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Our duka crisis, or why entrepreneurs must be guided

Monday October 19 2015

By BITANGE NDEMO
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This past week, I visited a number of places in Eastlands. My visit confirmed what I, and most Nairobi residents, have always known.

Most of the estates in Eastlands were well planned and most have all the amenities, including shopping centres, social halls, schools and dispensaries, among others. 

To my greatest disappointment, this type of planning has been discarded in nearly all recent developments. 

Nature abhors vacuums, so in place of shopping centres there is a noticeable chaos of dukas (shops) and kiosks selling virtually similar products, everywhere you look.

Take Buru Buru, for instance. Once a well-organised middle-income estate, it is now a labyrinth of small, unplanned, lean-to dukas facing the roads. 

Nearby, at Umoja, the yet-to-be-built major bypass on Outer Ring Road will have a tough time taking shape amid a muddle of dukas and kiosks that serve Umoja’s huge population, most of whom live in illegally extended dwellings. 

It doesn’t take an architect or civil engineer to tell you these unplanned extensions are weak. Actually, they are a ticking time bomb and could come down with a thud any time.

$10 BILLION IN DEAD CAPITAL

The story is the same on Juja Road. The result of too many dukas along the roads is an unbearable traffic jam, compounded by a multitude of idle, young people walking aimlessly across the roads.

Clearly, without thinking broadly on how to organise our economy, we are simply going backwards to the Stone Age in the midst of modernity.

While many may argue that people are trying to eke out a living from a desperate situation in our country, it is a self-destructive approach to development.

The free-market economy does not operate in such a manner that every person replicates what his or her neighbour does. Doing this leads to a market glut, with nobody making sufficient money to see him or her out of poverty. 

It is assumed that those who can’t compete will exit and that eventually, only the best will survive. Here it does not work that way.  

Those who fail don’t know they are failing and when they exit, new ones come to try their luck, doing exactly what those who failed did in exactly the same manner.

In the sixties and seventies, Kenyans with a little resource invested in rural dukas. Soon after, everybody replicated them.

The same thing is happening today in high population density areas like Eastlands. Even those who did not have dukas set up open-air versions outside the established ones and started selling similar goods.

By any casual estimation, we invested $5 billion to $10 billion into what is visibly, today, dead capital. The dukas are not good anymore, and the investment cannot be salvaged. 

Indeed most of them are used by Maasai cows to scratch their backs on as they graze around the city during a drought.

STREAMLINE THE VALUE CHAIN

There is a need to learn from our past failures and what is happening in developed countries. Dukas existed in the entire developed world, where they were called "mom and pop" shops. 

As in our case, they were largely family-owned, single-location businesses often occupying a small physical space. Some were profitable, but rarely scalable.

New business models emerged, especially with the advent of supermarkets, which destroyed many of these weak, unprofitable, small stores. They were then replaced by small franchises with centralised purchasing of supplies which gives them the necessary purchasing power. 

We must erase the peasant mentality from our heads and begin to deal with these emerging urban problems like the rest of the world.

Although new superstores are emerging in Eastlands, many of those with residences on busy roads are still building new illegal structures outside their own homes. They know someone will pay them rent, whether they are profitable or not.

Hawkers, too, set up on road reserves selling similar goods. It is a free-for-all. There are no regulations and no one to advise them on the impending competitive crisis.

If, for example, supermarkets were to leverage their purchasing power and lower the prices of their goods, most shops would suffer.

Some might even begin selling non-conventional, harmful products to sustain themselves. Already this is happening, with many youths joining the drug trade, either as peddlers or addicts or both.

Real entrepreneurship demands that you put your money where you have identified an opportunity, and the right opportunity is one where you can scale up and make more money.

However, this only happens if you plan and streamline the value chain, right from production to manufacturing through to the final product and delivery to the consumer.

This will create different jobs along the way while enabling those along the entire supply chain to make good money that can propel them out of poverty.

OPPORTUNITIES BEYOND THE DUKA

We must wake up to the realisation that the world is our opportunity and accordingly devise strategies for exploiting alternatives to the duka. It is perhaps the reason God gave us reasonably good weather throughout the year while denying it to others.

To exploit any form of opportunity, we need data. Just recently we complained that Ugandan eggs are killing our poultry industry because they are cheap. 

I set to find out why this is the case. It took about three hours to establish why we may be uncompetitive against the Ugandans. Chicken feed in Kenya is more expensive than in Uganda, a fact already published here.

This is because Kenyans import some of the products like cotton seed cake, maize bran, wheat bran, rice bran, palm kernel cake, groundnut cake and omena, which provide much of the protein (a key ingredient) in feed manufacturing.

This has to be transported from Uganda for processing in Kenya before being sold to farmers.

For Kenya to compete effectively, information has to be at the fingertips of farmers. They should be encouraged to start commercial production of these products or their substitutes, and take advantage of economies of scale to lower production costs.

Data is an essential part of new enterprises. It provides business intelligence, rationalises operational costs, simplifies predictability and strengthens competiveness. It is not easy for emerging enterprises to gather and analyse data for their own consumption.

We must either expand the role of National Statistics Offices (NSO), or specifically create special data points in productive government ministries to assist prospective enterprises with data capabilities.

This is how we can open up new investment opportunities that will minimise our affinity for dead capital.

Many enterprises have entry barriers, including heavy initial investment, and most countries invest in common facilities to enable a greater number of people become investors in such industries.

For instance, the government could develop industrial parks in every county headquarters. The main purpose of these industrial parks would be to focus our energies on value addition as well as building capacities in manufacturing. 

These would be similar to Tech Shops (a concept developed in the US to provide a playground for creativity). They are like prototyping studios.

We can begin with simple products that we use in our everyday lives and grow new enterprises from across the country. 

In Kenya, the furniture industry already shares machinery, but most of the technology in the sector is archaic and produces fewer products in a very competitive, increasingly quality-conscious market.

There is wisdom in incubating this sector and developing its capacity to mass-produce quality products. They will never break through the poverty celling if we leave them to continue with custom-built furniture, which is labour-intensive to produce.

Italians, who once led the world in hotel furniture manufacturing, have lost that leadership to the Chinese. If we need to make the impact in such low-tech yet labour intensive industries, we must begin to fight the big boys.

In order to do that, we must build sufficient capacity and guide prospective entrepreneurs on how to exploit the opportunity.

In a similar version, we should build incubation facilities within industrial parks to build capacity on mass production of textile products, light electronic products, jewellery, auto parts, downstream mining industrial products, food products and any other manufacturing capabilities for local and regional consumption.

Many opportunities too, lie in the service sector. They include local content development (especially the film industry), Business Process Outsourcing, e-commerce, arts, culture and sports. 

If we deliberately seek to develop different products out of all these opportunities, we shall streamline economic activities and benefit virtually all Kenyans.

We cannot surrender and hide behind the ethos of market economy. We must always challenge the status quo and interpret Western concepts in our own way. 

We should never deceive ourselves that all ordinary citizens will equally identify and exploit an opportunity without the knowledge and guidance of experts.

The resource we have that is fully developed is replicability. Once we see something, we can replicate it, which can help us to innovate. We would perhaps be best franchisees of any form of new product in the market.

George W. Bush once said, “I had to abandon free market principles in order to save the free market system.”

Let us be as pragmatic as Bush and challenge free market principles by teaching our folks how to freely see and exploit opportunity. This is how we shall give everybody a chance to prosper with freedom.

The writer is an Associate Professor at University of Nairobi’s Business School. Twitter: @bantigito