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Why warehouse crisis could slow down economic growth

Monday July 3 2017

A warehouse in Industrial Area, Nairobi. The country has experienced exponential growth in various sectors of the economy and population. PHOTO | SALATON NJAU | NMG

A warehouse in Industrial Area, Nairobi. The country has experienced exponential growth in various sectors of the economy and population. PHOTO | SALATON NJAU | NMG  

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Almost two-thirds of companies in Kenya are facing a warehousing shortage as investments in the segment remain low.

The 2017 Nairobi City County Permit Activity Reports from the Kenya Property Development Association reported that 2,303 planning permits were approved last year. Of these, only 199 were in the warehouse class, while commercial properties registered 809 applications.

A report released on Wednesday by Tilisi Developments Ltd, the first mover in Kenya’s emerging Grade-A logistics real estate sector, showed that almost two-thirds of companies in the country are facing warehousing shortages.

The survey was carried out between June 9 and 13, 2017. Some 52 respondents were interviewed by telephone across warehousing end-users covering companies in manufacturing and fast moving consumer goods, retail, pharmaceuticals, logistics and e-commerce sectors.

The interviewees were company directors and operational managers.

Of the 52 companies polled across sectors like manufacturing, fast moving consumer goods, pharmaceuticals, logistics, import, export, retail and e-commerce, 62 per cent reported that they had experienced warehousing shortage in the recent past.


“Of the 62 per cent of warehousing users that have experienced warehousing shortages, 35 per cent said they had to rent extra space, 10 per cent were forced to deliver the goods directly to the clients’ premises rather than store them, incurring extra costs, 12 per cent expanded their own warehousing space, while six per cent did not find any solution,” the report stated.

The companies polled also reported constraints caused by the quality of their warehousing, with 60 per cent of users, spanning both warehouse owners and warehouse tenants, highlighting quality issues.

These included poorly ventilated spaces, leakages, power shortages, and poor structural planning. These constraints was causing difficulties in accessing goods within warehouses.

Respondents said this had increased the rate at which their stock was getting contaminated. In cases where food and flowers were being stored, it was accelerating their deterioration.

“Kenya has experienced exponential growth in various sectors of the economy and population. This has been in contrast to the slow growth of quality warehousing to support and sustain it, leading to a country experiencing a demand that is vastly outstripping the supply,” said Mr Kavit Shah, co-chief executive of Tilisi Developments Ltd.

Half of the companies polled by Talisi said they had sought new warehousing facilities, but pharmaceutical and food producers reported a scarcity in warehousing with cold storage and with controlled temperature.

The international logistics companies also reported that modern, well-configured logistics space and height was scarce, with the majority of Kenya’s warehousing falling short of international standards.

The shortage has also affected horticulture, considering that Kenya is among the top five flower exporters in the world, alongside The Netherlands, Columbia, Ecuador and Ethiopia.

Official data indicates that horticulture was the second highest source of export revenue, with earnings rising by 9.2 per cent to Sh110.3 billion in 2016.

Tea remained the leading export commodity in 2016, with its earnings rising from Sh123 billion in 2015 to Sh124.5 billion in 2016.

Last year, Kenya exported flowers worth Sh70.83 billion, majority of them destined to the European Union markets.

Research has shown that poor cold-chain management sees about 20 per cent of the value of flowers wasted, equating to a loss of $100 million (Sh10.3 billion) for retailers, in addition to considerable losses for producers.

This has led to some firms developing their own storage space. But even these firms are now reporting space constraints.

Respondents with in-house storage space and proper planning said they had no issue with truck movement around their warehouses.

But respondents who were renting warehouses reported difficulties in both truck access and parking, with 40 per cent of the companies saying truck access to their warehouses was problematic.

The research also found that warehouses near airports and shipping docks were providing better quality facilities than those located away from towns.

This has led to higher demand for the urban facilities and rising rents.

“In achieving adequate storage, companies are being forced to turn to do-it-yourself solutions in real estate such as seeking building approvals, planning and servicing, adding new paper trails and raising profound infrastructure challenges,” said Ranee Nanji, co-CEO of Tilisi Developments.