When The Brewing Business Turns Deadly

Last Friday, once again Kenyans were shocked as they watched the death toll rise of consumers of the illicit brew – changaa in Shauri Moyo Estate in Nairobi’s sprawling Eastlands area; which as of today has reached 9 according to the Daily Nation.

Changaa is a local brew that resembles vodka, Tanzania’s Konyagi and Uganda’s Waragi. However unlike it’s East African sisters, changaa has not as yet been legalised.

This is not the first such case in Kenya. In June 2005, 49 people died in Machakos (Eastern Province) after they consumed an illicit drink suspected to have been laced with a poisonous chemical, and it seems that such cases are not going to end easily.

A regular changaa drinker was quoted in the media after learning that five of his friends had succumbed to the Shauri Moyo brew as saying it was "bahati mbaya", bad luck.  However he added: "I will go back to drinking busaa, although it is more expensive, (than chang'aa)".  

Indeed as John Mututho the Member of Parliament behind the recently passed Alcoholic Drinks Control Bill asserts, that the deaths and blindness were caused by extra chemicals added to the brew and “sold to unsuspecting poor Kenyans in the name of chang'aa".

Some commonly used additives include methanol and ethanol. Methanol has a high human toxicity. If ingested, as little as 10 milligrams can cause permanent blindness destroying the optic nerve while 30 ml is potentially fatal. Based on its abilities to change human consciousness, ethanol is considered a psychoactive drug. Death from ethyl alcohol consumption is possible when one’s blood alcohol level reaches 0.4% and a blood level of 0.5% or more is commonly fatal.

If the historic Alcoholic Drinks Control Bill which repeals the Chang’aa Prohibition and Liquor Licensing Acts receives presidential assent, this will mean that brewers of such liquor will have to face stringent quality standards and inspections. However with the current enforcement agencies so far being unable to cope in preventing future loss of life and blindness, it seems that more has to be done to ensure that the vendors adding dangerous substances to these brews are stopped.

Unfortunately the business opportunities in this sector remain attractive for those seeking to make a quick buck. Changaa is popular because it is cheap. A mug costs Sh10 (approximately 20 US cents). It also has the added attraction of being readily available, though not on  supermarket shelves nor established bars.

And it is not just slum dwellers who have taken to changaa. Crippling taxes have forced formal sector brewers to hike their prices and the informal sector brewers have benefited from more customers due to their low priced product. However, unlike Kenya Breweries or Keroche industries who have to go through rigorous quality standardisation and expensive marketing to manufacture their products and attract customers, changaa brewing is a home based cottage industry where not even a hygiene inspection happens. Word of mouth is generally the marketing tool, and if the price remains low – customer loyalty is assured.

For the Bill (if enacted) to make any significant inroads in preventing the deaths that occurred in Shauri Moyo from happening again, emphasis must be placed on ensuring proper regulatory structures are put in place. The National Campaign Against Drug Abuse Authority (NACADA) has so far been instrumental in making the public aware of the hazards of excessive alcohol consumption. However, the main thrust of their campaign has been the “don’t drink and drive” approach. This means nothing to the changaa drinkers whose main mode of transport is their legs.

Though the objectives of the Bill are noble, there has to be a holistic approach that also educates the changaa brewers and consumers on the dangers of additives. However, as these vendors generally tend to operate from their homes, the Bill does not give cognisance to their informal business culture. To say that brewers will have to be licensed will only mean that many will continue to operate illegally. For those that do get the licence from the proposed District Committee’s, the prescribed licence fee will be passed onto the consumers meaning loss of market.

Even the application for licence procedures will be an issue for brewers who will have to provide “a comprehensive proposal on the nature, orientation and other justification for the establishment of the alcoholic plant” amongst other requirements.

It remains to be seen whether the Bill will make a difference in the lives of the  changaa consumers and brewers. Ensuring that the barriers to entry remain attractive but also strictly enforcing quality standards by providing the relevant agencies with appropriate resources will most definitely prevent future loss of life.

Missing files and Tender Entrepreneur Brokers

“The abuse of entrusted power for private gain is always fine for the one person doing it, but it becomes catastrophic if everybody starts doing it.” - David Pitt-Watson

Last night on the news, Kenyans got to witness Dorothy Angote, the Permanent Secretary in the Ministry of Lands leading what was a day-long graft busting raid on junior officials in her Ministry. The Ministry which handles nearly five million title deeds, has been continuously been named as being one of the top most corrupt public institutions in the country. For her efforts, the PS unearthed thousands of files that had been stashed, some of which had been “missing” since the 1990s.

Kenyans have long become used to the phantom menace called “missing” files. The ghost appears out of nowhere just when one needs to undertake a transaction with the government.

Anyway, Dorothy Angote’s impromptu raid at least saved some Kenyans from the cartel of rogue officers at the Lands ministry as well as what we shall politely call brokers, agents or tender entrepreneurs.

However, Ms. Angote’s prescription to the problem falls short of expectation when she announced that there would be a reshuffle and disciplinary actions for the errant officers. If the Lands Ministry was a private business, for sure at least there would have been mass summary dismissals, if not court prosecutions. To send a clear message, the punishment must be clear.

Kenya has not been alone in handling rogue brokers that encourage public sector corruption. South Africa has also been dealing with such brokers who because of their close connections to the political elite, seem to be amassing great wealth to the detriment of hard working entrepreneurs.

Bobby Godsell the chairman of Business Leadership South Africa was recently mentioned in the media calling for South Africans to stand up to tender entrepreneurs who benefited from state contracts.

He likened this business practice to "a form of economic terrorism" that imposes “a cost on state services and conferring no benefit”.

This came in the wake of allegations that the country’s ruling party ANC’s youth leader Julius Malema's who the BBC recently described “28, a little overweight, impeccably dressed, and rather fond of referring to himself with the royal ‘we’” had irregularly personally benefited from lucrative government contracts. However, Mr. Malema has denied accusations of unearned wealth by saying that he is merely the victim of a political conspiracy and a racist plot. 

Indeed Malema is just another example of South Africa’s “bling culture” which has for some compromised ethical business behaviour. Entrepreneurs have had to be linked to a politically connected personalities in order to effectively compete on the public sector market.

Back in Kenya, business cronyism in the tender sector has led to great resistance each time the government tries to institute measures that will even out the information asymmetry when it comes to public procurement. 

As we mentioned almost two years ago, the broker sector in Kenya has also become a culture where:

“You need a middle man to manoeuvre public processes. For instance, if one goes to the companies, lands or court registries, you have to more or less fight your way to the front of the queue. Brokers have taken precedence and because they have managed to become acquainted with the public officers, they tend to get their work done first … “

And it is this lack of transparent systems and promulgation of red-tape that have been a boon for the broker community. The cost imposed on not just entrepreneurs but every taxpayer in muddling through bureaucratic systems is what ensures that brokers shall always be in demand. After all, the opportunity cost of giving a broker a facilitation fee and lunch money to ensure that your application is submitted or your file is found, is much less than the cost of having to leave your business in order to chase up the matter yourself.

Then there is the issue of business competitiveness which has also had an impact on the need to fast-track (at whatever cost) government procedures. Bending the rules and paying the occasional bribe just to get a process fast tracked or even to be awarded a contract are common dilemmas faced by today’s entrepreneur. Moreover if one is doing it, then you can bet that others just to stay ahead of the competition will also do so.

It has now become recognised that an important catalyst to business growth is enabling entrepreneurs to compete on the public procurement market. And it is encouraging that young entrepreneurs are taking on the bottlenecks in the public sector, and developing new applications that equalize information asymmetries and promote transparency whilst combating public sector corruption. One such business is Tenders Unlimited, a new Kenyan business startup that provides databased access to tenders to business people.

Reducing the opportunity costs of red-tape frees up resources for more productive activities as well as spurring wider economic growth. Thus computerization of government documents should be implemented.

And finally to put rogue brokers out of business, procedures that require in-person attendance should be minimised. As seen by the influx of mobile phone money transfer systems onto the market, banks are now joining the fray and offering mobile payment systems that will eliminate the need for people to stand in long queues just to get their bank statements. Without ZAP and MPesa, chances are that the traditional banks would not have brought banking services closer to the people.

Now we are asking the government to bring it’s services closer to us taxpayers too.

Slum Safari’s: Tourists pay for the squalor and stench of poverty, not development

There was uproar on twitter this morning regarding Kibera Tours, a website advertising slum tours in Africa’s largest slum. Indeed Kibera Tours is not the first nor will it be the last outfit trying to make money out of poverty. Tourists seeking such experiences can go to Dharavi in Mumbai - the biggest slum in Asia, the favelas of Rio de Janeiro, South Africa’s townships or even Mexico City’s garbage dumps.

Such escapades have been made even more popular by celebrities who sometime go by the title “Ambassadors” such as Angelina Jolie and Chris Rock, who after a tour of the ramshackle huts, having had to hold their breath while passing the open sewers, ducking the flying toilets while walking the narrow footpaths and in front of a trash heap, maybe surrounded by big bellied snot nosed children, express outrage at the poverty and make impassioned pleas for more money to assist the people. Even the Oscar award winning movie Slumdog Millionaire put comedy into the scenario.

The ironic thing is that Kibera has the most number of NGOs, INGOs, CSOs, FBOs, CBOs, students on their gap year or whatever name they go by per square foot compared to the rest of Kenya. Yet, poverty persists, maybe a prime example of the economic law of diminishing returns.

Recently at Yipe.org we met a youth group from Kibera who told us they were into “eco tourism”. When we delved into their enterprise further, there was nothing eco friendly about their business. It was slum tourism pure and simple. However the lead entrepreneur was un-phased and said why care what it’s called or what it’s about when you make US$ 20 on a bad day! – this in a place where the majority live on less than US$ 2 per day.

Reading the customer testimonials on the Kibera Tour website makes one wonder whether the inhabitants have been dehumanised. Among the customer reviews posted on the site a few stood out:

“This is what our guests said after joining about our tour, our organisation and about Kibera: ‘It feels safe’ … ‘Very interesting to see. Unique experience! Friendly people! Solidarity and happiness. Impressive!’ … ‘Impressive to see how strong the people are’ … ‘I thought first it was very dangerous, but now I think every one was friendly and helping each other'….” And the list goes on …

So what is on display: the people or the slum environment?

The reviews above teeter dangerously close to the environmental determinism movement of the late 19th and early 20th centuries that got away with saying things such as people that live in the tropics are lazy, slothful and riddled with venereal diseases amongst other slurs. To objectify the “people” of Kibera in such a way is even worse because they don’t receive the cash for the tours; the tour companies do.

Further, objectification of the people comes on the advice posted on the Kibera Tours site to the tourists:

“Please don't hand out anything during the tour. So don't hand out money, sweets, pens, balloons and so on. This can create chaos and quickly may establish the assumption that tourists equal gifts”.

So, how come slum tourism seems to be the hottest business idea around, judging by the number of people involved? Well, it’s really simple. For an entrepreneur seeking to venture into such an industry the entry barriers are low; so low they are almost negligible. Kibera is an informal settlement which means it officially doesn’t exist. The sprawling slum has a reputation of being dangerous, so even police or local authority presence is low – so you can pretty much do anything without too much interference.

The startup costs are also minimal – the slum is already there and with rural-urban migration it continues to grow. No need to invest in infrastructure on that score. The “people” are also there for the tourist’s viewing, and with high fertility rates coupled with high unemployment levels (which would otherwise take them out of the slum) the total package is there.

What about attracting customers? With internet access getting cheaper one can within no time set up a slum-safari site and get interest from eager do-gooders from afar. Without much government regulation the dollars, yen, euros or whatever other currency goes direct into your pockets. In fact you don’t even need to share it with the “people”.

Demand is also inelastic, it would take a great calamity for a do-gooder’s heart to change (demand) and poverty (supply) will remain and even grow – making a perfect equilibrium point. Finally there are no sunk costs; indeed it is in the interests of such entrepreneurs that the slum stays just the way it is. Slum upgrading initiatives are thus the only threat for the business. Tourists won’t pay to tour high rise concrete apartments equipped with basic living facilities even if the people living there are the “people”. Tourists pay for the squalor and the stench of impoverishment, not development – that they do by donating money to aid agencies.

But what to do when even the larger travel companies are joining the fray? Victoria Safari’s which operates throughout East Africa has a package called “Africa Slums Tours” calling it “pro poor tourism”. From it's website pro poor tourism is described:

“the concept of pro poor tourism in Africa is not new as it has been and is being practiced in South Africa. Soweto and Shanty tours in Johannesburg and Cape Town respectively are not new tours but have been ongoing slum safaris that are changing the face of South Africa's Slum areas. Kibera Slum dwellers in Nairobi - Kenya are gradually beginning to reap the benefits of Kibera Slum Tours just as other Kenya Slums dwellers, courtesy of Victoria Safaris.”

If slum dwellers have been benefiting then wouldn’t that mean there would be no more slums to visit? Besides that, there is also the worrying aspect of the logo of Eco Tourism Kenya at the bottom of the Africa Slums Tours web page. Ecotourism Kenya is a civil society organization that was founded in 1996 to promote ecotourism and sustainable tourism practices in Kenya. Is slum tourism then sustainable tourism?

So will slum tourism continue to thrive? Of course as long as the barriers to entry remain low, and the government does its best to do nothing to uplift the lives of the millions of Kenyans living in informal settlements. And it is doing that job very well!

Security and accountability are free public goods!

Public goods are those that are non-rivaled and non-excludable. This means, respectively that consumption of the good by one individual does not reduce availability of the good for consumption by others; and that no one can be effectively excluded from using the good. Due to the fact that the use by paying and non-paying consumers cannot be controlled, governments have to step in to ensure provision of such social goods. In turn tax monies go towards enabling governments to provide these social services.

Internal security is one such public good that falls to governments to provide to citizens. Though private sector security companies complement government security, they are constrained in providing this service for all as they do not enjoy economies of scale on the one hand and also to provide security for all is not economically viable in terms of ensuring that all consumers pay for such services.

According to Paul Collier writing in an article titled “Development in Dangerous Places” another public good is accountability. Historically, rulers needed revenue for their armies, which in turn provoked pressure for accountability and good governance from the taxpayers. Ultimately, security and accountability to Collier are not just public goods but expressions of power.

In countries of Collier’s Bottom Billion however, social divisions reign supreme. This lack of national cohesiveness in turn makes it more difficult to provide public goods. For instance, the 2008 post-election violence in Kenya aptly demonstrated the weak bonding of nationhood where tribes hacked one another with machetes and arrows causing the nation’s internal security to run down the doldrums. Kenya, fortunately or unfortunately has in its independence not had to face a massive external threat from an external aggressor which would galvanise its more than 40 tribes into a feeling of being Kenyan against foreign attackers. The Somalia and Ethiopian border squabbles never even reached such a point because the Kenya is home to sub-tribes of both nations. And even the most recent Migingo Island squabbles, were over a piece of land that hosts more Kenyans than Ugandans.

This lack of social cohesion breeds numerous self-identities and cultures which clash, and not without blood being poured. What is left is a fragmented population, where for instance the hint that Luis Moreno-Ocampo intends to prosecute crimes against humanity, send politicians into a tizz, whipping up ethnic hatred at the drop of a hat.

The second weapon politicians use is to invoke the concept of sovereignty forgetting that sovereignty requires a sense of nationhood; something that they themselves have to ensure is muted, so as to contain groupings calling for accountability.

Collier even names the weakened status of the military in bottom billion countries as a tool used by the political elite to retain power. It is this same military that presides over hurried swearing in ceremonies of tin-pot dictators when they steal elections overnight. And it is this same military that terrorises the masses to accept these “democratic election results”. But, it is this same military that must remain toothless in order for unpopular leaders to survive.

During the Migingo saga, many Kenyans commented that a small military battalion should invade the one acre island to shut Museveni up. But Kenyans were told that diplomacy was the way to go, even after President Museveni himself insulted Kenyans and more specifically members of the Luo tribe, from whom the Prime Minister Raila Odinga originates.

This was not the first time Uganda’s army had tried to stray onto Kenya’s territory. In the Moi era, and indeed during Jomo Kenyatta’s reign, Uganda insurgencies were swiftly turned back, and it was common to find the borders being closed as a matter of national security. However, probably as a good neighbour Kenya has turned to diplomacy as its weapon of mass destruction. This in turn has also led to the proliferation of small arms which have intensified a heightened scare amongst citizens for their personal safety.

The impact on business

Providing a safe environment where firms can conduct their business is a key function of any government. Yet, around the world, as many as 15% of firms report losses due to crime. In spite of this, a much higher share of firms (almost 60%) protect themselves from theft by using private security services, which adds to the cost of doing business. Interestingly, 16% of African firms report losses due to crime, at par with Eastern Europe and Central Asia. However, over half of the African businesses employ private security firms. Consequently, African firms spend an unrivalled amount of money on security, equal to over half a percentage point of sales, which is considerably higher than East Asia or South Asia.

The Africa Competitiveness Report 2009 (ACR) shows that most of the competitive disadvantage of African firms is due to invisible costs—that is, losses experienced by factors that include corruption (non-accountability) and lack of security.

The business costs of crime and violence and the sense that the police are unable to provide protection from crime are particular concerns for African entrepreneurs. The ACR disaggregates security into costs of terrorism, crime and violence, organized crime and the perceived reliability of police services. Amongst the survey’s findings Morocco’s weakening security environment was found to contribute to the country’s declining competitive position. The security situation in Kenya is also extremely worrisome, particularly in crime and violence, the potential of terrorism, and the prevalence of organized crime.

Unfortunately for small enterprise, there is no significant difference in the cost of security services borne by small firms compared to medium and large ones (in terms of share of sales), nor is there a difference between foreign and domestic firms. Africa’s export potential is further impaired as local exporters tend to spend more (almost 10% more) than non exporters.

Within Africa, individual country’s competitiveness is also adversely affected by the lack of security. For instance, Egypt one of Kenya’s major competitors has relatively high levels of security and a resulting low cost of crime and violence for business. In terms of interest from foreign investors to set up businesses in Africa, security makes many shy away from putting their cash in jeopardy in unsecure environments. Mauritius has been able to exploit insecurity on the continent, benefiting from significant inflows of FDI over the past years in part due to the fact that the level of security in the country is good, particularly by regional standards.

Within East Africa, Kenyan 75% of firms have to pay for private security services. This is 5% higher than the regional average. Kenya also pays the highest cost for these services. In turn government accountability data in East Africa indicates that government wastage of resources is highest in Kenya and the country also has the highest perception amongst its business community that the police are unreliable.

Security and accountability are two public goods that make economic development and growth possible. History has provided more than adequate testimony that civil conflicts in poor countries last longer than international wars. With such a looming dagger hanging over these countries, unless security and accountability to address wrongs are provided (not at cost!), the interest of entrepreneurs to venture into business will be lost. Somalia is a prime example of this where revenues generated from enterprise (whether legal or through illegal means such as piracy) are stashed away in foreign countries, further plundering the country into a failed status.

Finally as Collier states accountability is indeed a two way street between government and citizens. Thus standing up to demand security and accountability is required of us all in the democratic spirit of no taxation without representation!

Robert Mugabe as COMESA’s new poster boy bodes ill for trade in Africa

The 13th Common Market for Eastern and Southern Africa (COMESA) Summit postponed twice since 2008 due to Zimbabwe’s political instability, is ongoing with preliminary ministerial meetings. The Heads of State summit is set to commence on June 6th where Robert Mugabe will officially take over the helm of the trading bloc from Kenyan President Mwai Kibaki.

According to COMESA’s vision, the regional union is meant to “be a fully integrated, internationally competitive regional economic communitywith high standards of living for ALL its people”. COMESA’s chosen approach to achieve this is through development integration involving a combination of trade development and investment promotion.

Mugabe: The Right Man For The Right Job?

At a time when Africa has been hit hard by the worst global recession, it is inconceivable that a man who single-handedly crushed his own country’s economy can be placed in a position over the economies of 19 member states with a population of over 400 million.

Mugabe has ruled Zimbabwe with an iron fist for the past 29 years. His past actions are in stark contrast to the bloc’s Fundamental Principles as enshrined in the COMESA Treaty which include the recognition, promotion and protection of fundamental human rights; commitment to the principles of liberty, fundamental freedoms and the rule of law; maintenance of peace and stability through the promotion and strengthening of good neighbourliness and promotion and sustenance of an accountable and just democratic system of governance.

However, the Mugabe hegemony has overseen countless lives being lost most recently from cholera which even spread across borders. Torture and extra judicial killings to muzzle opponents have also been widely used with the Zimbabwe Human Rights NGO Forum reporting more than 20,000 human rights violations including 3,000 acts of torture since 2001. Average life expectancy in the country since 1998 has fallen from 55 years to a paltry 35, in essence meaning that a Zimbabwean has a strong chance of not outliving their youth. Unemployment remains rife with over 90% of the working age population being jobless. Maternal and child health has degenerated to the point where nearly half of all Zimbabweans are at risk of malnutrition and starvation, and a child born in Zimbabwe is the most likely to die in the entire African Continent.

All this misery led to over a quarter of Zimbabwe’s populace fleeing the terror and misery. Yet Mugabe remains to this day either unrepentant or maybe unaware of the devastation he has wreaked on his country. He has numerously been quoted pointing fingers blaming his people’s woes on the British, Americans and any country he perceives to be at fault. Individual Zimbabweans who dare to question his policies have been branded as puppets of the West, overlooking the fact that he as well as his coterie of greedy associates have over the years looted the Treasury and in turn messed what was once seen as the breadbasket of Africa.

As a report The Zimbabwe Papers: A Positive Agenda for Zimbabwean Renewal concluded, the crisis situation in Zimbabwe is solely due to "policies adopted, decisions made, and actions taken by the government of Zimbabwe" – the ZANU-PF government of Robert Mugabe.

Nothing except for a fragile unity government has changed since November 2008 when the majority of COMESA heads of state who had been invited to attend the postponed summit, categorically told the Zimbabwe government of the day that they would boycott the summit.

Robert Mugabe does not stand for the promotion of trade. Hyperinflation and excessive government regulations have heavily penalised the country’s entrepreneurs. Hyperinflation reached a mind-boggling 231 million percent. His accomplice in looting state funds, Central Bank Governor Gideon Gono remains in office. Mugabe even had the temerity to declare that his lieutenant Gono would remain in office up until he leaves office come 2013.

On the authority of Mugabe, Zimbabwe’s Central Bank exercised imprudent monetary policies which included flagrant printing of money regardless of the impact on inflation and the ordinary Zimbabwean. Fiscal policies enforced punitive lump taxes on businesses, further hampering the chances of success for enterprises. Criminality and corruption were the order of the day, with embezzlement, kidnappings and all other manner of vile strategies being used in order to retain control.

The country’s standard of living fell by 80% in the last decade. Even the local Zimbabwe dollar has been suspended. Public utilities were progressively canibalised till the water system became contaminated, electricity erratic and fuel became so scarce that it's market value became akin to gold. Workers in industries were similarly punished when even their health became compromised as a result of a health sector that could no longer provide even the most basic essential drugs.

According to the Ease of Doing Business reports from the World Bank’s International Finance Corporation, it takes 96 days to start a business, 481 days to comply with licences and another 30 days to register a property. Zimbabwe also currently ranks 7th worst on the World Bank’s Trade Restrictiveness Index.

The years of destruction of social goods now means that Zimbabwe needs at least US$5 billion to revive its almost dead economy. Local industry which should be in the forefront of re-energising the economy virtually collapsed under Mugabe’s totalitarian regime. Production costs are hardly competitive within the COMESA region let alone the rest of Africa. The Zimbabwe papers report laments that Zimbabwe has become one of the worst places to start a business. So how can the same person responsible for this degeneracy promote trade? It beats belief.

As the Corporate Foreign Policy blog writes: Mugabe has created a situation so horrible that if he ever got to the Hague, they would need to invent a new charge for the man.

Though Zimbabwe’s economy has slowly revived after Mugabe and Morgan Tsvangirai formed a coalition government, a lot remains to be done. However, you cannot be part of a problem as well as part of the solution.

Why is it that the donor community is placing conditionalities on loans such as respect for human rights and the rule of law on Zimbabwe, yet COMESA whose basic tenets rest on the same principles cannot insist that Zimbabwe implements such measures? To elect such an individual, calls into question COMESA’s mission and role in improving the living standards of the over 400 million Africans it serves.