Columnists

Choose specialized services to reduce development costs

idea (1)

Summary

  • Specialization, fortunately, exists to save businesses the time and money that they intend on putting into a costly infrastructure project.
  • Specialized investment in the industrial sector is important for the various industrialists striving to be leaders in their business.
  • Kenyan businesses continue to show incredible resilience in the face of unprecedented challenges.

Every business needs some sort of space. Whether it is an office where they can meet, or a place to put their equipment, machines and staff to physically manufacture a product, they need a place to call their base of operations.

While a number of companies have the financial muscle to set up their premises from scratch, most have suffered greatly from the economic impacts of the pandemic and are fighting for recovery in a post-Covid world.

There is significant capital outlay required to develop a physical space for a business. With high land costs that are still expected to rise, there is little advantage left for a small to mid-sized company to insist on building or buying its own facilities. It is estimated that building a basic warehouse in Kenya can cost anything between Sh34, 000 and Sh60, 000, for each square meter.

For a business that needs 1,000sqm of space, that translates to Sh34 million to Sh60 million on the structure of the warehouse and excludes the cost of purchasing the land, lawyers, professional consultants, government taxes, bank loan expenses among others.

In addition, the building maintenance costs, fittings, security, water, and electricity costs have not been considered by this point.

The current pandemic has redirected business focus in various ways. Deployment of capital into real estate development is no longer a top priority for many businesses. There are too many real estate unknowns and dynamics have changed. Many businesses can, at the moment, scarcely afford to sink more funds — in a lump sum no less — into buying and developing land and offsetting the numerous county and national government development fees, while still maintaining enough to keep staff emoluments going. Something will have to give.

Specialization, fortunately, exists to save businesses the time and money that they intend on putting into a costly infrastructure project and allowing it to be redirected into core business deliverables. Property developers exist at every possible segment of the market poised to deliver on what is their core business, but would be a side operation for a business owner in a non-real estate segment.

High-rise office developers know how to aggregate steel, concrete and glass to create beautiful offices in central business districts. Residential developers understand what a family needs, and how to improve the livability of a space. In the same breath, warehousing developers, such as Africa Logistics Properties, understand the needs of a company that wants an industrial space for storage, manufacturing, processing or assembling various raw materials and finished goods.

Industrialization remains a critical function to the growth of the economy and development of the country. It must be noted that developing quality industrial facilities plays a crucial role in industrialists’ business outputs, which in turn helps the country achieve the national target of 10 percent GDP growth per annum, as set out in Vision 2030 – the country’s development roadmap.

As the gateway to East Africa, Kenya needs as much support for manufacturing, supply chain and logistics as possible.

Specialized investment in the industrial sector is important for the various industrialists striving to be leaders in their business.

As the pressures of advancing technologies and the economic fallout of the Covid-19 pandemic continue to drive businesses away from the traditional methods of producing, processing, and storing goods in a sub-standard facility, they also spur advancement in handling supply chain requirements. Development of advanced warehousing facilities that not only supports today’s needs but also gives SMEs the opportunity to grow into tomorrow’s giants will be crucial to creating stronger businesses.

Businesses, by their very nature, are interdependent. A software developer, for instance, relies on the energy sector to get electricity to their home, and the manufacturer has to use raw materials from mining or agriculture. Throughout history, these businesses have grown to increasing degrees of specialization, focusing on depth rather than breadth to serve customers across multiple sectors.

Kenyan businesses continue to show incredible resilience in the face of unprecedented challenges. They and the Kenyan public in general, are working towards economic recovery, which calls for prudence in selecting investments that will allow them to build back better, rather than sinking capital into projects that are outside their core business.

Companies that are looking to the future will understand that the modern world, with its large number of specialized services, offers the opportunity to reduce costs and improve resource efficiency as they pursue growth and sustainability.