Hiiraan Online

The Kenyan Newspapers and sadly VOA are playing to unfounded and fabricated stories to discredit the thousands of Somali Kenyans who work sixteen hours a day to earn a living in lawful business enterprises.  These articles and the so called journalists have the audacity to call the hard earned money of these Somali entrepreneurs “pirate booty”.  These news men and women have failed to dig deep to understand the truth behind the so called Kenya’s real state boom and thus are misleading the public who are unaware the real nature of the real state market in Kenya. Their reporting which is not based on facts but innuendos and citing of anonymous sources is going to lead victimization of already victimized minority.

Let us look the real cause of the Kenya’s real state boom.  Why the real state in Kenya is skyrocketing while the real state in elsewhere is collapsing? The newspaper Daily Nation assumed the real state boom is a new phenomena that must be caused by the Somali piracy or worse they have been misled by the Kenya’s real state behemoths that controlled this market since the independence of Kenya and are fending off stiff competition from new competitors.

To understand the real state market in Kenya, one must go back decades before independence, majority of Kenyans where farmers and herders and only small number of the population where sophisticated to engage in business let alone complex and capital intense industry like real state. Therefore, the real state market was run and controlled by small minority of Asians mostly Indians.  This market was very much underdeveloped as the Indian community lives apart from the Africans. The Indian construction and real state magnate lives in “bubble” gated communities far removed from the Africans. Therefore, the people who control the real state such as construction materials, equipment and have the capital necessary to build houses, businesses and residential communities are really out of touch with the housing and real state needs of the 30 million black Kenyans.

Meanwhile, the Kenyan population kept growing all these years as most developing countries are while the real state did not keep up with the growth of the population. The Kenyan black majority are leaving in shanty towns such as East-Leigh and other underdeveloped flimsily built and overcrowded houses. An affordable housing was never built and was not an option for the majority of the middle class and lower middle class Black Kenyan. Basically, the majority of Kenyan housing needs where neglected and never met.

What compounded the problem was, the blacks Kenyans who were sophisticated faced a united Asian-Indian community determined to ensure their monopoly. Sadly as most of Africa, The Asian community being the elite of the business in used any means necessary to ensure their monopolistic position. Some of the tactics used included colluding and price fixing to ensure their hold in real state, construction, equipment, manufacturing and processing industries. Today, some industries such as real state and manufacturing are still closed to other communities due to these inherent monopolistic tendencies of the minority Indians.

The Black Kenyans found an impenetrable and fortified business environment that is not African friendly but is very much Asian friendly. The Asians had this complete monopoly until the 1990’s when the government of the neighboring Somalia collapsed. Many wealthy Somalis mostly merchants who already had established distribution channels and partnership with outside world and run successful businesses back in Somalia were the first wave of migrants into Kenya. These well informed and business savvy Somalis settled places such as Eastleigh and they found low income market that was not served by the Asians merchants who geared their trade to upper-middle class and tourists.  Somalis knew this market very well and they ceased the opportunity by bringing affordable retail stores in the middle of the low income Kenyans. Kenyans also linked up with the Somalis and started opening their own retail shops and while some setup wholesale operations. The Shanty town Eastleigh is probably the largest retail concentration market in Africa.

The first tipping point of this real state boom is, there was an unmet need for real state and the migration of the Somali businesses to neighboring Kenya created a new middle class both Kenyans and Somalis who can afford to buy a house or renovate their already decrepit housing which they were living in.

The second factor that explains the Kenyan real state boom is many Somalis and Sudanese with huge families migrated into Kenya for its relative peace and they needed rental properties but there were no places to rent, it was not build for the last thirty years. The livable properties were already scarce; add this to the influx of refugees with cash being sent by relatives from abroad and you have a recipe for skyrocketing rental and property values. This is not unique to Kenya, it happened in Jordan and Egypt when millions of Iraqis migrated there from the war. It is not an issue of piracy or money laundering as many claims to be, it is pure economics of supply and demand. As prices of rent went up, with no law enforcement or justice in place many landlords started evicting people who could not match paying the going market rate. Many poor Kenyans including Somali Kenyans found themselves homeless and animosity for the new comers were the result.

The third factor is, the majority of Kenyans were tired of the corruption and cronyism that plagued their country and back in 2002 they elected Mwai Kibaki, the opposition party and even though not perfect democracy he did improve the rule of law and made Kenya better than most of her neighbors such as Ethiopia, Somali and Sudan. This attracted many Kenyans who were working in Europe to consider Kenya as a prime investment opportunity.  Kibaki increased safety and security in some key areas such as tourism and this helped to create infusion of capital into the economy. Some of the areas that benefited from this change in governing were tourism, real state and telecommunications.

The truth is the real state in Kenya comes very short of the optimal performance and as long as there is a need, upswing price of real state will continue. There is a genuine need for affordable housing, commercial properties and rehabilitating the old pre-colonial era buildings.  The Kenyan real state is not driven by speculations and price flipping as is usual places like Dubai and California but genuine need and will continue for the foreseeable future. Another aspect that helps this market is the real state in Kenya is mostly based on cash as there are no strong banking institutions and credit is not afforded to the common Kenyan. So the houses are bought and sold in cash.

Now, the issue that most Western media and some uninformed Kenyan papers are beating to death but the often miss is the issue of remittance a.ka. Hawala. Hawala is an agency where you go, to send them money to places not served by banks. You tell the agency that the money is for, where they live in, what their tribe is or their phone number if it exists and you pay a fee mostly 5% of the amount you are sending. Let me remind my readers, this money mostly is going to people who do not have a bank account, do not know language other than their mother tongue and the country does not have banking or traditional money transfers such as Western Union. Sometimes, they live in remote villages or they are nomadic. If the money does not reach them, it is likely they will not eat and death is real possibility.  So, a relative who wants to help his loved one has no other means to send money but to go through this efficient Hawala or money remittances systems. It is the EBay of the global financial system. Billion people get their monthly salary through this method and without it, they will go hungry and even the global economy may experience a similar recession if the major global banks were to fail.

Now, many are saying, the terrorists could use this system and therefore, it must be shutdown or heavily regulated. I say, it cannot be regulated unless the regulations are changed to adapt to how money remittances work. For example in the US, to be regulated they must become like a bank. They must put exuberant deposits and they must fill forms and add huge overhead cost like a bank. Well, this will never happen and here is why, first, money remittances do not have the funds to put such upfront deposits, expertise and language skills necessary to conform like banks are and most money remittance agencies will go bankrupt if they hire corporate lawyers. What needs to happen is any country that wants to regulate money remittance agencies; they must understand the role and how remittance financial systems work and base their regulation around that. It must not require deposits, complex paper fillings. It must be made so simple that the people using it or exchanging transaction through it don’t see wasting their time. If the money remittance agency goes away with your money, the federal bank does not guarantee so why would they be regulated like banks that their customer deposits are partially guaranteed by the government. Money remittances are based on trust and honor system and their regulation must be built around that accordingly.

For example, Ahmed an American national has a mother living in Mogadishu. He sends $100 every month to his mother. All he does is, he goes to his local remittance agency, pays him $105, gives his name and provides an ID, he gives the name of the person taking the money, their location, tribe and phone number if any and in fifteen minutes his mother gets call from the local remittance agent in Mogadishu or they deliver personally to her house. She takes $100 in US currency, done. Let assume Ahmed was forced to go conventional banking system. He goes to his local bank, wires $100 to his friend in Kenya’s account and pays the bank $45 for fees. His friend goes to his Kenyan bank, takes the money in Kenyan shillings, he also pay little bribe or tax, goes to another remittance agency converts the money back to US by buying US which adds another 5% for $105 and adds another $5 for remittance fee to Somalia. Now the $105 is now about $155 plus bribes not to mention my friend has to take day off from his work and go to bank. So my rational is why would I go through this every month to feed my mother? Until the banking regulations are made to adapt to this centuries innovations and agility money remittances will continue legally or illegally. The mantra is terrorists could use the system, so what? Terrorists used American banks, criminals like Barnard Maddoff used modern banking systems to skim 50 billion dollars from unsuspecting victims and we don’t see these banks being black listed so why Ahmed’s mother is going hungry because stupid journalist or uninformed official wants to shut down the money remittance agencies which are not by the way competing with banks as their customers are not serviced by any modern banking systems.

Finally, the argument that pirates are buying properties in Kenya is preposterous, because, pirates are smarter than we give credit to. These pirates are not only Somalis; they include Yemenis and Russians. They are syndicated crime gangs that even penetrate governments and so called autonomous regions of Somalia.  So, if the world is concerned their activities why are Western companies paying them? We do not pay airplane hijackers why are we paying Ship hijackers? So with millions of dollars paid, why would they buy properties in dirty lagoons like Eastleigh while they can perfectly buy from Dubai Marina or Moscow. I believe the people who are buying these properties are majority by business people and ordinary Kenyans who have long term investment but if the pirates are buying properties they are buying where they work and do their business mostly Somalia and if they are buying overseas properties they are buying places where they can party-hard not dirt hot and humid places like Eastleigh. If we follow the logic of the recent articles that pirates are buying properties in Kenya and driving the cost of the housing market, then what is impact of all these factors we have enumerated? Certainly, it is the other way around and if pirates are buying properties, it is impact is well overstated.  The piracy then probably would explain why properties in Jordan and Egypt are also skyrocketing!

Let us hope Daily Nation dispatches real reporters to Eastleigh to shed light on why the government is not repairing potholed roads, why the police is taking bribes from people walking in the streets and why the infrastructure of the area is left to decay while the businesses in the area are paying taxes and are running businesses that are the backbone of the economic engine of Kenya and employ hundreds of Kenyans and nurturing the future of Kenyan entrepreneurs.