Tuesday, October 03, 2017

It's the corruption, Sir.

We have no choice than to think, work and produce like other global citizens. We need more of Safaricom and The Java Coffee Houses. Companies that understand that they are playing at the global stage and benchmark with the best. The one man-heroics will be history. What a price to pay for state nurtured mediocrity! -- Jua kali, the weed killing Kenyan formal economy
In Kamukunji, in that zone bordered by Landhies Road, Kamukunji Road, NACICO Plaza, Kamukuni Secondary School, the Nairobi River and Lamu Road, you will find jua kali manufacturers of metal boxes beloved of all Form One students on their way to boarding school, chicken feeders, roof gutters, wheelbarrows, two-wheel trolleys, window frames, doors, shovels, chips fryers, nyama choma grills and dozens of other manufactures. The cacophony in this zone is sometimes overwhelming, the dust incessant. In this zone are employed hundreds, directly and indirectly, as manufacturers, salesmen, food and beverage vendors, transporters and medical practitioners. This zone has remained virtually unchanged for nigh on forty years.

Business and Government have a symbiotic relationship; neither can exist effectively without the other. In both are constituencies of special interest groups, determined to maximise returns, sometimes at the cost of the overall system. In Government are to be found men and women willing to relax the rules for an unlawful fee. This is known as rent-seeking. In business are to be found men and women willing to pay this fee in order to skirt around rule and regulations so that they can maximise returns on investment. It is simply not true that the jua kali sector is single-handedly responsible for keeping Kenya back; the active participation of public officers cannot be gainsaid. If Government had not relaxed the public transport rules that applied against the Kenya Bus Service, matatu culture may not have gripped every segment of the economy like it has today.

The secret sauce to the disfunction is, of course, political corruption. The Kenyan administrative state did what all administrative states usually do: it thrived by expanding the areas of commercial activity that required licenses and permits by publishing ever more rules and regulations, both at national and municipal level. With this growth in regulation there was a corresponding growth in the power of bureaucrats -- the erstwhile administrative officers of the administrative state. And this power was exercised in many ways, the worst being the power to "look away" for a fee whenever a businessman wanted to skirt around the rules and regulations. When the Kenyatta government asked the city council of Nairobi to "allow" matatus to operate in the city, this was an example of the administrative state allowing the relaxation of established standards for political benefit. When the Ndegwa Commission recommended that civil servants could engage in business or own property, this was the beginning of the end of the administrative state and its takeover by the political classes. From then on, politicians in need of campaign war chests used and abused their administrative powers, further entrenching matatu culture in commercial activity.

By all accounts, Kamukunji's jua kali manufacturers could have grown into formidable large-scale manufacturers if the rule and regulations in the sector were applied fairly and consistently. It is a truism in life that the longer you do something, the better you get at it, and the higher the quality of your product. Some of the industrial designs by manufacturers in Kamukunji have taken years to perfect, whether it is in manufacturing systems of final products. But because of the collapse in the values and principles of national governance that have led to the disfunction in the fair application of rule and regulations, even if a jua kali manufacturer managed to register his or her designs with the Kenya Industrial Property Institute or obtain trademark recognition, he or she is not guaranteed protection either by the administrative or political officials in Government, or a fair hearing and a just outcome in courts of law. And without protected intellectual property to his or her name, he or she is unable to access credit or finance from commercial lenders and thus business growth will eventually hit a plateau from which it will not surpass, especially when his or her industrial designs are copied and applied by other jua kali manufacturers. This cycle has become a permanent feature of the jua kali business environment.

Two examples of the unfair environment in the business sector will suffice. In 2008, Safaricom was sued in relation to an upgrade to its MPesa platform. If Safaricom had not been the colossal financial behemoth it was even then, the challenge may very well have succeeded. But the intellectual property at the heart of the suit was not registered and was most likely unprotected. Another example is the protection from competition sought by a powerful middle east company that holds the rights to Carrefour in Kenya. Majid Al Futtaim Retail has the cash to fight this battle while most of the small-scale retailers it has in its sights will give up if they want to stave off insolvency. Now while the man accusing Safaricom of stealing his intellectual property and the Two Rivers Mall's small-scale businesses may not be jua kali, they share the same challenges that jua kali manufacturers face: when bigger and more "valuable" companies attack, they don't have the capacity to fight back or protect their commercial interests. This is not because of their jua kali nature but because of the matatu culture that privileges some business interests over others.

Kenyans don't suffer mediocre manufactures or services because of the inherent mediocrity of the jua kali sector. Kenyans suffer mediocre products because the business environment, jua kali and otherwise, is regulated with the private interests of the regulators in mind more than the overall health of the sector in general. If the regulators protected the interests of all businessmen equally, without picking favourites, they would have greater incentive to formalise many of their activities, if not all, and this would raise the standards of their goods and services. The obvious first step is to crack down on the officials in regulatory agencies, both administrators and political appointees, who are in it for the rents their power affords them. Until that happens, not even formal business colossi like Nakumatt will survive.

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