Why Nakumatt Holdings deserves government bailout
Nakumatt's branch at Galleria Shopping Mall in Nairobi. PHOTO | LI| MUTHONI | NATION MEDIA GROUP
What you need to know:
- The retail chain’s impact on the daily lives of people is significant.
- It is not the first, or the last of industry that we will see go through this in our times! Banks and airlines have recently been through this, leaving huge gaps with rippling effects on the economy.
- Whereas it is a reality that Nakumatt is where it is arising from a combination of management decisions and business environment factors, its financial stress has the potential knock-on effect that could ruin several enterprises in its ecosystem, including nascent small and medium-sized enterprises in Kenya and in East Africa at large.
With a market share of more than 25 per cent and gross revenues of more than $500 million (Sh51.85 billion) from 61 stores across East Africa, Nakumatt is a clear leader in the retail space, especially in Kenya and in the region.
The company has been innovative in the sector for a while now, making the desired step to change in meeting the ever-evolving motivations of consumers into the digital world of the 21st century, a reality for many discerning consumers from every segment of the society. The retail chain’s impact on the daily lives of people is significant. It is not the first, or the last of industry that we will see go through this in our times! Banks and airlines have recently been through this, leaving huge gaps with rippling effects on the economy. And this is not the last we will see of it.
Whereas it’s a reality that Nakumatt is where it is arising from a combination of management decisions and business environment factors, its financial stress has the potential knock-on effect that could ruin several enterprises in its ecosystem, including nascent small and medium-sized enterprises in Kenya and in East Africa at large.
GREAT EFFECT
It also has a great effect on shaping the confidence around the retail business environment and its dependencies. Its position in the market has risen beyond the interests of its shareholders, impacting the entire business environment of its stakeholders, including staff, business partners and their families, customers, financiers and regulators. An article in the Nation quoted the Principal Secretary for Industry, Trade and Cooperatives expressing the government’s concern at the closure of its branches in extracts of a letter to the retail chain management.
It states in part: “This news … has the potential of triggering panic in the wholesale, retail and manufacturing sectors and further complicating government efforts in stabilising the domestic economy that is already reeling from the effects of high inflation and rising prices of essential products.”
The response from the management to this letter sums it all up: “He ended the letter by requesting the government to bail out the troubled supermarket — just as it did with Kenya Airways and Mumias Sugar Company and miraa farmers”, adding that “If such goodwill can be extended to Nakumatt, we would be very grateful, considering the current situation is not of Nakumatt’s making whatsoever.” On this basis alone, and while it is true that there are ongoing negotiations for equity acquisition and cash injection from a private investor, I see the necessity of government intervention to save it in the interest of the economy and the public at large. There are several bottlenecks and counter- positions on this, especially in relation to the nature of its shareholding.
It seems unavoidable to consider regulatory policy and legislative interventions that would be applied to govern and shape enterprises of this nature, with an appropriate resuscitation package in the unlikely event of an imminent collapse that would use taxpayer funds for rescue packages payable over time. They could be in the shape of management or financial support or both.
There are models where other nations have done this successfully. Closer home, the Central Bank recently took some prudent steps to save the financial industry from imminent collapse with bailout and short term funding to operations to protect consumers. This was triggered by panic withdrawals from small banks following the closure of one of them. This was then explained as an emergency bailout fund aimed at calming down and injecting stability to gain market confidence in the banking sector.
TEMPORARY REMEDY
The intervention should not be seen as a gift to the affected institutions but as a temporary remedy applied to ensure prudent and accountable management of the businesses going forward, thus preventing and protecting public funds.
As much as it sounds unorthodox, these measures will save industry, enterprise and the country’s position as a conducive, considerate and supportive environment to do business. It will ensure that the country soldiers on to achieve an unrivalled tiger economic leadership position in the region. The industry is showing signs of haemorrhage and should not be left to go unattended, lest we look back with helplessness in the end.
Dick Omondi is a communications and regulatory affairs professional.
