Investment: Why are Kenyans Shortchanged?

Published on 18th April 2009

I remember the elation of poor farmers in South Coast when it was announced that large deposits of titanium had been discovered. I remember the locals thinking that finally their day in the sun had come and their lives would be transformed. I was however shocked when I heard of the meager 80,000 shillings per acre compensation Tiomin were offering. This  was way below the value of the land or what the locals were entitled to. More shocking was that the farmers who were agitating for a better deal were forcibly kicked out of their land by the government (that had sworn to protect their interests) to make way for big business.

Qatari Emir, Sheikh Hamad   Photo:Courtesy

All this was done in the name of 'economic growth and creation of low paying jobs' for the locals and high paying jobs for expert “expatriates.” Now like the Bushmen who are now living in relocation camps after diamonds were discovered on their traditional lands, they too have to contend with living in relocation and I doubt that most families still have any part of the compensation left.  

Recently, the discovery of one of the biggest deposit of limestone in Eastern Kenya has sparked a lot of interest and one cement producing company has unscrupulously been going around purchasing the rich land at a paltry 60,000 shilling per acre again well below its true value. 

Why do I scoff at the amounts above? Because natural resources generate what economists term ‘rents’ – meaning profits that are much higher than the minimum level needed to keep the activity going. Now, these rents will be earned from the same piece of land for a number of years, generating billions of shillings for big business while the locals contend with a one off payment. What does 80,000 shillings amount to? Well roughly 6,600 shillings a month or about 220 shillings or if you like, 3 US dollars a day for a year. In light of this, though I am a big fan of the Kenya Human Rights Commission, they seem to have been sleeping on the job as no one has come out clearly to defend the rights of the locals. If they have, it has escaped public domain. 

One way of ensuring the rents accruing benefit the rightful owners is by ensuring that the locals get the financial compensation say 80,000 per acre as well as rights in the companies coming in to exploit the resources in accordance to the acreage they will be contributing. In that manner, as long as the profits are higher than the minimum level needed to keep the activity going, the locals will continue to enjoy the benefits of the land they have had to give up. Also this would ensure that even after the one-off compensation is over, they still will have a valuable investment to fall back on.

The companies involved could also help the locals set up a financial advisory board to set up trusts for the locals' children to ensure they too have a stake in their inheritance they will be forfeiting and advice the locals in plain terms their investment growth and diversification options as part of their social responsibility. Creating low paying manual labor jobs is neither a poverty reduction strategy nor does it benefit the locals in the long term. It only perpetuates poverty and helplessness. We deserve to own part of our economy; not merely facilitate the enrichment of foreign entities. 

The other day I heard that we are giving a concession of forty thousand acres to the Qatar government to grow corn for their market. Why not give four thousand farmers ten acres each to grow this corn on a bi-annual rotation basis so that every year, 8000 farmers get a chance to grow and export corn to Qatar- a ready market? The government can then provide developmental assistance to them by hiring technical experts who are well versed in corn farming techniques since it is a new occurrence. This would create wealth for the 8000 yearly as well as build capacity by equipping farmers with corn growing techniques that they can use to grow corn and sell to other markets. 

The recent IPO’s have shown two things. One: the locals have a lot of cash and two; they have an insatiable appetite for investing all this idle money.Unfortunately, we have delegation after delegation going abroad to sell Kenya as an investment destination whilst ignoring the locals who should be given first priority when these investment opportunities come up. The only thing these people trumpet is how these investors will create jobs for the locals, which does not translate to wealth but a cycle of poverty. Yes, these investors pump in billions into our economy but the Safaricom IPO oversubscription proved we have the billions needed to invest and the ability through banks to raise additional capital. So, why are we forever neglected when investing opportunities that can create wealth come up?

Why, for example, wasn’t the Grand Regency hotel sold to us local investors giving the workers in that Hotel first priority to buy a stake in it at the throwaway price it was sold to the Libyans? Couldn’t that stake in the Hotel create wealth among the employees as well as a sense of ownership that would make each employee want the Hotel to succeed? Couldn’t the same model have been applied with Magadi Soda now owned by TATA India or a host of other entities sold to foreign investors? Are Kenyans only good enough to hold low paying jobs when these investments opportunities come along?

Kenyans have the financial capacity and  investment hunger and only lack the investment opportunities. Every institution that the government has a stake in and wishes to sell should follow the following formula: ordinary Kenyans having first priority to buy then 100% locally owned Kenyan firms (owned by indigenous Kenyans), and if both groups do not take up the stake on offer, the second option is to our East African and African neighbors and lastly foreigners and foreign companies.  

We have seen what these so called foreign investors have done in the the Goldenberg, Anglo Leasing and Triton sagas where priority and concession was given to the wrong people whilst the local jua kali artisan, mechanics, hawkers and small kiosk owners who are the backbone of our economy are regularly harassed and tear gassed by different arms of the establishment. 

Another area that the government is failing in is always floating tenders that specifically lock out Kenyan companies when they can be empowered to have the capacity to carry out the contracts in question. One guise that people hide behind is that the local companies lack technical capacity to undertake the jobs in question- but how will they build this capacity if they are not allowed to participate in technically challenging tenders and learn from these firms how these jobs are undertaken and build capacity at the same time? The foreign firms that qualify to carry out these jobs must also have had a starting point from where they built their capacity.Our locally owned firms need the same chance.  

Why can’t the government put in these contracts a clause that all work done must involve sub-contracting local firms who will provide labor intensive methods in fulfilling the contracts, for example, if it is road construction, the local firm will provide labor intensive methods that will require hiring a good number of locals rather than improved mechanized methods so we create employment or a clause that will allow local firms 50% of total supply, say, if it is computers, the winning firm has to sub-contract 10 or more local firms to supply 50% of the contract so they can pool resources and benefit? Only in this way can we be assured that local firms will grow and that we create wealth for ourselves rather than foreigners.    

I was greatly emboldened by Ephraim Maina when I heard him echo some of the above sentiments that we cannot continue to jump every time we hear a foreign investor wants to invest in our economy yet the recent IPO’s have proved that we have a lot of local investors who lack investing opportunities. Why for instance are we selling 50% of the refinery to Essar when clearly that stake can easily be taken up by locals? Why are the small businessmen harassed and hassled and the foreign investor given undue assistance to start their businesses? How will we achieve vision 2030 when all opportunities are placed in the hands of foreigners? How will we create a sense or ownership amongst the people and make them want their country to succeed when success is only enjoyed by the well placed connected foreign legion?

Majority of Kenyan companies are now under foreign ownership because the government does not deem us fit to own these establishments. This means that  the only benefit the locals will have is low paying manual or other jobs while huge profits will be exported abroad to the bases of these companies.   

In recent times we have seen mechanics go on rampage over the grabbing of their land albeit not by big business it just goes to show that the common mwanainchi is increasingly frustrated and is ready to demonstrate when his rights are ignored in the distribution of resources. We must not bury our heads in the sand and preach peace when there is poverty and inequitable distribution of resources hoping the poor masses will continue to suffer in silence while the ruling elite ignore them in creating of wealth for the foreign legion. 

Kenya must take the route of Middle Eastern countries that have perfected the art of ensuring that the locals are the first to benefit from any rents accruing from any natural resources. Rather than dwell on attacking trade policies and biased trade and economic practices in existent, we must first put our house in order to ensure we protect our people and the natural resources that are their birthright. The Government must realize that they were never elected to protect the interest of foreign big business or facilitate the needs of foreign big business, but to protect the interests and safeguard the rights of the local mwanainchi who calls this country home. Adequate legislation must be crafted to ensure that local communities are not pushed aside when a substance of value is discovered. They must always have a stake in the natural resources that surround them in great abundance. 

It is better to have developmental partners who will help us to build capacity by providing training, education, valuable skills and expertise that will help the locals thrive rather than foreign direct investment that only creates jobs and not the skills needed such that when the company stops operations, people are left jobless and stranded. 

I am in no way against any foreign investor investing in this country I only feel we should have more existing opportunities awarded to locals.  

By Maxwell Obura

Director, Kadwell Investments.

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