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When Politics Is Bad For Business

 

Last Monday I reminisced about a fascinating conversation that I had with Joe [not his real name], a senior executive of a United Kingdom (UK) headquartered, global fast moving consumer good company. Part of our conversation veered in the direction of the impact of Brexit on the retail side of business since I couldn’t understand the September 2021 phenomena of petrol stations running out of fuel in many parts of the UK. The crisis was simple: fuel was in plenty, but there were not enough drivers to drive the fuel tankers needed to deliver the fuel to the petrol stations. Why, you ask? Following Brexit which put massive brakes on the free movement of labor and goods across the English Channel, it turns out that most of the truck drivers, who required Heavy Goods Vehicle (HGV) licenses, were of European descent and now required visas to get into the UK. To add fuel to this fire – corny pun fully intended – a driver required additional safety qualifications to his HGV licence in order to carry chemicals such as petrol.

Now these drivers were not about to fill out long forms asking for information, including the name of the dentist who last did your root canal, and stand at the UK embassy line like the rest of us third world long suffering travellers. So they said “Sod off as us we will happily traverse the more trade friendly and welcoming geography of Europe” thereby creating an enormous logistical shortage for goods movement . According to a BBC article dated 5th October 2021, Boris Johnson’s government said it would offer temporary visas for 5,000 overseas HGV drivers including 300 immediate visas for tanker drivers. Johnson later admitted that only 127 European Union fuel drivers had applied for the scheme forcing the government to bring in about 200 Army and Royal Air Force personnel to help deliver fuel to petrol stations.

However Joe tells me that the crisis didn’t end with just fuel though. One of the top four supermarket chains in the UK has had to move out slow moving goods from their shelves due to the logistical challenges of receiving and storing goods. The supermarket chain had become operationally efficient by perfecting the art of just in time delivery, which eliminated the need to have large warehouses as distribution centres receiving goods from manufacturers, to further distribute to their wide network of stores. By working closely with their logistics partners, the supermarket giant could efficiently anticipate the product needs of each store and ensure the right amount of goods needed on the shelves were delivered on time as stock depletions occurred.

Consequently for this top retailer, it has had to make a critical decision on how to sweat its greatest asset: its shelves. The result is that manufacturers of slower moving goods have lost an outlet for sales and you can imagine the downstream effect on those manufacturers in terms of forced lower production leading to job losses as well as the detrimental impact on the raw material suppliers.

The winners according to Joe are UK bus drivers who, experienced in driving large vehicles, are converting their bus driving licences into HGV licences as the government has fast tracked the process of HGV driver testing, which had significantly slowed down due to Covid-19. In many cases, Joe said that the now scarce drivers had cottoned onto the basic economic premise of demand and supply and were demanding, in many cases, to be paid up to 10% of the value of goods being transported making them receive earnings quite nearly close to UK white collar top executives.

Now could any of this have been anticipated when all the political noise was being made about Brexit? Certainly not by the politicians, who are really not in the business of doing business. But I would hazard a guess that the logistics companies, who knew who made up the bulk of HGV drivers that moved critical goods around the jurisdiction, would have marked this as a flashing crimson red high probability and high impact event in their risk management matrix. The economic fallout from Brexit will remain a global case study on the intersection between politics and business, a lesson not only applicable to developed countries, but even to emerging markets such as ours. Stakeholder mapping the economic impact of political decisions requires a level of single minded granularity to understand the bottom line impact on the average citizen. Only the smart politician can have the intellectual wherewithal to do this.

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Twitter: @carolmusyoka

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Devolution, piracy and banking meet in Mombasa

[vc_row][vc_column width=”2/3″][vc_column_text]I spent the better part of last week down in Mombasa and arrived at three conclusions: firstly, devolution works. Secondly, banking, as we know it in Kenya will have to change or it will die. Thirdly, the ghosts of the Indian Ocean piracy rackets roam freely in Mombasa’s environs.

My visit to Mombasa was primarily to see the market and the distribution of a particular fast moving consumer good (FMCG) that I will hereafter refer to as product X. Since devolution shifted a hitherto unknown sum of money to the coastal counties, there was more money in circulation, as county governments became direct buyers of goods and services within counties. Of course the providers of those goods and services then have more cash with which to hire employees or buy supplies both of which activities means that funds are moving further down the food chain. Employees, for example, now have cash with which to pay rent, buy food and clothing items as well as not-so- discretionary items like airtime. Suppliers of biros, wheelbarrows or condom dispensers to the county governments have to purchase them from a wholesaler, or perhaps a supermarket and more funds go into the system. You catch my drift, I’m sure. Anyway, movement of product X (and many other FMCGs) has grown in the last two years since devolution occurred simply because there’s more cash in circulation. Now how that cash gets into circulation is another story, whether it is through a legitimate procurement or inflated “tenderpreneurship”. The upside is that Nairobi’s position as a primary market becomes increasingly diluted and greater revenue diversification occurs for the manufacturer. In short, it is not only members of county assemblies (MCAs) that have benefitted from devolution funds. Legitimate private businesses have found 46 wider markets within which to focus on. Devolution, from a business perspective, must stay. It is also noteworthy that the movement of product X has moved deeper into the coastal interior following the tourism downturn. As many of the hotels have been closed and the staff laid off, there has been an urban to rural migration that has led to demand for “urban” goods deeper in the coast interior. Distributors have therefore had to reconfigure their distribution routes to follow the market demand.

Which leads me to my second conclusion: the ever growing disruption of banking as we know it. Tracking the coastal distribution of this product in the last 8 weeks, the team found that cash payments had moved from 75% in the beginning of September 2015 to 37% by the beginning of November. Conversely, mobile payments on the Mpesa and Equitel platforms have moved from 17% to 54% in the same 8-week period. The reason? The core distributor had chosen to absorb the mobile payment charges as these were found to be eating into the razor thin margins of the downstream retailers, hence their resistance to using the Mpesa and Equitel payment platforms. If you have ever paid someone using your mobile phone and they tell you the now ubiquitous peculiar Kenyan lingo “na utume ya kutoa” you will know what I am talking about. During the same period, payments using the banking system remained flat at 8%. In short, retail business in the economy has been and will continue to be quick on the uptake for mobile payments as its incredibly safer due to zero cash handling and leaves an electronic trail that can be used to build an indelible, legitimate cash flow history for future borrowing needs. The obvious evolution will be for the absorption of the mobile payments cost further and further up the value chain, ending up at the manufacturer. With these costs absorbed as distribution costs, mobile payment systems will become the primary methodology for movement of money in the FMCG space and the winners will be the banks sitting on the Mpesa float accounts, currently numbering not less than ten as well as Equity Bank.

Finally, to my third conclusion: Driving through Nyali, specifically Links Road that has morphed into the commercial superhighway of a formerly quiet, upmarket neighborhood, one is shocked by the concrete jungle that has emerged. An architectural travesty has arisen, with tall, dull colored buildings juxtaposed with short, squat faceless structures that have numerous “For Sale/To Rent” signs hanging forlornly on their shiny fences. Anecdotal evidence points to proceeds of Somali piracy being used to put up the buildings. It is a clear case of “if you build they are not guaranteed to come.” There are even more empty apartment blocks in Shanzu, standing tall amongst the many boarded up beach hotels and curio shops that have called it quits during Kenya’s devastating tourism downturn.

Real estate continues to provide the fastest way to launder large cash based criminal proceeds. Buying land, then the building materials and labor costs are all cash intensive initiatives that gladly suck liquidity out of the hiding place at the bottom of the criminal’s mattress. Buying finished buildings is even faster. But the music stopped playing on the piracy routes, almost exactly at the same time as the terrorist attacks stepped up in Kenya leading to the economic downturn at the coast. It’s important to note that I am not saying all the buildings that have come up were funded via illegal proceeds, but those that were just added to the grief of the legitimately funded buildings: No tenants.
Which gets me thinking about why the same is not happening in Nairobi. Why does the commercial and residential building stock continue to grow? Outside of insurance type corporates flush with liquidity, and Chinese contractors importing cheap borrowed funds from their banks, who or what is fuelling additional building stock using cash rather than borrowing? It bears noting that overpriced wheelbarrows, biros and hospital gates continue to gain traction and if our the music ever stops playing in the corruption concert, the specter of empty buildings standing forlornly in Nairobi’s mid to upmarket addresses will undoubtedly follow.

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Twitter @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]

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Young Entrepreneurs That Walk The Talk

Entrepreneurship is the last refuge of the trouble making individual. ~ Natalie Clifford Barney

Ted* came to work in my team as an intern in early 2007. Back in those days, working in a financial institution such as Barclays was the alpha and omega of a professional career. He was a stroppy 22 year old, with hair that was at least 3 inches too long and shirts whose cuffs that were at least 3 inches too short of the wrist line. He was a breath of fresh air in an environment of monumental performance pressure underpinned by a staid, insipid office culture. About a month before the first anniversary of his employment, as he had successfully transitioned into a full time job, he came to talk to me about taking a few months off to tour the United States.

“What?” was my incredulous reply. “Yeah, I want to just go around the States, maybe I’ll go to Mexico as well. I just want to figure stuff out,” he said nonchalantly. “But what about your career, I mean, you’ll have this inexplicable black hole in your CV which can’t be addressed with the words ‘backpacked through the United States for the sake of it’ as a line item,” I whined. It didn’t matter. Ted left for the United States, and threw in a couple of months backpacking through Europe as well. When he got back, he decided to start up a business doing websites for companies, as he was now crystal clear that he never wanted to work for anyone again.

Last week, I spent a morning in the offices of Kevin*, a twenty six year old entrepreneur whose business it is to collect electronic data from the online community, make sense of it and then help businesses make strategic decisions by distilling the information into language that decision makers can understand. Kevin has travelled around the world in the last two years providing insights at global conferences as a leading voice on African social media tactics and tips.

For two straight hours I sat with Kevin and two of his team members, getting completely blown away by the quality of data that they are able to collate using people’s Instagram, Facebook and Twitter feeds as sources of what would look like rubbish data to the untrained eye, but is actually valuable information on the experience of products and services by Kenyan consumers. Kevin only has one permanent employee in his office. The rest of his team work on contract from wherever in Kenya that they can link up to a fast internet connection. His clients are multinationals and top tier local corporates who are now starting to understand the benefits of getting unsolicited real time customer experiences to improve on their product offerings.

In a classic serendipitous twist, Kevin’s landlord is Ted, who has now become the consummate entrepreneur. At twenty nine years old, Ted now has 26 employees providing web design, branding and social media marketing solutions to multinational and local organizations in the banking, FMCG and not for profit sectors. I walked through Ted’s offices, where young fellows with 5 inches of Afro, cuff less shirts, loud blaring music and a completely relaxed, colorful environment created extraordinary client solutions on large Mac computers. It turns out that Kevin needed space to set up his business, and Ted gave him a corner desk and unfettered access. “It’s all about how we work together, Kevin thinks differently and thinks big, as a result he has helped us on some of our work and we’ve done some projects together,” Ted told me later. In his playbook, having different people share his rented office space provides opportunity for getting different perspectives on how to do business. Paul is another twenty something entrepreneur sharing Ted’s space. “We liked his vibe and he liked ours so we gave him space as well,” Ted says of Paul. There is a refreshing openness in the way Ted operates with his sub-tenants and a strong culture of leverage from synergistic relationships within the workspace. His big break in providing customized Facebook pages for clients came through a famous Kenyan musician who had come to see his previous music industry production tenant. Ted and his team were trying out their new product and offered it to the musician who had nothing to lose. The marketing manager of a large FMCG multinational saw the page, loved it and commissioned Ted’s company to do one for them. The rest as they say is history as their highly visible work sold itself off its virtual platform.

There are many Ted’s and Kevin’s in Kenya. They have chosen to buck the trend that our education system has tried to force down our collective throats which trend says that cramming, passing exams, going to university and looking for a job is the ultimate route to Canaan. These young men, and the people that they work with are making a big difference in the way that their corporate clients are doing business and understanding a client demographic that is both fluid and fickle. They are providing a service on their own terms, not constrained by the astoundingly boring confines of office environments that stifle creativity.

For every Chicken-gate, Angloleasing-gate and Maize-gate tenderpreneur we have in Kenya, there are at least ten thousand young people who want to make an honest living doing what they are madly passionate about. They fight a system that has conditioned our society into thinking it’s all about passing a standard eight sieve into a smaller form four sieve into an even smaller university sieve that spits out graduates expecting to be absorbed into a small workforce. The chaff that remains at the top of the sieves is browbeaten into defeatism and a self-fulfilling prophecy of doom. I’m glad that Ted bucked the trend and walked out of employment despite my pathetic exhortations against his mad ideas. 26 employees are happier for it.

*Not their real names
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Twitter: @carolmusyoka