Have we resorted to nationalising foreign firms investing in Kenya?

Tuesday May 22 2012


By JAINDI KISERO [email protected]

This is confiscation by another name. How do you wake up one morning and order a foreign investor to sell his shares to third parties.

When the government insists that the French multinational, Lafarge, must dilute its shareholding in the East African Portland Cement Company Ltd, does it have any specific buyers in mind?

According to a story in the current issue of our sister paper, The EastAfrican, the Competition Authority of Kenya has just given Lafarge an ultimatum to either dilute its shareholding in the cement company or be forced to do so.

The authority has accused Lafarge of “unwarranted concentration of economic power in the cement industry”.

The government holds 25 per cent shares in the company, Lafarge 41 per cent, and the National Social Security Fund 27 per cent. The government is represented in the board by two permanent secretaries.

The specific allegations against Lafarge by the authority are the following: First, that its subsidiary, Bamburi Cement Ltd, is the leading cement manufacturer in Kenya.

Secondly, that it holds 41 per cent in East African Portland, making it the single largest shareholder in this rival firm.

And finally, that Lafarge has two representatives on the board of Portland, enabling it to know the strategies of its rival.

We have comprehensive anti-trust laws. The situation the authority is blaming Lafarge for is due to ineffective application of the laws.

In this country, anti-competition laws are honoured more in the breach than in practice.

The consequence is that “unwarranted concentration of economic power” has become the norm in the manufacturing and service sectors.

Just look at the structure of the beer industry, the soft drinks sector, the maize milling industry or even the media and banking industries.

By singling out Lafarge, the authority is guilty of selective application of the law.

Concentration of economic power is more the excuse rather the real reason why the government wants Lafarge to reduce its stake in East African Portland.

Clearly, the competition authority is just being brought in to “discipline” Lafarge which has been dragged into a power struggle that has been going on since December last year.

Here is the backdrop to this intriguing saga. In the past six months, the East African Portland has been the battle-field for a bruising struggle pitting the Ministry of Industrialisation and the company’s directors.

The genesis of it all was a disagreement over the adjudication of a multi-billion shilling tender for a new kiln the board and management wanted to award to a Korean company which emerged top in the competitive bid.

Unable to influence the board, the acting minister for Industrialisation, Mr Amason Kingi, suspended it in December last year.

Simultaneously, Industrialisation permanent secretary Karanja Kibicho, fired off a letter sending home the company’s managing director, Mr Kephar Tande.

The rebellious directors would not play ball. They rushed to court and sought an injunction against government interference.

President Kibaki was also dragged into the murky affair. He degazetted the chairman of the board and named a new one. The directors went to court again and contested the President’s move.

The stakes went a notch higher when the High Court made a ruling after hearing both sides.

The judgment by Mr Justice Mohammed Warsame makes compelling reading on the subject of corporate governance of companies in which the government is a shareholder.

He wrote: “There was no authority or power on the part of the President to make the Gazette notice firing the chairman of the company.

“In my view, one director cannot suspend a fellow director representing a rival shareholder with separate and distinct rights”.

Another attempt at disciplining the rebellious director was made when the government brought in the Efficiency Monitoring Unit to dig up dirt, and seek the ammunition with which to discipline the directors.

How can one shareholder (the government) unilaterally bring in government auditors to look into the affairs of fellow directors representing a rival shareholder with separate rights?

The Ministry of Industrialisation must be restrained.