How rigid business practice is hindering growth in Nyeri town

By  NDERITU GICHURE  and MURIMI MWANGI

KENYA: When Mr Thomas Kikuvi obtained a bank loan to start a business, he thought Nyeri town was the ideal place.

Having completed college and the prospects of getting formal employment looking dim, Kikuvi approached a local bank, which granted him Sh1 million loan.

To him, this was a tidy amount that would be enough for his cosmetics and men’s wear shop.

Once the money was in his account, the young graduate embarked on looking for an ideal building to host his business.

Although his friends had warned him about the rigid business practices in Nyeri town, Kikuvi thought these were words of envious colleagues out to discourage him.

But during his search, he realised his friends were right and that it would take a long time before finding a premise to set up shop.

Not that there is shortage of buildings or the prices are prohibitive.

Kikuvi’s difficulty in finding business space had something to do with the so-called goodwill.

The amount being asked before occupying a premise was downright exorbitant.

“Can you imagine for a premise that I will be paying Sh19,000 a month, the landlord was demanding Sh600,000 as goodwill. Seriously, if I’m going to spend Sh600,000 on goodwill what amount will I be left with to conduct my business?” posed a dejected Kikuvi.

The lowest amount asked by landlords in the former Central Province headquarters was Sh400,000, which for Kikuvi and many other start-up businessmen is still on the higher side.

Kikuvi’s tribulations reflect the plight of many people willing to invest in Nyeri but have been turned away by the inflexible practices.

While other towns have shed off the decades old tradition and are only demanding advance rents for months or years, Nyeri is still clinging to “goodwill”, realising little or no investment.

The trend is now a concern to the county government since fewer people are willing to invest in the town.

Nyeri town, compared to other former provincial headquarters, can simply be described as a sleeping giant.

It has not experienced commercial growth commensurate with its status, and has been bypassed by smaller towns in investment and business vibrancy.

Compared to the likes of Nakuru, Kisumu and Mombasa, Nyeri has a long way to go.

No major supermarket

Investors seem to be circumventing the town for other more promising towns, including Karatina; a township located just 24km from Nyeri.

In August 2012, the Transition Authority downgraded Nyeri town from municipality status to a township, a move that was largely perpetuated by the town’s dormancy.

The experts based their assessment on population, integrated development plans and ability to generate revenue and economic and financial viability.

The town failed on most of these, and was demoted despite having been a provincial headquarters.

During the assessment it was discovered that Nyeri has no major supermarket despite having a large population of shoppers.

The 119,273 people living in the town rely on the only two supermarkets, which are ever congested with long queues.

In a nutshell, the town is unattractive to investors.

An investigation by The Standard on Sunday reveals that commercial buildings owners could be the major impediment to investment in the town. The hefty charges they demand from new tenants have discouraged quite a number of young investors who have approached them for space to do business.

Owners of most buildings within the town demand deposit fees of up to six months’ rent, and a “goodwill” fee of up to Sh1 million.

A spot check in the town revealed that even small shop owners have started demanding “goodwill” fees from new tenants.

Michael Muchiri, an Information Technology university graduate, who wanted to set up a computer hardware shop in the town, narrated his frustrations.

Muchiri, who had received a grant of Sh300,000 from his parents after “tarmacking” for two years, said most of the building owners demanded exorbitant charges which he could not meet.

“I bought stock worth Sh250,000 hoping the remaining money would be enough to lease me a building in town. To my shock, most tenants demanded a goodwill fee close to Sh400,000 and three months’ rent deposit,” he said.

This could probably explain why despite the town having all the major banks, other major companies are yet to pitch tent in the town.

Building owners in other major towns, are known to only ask for about a year’s deposit from new leasers.

Although these may be huge sums of money, most investors view such deposits positively as it cuts on their expenditures.

In Nakuru, for instance, most property owners do not ask for goodwill from new tenants. Instead, they ask them to deposit rents of up to a year.

In Nyeri, most building owners contend that the goodwill fee is a measure to ensure that the tenant keeps the house in good shape.

And although they say that the amount is refundable, new investors fear having the money lying idly in the hands of the landlords.

“As a businessman I would focus more on investing my money to make a profit. What is the point of having Sh1 million lying idly in somebody’s hands if it is not generating any profits?” wonders John Kinyua, an M-Pesa operator in the town.

Nyeri county Executive for Physical Planning, Lands and Housing, John Mwangi, says such levies are not envisioned in the land laws.

He says although not all property owners charge such levies, some agents demand the goodwill deposit from new tenants behind the property owners’ back.

Property owners

“In most cases there are no records to show that any such payments took place. I’m sure even the KRA does not know of the existence of such transactions,” he said.

A property owner, who requested not to be named, defended the hefty goodwill levies saying it enables them to identify serious tenants.

“Somebody who deposits the goodwill money, however much, is a serious tenant who you can entrust your building to for whatever period of time,” she said.

Nyeri Governor Nderitu Gachagua recently criticised leaseholders, some who had not made any effort to develop buildings they moved into decades ago.

“The same buildings and businesses that were operating during independence are the ones you have inherited and continue to operate fearing to expand and develop,” said Gachagua.

The county executive for Finance and Economic Planning Martin Wamwea said the goodwill issue is a prerogative of the property owners.

He said the county government cannot intervene, but advised property owners to create an environment that encourages young people to invest in the county.