Sometime in 2017, one multinational indicated that the Kenyan retail sector was a retailers’ paradise growing at 13 percent every year with a total spend amounting to Sh1.8 trillion.
Fast forward, the same entity is plotting its way out due to declining sales and a high cost of doing business. Matter of fact, several are egressing.
But this exodus is a little confusing. Latest Foreign Investment Survey (2023) tells a different story - essentially showing a growing inward-bound foreign investments with a reported 18 percent increase in 2022 from 2020 totalling Sh2 trillion.
In that light, it’s hard to lean on either data points. But let’s cut the multinationals some slack. Economic statistics are prone to endless revisions anyhow.
Besides, how else were they meant to interpret collapse in business confidence, corporate hiring and diminishing disposable incomes? Aren’t these signals consistent with a rough operating environment? Yes, indeed.
And patterns as shown by the latest purchasing manufacturers index (PMI) indicate that signals have been off. Latest reading shows PMI dropped sharply in July to 43.1 from 47.2 in June with business confidence falling for the third month running in July (and was the second lowest on record).
Although the pace of hiring was noted as rising, employment is a lagging indicator, and so more likely to send misleading signals.
But with weakening industrial production, plunging consumer confidence and slowing bank credit, all leading economic indicators in my view, there’s reason to be concerned.
Especially now that these leading indicators have been flashing red for months. Note: Readings above 50 signal an improvement in business conditions on the previous month, while those below 50 show a deterioration.
That said, what does exiting multinationals mean? Of course, there'll be plenty of opportunities for local players to steal market share and create new markets, especially in areas where non-consumption is rife.
These players should not wait to have the required infrastructure in place before they optimise the markets abandoned by multinationals.
More importantly, they should begin prioritising innovation and engage authorities in co-creating industrial policies that facilitate market development.
Now is not the time for the country to dwell on the misfortunes that come with multinationals exiting, but to focus on the potential to create new markets, new industries and jobs that can accelerate prosperity in the country.
Finally, with a gloomy economic backdrop of the recent past, there’s always reason to be hopeful. As economists think people’s expectations are important in shaping their decisions, from whether to invest in a start-up to creating new industries, I choose optimism over despair.
Expectations for what happens to Kenya’s economy should, therefore, shape our decisions today - and so shape the future. Hence, we need to continue creating a stable and a predictable business environment. Turning down the political heat.
Lastly, our policy makers need to continue reflecting and acting on keeping foreign direct investment and investors interested - retreating FDI is very much the canary in the coal mine.
