Dick Omondi: A Case for Public Bailout of Nakumatt

With a market share of over 25%, and gross revenues of over $0.5 billion from over 61 stores across East Africa, Nakumatt is a clear leader in the formal retail space in the East African market, and especially in Kenya.

The company has been in the innovative space in its sector for a while now, making the desired step change in meeting the ever evolving motivations of consumers into the digital world of the 21st century a reality for many discerning consumers from in every segment of the society wherever it operates.

The retail chain’s impact on the daily lives of people is significant. It’s is not the first, nor the last of industry that we will see go through this in our times! Banks, Airlines have recently been through this, leaving huge gaps with rippling effects on the economy. And this is not just the last that we see of it.

Whereas it’s a forgone reality that it is where it is, arising from a combination of various management decisions and business environment factors, its financial stress has the potential knock on effect that would cause ruin to several enterprises in its ecosystem including nascent SMEs in Kenya and East Africa.

Its position in the market has risen beyond the interests of its shareholders, impacting the entire business environment of its stakeholders including staff, business partners and their families, customers, financiers, regulators et al.

I have just read an article in the Sunday Nation of June 25, 2017 in Kenya titled “Reasons behind slow death of supermarket chain Nakumatt” quoteing a Principal Secretary for Industry, Trade and Cooperatives expressing the concerns of the government of Kenya at the closure of its branches in extracts of letter to the retail chain management. It states in part that, “This news … has the potential of triggering panic in the wholesale, retail and manufacturing sectors and further complicating government efforts in stabilizing the domestic economy that is already reeling from the effects of high inflation and rising prices of essential products,”

The response from the management of the supermarket chain to this letter sums it all up, adding to the basis of this article; “He ended the letter by requesting the government to bail out the troubled supermarket — just as it did with Kenya Airways and Mumias Sugar Company and miraa farmers”, adding that “If such goodwill can be extended to Nakumatt, we would be very grateful considering the current situation is not of Nakumatt’s making whatsoever.”

On this basis alone, and while it is true that there are ongoing negotiations for equity acquisition and cash injection from a private investor, I see an opportunity where there is necessity for a government consideration for intervention to save its life in the interest of the economy and that of the public at large. There sure are several bottlenecks and counter positions on this, especially in relation to the nature of its shareholding.

Above all this, it seems unavoidable to consider regulatory and legislative interventions that would be applied to rescue such private enterprise from collapse, using taxpayer funds to provide short term cushion through rescue packages payable over time.

There are models that can be referenced from other nations that have done this successfully the world over. Closer home, the Central Bank of Kenya recently took some laudable prudent steps to save the financial industry from imminent collapse in Kenya with bailout and short term funding to distress operations and protect consumers.

The move that was triggered by panic withdrawals from small banks following the closure of one of the banks was then explained as an emergency bailout fund for banks aimed at calming down and injecting stability to gain market confidence in the banking sector.

While considering these interventions, it should not be made to be seen as gift to the affected institutions, but as a temporary remedy applied with regulatory interventions to ensure prudent and accountable management of the businesses going forward, thereby preventing and protecting public funds from misuse.

As much as it sounds unorthodox, these measures will save industry, enterprise, and the position of our Nation Kenya as a conducive, considerate, and supportive environment to do business, and ensure that the nation soldiers on towards to achieve an unrivaled tiger economic leadership position in the region and beyond.

I am not saying that the economy is in a bad state; just the industry is showing signs of hemorrhage, and should not be left to go unattended lest we look back with helplessness in the end.