Ideas & Debate

Remove barriers to spur private sector investment

Steers are moved using a forklift at the Kenya Meat Commission's (KMC) Athi River plant in Machakos on April 4, 2017.  PHOTO | TONY KARUMBA | NMG
Steers are moved using a forklift at the Kenya Meat Commission's (KMC) Athi River plant in Machakos on April 4, 2017. PHOTO | TONY KARUMBA | NMG 

In my last column I wrote about how Kenyan family and other businesses are beginning to consider the benefits of obtaining support from external strategic partners such as private equity firms, relying on the capital and experience of such investors to fuel their ongoing growth.

And today I turn my attention to our parastatals and other government-owned enterprises to see how they too should benefit from such initiatives, or indeed from other kinds of full privatisation or public-private partnership moves.

The initial idea of the government investing in hotels, banks, insurance companies, sugar millers, creameries, abattoirs, retailers and other fields during the early post-independence period was noble and not unusual.

It was designed to build Kenya’s local capacity to take care of its own manufacturing, hospitality and other sectors, including the supporting financial and marketing ones.

Indeed our Industrial and Commercial Development Corporation, Development Finance Corporation of Kenya, Kenya National Trading Corporation, Kenya Industrial Estates and others, along with robust Co-operatives and crop marketing bodies, can be credited with taking Kenya ahead of many other countries that gained independence at a similar time.

The Kenya Meat Commission did a great job offering local farmers a ready market and consumers high quality meat products.

But today the products of private sector companies like Quality Meat Packers and Farmers Choice are far more prominent. And in the dairy industry Brookside has overtaken the New Kenya Co-operative Creameries as the largest milk processor.

Turning to the hospitality sector, can state-owned hotels such as Elgon Lodge, Kabarnet Hotel and Sunset Hotel Kisumu (never mind Maseno University’s Kisumu Hotel) match the host of international and local brands that provide such excellent facilities and service? And why cannot the government finally dispose of its holdings in the InterContinental and Hilton Hotels?

The more controversial holdings relate to entities such as Mumias, Uchumi and Kenya Airways, strategic national assets on whom large numbers of Kenyans depend and that have incurred huge losses thanks to poor governance and challenging market factors.

Over time not only has Kenya become an attractive destination for foreign investment – whether by multinational corporations or venture capital firms – but local investors and businesspeople have developed significant financial and technical capacity too.

In diversified and developed economies, as ours is increasingly becoming, the government has no business being in business. It is there to facilitate the private sector to conduct commercial activity in an enabling environment and to regulate it in such a way that consumers are well served.

And it is for the private sector to ensure that its operations are competitive, both domestically and in export markets, and that it creates jobs and pays taxes.

It is only in exceptional circumstances that government should own all or part of any business. For nowhere in the world have civil servants displayed the hunger or agility to survive in the cut-throat competitive world that is the private sector.

With state ownership, even partial, bureaucracy will inevitably reign; it is highly unusual for any public entity to be lean and meritocratic; and all kinds of procurement and other abuses will be likely.

With an election looming, now is not the time for dramatic privatisation initiatives or even for too many new Public-Private Partnerships.

But those charged with post-polls strategic agendas —not least in the context of Vision 2030’s Third Medium Term Plan due to launch in 2018 – must start planning now for decisive moves in such a direction.

For in that way the Treasury will no longer be called on to prop up faltering ventures — on the contrary, it will benefit from a much needed inflow of funds.

In addition, the government’s attention can then be more tightly focused on what government should be doing, worrying about health, education, infrastructure, security and other development and policy and regulatory activity.

Even in some of these areas there is plenty of opportunity for collaboration between the public and the private sector, but for this to be successful we must speed up our cumbersome processes and do a much better job of building mutual trust.