Don’t underrate likely impact of Nasa’s products boycott on firms

Friday November 10 2017

PRODUCT BOYCOTT

Suna East MP Junet Mohamed, and other members of the National Resistance Movement's Parliamentary wing, addresses a press conference at their Okoa Kenya office, Nairobi, on November 3, 2017. NRM announced a boycott of Safaricom, Brookside Dairy and Bidco products. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP 

By ODHIAMBO RAMOGI
More by this Author

The year was 1956. Martin Luther King Jr was leading a year-long bus boycott in Montgomery, Alabama, in the struggle for racial equality.

Opposition leader Raila Odinga was an 11-year-old boy closely observing his father’s political moves.

Sixty-one years later, Dr King is a national symbol of civil rights in his country.

Mr Odinga starts the Montgomery-style struggle with the hope of achieving similar results in independent Kenya. What if he succeeds?

INDEPENDENCE
About a week ago, the National Super Alliance (Nasa) announced a boycott of Safaricom, Brookside Dairy and Bidco products. It is not clear how long the boycott will last.

Economic boycotts tend to succeed against the odds.

A boycott of English goods by the American populace in the 18th century resulted in independence.

Mahatma Gandhi’s non-violent boycott of commercial salt and a march to the sea led to significant losses and, ultimately, India’s independence.

The American civil movement, led by Dr King, made great strides in equal rights for all races in the United States.

Boycotts succeed because they hit at the heart of capitalism — free trade.

SAFARICOM

In its 2017 annual report, Safaricom announced a profit of Sh48.4 billion, being 22.75 per cent of total revenue.

In essence, if you take away a quarter of the firm’s income, it will undoubtedly plunge into the loss-making territory.

Safaricom is one of the unique economic entities this side of the Sahara that delivers super profits.

The rest deliver profits that are way below 20 per cent of income.

If the election boycott by Nasa is an indicator of the coalition’s following, then chances of failure are slim.

JOBS

Assuming they control half the population, even if only 80 per cent of their followers oblige, there will be catastrophic economic results.

Workers will be laid off for these firms to remain afloat.

The firms are likely to default on bank loans and workers’ morale will go down.

The economic doom is cyclical and, once in motion, can bring down even the biggest firm in east and central Africa.

More importantly, the boycott spirit is contagious.

CONSUMPTION

If the public can do without a certain product, which they deem important, they will realise that they can dispense with more products and save more.

Thus, while the boycott might be on one item, the anti-consumption attitude tends to spread wider.

It is reported that the Montgomery bus boycott also led to fewer travellers using trains and fewer patrons in restaurants.

At a time when Kenyans have held their incomes for almost a year of electioneering, shunning consumption is becoming a hobby.

The companies targeted by the boycotts are not stand-alone units that have little or no influence in the economy.

DISTRIBUTION

M-Pesa has an elaborate network of over 200,000 agents. These rely on Safaricom’s business to survive.

In addition, many tech businesses rely on Safaricom’s network for their operations.

At the same time, Brookside and its subsidiaries, as well as Bidco, have a multi-level distribution web across the region.

Boycotting these companies means exposing their distribution underbelly.

At the distribution and agency level, it is generally expected that the agents and distributors will simply shift allegiance to the preferred alternatives.

SHARE PRICE

Losses expected here will be incurred by super agents who have heavily invested in their businesses and major distributors with excess stock.

Moreover, milk companies have a long chain of farmers who will bear losses without a soft fallback.

On the investment angle, Safaricom, the only listed company in the group of boycotted firms, has survived a bad week in the market.

The share price has dropped by a shilling. For the giant telco, the loss is negligible. However, doomsday is looming.

PRICE WARS
We are now faced with the reality of a price war among the brands.

Safaricom is expected to make changes to its senior management and adjust its tariffs to try and keep its market share intact.

Brookside has reportedly begun rebranding and lowering prices of its products in parts of the country.

If the boycott is prolonged, staff layoffs are inevitable.

The price wars will ultimately benefit consumers in terms of higher quality services and lower costs.

But the gains from the price wars will soon be wiped out by higher taxes as the government tries to make up for lost revenue in the affected companies.

Mr Ramogi is an independent analyst. @Odhiamboramogi