companies closing factories, among them Colgate Palmolive, Procter & Gamble, Johnson & Johnson, Reckitt & Benckiser and Unilever.
Yet most of these companies remain in the country. Consumer goods manufacturer Procter and Gamble (P&G), after closing down its loss-making factories in Nairobi eight years ago, relaunched its Kenyan operation as a distribution and marketing arm for the region. The simple maths was that there was still a domestic market for its products, but importing was smarter.
Andrew Plastow, P&Gs Managing Director for East Africa, said last year, A pack of Always sanitary towels cost Sh140 in 2000. Today the same pack imported from Egypt costs Sh70.
The shift by many traditional multinational manufacturers to using Nairobi as the base for importing goods and circulating them behind well financed advertising campaigns has itself further fuelled the services sector.
However some older multinationals have managed to hold on to their factory bases in Kenya, while also restructuring their operations to draw on the regional market.
British American Tobacco (BAT) has spent some Sh1.4 billion since 2005 revamping and modernising its Nairobi based factory. It is now one of four strategic source factories for its Africa and Middle East region, the others being Nigeria, South Africa and Turkey.
This investment comes in the wake of BATs factory closures in Malawi, Zambia, Uganda, Rwanda, Ghana, Cameroon and Mauritius between 1998-2007, as BATs Africa and Middle East region moved to optimise costs and reduce duplication in its factory operations.
The reasons for choosing Kenya as a manufacturing location were clear, says Keith Gretton, Head of Corporate and Regulatory Affairs for BATs Sub Saharan Africa Area.
For cigarettes this is the largest market in the region in terms of volumes, he said. It is the biggest domestic market in the patch. This lead to a situation where for five years 20 per cent of our product was for other countries and 80 per cent for domestic.
Unlike other multinationals which are now concentrating on supplying Kenyas domestic market through imported goods, most of BAT Kenyas product output is now aimed at export contract manufacturing, which accounts for 63 per cent of its production. It has been a huge change, said Mr Gretton.
However, BAT has not avoided the sting of high electricity and manufacturing costs, as well as regular power cuts in Nairobi. It doesnt help in being competitive in the region, commented Mr Gretton. Port delays at Mombasa are also a real headache.
Despite these pains, Mr Gretton has a positive outlook on the BATs Kenyas future. I think as the domestic market leaders our growth will be steady, contract manufacturing can grow but we need a sympathetic government and improved infrastructure, he said.
We are committed to Kenya as manufacturing hub, we can get the talent we need, the location is opportune, we have an outsourced tobacco operation with 5,000 farmers and we value that relationship, he explained.
The location of BATs corporate offices in Nairobi has also gained from the influx of soft industry. The speed of information has increased greatly, observed Maureen Sande, BATs Communication Manager for Sub Saharan Africa.
BAT is not alone in its decision to keep its manufacturing operations alongside its regional headquarters.
Coca-Cola, which has six bottling plants in Kenya, unveiled its grand new regional headquarters in September. The offices cost Sh700million, underscoring the importance of Nairobi for its reach within the region.
What is apparent is that Kenyas overall business model has changed, and corporations big and small, old and new, are having to adapt to new markets, both financial and cultural.
The targets now are the emerging middle and consumer classes. The educated labour base has both provided the manpower and the audience for the awakening Nairobi industry model.
This is evident everywhere. Kenyas coffee used to be an almost exclusively for export. Now a vibrant coffee culture has established itself in the form of successful coffee shop chains Nairobi Java House and Dormans. Under arms in the frenetic Central Business District, besuited professionals often carry pink copies of the countrys own business newspaper, launched in 2007, the modern Business Daily.
And nor is consumer capitalisation limited to the middle-market; it has also reached into the low-income majority in Kenya.
Safaricom, Zain, Bidco, Unilever, East African Breweries Limited, the Breakfast Cereal Company makers of Weetabix - and dairy companies are all attempting to woo the traditional purse.
Examples of such mass reach include Unilevers Omo washing powder sachets retailing at Sh10 each. East African Breweries Limited has successfully marketed an alternative to illegal home brewed alcohol by producing Senator beer in Kegs, selling at Sh15 a glass.
Safaricom, the countrys largest mobile phone operator, has launched M-Pesa, a mobile phone money transfer service targeting people without bank accounts. Since March 2007 more than Sh35.9 billion has been transacted through the service.
Procter and Gamble have also gained headlines with a marketing campaign that aims to donate 3.2 million sanitary towels over two years to 500,000 poor girls in 15,000 schools in Kenya.
In the emerging Kenya, ways to service domestic consumers have been marked out by innovation and creativity, a characteristic, say some, that is borne of its now humming service sector.
I think the opportunity for Kenya is to grow its service sector. I dont see any reason why Kenya cant, it has a pool of great talent, observes Mr Gretton.
http://www.home.co.ke/index.php?opti...ess&Itemid=210
The nature of business is changing in Kenya, as traditional multinational manufacturers scale down and move out, and information, financial and service industries set up and expand pan-African bases in the continents lifestyle city.
The last two years have brought scare headlines to one of Africas top business cities:Are the multinationals leaving Kenya?, prompted by the flight of foreign investment. Yet, at the same time, a new generation has been moving in. In the last two years, Google, Zain, Young & Rubicam, Microsoft, Samsung, PZ Cussons, Hewlett-Packard, Nokia, General Electric, Erricson, Vodaphone, Cisco Systems, Biersdoff, and TNT Express have all launched or enlarged their East African operations in the city.
The shift is creating a new kind of East African hub, where advantages of education, technology and location are acting as magnets, while low-cost, labour intensive manufacturing is wilting against the competition from cheaper bases elsewhere.
Set mid-continent, Nairobi has long had an edge as a regional air hub. Internet services have also blossomed in the country, although until now based on slow and expensive satellite connections.
A further step change is now imminent in both air and telecom connections. The expansion of the Jomo Kenyatta International Airport, due for completion this year, is set to double the airports passenger handling capacity from 4.4 million a year, to nine million. And the construction of a 9,300 mile underwater broadband fibre optic cable is promised for completion before year-end. Traversing the India Ocean, to connect Southern and Eastern Africa with international grids in France and India, the link will bring faster, cheaper net surfing speeds.
This emerging technological sophistication is already accelerating the pace of work life in Nairobi. Information communications, media, advertising and PR are all plugging up market gaps in Kenya, and in turn are laying down new and useful corporate resources.
But the real draw, beneath the bonuses of connectivity, is the countrys exceptional education levels. With now the highest literacy rate in Africa, and a burgeoning pool of graduates and post-graduates, Kenyas pick-up into services is being fuelled by its greater capacity to provide sophisticated staff and manpower.
In this, many new middle-class Kenyans are entering the game as entrepreneurs, according to Enablis, an entrepreneur support network, which established its East Africa arm in October 2007 in recognition of the growing number of opportunities in the country for small, medium and micro enterprises (SMMEs).
Moses Mwaura, the Regional Director for Enablis East Africa, believes that technological and educational advances in the country have been a blessing for local budding business owners.
We tend to support young entrepreneurs who do not have capital to set up large businesses, but tend to be well educated. A lot of people go into soft services, such as graphic design and entertainment enterprises that do not need a lot of investment, and are able to work from just a laptop, he said.
The local market now enjoys a rich supply of university educated English speakers. Human capacity is a big plus for Nairobi, said Mr Mwaura. As such, Nairobi is fairly sophisticated in finance compared to other countries in the region Nairobi can speak the international finance language, he adds.
Another bonus for Nairobi is the increase in office locations, which used to be expensive and long-term investments. The Eden Square Business Centre, which opened two years ago is one example that caters for flexible and short stay office options.
International office suppliers, Regus has also launched its own brand in Nairobi, which provides space for SMMEs and multinational movers Google, Renaissance Capital and Prosperity Capital.
Then there is the geographical location of Kenya. Chris Harrison, the Africa Chairman for advertising and marketing firm, Young and Rubicam, commented last year when the worlds largest ad agency moved its African HQ from Johannesburg to Nairobi that the move would allow it to focus on continental markets outside of Africas strongest economy.
Business outside South Africa would be better run somewhere that is outside the distractions of that very big and powerful market.
Kenyas central time zone has also been cited as a locational bonus, in near synch with Europe and the Middle-East. And many who live in the city cite its beauty, set in rolling, tree-covered hills, and sophistication, offering many hundreds of restaurants and activities, shopping malls, parks and easy rides to safaris, lakes and weekend leisure.
So what has triggered flight of the older generation of producers, set against this rosy picture of business advantages.
Economically, Kenyas first big economic boom since independence half a century ago was brought to an abrupt close at the beginning of 2007 by a political crisis caused by flagrant poll rigging. In a nation that many had hoped would lead the way in bringing democracy to Africa, the cheated poll triggered two months of violent protests and the displacement of hundreds of thousands of rural Kenyans, seeing the harvest disrupted and laying the basis for food shortages, rampant inflation and GDP contraction.
It was a set that threw the country off a path of 7 per cent GDP growth, but also brought to a head many factors that had been hurting traditional manufacturers, and ahd seen many international corporations with long established factory and agricultural bases in Kenya boarding up and downsizing their production operations.
Steady hikes in manufacturing costs have been the core problem, chief among them soaring energy prices. In 2008 alone the cost of electricity rose by 51 per cent, taking the cost of Kenyan electricity to twice that of Egypts, and five times that of South Africa.
Susan Kikwai, Managing Director of the Kenya Investment Authority (KIA) speaking about the realities that have deterred many transnational firms, cites electricity costs as the countrys single largest deterrent.
The cost of power is too high and this is discouraging foreign firms from investing in Kenya, she said at an investment workshop, pointing to the fact that Kenyan manufacturing was losing out to competition from other African nations.
As well as deterring new entrants, this has seen established companies closing factories, among them Colgate Palmolive, Procter & Gamble, Johnson & Johnson, Reckitt & Benckiser and Unilever.
Yet most of these companies remain in the country. Consumer goods manufacturer Procter and Gamble (P&G), after closing down its loss-making factories in Nairobi eight years ago, relaunched its Kenyan operation as a distribution and marketing arm for the region. The simple maths was that there was still a domestic market for its products, but importing was smarter.
Andrew Plastow, P&Gs Managing Director for East Africa, said last year, A pack of Always sanitary towels cost Sh140 in 2000. Today the same pack imported from Egypt costs Sh70.
The shift by many traditional multinational manufacturers to using Nairobi as the base for importing goods and circulating them behind well financed advertising campaigns has itself further fuelled the services sector.
However some older multinationals have managed to hold on to their factory bases in Kenya, while also restructuring their operations to draw on the regional market.
British American Tobacco (BAT) has spent some Sh1.4 billion since 2005 revamping and modernising its Nairobi based factory. It is now one of four strategic source factories for its Africa and Middle East region, the others being Nigeria, South Africa and Turkey.
This investment comes in the wake of BATs factory closures in Malawi, Zambia, Uganda, Rwanda, Ghana, Cameroon and Mauritius between 1998-2007, as BATs Africa and Middle East region moved to optimise costs and reduce duplication in its factory operations.
The reasons for choosing Kenya as a manufacturing location were clear, says Keith Gretton, Head of Corporate and Regulatory Affairs for BATs Sub Saharan Africa Area.
For cigarettes this is the largest market in the region in terms of volumes, he said. It is the biggest domestic market in the patch. This lead to a situation where for five years 20 per cent of our product was for other countries and 80 per cent for domestic.
Unlike other multinationals which are now concentrating on supplying Kenyas domestic market through imported goods, most of BAT Kenyas product output is now aimed at export contract manufacturing, which accounts for 63 per cent of its production. It has been a huge change, said Mr Gretton.
However, BAT has not avoided the sting of high electricity and manufacturing costs, as well as regular power cuts in Nairobi. It doesnt help in being competitive in the region, commented Mr Gretton. Port delays at Mombasa are also a real headache.
Despite these pains, Mr Gretton has a positive outlook on the BATs Kenyas future. I think as the domestic market leaders our growth will be steady, contract manufacturing can grow but we need a sympathetic government and improved infrastructure, he said.
We are committed to Kenya as manufacturing hub, we can get the talent we need, the location is opportune, we have an outsourced tobacco operation with 5,000 farmers and we value that relationship, he explained.
The location of BATs corporate offices in Nairobi has also gained from the influx of soft industry. The speed of information has increased greatly, observed Maureen Sande, BATs Communication Manager for Sub Saharan Africa.
BAT is not alone in its decision to keep its manufacturing operations alongside its regional headquarters.
Coca-Cola, which has six bottling plants in Kenya, unveiled its grand new regional headquarters in September. The offices cost Sh700million, underscoring the importance of Nairobi for its reach within the region.
What is apparent is that Kenyas overall business model has changed, and corporations big and small, old and new, are having to adapt to new markets, both financial and cultural.
The targets now are the emerging middle and consumer classes. The educated labour base has both provided the manpower and the audience for the awakening Nairobi industry model.
This is evident everywhere. Kenyas coffee used to be an almost exclusively for export. Now a vibrant coffee culture has established itself in the form of successful coffee shop chains Nairobi Java House and Dormans. Under arms in the frenetic Central Business District, besuited professionals often carry pink copies of the countrys own business newspaper, launched in 2007, the modern Business Daily.
And nor is consumer capitalisation limited to the middle-market; it has also reached into the low-income majority in Kenya.
Safaricom, Zain, Bidco, Unilever, East African Breweries Limited, the Breakfast Cereal Company makers of Weetabix - and dairy companies are all attempting to woo the traditional purse.
Examples of such mass reach include Unilevers Omo washing powder sachets retailing at Sh10 each. East African Breweries Limited has successfully marketed an alternative to illegal home brewed alcohol by producing Senator beer in Kegs, selling at Sh15 a glass.
Safaricom, the countrys largest mobile phone operator, has launched M-Pesa, a mobile phone money transfer service targeting people without bank accounts. Since March 2007 more than Sh35.9 billion has been transacted through the service.
Procter and Gamble have also gained headlines with a marketing campaign that aims to donate 3.2 million sanitary towels over two years to 500,000 poor girls in 15,000 schools in Kenya.
In the emerging Kenya, ways to service domestic consumers have been marked out by innovation and creativity, a characteristic, say some, that is borne of its now humming service sector.
I think the opportunity for Kenya is to grow its service sector. I dont see any reason why Kenya cant, it has a pool of great talent, observes Mr Gretton.
http://www.home.co.ke/index.php?opti...ess&Itemid=210
