Out-growing AGOA

The Africa Growth and Opportunity Act (AGOA) – a deal that gives Kenyan firms duty-free, quota free access to the US market – received a lot of coverage in the Kenyan press this year. Most of this was focused on demands to extend an exception, set to expire in September 2012, that allows African countries to use textiles from non-African countries in its clothing exports to the US and still benefit from the preferential access to the US that AGOA provides. (Usually this kind of access is contingent on using inputs from your own country or countries from the same regional trade bloc, not third party countries – which is mainly China in the case of textile inputs into Kenya’s apparel sector).

Thankfully, the extension was granted, and now everyone is breathing a sigh of relief. So business continues as usual. However, this would be an misguided response. Business as usual is not enough.

AGOA provides Kenyan firms unprecedented access to the US, the largest market in the world. While AGOA lasts, Kenyan policy-makers and private firms should do everything they can to push into the US, taking full advantage of the leg-up that AGOA offers Kenya over its competitors. If AGOA is used aggressively, Kenyan firms will develop the experience required to meet demand in the US and beat its competitors when AGOA’s preferential access disappears, as one day it will.

Policy-based advantages

Launched in 2000, the preferential market access that AGOA granted played a critical role in spurring Kenya’s exports with the US. This was most dramatic in the case of apparel sector, which grew at a whopping 44% a year in the few years after AGOA’s passage. In effect, AGOA has created an apparel industry in Kenya on a scale that the country would unlikely have achieved without preferential access to the US.

However, the strong trade regime-based advantage that AGOA offers has meant that Kenya has developed an industry whose competitive edge is based on policy advantages and not firm-level advantages. The proffering of such advantages is based purely on the largess of US policy makers, leaving the textile and apparel sector very vulnerable. It needs stronger foundations. 

Reap what you can

AGOA offers Kenya opportunities that it cannot afford to pass up. The US is a huge market that offers Kenyan firms great opportunities for business growth. Therefore, the government and the private sector must do what it can to push for AGOA’s extension beyond 2015, when it is set to expire. Preferential market access is particularly critical for the textile and apparel sector. However, in parallel with these efforts, the government and the private sector should work to wean themselves off a dependence on AGOA.

Growth beyond apparels is important too. Supporting the growth of other sectors’ exports to the US will require targeted sector-level support to address barriers to US market entry, from market knowledge, to buyer linkage, to addressing non-tariff barriers such as US sanitary and phytosanitary requirements. Support of this kind will require considerable resources to deliver, therefore the sectors to which it will be directed will have to be carefully selected.

Finally, all businesses in Kenya face business barriers that make doing business difficult and costly. These are not unique to firms that are doing business with the US, but they are too fundamental to leave unaddressed. Therefore, getting serious on AGOA will require also actively focusing on the general business barriers faced by Kenya’s entrepreneurs, and specifically the ones that disadvantage its firms that export to the US. 

Finding competitive advantage out of policy advantage

Focusing on these three strategic priorities – lobbying for AGOA’s extension beyond 2015, focusing on helping US-focused exporters punch into the US market, and addressing general business barriers faced by Kenyan firms – will serve Kenyan firms that sell into the US well. AGOA’s extension will give Kenya’s apparel exporters more time to develop the skills and technologies required to compete with their more cost-effective rivals from South and South East Asia. Helping firms access US market opportunities, and working with them to overcome access barriers, will increase the range of sectors that trade with the US away from the apparel sector alone, offering wider and more secure business and employment opportunities for Kenyans. Finally, focusing on addressing business constraints across the board will help not only Kenyan exporters to the US but all Kenyan firms, which is good for business and good for the country. 

With the right strategic focus and concerted effort, AGOA can provide Kenya an amazing opportunity for economic growth. But Kenyan firms should not grow dependent on these advantages. They should use them with the knowledge that they will one day be revoked (or eroded because similar deals are extended to all other countries). Growing under the umbrella of AGOA’s special preferences is necessary and useful, but as Kenyan firms grow their experience and deepen their US market foothold, they will not need these advantages. They will succeed in the US not as a result of policy advantages gifted out of a room in Washington DC, but because they deliver products that US consumers’ want over what Kenya’s competitors provide. That will be good for US consumers; it will be wonderful for Kenyan firms and the people that they employ. 

Saving the past, building the future: Nairobi’s need to celebrate its architectural heritage

Nairobi is a fast-growing city, with many of the city’s neighborhoods enjoying an unprecedented property boom. With this growth comes destruction – old residential bungalows get replaced with apartment blocks, two to three storey shops with office buildings.

The pace and scale of development means that Nairobi is losing many of its older buildings fast, some of which are historically and architecturally noteworthy. In these instances, Nairobi is losing the structural representations of its history and the different cultures that have shaped the city, one of the most cosmopolitan in Africa. Once lost, this heritage cannot be regained.

Recognizing the past
Preserving Nairobi’s architectural and cultural history has to begin with recognizing this history. This requires identifying noteworthy buildings in Nairobi and developing a list of them.

This kind of process is not new: a list of buildings of historical and architectural merit for Nairobi exists, which includes wonderful old buildings such as McMillan Library and Khoja Mosque. The majority of the buildings on this list were built between the 1910s to 1940s; many are institutional buildings in or around the city center.

However, it is in its residential areas that much Nairobi’s growth is happening. In advanced economies, the residential property market is estimated to be worth $52 trillion, compared to a $28 trillion-sized commercial market. Kenya does not seem to diverge considerably from this trend of the dominance of residential property investment.

Furthermore, most of the city’s buildings have been constructed after independence, so the bulk of the city’s architectural past is embodied in relatively new structures.

All of this means that in a new city like Nairobi, its architectural heritage lies in less obvious places: in its residential neighborhoods and in the relatively recent past. Seeking out and recognizing these small or unobvious ‘gems’ is the next step of a listing process that Nairobi should embark on.

Celebration, not regulation
This type of listing process will not likely lead to any immediate or obvious financial gain for the buildings’ owners. There are limited public resources available to preserve buildings purely for the sake of their architectural merit. However, neither should it come with any formal restrictions, as is the case with some listing programs – legal restrictions will likely be met with strong resistance.

The listing process proposed would merely recognize the fact that a building’s owner posses a noteworthy building. Such recognition will carry with it an implicit request that the building’s owner do what they can to preserve it, making the owners unofficial custodians of Nairobi’s architectural heritage.

This kind of wider and deeper listing process would therefore be more about celebration, not regulation.

A guide for the future
Aside from conserving the past, recognizing and celebrating the best of Nairobi’s architecture will ideally also raise the profile of good architecture and quality construction today.
Good buildings improve a neighborhood and give pleasure to a wider public than just their occupants. Together, they shape the feel of a city and help to create its identity. This is the case for all kinds of buildings, from the grand, like New York’s Chrysler Building, to the more modest, such as the family homes that line Amsterdam’s canals.

However, all of these buildings share something in common: their builders strove to create something that would extend beyond themselves and their own generation, at times ostentatiously, at other times quietly. But all of them wanted to build something that was in its way remarkable.

This kind of mentality is not unique to New York or Amsterdam. Builders and designers in Nairobi have also shared these traits. We need to now go into our neighborhoods and scan our commercial streets to locate the products of their efforts, to celebrate good buildings and their creators, and draw on them as inspiration to do similar: to create a Nairobi today that will be a source of pride and pleasure for the generations of tomorrow.

Underselling Kenya

My friend Daniel, an Australian, marked the life-changing event of his second marriage by a honeymoon to Mauritius. I was surprised at the time by the choice: Mauritius is not close to Australia, and I thought the island to be generally underwhelming.

I had briefly worked in Mauritius as a graduate student, spending three months on the island. I had a wonderful time there, but pretty much concluded that I would not be back. There are many exciting places in the world to visit, and not enough time to experience all of them. Only great places will get return visits and, by my reckoning, Mauritius was not one of them. Beaches? They are almost common in our easily accessible world, and many are better than what you generally find on Mauritius. Cuisine? I was excited to feast on a blend of Creole, Indian and Chinese, but found that they generally served a watered down version of each. Women? My expectations were identical to what I wanted from the cuisine. I will not comment on the experience.

Succeeding where it counts
However, unexciting as Mauritius is, in my opinion, as a tourist destination, it is nonetheless a hugely successful destination. According to the United Nations World Tourism Organization (UNWTO), Mauritius received 870,000 visitors to Kenya’s 1.3 million in 2009. This is about 60% of Kenya’s number but when Mauritius is less than 1% the size of Kenya.

Visitor numbers tell only part of the story. What they spend per visit – the equivalent of a product’s price, and so its market value – is hugely significant. Drawing again from UNWTO 2009 data, Mauritius earned approximately $1,282 per visitor compared to Kenya’s per visitor earnings of $496. This means that not only do large numbers of tourists want to visit Mauritius, but they are also willing to pay top dollar for the experience.

This begs the question: with a superior product in terms of raw attributes, why is Kenya so badly underperforming in comparison to Mauritius?

A great product, thrown away
People in the industry will tell you that security issues are a key explanatory factor. After each international headline-grabbing violent event in Kenya – the 1997 Likoni riots, the 2002 hotel bomb in Mombasa, the 2008 post-election violence – large travel agents made the resumption of charter flights to Kenya’s coast conditional on substantial price reductions. As a result, hoteliers’ margins were pushed down, forcing them to focus on volume instead. So they were pushed into a mass tourism model.

The movement towards mass tourism brings problems upcountry. Visitors to the Maasai Mara regularly complain about the density of vehicles around the big five, usually forming a disappointing backdrop to visitors’ wildlife photographs. Things have gotten so bad that other destinations in Kenya, such as private sanctuaries, actually focus on the fact that they are ‘not the Mara’ as a major marketing draw. This would be equivalent to Egypt going to market with a campaign that encourages travelers to visit the country but avoid the great pyramids of Giza.

Some selective visitors do in fact avoid the Mara. To their way of thinking, its splendor has been overrun, and so second best alternatives in terms of the raw product on offer end up presenting superior holiday experiences.

A downward spiral
So Kenya is finding itself in a vicious cycle of a degrading tourism product which is sold at a discount, requiring the industry to focus on increasing numbers, which further degrades the product and forces further discounts.

Turning this trend around is on the government’s mind. It states that it wants to focus on a higher-end tourism market segment. However, if Kenya’s tourism sector is to extract a price premium, it will need to invest in improving its product. Much of what needs to be done will fall on the shoulders of the government, as markets alone have led to the currently unsustainable model.

Bold action required
So where to start? Beaches need to be policed for crime, and the minor but annoying pestering of tourists by beach touts controlled. Shacks that crowd many beaches on Mombasa’s North Coast, and increasingly the South Coast, will need to be relocated to a limited number of well designed markets or bazaars. Urban sprawl that presses close onto tourism areas will have to be managed through thoughtful zoning. Some architectural guidelines would also be useful.

Strengthening the wildlife-related product will be more challenging. Limiting the number of visitors to certain high-demand parks, through limited entry permits, will work, as it does in Rwanda with regard to gorilla trekking. With fewer visitors, but each enjoying a less crowded experience, the parks and lodges within high-demand parks will be able to charge higher entry fees and accommodation rates. In short, a price premium for a high quality experience.

This may mean that there is space for fewer lodges in such parks, and existing ones may even need to be phased out. This will not be good for the owners of lagging businesses, but better for the industry as a whole as the parks are left less degraded and the price charged for the experience rises.

Dispersing benefits
Limited permit numbers for certain parks also encourages visitors to travel to other ones where access is easier and cheaper, taking pressure off places like the Mara and opening up new investment opportunities in other destinations. This means not just new investment but also more widely dispersed investment, and with it more widely spread economic and employment advantages for different communities.

Being worthy
Kenya holds the promise of being one of the most prized travel destinations in the world. It has a fundamentally wonderful tourism product, but one that it is both under-selling and eroding. The government wants to change this, but doing so will require bold action that leads to a revival of the basic product.

Wanting something is one thing; deserving it is another. Let the policy chiefs prove themselves worthy.

Smoke

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know.” - Donald Rumsfeld, ex-US Secretary of Defense

“Kenyans know what was going on in this country and they would like to see what they know reflected so if they see something which goes against the reality of what they know then they question it.” - Alfred Mutua, Government Spokesperson, referring to reasons for why the Government of Kenya is seeking a deferral of International Criminal Court cases against six Kenyans.

Sweat the small stuff, but don’t stop there

I once got off a bus in a deserted back street of New York City’s China town at nine o’clock at night, holding a weekend bag, with not a soul insight. But, I was totally at ease.

In many other cities, a street at night with no cars or people, and shuttered shops all around, would feel very uncomfortable. In Manhattan, or at least the Manhattan that I know, this is not the case. It may in parts look sinister after dark, but to people who know New York and its neighbourhoods, it is not. It is not just a great city; it is also a safe city.

This was not always the case. In the 1980s, New York had a reputation for being one of the most crime-ridden cities in the United States. However, in the 1990s, New York took a sudden turn: murders dropped by two-thirds, felonies were cut in half.

The broken windows theory

Why this happened has been the topic of considerable discussion. One widely accepted explanation appears in Malcolm Gladwell's book, “The Tipping Point”, where Gladwell looks at how products or trends suddenly tip from obscurity to being national or international phenomena or, as in the case of New York, from being crime infested to safe.

Galdwell explains that key to New York’s tipping was the implementation of the ‘broken windows’ theory. The thinking behind it ran: if people see a broken window in an empty building, they will feel little guilt in throwing a rock at the building and breaking an additional window. With two broken windows, the pace at which the remaining windows are broken increases dramatically, and the empty building becomes derelict. Like broken windows, dereliction spreads. From the one window, to the rest of the building, to then other buildings. So can start the decline of an entire neighbourhood.

The fix lies in stopping the first transgression, the signal that says that it is okay to break windows or, by extension, engage in other forms of illegal activity. So this is exactly what the New York City administration began addressing: graffiti was scrubbed off subway carriages and people who dodged subway fares were chased down and fined; above ground, littering was policed.

And so started a change in the perception of New Yorkers about what was allowable and what was not.

Quite quickly, people who may have transgressed the law in minor ways stopped, simply because the message was sent that it was not okay to do so. Crime rates went down because people did not allow themselves to slip into criminal acts, spanning from littering to robbery.

Low-cost enforcement

In this tale of transformation lie lessons for cities other than New York, and maybe not just cities but whole societies. The key lies in understanding that minor laws that are comparatively easy to enforce should be rigorously enforced. The cost of doing so is low, but the signal it sends to society can be as substantial as the enforcement of major laws.

This means that small things, such as making cars stop at zebra crossings for pedestrians, enforcing matatu speed limits, or coming down on the thousands of daily instances of petty corruption, become more significant than they immediately appear. They are part of a larger package of changing attitudes that laws should be respected, big and small.

A Kenyan example

Kenya is not new to this approach. As transport minister in 2003, John Michuki made matatus comply with passenger numbers and speed limits, the big stuff, but also went on to require that they are painted in a plain and uniform manner (white with a yellow stripe) and that touts wear uniforms. These comparatively minor requirements – that have seemingly little to do with passenger safety – were, presumably, put in place to enforce a wider culture of compliance among matatu drivers, touts and owners. On their own such rules may seem petty, but in light of larger tipping theories, they can be potentially important levers of behavioral change.

So, the message is: sweat the small stuff when it comes to law enforcement, as it can be pivotal in bringing about the bigger changes that a society seeks. And at a relatively low cost.

But also take on the big stuff

However, important and much over-looked as the small stuff is, it is not sufficient. While New York was busy enforcing small regulations, it also massively expanded its police department, invested substantially more in police training, and gave its cops greater ‘freedom’ in law enforcement. These measures also all contributed to New York’s transformation.

This means that while Kenya’s move to put its ministers into Passats is a smart decision in terms of sending a message to public servants that they are in their positions not to gain prestige and wealth but to serve the public good, this alone is not enough. The Kenyan public still needs to actively scrutinize government activity and prosecute suspected malfeasance. Important as symbolic acts are, they are not enough without accompanied enforcement of the larger rules.

This is well demonstrated in Ethiopia. Our northern neighbour’s version of matatus are all painted plainly and uniformly: white with a simple blue stripe. Mr. Michuki would be impressed by their tidiness. However, while they are made to comply with the small stuff, this is where their compliance stops. They drive dangerously, putting lives at risk. The residents of Addis are unimpressed with their tidy but dangerous matatus. They refer to them simply as: blue devils.

Managing Kenya’s Beaches

Mombasa’s hotels have grown steadily in size over the years. I recall staying in intimate, mukuti-roofed hotels as a child, with buildings nestled in tropical gardens. Since then, most of these properties have expanded into multi-swimming pool complexes, with rooms numbering into the hundreds. When out at sea, massive concrete blocks tower visibly over the palms.

However, not all hoteliers have followed this path. I was reminded of one hotel group’s more enlightened approach to business when I recently stayed at their property on Mombasa’s North Coast. This hotel draws extensively on Swahili architecture, and with small buildings clustered around fountains and benches, they strive to create an atmosphere similar to a traditional - and very appealing - coastal town.

Unpleasant beaches
However, I experienced a shock as I transitioned from this environment to the beach. The beach was surprisingly crowded, which I was unused to in Kenya. On a closer look, I realized that it was not busy with tourists (sadly, there were very few) but with a number of makeshift shops and crowds of beach experience touts (otherwise known as beach boys or, less generously, beach bums). There was not enough space on the beach for a good evening run. Disappointed, I withdrew to the hotel.

This is not the kind of experience that visitors to Kenya should have. It was okay for me: I was over only from Nairobi and for work. However, I would have been upset had I traveled thousands of miles, spending a substantial amount of my hard saved income in the process. I would likely not book a return visit to Kenya’s coast.

Business at a cost
The issue of informal entrepreneurs on Kenya’s beaches is an old and not uncontroversial one, like many other cases of Kenya’s informal economy. Beach experience touts say that they have a right to try to make an honest shilling, and that the economic benefit of Kenya’s tourism should be spread more widely beyond the large hotels and tour companies. They have a valid point.

However, the question that needs to be asked is: are these entrepreneurs’ rights being protected at the expense of a larger industry and, if it is a major one, at the expense of the wider economy?

Tragedy of the commons
The root of the problem is that Kenya’s beaches are public land, open to everyone. Like many public spaces, they risk being over-exploited if not effectively managed.

As to why this happens, the explanation runs like this. As a tout, my interest is to maximize the money I earn each day on the beach. I will push hard to do so, aggressively encouraging every tourist that I come across to purchase something from me. If my tactics border on harassment, so be it - if I do not sell hard, someone else will, to their benefit over my own. This may in the long run reduce the number of tourists that come to the beach; however, acting on my own, I will not be able to stop this trend, because other touts will continue the aggressive sell whether I do or not. So, better I not miss out in the short term gains, and continue my hard-sell approach regardless of the long-term impact on the resource base on which I depend.

This problem of knowingly over-exploiting publicly held resources in the short-term at the expense of long-term sustainability is referred to as the tragedy of the commons (originally advanced to explain the overgrazing by individual animal herders of communally owned land).

Better management
One way to manage this issue is to address the ownership dimension of the problem. In short, privatize the resource. Having invested substantial capital into owning a stretch of the beach, it will be in the interests of its new owners to look after it, not just now but into the future. They will actively police the kind of experience that high paying visitors have on their beach.

However, Kenya’s beaches have always been public goods, and few would want the enjoyment of such a wonderful national resource to be restricted a paying few. Therefore, if the beaches are not to be auctioned off into private ownership, then it falls upon the government to manage them better for long-term advantage.

Like all effective management, this will entail establishing standards and enforcing their compliance. This translates into controlling how the beaches are used so that they are not excessively crowded and that tourists do not feel too harassed. Simply put: controlling the beach experience touts.

Doing so will likely include a mix of:

• Limiting places where shops can be set up, so as to leave the main part of the beach open for walking, exercising and the enjoyment of long, uninterrupted views
• Developing and enforcing guidelines on how touts can solicit visitors’ business
• Limiting the number of touts who operate on a given stretch of beach through licensing, which would also be used to ensure compliance with behavioral guidelines.

All of this may sound a little trivial (or draconian, depending on your perspective). However, when you have substantial hospitality investments for which the main attraction is the beach, there is nothing trivial at play here. What happens on the beach has the potential to substantially impact the success or failure of an investment that runs into millions of dollars.

… for the greater good
Beach management policy - or a lack of it - does not merely impact upon beach hotels. Kenya’s beaches are an important part of Kenya’s larger tourism offering, often combined with inland safaris. Managing Kenya’s beaches such that visitors have a positive experience encourages tourism in general, which, according to World Travel and Tourism Council estimates, accounts for almost 9% of Kenya’s GDP and employs over 7% of the work force. The issue of beach management does not only concern hotels on the beach and entrepreneurs who ply their trade there, but anyone who cares about Kenya’s wider economy.

However, any beach policy will without question affect the hoteliers and touts most directly. For the hoteliers, the impact of good policy will be unambiguously positive - things can only improve from the current state of affairs. For the touts, not all of them will immediately benefit. Those that comply with guidelines and win licenses to work the beach will receive support in things like product development and face less intense competition. Their business should do well.

For those that do not manage to secure licenses, things will initially be more difficult. However, with tourism down as it is today, and many touts turning from cool hustler to plain beggar, they cannot be much worse off than they already are. And eventually, as Kenya’s beaches regain their reputation for being great places to relax and enjoy the sun, sea and sand, tourism will have a better chance of revival. With this will come new and interesting employment prospects, particularly for people who already have tourism experience, albeit informally.

This may mean, however, that a couple of guys will need to tame their dreads and strap on bow ties.

NEMA is Not Enough: Kenya’s Need for Urban Planning

Kenya’s National Environmental Management Agency (NEMA) found itself regularly covered in the media this year with regard to the environmental impact of a number of housing and commercial developments that were controversially cleared by the Agency. Much of this revolved around developments allowed in riparian reserves - the area bordering rivers that should not have any permanent structures within 30 meters of either side of a river’s central point.

That this issue has received attention, with questions raised as to how effectively NEMA is serving its environmental watch dog role, is good news. However, the need for sound regulation and its enforcement with regard to the nature and type of development occurring in Kenya’s built environment goes beyond environmental concerns, and therefore beyond NEMA’s mandate.

Many of Kenya’s cities and towns are developing without current or sufficiently detailed growth plans in place. Nairobi has one of the most comprehensive zoning plans. Divided into 20 zones, the plan specifies how each area is to be used and recommends minimum plot sizes for each. For example, zone 2, roughly the Pangani and Eastleigh areas, allows for a mix of residential and commercial uses with minimum recommended plot sizes of about one-twentieth of a hectare.

However, this zoning plan was developed in 1979. Since then, the city has changed enormously and most of the zoning restrictions have been circumvented. The means by which this occurs is relatively simple: a developer applies for a change of user for his plot of land, say from residential to commercial. All change of user applications have to be posted outside the plot and in the newspapers. So long as no one objects, he pretty much gets to change how his land is used, and in some cases very substantially.

In cases where change of user applications are objected to by residents from the surrounding area, the final arbiter in okaying the development is usually NEMA. So long as the environmental audit - which, in a case of a bizarre conflict of interest, is paid for by the developer - shows that the change of user will not cause excessive environmental damage, the development is for the most part cleared. Zoning guidelines, in terms of commercial versus residential usage and density considerations, are generally taken to be indicative and can therefore be ignored. The main decision is made primarily on environmental grounds.

This is mistaken. The negative impact of a new development on the surrounding area can be more than environmental. For example, a small bar opening in a residential area may have little more impact on the natural environment than a couple of residential houses. However, a bar will certainly strongly impact its neighbours and how they are able to continue to use their property. Music and crowds may prevent them from having a quite family dinner in their patio, and, worse still, keep them up into the night. Should it be so bad that the family has to move to regain a normal level of residential peace, they will likely have to sell their property at a discount to compensate for the disturbance caused by the bar. (Unless they sell it to the bar owner; however, the problem continues - it is simply transferred to the next residential neighbour).

Therefore, built-space development concerns are not only environmental - they are fundamentally about maintaining property value (presumably a concern of many Business Daily readers).

The case of an economic benefit accruing to one individual (the bar owner) at the expense of society (his neighbours) is a classic case of market failure, similar to that of a polluting business making money at the expense of coughing children. Fixing the market’s misallocation of benefits and costs requires regulation, much the same way that cases of environmental pollution do. The regulatory fix in this case is a set of well considered and actively enforced zoning regulations, which detail the type of development allowed in a specific area of a town or city. Because all cities are constantly changing, such plans need to be regularly reviewed and occasionally revised. The revision of Nairobi’s 30 year old plan is much overdue.

The zoning revision process will be messy. There will be conflicting ideas about what the future destiny of an area should be. However, the conflict will have to be faced head on and compromises struck. Once done, property owners will have more certainly as to how their land and that of their neighbours can be used, now and in the future. This allows them to make informed decisions about whether to stay put or to sell off and move to an area with a different zoning profile. For those that do move, at least they will be assured that their next neighbourhood will not suddenly change on them from, say, a quiet residential area to a strip of choma joints.

Town planning or zoning is key to ensuring that people who purchase property do so with a good degree of predictability as to how their neighborhood will develop in the future, helping to inform their decisions about how to spend their hard-saved income. However, other than issues of property value and land use predictability, good zoning also ensures that different neighborhoods maintain their distinctive character, helping to manage the wonderful diversity that makes cities such interesting places in which to live.

Nairobi and other cities in Kenya have developed with not enough planning. There is time to rescue them still, but the zoning must start now.

The Uncelebrated Double Bottom Line Business

My father is a furniture manufacturer. This was something of which, as boy at a private English boarding school, I was not very proud. As pure money-makers, and many self-made, businessmen were somewhat looked down upon. Better that your father was a professional - such as a doctor or lawyer - and a good portion of his wealth inherited from the previous generation. However, I found that in the United States, this mild but perceptible stigma did not exist. Many of my classmates were from opportunity backgrounds not dissimilar from the privileged boys at my boarding school, but their parents had pursued a wider range of careers. There were the doctors and lawyers, but also scrap metal dealers and farmers. There were a lot more business people in the mix. Business and money-making was fine, and entrepreneurial fathers and mothers were celebrated.

My sense of the United States’ embrace of entrepreneurism grew stronger as I graduated at the peak of the dot com boom. Entrepreneurs were glorified in the media and seemingly everyone wanted to be one (except for me - I stuck to my public sector guns). Yet, there was still a segment of society which frowned upon pure profit-making motives, and their voices grew as the dot com bubble burst and the misdeeds of the likes of Enron (then) and American International Group (AIG) (now) were exposed.

So, a new breed of entrepreneur is gaining profile: the for-profit social entrepreneur. This is a business person who is interested in making-money, the bottom line of every business, but is also concerned with spreading good in the world. For example, she may manufacture bed nets, selling many thousands and making a decent profit, but in the process also helps to save people from malaria carrying mosquitoes. The money-making and life saving are of equal importance: she has a double bottom line. Being a social entrepreneur with a double bottom line is increasingly becoming the thing to be for young bright things launching themselves into the world, replacing the dot comer as the trendy entrepreneur.

However, the degree to which a business is a double bottom line business is difficult to clearly define. It is relatively easy for many businesses to make the case that they provide important social goods. With some obvious exceptions, such as businesses that produce valued (by some) but unhealthy narcotics, the very fact that people buy a business’ products can be taken as proof that what they produce has social value. If not, they would not be in business. In fact, businesses that were previously simply meeting a market need, such as providers of irrigation systems, are now recasting themselves as businesses with social missions. They are not about selling pipes; they are about helping farmers access reliable water supplies to feed their families and the larger nation. What was previously just good business is turning into being a good business. With a bit of spin, previously single bottom-line businesses are finding additional bottom lines.

However, being lost in this rebranding process are businesses that have for generations had double bottom lines, businesses that are vehicles of both economic advancement and social well being: the family business.

Family businesses are owned and run by members of a single family or small group of families. The children may go to Berkley to study Anthropology, but invariably eventually come back home to take up a position of responsibility in, say, the edible oils factory. The business is there to make money, but equally to offer a livelihood to the next generation of owners. In fact, they are often there to employ previous generations too. My friend’s grandmother has no clear title or responsibility in their family business. It is not entirely certain that she is a necessary part of its daily operations. But she nonetheless has a definite place there: staff are expected to respond to her suggestions; she takes a monthly pay cheque home; and she delivers her grand-daughter written applications for leave two weeks in advance (on her own insistence). My friend and her mother know that so long as cu cu (pronounced sho sho, meaning grandmother) is actively employed, she will have a more fulfilling and, likely, longer life.

This ethos does not only apply to family members of the business’ owners. Many of the workers in my own family business are related to one another, because as one received steady employment in our firm he asked that other family members also be included. The same applies to our workers’ children, some of whom joined the firm as apprentices on finishing high school and have now been with us for many years. This means that our business is making a second-generational transition not only at the ownership/management level (predictably, I’ve chucked in the whole public sector thing and become a rough around the edges manufacturer), but throughout. Like my friend’s cu cu, we have a number of older staff on payroll who would have been retired years previously purely from a productivity stand point, but who are kept on at work to stave off the boredom of retirement.

Family businesses are not only about profit maximization. They are also safe havens, places where young and old alike can find a source of income and meaning through work. In various and not always insubstantial ways, these businesses make efficiency trade-offs to find a place for members of the family to employ themselves. Often, this concept of family is drawn quite widely to extend beyond the owners to include all of the people who have contributed to the growth of the business over decades and even generations. The social good that they generate - their second bottom line - is not so much in terms of what they do, but how they go about doing it.

It is time that family businesses realize this about themselves, and begin to put some spin as they go to market on their natural - almost inbred - commitment to a double bottom line.

The Government Sets Quality Standards for the Private Sector. Really?

Kenyans are unabashedly capitalist. During the cold war, Kenya aligned with the west, even while a large number of developing countries, including our neighbors in Tanzania, leaned left towards the Soviets. With the end of the cold war and the dominance of market-based economic models, Kenya increased further the economic space for the private sector, dissolving government-run cooperatives, opening up markets in which government enterprises previously had a monopoly, and privatizing state-run companies. For the most part, the increased room given to the private sector was well received by the Kenyan consumer. To use the telecoms market as an example, private firms that entered the market saw meteoric growth as Kenyans flocked to their services away from the government incumbent.

Therefore, the recent move of the government to establish a wide reaching standards system for all products on the market, led by the Kenya Bureau of Standards (KeBS), seems out of character with Kenya’s long-established embrace of the market and all things private. Seeing as Kenyan consumers for the most part gravitate towards privately produced and delivered services, is there really a need for the government to add its stamp of approval into the mix? Will it add any real value for the consumer? Will the average Kenyan buyer even care?

The urge among public agencies to create standards systems that govern private sector products is not unique to Kenya. When working with the government of Afghanistan to create a strategy to lead the reentry of its carpet sector - the country’s largest export after poppy and its derivatives - into global markets, I was often asked about what role a formal standards regime should play to facilitate the sector’s growth. My response was: let’s ask the market. In a survey of carpet buyers in the US and Germany (the two largest carpet markets globally), we found that a formal quality guarantee ranked 12th out 13 product attributes to which buyers attributed value. Predictably, design, fiber quality, and price came top. Therefore, the message we took back to the government was that quality is hugely important, but that a formal quality regime - particularly one run by a government - is not.

Why are government quality regimes often not relevant? First, the officers who run them will not have as indepth knowledge of a particular product as the private producer who makes it. A smart and active business person constantly gages customer demand and adjusts her product to respond it, monitors closely what her competition are doing and copies what she likes, and constantly adjusts her product to strike the right balance of price-to-quality. She does this all day, everyday, and most probably nights and weekends too. Up against this, a government bureaucrat will contribute little, particularly as he has to cover a wide range of products and industries. This renders the government’s opinion, or stamp of approval, comparatively meaningless. However, while being of limited utility, obligatory quality standards compliance can be quite costly - there are a range of fees to pay and lines of bureaucrats (who often don’t really know what they are looking for) to manage. This cost is invariably passed on to the consumer through higher prices.

The second reason why government quality regimes are not important is that a hugely effective private quality regime already exists: the market. There are certainly businesses that make shoddy products; however, they do not flourish. There may be a time lag between when a business produces a sub-standard product and when the market punishes the owner for it, but this is often not long. Soon the business’ reputation for poor work is publicized (people talk), customers go to their competition, and the business either remedies its quality issues or closes shop.

Is the market a perfect quality enforcement regime? No. We are more acutely aware of market imperfections and failures now that we were about a year ago, and that markets need to be regulated is taken as a given (and should have been anyway). Laws are needed around things like health and safety standards, establishing minimum standards that all business must offer their customers regardless of the price that the customers are paying. There is also a clear need to ensure that businesses conduct themselves in a way that minimizes destruction of the natural environment. But none of this is actually what KeBS focuses on. These areas of market failure are already regulated and have been for a while, by departments within a mix of ministries such as labour, health and the environment.

Market imperfections around information on quality do not call for heavy handed government intervention. First, information asymmetries correct themselves in time. Second, there is a huge amount of easily accessible information available on businesses and their products on the internet. Sites such as TripAdvisor provide platforms where customers can rate and provide comments on hotels and restaurants across the world, while Amazon does this for the huge variety of products that it sells. So the informational advantage is shifting away from sellers towards buyers. Third, formal quality rating organizations already exist for a range of sectors, such as the AAA diamond rating system for hotels in the US. As industry-focused organizations, often staffed by industry veterans, they know a lot about quality and standards in that sector. Their opinion is well informed, so it is a great means by which to help customers select a product in terms of price-to-quality trade-offs. But these are often privately run and managed organizations to which businesses voluntarily sign up to be rated.

The government can, however, help to facilitate the flow of quality information in the market, particularly where there is not abundant information on different businesses and products available, as is the case in Kenya compared to, say, the US. For example, the government could create a site where different companies voluntarily post their profile and subject themselves public rating and reviews. Companies that consistently please their customers will become well known, those that do not will get found out, and those that choose not to participate will raise eyebrows. What is important is that the judgment passed is that not of a couple of bureaucrats but of a bunch of consumers; the bureaucrats’ job is simply to facilitate the flow of information.

In market economies, quality certification systems are largely unnecessary. Where they are needed, they are most useful when market-determined and customer oriented, as are all good businesses themselves. Government agencies are ill-equipped to play this role, because they understand too little about both the market and customer orientation. Best they stick to basic standards and what we pay our taxes for: good education, reliable healthcare, quality infrastructure and safer homes.

(For an informed and amusing take on why governments are not well positioned to offer quality ratings for hotels, see James Martin at http://goeurope.about.com/cs/hotels/a/hotel_stars.htm)

The Shaft of graft

Dr. Smokin Wanjala