Kenya woos outside cash to stoke new jobs

Kenya is facing the challenge of creating 6 million new jobs in the next 12 years. As shantytowns spread out around the urban areas and crime rates begin to climb, finding jobs for people has become an issue of security and national stability.

Traditionally, the agricultural sector has provided the bulk of the nation's employment, but only 17 percent of the land in Kenya is arable, so more and more people are turning to the cities in search of a livelihood. Although estimates vary widely, some observers say unemployment could be as high as 40 percent by the year 2000. Government concern about this ``unemployment time bomb'' and the increase in crime is at the heart of recent efforts to promote industrial growth.

Even at the official growth rate of 65,000 new slots a year, the country will be doing well if it adds just 1 million jobs in that time. Meanwhile, Kenya's population is growing at more than 4 percent a year - the fastest in the world.

Wanted: foreign investors

Key to Kenya's ability to create jobs and grow as an industrialized nation is retaining current foreign investment, and attracting more. Like many other third-world countries short of funds, Kenyan officials say, the nation is eager for offshore companies to open businesses here.

To this end, Kenya has established foreign investment protection rules that guarantee repatriation of capital and dividends and protect investors against nationalization of companies without due cause and compensation.

The country's boast of political stability, substantial cheap labor, and - in comparison with many of its neighbors - a fairly well-developed economy and industrial base - is considered by the government to be a very attractive package.

The government also offers incentives, including various cost rebates for export manufacturing, since these activities generate much-needed foreign exchange for the country. Recently, the government went even further and now allows companies to write off foreign-exchange losses from offshore loans.

Despite these efforts, Kenya hasn't had any significant new investment in the last seven years, and a number of foreign companies have recently sold their holdings to local enterprises.

One major disincentive is the fact that corporate profits produced by operations of multinational companies still cannot generally be repatriated, says one financial consultant, who asked not to be named. The government, despite repeated urgings from investors, shows little sign of changing its position.

According to Dan McCarthy, managing director of General Motors Kenya, one of the reasons is that, although Kenya's investment incentives are good, they still don't measure up to global standards. In Kenya, says Mr. McCarthy, ``we must realize that we're competing with places like Korea, Mexico, Mauritius.''

In these nations, ``duty-free zones'' have minimized production costs and government interference in manufacturing, and investors have little trouble obtaining their profits. In return, these countries get a transfer of technology and skills, hard currency in the form of rent and salaries, and lots of employment. On the small Indian Ocean island of Mauritius, 80,000 jobs were recently created in the free zone when the government turned actively to investment promotion.

Kenya has been talking about setting up a duty-free zone of its own for years, but so far little progress has been made. As a result, companies that are preparing to shift to new locations because of rising costs or other problems are paying little attention to Kenya. The technical manager of a Nike factory in South Korea says Indonesia is the most likely next stop for their operations. Another investor says north Africa is a place to watch for future export manufacturing activity.

Among multinational companies that recently sold majority shares to local private investors are Firestone Tire and Rubber, Eveready Batteries, and American Life Insurance Company. While the operations these companies started have by no means folded, the withdrawal of their offshore shareholders is a signal to potential investors that business conditions in Kenya might be less favorable than they are cracked up to be.

``Investors want transparency and consistency,'' says a Western diplomat who asked not to be named. ``If the government says one thing but the reality is different, the businessman will go someplace else - it's not worth the risk.''

General Motors, on the other hand, is staying - for now. During the nearly 12 years GM has been in Kenya, its presence has been the catalyst for the birth of 11 new industries and eight expansions. Elmard Ouma Syongoh, an interior fittings manufacturer, says he began his own business in 1985, ``specifically to service GM.'' Starting with three employees, he now has 12 on his staff, eight of whom were unemployed when they joined him. Today, 85 percent of his business is dedicated to GM.

GM's factory manager, Patrick Ndiema, was for years in charge of developing such local suppliers and says he has observed a great improvement in the level of competence among local producers as a result of GM's insistence on quality. As for the future of foreign investments like GM's, he only shrugs, saying, ``We can act as an example, but investment promotion is a matter for the government. Whether they can implement it is something we'll have to wait and see.''

Red tape and other troubles

Apart from the stiff competition, Kenya has some problems of its own to solve before investors are likely to start pouring in. The director of one large manufacturing company who asked not to be named said that although Kenya's policies ``look good on paper,'' they are not always practiced. This, he said, is because of bureaucratic delays and even breaches of agreement. In the early '80s, for example, all export compensation payments were suddenly suspended for nearly a year. Currently, dividend remittances for most foreign companies are about two years behind.

Another problem has been the confusion surrounding Kenya's ``indigenization'' policies, which seek to ensure that indigenous Kenyans control the economy. Although the government insists that investors will remain free to control their businesses, conflicting messages abound in statements by politicians as well as amid several divestments that have occurred over the last few years.