Kenya falls behind peers in retail market performance
By Rawlings Otini
Kenya suffered a sharp drop in global retail market performance ranking to fall by more than five places as a tough business environment continues to frustrate retail chains leading to exits, a new report indicates.
The 2019 Global Retail Development Index (GRDI) by AT Kearney, an American-based global management consulting firm , Kenya was pushed out of the top 30 group having been ranked 29 and 25 in 2016 and 2017 respectively.
It ranks the top 30 developing countries for retail investments, based on all macro-economic and retail specific-variables. The rating is largely driven by country risk, population size and wealth. Kenya which had Sh2.8 trillion sales in 2017 with a market saturation of 76 per cent has been beaten by Tanzania, now ranked at position 28 in the index with national retail sales of Sh2.4 trillion,” says the report.
Smaller market
Tanzania has a population of 59 million compared to Kenya’s 47 million, making Kenya a smaller market. Kenya’s low gross domestic product (GDP) per capita compared to other emerging economies was also a major drawback.
The period has also seen the closure of several stores by Nakumatt and Uchumi in a major blow to the country’s retail sector.
The retail sector is the biggest contributor to Kenya’s economic growth after agriculture, manufacturing and transport according to government data. Empty shopping malls and lack of foot traffic in other business premises was a key factor with the cash-strapped economy forcing President Uhuru Kenyatta to repeal interest rate cap.
The ranking helps retail investors to make decision on the best investment destination in terms of return on capital. Retail market is also shaped by Internet connectivity, cost of labour but economic development and trade policy are largest factors in shaping retail growth in consumer markets.
The GRDI ranks 30 developing countries on a scale of zero to 100, the higher the ranking, the more urgency to enter a country. Countries are selected from 200 nations based on three criteria which are country risk, population size and wealth.
Online shopping
Kenya’s drop in the ranking despite the fact that the country has recently witnessed a surge in online shopping with names such as Jumia, Masoko and Kilimall gaining currency and the brick and mortar brands such as Naivas, Tuskys, Carrefour, Quickmart and Tumaini grow their brand.
Kenya also continued to attract new foreign stores such as South Africa’s Shoprite which opened its third store in August.
Kenya’s GDP per capita which has been growing at a slower pace compared to competitor nations could have also contributed to the drop.
Kenya’s GDP has been growing by an average of between five and six per cent in the last five years, which is lower that many African countries.
Kenya which is facing revenue shortfalls has also introduced various taxes to widen revenue base and in the process eating into traditional demand for retail goods.
Kenya’s private consumption was affected by poor agriculture output this year which pushed up prices of food, reducing demand for other commodities. A shortage of money due to government austerity measures also affected demand for retail products with small businesses bearing the brunt. Ghana beat all African contenders to rank at position four behind China, India and Malaysia.
New to the Index, at an number four, the report says, Ghana’s political stability and urbanisation are major drivers for its modern retail sector, adding that while informal retailing prevails, department and variety stores are becoming more common.
