Kenya has set itself the ambitious target of elevating itself to join the group of countries classed as emerging markets. As elsewhere, the Coronavirus pandemic has applied the brakes to its growth – but the “African lion” still remains an attractive proposition.
Article by Alexandra Rehn, featured in VDMA Magazine November 2020 - Translated from German
Any company wishing to operate in the East African market cannot afford to ignore Kenya; the country represents one of the most important sub-Saharan market territories for German manufacturers of machines and systems. What is more, the international airport in Nairobi and the seaport in Mombasa make Kenya an important trade hub for the surrounding region.
“Kenya is actually quite a small market for Germany, but it has a great deal of potential”, explains Maren Diale-Schellschmidt of the Delegation for German Industry and Commerce (AHK) in Nairobi. In recent years, German companies’ interest in the area has grown accordingly. “More and more branches are being established here, with the purpose of strengthening sales and service operations in the region”.
Kaeser Kompressoren SE, based in Coburg, Northern Bavaria, has been represented in Kenya since the year 2002 – initially by a distribution partner and now, since 2011, by its own subsidiary. Branch Manager Daniel Paul is convinced that this represents a significant competitive advantage for the world-renowned compressed air systems provider. With twenty employees, including eight technicians, Kaeser’s Sales and Service Center in Nairobi caters not just to East Africa: “For us, Kenya is a hub from which we provide services to many countries across sub-Saharan Africa,” explains Paul.
Highly indebted nation
Paul is keen to stress that the Kenyan market remains attractive, in spite of the worldwide Coronavirus crisis. “Of course, right now the consequences of the pandemic are very much evident. However, the economic situation will recover. It just needs time – at least two or three years.” Kaeser benefits from the fact that the private sector in Kenya is highly diversified, not to mention that compressors are vital pieces of equipment in virtually every industrial sector, including hospitals and the foodstuffs industry.
There have been no economic stimulus packages or other such governmental support measures to cushion the impact of the pandemic in Kenya. National debt is high and does not allow for any wiggle room. The effects of this may particularly be felt in the case of government-financed infrastructure projects, believes Diale-Schellschmidt: “Public contracts are at risk of payment delays”. She is more optimistic, however, regarding the prospects for the private sector, pointing out that “Healthy companies don’t go down as easily”. Donor funding will also be an important factor. Projects financed by the World Bank or international development funding offer an opportunity for German machines and systems manufacturers.
Friendly business climate
Before the pandemic, Kenya had enjoyed continuous annual growth of around 5%. The country is relatively stable politically and counts itself amongst a group referred to by the UN as the “African lions”. In the World Bank’s “Ease of Doing Business” index, which ranks national economies according to their level of business-friendliness, in 2020 Kenya came 56th out of 190 countries – whereas only 5 years ago it was languishing in 136th place; clear proof that the government is making a genuine effort to remove obstacles to investment and slash red tape. This is an observation not lost on Manuel Zollbrecht, an expert specialising in customs and foreign trade for the four African subsidiaries of Krones AG, from the Bavarian town Neutraubling: “Kenya is open for foreign investment,” he declares. Krones has been represented in Kenya by a local subsidiary for 12 years now and, in 2016, opened a new service centre in the country to cover the entire East African region. There, 60 employees, from Service Technicians to Sales Managers, cater to the needs of a dozen countries.
A growing population
As a manufacturer of food and beverage production systems, Krones sees the growing population as a major opportunity for expansion. Kenya today has around 52 million inhabitants, a figure which increases by 1.2 million every year. “The demand for pre-packaged food and drink in this country is disproportionately increasing,” explains Zollbrecht. “This is what makes the market so attractive for us.” One challenge they face is a lack of trained technicians. In their KEA training academy, Krones provides instruction not only for their own Service Technicians, but also for those of their customers. Furthermore, in 2015 they began providing a dual training programme in mechatronics, which has since seen more than 30 students graduate. Kaeser also provides in-house technical and sales training for their employees in Kenya: “We don’t want to bring technicians in from outside – we would much rather develop local talent,” says Paul. That sentiment chimes precisely with the outlook of the VDMA, which runs an initiative called “Experts for Africa”. One of its training centres is located in Nairobi and offers training courses for machine operators and maintenance technicians, amongst others.
Expanding economy
Agriculture remains the largest sector of the economy by far; flowers, coffee and tea are all important export products and mechanisation is becoming an ever more important factor. This is good news for companies like Grimme Landmaschinenfabrik GmbH & Co. KG from Damme in Lower Saxony. They have been operating since 2012 in conjunction with a local partner, offering both sales and service operations. “The market potential here is higher than in other countries in the region,” says Regional Sales Manager Frank Nordmann. “Agriculture is well developed in Kenya, but the structure is very much fragmented.” Since agricultural machinery is beyond the means of most small-scale private farmers, Grimme relies on projects involving cooperatives and machinery rings. “Generally speaking,” says Nordmann, “foreign companies in Kenya are greeted with open arms.” Some bureaucratic hurdles do remain, however. Here, he cites the example of problems encountered with importing seeds for a potato-growing project: “The approval process took up a lot of time and effort.” This was no isolated case, as AHK representative Diale-Schellschmidt well knows. “It happens again and again that international certifications are not recognised,” she explains. “This can lead to delays and increased costs.” Krones has also experienced “complicated procedures when it comes to importing goods”.
The fight against corruption
The subject of corruption frequently comes up in any such discussion. Two years ago, President Uhuru Kenyatta called for a “War on Graft”; on a visit to Nairobi in February of this year, German President Frank-Walter Steinmeier praised the efforts made in tackling corruption. Yet Transparency International’s latest Corruption Perceptions Index (CPI) ranks Kenya only 137th out of 180 countries. Corruption in Kenya, according to the Konrad Adenauer Foundation, runs so deeply within society and the political system that there can be no quick fix for this problem.
Undoubtedly, a big plus for German manufacturers of machines and systems is the fact that German technology is held in such high regard in Kenya. The “Made in Germany” label holds its own against cheaper competition from India and China, according to Diale-Schellschmidt. As Kaeser Branch Manager Paul points out, “Everyone here knows that if it’s a reliable, energy-efficient machine you’re looking for, you have to buy German.”