SkyscraperCity Forum banner

NAIROBI: Africa's new HQ for multinational firms

169K views 827 replies 101 participants last post by  lianat 
#1 ·
Nairobi, Africa’s new HQ for multinational firms​

Global firms are looking to make the city the fulcrum of their continent-wide operations as they race to be part of Africa’s growth story.

Nairobi is fast becoming the African home of choice for multinational companies, especially those in the services sector, looking to grow their presence on the continent.

Pfizer, the US-based pharmaceutical company, PricewaterhouseCoopers, and Posterscope, an outdoor advertising firm, have in the past seven days unveiled plans to establish a regional hub, recruit staff and set up shop respectively in Kenya’s capital city last week.

In the past one year, global heavyweights in the service industry such as IBM, Google, PwC, advertising agency WPP, Bharti Airtel, Nokia/Siemens, Huawei, Procter & Gamble, Biersdoff, Barclays and Stanchart have announced plans to either set up regional hubs or transform their local operations to serve sub-Sahara Africa.

Several factors work to the benefit of Kenya and the other East African states too. First, the formation of a Common Market is helping create a strong internal market with a population of 130 million and a middle class estimated at 30 million consumers. With South Sudan, which has a population of 8.4 million, expressing interest in joining the EAC, and Kenya opening up its northern frontier through the Lamu Corridor to serve Ethiopia, which has a population of 84 million, the region now boasts a potentially connected internal market of 240 million people. This is way above the 150 million mark that experts say a country or a bloc needs to be a major world power.

The second factor is the peace dividend that has come with the ending of most of the civil wars in the Great Lakes. This is making the region a safe bet to invest in. The peace dividend has seen homegrown African multinationals such as Ecobank, Stanbic, UBA, MTN, KCB and Equity pursuing a more aggressive expansion strategy in these markets, which are similar to their home markets. Global multinationals too, like Pfizer and IBM, are smelling opportunity in the region.

Pfizer sells mostly antibiotics, cough syrups and anti-fungals. The drugs are finding a ready market as the East African population grows — at an estimated 3.5 per cent in 2011.

The hub will serve as a legitimate supply system of products, bringing us closer to the market and reducing the total accumulated cost per product,” said country director for Nigeria and the East Africa region Enrico Liggeri when launching Pfizer’s hub last week. Kenya’s healthcare industry has attracted private equity investments that have helped some of the insurance service providers and hospitals expand.

In 2009, IBM opened an office in Nairobi to meet the increased demand from clients in both the private and public sector in East Africa and across the region.


The clincher for IBM, which previously had little interest in sub-Saharan Africa, was winning a multimillion-dollar contract to manage Airtel’s IT infrastructure across 16 African markets. IBM is expected to hire 2,000 workers to serve its continental business. Airtel too wants to have the hub of its African operations in Kenya and is currently planning to put up a headquarters in the city.

Another factor that is acting in the region’s favour is the massive investment that EAC governments have put in to build fibre-optic cables, which has boosted Internet speeds and connection levels.

Unlike in manufacturing – where cheap power, water and raw materials are key – the global services industry thrives on extensive and reliable airline connections, a comfortable but affordable location, fast Internet connections and a deep pool of skilled talent.

Operational centre

This is why international firms are looking to make Nairobi the fulcrum of their continent-wide operations as they race to be part of Africa’s growth story. One of the biggest pluses for Nairobi is its central location on the continent. This hugely favours the national carrier, Kenya Airways.

South African Airways, a key competitor, is disadvantaged by the longer distances it must fly to cover the rest of Africa. Indeed, KQ has a bold, if not overly ambitious, target of flying to every African capital city by 2013. If it hits this target, business executives will find it much easier to reach any part of the continent from Nairobi.

This will mean better revenues for KQ because Africa remains its most lucrative market, where it enjoys healthy margins and little competition. It generated about half of its $953 million revenues in Africa in the financial year ended March 2011.

It also means that the majority of business executives traversing the continent will find their way back to Nairobi, the airline’s main hub. The airline’s expansion has already created a demand for scarce hotel rooms, which according to a report released by Mercer, a human-resource consulting firm, is among the highest in the world. The growing demand for accommodation and conference facilities has encouraged global hotel chains to set up in Nairobi to plug the supply deficit. Rezidor Hotel Group, owners of the Radission brand, are putting up a hotel in Nairobi, joining about 10 other local hotels coming up.

Investigations by The EastAfrican show at least 2,500 new bed capacity will be created in the next year in Nairobi alone.

Kenya is also stepping up its efforts to improve infrastructure, with the ongoing road works, which will make it easier to travel within the capital city. Other infrastructure projects supporting the business environment in Nairobi include the laying of infra-red cables allowing for faster Internet connectivity.

The services industry needs fast Internet connectivity because it allows for Internet banking and easier communication such as web conferencing with the Western world.

Multinational firms like Google are also finding it easier to recruit in Nairobi where many say there is a deep and broad pool of talent from banking to technology.

It seemed to be the easiest place to get the talent that we needed,” said Joe Mucheru, Google “lead” for sub-Saharan Africa on why the technology company first set up in Kenya before spreading to other Sub-Saharan countries.

Talent is a big concern for the multinationals and the existence of a strong mobile technology applications innovation hub that has produced products like M-Pesa and the various Google map based apps is working in Kenya’s favour.

We are still way ahead — relative to the rest of sub-Saharan Africa — in terms of graduates being produced every year,” said Gitau Githongo, a Nairobi based economist. “This means that you will find good quality staff if you are setting up here.

However, not every Kenyan graduate is lucky enough to get a nice job immediately after graduating, and there is evidence that a good number of these potential employees are not well qualified and employers have to spend a lot of money retraining. The level of unemployment for mass unskilled labour remains as high as in other East African nations.

TheEastAfrican
 
See less See more
1
#104 ·
^^mate, I'm a military fanatic like the next man, but I also like to keep a sense of proportion. i.e. does Uganda need such high-performance jets?
In 2009, we had the location of Kony , head of the LRA but the noisy helicopters we used alerted him to our impending strike and he got away to wreck terror in central africa, the jets would have ensured a perfect strike.

In the 1990's, due to our support for south sudan , northern sudanese airforce bombed parts of northern uganda but since we had no long range aircraft we had no means of retaliation, but with these jets sudanese aggression can be checked as we are guarantors of south sudan independence.

In 2008, congolese soldiers invaded across lake albert i western uganda and killed an engineer working in the oil fields. Their justification was they laid a claim on parts of lake albert that underneath have a lot of oil.These jets can guarantee we can check congolese aggression as they can strike into the heart of the congo all the way to kinshasha.
 
#105 ·
It is funny how some people are somehow trying to tell us that a country of 40 million people called kenya is alright attracting 100 million dollars if FDI in 2010.
That is similar to rwanda , and if some kenyans do not see that is a problem then we have a big.problem.
I doesn't matter how much money is officially being channelled into Kenya from outside, what matters is how much investment is being put in overall and to measure that, you can look at how much construction is going on. In that aspect, Kenya is far ahead of the other EA countries. Infrastructure wise it's building modern, elevated highways in and around Nairobi, a new railway system with modern rail stations and trains etc, an international airport is just opening up, highways all over the country are getting built/expanded etc. Kenyan businesses and tax payers are upping them all by investing more than both the foreigners and the tax payers of Tanzania and Uganda combined, your argument is invalid...
 
#106 ·
I doesn't matter how much money is officially being channelled into Kenya from outside, what matters is how much investment is being put in overall and to measure that, you can look at how much construction is going on. In that aspect, Kenya is far ahead of the other EA countries. Infrastructure wise it's building modern, elevated highways in and around Nairobi, a new railway system with modern rail stations and trains etc, an international airport is just opening up, highways all over the country are getting built/expanded etc. Kenyan businesses and tax payers are upping them all by investing more than both the foreigners and the tax payers of Tanzania and Uganda combined, your argument is invalid...
Such investment would be acceptable if u were trying to compete with Uganda, but if the goal of the government is to transform Kenya into a developed economy any time soon such numbers are embarrassing.
 
#107 ·
Such investment would be acceptable if u were trying to compete with Uganda, but if the goal of the government is to transform Kenya into a developed economy any time soon such numbers are embarrassing.
I didn't use any numbers, but if what you want is numbers then how about this: Kenya invested approximately1.8 billion USD in infrastructure in 2010, 1.6 billion in human resource development, about 250 million USD on research and environment each, and only 88,000,000$ on national security (the military). It's all up there for you to see on the new open data portal.
 
#108 ·
I doesn't matter how much money is officially being channelled into Kenya from outside... In that aspect, Kenya is far ahead of the other EA countries.... Kenyan businesses and tax payers are upping them all by investing more than both the foreigners and the tax payers of Tanzania and Uganda combined, your argument is invalid...
Really? seems the mindset have not changed yet, perhaps you should read this one:

Kenya: South African Investors Cry Foul
South Africa has unleashed a trade war with Kenya over investment barriers against its nationals. South Africa believes that deliberate efforts are being made to frustrate potential investors in Kenya. By Blamuel Njuri.
Whereas Kenyan authorities are upbeat to woo foreign investors, South Africans, who have invested billions of dollars in other countries on the continent since the fall of apartheid in 1994, have not found it easy to put their money into the Kenya economy. South Africa is now the third largest foreign investor nation in Kenya, after the United Kingdom and the United States, but it is experiencing covert hostility from Kenyan authorities, and is convinced that there are intentional efforts to lock its investors out.
The concern in South Africa follows the closure of the Castle Brewing Plant at Thika. Outwardly, it would appear that the South African Breweries-owned Castle Brewing Kenya Ltd plant was shut after a gentlemen's agreement following falling sales. But there is more than meets the eye. The firm had been subjected to high cost raw material imports which pushed its production costs higher than those of the Kenya Breweries. It was subsequently engaged in a cut throat rivalry with East African Breweries, before a pact was reached to end their rivalry and form an alliance.


Business and diplomatic circles tell a story that would not encourage any foreign investor to set foot on Kenya. They say Castle's decision to leave the Kenyan market was the most visible indication of the frustrations foreign investors suffer in Kenya as they struggle to compete with businesses in which top political and government officials have interest. East African Breweries is one such firm in which Ministers, permanent secretaries and a retinue of wellconnected politicians double as directors, shareholders and suppliers and distributors.
A top South African embassy official complained of intrusive Cabinet Minister for demanding bribes of up to 25% to allow new business. He moaned that there were no clear rules of what a foreign investor should or should not do and that the authorities intentionally concealed trade regulations.

Former Castle managers and diplomats reveal that foreign investors find Kenya's market confusing. South Africa investors particularly feel they are not wanted. Like other foreign investors, they find the long list of taxes, bureaucracy, and corruption that comes with it, unbearable.
Former Castle marketing director Joe Wanjui, who is a Kenyan, had no clue that the firm was to change hands. He heard about the takeover from news bulletins like several hundred employees. He admitted the company had been pitched against odds that were far from a level playing ground. He observed that despite the mounting competition fostered by globalisation, Kenya government officials still behave like there is no competition and the borders are still closed.

"Government Ministers still call foreign directors of various companies and demand that relatives and friends be employed in certain positions or such directors will have their work permits cancelled," said Wanjui.
Manga Mugwe, the vicechairman of the Kenya Association of Manufacturers, said Castle's fate and the complaints by foreign investors indicate that the government needs to get to the roots of the problems foreign investors face in Kenya.
"There is no law barring government officials from owning businesses. But it should now be dear that we need a level playing field." he said.
South African Breweries which owned Castle is one of the biggest breweries in the world. If it pulls out of a country, smaller businesses will not come in. Castle has moved to Tanzania. That is a huge statement. The company is signalling that it has confidence in Tanzania, Mugwe said. "What the South Africans have experienced here will scare everybody away," he added

Ethics of Business Must Change
But former Kenya Association of Manufacturers chief, Chris Kirubi said Castle's problem was not exceptional as various companies have undergone similar experiences. He however, conceded that its closure would send negative signals to other companies that wanted to come to Kenya.

But a former manager with Castle said: "When you have Ministers and civil servants in business, how can foreign business compete? In modern countries, you cannot do that. No investor will come here unless the ethics of doing business changes."
Just a week after it pulled out of Kenya, South African Breweries announced that it was buying one of America's largest brewers, Miller, owned by the tobacco giant, Phillip Morris. The new company is called SAB-Miller.
"South African Breweries is investing billions in China, Russia and Poland. Yet Kenyans expect the world to believe that the same company has failed to compete here. You can't say SAB has been swallowed here. Nobody with the right mind can say that," a manager with the firm said.
A South African diplomat was more explicit, "When business executives go to other African countries, they are begged to stay. I know countries where the President will sit down with a company executive just to find out what the government can do for the firm. Kenya's potential will remain blocked until there is complete openness.
With the exit of Castle from Kenya, South African investors now list a number of their businesses that have been frustrated in their attempts to enter the Kenyan market.
They have interests in insurance and re-insurance, television entertainment (Multichoice), soft drinks (Coca Cola South African Bottling Company) and Engen Kenya Ltd, an oil firm that only moved in recently.

In June, last year, a team of businessmen from the South African Industrial Development Corporation (IDC) visited Kenya to find out what investments opportunities are available. Sources say the team planned to invest up to $100m in Kenya. For a start, the team wanted to put $25m into failing Kenyan firms and become shareholders. The team was to be guided by government officials to identify where opportunities existed. It left the country with nothing.
"The people we met were asking for 10% before we could invest here," a businessman who was in the delegation said. "We were not even asked what opportunities there were. Of course, the delegation left and might never return."
Around the same time, South Africa's cotton industry officials visited Kenya with plans to revive several collapsed ginneries. After an extensive survey of the cotton market, the South Africans concluded that "Kenyans are sitting on oil." They, too, left with nothing after frustrations.
The dilapidated industry has yet to begin its recovery after years of stagnation and competition from cheap imports, mainly second hand clothes commonly known as mtumba.
 
#109 ·
Lesson: Don't mess with East African Breweries. Kenya's beer market belongs to it and it only.:laugh:

Besides, western and Chinese firms are still pouring into Kenya despite that article. They're especially trying to get grabs for the construction of $22 billion plan to construct Lamu port, a rail to South Sudan and Ethiopia, and an oil pipeline. Not to mention them coming in trying to grab up space around Thika highway, land recently up for sell by KRC, and Kenya being one of the Top 3 nations in Africa to receive FDI in the renewable energy sector last year.......so don't let one article fool you.

perhaps it's just some SA investors who are having problems in Kenya.
 
#110 ·
well done to Nairobi it'll defiantly become a regional hub as for joburg it'll will be in competition with Lagos as a continental hub ,with companies i believe heading for nigeria in the future bt. joburg will remain a hub to other cities can offer the same type of infrastructure and city branding
ps:there probs be another hub for the french speaking nations in africa since ivory coast recently went thru turmoil ,no one has put there hand up yet
why is it just Lagos and Joburg that can be continental hubs? Nairobi could become one, and imo it's probably the most strategically positioned out of all three cities.. Just because Nairobi has a smaller economy and population (I think its pop. is still smaller than Joburg's), doesn't mean it can't go beyond being a regional hub someday..Perfect example, Singapore.
 
#111 ·
èđđeůx;82217986 said:
Lesson: Don't mess with East African Breweries. Kenya's beer market belongs to it and it only.:laugh:

Besides, western and Chinese firms are still pouring into Kenya despite that article. They're especially trying to get grabs for the construction of $22 billion plan to construct Lamu port, a rail to South Sudan and Ethiopia, and an oil pipeline. Not to mention them coming in trying to grab up space around Thika highway, land recently up for sell by KRC, and Kenya being one of the Top 3 nations in Africa to receive FDI in the renewable energy sector last year.......so don't let one article fool you.

perhaps it's just some SA investors who are having problems in Kenya.
It is not the article it is what is in the article...:cheers:

The major problem is the conflict of interest, because individual politicians are controlling your economy (they are the biggest local investors)....

BTW: Chinese are ready to give kitu kidogo but others are not used to that. Industrial Development Corporation (IDC) of South Africa is one of the well run investment organization in SA.:bash:
 
#112 ·
The prices in Kenya are such that foreign companies can not even compete on the market, they would get pushed out by the already well established indigenous companies. Kenyans don't go to Walmart or Tesco for shopping, they go to Nakumatt or Uchumi and other home grown and Kenyan owned companies. They don't get their news from CNN or BBC (well they do, but not as much as...) they get it from NTV or KBC or other Kenyan news companies, they go to Kenyan banks for banking services, they travel on Kenyan air carriers and Kenyan train operators, Take buses operated by Kenyan bus companies etc. It's a fiercely competitive market born out of a total lack of interest from the rest of the world. People complain about the lack of state owned companies for basic services like transport, but the lack of it has actually caused more competition for passangers, which means you have a lot of companies like these fighting for customers. The competition forces them to drive down prices, to increase the quality of services, to decorate their vehicles etc. I don't think ANY company on Earth would decorate their cars, fit them with flat screens and ship them to Africa, so there you go. They don't invest in Kenya because Kenya has it's own companies that invest in it, and the competition between them is such that foreign companies can't compete.
 
#113 ·
I doesn't matter how much money is officially being channelled into Kenya from outside, what matters is how much investment is being put in overall and to measure that, you can look at how much construction is going on. In that aspect, Kenya is far ahead of the other EA countries. Infrastructure wise it's building modern, elevated highways in and around Nairobi, a new railway system with modern rail stations and trains etc, an international airport is just opening up, highways all over the country are getting built/expanded etc. Kenyan businesses and tax payers are upping them all by investing more than both the foreigners and the tax payers of Tanzania and Uganda combined, your argument is invalid...
Internal investment is just as important, if not more so than FDI. FDI ebbs and flows way too much depending on the slightest negative news coming from a country and international developments; internal investment is much more stable and recirculates money in the economy. Good that Kenya is cognizant of that.
 
#114 ·
It is not the article it is what is in the article...:cheers:

The major problem is the conflict of interest, because individual politicians are controlling your economy (they are the biggest local investors)....

BTW: Chinese are ready to give kitu kidogo but others are not used to that. Industrial Development Corporation (IDC) of South Africa is one of the well run investment organization in SA.:bash:
You are arguing that companies are leaving Kenya on a thread about how companies are trying to establish themselves in Kenya? you should provide sources, the article you posted was posted (or worse, archived) in September 2002.

Kenya has changed a lot since then, a lot of companies have been created and Kenya is one of the top 3 places to invest in in Africa.

Kenya has been named among top investment destinations in Africa, according to a survey on international investors.
The survey conducted by the Africa Business Panel among 800 business professionals involved with Africa shows that South Africa, Nigeria and Kenya are the best African countries on the continent for investment in 2011 in that order.
Uganda, Rwanda and Tanzania were also cited in the survey as investor friendly emerging in the runners up category.
Kenya and the other three top countries were earmarked as the continent’s favourites when it comes to international investment. Ghana, Angola, Tanzania, Rwanda, Botswana, Uganda and Mozambique are the runners up and complete the top ten countries for investment out of 53 economies on the African continent.
According to the findings of the survey, virtually all African economies show promising year-on-year growth a move which is attracting the attention of the international investor community who increasingly see Africa as ‘the last frontier’ for attractive growth opportunities.
source


note: My source is not 9 years old, so I trust it more.
 
#115 ·
You are arguing that companies are leaving Kenya on a thread about how companies are trying to establish themselves in Kenya? you should provide sources, the article you posted was posted (or worse, archived) in September 2002.

Kenya has changed a lot since then, a lot of companies have been created and Kenya is one of the top 3 places to invest in in Africa.



source


note: My source is not 9 years old, so I trust it more.
Someone mentioned earlier about running battles with Kalenjinis...:)
Its all good, keep running Kenya...
 
#117 ·
Are you awake now..

To illustrate my points here are just few examples:

1: Jozi (Johannesburg) a.k.a the shining Egoli, Africa's second biggest economy second only from South Africa is where it is now because of its Gold. All Major Multinationals are comfortably pumping tons of FDI there.

2: Lagos and Abuja are shining because of Nigeria's black gold (Oil). All major Multinationals are comfortably pumping tons of FDI there.

3: Luanda is shining now days, again thanks to Angola's vast minerals resources and Black gold (Oil). All major Multinationals are increasingly pumping tons of FDI there too.

From the above trend it is just the matter of time before Nairobi get eclipsed by other major EAC cities like Dar or Kampala.

Nairobi will enjoy a short term benefit mainly stemming from the office space rent but in the later stages those Multinationals will relocate elsewhere (Kampala or Dar).

Do you know the reason behind the booming construction industry taking place in Kampala and Dar...
FALSE!!! :)
 
#118 ·
èđđeůx;82218432 said:
why is it just Lagos and Joburg that can be continental hubs? Nairobi could become one, and imo it's probably the most strategically positioned out of all three cities.. Just because Nairobi has a smaller economy and population (I think its pop. is still smaller than Joburg's), doesn't mean it can't go beyond being a regional hub someday..Perfect example, Singapore.
:laugh:, No, it is Lagos. :D
 
#121 ·
Johannesburg and SA as whole will start losing attraction in the coming years.The main reason the foreign firms base(d) their headquarters there was because of the infrastructure.Now that other African countries are investing more in their infrastructures, i'm surprised to see some people still clinging on this notion that the country will continue remaining the hub for a very long time.Already, the location of SA makes it unattractive and countries like Kenya or Ethiopia have more potential of attracting investors given the fact that they have airports that serves almost every African capital city and it's easier to travel from there than SA.:2cents:
 
#122 ·
Johannesburg and SA as whole will start losing attraction in the coming years.The main reason the foreign firms base(d) their headquarters there was because of the infrastructure.Now that other African countries are investing more in their infrastructures, i'm surprised to see some people still clinging on this notion that the country will continue remaining the hub for a very long time.Already, the location of SA makes it unattractive and countries like Kenya or Ethiopia have more potential of attracting investors given the fact that they have airports that serves almost every African capital city and it's easier to travel from there than SA.:2cents:
Wait till ARIK Air Joins that Boat......... :cheers:
 
#123 ·
èđđeůx;82218432 said:
why is it just Lagos and Joburg that can be continental hubs? Nairobi could become one, and imo it's probably the most strategically positioned out of all three cities.. Just because Nairobi has a smaller economy and population (I think its pop. is still smaller than Joburg's), doesn't mean it can't go beyond being a regional hub someday..Perfect example, Singapore.
The difference is that Johannesburg and Lagos have no competition in their regions; they are giants in a region of minnows. They have a massive competitive advantage as a result of that. That's not the case for Nairobi, which will have to field competition in its own region first before thinking of going continental.

To illustrate, Lagos has a population around 15 million, and Nigeria around 150 million, plus it has a very active business community with companies that are already going continental. No other country in West Africa can compete with that, now or in the future, so Lagos can continue rising unhindered.

Johannesburg is the largest city in the southern part of the continent, and it is light-years ahead of any potential competition not only in its region, but also continent-wide. Even though the SA population is not that large, compared to its neighbors it's still the largest by far, easily double the next most populated country. It's also already a hub for foreign investors interested in the continent, plus its own companies have massive investments in the rest of Africa.

Compared with these enormous advantages these two countries/cities have, it should be clear that Nairobi doesn't have the same clout. I've said this before here (and gotten beaten down by Kenyans for it lol); the fact that all of Kenya's neighbors languished for decades has given the impression to a lot of Kenyans that you are light-years ahead and that you have massive advantages. That's not at all the case though, since all the surrounding nations, barring Somalia, are now starting to grow rapidly, so Nairobi's position as the major center of East Africa is in a much more precarious position than either Lagos or Johannesburg.
 
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top