Fight or flight? Dilemma of Kenyan investors in TZ

[Geza Ulole]

Fight or flight? Dilemma of Kenyan investors in TZ

Tanzanian President Jakaya Kikwete and Kenyan President Mwai Kibaki. Photo/FILE

By EMMANUEL WERE in Nairobi and FELIX LAZARO in Dar-es-Salaam
Posted Tuesday, February 21 2012 at 00:00
In Summary
East Africa's second largest economy has good ingredients for business: large geographical size, many natural resources, and a fast growing economy. So why is it proving to be such a hard nut to crack for Kenyan investors?



For many Kenyan companies, going into Tanzania is a mixed bag of fortunes, with some finding the going tough, and cutting their losses by closing down, and others persevering for years before making profits.
Others experience a bumpy ride, with profits fluctuating. One year they make a profit, and the next they are in the red.
"It is true; doing business in Tanzania is harder than in Kenya, Uganda and Rwanda, Infotech Investment Group chief executive officer Ali Mufuruki told The Citizen, our Tanzanian sister publication.
"I have business interests in Kenya, and Uganda and I confirm this to be true in many respects."
A selected few have been able to grow their profits year on year, largely by entering the market through acquisitions.

The mode of entry, regional business analysts say, could be what makes the difference between failure, and success for companies wishing to venture into Tanzania.
Right ingredients
As an investment destination, Tanzania has all the right ingredients.
It is large geographically, has natural resources, a good economy that is growing faster than Kenya's, albeit from a lower base, and plenty of opportunities for trade and investment.
In 2012, Tanzania's economy is expected to grow at 7.5 per cent, compared with Kenya's 5.6 per cent. The icing on the cake is that Tanzania has a lower percentage of its population classified as middle class, compared with other countries in the region.
Tanzanian has just 12 per cent of its population classified as middle class - they earn between $4 (Ksh332) and $20 (Ksh1,660) a day, according to a classification by the African Development Bank in 2010.
Similar figures in the region are: Kenya (44.9 per cent), Uganda (18.7 per cent), Rwanda (7.7 per cent) and Burundi (5.3 per cent).
Kenyan companies, therefore, look at it from the perspective that as Tanzania reports stronger economic growth, more of its citizens will make it into the middle class, increasing their purchasing power. But plans do go wrong quite often.
Those who have been in the market cite cultural misconceptions, a higher cost of doing business and human resource challenges.
There is also the notion that, Tanzanians take time to embrace Kenyan brands.
"They are other concerns that one needs to be alive to, like government bureaucracy, unfair practices in issuance of work permits for experts, and unreliable power supply," adds Mr Mufuruki.
Two weeks ago, Deacons, the clothing and lifestyle goods retailer, hit the headlines with an announcement that it would close its stores in Tanzania in a week's time after five-straight years of losses.
The retailer said it lost Ksh13 million in the full year ended December 2011.
The high cost of doing business, especially with rental space per square feet costing slightly more than double what it costs in Kenya and Uganda, and with their target market, the upper to middle income, being very small compared with other countries, led to the decision to exit, the company said.
"Tanzania is a very tough market. We have been there five years and made a loss year on year," said Mr Muchiri Wahome, CEO of Deacons, in an interview when the retailer announced earlier this month its plans to halt its operations in the country.
Deacons admits to having had its strategy wrong.
"Our locational strategy was not well met. We located the businesses in the suburbs, as opposed to in the CBD. I take full responsibility for that," Mr Wahome said.
Deacons was located in the Mlimani City shopping mall in the suburbs of Dar-es-Salaam. But in Tanzania, the culture of large shopping malls - like the 200,000 square feet Mlimani City - in such areas is not as deeply entrenched as it is in Kenya.
By going for trendy and classy fashion, Deacons might have shot itself in the foot.
In its information memorandum for public offer of shares in November 2010, Deacons noted that Tanzania's fashion industry relied heavily on traditional gear (kangas/shukas/kikoys, etc), religious wear and basic clothing.
Lagged behind
Because Deacons did not understand the market well, its sales in Tanzania lagged behind those of its new operations in Uganda, which begun in 2009.
Deacons' sales in Tanzania were worth Ksh65.6 million in 2009, but nearly double (Ksh127.3 million) in Uganda. In Uganda, Deacons was operating with half of the retail space it occupied in Tanzania.
Meanwhile, as KCB expects to announce a profit from its operations in Tanzania early next month, when the bank releases its full-year results for the period ended December 2011, it will be reflecting on the long journey to profitability in the country.
Operating in Tanzania has been a big challenge for the bank since opening shop in April 1997.
The bank's Tanzanian subsidiary first made a pre-tax profit of Ksh11 million in 2005, then fell back in the red in 2009, reporting a Ksh141 million pretax loss, and a Ksh110 million pretax loss in 2010.
"Our performance has been mixed, over the years, but we believe we have now turned the corner and should deliver good results going forward," said Mr Martin Oduor-Otieno, CEO of KCB, on the basis that the third quarter results for the period ended September 2011 showed the Tanzanian operations had made a profit.
Survival of KCB's operations in Tanzania has been through pumping of money raised from shareholders in the 2004, 2008 and 2010 rights issues.
"KCB has stuck to Tanzania because of the regionalisation story of being in every market in the region," said Mr Kenneth Kaniu, an analyst at Stanbic Investment Management Services.
He added that Tanzania is important because it has the largest population among the countries in the region.
Tanzania's population is expected to hit 45 million, compared with Kenya's 40 million people, in 2012. Mr Kaniu added that KCB faced other challenges, including a high risk of defaults on loans. "The credit quality is not so good. The risk of default is high in Tanzania."
Poor sales
This risk of default has also affected other companies, with East African Cables, the cable maker, reporting a 38 per cent drop in net profits to Sh183.8 million for the year ended December 2010 as it suffered from non-payment for deliveries and poor sales in Tanzania.
Mr Otieno, the KCB CEO, acknowledges that lack of proper identification remains a challenge in expanding credit to clients in Tanzania.
"Lack of IDs has also hampered effective Know Your Customer (KYC) initiatives.
This contributes to low level of penetration within the banking sector, given the inherent risks," he said, with the banks forced to use alternatives such as letters from chiefs, elders and voters cards.
KCB and other banks also face stiff competition from local banks, whose brands are easily accepted.
KCB's peers in the Kenyan market - Equity and Co-op Bank - have given the Tanzanian market a wide berth, instead opting to go into other countries in the region first.
"Our challenges arise from the fact that the market is highly competitive, with the larger local and quasi-local banks with larger networks controlling bigger market shares," said Mr Otieno.
He added that, generally, local banks receive better acceptance among local customers compared with non-Tanzanian banks.
Some Kenyan companies have pursued acquisitions as an entry strategy to gain easier acceptance.
NIC Bank acquired a 51 per cent stake in Savings and Finance commercial bank of Tanzania in 2009.
East African Breweries chose to acquire a 51 per cent stake in Serengeti Breweries in November 2010, after ending its marriage with SAB Miller in the listed Tanzania breweries.
However, other companies still opt to start their operations from scratch.
Nakumatt and Uchumi both entered the Tanzanian market last year. Nakumatt opened a branch in Moshi while Uchumi opened one in Dar-es-Salaam.
Whether starting from scratch or following the acquisition route, the companies still face a challenge of getting the right talent and a high staff turnover.
"There is also a need for a change of attitude by Tanzanian government officials in their relationship with the private sector to foster a better regional trade in the EAC and improve the investment climate," says Mr Mufuruki.
Fight or flight? Dilemma of Kenyan investors in TZ *- Smart Company*|nation.co.ke

MY TAKE
They think the Tanzania market is just like having a walk on the beach! They should even be smart to say EABL is actually an investment of Diageo that owns 50.2% of EABL since just like Kenyan market is against foreign products with cut down throat unfair competition at times nationalism, bureaucracy taking a lead e.g. story of Sabmiller in Kenya, story of Musoma dairy not being allowed to sell its product as a hidden directive to protect Brookside, Uganda chicken export to Kenya blockage or the recent blockage of Tanzanian wheat from Kenyan marker! Tanzania is not a yard stick for these fools to be insinuating their negative rhetoric! There are companies that give advice on how to handle Tanzanian market and not someone in Nairobi believing he/she knows how to handle the market! If i were KCB i would have closed down the shop damn making loss all these year is not a best option...!:lol:

 

[Kabaridi]

Fight or flight? Dilemma of Kenyan investors in TZ

MY TAKE
They think the Tanzania market is just like having a walk in the beach! They should even be smart to say EABL is actually an investment of Diageo that owns 50.2% of EABL since just like Kenyan market is against foreign products with cut down throat competition at times nationalism taking a lead e.g. story of Sabmiller in Kenya, and story of Musoma dairy! Tanzania is not a yard stick for these fools to be insinuating their negative rhetoric! There are companies that give advice on how to handle Tanzanian market and not someone in Nairobi believing he/she knows how to handle the market! If i were KCB i would have closed down the shop damn making loss all these year is not a best option...!

You do not know that, in order to streamline and rid corruption and ensure faster growth of services, you can have to privatize sometimes but not necessarily. In EABL, diageo owns 50 %, even EAst african portland cement has investors within. Only that will ensure that such firms will operate consistently. That is the only medium currently that may help aid African economies that grow at a slow rate, instead of trusting an African government, which may not have the best capacity to implement growth of companies. However this challenges companies are facing, all boils down to attitude of the players in the market especially the govt authorities. Out of ignorance they may try to block or insinuate negative or stigmatize other foreign players, probably due to being uninformed on economic and business principles. The companies from foreigners may try to employ locals. KCB may close because of incurring losses, yes, much to your satisfaction, but why did Wool-mart also close shop? Same effects of a people who are not aware that a recession has quietly fended off business-men from their backyard. It is quite clear your extraneous remarks are palpable

 

[Geza Ulole]

You do not know that, in order to streamline and rid corruption and ensure faster growth of services, you can have to privatize sometimes but not necessarily. In EABL, diageo owns 50 %, even EAst african portland cement has investors within. Only that will ensure that such firms will operate consistently. That is the only medium currently that may help aid African economies that grow at a slow rate, instead of trusting an African government, which may not have the best capacity to implement growth of companies. However this challenges companies are facing, all boils down to attitude of the players in the market especially the govt authorities. Out of ignorance they may try to block or insinuate negative or stigmatize other foreign players, probably due to being uninformed on economic and business principles. The companies from foreigners may try to employ locals. KCB may close because of incurring losses, yes, much to your satisfaction, but why did Wool-mart also close shop? Same effects of a people who are not aware that a recession has quietly fended off business-men from their backyard. Young man, It is quite clear your extraneous remarks are palpable

point of correction Diageo owns 50.2% that 0.2% technically makes them the majority shareholder and makes that company British but incorporated in Kenya and disclassifies Serengeti Brew acquisition as Kenyan investment in Tanzania! As a matter of fact they kicked out a lot of failure Kenyan elements in that company the likes of Kireini in the board of directors and lots of individuals in administrative positions!

If u r good enough as most of u brag here, why being booted out of the market that u call home? If u r smart enough then u should have seen what Nationmedia is trying to do! But this report is a very poor analysis of Tanzanian market! Let them discribe how comes a country that has almost 45% of its people under a dollar a day being able to have 44% (WB report) of its people as middle class! How much is the higher and working class! That's a pure exaggeration of facts on the ground within Kenya, a country that hosts over 250,000 IDPs and have just had over 13 mio. people facing hunger couldn't even buy maize to eat putting aside money to buy their underwears in a store downtown Nairobi! If u r smart enough u should see that 44% is a myth cum hype cum propaganda to attract FDIs (mind u Kenya has been receiving lowest FDIs in the region) but the reality is opposite!

As a matter of fact Tanzania can have a higher middle class than Kenya looking at simple facts like a comparison between a slum in TZ where brick houses with sheets and toilets are affordable and KE where corrugated iron sheet shacks are the order of the day refer to Korogocho, Mathare and Kibera slums in Nairobi and unplanned neighborhoods in Buguruni, Manzese, Tandale and Kigogo areas (since the houses r meeting standards of proper houses according to UN Habitat criteria) in Dar es salaam! Moreover looking at places where many people stay like Mwanza, Morogoro and Manyara where a lot of artisanal mining activities happen or places like Rukwa where they feed the whole of East Africa the income disparity in Tanzania is lower than in Kenya putting Tanzania in better chance to have more middle class percentage! I don't trust those figures!

 

[The Quonquerer]

Woolworth is worthless..watanzania walikuwa wanatembea uchi kabla hawajaja? waende huko na nguo zao za dola 200. Hizo nguo si kipaumbele....semeni vimgine vya maana!

 

[Gad ONEYA]

MY TAKE
They think the Tanzania market is just like having a walk in the beach! They should even be smart to say EABL is actually an investment of Diageo that owns 50.2% of EABL since just like Kenyan market is against foreign products with cut down throat unfair competition at times nationalism, bureaucracy taking a lead e.g. story of Sabmiller in Kenya, story of Musoma dairy not being allowed to sell its product as a hidden directive to protect Brookside, Uganda chicken export to Kenya blockage or the recent blockage of Tanzanian wheat from Kenyan marker! Tanzania is not a yard stick for these fools to be insinuating their negative rhetoric! There are companies that give advice on how to handle Tanzanian market and not someone in Nairobi believing he/she knows how to handle the market! If i were KCB i would have closed down the shop damn making loss all these year is not a best option...!:lol:

You seem to look only on one side of this analysis, of Tanzania being seen as an easy market by those you call names! What is your take on the issue that only 12% percent of our country's population have made it to middle income bracket, and it appears to be worsening by some standards compared to those "fools'" countries? And do you think that the bureaucracy within the government authorities is benefiting the poor Tanzanians who are unable and unqualified to get loans for business start-ups?

You better consult your good faculties before you write something damning as if you have been through hell!. It is likely our government is culpable on many issues of managing the economy!

 

[Geza Ulole]

MY TAKE
These fools think Tanzania market is just like having a walk in the beach! They should even be smart to say EABL is actually an investment of Diageo that owns 50.2% of EABL since just like Kenyan market is against foreign products with cut down throat unfair competition at times nationalism, bureaucracy taking a lead e.g. story of Sabmiller in Kenya, story of Musoma dairy not being allowed to sell its product as a hidden directive to protect Brookside, Uganda chicken export to Kenya blockage or the recent blockage of Tanzanian wheat from Kenyan marker! Tanzania is not a yard stick for these fools to be insinuating their negative rhetoric! There are companies that give advice on how to handle Tanzanian market and not someone in Nairobi believing he/she knows how to handle the market! If i were KCB i would have closed down the shop damn making loss all these year is not a best option...!:lol:

You seem to look only on one side of this analysis, of Tanzania being seen as an easy market by those you call "fools"! What is your take on the issue that only 12% percent of our country's population have made it to middle income bracket, and it appears to be worsening by some standards compared to those "fools'" countries? And do you think that the bureaucracy within the government authorities is benefiting the poor Tanzanians who are unable and unqualified to get loans for business start-ups?
You better consult your good faculties before you write something damning as if you have been through hell!(?). It is likely our government is culpable on many issues of managing the economy![/QUOTE]

kajifunze kuandika kiingereza kwanza, here is a men talk with critical analysis!

 

[Geza Ulole]

Woolworth is worthless..watanzania walikuwa wanatembea uchi kabla hawajaja? waende huko na nguo zao za dola 200. Hizo nguo si kipaumbele....semeni vimgine vya maana!

achana na huyo anasema ati "Wool-Mart" sina habari na store yenye jina hilo TZ! najua Wool Worth via W-stores in Tanzania of which they just expanded in the region 2 more stores in UG and one in TZ and hence official reclaimed that market share Deacon exited (a market of braves)! Tatizo kila Mkenya anajifanya economic-expert humu ndani hata muuza Chang'aa anajua kila kitu!

 

[Wambandwa]

Kuwekeza Tz ni kama kutafuta kitu kwenye giza.
Hatuna umeme wa uhakika, rushwa imeshamiri kwenye vyombo vinavyoratibu makampuni, viwango vya kodi, tunalipa kodi juu ya kodi.
Bado TRA hawajaku asses maapato yako hata kama una audited report ya Authorized Accountant and Auditor anayetambuliwa na wao. TRA KAMA MUNGU, lipa ulichokadiriwa au utiwe hatiani.

 

[Geza Ulole]

Kuwekeza Tz ni kama kutafuta kitu kwenye giza.
Hatuna umeme wa uhakika, rushwa imeshamiri kwenye vyombo vinavyoratibu makampuni, viwango vya kodi, tunalipa kodi juu ya kodi.
Bado TRA hawajaku asses maapato yako hata kama una audited report ya Authorized Accountant and Auditor anayetambuliwa na wao. TRA KAMA MUNGU, lipa ulichokadiriwa au utiwe hatiani.

i assume u have an idea how is Kenyan market take time to read here...

 

[Gad ONEYA]

You seem to look only on one side of this analysis, of Tanzania being seen as an easy market by those you call "fools"! What is your take on the issue that only 12% percent of our country's population have made it to middle income bracket, and it appears to be worsening by some standards compared to those "fools'" countries? And do you think that the bureaucracy within the government authorities is benefiting the poor Tanzanians who are unable and unqualified to get loans for business start-ups?
You better consult your good faculties before you write something damning as if you have been through hell!(?). It is likely our government is culpable on many issues of managing the economy!

kajifunze kuandika kiingereza kwanza, here is a men talk with critical analysis!

Wewe ndo ukajifunze ujue maana ya hilo neno ulilo-highlight red! Nadhani pomposity inakudanganya!

 

[Geza Ulole]

tell me how is Tanzanian Govt is culpable of managing its economy if our economy has been growing better than Kenyan? I know i am not satisfied with the way and pace at which things are handled in Tanzania but that does not make me be obsessed with Kenyan government since it is even performing worst! Considering their economy has grown at a lower pace and they have been having inflation higher than ours! Only a better performer like Rwandan Govt can point a finger towards us and not Kenyans! that's my argument!

 

[Bantugbro]

Soko la TZ wawaachie waTZ wenyewe mbona Woolworth chini ya Ali Mfuruki wanazidi kupanuka na sasa amefungua mpaka Kampala.

Btw, aliyeshindwa ni Truworths chini ya Deacons wa Kenya.

 

[Askari Kanzu]

Wakenya kwenye hii forum wana kasoro flani kwenye ubongo!

 

[Geza Ulole]

Wakenya kwenye hii forum wana kasoro flani kwenye ubongo!

arrogance and bad looser habit zinawasumbua! instead of conceding a defeat they resort into discrediting the market they have fought for so hard for damn five years and lost! :lol: Halafu inaelekea Nationmedia's journalists huwa wanaingia sana humu ndani maana walianza na report ya Deacons closing shop in TZ in the East African then when argument picked up na watu kutolea mifano kuhusu KCB! leo wamekuja na hii report hapa ya Fight or Flight! Heheh big up JF ur prowess is remarkable across all the corners of EA! BTW nishawahi kuwa quoted in the Nation though sikuandika anything in their media ila waka-claim nime-comment on their report!

 

[eliakeem]

arrogance and bad looser habit zinawasumbua! instead of conceeding a defeat they resort into discrediting the market they have fought for so hard for damn five years and lost! :lol: Halafu inaelekea Nationmedia's journalists huwa wanaingia sana humu ndani maana walianza na report ya Deacons closing shop in TZ in the East African then when argument picked up na watu kutolea mifano kuhusu KCB! leo wamekuja na hii report hapa ya Fight or Flight! Heheh big up JF ur prowess is remarkable across all the corners of EA!

JF haiogopwi tu na Mafisadi wa SISEMU...... Hata other teritories across the region...

 

[Jasusi]

Nice debate. Can we refrain from calling each other fools?

 

[DAR si LAMU]

Nice debate. Can we refrain from calling each other fools?

...Jasusi, much respect. Baada ya kusema hivyo, i will not refrain from calling a spade what it is..."a spade"! Wakenya wengi wana kasumba ya kudharau Watanzania, mara nyingi, bila sababu za maana. Tuna mapungufu mengi, lakini, hali hiyo haiwafanyi wao kuwa "malaika".

...Back to the subject. KCB will only close shop b'se of intense competition in the banking and financial sector. Na huu ndio ukweli. Halafu, wanataka kutuambia kuwa, kwakuwa wao wamekuja kwetu basi nasi tuwakimbilie kama wehu? hatuna haki ya kupenda kilicho chetu?

...Hata huko Ulaya na Marekani wapo wanaofungua biashara na baada ya muda wanafungasha virago. Lazima ujipange kutoa huduma bora na ya tofauti na ile inayopatikana sokoni kwa wakati huo, tena kwa bei nzuri.

...We have a lot of issues, and yes, umeme is one of them, but, if they can not stand the heat, they should get out of the kitchen!. I mean, look at Tanzania Breweries. Those guys, when faced with water shortages they didn't nag, they went ahead and drill some wells.

 

[FJM]

You fools do not know that, in order to streamline and rid corruption and ensure faster growth of services, you can have to privatize sometimes but not necessarily. In EABL, diageo owns 50 %, even EAst african portland cement has investors within. Only that will ensure that such firms will operate consistently. That is the only medium currently that may help aid African economies that grow at a slow rate, instead of trusting an African government, which may not have the best capacity to implement growth of companies. However this challenges companies are facing, all boils down to attitude of the players in the market especially the govt authorities. Out of ignorance they may try to block or insinuate negative or stigmatize other foreign players, probably due to being uninformed on economic and business principles. The companies from foreigners may try to employ locals. KCB may close because of incurring losses, yes, much to your satisfaction, but why did Wool-mart also close shop? Same effects of a people who are not aware that a recession has quietly fended off business-men from their backyard. Young man, It is quite clear your extraneous remarks are palpable

Kenya is not exactly a developed nation is it? And on the red ndugu Mzalendo, you are not trying to preach us about corruption are you really? Kenya has always embraced privatization (since uhuru) but that did not stop a few your men LOOTING the country didn't?

Let me tell you why Kenyan companies struggle in Tanzania, it is largely becuase they look down on people. They tend to treat people as if they are retarded and worthless! And as long as Kenyan companies continue with that attitude they will find themselves with no choice but to close thier businesses one after another.

 

[FJM]

Soko la TZ wawaachie waTZ wenyewe mbona Woolworth chini ya Ali Mfuruki wanazidi kupanuka na sasa amefungua mpaka Kampala.

Btw, aliyeshindwa ni Truworths chini ya Deacons wa Kenya.

Tatizo la Kenya ni dhana potofu waliyonayo kuwa wao (Kenya) ni bora kuliko Watanzania! Kwa miaka wamekuwa wanaamini hivyo na hata kuja kwao kufanya biashara hapa wanakuja na very bad attitude. Wanadharau watu, wanajiona wao wako juu na mbaya zaidi wanapokuta Watanzania sio watu wa makelele (confrontational) basi wao wanadhani watu ni wajinga. Ni pale biashara inapokwama ndio wanaanza kuleta ngonjera za mara middle class ya Tanzania ni ndogo!.Hivi wakati wanaanza biashara hawakujua middle class ilikuwa ndogo? Na huo u-middle class wa Kenya ni upi? Ni wa Kibera?

Ukisoma kwenye hiyo article kuna mahali wameandika kuwa watanzania wanapenda kuva kanga, mashuka, vikoy! na wanaeleza kana kwamba sababu ya maduka ya nguo toka Kenya kutofanya vizuri hapa bongo ni kwa sababu watanzania wanavaa mashuka! Increadible! Wakenya wamejua lini kuvaa? Ukikatiza mitaa ya Nairobi wako wamama kibao wamechanganya rangi kama x'mas tree leo hii ndio mwandishi anasema watanzania wanavaa mashuka? Madharau gani haya? Fikra za kikoloni ndio zinawasumbua.

 

[DAR si LAMU]

Kenya is not exactly a developed nation is it? And on the red ndugu Mzalendo, you are not trying to preach us about corruption are you really? Kenya has always embraced privatization (since uhuru) but that did not stop a few your men LOOTING the country didn't?

Let me tell you why Kenyan companies struggle in Tanzania, it is largely becuase they look down on people. They tend to treat people as if they are retarded and worthless! And as long as Kenyan companies continue with that attitude they will find themselves with no choice but to close thier businesses one after another.

...And if i may add. Uchumi stand to gain a lot, if they play their cards right. Which is to say, build local human resource, sell as more local products as possible, and "the important one", treat Tanzanians as a Tanzanian would. In one word..."Localize".