East African Business Week (Kampala)
Abwao Oluoch
14 April 2008
Nairobi — East Africa's leading paint maker, Crown Berger, has revised its growth focus for this year, citing the post-election crisis in Kenya and lower demand for construction raw materials across the region as a result of the high inflation.
The firm has also slowed down its expansion plan into Uganda and Rwanda as a result of the steep increases in the price of cement and other construction materials in Uganda, which has slowed down the demand for paint and other construction materials.
"The prices of raw material have been going up by over 100% and the local paint industry is unable to get sunflower oil as a result of low production," said Rakesh Rao, the Chief Executive Officer of Crown Berger Kenya Limited.
Kenyan firms are feeling the pinch of a prolonged political crisis, worsened by the current standoff in the formation of a grand coalition cabinet after the 27 Dec. presidential polls failed to determine a clear winner for the country's presidency.
The construction industry in Kenya, partly driven by the boom in Uganda, Rwanda and Sudan, is feeling the worst form of the crisis with the crisis in Kenya having sparked off an inflationary crisis in Uganda, which heavily relies on goods supplied from Kenya.
"As soon as we see our retail business grow, we known we will be on a growth path. In the first week of March, we recorded high quantities of sales but now we know the market is slowing down," he explained.
Uganda in Kenya's biggest trading partner internationally, followed by the European Union states and the Common Market for Eastern and Southern Africa (COMESA) bloc, where Kenya has been a major supplier of goods, accounting for 40% of trade.
Rao said the paint manufacturer had earlier set its growth focus for this year beyond 18%, three times Kenya's average growth rate for the last three years. He said the double-digit growth focus that his company had projected would be revised downwards this year.
"We had anticipated a double-digit growth of our products but we realized the disturbances might affect the economy. This is impacting on our retail sales but we might still end up with growth," Rao told the East African Business Week in an interview.
The difficult operating environment facing Crown Berger, worsened by the 21% month-on-month inflation recorded in Kenya over the past one month, has already taken its toll on the manufacturing sector in Kenya and Uganda.
Already, firms with regional growth ambitions are revising their expansion plans downwards as the cost of labour in the construction industry edges upwards.
"It is very unlikely that new employment opportunities will emerge because we see growth slowing down. We employ when there is expansion, that is when we need to bring in more manpower but I hope the stalemate over the cabinet will be resolved."
Rao said Crown Berger has a market share of about 65% of the Kenyan market. The firm has registered growth of more than 18% over the past three years, based on high sales in the retail market, mainly driven by the construction boom in Kenya and Uganda.
Rao said the business has been growing consistently but the recent political events in Kenya have tended to slow down the growth momentum.
Uganda has been badly affected by the inflation with a 50 % rise in the cost of cement as a result of the on-going political standoff in neighbouring Kenya.
"There is no construction boom. These things are affecting our volumes but we hope people would begin to construct once everything settles down," Rao said.
Meanwhile, the Kenyan paint firm is targeting the growth of new products, especially with the introduction of road marking paints as its new growth frontier.
Rao said the firm's new growth plan is to diversify into the production of new paints and adhesives for export across the Eastern Africa region.
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