Don’t un­der­rate likely im­pact of Nasa’s prod­ucts boycott on firms

Daily Nation (Kenya) - - SPECIAL REPORT - Mr Ramogi is an in­de­pen­dent an­a­lyst. @Od­hi­amb­o­ramogi

The year was 1956. Martin Luther King Jr was lead­ing a year-long bus boycott in Mont­gomery, Alabama, in the strug­gle for racial equal­ity. Op­po­si­tion leader Raila Odinga was an 11-year-old boy closely ob­serv­ing his fa­ther’s po­lit­i­cal moves. Sixty-one years later, Dr King is a na­tional sym­bol of civil rights in his coun­try. Mr Odinga starts the Mont­gomery-style strug­gle with the hope of achiev­ing sim­i­lar re­sults in in­de­pen­dent Kenya. What if he suc­ceeds?

About a week ago, the Na­tional Su­per Al­liance (Nasa) an­nounced a boycott of Sa­fari­com, Brook­side Dairy and Bidco prod­ucts. It is not clear how long the boycott will last.

Eco­nomic boy­cotts tend to suc­ceed against the odds.

A boycott of English goods by the Amer­i­can pop­u­lace in the 18th cen­tury re­sulted in in­de­pen­dence. Ma­hatma Gandhi’s non-vi­o­lent boycott of com­mer­cial salt and a march to the sea led to sig­nif­i­cant losses and, ul­ti­mately, In­dia’s in­de­pen­dence. The Amer­i­can civil move­ment, led by Dr King, made great strides in equal rights for all races in the United States.

Boy­cotts suc­ceed be­cause they hit at the heart of cap­i­tal­ism — free trade.

In its 2017 an­nual re­port, Sa­fari­com an­nounced a profit of Sh48.4 bil­lion, be­ing 22.75 per cent of to­tal rev­enue. In essence, if you take away a quar­ter of the firm’s in­come, it will un­doubt­edly plunge into the loss­mak­ing ter­ri­tory. Sa­fari­com is one of the unique eco­nomic en­ti­ties this side of the Sa­hara that de­liv­ers su­per prof­its. The rest de­liver prof­its that are way be­low 20 per cent of in­come.

If the elec­tion boycott by Nasa is an in­di­ca­tor of the coali­tion’s fol­low­ing, then chances of fail­ure are slim. As­sum­ing they con­trol half the pop­u­la­tion, even if only 80 per cent of their fol­low­ers oblige, there will be cat­a­strophic eco­nomic re­sults. Work­ers will be laid off for these firms to re­main afloat. The firms are likely to de­fault on bank loans and work­ers’ morale will go down. The eco­nomic doom is cycli­cal and, once in mo­tion, can bring down even the big­gest firm in east and cen­tral Africa.

More im­por­tantly, the boycott spirit is con­ta­gious. If the pub­lic can do with­out a cer­tain prod­uct, which they deem im­por­tant, they will re­alise that they can dis­pense with more prod­ucts and save more. Thus, while the boycott might be on one item, the anti-con­sump­tion at­ti­tude tends to spread wider. It is re­ported that the Mont­gomery bus boycott also led to fewer travellers us­ing trains and fewer pa­trons in restau­rants. At a time when Kenyans have held their in­comes for al­most a year of elec­tion­eer­ing, shun­ning con­sump­tion is be­com­ing a hobby.

The com­pa­nies tar­geted by the boy­cotts are not stand-alone units that have lit­tle or no in­flu­ence in the econ­omy. M-pesa has an elab­o­rate net­work of over 200,000 agents. These rely on Sa­fari­com’s busi­ness to sur­vive. In ad­di­tion, many tech businesses rely on Sa­fari­com’s net­work for their op­er­a­tions.

At the same time, Brook­side and its sub­sidiaries, as well as Bidco, have a multi-level dis­tri­bu­tion web across the re­gion. Boy­cotting these com­pa­nies means ex­pos­ing their dis­tri­bu­tion un­der­belly.

At the dis­tri­bu­tion and agency level, it is gen­er­ally ex­pected that the agents and distrib­u­tors will sim­ply shift al­le­giance to the pre­ferred al­ter­na­tives. Losses ex­pected here will be in­curred by su­per agents who have heav­ily in­vested in their businesses and ma­jor distrib­u­tors with ex­cess stock. More­over, milk com­pa­nies have a long chain of farm­ers who will bear losses with­out a soft fall­back.

On the in­vest­ment an­gle, Sa­fari­com, the only listed com­pany in the group of boy­cotted firms, has sur­vived a bad week in the mar­ket. The share price has dropped by a shilling. For the giant telco, the loss is neg­li­gi­ble. How­ever, dooms­day is loom­ing.

We are now faced with the re­al­ity of a price war among the brands. Sa­fari­com is ex­pected to make changes to its se­nior man­age­ment and ad­just its tar­iffs to try and keep its mar­ket share in­tact. Brook­side has re­port­edly be­gun re­brand­ing and low­er­ing prices of its prod­ucts in parts of the coun­try. If the boycott is pro­longed, staff lay­offs are in­evitable.

The price wars will ul­ti­mately ben­e­fit con­sumers in terms of higher qual­ity ser­vices and lower costs. But the gains from the price wars will soon be wiped out by higher taxes as the gov­ern­ment tries to make up for lost rev­enue in the af­fected com­pa­nies.

Ma­hatma Gandhi’s non-vi­o­lent boycott of com­mer­cial salt and a march to the sea led to sig­nif­i­cant losses and, ul­ti­mately, In­dia’s in­de­pen­dence”

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