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American, Other Foreign Companies Selling Off Holdings : Kenya Corruption Overwhelms Investors

June 25, 1989|MICHAEL A. HILTZIK | Times Staff Writer

NAIROBI, Kenya — As an American-owned company with a factory here, Firestone Tire & Rubber Co. experienced a familiar raft of problems with the government.

Licenses to import critical raw materials were endlessly delayed, work permits for expatriate technicians went unapproved, price increases were denied.

Government approval of a $25-million plant expansion was held up so long that it was finally scrapped. And officials ignored Firestone's complaints that contraband tires were being smuggled into the country and sold for less than it cost to manufacture tires here.

In 1985, Firestone finally sold most of its 70% interest in the Kenya plant, retaining only 19% and running the plant under a management contract with the new owners.

After that, things improved. It is an article of faith in the foreign business community here that the reason was this: The majority stake was bought by Sameer Investments, a holding company with ties to President Daniel Arap Moi.

"For Firestone now, there's no problem," an American businessman familiar with the saga said recently. "Once you sell to the 'right people,' your import licenses get approved, you can send profits home, you get the home phone number of the official responsible for expediting permits. But anyone who knows that story isn't interested in plunking down their money to invest in Kenya."

Decline in Kenya

For many present and potential investors in this country, which has long been regarded as capitalism's shining star in Africa, Firestone's experience exemplifies the decline of Kenya as a place to do business.

Over the last few years, according to foreign business executives and diplomats, corruption at every level of the Kenyan government and administration has intensified. As many as 50% of the import licenses issued are for sale, often by government officials, although they are supposed to be issued on strictly economic grounds. So many permits are needed to do business in Kenya's highly controlled economy that getting them all is like getting traffic tickets fixed on a nationwide scale.

Today the corruption is finally taking its toll. Foreign companies, particularly American firms, have been rapidly divesting themselves of holdings in Kenya.

Of the 200 American-owned companies operating here five years ago, only about 110 remain. Of those, many have reduced their direct-equity ownership to as little as 14%. The buyers are generally Kenyans with powerful political connections.

The trend reflects one throughout sub-Saharan Africa. The World Bank estimates that the rate of foreign investment in the region fell from $6 billion in 1980 to a minus $1 billion in 1985, the result of divestiture.

The situation is particularly disturbing in Kenya, which had been an oasis of political stability in Africa and one of its few model capitalist countries.

Costly Situation

It is also bound to be exceedingly costly. Foreign investment is particularly important to Kenya because its employment needs are too great to be satisfied internally. With the world's highest population growth rate, Kenya will need an estimated 6.5 million new jobs by the year 2000.

According to a study commissioned by the Kenya Assn. of Manufacturers, this will require growth in the industrial base of 7.5% a year. Such a rate, probably unattainable under any conditions, is impossible without massive foreign investment for the construction of factories and development of markets.

But business executives here say the last major private foreign investment in Kenya was General Motors' installation of an assembly plant for Isuzu vehicles. That was 12 years ago. The association study concludes that "foreign investment in Kenya manufacturing ceased in the late 1970s and shows no signs of being rejuvenated."

By most accounts, the hallmark of the decline of Kenya's reputation is the rise of politically connected business conglomerates such as Sameer Investments. In the last few years, Sameer has acquired a majority stake not only in Firestone but also in the Kenya subsidiaries of Eveready Batteries and Bank of America.

Knowledgeable executives here say the transactions were all done at a fair price and on a "willing seller, willing buyer" basis. But in Firestone's case, the company was nearing agreement with another Kenya-based purchaser when Sameer arose as a potential buyer.

At that point the first bidder ran into problems in obtaining the necessary Kenyan government approval for the transaction. Sameer, unique among the bidders, was able to raise financing and win unusual government permission to pay Firestone in U.S. dollars--thus satisfying the two major conditions Firestone had placed on the sale.

Spokesmen for Eveready, Bank of America and Firestone all say they decided to sell off their Kenyan holdings as part of a global corporate strategy. But apparently all knew that Sameer was placed to benefit from political clout.

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