Alarm as more firms fall to 'Kenyan market curse'

Manager Eric Kinoti Mbaabu with staff during the opening of a Builders' outlet at Waterfront Mall in Karen in August 2020. [Wilberforce Okwiri, Standard]

South African construction material retailer Builders recently announced it could shut its doors for good and exit the Kenyan market two and half years after it set foot in Kenya.

The firm, which is owned by South African retailer Massmart Holdings, revealed two weeks ago it had initiated the process required for the potential closure in a blow to its local staff and suppliers who now face job and business losses.

Its exit would mark the latest of a string of retreats from Kenya by South African firms, raising questions over their future in Kenya and what really ails them.

It is also likely to heighten scrutiny on what ails South African firms in Kenya and why they are unable to crack the market in east Africa's largest economy.

It comes barely months after Massmart quit its supermarket business in Kenya, shutting down its Game stores in Kenya.

At the time, Massmart, which equally cited a difficult business environment, did not include Builders in its exit plans.

Builders opened its first store at Nairobi's Karen Waterfront Mall, the company's ninth outside South Africa at the time. Its other stores are in Botswana, Mozambique and Zambia.

But last week, a statement by Builders said the Kenyan store had underperformed owing to "a difficult environment" and could be shut down.

"When we ventured into Nairobi, Kenya with our Builders Warehouse Karen Waterfront store in 2020, there was high excitement around its potential," said Builders Vice President Karen Ferrini in the communique. "Unfortunately, since its inception, the store has underperformed financially with losses increasing annually... as a result, the business has had to consider closing."

She linked the poor performance of the Builders Nairobi store to a difficult business environment citing stringent import requirements for South African firms in Kenya. "The poor performance is attributed to various factors, including the inability to import inventory timeously while stringent regulatory import requirements have also negatively affected our competitiveness," said Ms Ferrini.

She said the firm would manage the possible transition effectively to reduce the economic pain for its workers and suppliers. "Our current focus is to ensure that the consultation with our associates and their representatives is transparent and meaningful," said Ms Ferrini.

"Once this process has been finalised, we will communicate the outcome to the associates involved first and then to the business." The store was Builders' first in the East African region and sought to tap into the market with its wide range of high-quality do-it-yourself (DIY), home improvement, and building materials.

"Builders is an established brand providing solutions for whatever you want or need to live better. Whether you're a DIY enthusiast, a homeowner, a small business, or a large contractor, Kenyans will soon experience the power to get it done," said the firm in a statement announcing the new store two and a half years ago.

Cinema company

The exit plan ends the two-year stint for the Sandton-headquartered firm in Kenya and extends the poor run by South African companies that have faced headwinds, trying to crack the local market.

Among the notable brands that have exited the Kenyan market in recent years are cinema company Nu Metro, fast foods giant Nandos, household goods outlet Supreme Furniture and magazines publisher Media24, a subsidiary of the Johannesburg Stock Exchange-listed Naspers.

Builder's possible exit follows previous similar exits of Shoprite and their Southern Africa peer Botswana-based Choppies, which had entered the market by acquiring a majority stake in a struggling local retailer in 2016.

Others are Game Stores and NopeaRide which quit the Kenyan market in 2022.

President William Ruto and his South African counterpart Cyril Ramaphosa recently resolved a longstanding visa dispute that now enables Kenyans to visit South Africa visa-free for up to 90 days in a calendar year.

South Africans already get free visas on arrival in Kenya, while Kenyans were charged and required to provide proof of sufficient funds and return flight tickets.

The new agreement, which took effect on January 1, was announced during the first official trip of President Ramaphosa's visit to Kenya. The visa restrictions had remained a thorny issue for the two countries, including the now scrapped Sh5,350 processing fee, with visas taking at least five working days. Kenyan visa applicants were also required to provide sufficient proof of funds and return flight air tickets, among other requirements.

South African nationals, on the other hand, have it easier as they can get a Kenyan visa for free on arrival to the country.

South Africa exported Sh45.7 billion worth of goods to Kenya in 2020, against imports from Kenya of Sh3.48 billion, signalling that trade is heavily skewed in favour of South Africa amid the previous restrictions.