The tall, bulky player muscled onto the Nairobi rugby field, his 118kg figure towering over his teammates. Peter Nduati, a lock, was possessed of seemingly inexhaustible energy and was a key figure in the defense. As the game kicked off, a little girl’s eyes followed the oval ball at every try, kick and scrum.
At the end, she had an icy comment.
“Dad, but I didn’t see you touch the ball!” she said, catching her father flat-footed.
“She felt ashamed that I never touched the ball, but I explained to her that for those other guys to score, I had to scrum for the ball and defend,” says Nduati.
While embarrassing for a father, that moment remains at the core of Nduati’s management strategy at Resolution Health Group, which he founded a decade ago.
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As the chief executive officer of one of the biggest medical insurance providers in Kenya with operations across East Africa, he believes that teamwork and having each employee do what they do best, is the winning formula.
“The rugby strategy works for me. As a lock number five, you need to defend a lot and you need to trust your teammates holding you up, when you jump for the ball. When crashing into someone, you know the people behind you will protect you. My skill was strength. I was not fast, so I would offload the ball to the faster players. In business you need to know your weaknesses and bring on board people with the strengths you lack. I am not good in finance, and I am not detailed; I am a conceptual guy. So I got finance and operations people who are detailed,” he says.
In just 10 years, he has steered the company from a scrappy startup to a Ksh2.4 billion ($27.7 million) turnover machine, with plans to list the group on the Nairobi Securities Exchange (NSE) by 2015 and spread the ownership to more East Africans.
The journey to the top league, Nduati says, has been anything but smooth. When he started off in 2001, after quitting a senior job at a leading Nairobi-based health insurance company, he was armed only with a business plan he had developed in 1997. He took with him a bunch of clients and 17 employees to found First Benefits Ltd, which partnered with South African Metropolitan Health Group. The 40:60 partnership, however, did not last long and soon the restless entrepreneur found himself scouting for investors.
“I had written a business plan to set up an insurance company; not a health insurance company&#8230; When the Metropolitan partnership failed, I decided to actualize the plan,” he says.
Nduati, a chartered insurer and economics graduate, raised Ksh40 million ($461,405) in capital from family and two angel investors. Resolution Health East Africa was launched in November 2003, making it the first registered medical insurance provider in Kenya.
Turnover for the first year was $1 million from 3,000 members and topped $3 million in the second year. Growth averaged 50% annually until 2008, when post-election violence in Kenya pushed the company, like many others, into the red.
In 2009, Nduati acquired the shares of South Africa’s Universal Healthcare, which owned 25% of the company, to get the critical mass to attract cash-flash investors for capital to convert into a general insurance company. In 2010, Nduati eventually won over the African Development Corporation, which acquired 25% of his company for Ksh184 million ($2.1 million).
Then, in 2011, the Kenyan insurance law was amended, requiring health insurers to either convert into general insurance or become brokers. Three companies applied, and so far two, including Resolution, have been approved after raising Ksh300 million ($3.5 million), restructuring management and cutting owner-managers’ shareholding.
“I now hold only 20 percent shares as required by the rules,” Nduati says.
Even as a fully-fledged insurer, Resolution Insurance Company is not underwriting all general insurance products yet.
“We now provide all insurance covers employees require such as group life, group medical insurance, travel insurance, personal accident and employers liability, both group and individual.”
The company has subsidiaries in Kenya, Tanzania and Uganda, and is currently setting up in South Sudan, supported by more than 400 agents and brokers are working on a pan-African strategy to push the group’s presence into more sub-Saharan Africa markets.
Even though he is a relatively new player in the industry, the group has a 20% market share in Kenya and is ranked 12th, by balance sheet size, in an industry of 43 players.
Nduati has been an industry trendsetter. He is credited for revolutionizing health insurance in Kenya. In 2007, he took a bold step that opened up medical coverage for people with HIV.
“We figured that an HIV-positive person complies most with doctors’ instructions and thus lowers the risk. So we designed a product that included HIV cover. Employers loved it, because it covered both those who had the virus and those who did not have it and did not require medical test before employment. This gave confidence to people that if you get it while on our program you are covered,” he says.
At the time, 17% of the Kenyan population was HIV-positive and the company simply spread the risk across the entire population, thus cushioning itself with the 83% who did not have the virus.
But, according to Nduati, that was not Resolution Health’s biggest milestone.
“The defining moment came when we started offering gynecological and maternity products in 2004. They were seen to be pro-feminine and because most budget decisions are made by ladies, it struck a positive chord. We grew by 65 percent that year,” he says.
Before the success, mistakes were made. First, he underestimated public apathy about insurance. Because people had lost money with current operators, few were willing to commit their cash to insurance. It took investments in lobbying and education to crack the market.
Besides winning several industry awards, Nduati finished second in the Entrepreneur of the Year category in the All Africa Business Leadership Awards last year.
As an entrepreneur, Nduati says you must focus on your vision and keep to your lane.
“We are aggressive in innovation and expansion. When we can find an acquisition target, we acquire. You must also employ well. Select right at lower level because these will be the next leaders. We run an internal leadership program to build leadership skills,” says Nduati, who owns four other businesses in security, logistics, music and human resources.
With insurance penetration in Kenya at a mere 3%, Nduati is combining the stealth of a rugby player and speed of a horse to grow his market share. The fact that less than one million people service private health insurance in Kenya has powered a 25% annual growth in the industry, and over 40% growth for Resolution Health.
In East Africa, insurance penetration is just 2%, while economies are growing at an impressive 5%.
“The challenge is not growth of insurance. Its management is,” says Nduati.

Say Yes Make Millions

Naushad Merali has spent a lifetime making deals at the speed of light; deals that turned him into one of the richest men in East Africa. How did he do it?
The tea and telecom tycoon was a new entry, at number 39, on the 2012 FORBES AFRICA ‘Africa’s 40 Richest People’ list, with a personal fortune of $410 million.
Not bad for a man who started life as a humble finance clerk in a Nairobi garage. Merali was a young man when he joined the finance department of Ryce Motors—a company he would one day own. All he had on his mind, in those days, was making ends meet for his family. Fate lent a hand one day, when Merali was 24 and his boss took him to one side.
“The owner, Frank Ryce was getting old and wanted to go back to Germany. So I thought to myself, ‘Why should I let this company go after working here for so long?’ I went for it,” says Merali.
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He took a loan of Ksh200,000 (around $2,350 at the current exchange rate) from Bank of America, now known as Commercial Bank of Africa (CBA), in 1975 to buy Ryce Motors. The amount from the bank was a third of what he needed, but Ryce agreed to take the money as a down payment.
Merali’s life transformed overnight as he became managing director. He was no longer worrying about putting food on the table; he was now worrying about: running a company; paying employees on time; repaying his first loan and honoring his commitment to Ryce.
“The company had a lot of potential and never once did I doubt the decision I had made,” he says.
Ryce Motors was housed in a warehouse that doubled as a showroom, with a petrol station next door. Merali wasted no time; he found a bigger warehouse in which the business could expand.
As money came in, so did investment opportunities. Six years into managing Ryce Motors, an opportunity came to invest into construction company H. Young &amp; Co. and this became Merali’s first buyout. His revenue was growing, so was his confidence and soon he found himself rubbing shoulders with the Kenyan elite.
Merali remembers the day, in 1985, when he walked into CBA and walked out its proud owner.
“You see, I signed a deal of $600,000 but believe me, I only had $6 in my pocket and had 90 days to complete it,” he says with a smile.
His family and friends thought he was mad.
“A family friend even asked my wife to have my mental status checked,” he says.
“When I came back and bought the bank, suddenly people were interested to participate and so I formed a consortium,” he adds.
It was a turning point: the consortium included the family of the first president of Kenya, Jomo Kenyatta. The CBA acquisition was, at that time, one of Kenya’s biggest buyouts by a Kenyan. This was the first acquisition in his buying spree that included: First National Bank of Chicago; Firestone East Africa; Eveready East Africa and Sasini.
“Our specialty is buyouts. The company has grown from zero to the current state, where we employ over 24,000 people in Kenya alone. Turnover for the group is over a billion dollars,” says the 61-year-old.
To order these acquisitions, Merali formed a holding company for his business empire and named it after his son, Sameer. Today, the Sameer Group runs five agriculture companies, including Sasini; Savanna Coffee Lounge; Sameer Industrial Park; a corporate showroom along Mombasa Road; Eveready Head Office and Ryce Engineering.
In the finance sector, Sameer Group owns shares in Equatorial Commercial Bank, alongside Kenya Data Networks in the information technology sector. Sameer Industrial Park is a premier export processing zone, which was established in 1991. Sameer has ownership in Kenya’s second largest mobile phone service provider, Airtel, and owns tire maker Yana Tyres and Yansam East Africa Motors. Merali also has properties in London, Dubai and across Africa.
The company has spread beyond Kenya. It owns 33% of Farmsecure, a South African agricultural company, and has dairy operations in Uganda. The latter came about when Ugandan president Yoweri Museveni, approached Merali for a solution to the struggling dairy industry in his country. Merali, together with the RJ Corporation of India, revived the industry from a daily production of 25,000 liters to 450,000, through 39 processing plants. The Dairy Corporation also ventured into the production of powdered milk, resulting in Uganda becoming a milk exporter, rather than importer.
Today, Sameer Agriculture and Livestock in Uganda exports to Yemen, Egypt, South Sudan, Tanzania, the Democratic Republic of Congo, Burundi and parts of Rwanda. The Ugandan operation inspired Merali to launch a milk processing company in Kenya called Daima.
Merali’s company owns majority shares in Sasini, one of the biggest tea and coffee producing and processing companies in Kenya, which has 12,000 acres of tea and coffee plantations. At the plantations, in Kiambu, 12km outside of Nairobi, one acre of land is valued at an average of Ksh30 million ($351,981), which makes the land worth Ksh260 billion or close to $4.3 billion. That is just a fraction of his assets, which include stocks and properties in prime locations across Nairobi.
“It’s always difficult to put a figure to it and this is not all investment. We borrow money. That is why I wonder how to put a value to my worth,” he says.
Merali attributes a huge part of his success to instinct. He bought Sasini from a complete stranger on a plane headed to London.
“There was this fellow next to me and we started talking about what he was doing in Kenya. He said that he had come from a board meeting for Sasini, but I did not know what Sasini was,” says Merali.
It turned out the man on the plane was the chairman of Mercanta, a company listed in the United Kingdom (UK).
At the end of the conversation, Merali was not only taken by the idea of a tea and coffee plantation, but wanted to put his money into it too.
“Do you want to sell?” Merali asked him.
When he was questioned about whether he had a background in tea and coffee, he responded to the challenge by bragging that he knew Africa and asked for a price.
“He said GBP 10 million and we shook hands. That was on May 1, 1989 and on June 1, he had his check and I had his company!” Merali says with pride.
In the end, Merali bought 43% of the company and, 24 years later, is very happy with that decision as the company has grown tremendously.
This is one of Africa’s great migrant entrepreneur stories. Merali’s great-grandfather came from India and settled in Lamu, along Kenya’s coast, in 1883. The family lived there until Merali’s father moved to Mombasa, where Merali was born in February 1951. In those days, it was easy to move around East Africa. The family moved from Kenya to Moshi, Tanzania, where Merali attended primary school with his three brothers and three sisters.
In 1967, when the then Tanzanian president, Julius Nyerere, announced the Arusha Declaration—laying down socialist principles for his country—Merali was one of the thousands who joined the 400-mile walk from Moshi to Dar es Salaam to mark the occasion. It took 11 days.
“The reason I did it was not because I believed in Nyerere’s policy but because there was no other Asian doing it,” he says.
Shortly after the walk, he moved to Nairobi, where he completed high school in 1969. He then jetted off to Britain a year later, where he studied accounts and finance at a college on Oxford Street in London. In 1973, he came home to marry Zarina, a girl chosen by his mother.
Merali’s journey came with its fair share of tough lessons.
In 1999, investors from French company Vivendi were looking for a Kenyan partner to invest in what would be Kenya’s second mobile phone service provider. Forty percent was up for grabs. Though Merali had not dealt with GSM and mobile phone technology, he took the opportunity to invest money in a company called Kencell.
It took a turn for the worse due to internal problems at Vivendi and the 2001 terrorist attack on the World Trade Center towers in New York, which, forced the company to reconsider its strategy in Africa. Simply put, they wanted out.
“Every time an issue came up, either in New York or anywhere else, they would turn the heat on their African operations and I could see that they were doing their best to get rid of their African interests,” says Merali.
Vivendi was obligated to make Merali an offer first, owing to his pre-emptive rights as owner of the remaining 40% in the cellular service provider, Kencell. They gave him 15 days to raise $250 million to exercise his right. Almost certain that Merali would not pull it off, Vivendi went ahead with negotiations with South Africa’s MTN.
With the end of the 15 days nigh, Merali contacted an old friend Mohammed Ibrahim—founder of cellular services provider Celtel—about the 60% stake offer in Kencell. Celtel had tried, unsuccessfully, to enter the Kenyan market for four years and agreed to take up the 60% majority stake in Kencell at $250 million. In the meantime, Vivendi agreed to sell their stake at $230 million. The upshot was that Merali made $20 million profit in 24 hours.
“Always remember that the best time to buy is when foreign companies want to go, and the best time to sell is when they want to come. I celebrated later that evening because it was a great thing,” he says.
He later offloaded his stake in the cellular company, noting that he would not have made as much money had he waited longer.
“When I sold my 15 percent, I managed to create good wealth. In business, timing is key.”
When Merali sold 15%— worth an estimated Ksh6 billion—of his 20% stake to Kuwait-based Zain Group. He made more than $130 million on the sale, which he says never would have happened had he held on to the stake longer. Merali retained 5% ownership in Kenya’s second largest cellular service provider, after selling most of his stake to India’s Bharti, which took over from Zain Group. The company has changed hands four times, since it was established in Kenya, creating speculation about its profitability, but Merali maintains that he has never lost a cent through the company.
Immediately after the Kencell deal, Merali brought fiber optics into the country, through Kenya Data Networks (KDN). The company offers data services to corporates, internet service providers and telecommunication companies.
“Once I saw the use of information technology in Europe, I knew that it had to catch up in Africa, and data today is growing very fast. That’s how we have been shifting our investments,” he says.
Merali’s interest in information and communications technology includes a share in Altech Swift Global that offers retail services such as voice over internet protocol (VoIP). He sold his majority stakes in both KDN and Altech to Liquid Telecom, from the UK. From his telecommunication deals alone, Merali has made more than $500 million.
One might wonder if Merali has ever got his fingers burnt. He has and green fingers at that. Once, he invested in a flower farm, but lost more than Ksh50 million ($586,635) when he sold. The farm had started performing badly and Merali says that he would have lost much more had he chosen to hold on. He also partnered with a German investor to open a hotel, but when the German partner died, things went downhill and he had to abandon the business.
“The important thing is that you learn from it, it’s always a learning process,” says Merali.
In his dealings, the stability of a company’s management contributes hugely to his decision to take it up or not. He does not buy companies to run them, but to make money. And when it’s time to sell, he sells.
“Keep emotions out of business, save that only for your wife!’’ says Merali.
He adds that business partnership must be based on mutual interests.
“It’s not like in a marriage where you can part ways and give 50 percent and say ‘go’.”
Merali is not only a profit taker; he joins the likes of Manu Chandaria in philanthropic activities around the country. The Zarina and Naushad Merali Foundation gives between Ksh150 million ($1.75 million) to Ksh250 million ($2.92 million) every year to communities. One of the biggest donations made by the foundation, included Ksh100 million ($1.17 million) to the Kenyatta National Hospital to build a day care center.
Merali donated 30 acres of prime beach property, in the affluent coastal town of Malindi, to the Kenyan government to be used as a public beach. He reserved a piece of land in Nairobi to establish a sports club called Jaffery’s.
Merali plans to invest in Africa’s energy infrastructure. He has put Sameer at the helm of the company, saying that his son has a name to protect, which will ensure that he stays focused.
“The company has grown on reputation. Your word is your bond, it’s not even the agreements,” he says to his son, who comes in for an introduction.
Thirty-seven-year-old Sameer has a Master’s Degree in banking and finance, but little can prepare him for his father’s big shoes. He is already running some of the companies both as an executive and non-executive director.
“As you know right now, Africa and more so in East Africa is where all the opportunity is. In the last 10 years, we knew it and now everybody knows it. There is a lot of activity, just looking at how the country has changed in the last 10 years and what is there for the future. It’s exciting,” he says.
Merali is one of the millionaires to watch in 2013. His ability to buy and sell at the speed of light has earned him millions of dollars. You can be sure, in the time it has taken to read this article, the old fox has struck another deal.

He Risked Millions On A Handshake With A Stranger On A Plane

Samuel Kamau Macharia was among the first in his hometown to buy a transistor radio—villagers would congregate at his home to listen to the news or football commentary. This gadget would turn out to be the pillar of his businesses.
Nothing about the communications center hints at the secrets and wealth inside. Located in upmarket Nairobi, a stone’s throw from State House, one of the newest buildings in this neighborhood, is hardly worth a second glance. On the third floor, in an office the size of a swimming pool, sits an aging man simply known as SK—the initials of his first two cultural names.
SK Macharia, now in his early seventies, is the proprietor of Royal Media Services (RMS), Kenya’s most successful broadcasting media house valued at $500 million. It runs a television channel, Citizen TV, and 14 FM radio stations. Many agree that Macharia, balding but with a smooth face, is Africa’s answer to America’s Ted Turner—the founder of Cable News Network (CNN), the first 24-hour cable news channel.
Macharia has built his empire in less than 10 years, from one television and radio station in 2002, by thinking and acting local. RMS has a presence in six countries in East Africa—Uganda, Tanzania, Rwanda, Burundi as well as Zambia—where it broadcasts through transmitters and the internet. The company broadcasts 12 radio stations in vernacular, one in English, the official language, and another in Swahili. Most elitist media investors frowned upon this niche market since they believed that only English and Swahili speakers had buying power.
“What we have achieved is purely because of local productions,” says Macharia.
Nearly 70% of Citizen TV’s content is locally-produced, exceeding the 40% recommended by the government. This local thinking has helped Citizen TV overtake established private stations such as Nation Television (NTV), Kenya Television Network (KTN) and state-owned Kenya Broadcasting Corporation (KBC), which are now playing catch-up in local programing. According to a survey by Ipsos Synovate Kenya, a research and polling company, Citizen TV controlled 52% of the television viewership market in Kenya in the last quarter of 2011, leaving nearly a dozen rivals to the rest of the pie.
Only KBC had vernacular broadcasts and they were restricted to an hour a day. After Kibaki came to power in 2003, Macharia started providing each community with its own radio station and round-the-clock programing.
“The radios have played a crucial role in spreading information among the older generation,” he says.
These community radios have split the advertising market into niches, giving the national broadcasters a run for their money and offering marketers more targeted advert channels. And with 12 vernacular radios, the cumulative ad revenue is huge.
Former president Daniel arap Moi banned ethnic-based radio stations, except for KBC, for promoting ethnicity. Macharia has a different take on this.
“Anybody who says vernacular radio fuels ethnicity is foolish. Go to the UK, Russia or Canada and you will find radios broadcast in local languages. These are languages people understand. How do you get your grandmother to understand politics in Swahili and English? Even economic matters, they will understand better in their mother tongue. You can promote ethnicity in any language. Ethnicity is created and developed by politicians,” he says.
“Take the case of Rwanda—the radio that caused genocide was government-owned. If there is no private radio, the government can tell people to do anything. Our work is to entertain, educate and inform.”
Macharia’s love affair with the airwaves has not only helped increase radio listenership in the country, especially among the illiterate and semi-literate, it has also created 1,200 jobs.
While Macharia may find it hard to find political support for vernacular radio stations, Philip Ochieng, a leading columnist in the Sunday Nation newspaper vindicated him in a recent article.
“I know at least one Kenyan entrepreneur—SK Macharia of Royal Media Services—who seems to recognize the importance of tapping talent and expertise from all of Kenya’s ethnic communities and paying them well. In this way, SK understands capitalism much more than all our barons in the private sector and, especially, in the parastatal corporations. The talents help him to make money. But, in the process, he builds a company in which all communities invest at least some goodwill and trust. SK Macharia fights tribalism in this country much more tangibly than all our teachers, politicians and priests together,” he wrote on April 24.
In the radio world, RMS is the undisputed king—a broadcasting phenomenon renowned for a daring spirit, deft marketing and spectacular ad revenues. The company takes in more advertising revenue through its ubiquitous radio channels than any other group in Kenya, according to industry figures.
With transitional elections in March 2013, Macharia says RMS is sprucing up its news coverage and presentation, which blends a western style with an African human-interest angle. The imitation is sometimes comic—imagine a business reporter trying to copy Richard Quest of CNN or a weekend news anchor mimicking Zeinab Badawi of BBC.
“We hire the best presenters and anchors. If you are in broadcasting and you are top in the industry, we are ready to pay the price. You cannot maintain high quality unless you pay well and make them happy,” he says.
“For me to compete and beat NTV, KBC and KTN, I have to get the best raw material. If the competition works hard, I must work harder.”
Royal Media Service wants to continue leading the pack—it is one of the few media houses in sub-Saharan Africa to acquire a Ksh300 million ($3.5 million) chopper for news coverage.
Yet, barely a decade ago, Macharia was a non-starter. The airwaves had already been liberalized in the early 1990s, when he entered into radio. In the television market, KTN was market leader, followed by KBC and NTV. In just eight years, RMS has not only outrun its competitors locally but has a growing across the continent.
It hasn’t been an easy rise for Macharia. He tells the story of his life with a grin, relishing its effect on the listener. The FORBES AFRICA team arrived one chilly Tuesday in June only for him to turn us away, with a sad smile, in favor of a meeting with Kenya’s Prime Minister, Raila Odinga.
Macharia’s story starts in Ndakaini, a poor, central Kenyan village where he was born in 1944. When he was 10, he was separated from his parents due to a state of emergency and forced to herd cattle with nomads in Arusha, Tanzania. After things calmed, he trekked home to trace his parents. It was a life of struggle for Macharia’s family who worked on European settler farms for a pittance to feed and educate a family of five. Many times, he dropped out of school because of the lack of funds.
He did not attend high school and became an untrained primary school teacher, earning ten and a half US cents. Despite being an average student, his thirst for knowledge was insatiable. After teaching for some time, he decided to go to the US. Through the help of a clever travel agent, Macharia used a fake plane ticket to get a visa at the US embassy in Nairobi. He missed a government-organized airlift. Alongside other Africans and Indians he traveled by bus—through the thick forests of Uganda and the plains of Sudan to the scorching deserts of Libya—ending up in Benghazi, 50 days later, from where they took a ship to cross the Mediterranean to Europe.
“There was no bridge across the Nile, so passengers crossed the river on rafts—three logs tied together which floated and followed the current. Depending on how the log moved with the current, some people would find themselves far downstream.”
They then took a boat to Dover, where the group caught a train to London, from where he flew to New York. But he had underestimated the distance to the Seattle Technical College, where he was to study. So he took another bus.
“I did not have money to fly. I wandered around and ended up in a police station. The police had two choices: to incur the expense of shipping me back to Kenya or arrange for my transport to Seattle. They put me on a bus and we travelled for 10 days.”
Unbeknown to Macharia, the couple assigned to host him had divorced. He stayed at the bus station for nearly two weeks until the wife rescued him.
“I was given little food and had no heating—it was winter. Luckily the local priest learnt of my plight and took me to his house. I was later taken in by a volunteer family who did not have children,” he says.
Macharia cleaned supermarkets at night and worked manual jobs at manufacturing companies to make an extra penny.
After completing high school, he enrolled at the Seattle Pacific University where he graduated with a Bachelor of Arts in Political Science. He enrolled in the University of Washington for a Bachelor of Science in Accounting. Macharia returned to Kenya in 1969 with two undergraduate degrees, a Master’s and a Certified Public Accountant qualification to boot. Then he started toying with business ideas from establishing a toilet paper manufacturer to a pulp-producing factory and later a credit card financing outfit. The turning point came in 1992, when Macharia experienced a nasty discrimination by KBC and started plotting to run private radio and TV stations. He was among the young crop of politicians fighting the Moi regime and supported opposition leader Jaramogi Oginga Odinga at the time, in Kenya’s first multiparty elections.
“I was his political and economic adviser. There was only KBC and KTN [owned by President Moi and other ruling party Kanu men] at the time. I paid for Jaramogi’s campaign commercials, but they were not aired on KBC and they did not refund me the money. And we believed Jaramogi would win. When he lost, it was a calamity for me. He lost the elections because KBC did not air his commercials and I told myself nobody would ever do that to me.”
So he naively applied to KBC, instead of to the Ministry of Information and Broadcasting, for a TV license.
“The KBC MD called me back and laughed at me. I went to his office and he laughed at me again with his legs on top of the desk.”
He re-applied for the license, this time to the office of the president, but his request was rejected. He knew he was paying the price for backing an opposition candidate.
“I replied and gave them seven days to give me the license or I [would] sue,” he says.
They did not. So he went to court in 1993 and fought it out until 1996, when he got the license. He started Citizen Radio late in 1998. The government closed it down in January 2000 because the radio station was critical of it.
“We were telling a little more truth than the government was willing to acknowledge. We stayed for a year fighting the closure and reopened in 2000. In April 2001, it was closed again and our equipment was vandalized to ensure the station does not restart. We went back to court and reopened in November through a court order,” says Macharia.
The suffering has made Macharia a strong advocate of democracy and media freedom. He says democracy cannot work without press freedom.
“The media in Kenya is now fully protected by the new constitution. Now, we can play a major role in democratization. Everyone is born alone, with his or her little brain. You are supposed to be free to use it to do better for yourself, your family and your country.”
Macharia says success in media business comes from out-of-the-box thinking and having the best people. More importantly, he adds, being able to pick yourself up after falling and moving on. In short, turning any failure into success.
But age is catching up and Macharia plans to make the company public to spread its ownership and secure its future after he bows out. He is not a believer in perpetuating family business.
“Africans are not like Indians who hand over their businesses to their sons and daughters. I have two sons who run their own businesses and my daughter works with me here at Royal Media. For a huge organization like this, the easier way is to go public,” he says.
Some say he has used his political networks to have his way in business, but he retorts that he doesn’t have better connections than most people. Even then, it bothers him that African leaders still look down on African entrepreneurs.
“It’s sad that after independence, most African governments still treat us as second-class citizens. If a sweeper comes from the UK and uses a telephone booth to call a minister and speaks the Queen’s English, the minister will be waiting for him at the door. For a black man, it will take 10 years,” he says.

The TV Dreams Of Africa’s  Ted Turner

When James Mwangi boarded a commercial plane in Nairobi, bound for Monte Carlo, he was nervous.
This was a big trip to the Ernst &amp; Young World Entrepreneur of the Year 2012 Awards and the competition was tough. They call this award the Olympics, or World Cup, for entrepreneurs. It was a prize too far away in the mind of a 50-year-old like James Mwangi, CEO and group managing director of Kenya’s Equity Bank.
“I started wondering how I would be ranked when you hear stories of the personal wealth of these entrepreneurs. These people range from heads of industries like: the biggest pharmaceutical company in the world; the biggest ship building company in the world; supplier and producer of 90% of the world’s silicon chips—people with extensive experience—the majority of them are in their seventies,” he says.
Any fears in mid-air were confirmed when Mwangi’s commercial flight touched down in Monte Carlo on the shores of the Mediterranean Sea. Most of his competitors had arrived in their private jets.
“Not only did we not jet into the country, like most participants, we had to do a 45-minute drive to the hotel, while the others were lifted in helicopters,” Mwangi says.
“I was given a hotel room overlooking the beach on the 10th floor, overlooking yachts, more than 200 of them, expensive and luxurious yachts, at that. I realized that I am in a different place and not a usual place.”
So you can imagine the shock and surprise when the Nairobi banker, far from home, won.
“The whole hall was silent except our tables, with Nigerians and South Africans, of course.”
As they gritted their teeth and applauded, the illustrious competitors waited for the winner to walk to the front. Then, they waited a bit more.
“Instead of making my way to the podium, we started hugging and embracing each other with African joy and warmth. It was like thunder and something extraordinary had happened… We started singing the song, It’s Time for Africa and we were very excited about it—almost assuming that there was nobody else in the room until I was prodded by someone to make my way to the podium.”
Mwangi delivered the shortest acceptance speech in history, without protocol and almost incoherent, in his excitement. The roof-top drew back and fireworks crackled into the night sky over Monte Carlo—on the ground, Mwangi, the first African to win in 25 years of the awards, felt like exploding with them.
“This award makes a point that Africa is ready to be fully integrated with the rest of the world and what we hold are perceptions that are very far from reality. This is global recognition for Africans who are embracing the power of entrepreneurship to change the economic and social state of Africa,” says Mwangi.
Other African participants in these awards included: Aigboje Aig-Imoukhuede, group managing director of Access Bank in Nigeria and Braam van Huyssteen, founder and managing director of Tekkie Town.
It was recognition for the entrepreneur who opened up banking for millions of poor Kenyans through Equity Bank, in which he owns a 5% share.
Mwangi joined Equity Bank nearly 20 years ago when few gave a dime for its chances.
“The bank was declared technically insolvent and earmarked for closure when I joined in 1994,” recalls Mwangi.
Deposits were at Ksh22 million ($262,000), loans were at Ksh9 million ($107,000); there were 27 employees and losses were Ksh33 million ($393,000) against capital of Ksh3 million ($35,000). So the bank was technically insolvent to the tune of Ksh30 million ($357,000). He converted his family’s 15-year home loan of Ksh4 million ($71,000 in 1994) into capital, thus reducing the technical insolvency of the company to save it some interest.
“Instead of the traditional banking, we went to mass banking, high volume and very low margins. Consequently, we became relevant in terms of affordability. Through the use of technology, particularly that of mobile banking and agency, we were able to breach the last mile in terms of access to financial services,” says Mwangi.
“There was no way of going back to the family to say that we had lost everything, hence I had to work hard to redeem that which I had lost.”
Equity Bank grew and the deposits flowed in. Today the company has a turnover of about Ksh200 billion ($2.3 billion), with nearly 7,000 employees. It is listed on both the Nairobi and Uganda stock exchanges.
The Mwangi model is studied in several business schools including the Stanford Graduate Business School; Columbia Business School and Lagos Business School. Maybe, one day this method of making money at the bottom of the pyramid will be referred to by business graduates as “Mwangist” alongside Marxist and Keynesian theories.
It was the fruit of years of struggle for Mwangi. His father died when he was very young and his mother struggled to bring up her children alone. To raise money for school fees, Mwangi sold charcoal and fruit on the streets. It was his training ground for buying, selling and trading.
The blood of an entrepreneur ran through Mwangi’s veins from a tender age. As a young man, Mwangi formed a small company selling sand around Nairobi, in partnership with the current assistant minister of agriculture, Gideon Ndambuki. They had four lorries and a pickup truck; later they sold fruit and vegetables to hotels.
“Entrepreneurship is the cure for the African paradox of a continent with resources and human capital but that remains poor. The only ingredient lacking is entrepreneurship,” he says.
Anyone who can beat a fleet of high-flying entrepreneurs is surely worth listening to.

He Came, He Trembled,  He Conquered

It came like a bolt from the blue. On the evening of October 20, 2006, Tabitha Karanja the chief executive officer (CEO) of Keroche Brewery Limited was working late in her brewery head office in Naivasha—65 kilometers from Nairobi. Her husband, Joseph Karanja had just gone to Nairobi hospital where he was to undergo minor surgery the next day.
Karanja was winding up so she could rush to see him. As she was leaving, a fax arrived. It was after 5pm and she was curious about who sent a fax so late in the day. Her curiosity turned to shock in seconds. It was the tax man. The Kenya Revenue Authority (KRA) demanded KSh 1.2 billion ($14.117 million) in arrears to be paid within 14 days.
The competitive Kenyan brewing game is tough and like many entrepreneurs, Karanja had weathered many storms. Detractors allege that Keroche products were not prepared hygienically; once she invested in a multi-million dollar plastic bottling plant which was made obsolete overnight by a law banning plastic packaging. On a radio at the office, in the press of busy day, Karanja would hear politicians attacking her beer in Parliament.
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“One member of Parliament alleged that our drink was killing three people in his constituency every day. Considering Kenya has over 220 constituencies, how many people is that?” she asks.
Karanja fought back, she wouldn’t allow anyone to denigrate Keroche products unless they had evidence from the government chemist or the Kenya Bureau of Standards.
It meant the feisty Karanja was often in the media, if she was not threatening to sue the government, she was complaining about raids on Keroche depots by administration police or damage to her billboards by the competition. She has been to court six times to defend her beer business.
This was a world away from her humble beginnings in the age-old story of an entrepreneur spotting a gap in the market. Karanja and her husband, who were traders of manufactured goods, started out as rookie brewers in a cut-throat market. They found themselves in competition with multinational giant, East African Breweries Ltd (EABL).
Their strategy for the alcohol business was simple—to supply beer to thousands of villages in Kenya.
“The brewers who were there, only catered for the upper end of the market and people in the villages were left to drink whatever they could make—the traditional drinks. So we thought, why not make a hygienic and affordable alcoholic product. Our first product, a fortified wine, was released in 1998,” says Karanja.
Karanja says the rough waters have merely made her more determined.
That is, until the brush with the tax man crushed her spirit.
“That was the day I understood why people collapse when running a business. You wonder why a businessman who was getting into his car just died or collapsed in his office.”
On that fateful October evening, Karanja saw the future and it looked terrible. Her eight-year-old brewery, the business she had shed sweat and tears to build, was about to die.
The tax demand did not include interest and penalties. In total she owed the KRA around KSh2 billion ($23.8 million).
“I thought these people wanted to kill me so my employees could find me dead the next morning,” she says.
It got worse. After reading the fax several times, she called the KRA Commissioner’s office in a panic, but she could not get through. It was late in the evening and the government office was closed.
“KRA claimed that the business licence I was given in 1998 was wrong. I was paying 45% tax but they were demanding 65% backdated to 1998. You know how powerful the tax authorities are, not only in Kenya but everywhere in the world. I was literally shaking!”
At the back of her mind, Karanja knew it would be difficult to get a lawyer to fight KRA. Unable to get through to KRA, she went to visit her sick husband. She did not break the news to him that night, instead she went home and had one of the longest nights of her life. She did not sleep a wink.
“I was feeling awful; I panicked because I knew these guys had cornered me. My spirit was devastated,” she explains as her voice breaks.
When she informed her lawyer about going to court, he was hesitant.
Two days later, the lawyer broke the news of court action to her husband on his release from hospital.
“I remember I called the KRA Commissioner and told him I was not going to die. I am strong and I was going to fight!”
Karanja wanted the matter settled out of court but her efforts to get any of the KRA officials before the 14-day deadline were unsuccessful.
“I wanted to show them that they were wrong because I had all my facts,” she says.
It did matter. Time was running out and she knew, if she waited, KRA would freeze her bank accounts and take over her business. So she went to court and fortunately the 14-day order was stopped and after one year the case was thrown out—she had won. After all the pain, angst and fear—she had won.
That was the most horrifying point in her life. There were days she was filled with doubt and fear.
“Fortunately, the judge ruled that it was misuse of power and nobody could explain the KSh1.2 billion ($14.3 million) figure. Furthermore, I was the only one required to pay yet there were 10 other players. I am sure if we did not win that case, Keroche Breweries would be no more,” she says.
In the year she was battling KRA, there were money worries too. The bank was in the process of approving a KSh500 million ($5.9 million) loan for a new plant she wanted to set up for the launch of a new beer called Summit Lager.
“There was so much at stake—our business, our dreams, our investments and other entrepreneurs who looked up to us…”
Fortunately, the loan was approved in December 2007. But her struggles were not yet over, with an on-going case in court, things turned sour when Kenya experienced post- election violence following elections in December 2007. The equipment had been delivered and installed but business only started in June 2008.”
Despite the turmoil in the country, for banks it was business as usual. By February 2008, the bank was knocking on Karanja’s door. She had to start repaying her loan and the interest.
“The bank had warned me they would repossess the equipment if I did not start repaying the loan. I borrowed KSh10 million ($118,835) from a friend without a clue of how I would repay the rest in the coming months,” she says.
Karanja borrowed from the same friend twice.
“I struggled for months. I was entirely dependent on the products and we did not have extra money.”
For three months Summit Lager beer did not move off the shelves.
The sales from a vodka mix, launched in 2007, were not adequate to service the loan. While the company was in the process of growing the Viennese vodka brand they noticed a gap in the beer market—the same market where EABL enjoyed a monopoly.
“People only had one choice. We decided to produce a premium beer product and that is how Summit Lager was born.”
Keroche was in direct competition with EABL’s cash-cow—Tusker. Even the mighty South African Breweries Miller (SABMiller) had been unsuccessful in the Kenyan market and now Keroche found itself staring the giant down.
With a big loan to repay, Karanja was hell-bent on hanging on. She tried every trick in the book and even hired marketing professionals from the competition to help push her products but they too were unsuccessful.
“I understood them; we were fighting a losing battle. The people in the bars were being paid not to sell Summit Lager, our posters were defaced, a client would ask for Summit but they would be told the drink is not available.”
Frustrated, Karanja decided to do something radical. Together with her husband, they went to the market and talked to the distributers in 10 regions around Kenya and offered them an incentive—for every two crates they sold, they would get one free. They also went to the Parliamentary Committee to complain about the unfair competition.
“There is a time we had one million liters in the tanks and had nowhere to take it. Our business was 100% financed by the bank and it would not have been long before they [the bank] came for us.”
Karanja went before the Committee and EABL officials were summoned. She only wanted one meeting because she felt it was a waste of her time.
“I left the meeting disgruntled and told them [my staff] we should fight it out in the market so that I know I was defeated out there instead of a boardroom.”
The courts and then Parliament: it was a long way from the humble beginnings of Keroche. The seed capital was KSh100,000 ($ 1,176) which came from family savings.
The money was used to buy a second hand bottling machine that produced 200 bottles a day—around 10 crates.
“We could not approach the banks but as the business grew, we started attracting financiers,” she says.
When they needed additional capital, the local banks could not loan them the money, so in 2006 they approached Barclays Bank Plc in London for a KSh500 million ($5.9 million) loan. With all that was going on, Karanja, was in constant touch with her bankers. In 2009, her bankers almost gave up on her and a risk audit team from London was sent to look through her books—they spent one month there.
“We were put on a business support program because they also panicked when they saw we were unable to move any beer.”
When having a discussion with one of the auditors, he asked Karanja why she had decided to compete with a multi-national like EABL.
“I remember pleading with him because he was the one who was going to write the report. I begged him to give me an opportunity so that I could prove that a local entrepreneur could make something better than Tusker. I also challenged him to tell me why there should not be a competitor to Tusker.”
The bank official seemed to agree but he was very skeptical. He told her that her business would not last long.
“He gave me three months before I went under. For me to compete with Tusker I had to make a superior drink and I am convinced without doubt that our quality is superior!”
To date, Keroche has two beer brands, two ready-to-drink vodka brands, four spirits and three wines. With a current 5% market share, by end of 2014 Keroche is looking at controlling 20% of the market. Keroche currently owes the bank less than KSh200 million ($2.4 million) and is looking at borrowing KSh1.5 billion ($17.9 million) to expand by producing soft drinks.
<h3>What Did She Learn From Taking On A Giant In The Industry?</h3>
“Whatever you feel you want to start, you must know exactly what you want to do otherwise when you face one challenge, you will run away. Secondly, whatever you are doing you must offer a superior quality and be convinced beyond doubt that it will succeed.”

Beer, Sweat and Tears

The sun was unusually hot as guests enjoyed a sumptuous lunch in Diani, the sprawling coastal town in Mombasa, known for its beaches and coral reefs. Lunch time in Diani in February could almost be a scene from paradise—the wide blue Indian Ocean lapping against a pristine beach; European tourists, escaping freezing temperatures back home, sunbathing lazily.
The guests from Nairobi clearly knew their way around. Dressed in smart casuals and resisting the urge to pull off their shirts to catch a welcome breeze, they sighed with relief as they walked into the air-conditioned five-star hotel.
Among them was Atul Shah, the managing director of Nakumatt Holdings, the family-owned company that runs Kenya’s largest retail chain. With a number of his managers, he was on a mission: to supervise construction of a new Nakumatt store in Diani. They talked politics and did the sums for the new investment.
When his phone rang Atul Shah, like businessmen do, excused himself and stepped a few yards away. From a distance, witnesses say, you could see his face turn ashen and panic set in on what was to be his worst day. The caller with bad news was the manager of the downtown branch in the heart of Nairobi.
“It sounded like a dream,” says Shah. “Then I saw it on TV.”
<div id="attachment_524" style="width: 484px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-524" decoding="async" loading="lazy" class="size-large wp-image-524" src="/wp-content/uploads/2017/04/RTR242EP-1024x608.jpg" alt="" width="474" height="281" />Kenya&#8217;s President Mwai Kibaki (C) and Police Commissioner Hussein Ali walk past the burnt-down Nakumatt supermarket in downtown Nairobi, January 30, 2009. At least 22 people died and more than two dozen more were missing after a fire destroyed a supermarket in downtown Nairobi two days ago. REUTERS/Stringer (KENYA)</div>
It was a day that would haunt the owner of Nakumatt for the rest of his life. With 36 stores spread across the region, Nakumatt is the big brother of retail in East Africa. The majority of its stores, 30, are in Kenya, three are in Uganda, two in Rwanda and one in Tanzania, giving it a 15% market share of a crowded retail market where the big five supermarkets control over 80%. In the world of retail where numbers count for much, big is beautiful. Nakumatt has taken this maxim seriously and dotted the big towns with its elephant symbols. Nairobi is Nakumatt’s hub, with more than 10 stores tapping billions of shillings in disposable income from the rising middle class.
On this day, January 28, 2009, as workers broke for lunch, one of its city center branches went up in flames, turning stock and assets, worth Ksh250 million, to ashes. Eighteen shoppers and staff, perished in the inferno.
Shah went into crisis mode. He cancelled his three-day tour of Mombasa to fly back to Nairobi to handle the disaster, but all planes were fully booked that day. He had to manage the situation on the phone, with eyes glued to a TV, until the following day.
“We had lots of communication with my managers in Nairobi. We were all confused and focus was on rescue efforts to save lives. We knew we would overcome the fire but the loss of human lives is what broke us down. We had to do whatever it takes to minimize deaths.”
The blaze took fire fighters from the Nairobi City Council four days to contain. The flames were fed by exploding gas tanks.
“The first day was total confusion. On the second day we established a disaster team to manage the situation. The government also created its own team. We worked together well to make sure the families of those people who perished were taken care of. I was part of the team and was on the ground for four days,” says Shah.
The loss was even more painful as it came just a month after the retail chain’s other branch was flattened by bulldozers to clear the way for the construction of the Thika super highway through Nairobi. In the process, the company was caught unaware and lost most of its stock to looters.
Shah sets his loss from the fire at Ksh400-250 million in stock and Ksh150 million in furniture and other assets. To make matters worse, the supermarket management was accused of locking shoppers in the supermarket in the shop when the fire alarm went off to prevent them from running away with unpaid goods, but Atul denies this charge.
“There were all manner of accusations from sabotage to arson. But it emerged it was Kenya Power to blame because it had had power outages. It’s unfortunate that it’s us who were affected,” Shah said.
What most of the accusers did not know is that Nakumatt had three fire marshals at the branch, one of whom sadly died in the fire as he tried to rescue customers. When the fire broke out, the man in his thirties swung into action to do what he was trained to do. He lunged into the smoke to rescue one person; a second time to save another soul; the third time the brave fire marshal did not return.
“It surprised us because the fire happened just two weeks after we had undergone a thorough fire audit by the Nairobi City Council. The company has since then enhanced its fire safety by training staff on emergency response and employing experts to beef up its compliance above the industry benchmarks. The quick-spreading fire was blamed on the presence of LPG gas cylinders and now the government has decreed all supermarkets not to stock cooking gas on their premises.”
Shah says Nakumatt spent Ksh40-50 million in managing the situation, including financing forensic tests to identify those who died in the fire and compensating those who lost their loved ones.
To make a bad situation worse, Kenyans looking to make a quick buck faked the deaths of their relatives in the fire. Nakumatt’s forensic analysis has already discovered three fake claims and has flagged two more for investigation.
“Some people claimed they lost relatives who had come to shop but produced death certificates of people who died a long time ago. Only 18 have been found to be genuine.”
The disaster did not end with the clearing of the ashes. The fire scared many shoppers and it took them months to come back to Nakumatt.
These were sad days for the company founded in 1978 by Shah’s father in the Rift Valley town of Nakuru. From a single shop dealing in mattresses; Nakumatt, short for Nakuru Mattresses, now has an annual turnover of $500 million. The first supermarket opened in 1982 and the company employs 5,100 workers.
Despite the setbacks, Shah is still betting on finding new markets.
“The retail market has opportunities. Organized retail is growing and especially with government recognition, the market space is expanding.”
In his office, on the wall facing him is a quote by Haku Shah, his father, which says: “In a day when you don’t come across any problem, you can be sure that you are traveling on the wrong path.”
These words sustained Shah through his worst day—January 28, 2009—a tragic day that will haunt him for the rest of his life.

Trial By Fire

In December, party fever rocked Nairobi—a city already in a festive mood, despite efforts by squabbling politicians to dampen the spirit. From nightclubs to beach parties, the revellers were loaded and speaking with a twang acquired in London or New York. In Nairobi, people call them ‘summer bunnies’, referring to Kenyans living abroad back on holiday in the motherland, flaunting the trappings of success in the West: dollars, the twang and a superiority complex.
And if recent statistics from the Central Bank of Kenya are anything to go by, the economic muscle of the Kenyan diaspora is also growing, with more and more money being sent home by them. In 2011, remittances increased by 39% to $891.1 million. In 2010, they were $642 million, which is the equivalent of 2% of Kenya’s
$31.6 billion GDP. They are the fourth-largest source of foreign currency after tea, horticulture and tourism.
Diaspora Remittances, a new report by Stanbic Investments, a subsidiary of CFC Stanbic Bank, estimated that 14% of Kenya’s 18 million adult population receives money from abroad.
With this flow of money comes opportunity. Firstly, Kenyans are paying a fortune to send home a fortune. The report by Stanbic says the cost of sending money home is 10% of the remittance. At 12.4%, the average cost among banks is higher than the average 8.8% for money transfer operators.
This cost stems the flow of money, a fact that even world leaders acknowledge but look powerless to act. At the L’Aquila 2009 G8 Summit, leaders pledged to halve the cost of remittances by 2014. But according to an analysis by Thorsten Beck, a professor of economics and chairman of the European Banking Center at Tilburg University, and Maria Soledad Martinez Peria, a senior economist in the finance and private sector development team of the Development Economics Research Group at the World Bank, governments have little say on such costs.
Instead, the duo in the analysis titled What Explains the Cost of Remittances recommend that policymakers seeking to reduce remittance costs should focus on improving competition: a private sector-led investment in cheaper ways of remitting money. Some companies are taking up the opportunity. In addition to the traditional money transfer companies like Western Union and Moneygram that dominate the market, Nation Media Group, East Africa’s largest media house, is joining the fray. It is scheduled to launch Nationhela, a visa card that will allow those living abroad to send money directly to relatives in Kenya who will need to acquire the same card.
“More competition will lower the cost of sending money and thus increase remittances,” said the Central Bank of Kenya when releasing its recent report.
Investors need to set up a vehicle that the Kenyan diaspora can use to invest in their homeland. During a Kenya Diaspora Conference in the US, held in October last year in Washington DC, they demanded such avenues. And the government took up the challenge and was rewarded. Infrastructure and savings bonds sold to the diaspora last year raised $383 million.
Investment vehicles would attract even more remittances. The data in the Stanbic report is an indicator that many would want to invest, if only there were good channels to do so. Around 52% of total remittances are used as living wages by recipients, while 44% is invested. Approximately 36% is invested in small businesses, while 8% goes to Kenya’s previously booming, but now faltering, real estate sector, and only 4% to savings. Mama Mikes, a website that allows Kenyans abroad to buy various things for their relatives in Kenya, has recorded phenomenal growth.
Kenya’s dependence on remittances is expected to grow, thus providing more numbers, a fact that drafters of the country’s Vision 2030 economic master plan acknowledged. The plan, which is expected to catapult the country into a middle income nation by 2030, is targeting the diaspora to raise remittances from the current 2% to 5% of GDP by 2030.
The diaspora’s muscle is growing, not just in Kenya but also the continent. More than 3% of Africa’s population has migrated to other countries, including within the continent. Remittances to Africa reached $40 billion in 2010 and are the continent’s second-largest source of money inflows after foreign direct investment. Their impact on the population is also staggering. More than 120 million people receive money from 30 million migrants, with Nigeria, Egypt and Morocco being the top three remittance-receiving countries on the continent.
Summer bunnies are not only changing their voices when they leave their country, but our economies too.

Summer Bunny Money Comes On  In Leaps And Bounds

It cost two young, bright companies millions to grab a slice of Africa’s hottest telecommunications market. But now they are both limping and left out. What went wrong?
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It was a cold June morning in 2006 and Kenya’s telecommunication sector was buzzing. EM Communications Limited had just been awarded a license as the second local loop operator in Kenya, trading under the name Popote Wireless. The company had just invested almost $6 million in rolling out operations and the mood was ecstatic. Reporters trooped to their glistering headquarters in Nairobi, each angling to interview the company’s managing director, Eric Muthi, in his boardroom overlooking Nairobi National Park.
“We are like this park. It has a lot of opportunity but within it also lurks danger,” he said. It turns out there were more dangers than opportunities.
Local loop operators (LLOs) are small telephone operators with a nationwide license, set up to increase access to fixed lines offered by state-owned Telkom Kenya. The plan was to give callers connections in their own district, but the problem was that if you wanted to call further afield, you had to go back through national operators.
Back then, Telkom Kenya was an inefficient state-owned monopoly that took months, if not years, to connect a subscriber. This led to a long waiting list, keeping telephones away from the masses.
The Communication Commission of Kenya (CCK) thus licensed 24 operators. But of the 24, only Flashcom and Popote started operations. CCK told FORBES AFRICA that others were in the process of being deregistered, after failing to open up shop.
Flashcom invested $3.6 million; Popote $6 million. Initially, business was good. According to the CCK’s 2008 report, subscribers increased from 8,481 in 2006 to 10,312 by March 2008.
The growth was because LLOs had an advantage. While a subscriber could wait for months to get a Telkom line, they could walk into a Flashcom or Popote shop and walk out with one.
But more than five years on, the dangers Muthi warned of emerged snarling from the bush.
“Popote had ceased operations at some point due to internal challenges. However, they are now back, though in a limited scope,” says CCK’s acting director general, Francis Wangusi.
And it is not just Popote Wireless. Flashcom, though still in existence, is limping.
According to its CEO, Julius Kinyua, it has shed half of its more than 4,000 subscribers.
“It has been a rough business environment but we are determined to keep going,” he says with a chuckle. CCK no longer keeps count of LLO subscribers; the last time it did so
was in 2008. The regulator was unable to comment at the time of going to print.
How did two firms go from hot start-ups to examples of what can go wrong in Kenya’s telecommunication market in five years?
The privatization of Telkom Kenya dovetailed to the LLOs’ disadvantage, but other reasons were also at play.
“Inadequate investment, interconnection challenges, unavailability of spectrum, and more importantly, the market preference for GSM mobile communication systems were their undoing,” says Wangusi.
The first hurdle they faced was negotiating interconnect rates with the then fully state-owned operator, Telkom Kenya. According to Kinyua, Telkom considered them competitors; they refused to connect LLOs to other networks, saying that the networks were “not compatible”.
A Flashcom subscriber was thus unable to call other networks. This erased the efficiency advantage they had enjoyed.
“Then the agreed-upon interconnect rate with Telkom was changed to suit it,” says Kinyua. “It meant subscribers would only be able to call within its network and it became ‘an island’.”
For interconnection, LLOs were supposed to charge $0.12, out of which $0.08 would go to Telkom Kenya. The remaining amount, according to Kinyua, was too little to meet their expenses and make a ‘decent’ profit.
Also, the technology that the LLOs got was of higher frequency and thus lesser reach than the ones given to Telkom Kenya. Flashcom got
1 900MHz, while the state company got 800MHz.
“We thus needed more base stations to roll out our services, increasing our costs further in an environment where profit margins were minimal,” he says. To maintain its bases in Nairobi alone costs almost $24,000 a month.
When Telkom Kenya was privatized in 2008, the government ceded 60% of its shareholding to European telecommunication giant France Telecom. This was a bittersweet moment for LLOs. The new management was more open to negotiation and compromise on infrastructure and interconnection rates.
However, the sleeping giant had woken, threatening the LLOs’ business model. The entry of France Telecom injected more capital in Telkom and revitalized the formerly inefficient operator, which was rebranded as Telkom Orange. The days of long waiting lists were coming to an end.
Telkom Orange courted the customer aggressively and at cut prices. Its fixed wireless subscriptions soared from 10,685 in 2006 to 154,161, according to CCK reports.
“LLOs relied too much on Telkom Kenya’s inefficiencies. France Telecom changed all that. They had better change their modus operandi or they’ll sink,” says one telecoms analyst who requested anonymity as he works in one of the major firms.
Then in 2009, intense price wars in Kenya’s telecoms sector destroyed any advantage the LLOs had by halving call rates overnight.
When LLOs realized the tide was turning, they tried to change their business model.
Popote tried to venture into outsourcing but got its fingers burnt.
It was implicated in a fiasco that involved charging potential employees for non-existent jobs, by Kenya’s Business Daily in 2008. The company still holds the LLO license, and hopes for a buyout.
Flashcom, according to Kinyua, is looking beyond the voice and leveraging on the increased demand for data as the future business plan.
The decision by CCK to give telcos a unified license has given the firm a new lease of life and it is now banking on data for growth.
“CDMA (code division multiple access) speeds are like the 2.5G and very good for internet,” says Kinyua. The CEO hopes that advanced CDMA handsets that have modern features like cameras, internet connection and smart phones may turn the tide in the LLOs’ favor. But for now, it needs hope as much as technology to survive.

Wrong Number—The Great Kenyan Telephone Blunder

It’s been a rotten year for Kenyan rugby—a year soured by defeat and disappointment. On the field, the national team all but gave away the Victoria Cup by losing to Zimbabwe at home and to Uganda away—the latter after leading for most of the game. There was a poor showing in the International Rugby Board (IRB) Sevens, where Kenya finished ninth. Off the pitch, there are more optimistic signs that Kenyans are getting to grips with the game and the money men are not too far behind.
Crowds are growing. In 2007, around 1,000 supporters were watching Kenya play rugby. In July, when Kenya took on Zimbabwe, 6,300 spectators were there. Kenya Rugby Union (KRU) officials said some of the huge interest was a result of sponsorship from an internet service provider—which allowed gate charges to be halved to around $1.
<div id="attachment_114" style="width: 484px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-114" decoding="async" loading="lazy" class="size-large wp-image-114" src="/wp-content/uploads/2017/04/Kayange-003-683x1024.jpg" alt="" width="474" height="711" />Kayange</div>
There was so much interest that the match had to be moved to the 35,000 capacity Nyayo National Stadium to accommodate the crowd. The player base of around 1,000 players is also widening as more high schools take up the sport. The most prestigious schools trophy, the Prescott Cup, had for long been the preserve of eight elite schools in Nairobi. Now, the league has expanded to accommodate another eight schools in different parts of the country.
Most importantly, more sponsors are willing to offer money to the national team and Kenyan rugby clubs. Kenya Airways, the national carrier, sponsors the Sevens national team; Safaricom, Kenya’s leading mobile phone company, sponsors the Safari Sevens and there are other non-traditional rugby sponsors such as Cadbury and an entertainment group—Homeboyz.
Money is not enough, though. “We should get more of the sponsors to support the grassroots development of the sport,” says Humphrey Kayange, the 29-year-old captain of the national Sevens team. Kayange speaks from experience. He went for trials in South Africa two years ago and didn’t make it, but learned a lot about the country’s system of unearthing young talent.
“We need to get our development right if we are to make it to the next World Cup,” he says. “We need to get consistent wins and maybe play outside our traditional opponents.” The secret could be holding Kenya’s young teams together— something that appears to have worked in the rugby Sevens side. The core of the team, which reached the semifinals of the Rugby World Cup Sevens in Dubai in 2009, had been together for about three years. They included Kayange, Collins Injera, Lavin Asego, Innocent Simiyu and Sidney Ashioya. This policy also helped Kenya climb to 33 in the IRB rankings in 2010.
The money followed. Kenya Harlequins reaped one of the game’s most lucrative sponsorship deals, worth about $40,000. The club ploughed the sponsorship money into increasing the number of players to around 90—the largest pool of any rugby club in Kenya. Undoubtedly, the game is in the hands of those who love it, interest is growing and money is flowing in. Maybe for Kenyans watching Kenyan internationals on TV, fighting for the World Cup in 2015 may not be such a pipe dream, after all.
<div id="attachment_115" style="width: 484px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-115" decoding="async" loading="lazy" class="size-large wp-image-115" src="/wp-content/uploads/2017/04/Kayange-017-1024x683.jpg" alt="" width="474" height="316" />Humphrey Kayange</div>

Tag: Nairobi

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