Is a thank you present bribery?

During my time days in the banking world in the 70s to the 90s, there was a peculiar tradition of Christmas gifts to bank managers from customers. The week before Christmas would see a flurry of activity as messengers delivered gift-wrapped baskets of assorted alcoholic beverages to the managers’ offices. I remember my favourite basket was from a firm of lawyers (who shall remain nameless) because what it lacked in quantity it more than made up in quality, with the choicest brandies and single malt whiskies. My household cellar was sufficiently stocked from these sources for at least three months.

The situation was slightly less sophisticated in the more rustic upcountry branches where the Christmas gifts were more likely to comprise chicken, goats and other forms of livestock or even farm produce.

According to an article by Dick Hedgestitled “When a Little Bribe Benefitted Everybody” published in the Old Africa Magazine on 25 October 2012, this practice has its origins in the automotive business in Kenya.

In the 1950s and 1960s, most of local new car outlets were owned by and affiliated to overseas manufacturers such as British Ford, Austin Morris, Vauxhall, the Rootes Group as well as German, French and Italian marques. As is the practice even today, the main overseas agents stocking spare parts for their vehicles had to keep 100 per cent availability to maintain the vehicles’ reputation. The slow-moving parts might take years on the shelves before they were sold, taking that long for the company to turn over their investment. In order to factor this cost and that of employing expensive expatriate senior managers, the overseas vehicle manufacturers marked up the price of their spare parts 10 times in the local market.

Unbeknownst to most people, the overseas vehicle manufacturers traditionally outsourced the production of many individual parts to suppliers with specialised equipment who enjoyed economies of scale as they serviced many other clients. The practice was further masked by bespoke, branded packaging of the spare parts for each vehicle manufacturer, making it look like the parts were produced inhouse.

Hassanali was an Asian parts dealer on River Road, Nairobi and he knew very well how the automotive supply chain operated. He purchased spare parts directly from the actual manufacturers and sold them locally at half the price that the main vehicle agents sold them. Hassanali only stocked the fast-moving items and that way could turn his investment around in three months.

The main agents launched a massive public relations campaign to persuade car owners to buy only “genuine parts” and reject the non-genuine pirated parts. That was being economical with the truth because the parts Hassanali was selling were sourced from exactly the same supplier as those sold by the main agents. Dick Hedges tells us that the reason for employing expatriate parts managers was that the overseas manufacturers feared African managers would succumb to Hassanali’s overtures to buy locally from him. He also admits that there were parts managers, like himself (he was parts manager at Rootes Group), who realised that Hassanali’s parts were not pirated at all and were identical to those fitted in new vehicles.

The local parts managers knew that they would benefit their customers immensely if they were to purchase identical parts from Hassanali, the only loss being the unreasonable profit of the overseas manufacturers. Hassanali knew that the parts managers would refuse financial inducement, so the great Kenyan tradition of Christmas gifts arose.

On Christmas morning one of the Hassanali brothers would appear at the Nairobi parts managers’ houses to distribute a pickup-full of gift-wrapped bottles of Johnnie Walker, Gilbey’s Gin and Three Star Brandy. Dick Hedges would receive enough alcohol to keep his household in booze for six months. Although he maintains he acted morally, he does not disclose whether he bought parts from Hassanali! Bribery is a demand and supply equation fueled by an incentive to create an equilibrium. In this case the incentive was created by the massive price differential between original equipment manufacturer’s and the local agents. Hassanali invented a subtle method of persuading parts managers to buy from him and this appears to have been socially accepted at the time. The practice spread to other businesses including banking.

In my view, the excessive mark up on spare parts and use of expatriate managers was also another form of transfer pricing to ensure that as much of the locally generated funds were remitted overseas.

Did the Christmas baskets influence my judgement? It happened in open court in a very transparent environment. In any event, those who gave the gifts were invariably good customers simply saying, “thank you” and I do not recollect receiving gifts from difficult customers. I do admit the gifts may have helped to round off any rough edges, if you get my drift!

Of course, this practice would be frowned upon today as rules of accountability and transparency have been tightened up.