Political tremors in Kenya harm its image as a place to invest
Nairobi, Kenya — It wasn't too long ago that an American company interested in reaching the black African market almost automatically considered setting up in Kenya.
The country itself, with some 16 million, mostly farmers and herdsmen, wasn't the appeal. What was attractive was its strategic location with such advantages as a good port, Mombasa, on the Indian Ocean; a railroad leading from it that could supply other East African nations; and, for Africa, a fairly decent road transport system.
The British controlled Kenya as a colony until 1963, and the nation under the late President Jomo Kenyatta followed British traditions of law and government. Equally important for outside capital, Kenya was almost a model of political stability and social progress.
Things are different these days. The abortive coup on Aug. 1, in the words of one foreign resident here, ''tarnished Kenya's image; it reflected deep political and economic problems.'' The uprising by the men of the nation's little Air Force, which was accompanied by widespread looting and property destruction downtown, was quickly put down. Within days, the capital returned to normal.
Still, there's little doubt that outsiders are looking at the nation more critically. President Daniel arap Moi has turned to one-party rule, but political opposition outside the law exists, aggravated by intertribal rivalries.
If all this wasn't enough, President Moi's past economic policies have contributed to a reversal of what had been a period of unprecedented prosperity. Many of these moves hit the very people his country so badly needs - overseas investors with capacity to generate desperately needed foreign exchange.
Companies, both foreign- and domestically owned, with the capacity to produce goods that could be sold abroad were, in the past, given a variety of incentives. Typically, they got a 20 percent tax break on the sale of such goods. There were admittedly abuses; no one knows how much of the revenues made overseas ended up in private Swiss bank accounts instead of in the Central Bank's foreign exchange account.
In any case, the tax break was abolished in June, with some retroactive provisions. Also, duties on raw materials needed in the production of the export goods were raised drastically, in some cases as much as 55 percent.
The impact of such harsh measures was immediate. Many found themselves no longer competitive in their overseas markets. A tannery went bankrupt. Needless to say, the country lost even more potential to earn foreign exchange to pay for such essentials as crude oil and food stuffs.
It's believed that United States companies already operating in Kenya have, for the time being at least, put expansion plans on hold, or even reduced their level of operations. In the past two years, only two new US companies have made financial investments in the country, and both have been modest in size.
Goldsmith Seeds of Lemoore, Calif., has reportedly put $100,000 into a seed processing and packaging facility. Sales to the European flower market are projected.
The other involves American Motors Corporation. It says it will set up its first sub-Sahara facility in Nairobi as a joint venture, called Jeep Africa Ltd. , with three Kenyans. AMC will have a 51 percent interest. The operation will use General Motors' Nairobi plant.
AMC initially will bring in knock-down Jeep CJ-8 four-wheel-drive vehicles to assemble and then market throughout Africa. Later, it plans to add the Jeep Cherokee to its line. A spokeswoman for AMC in Southfield, Mich., said the company had expected to be in production already. But she said the coup had set back its plans and that the start-up date is now ''up in the air.''
For its part, General Motors Kenya Ltd., 49 percent owned by GM, said its production is down from last year's level. ''The coup has cut into everyone's business,'' a spokesman in Detroit said.
Kenya, not completely through a fault of its own, has also lost stature as a regional center for banking and commerce. Foreign companies at one time were opening offices mostly in Nairobi with the idea of directing marketing operations in the adjoining states of Uganda and Tanzania. These, with Kenya, constituted the East African Economic Community, something of a mini-EC. And other states could be served from offices in Kenya.
But then Idi Amin grabbed power in a military coup in Uganda and in 1977 the three-nation grouping fell apart. At the same time, Kenya had a falling out with Tanzania, and the border between the two is now closed, blocking commerce with that market.
If all this wasn't enough to discourage outsiders, President Moi slapped on new income taxes that particularly hit American companies which report salaries to expatriate employees honestly. Coupled with an inflation rate that is unofficially said to be hitting 25 percent a year, the cost of being in Nairobi just became too great for the return.