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TRADE INVASION

Control influx of foreign-owned supermarkets

From a trade policy perspective, this is not as positive a development as it looks.

In Summary

• The shivering and shrinking of domestic players in the distributive trade is therefore an indictment on Kenya’s policy approach and stance.

• Protection of domestic industry is paramount for any economy that yearns to structurally transform and become industrialised.

Foreign supermarkets
Foreign supermarkets
Image: OZONE

The recent past has seen an influx of foreign-owned supermarkets establishing in Kenya.

From the French-owned Carrefour, Botswana's Choppies, South African Game, Shoprite, Woolworths to mrp (Mr. Price), there is a sudden appetite in Kenya for the distributive trade.

With Kenya’s middle class being ranked as one of the fastest growing in Africa, this appetite is expected. A walk through most shopping malls in Nairobi today feels more like a walk through a South African city with the chain stores lined one after the other. Unsurprisingly, most of the consumer goods on display in these stores are largely manufactured in South Africa. What do Kenyans stand to gain or lose with this invasion, and what needs to be done to get it right?

Through my perkier lenses, the competition brought about by these chain stores denotes that the ultimate consumer has a broader assortment to choose from at the cheapest cost. Most of these chain stores have access to cheaper finances at their home countries, which among other factors enables them to offer their goods and services at cheaper prices compared to our indigenous stores that suffocate under the choking fumes of the awfully expensive and often inaccessible finances. With the painful demise of Nakumatt and the dwindling fortunes of other local supermarkets, the relief brought about by the foreign stores in Nairobi is palpable.

From a trade policy perspective, this is not as positive a development as it looks. The dwindling prospects of the domestic players in the distributive trade sector coupled with the influx of foreign chain stores bespeaks a lacuna either in policy formulation, implementation or both by government.

In international trade law terms, cross border movement of services and service providers is largely governed by the WTO’s General Agreement on Trade in Services to which Kenya is one of the pioneer signatories. This agreement allows countries to make commitments on the service sectors for which they feel safe enough to open to foreign competition and those that remain closed.

Supermarkets fall under distributive services in the classification by WTO. It would, therefore, be interesting to know the nature of commitments that Kenya made in the distributive services sector to the WTO or in bilateral and regional agreements.

Using the flexibilities in the WTO’s General Agreement on Trade in Services, Kenya is able to regulate which services sectors are open to foreign competition. Even for foreign services and service providers allowed into Kenya, the government is able to dictate where they establish, the capital requirements to establish, which category of foreign vis a vis local employees they can hire, etc.

These flexibilities afford the government the policy wiggle room to protect and support its domestic industry from foreign competition until such a time that they are ready to compete. The shivering and shrinking of domestic players in the distributive trade is therefore an indictment on Kenya’s policy approach and stance.

Protection of domestic industry is paramount for any economy that yearns to structurally transform and become industrialised. One of the ways that the government can save the domestic players in the distributive services trade is to limit the number of stores that foreigners can establish. This ensures that space is still left for the domestic stores to establish and grow, while still reaping the benefits brought about by the foreign stores.

Unlike her counterparts, Choppies has spread its tentacles to places outside Nairobi such as Bungoma, Nakuru, Kisumu, Kericho and Kisii. The conventional approach by countries that take trade policy more seriously is to limit the establishment of such foreign stores to one or a few major cities. Clearly, this has not been done in our case.

Even more importantly is the regulation of the employment opportunities created by these chain stores to the locals. International trade law allows the government policy space to prescribe what caliber of professionals a foreign service provider establishing in its jurisdiction can employ. The best practice is that only a limited number of top executives are allowed to be foreigners, whereas most professional and non-professional positions are left for the locals.

This way, the government ensures such foreign stores offer not only quality employment opportunities but also transfer best labour practices and technological know-how to the locals. One would recall an incident not long ago in one of the chain stores where a foreigner was filmed assaulting a local employee with wanton abandon.

Whereas the debate on whether or not to allow foreign chain stores to establish in Kenya would generate varied opinions, it is possible to play within the policy space afforded by the law to reap the maximum benefits from the foreign stores without necessarily killing or adversely exposing our domestic industry.

To achieve the Big Four agenda, the need to regulate and discipline the distributive services sector is now more urgent than ever before.

 The Writer is an international trade law and policy consultant and an advocate