Essar last week announced it was selling yuMobile to rivals Airtel and Safaricom after sinking more than Sh40bn in the operation which is yet to return a profit. FILE
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Essar Telecoms, Essar Energy’s planned exit and the placement of Sher Karuturi under receivership cast dark clouds over their ability to take on local challenges.
Tuesday’s disqualification of Olive Telecommunications from the list of companies competing to supply the Kenya government with laptop computers for schools and the impending exit of Essar from the local telecoms market have cast a dark cloud over the quest by Indian firms to expand their footprint in East Africa’s largest economy.
The developments came a few months after Essar Energy — another Indian corporate giant — sold its entire stake in Kenya Petroleum Refineries, arguing that it was no longer feasible to continue investing in a facility whose technology is obsolete in an inhibitive regulatory environment.
Essar, which trades in Kenya’s telecoms market as yuMobile, owns 50 per cent of Changamwe-based oil refinery. Both investments have not made a profit since Essar established a presence in Kenya six years ago.
Essar last week announced it was selling yuMobile — its only remaining telecom venture globally — to rivals Airtel and Safaricom after sinking more than Sh40 billion in the operation which is yet to return a profit.
Under the deal, Airtel will acquire yuMobile’s 2.7 million customers, and Safaricom will take over Essar Telecom’s infrastructure such as network towers.
Corporate India’s problems in Kenya deepened last month after CfC Stanbic Bank placed Sher Karuturi, an Indian flower firm, under receivership after the latter defaulted on a Sh383 million loan.
The Bangalore-based producer of cut roses has a farm in Naivasha, whose average daily output stands at about 1.5 million stems, which it exports to Europe.
Besides, Delhi-based Bharti Airtel’s Kenya business is yet to make a profit since the Indian corporate giant acquired it in 2010 from Kuwait’s Zain.
Essar, Karuturi and Bharti Airtel are behemoths in the home market but have struggled to replicate the success in Kenya.
Management experts attribute the failure by these firms to crack the Kenyan market to their overreliance on Indian expatriates to run Nairobi operations, resulting in a huge culture gap they have been unable to bridge.
“There appears to be an expectation gap between managers of foreign firms, the workers and their customers arising from cultural differences,” said David Muturi, the chief executive of the Kenya Institute of Management (KIM).
“This calls for localisation of operations, strategies and products to ensure they have well-grounded locals in the C-Suites who better understand the Kenyan market and its peculiarities.”
Essar made $39 billion in revenue from its interests in steel, energy, infrastructure, service, publishing and agribusiness operations in 2013. The company has a presence in 25 countries.
Bharti Airtel is the biggest mobile telecoms firm in India with more than 192 million subscribers.
It is also the leading operator by market share in several African markets including Niger, Malawi, Democratic Republic of Congo, Tanzania, Zambia, Chad and Burkina Faso.
Mumbai-based carmaker Mahindra, trading as Kamson Motors, was forced to exit Kenya about 15 years ago after a deal to supply the Kenya Police with vehicles through businessman Deepak Kamani went sour in the 1990s.
The company returned to the Kenyan market in 2012 through Xylon Motors, a wholly owned subsidiary of Simba Corporation, implying a change of tack in opting to use seasoned local motor dealers to sell its range of sports utility vehicles (SUV) and commercial vehicles.
The latest setbacks have, however, not deterred more Indian companies from trying to enter the Kenyan market. Top of the list of Indian firms that are trying to launch operations in Kenya is the Sanghi Group which has announced plans to set up a Sh12 billion cement plant in West Pokot.
But the Competition Authority of Kenya (CAK) last week faulted the 99-year exclusive lease that the defunct West Pokot County Council awarded Cemtech in 2012, saying the exclusivity period is too long and that rival players should be allowed in the area.
The Sanghi Group, a Hyderabad-based Indian conglomerate with interests in cement, power, textiles and publishing, owns 74 per cent of Cemtech — which plans to put up a plant with the capacity to produce 1.2 million tonnes of cement annually.
A number of Indian firms have, however ,overcome the Kenyan challenges to register growth and profit.
Indian tycoon Mukesh Ambani leads the pack of successful investors from the Asian economic giant, having earned about Sh6 billion from his Kenyan real estate business in the past three years.
Mr Ambani’s Reliance Industries controls 60 per cent of Delta Corporation, which has developed high-end office blocks and a mid-to-low-cost residential estate in Nairobi.
The billionaire sold Delta Centre, located in Nairobi’s Upper Hill, to the World Bank Group for close to Sh2 billion and the 21-storey twin-tower Delta Corner in Westlands to consultancy firm PwC and the University of Nairobi’s Staff Pension Scheme for Sh4 billion.
Tata Chemicals, the world’s second-largest producer of soda ash, with a production capacity of 5 million tonnes annually, acquired Magadi Soda Company Limited in 2005.
Tata’s Kenya subsidiary posted a turnover of $104.3 million (Sh8.9 billion) from exports of soda ash in the year to March 2013.
Kenya has three Indian-owned lenders — Bank of India, Bank of Baroda and Mumbai-based HDFC Bank, which established a representative office in Nairobi in 2008.
Besides, Kenindia Assurance, formed from the merger of Indian insurance companies operating in Kenya in 1978, is now ranked the eighth-largest insurance firm with a market share of 4.0 per cent.
Kenindia’s total gross underwritten premiums totalled Sh3.9 billion in the nine months to September 2013, data from the Insurance Regulatory Authority (IRA) shows.
TVS Motor Company, another Indian company that is headquartered in Chennai, has successfully sold its range of motorcycles, scooters and three wheelers popularly known as tuk tuks in Kenya through listed firm Car & General.
Indian pharmaceutical firms with operations in Kenya include Dr Reddy’s Laboratories, Emcure, Cipla and Cadila.
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