alexa Foreign investors smile as locals traders suffer - Daily Nation

Foreign investors smile as locals traders suffer

Saturday August 24 2019

foreign investors

The Chinese trader arrested on May 31, 2019 while selling second-hand clothes illegally at Gikomba market in Nairobi. Many foreigners are running businesses without valid work permits. PHOTO | FILE | NATION MEDIA GROUP 

JAMES KAHONGEH
By JAMES KAHONGEH
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Before their arrest last week, Wang Yalan and Wang Haijian, both Chinese nationals, had been operating an illegal distillery at Green Park estate in Athi River, Machakos County, for weeks.

From this elaborate processing plant tucked away in the posh estate, the Chinese duo was manufacturing and packaging Nan Wang Te – a Chinese equivalent of chang’aa or busaa – and minting profits.

Detectives from the Directorate of Criminal Investigations pounced on them, bringing the curtain down on the illegal business they had operated without detection.

The two were arraigned on Monday even as the police sought more time to verify if they were licensed to run a distillery in Kenya.

This latest incident has stirred once again the touchy debate of foreigners manipulating systems to work and run businesses in the country.

To trade in Kenya, the Investment Promotion Act (2004) requires foreigners to invest “at least $100,000 (Sh10 million).”

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The Act also says that the investment should be “lawful and beneficial” to the country through job creation, skills upgrade and transfer of technology.

WEAK ENFORCEMENT

When they engage in such small-scale manufacturing, retailing and even hawking goods in local markets, some foreigners, notably the Chinese, are clearly operating illegally.

Lax trade laws and failure to enforce investment regulations are largely to blame for the rising number of foreigners doing ‘illegal’ business in Kenya in the past few years.

Corruption among government officials does not make things any better.

Kenya, for instance, does not have a clear classification of foreign traders, creating confusion about who should and should not do business within its borders.

The result has been a steadily swelling trade imbalance between local and foreign traders – with Kenyans getting the short end of the stick.

Although traders have consistently decried unfair competition from foreign investors, the State has dragged its feet in enacting stronger legislation and reinforcing existing laws for their protection.

As of 2017, the trade deficit between Kenya and China stood at Sh390 billion, according to figures from the Kenya National Bureau of Statistics (KNBS).

COMPETITION

This enormous trade gap may not be closed in the foreseeable future, but this is far from what Kenyan businesspeople, especially small-scale traders, are worried about.

“They are not just aggressive; they are literally driving us out of business.” These are the words of Virginia Maina, a trader in the sprawling Kamukunji market in Nairobi.

She is referring to the growing influence of Chinese nationals in small-scale trade.

At first, Maina isn’t keen to talk about the trade threat that has sent waves of panic across the local business community.

She cuts the figure of a disoriented and angry, but mostly helpless, person.

We are at her shoe store on the first floor of Safiri Trade Centre in Kamukunji. This store looks crammed. Shoes in all designs and fits fill the racks that extend to the roof.

Others are in sacks and boxes and others against the wall. More shoe boxes occupy the small balcony she shares with the neighbouring shop.

A cursory glance tells you that this sea of footwear would fetch a good profit once sold.

COUNTERFEIT

With the government’s heightened crackdown on contraband that has had the ripple effect of imported goods being delayed at all entry points, stocking up one’s shop is any trader’s delight.

But Maina makes a rather terrifying revelation: Half of these shoes are dead stock, and the Chinese are to blame.

According to her, the Chinese manipulate or imitate existing shoe designs (usually the creative work of traders and their partners) which they then get manufacturers back in China to mass-produce.

When the imitations arrive in the local market, they sell at lower prices, knocking traders with genuine designs off the market.

Another shoe trader, Anastacia Kamiru, claims that the Chinese sometimes “create propaganda” around a brand, dismissing it as a fake “even when it has been selling as a genuine brand for long. You (have to) withdraw the said design from your shelves as soon as possible to avoid losing customers,” Kamiru says.

This is how retailers end up with loads of dead stock in their stores, she adds.

Women’s shoes and other fast moving goods are the main targets of this cut-throat trade technique.

MTUMBA BUSINESS

As local traders abandon the said design, Chinese wholesalers then ferry in the same brand with minor alterations, or sometimes none at all.

“If the Chinese can manufacture goods back in their country, import, distribute and retail them to Kenyans, what then is the role of the Kenyan trader?” poses Kamiru.

She goes on: “When you retail shoes at the price of the point of manufacture, how am I expected to sell the same shoe after paying import duty, taxes and the transport cost?”

Her frustrations mirror those of thousands of other traders who feel short-changed in the trade equation.

Using their strong financial muscle and networks in China, the Chinese pull the strings of the supply chains of various goods, including mitumba clothes, from importation, wholesale, down to retail.

For months, traders in Kamukunji and Gikomba market, Dubois Road and Luthuli Avenue have raised the red flag over the aggressive Chinese traders whose entry has caused their businesses a fair amount of turbulence.

They say the Chinese’s infiltration of the second-hand clothes business, for instance, has not only hurt their profit margins but also massively undercut them from the only business they have done for years.

DEPORTATIONS

The Kenya Worldwide Importers and Traders Association (KWITA) estimates that since last year, 5,000 businesses have folded due to unhealthy competition from foreign traders.

“What business do foreigners have repairing phones on our streets? Let them manufacture the phones but leave the repairs to our youth,’’ says Ben Mutahi, the KWITA chairman.

In June, frustrated traders protested, setting off an uproar among Kenyans.

The din reached the authorities and the government was jolted into action. A couple of deportations later, the Chinese hastily disappeared from the scene.

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Across the city, in Kilimani, a stone’s throw away from Yaya Centre, a Chinatown has been running for a few years now.

Here, tens of kiosk-size restaurants line up, selling both Chinese and Kenyan cuisines.

The heavily guarded compound, dormant in the morning and lively at noon, is now a popular eatery.

A number of Chinese nationals sit in groups on the benches in the small yard, basking in the mid-morning sunshine, chatting animatedly.

We choose one restaurant named Tang Bao. The kitchen is open-plan, the sitting area sparsely furnished with plastic chairs and three tables. When full to capacity, it can accommodate only 10 people.

This bistro serves mostly beef, fish, duck, rice and chicken. Though Chinese, this is the size of the regular food kiosk in Nairobi.

The prices are also moderate. Spicy beef bones, for instance, go for Sh300, soup for as little as Sh100 and chicken at Sh250.

WORK PERMITS

Curiously though, the door remains half-closed even over lunch hour – an oddity for an eatery.

A Kenyan man who identifies himself as Edward attends to us.

He is the only attendant here. Upon enquiry, we are told that the Chinese seated outside are also staff, mostly chefs or assistant chefs.

“A good number of them work here without valid work permits. The majority of them came into the country during the SGR construction. They are not allowed to engage in any other business,” Edward says.

The Chinese masquerade as patrons to escape notice of the authorities and avoid arrest for engaging in trade without requisite licences.

When I ask why the door remains half shut, I am informed that this is to keep away city county authorities who occasionally raid the area in search of Chinese people working without permits.

“They hire Africans to run their restaurant because it’s easier for us to deal with county authorities. County officials don’t bother us at all as long as you have a proper medical letter to handle food,” an attendant at the adjacent Chong Win Chicken Soup tells us.

CHINA-MADE

Business permits with the Nairobi County insignia hang near the entrance.

How these businesses acquire permits and the criteria used by the county government, and whether the traders are scrutinised, is not clear.

Kamukunji Street in downtown Nairobi is a haven of trade any given day.

Merchandise moves in here in truckloads, from shoes to kitchenware, bedding and an assortment of other household goods.

Most of these goods, we learnt, are China-made, and are supplied from Chinese warehouses based at Industrial Area.

“They (the Chinese) no longer have shops here,” John Kiarie, a handcart operator in Kamukunji, says.

“There are only two or three Chinese shops here, but these sell only nets and gowns on wholesale terms,” he adds.

Before the protests from local traders, some foreigners operated warehouses and wholesale stores at Kamukunji.

“They would take an entire section or floor of a building and stuff their wares. In the few months they were here, they had pushed up the cost of rent. Landlords preferred them to local tenants because they could pay for space several months in advance,” Maina recounts. These warehouses have now moved to Industrial Area.

BLEAK FUTURE

On Dubois Road in Nairobi, the epicentre of Kenya’s jewellery and cosmetics trade, there are hardly any Chinese in sight.

However, some sources indicate this beauty market is run almost exclusively by Asians, who import and supply these products through their Kenyan proxies.

Traders are reluctant to talk about the presence of foreigners in their midst, primarily for fear of reprisals from their suppliers, the Saturday Nation learnt.

“I have never seen any Chinese here. The shops here are owned by Kenyans,” a female shopkeeper at one of the shops tells us.

While traders applauded the June decision to eject illegal traders from the country, they note that the deportation approach falls short of addressing long-term concerns.

“Hundreds of other foreigners may be trading in other parts of the country unregulated,” claims Mutahi.

“Give it five years and local trade will collapse if appropriate legislation is not enacted to protect Kenyan business people,” warns Mutahi.

He blames the government for what he terms ‘exposing local traders’. “Ethiopia and Tanzania don’t allow foreigners to trade without local partnerships. Why is it so easy for foreigners to set up businesses in Kenya?” Mutahi poses, arguing that vetting of foreigners who wish to do business in Kenya should be more rigorous.

CARGO CLEARANCE

Protests against Chinese encroachment in the local business space may have only become louder and more sustained in the last two years, but according to Mutahi, the uproar started much earlier.

“We first demonstrated in 2010 to protest their invasion. At the time, few Kenyans understood our agenda. Kenyans can now see the damage wreaked by the Chinese,” Mutahi says.

Their agony has not been helped by the delay of cargo at the Mombasa port and at the inland container depot (ICD), as the government tightens the noose on imports in its intensified war on contraband.

This stalemate has put traders between a rock and a hard place.

In May, President Uhuru Kenyatta made an impromptu visit to the ICD to learn first-hand why traders’ cargo was taking too long to be cleared.

NO ACTION TAKEN

He ordered the agencies responsible to speed up clearances. Three months later, the same delays are rampant.

“Our cargo takes longer than before to arrive,” says Maina. “You can’t run an empty shop. This is why we’re forced to buy from Chinese wholesalers, even with the thin profit margins.”

Two months ago, Nairobi Senator Johnson Sakaja complained that foreigners were driving local traders out of business and demanded that the county governments of Nairobi, Mombasa, Uasin Gishu, Kisumu and Nakuru revoke illegal business and work permits held by foreigners.

Noting Kenya lacks a clear classification of foreign traders, Mr Sakaja gave the authorities 14 days to withdraw the licences. No action has been taken since.