The Road To Wealth Begins At A Parastatal
I want to use this post to talk about the process of wealth accumulation and as I compose this article they are a couple of thoughts running through my mind.
The first thought on this topic was brought about as I read yet another article in the Nation about the blatant corruption in Kenya, which involves ministers appointing their political cronies to head parastatals across the country. Prior to writing the Transcentury article on Eddy Njoroge below, I assumed that most thinking people in Kenya would by this time have figured out “rich” people in that country have managed to accumulate much (if not all) of their wealth: For many, it begins when they join a parastatal. If you make an honest assessment of most people who have money in Kenya, there is usually either a direct link to a politician or a direct link to a parastatal (& parastatals here include most government owned banks).
I’ve said before that Kenya is not a country where innovation or skill matter and so, without the above links, the chances of you accumulating wealth are very, very, slim. The parastatal or the politician will give you that “bulk” amount of money, which you then just have to shift around and make sure you don’t lose. For most Kenyans that has involved “shifting” the money into real estate and if you are a little more sophisticated shifting it out into foreign bank accounts. I would say that 99% of the time, when I have tried to figure out how someone accumulated wealth in Kenya, these links appear, but people don’t want to hear this because often times it could mean having to look at a parent or other close relative and no one wants to believe that their parents or relatives maybe white collar thieves.
The second and perhaps more interested thought I had (as I constructed this article) concerns a Kenyan who was just arrested in New Jersey and accused of stealing (over) ? one million dollars from his company. According to the article linked above, the stealing occurred over a five year period from 2003 until 2008 when he resigned from the company. Now, this guy was the Chief Technology Officer of an insurance company and presumably, he should have had a decent income. So, why did he do what he did? The simple answer is that he was trying to accumulate “wealth” and he seems to have stolen it in the classic Kenyan way, i.e. by inflating payment tenders (quote from article reads: “He used his position in the company to have Accord billed for goods and services it never received“). Clearly, if anyone had done this in Kenya, the’yd be all set and if I had dared question where they got their money from, some readers here would be scolding me for disparaging such an honest and brilliant business mind. Sigh.
Anyway, I think a lot of these cases of employee theft are going to start appearing in the papers simply because it’s a recession and in a recession, companies start paying much closer attention to their revenues and when that happens, “discrepancies” such as the above will obviously start showing up. Afterall, isn’t that how Madoff got caught? The stock market started crashing and everything started tumbling down for him.
Additional Point:
You can’t even run away to Kenya if you pull a stunt like this because as soon as the U.S. embassy informs the government that they want you extradited, the Kenyan police will pull you out of bed in your underwear and put your butt on the next flight out. No court case, no hearing, no nothing. You’d go straight from your bed to a plane’s economy seats (unless of course your Kibaki’s son or something).
@KE you are almost there. If you trace the money one more step you will discover its AID money that usually gets stolen. AID dependency breeds corruption and ethnic strife in Kenya and Africa.
If you want corruption to stop we must stop AID dependency and use alternative investment models that require accountability.This will also empower the Tax payer who ideally should be able to have a huge voice in determining how government is run.
Stopping AID is the key http://stopaid.org
John:
Why don’t you think the west has been able to make the connection between increased AID and increased corruption? Didn’t the World Bank just give Kenya yet another loan?
On this issue of parastatals:
It looks like KMC is going down, even after the government pumped in another Ksh. 4 billion into that company. Someone is obviously eating.
Link to article here:
http://www.eastandard.net/busi.....d=14&
Isn’t this exactly what happened under Moi? He came into power in 1978 and the economy, injured by massive corruption, started to disintegrate around 1988 and kept going down after that.
The same thing is happening under Kibaki. The corruption is going to take it’s toll on the economy (Kibaki has now been in office for 7 years) and the downward trajectory will be the same, especially as people look to “load” up before 2012.
As I’ve said before, the wealth in Kenya is not being created through skill or innovation. It’s being created through a wheel & deal culture that only benefits those who are politically connected (at any particular time in point).
What this wheel & deal culture does is simply create a tiny minority of super-rich people, but it never evens out the economic playing field because wheeling & dealing is not productive and neither does it depend on skill or innovation for it’s existence. The only thing it needs is access to statehouse.
Wheeling & dealing does not create jobs either since nothing is actually “created” and that is why the poverty numbers are not going down.
What you have today is just a couple of so called bankers, stealing money from parastatals (through a rigged IPO process) and then shifting that stolen loot into a “company” like transcentury, where it is then transferred out of the country.
I think it’s important to understand this wheel & deal dynamic of the kenyan economy, especially if you are an aspiring entrepreneur who is thinking of starting a business there.
How does one breakthrough the wheeling & dealing if they are looking to start a real company that actually produces real goods?
ndegwas: Well, their daddies were CBK governors. Sweet deals when they bought forex at below-market prices & jumped the queue.
nyachae: Used his position to force Mhindis to give up shares in their firms.
biwott: Sweetheart deal when he bought Kobil from Mobil. And he was Energy minister. Go figure.
The more things change the more things stay the same. I swear reading the article about KMC fills me with major feelings of deja vu. Even the strategy to get out of debt, “creating products for export”.
Kenyatta, Moi, Kibaki, different flavors, same product.
I think this time around Kibaki and his group fooled alot of people (I include myself), people who really wanted to believe change was coming.
I would contend that people who gain wealth through the cronyism route, are ill prepared to manage and build businesses that can grow the stash. If that were not the case, we would not see some of Kibaki’s crowd. Some got the initial pot during Kenyatta’s (and even Moil) time, and have not been able to preserve and grow the initial stash.
If your used to issuing decrees, then having to find customers, market to the customers, is either not on your radar, or is much harder than actual cronyism.
Whilst I agree with your overall prognosis I believe you have a tendency to be a knee jerk pessimist. Perhaps it is self preservation?
I disagree that the Kenyan business landscape is bleak for the small timer because of the suffocating crony capitalism, I DON’T refute that there is rampant and deeply entrrenched cronysim BUT I DO know there is plenty of action to go around for the little guy if you’ve planned well, have a good game plan and know how to maneouver below the radar. I have friends, relatives, acquaintaces proving this every day and making a tidy some for themselves in the process. Yes, WE ARE A LONG, LONG, LONG way from the ideal situation BUT I do give credit to the Kibaki regime post 2002, there is no state sanctioned deliberate interference. Yes, the deck may be stacked against you but the odds are not insurmountable as many flourishing SMEs in Kenya are proving.
And rather than being complacent, I believe the greatest weapon to dismantling the corrupt system as it stands is by creative, determined and ingenous Kenyans outsmarting it through their stealth enterprises.
Sijui:
Yes, I am a pessimist by nature and you are obviously an optimist. It is better to be an optimist because it’s better for your soul. In fact, I’ve been thinking of taking yoga classes ever since I read about a yogi called Krishna Pattabhi. I looked at a picture of him in a magazine and I thought he was about 65. However, the article indicated that he was in fact 90 years old! I believe this youthful look was achieved as a result of his calming meditational yoga practises. Although I would prefer if you referred to me as a knee jerk realist instead.
Anyway, onto your substantive points.
Yes, Kibaki is not interfering with small business owners, but I don’t think Moi did it either. What Moi did and what Kibaki is now doing, is interfering with parastatals, which unfortunately, still form a large part of the economy.
The consequences of this interference became evident under Moi and they are going to become evident under Kibaki. A new class of ethnically connected people are going to become very rich, but because they have acquired their wealth without skill or innovation, the economy will start to wilter under their thievery since all they are doing is taking and taking. And it’s very bad because they are taking from institutions that have been funded with taxpayer money. I was polite when I referred to transcentury as a private equity firm. They are actually a money laundering firm.
I have now come to believe that this wheel & deal culture is at the heart of the inequality problem in Kenya today because these wheeler dealers don’t make anything. When you get your hands on easy money, there’s no incentive to develop anything. Your only goal is to make sure you don’t lose the money you have taken.
However, in Kenya, this is going to become dangerous because over 70% of the population is under the age of 30, there’s not enough land left anymore and we don’t have mineral resources to depend on. The country has to start developing it’s own home grown companies. Companies that will either produce goods for export (like clothes, electronics, etc) or provide services for export (e.g. call centers outsourcing, etc, etc). But the wheel & deal culture discourages this kind of entrepreneurialism because their focus is on getting the easy money and running, not on spending years in the trenches trying to build companies.
But let me ask you a question & close this post with a more positive outlook:
What business opportunities are you seeing in Kenya or through Kenya that people could exploit?
Coldtusker:
People don’t want to hear this. Many people think that Ndegwa was a brilliant banker. I’ve come to the conclusion that if you wear a designer suit, kenyans will never believe that you can be a thief.
I did not know this. Now, many of these Mhindi’s are selling their shares to transcentury & other connected people. This is what happens in a wheel & deal culture.
And don’t forget about Kestrel Capital, owned by his son-in-law Charles Field Marsham. When Moi was in power, Kestrel was warned not to do business with Kikuyu’s. It’s a good thing they now have non-kenyan clients because in the wheel & deal culture, Kestrel will not be winning any parastatal IPO deals anytime soon.
If you’re a Kikuyu benefiting from these deals, you have to start shifting your money out of the country before 2012. This is what Biwott started doing in 2000. The Kikuyu’s who went down when Moi came into power were the one’s who refused to be honest about what was going to happen to them, maybe sometimes it’s better to be a pessimist.
KE you are greatly mistaken about Moi’s impact. Kibaki is far from perfect, but he is a saint compared to Moi. Let me give you some specific examples:
1) The current level of competition in the banking sector WOULD NEVER HAVE BEEN PERMITTED UNDER MOI. Remember all locally owned banks in Kenya not only survived because of the direct patronage to State house but were owned as well by Moi functionaries. Do you think MFIs like Equity, Faulu Kenya, Kenya Womens Finance Trust et al had a snowball’s chance in hell? Why do you think all these entities remained MFIs and only transformed in to banks during the Kibaki regime.
2) Neither would the telecommunications and IT landscape. Again as the Safaricom saga proved, licenses granted were based on ownership by Moi functionaries. Vendors like Popote Wireless, Flashcom etc who are now directly competing with Telekom Kenya would never, never have seen the light of day.
3) The agricultural sector is still very corrupt, but great strides have been made in liberalizing it slowly.
4) The climate for the SME is much freer, nobody is afraid of losing life and limb for going in to direct competion with powerful Kibaki cronies. Yes, there is a worrying uptick in business motivated assassinations with some political overtones, but they are not directly sanctioned by State House. THERE IS NO BIWOTT in the current political and economic atmosphere.
Sijui:
On agriculture: Yes,a lot of the rural farmers who want to work have benefited from these improved services and they are the one’s who voted for Kibaki during this last election (The Kikuyu’s, Embu’s, Meru’s, the Kisii’s and the Bukusu’s).
On Banking: I suppose it’s been good although I don’t know whether the cheap credit has consequences, which are yet to play out.
On telecommunications: That sector was liberalized before Kibaki came in. Radio stations like capitalfm started sprouting up in the late 90’s and so did mobile phones. That was before Kibaki and reflected the general change where the country started becoming more open & democratic (with a small “d” here).
On Biwott: Moi was in power for 24 years. Kibaki has been there for 7. If Kibaki had another 17 years of power, who knows what kinds of people that would have produced? The longer you are in power, the more thuggish you and your cronies become.