Moving development forward Accountability, transparency, equitable trade practices

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Moving development forwardAccountability,
transparency, equitable trade practices
A private sector perspective from East Africa
Grace Nshemeire Low unit pack champion, Unilever
Kenya limited
6th September 2006
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• Location of Kenya Uganda

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Economic situation
Economic situation
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Country Update Kenya
Work Status 50 Non-Working
Average size of Household 7.33
Community Type 70 Rural
Marital Status 75 Married/ living together
Economic overview Over dependence on agricultu
ral sector - 63 agriculture - 24 industry - 1
3 services About 78 live below a dollar a da
y Export partners Ug 16 UK 13 TZ 13
Language 76 Vernacular 23 Kiswahili
Household durables Radio 73.6 TV 19.4
Telephone 12.8 Electricity
16.0 Water River/Stream 23.9 Sp
ring 13.1 Piped 13
.4 Public tap 10.6
Population 32.3m Inflation rate 15
Age 71 18-34 years Fairly young population
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Stakeholders

• The role of the small scale retail trade in
  development - Kenya and Uganda

August 2006
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Small scale retail outlets-profile
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1) The role of small scale retail outlets in east
africa..

• 1) Significant source of income for a large
  number of people at the bottom of the pyramid.
  Retail outlets are employing a significant part
  of the population in both Kenya Uganda as well
  as the rest of the developing countries.
• 2) Allows for circulation of money amongst the
  low income population
  
• Small retail outlets are the main point of
  purchase for the low income population
  
• 3) First step to entrepreneurship.
• Often, peasants/farmers take on retail business
  to complement their agricultural livelihood.
  
• 4) Significant route to market for many
  manufacturers in FMCG other sectors like
  hardware, mobile communication.
  
• CK Prakhalad's (2004) The Fortune at t he Bottom
  the Pyramid strongly advocates for multinational
  companies to market to the poor as a way to
  improve business performance and to improve the
  livelihood of the four billion people live on
  less than two dollars a day.

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Challenges of small scale retailers

• Ø    Semi-permanent structures that are liable to
  destruction by the municipal councils hence loss
  of capital
  
• Ø      Security Most of these retail outlets
  have wire mesh to protect from petty thieves who
  demand for their hard earned cash using pocket
  knives.
•  
• Ø      Working capital is hard to come by and the
  manufacturers are not willing to extend credit.
  The retailers end up going for credit from
  wholesalers who up the price.
•  
• Ø      License or rent to the parish chief/city
  council which is normally a bribe to ensure that
  they are not displaced from the premises.
  
•  
• Ø      The business is usually the only source of
  income for a large family with dependents.
  Sometimes these businesses collapse because they
  finance all the requirements from clothing to
  school, medical, rent, etc.

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Opportunities

• Construction of permanent, safe and hygienic
  units in a more organized way where the retailer
  may pay a subscription for a given period of time
  so that they eventually own the outlet.
• Extend credit facilities through micro finance so
  that they can increase working capital.
  
• Training on how to manage their finances and
  maximise on their return on investment.
  
• Easier licensing procedures

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Experience with backward linkage projects in
Kenya promoting transparency, accountability and
equitable trade practices 

• Opportunities for backward linkage between large
  manufacturers and small scale farmers and
  intermediate processors are often touted as a way
  to catalyse rural development in Africa. Unilever
  Kenya has embarked on a backward linkage project
  for the supply of herbs and spices for its Royco
  range of products.
• Farmers from Njoro area in the area of Kenyas
  Rift Valley have been supported to develop the
  cultivation of onions, leek and coriander. These
  spices are processed by a local converter based
  in the same area and supplied to Unilevers
  factory in Nairobi. The project has provided
  employment for over 2000 small scale farmers each
  earning a net income of around US 3600 per
  year, a good income in a country with a GDP per
  capita of only US 350.
• As one of the partners in the Global Alliance
  Against Chronic Hunger (GBAACH) a World Economic
  Forum led initiative, Unilever is developing a
  similar relationship with farmers in Sauri area
  of Western Kenya.
• Sauri is one of the 13 Millennium villages pilot
  areas in Africa in which the World Economic Forum
  is working to develop a viable development model
  for poor rural communities in the Developing
  Emerging markets. The project aims at increasing
  food production strengthening market systems in
  hungry regions.
•  

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The value chain

• Typical coffee farmer Unilever farmer
  (facilitated farmer)
  
• Quality assurance officer Local converter
• Lorry Driver Unilever Kenya ltd
• Cooperative (dry pulp it)
• KPCU
• Mombassa (appointed coffee traders)

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This section explores some of the challenges
encountered in undertaking some of these projects
particularly those associated with transparency,
accountability and equitable trade
practices. This section explores some of the
challenges encountered in undertaking some of
these projects particularly those associated with
transparency, accountability and equitable trade
practices. Access to creditAccess to credit

• Access to credit
• Access to markets
• Access to the technical know how
• Inefficient marketing channels.

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A case studyUchumi supermarkets-East Africa
Accountability,Transparency equitable trade
practices in East Africa
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Background

• Was the pioneer retail chain in Kenya and
  remained the largest retailer until 2004
  
• Historically had govt controlled shareholding
• Board comprised shareholder reps with little
  retail experience
  
• Business performance

• Annual turnover declined from US 120 million in
  2001 to 60 million in 2005
  
• Company traded at a loss for five straight years
  from 2001 to 2005
  
• Lost no. 1 retailer position to Nakumatt

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Underlying issues

• Vested interests influenced management and board
  decision including the hiring of senior
  management.
  
• Conflict of interest evident as some board
  members were also suppliers
  
• Evidence of corruption at all levels within the
  organisation
  
• Many branches opened only to facilitate real
  estate deals in which some board members and
  management had interest
  
• Very heavy stock holding of imported products
  influenced by supplier interests
  
• Heavy losses at branch level due to pilferage by
  staff
  
• -Monopoly mindset remained within employees even
  after other competing chains emerged
  

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Outcome

• Uchumi went into liquidity crisis in 2004 and was
  unable to pay suppliers
  
• Refinancing was obtained through banks and a very
  successful rights issue of shares enabling normal
  trading to continue
  
• On 1st June 2006 Uchumi collapsed and the
  stakeholders were in a dilemma.
  
• Loss to shareholders US 36 million
• Suppliers owed US 12 million
• Banks owed US 13 million
• Loss of direct employment to 1500 people
• Loss of indirect employment to 25,000 people
• Sharp drop in confidence at Nairobi stock
  exchange
  

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The rescue plan

• Govt and supplier community formed rescue task
  force
  
• Identified poor governance as fundamental cause
  of collapse
  
• Criminal investigations launched against some
  board members and managers
  
• Raised fresh financing and restructured,
  operations, management team and board to
  
• Ensure more transparency
• Remove conflict of interests at board
• Rationalise branch network
• Business resume operations in July 2006
• Trading profitably to date
• Target to resume trading on the stock exchange in
  Q2 2007
  

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Conclusion

• Effect of corruption even in private sector can
  have adverse consequences on stakeholders,investor
  s,shareholders,suppliers.
  
• Separation of roles and responsibilities is
  critical to ensure accountability
  
• Mechanisms are needed to make sure that the
  voices of all citizens are heard to monitor how
  governments respond to what they hear and to
  enforce the rights of ordinary citizens
• Laws and regulations on governance in private
  sector should be enforced and not left to the
  biggest shareholders to run the business solely.
  
• The private sector plays a significant role is
  driving development. Theres scope in this sector
  to better the lives of the consumers it benefits
  from this sector. The governance of private
  companies should be closely monitored by both the
  government and other stakeholders to avoid
  calamities.

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Transparency

• whereas the world bank focuses on public sector
  corruption, this does not exist in its entity. It
  requires the participation of the private
  sector.