British firms in a storm ahead of PM Cameron’s Kenya visit
Prime Minister David Cameron is set to visit Kenya in June. PHOTO | FILE |
What you need to know:
Visit comes at a time when British corporate giants such as StanChart, BAT and Unilever are struggling to fend off stiff challenge from the more aggressive and flexible local players.
The late Margaret Thatcher, popularly known as the Iron Lady, was the first and remains the only British prime minister to have visited Kenya in 1988.
The decline in London’s political influence in Nairobi began in earnest under former President Mwai Kibaki.
British companies operating in Kenya have hit a turbulent operating environment that has seen them lose market share, post lower earnings and in the crosshairs of anti-corruption agencies, clouding the first official visit by a UK premier in nearly three decades.
Prime Minister David Cameron’s June visit comes at a time when British corporate giants such as Standard Chartered Bank, BAT and Unilever – which once straddled the Kenyan consumer goods market like a colossus – are struggling to fend off stiff challenge from the more aggressive and flexible local players.
The late Margaret Thatcher, popularly known as the Iron Lady, was the first and remains the only British prime minister to have visited Kenya in 1988.
Though the many battles British corporations are fighting in Kenya look purely commercial, keen followers of Kenya’s diplomatic positioning say it partly reflects the decline in London’s political influence in Nairobi that began in earnest under former President Mwai Kibaki.
UK-based property firm St Paul’s has put off its planned listing on the Nairobi Securities Exchange that was meant to raise Sh5 billion, citing unfavourable market conditions.
Besides, a number of British companies in Kenya have been facing strong headwinds attributable to external factors such as political interference and shifting global economic conditions.
For instance, British oil explorer Tullow’s Kenya operation has in recent months faced strong headwinds associated with the ongoing free-fall in global crude oil prices.
Vodafone Group, the single largest shareholder at Safaricom with a 40 per cent stake, is staring at lower royalty earnings from M-Pesa following the relocation of the mobile money platform’s servers from Germany to Kenya while temporary power producer Aggreko has lost dominance of Kenya’s emergency electricity market with plans to unplug from the expensive emergency power business in favour of cheaper renewable energy sources.
London-listed Atlas Development & Support – which cross-listed on the Nairobi bourse in December 2014 – is currently liquidating its three Kenyan subsidiaries, following a downturn in the oil and gas prices.
On another front, a number of British companies, including cigarette maker British American Tobacco, printing firm Smith & Ouzman, Oxford University Press, and Macmillan Publishers have all been entangled in alleged bribery of Kenyan officials to win lucrative tenders.
Corporate Britain’s waning fortunes in Nairobi come in the wake of London’s tough stance on Kenya ahead of the March 2013 polls that saw the UK High Commissioner insist that London would only have ‘essential contacts’ with Uhuru Kenyatta if elected president.
Mr Kenyatta was then facing trial at the International Criminal Court (ICC) for alleged crimes against humanity.
These are some of the realities Mr Cameron will face during his Kenya visit – highlighting the tectonic shift in Kenya’s business and diplomatic relations with her former coloniser.
Macharia Munene, a history and international relations lecturer at the United States International University-Africa, said there is a correlation between political and commercial influence determining bilateral ties between Kenya and the UK.
Differences between London and Nairobi as the latter sought to re-affirm its independence, coupled with Kenya’s ‘Look East’ policy, was hurting British commercial interests locally, Prof Munene said.
“Diplomacy and business go together. The political leadership paves way for business, and they cut deals together,” he said adding that Kenya has also been struggling to reduce its overdependence on the UK.
There are more than 300 British companies in Kenya and trade between London and Nairobi is currently valued at £1.3 billion (Sh189 billion), according to data from the British Chamber of Commerce Kenya.
The British premier has recently dispatched his Trade envoy Lord Clive Hollick to Nairobi to announce a £500 million (Sh72.8 billion) fund to help Kenyans import goods from the UK, ahead of his visit.
Official data shows the value of Kenya’s imports from the UK dropped to Sh40.1 billion in the first 11 months of last year, compared to Sh41.3 billion a year earlier and Sh45.7 billion in 2013. China has overtaken the UK as Kenya’s leading source of foreign direct investment, having pumped bringing inflows estimated at $500 million (Sh50 billion) in 2012.
In their heydays as the darling of Kenya’s banking industry British banks maintained their position as the most profitable lenders but have since lost ground to homegrown players such as Equity, KCB and Co-op who have focused on the mass market.
StanChart’s after-tax profit, for instance, dropped by a quarter to Sh6.2 billion in the nine months to September 2015.
The high-street lender - owned 73.89 per cent by London-based Standard Chartered plc - has already issued a profit warning and announced plans to cut jobs in a bid to reduce operational costs and grow earnings.
It is also grappling with mounting volumes of bad loans, which grew by nearly a third in the quarter to September to hit Sh10.7 billion.
Despite the declining performance of British companies, the relationship between Kenya and UK remain strong, said Geoffrey Lugano, a PhD candidate taking international relations at the University of Warwick.
“British interests in Kenya are very deep,” he said, pointing to historical and cultural ties between Nairobi and London. Telecoms operator Safaricom is currently in talks with its parent Vodafone to lower the fees it pays the British firm for use of M-Pesa following the migration of M-Pesa servers from Germany to Kenya which was completed in April last year.
Vodafone Sales and Services Ltd (VSSL) owns proprietary rights to the M-Pesa platform and earns royalties accrued from use of the mobile money transfer solution, calculated at 11 per cent of total M-Pesa revenue.
The Newbury-based telco has earned a total of Sh13.25 billion (£91 million) in royalties since the launch of M-Pesa in March 2007, making the mobile innovation a cash cow for Vodafone plc. Oil firm Tullow has also cut down its exploration budget amid collapsing global oil prices, with Brent crude touching a 12-year low of $29.96 per barrel.
Tullow and its partner Africa Oil have struck commercially viable oil deposits in Kenya’s Lokichar basin currently standing at about 600 million barrels.
The firm has cut the number of rigs drilling for oil in Kenya and plans to end drilling activities end of this month, to focus on development and the thorny issue of constructing a pipeline.
“Cheptuket-1 will likely complete drilling in late February after which the PR Marriott Rig-46 will demobilise, marking the end of the current drilling campaign,” Tullow said in a trading update. Morningstar Inc., a Chicago-based research and investment management firm, says that the break-even prices for oil from Lokichar basin is at about $50 per barrel.
Kenya on December 9, 2015 finally agreed to renew an agreement that allows British military to train in Nanyuki, following protracted talks that saw Nairobi bag a landmark concession: British soldiers who break the law will be tried in Kenyan courts.
The Energy Regulatory Commission has directed KenGen to relocate one of its 30MW gas turbines in Nairobi’s Embakasi to Muhoroni in Kisumu, effectively displacing Aggreko’s temporary power plant located in lake region.
The Glasgow-based temporary power firm owns a 30 MW thermal plant in Muhoroni and raked in Sh326.2 million in sales after supplying 62.7 gigawatt-hours (GWh) in emergency electricity supplies to Kenya Power in the year to June 2015.
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