January 4, 2008

Political mayhem jeopardises country's role as African business hub

By Barney Jopson in Nairobi, Financial Times

The post-election turmoil in Kenya is likely to prompt a re-evaluation of the nation's reputation as a relatively stable hub for business in an often volatile continent.

Since the African boom of the 1960s, when Kenya emerged as a poster child of progress for a continent filled with optimism, it has been a regional base for multinationals including Barclays, British American Tobacco, Diageo and Unilever.

But companies that have invested heavily in offices, factories and distribution networks are now likely to reassess their security and logistics arrangements and address the bigger issue of their commitment to Kenya.

Similar questions will be asked by fund managers and private equity investors who dived into the Kenyan stock market and took stakes in unlisted companies last year as Africa attracted western groups looking for higher returns than those in developed markets.

Betty Maina, head of the Kenya Association of Manufacturers, said the fierce post-election violence, which has included widespread bloodshed and looting of shops, was "bad, bad, bad" for business. "Nobody can open their shops until the insecurity and chaos have finished. I hope it won't last for long, but the anger is deep."

Chris Kirubi, a prominent Kenyan businessman, said: "This country has been known as a bedrock of stability, but we're losing our reputation. We were in the middle of take-off, and the economy was growing at 6-7 per cent, so this is very sad."

Kenya has east Africa's most diverse and energetic economy, powered by a strong manufacturing base and fast-growing tourism, telecoms, financial and horticulture sectors. President Mwai Kibaki's hands-off approach to business won praise for facilitating economic advances.

Only days before Christmas, Helios Investment Partners, a London-based private equity group, had received approval to buy a 25 per cent stake in Kenya's

Equity Bank for KSh11bn ($173m, €118m, £87m). Also in recent days, France Telecom sealed a $390m (€267m, £196m), deal to buy a 51 per cent stake in Telkom Kenya, the former state monopoly.

One long-time adviser to foreign companies operating in Kenya said the message was to avoid panic. "It's not the time to start thinking about repatriating your money. It's a time to hang in there and hold tight. But that's easier said than done when everything seems to be falling apart around you.

"Business people should be talking to both sides," said Mr Kirubi, referring to President Kibaki's government and the opposition movement of Raila Odinga.

"We should show the politicians how expensive this is. You know politicians are only looking for personal gains, but the business community is thinking about the welfare of the country."

The effects of disruption to the Kenyan economy will

be felt across the region. Uganda, Ethiopia, southern Sudan, Rwanda, Burundi and the Democratic Republic of Congo all rely to varying degrees on Kenyan manufactured products, fuel and other imported goods that are transported across the country from the port of Mombasa to its neighbours.

The effect of the postelection chaos on business will not become clear until companies begin to reopen later this week. The Kenyan shilling has not traded since before Christmas and the Nairobi stock exchange has been closed.

"You will probably see a shift in the way people think about Kenya," said one banker who works on African deals. "Until last week, Kenya would have had one of the lowest discount rates on the continent," he said, referring to the expectations of political risk factored into stock-market valuations. "But now, who knows?"

The post-election mayhem has led to the initial public offering of Safaricom, the country's largest mobile phone operator, being put on hold. This month, the government had planned to sell 25 per cent of the company - part-owned by Vodafone of the UK - in an offering that had been forecast to raise KSh30-40bn and would have been east Africa's biggest.

Copyright The Financial Times Limited 2008