What advances have been made in recent years to ease Customs bureaucracy and import duties?
ATUL SHAH: For us the most important steps rest with the efforts made to cut down on non-tariff barriers. It now takes just three days to reach Malaba from Mombasa whereas the same journey would previously have taken 10 days owing to numerous roadblocks and delays at weighbridges. As you can imagine, this also cuts down on the scope of corruption. With fewer roadblocks and police checkpoints there is less opportunity for unethical business practices. The ongoing efforts to standardise import duties across the region are also a key commitment that has enabled us to look ahead with optimism. However, more work needs to be done to facilitate reforms touching on the common external tariff structures across all members of the East African Community. Although this will take more time to accomplish, the real advances made so far have significantly increased the ease of doing business in Kenya.
What can be done to mitigate some of the biggest bottlenecks in infrastructure?
SHAH: The poor quality of physical infrastructure is a bottleneck for all businesses but obviously affects retailers more acutely than others. An example would be the unnecessary traffic jams witnessed around Nairobi and Mombasa. In the short term, we are considering undertaking distribution late at night. This can only happen in a secure environment, however traffic congestion is an increasingly severe issue, especially in Nairobi. This is why major infrastructural developments such as bypasses and railways will have a significant impact on the fast-moving consumer goods business.
Working with fast-moving consumer goods such as perishables underlines the need to eliminate as many bottlenecks as possible and streamline moving goods across the country. The new clearance system has helped immensely in this regard. All estimates and duties are logged and paid online, so that when a shipment comes into port you no longer have to take cash, stand in line and fill out paperwork. This both saves time and allows products to hit the shelves much sooner.
In which segments do you see the greatest potential for the sourcing of locally manufactured goods?
SHAH: In a globalised economy, opportunities exist for both local and international players. However, caution must be exercised by both sides when engaging in competition. Consumers have become more discerning nowadays and prefer quality and value. A local consumer will rarely purchase a poor-quality product just because it was manufactured in Kenya. This means that local industrial production must adopt international standards. Local manufacturers should seek to cover a global market rather than pursue local protection.
Returning to the issue of retailers, we simply provide a market for consumer goods and services as dictated by overall demand within the market. For this reason, we maintain an optimal mixture of locally as well as internationally produced products. Due to capital constraints, most retailers are reluctant to import goods and prefer dealing with in-country importers. On the other hand, this also helps to nurture and propel local entrepreneurs to the level of international trade.
How does fragmentation in consumer incomes impact growth within the retail sector?
SHAH: Realistically speaking, the level of consumer income fragmentation is not overly high. In my view, income fragmentation only occurs on three levels: the high end, middle level and low end. Mall patrons largely cover the high-end; corner shops, the mid-level; and the informal retail network, composed of kiosks, the low end. Such fragmentation does not affect growth in any negative way and actually guarantees stability.
Of course, humans are motivated to improve their economic environment, as was theorised in Maslow’s hierarchy of needs. Consumers at the lower ends are always striving to attain the next level that will allow them to transition from the informal to the formal.
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