Category Archives: Nairobi cost of living

Nairobi Real Estate Moment: 2021

  • The Nairobi Expressway construction that will span from the Jomo Kenyatta International Airport to Westlands, has reached downtown Nairobi and is causing disruptions to real estate and traffic .. some changes to retail include..

  • Changes to Malls – many of which are largely idle above the first floor. Quite a bit of foot traffic there is from bank customers visiting their branches which have now been relocated to the third and fourth floors of Nairobi malls.

Other real estate stories.

  • An EFG Hermes report on Nairobi real estate found the demand for affordable houses has a disconnect that has seen prices are softening in Nairobi – at high-end residential (-27% below 2017 peak), and commercial properties (-13% off-peak). Also, the tough Nairobi office market is very visible (vacancy rates of 22% compared to 9% in 2011) with exposure to some financing banks including KCB and Housing Finance.
  • Orbit Group and Grit Group have partnered on a 25-year $53.6 million sale & leaseback transaction for a light industrial (warehouse and manufacturing) property on Mombasa Road, supported with a $25 million loan from the IFC. Orbit Products Africa, controlled by the Sachen Chandaria family, is a leading contract manufacturer for brands in personal care and home care products and its clients include Reckitt Benckiser, Unilever, Colgate and Henkel. They will expand the plant by an additional 14,741 m2 warehouse space and improve it to modern FMCG industry standards to achieve an IFC EDGE green building certification on completion. As part of the deal, $31.5 million will be a “perpetual note”, raised from Ethos Mezzanine Partners GP and BluePeak Private Capital and additional proceeds from this will be invested in the St Helene Private Hospital in Mauritius, an idea that was conceived by Catalyst Principal Partners. Grit Real Estate Income Group is listed in London and Mauritius 
  • A Knight Frank report, the “Africa Logistics Review” finds that Nairobi had the best real estate market between 2018 and 2021 for prime warehousing and logistics.  “Nairobi recorded the highest increase in average prime rents across Africa, from USD 4.70 psm in 2018 to USD 6 psm ” – and developers have grown over 170,000 square meters in the last five years. Kenya has the highest concentration of special economic zones (SEZ) in Africa (61 of the 180 SEZ’s). The country is also making good progress to grade A warehousing and in growing a real estate investment trust (REIT) ecosystem.  Also because of high land values in Nairobi, developers have sought towns/areas beyond traditional industrial hotspots Read more.
  • Speaking of REITs .. Acorn Project (Two) LLP, the Issuer of the Acorn Medium-Term Green Note (MTN) Program, closed the final tranche on 16th July 2021, raising Kshs 2.096 billion against the target of Kshs 1.438 billion representing a subscription rate of 146%.  As part of this transaction, the Acorn green bond was converted into the Acorn Student Accommodation Development REIT (ASA D-REIT). Read more.
  • The Architectural Association Of Kenya reported on development challenges within the Nairobi metropolitan area. A decade after an electronic construction-permitting system covering Nairobi, Mombasa, Kiambu, Machakos, Kisumu, Kajiado and Kilifi was deployed with the support of the World Bank Group, it is plagued by frequent disruptions and system downtime. In Nairobi, the system has not been operational for more than three months of 2021 and in a survey of AAK members, 46.7% of the respondents indicated that they had to wait for over 6 months for their applications to be processed or granted approval.
  • Kenya’s Lands Ministry is doing a digitization of title deeds through a National Land Information System (NLIMS), referred to as ArdhiSasa with a goal to have all land records digitized by the end of 2022.  The Lands Cabinet Secretary indicated that the Ministry has scanned and digitized 30 million documents in Nairobi.
  • A Cytonn Real Estate report on properties in the years 2020 found that “residential units in Thindigua, Syokimau and Rosslyn recorded the highest returns to investors and land asking prices recorded an overall annualized capital appreciation of 2.3%.” According to the report, Gigiri was the best performing office node in FY’2020, followed by Westlands and Karen, In the retail sector, Westlands and Karen were the best performing nodes while in hospitality, Westlands-Parklands was the best performing node. Read more in the report.
  • Cytonn is now doing a restructuring and has applied to wind down two funds – the Cytonn High Yield Solutions LLP and Cytonn Real Estate Project Notes LLP through administration and has invited creditors to submit their debt claims, with proof, to Kereto Marima who is the appointed administrator – by November 29, 2021.
  • Hotels are not doing well with many iconic sites closed or on sale due to Covid-19 and the resultant curfews and travel bans that have affected the flow of tourists into Kenya.
  • Many hotels expect a steady recovery once the curfew is lifted (which happened in October 2021). See a survey of hoteliers by the Central Bank of Kenya.

Some hotels that are gone: Intercontinental and the Nairobi Dusit/ D2 which recovered after the January 2019 terror attacks only to succumb in the Covid-19 aftermath.

Some hotels currently closed: Mt Kenya Safari Club, Norfolk, Radisson Blu.

Some hotels on sale: Outspan, Treetops (should the Queen buy the hotel ahead of her 100th birthday?), Fairview and Country Lodges, Jumuia (Nakuru).  

E-commerce insights from Jumia and Chap Chap Go

Yesterday Jumia released their Africa e-commerce index 2021 with some interesting trends, a  year after Covid-19 impacted lives across the continent.

Sam Chappate CEO Jumia Kenya said that in Africa, e-commerce still has room for growth as currently, it still accounts for just 1% of  transactions, and another 300 million people will be accessing the internet in two years. 75% of traffic to Jumia is on mobile, while it is 85% for Kenya.

  • Gross merchandise value has shifted – from 40% of pre-pandemic sales coming from everyday stuff (FMCG, beauty products) to now 60%. Now, a 2kg sugar bag is the top-selling product on Jumia in Kenya. 
  • NYSE-listed Jumia is in ten countries and Kenya number 2 in searches, behind Nigeria. Top cities in Africa are Lagos, Cairo, Nairobi, Casablanca, Abidjan, Gaza, Abuja and Accra.
  •  With 11,000 sellers and 1,600 pickup stations, Jumia has the biggest logistics infrastructure in Kenya. Coca-Cola is probably bigger but it’s a closed system whereas Jumia has opened their system and logistics infrastructure to third parties/partners (e.g. Premier Foods and Unilever). Small companies can use pickup stations for   FMCG.
  • Sales of Jumia are 51% primary cities, 27% secondary cities, and 22% rural – so 50% outside Tier-I cities. Most deliveries in Kenya are to Nairobi Mombasa and Kiambu.
  • Now big in fintech .. 35% of Jumia orders are paid through Jumia pay which has 4 million downloads – they have now opened Jumia pay to third-party partners, starting in Egypt.

Also, Chap Chap GO, an -e-commerce startup that’s winding down, uncovered some gems from its year of operations in Mukuru and Langata areas trading a limited basket of products. Its founder Soud Hyder, a digital commerce specialist, shared some urban e-commerce insights on Twitter.

  • Fastest moving items were wheat flour (Ajab), cooking oil (Salit), cooking fat (Samli), and then sugar – all needed on a daily basis by Mama Chapos (informal roadside cafes).
  • Ajab Flour was super interesting; it’s very popular with Mama Chapos despite being a relatively newer brand, they cited quality and texture for it being the preferred choice, something to do with the elasticity of the chapos and preferred kneading consistency by the cooks.
  • Samli was a product requested by customers, trialled with a small cohort in Jul-Aug 2020, mostly “Mama Chapo” type of customers.
  • GIL (manufacturer of AjabFlour) has a lower quality fighter brand called Umi, intent was to help them garner market share but turns out the premium brand is more popular even in the lower tier of the market, customers are willing to pay a bit more for quality.
  • The market has already validated the “measure and pour model” (weka ya kupima), unhygienic & inconvenient but the market has found equilibrium, works for both retailers and customers, an additional 3% margin is not bad at all for folks in informal retail
  • .. Mama Chapos ended up becoming our core customers because of on-demand service, fair pricing and convenience. We were not always the cheapest but the convenience aspect really helped them focus on their business.
  • We used a hub and spoke model, had small depots in the neighbourhoods we operated in .. the eventual goal was to partner with existing businesses/retailers that had storage space to spare and delivery capacity.
  • We mostly did two, Fresh Fri (B2C – middle class) and Salit (informal retail/kibandas), our B2C footprint was relatively small, so ended up doing quite a bit on Salit including repacking it in 1L reusable jars, see the cost of packaging easily adds 3-5% to the price.
  • Differences in margin is all about supply and buy planning (basis of commodity trading) and following market prices being set by the bigger suppliers/manufacturers, if they drop you have to drop otherwise you won’t move stock.
  • Flour and oil move every day so it’s a volume game and moving bulky items from depot to customer/market in the most efficient way possible, for those who are able to do it really well e.g. the Eastleigh wholesalers and some of the bigger distributors.
  • So FMCG margins are razor-thin in sub-Saharan Africa, pricing makes or kills a business, so wholesalers and bigger retailers make money from rebates in subsequent months, invest capital to build seed customers and retention, build volume for rebates, qualify for credit .. and build credit lines with manufacturers, that net 15 or 30 or 45-day credit line could easily get sub 10% margin, so not a bad hustle if one has all their ducks lined up, but it’s hard, not the easiest of businesses to run, so many things could go wrong
  • .. which is why you are seeing an influx of new oil and fats brands, if you crack distribution, you can carve out a niche. They call vegetable oil these days “Salad* after the brand Salit.
  • Primarily it’s a quality, price point and availability problem. So more on the distribution side, like milk ATMs, if you can plug a brand on top that and execute, even better
  • Unfortunately, we shut down our FMCG business in Q4-2021 and are formally shutting down @ChapChapGO .. we’ve become another statistic of a fledgling startup but hope the insights and lessons learnt will benefit and inspire others.

Nairobi retail shopping upstarts.

The Nairobi shopping scene has been upended by several new chains that have opened stores in several malls like Two Rivers in the last few months. They include:

  • Carrefour: This franchise has been around for almost three years now, and has replaced Nakumatt, taking up space vacated by the former giant, at several top-end malls like the Junction, Mega and Galleria. They offer new experiences and different retail operations for customers and suppliers.
  • LC Waikiki: Has a large selection of clothes – for men, women, and children – priced quite affordably compared to other stores like Mr. Price and Deacons who, frequent visitors to Johannesburg say, charge double what the same items cost in South Africa.
  • Miniso: Japanese gift shop chain (that’s really Chinese?) looks confusing at the entrance, but inside they have lots of stuff – electronics, travel items, gift items, and you end up spending a lot more time browsing than you expected, and returning many times to purchase other items.
  • Decathlon: Sports shop at the Karen Hub, is well-arranged, with exercise and sports equipment and clothing. It’s perfectly priced for many people who are experimenters and want to buy stuff to try out new sports for themselves and for children. They sell in-house brands like “Kalenji” shoes (a play on “Kalenjin” runners?) that cost a fraction of name brands like Nike and Adidas. They put out all their stock for customers to pick and try, unlike other shops who put one item on display and have the rest in the backroom where clerks have to go and retrieve the right size of an item. They also have self-service check-out counters and their payment options are completely cashless.

Cancer Insurance in Kenya

Kenyan insurance firm, ICEA Lion (the Insurance Company of East Africa), launched a cancer insurance policy in October. They have been advertising in newspapers, TV with the promise of cover for just Kshs 165 ($1.$ per month). Yet there is a billboard, and their own FAQ’s, that state that the policy is NOT a medical insurance cover. So what is it?

Cancer impacts: Cancer is becoming more prevalent, affecting thousands of Kenyan every year and has been cited in the illness and death of many Kenyans. Today’s Nation newspaper has a report than one in five Kenyans will develop cancer in their lifetimes and that one out of every eleven deaths in the country is due to cancer.

Cancer afflicts all groups, and the working and the wealthy seem as afflicted as poorer Kenyans, who may not have any medical insurance. Treatment comes with hefty bills for scans, operations, radiation, chemotherapy and other treatments, whether in Kenya or overseas, especially in India. There are dozens of fund-raisers every month within families or online, or in church groups etc.

Features: The ICEA cover pays out a percentage of the sum insured when one is diagnosed with invasive cancer (which is spreading to other organs or healthy body cells) or a brain tumour.

ICEA pays the insured person, not the hospital so that they meet their medical or other ordinary living expenses for which cancer treatment would pose a burden. The policy offsets financial obligations arising from medical expenses and is targeted at heads of households. Recent surveys on financial inclusion found that 42% of Kenyans use their own savings to manage shocks and risks, such as medical treatment, and 28% use social networks.

The ICEA policy pays 10% upon diagnosis, 5% of the sum insured for each course of chemotherapy (for up to five instances or five years), 5% of the sum insured for each course of radiotherapy (for up to five instances or five years), and 20% of the sum insured for one surgical procedure in the first five years.

Another 10% is paid in case there is a relapse between years five and ten, and another 10% is paid if there is a remission after year ten. If someone requires palliative care (basically pain management with no more chance of recovery), 100% of the remaining insured sum is released.

For brain tumors, 10% is paid on diagnosis, and 40% of the insured sum can be used to pay for surgery.

Payment is made within two weeks (14 days) of a claim. Payments can be made to the policy owner, or their beneficiaries and is done regardless of other medical insurance in place.

Joining: No medical tests are required for sums up to Kshs 5,000,000 (~$49,250). The maximum age to join is 60 years and the cover expires when one turns 65 years. The policy runs for a minimum of 5 years.

Policy Costs: ICEA has a premium calculator on their website e.g. for a 25-year old to have the cover of Kshs 5 million, it will cost Kshs 1,174 per month or 14,000 per year. And for Kshs 10 million (~$98,500) of cover, that will be Kshs 2,349 per month or Kshs 28,187 ($277) per year. The cost increases as one gets older and if one is 45 years old, and with the looming cap of 65 years, to get Kshs 10 million cover will cost 18,310 per month or Kshs 219,722 ($2,164) per year. Also, payment is waived if someone is diagnosed with stage 4 cancer.

Exclusions:

  • If one is diagnosed within three months of purchasing the cover.
  • If one has signs of cancer within the 12 months before they purchased the policy or had been diagnosed earlier.
  • No payments for surgery to diagnose cancer.
  • Benign or malignant tumours (i.e. cancer which is not spreading )
  • For some prostate tumors or some leukemia (blood cancer) types.
  • If a woman had a mastectomy or lumpectomy within five years before the policy started.
  • For any cancer caused by a pre-existing condition.

Medical Insurance in Kenya: Medical insurance is not a lucrative product. According to the Association of Kenya Insurers (AKI), eleven companies underwrote medical insurance of more than one billion shillings in the year, topped by Jubilee, followed by others such as AAR, Resolution, APA, CIC, and Madison. But the industry saw Kshs 56 billion of claims in 2018, that was led by medical insurance with claims of Kshs 20 billion ($197 million), followed by private motor and commercial motor with claims of about Kshs 14 billion each. Only seven out of twenty-three companies made an underwriting profit from medical insurance.

⁩Other firms with medical insurance that extends to some cover for cancer-related illnesses include UAP / Old Mutual, GA Insurance, and the National Hospital Insurance Fund under their “SUPA” cover.

Toxic Business: Banned in the European Union, poisoning Kenya

Agriculture is one of Kenya’s key income earners contributing 24% of GDP and employing 75% of the population either directly or indirectly. As a result, the demand for pesticides is high and increasing with the need to increase agricultural production to keep up with population increase. Imported chemical pesticides in the market account for 87% and has more than doubled in four years from 6,400 tonnes to 15,600 tonnes in 2018, yet there are few safeguards to control application.

Every year fresh produce from Kenya is rejected by the European market when it is found to have harmful levels of chemical residue. When returned it finds its way to local fresh produce markets and consumed by unsuspecting Kenyans. The result is a huge healthcare burden on households as more people, especially children, fall ill.

A report by Kenya Plant Health Inspectorate Service (KEPHIS) showed that 46% of the fresh vegetables sold in Kenyan fresh produce markets have high levels of pesticides with harmful active ingredients, with Kale (94%) having the highest level of pesticides and herbicides that are harmful to human and animal health.

A small-scale farmer Joseph, who has adequate training in the handling of pesticides, prepares to spray his crops by mixing the chemical with water in a backpack sprayer pump, using his bare hands and no protective mask or clothing, he gives the pump a firm shake to mix the ingredients in it and then proceeds to splash water on the exterior of the sprayer pack to rinse off the chemical overspill with his hands. The small quarter acre, gently-sloping vegetable garden surrounds his family’s house, which further exposes his family to harmful chemicals. He is not aware of the danger of handling these pesticides, only focusing on their efficacy in pest control.

At the local roadside Market, Daniel Maingi of Kenya Food Rights Alliance purchases green capsicum and spinach to take for testing at the University of Nairobi’s Pharmacology & Toxicology Laboratory at the Department of Public Health, where Professor Mbaria confirms harmful levels of chemicals containing toxic active ingredients on the sample vegetables.

The “Pesticides In Kenya: Why our health, environment and food security is at stake” report by Route To Food Initiative (RTFI), makes a distinction between the toxicity of the active ingredient and the toxicity of the chemical product. In the European market, the manufacturer of a chemical product first registers the active ingredient, which is then tested and must be identified by name on the product label.

Of the “247 active ingredients registered in Kenya, 150 are approved in Europe, 11 are not listed in the European Database and 78 have been withdrawn from the European market or are heavily restricted in use due to potential chronic health effects, environmental persistence, and high toxicity to wildlife.”

In a case of double morality standards, these chemicals are available to Kenyan farmers threatening the health of both citizens and the environment by contaminating the soil and water. Most of these pesticides take years to degrade and therefore persist in the environment for many years and many are acutely toxic causing severe long-term toxic effects, disrupting the human endocrine system, harming wildlife and other non-target organisms that are crucial to the ecology.

The Pesticide Control Products Board (PCPB) set up by the Government of Kenya under the Pest Control Products Act of 1982 regulates the importation, manufacture, distribution and exportation of pest control products. PCPB has registered 247 active ingredients in 699 horticultural chemical products, with more products registered than active ingredients as one active ingredient can be by several companies. Of these, a quarter are banned in Europe and they include big brand names such as Syngenta, Bayer and BASF.

In Kenya, chemical companies host robust carnival-like events where smallholder farmers are bussed in from across the country and paid a stipend to attend. Throughout the festival, no mention is made to farmers about safe handling or protective clothing when mixing the chemicals for application on the crops. The farmers appear to completely trust the chemical companies to have their best interests at heart and do not ask any questions. At these marketing events, several chemicals are presented as solving multiple problems and are touted as the best in the market.

Glyphosate-based agrichemicals have received an enormous pushback globally for its carcinogenic properties. However, there are other harmful ingredients that should attract much more attention in use in Kenya, but banned in the European Union. Carcinogenic active ingredients include Chlorothalonil, Clodinafop, Oxyfluorfen and Pymetrozine. Mutagenic active ingredients include Cabendazim, Dichlorrvos and Trichlorfon. Endocrine disruptor pesticide active ingredients include Acephate, Carbofuran, Deltamethrin, Omethoate and Thiacloprid. Active ingredients that hamper development and are harmful to reproductive health include Abamectin, Carbendazim, Carbofuran, Gamma-cyhalothrin, Oxydemeton-methyla and Thiacloprid. Neurotoxic active ingredients include Abamectin, Acephate, Dichlorvos, Glufosinate-ammonium, Omethoate, Permethrin and Thiacloprid.

Before the advent of chemical herbicides, farmers would weed their farms by hand and using hand hoes, this has been increasingly replaced by pesticides even for the smallholder farms under five acres. Mono-cropping or monoculture where one crop is planted year in year out, depleting the soil of nutrients and necessitating the increased use of fertilizers to improve yields with each subsequent year, also encourages the spread of crop pests which require chemicals to treat. Another area that receives little focus is post-harvest storage pesticides. If fertilizers are subsidized, why not include hermetic storage technology (HST) storage bags that provide moisture and insect controls, without pesticides, in this policy?

If we continue to consume chemicals, consciously or subconsciously through the food we eat, the water we drink and the air we breathe, then the next generation we produce will be of a lesser quality than ourselves, as will subsequent generations.

A guest post by Velma Kiome