Kenyan market is a hard egg to crack

2010-03-27 10:06

IN a sweetheart deal in 2001 South Africa’s brewing giant, SABMiller, ceded the production of its key beer brands to Nairobi-based East African Breweries Limited (EABL) – its main challenger to Kenya’s beer market following a bruising battle in which consumer hostility was spewed at Castle Lager.

EABL later stopped the production of Castle Lager, effectively killing the presence of South Africa’s beer in Kenya, the largest economy in east Africa, and in the process ending SABMiller’s four-year fight for a beer market estimated to be worth R4?billion.

At the time the South African brewer cited high import tax on key raw materials such as barley as a sign of local hostility. But the goons who defaced Castle Lager’s outdoor advertising billboards in Nairobi ­also made it difficult to market the beer and hastened SABMiller’s exit from Kenya.

The demise of Castle Lager in Kenya was the beginning of a series of closures that has wiped out six South African retail firms from east Africa’s economic hub.

Newspapers and magazines publisher Media24, a subsidiary of the JSE-listed Naspers, is the latest casualty of Kenya’s rough investment market that has claimed many more firms from the rainbow nation.

Cinema company Nu Metro, fast foods giant Nandos, retail chain Metro Cash & Carry and household goods outlet Supreme Furniture folded under heavy losses incurred in the Kenyan market that analysts have branded as stiff to foreign companies.

This week’s collapse of Media24’s interest in Kenya’s magazines industry stands out as the most recent.

Trading under East Africa Magazines Limited (EAM), Media24 started joint operations with Nation ­Media Group (NMG) in 2005 to ­publish popular southern African titles Drum, True Love and Move in Nairobi. But the coexistence lasted only four years as NMG, east Africa’s largest media company, pulled out of the deal, taking with it some of the journalists and salespeople. This left Media24 vulnerable.

One by one Media24 started pulling out some of its popular titles such as Adam, a men’s magazine, and Twende, a travel magazine from newsstands. This further weakened its revenue base from Kenya.

Media24 eventually pulled the plug on its Kenyan operations on Monday, citing low returns on investment and rising operational costs as the key reasons.

Kenya’s soft economy, which has depressed advertising and circulation revenues, coupled with the country’s low appetite for magazines made it difficult for publications such as Drum and True Love to return profits.

“Media24 has injected a significant amount of money for the running of the magazine titles under East African Magazines but the returns were low and our projections were not favourable enough to warrant further injection of funds” said Kobus Louwrens, the general manager of EAM.

Joseph Onjala, a political economy lecturer at the University of Nairobi, said stiff competition from Kenyan firms could explain the deaths of several foreign companies playing in the Kenyan market.

“The South African firms enter the Kenyan economy with big capital and sophistication resulting from their use of new technology but the Kenyan firms are used to the ­local market terrain and they navigate it better.

“South Africans fall out easily because this is not an easy market in terms of competition,” said Onjala.

Analysts said Kenyan consumers were not hostile to imported products or goods manufactured by foreign companies, but that South African firms playing in Kenya are hostage to a soft economy that is characterised by high inflation, leaving little disposable income to consumers to indulge in luxury expenditures such as magazines.

Kenya’s labour force has been hit hard by the withdrawal of South African firms.

So far nearly 3?000 workers have lost their jobs in Kenya as a result of closing the firms.

Even though South African firms are not doing well in Kenya, statistics from the Kenya’s Economic Survey last year and South Africa’s Department of Trade and Industry tell a different story.

According to data from the two sources imports from South Africa to Kenya grew by 25% to R7.3?billion between 2008 and last year, making ­Kenya the 17th biggest trading partner of the rainbow nation.

Kenya, on the other hand, exported goods worth R343?000 to South Africa in 2008, according to Kenya’s Economic Survey last year.

The figures suggest that South African companies in other sectors are doing much better than their retail counterparts.

A few have been left standing strong.

CFC Stanbic Bank Kenya, a subsidiary of Standard Bank Group of South Africa, is the fourth largest bank in Kenya in terms of assets. This bank reported a pretax profit of R127?million last year compared to R125?million in 2008.

Consumer goods producer Tiger Brands acquired a 51% stake in Kenya’s beauty products manufacturer, Haco Industries, which will now handle the distribution channel of Tiger Brands.

Pay television provider Multichoice, another Naspers company, is the highlight of South Africa’s presence in Kenya.

It is most popular for its English Premier League and Channel O music offerings.

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.