Kenya Siege Damages African Success Story

Major Retailer Whose Flagship Store Was Destroyed Struggles to Recover, as Fears Rise Over Broader Economic Impact

 

By  PATRICK MCGROARTY, WSJ.com

Nakumatt, a homegrown corporate success story in Kenya, is now a charred husk in the wake of the Westgate mall terror attacks. Patrick McGroarty joins the News Hub with a look at what the tragedy means for Africa’s premier emerging economy. (Photo: AP)
NAIROBI, Kenya—When Islamic militants killed dozens of people at Nairobi’s Westgate mall last week, they also battered one of Africa’s homegrown corporate success stories and set back a rising economy.
Gunmen entered the Nakumatt retailer shortly after the assault began on Sept. 21, spraying bullets across the aisles as some shoppers tried to climb the shelves and others cowered with their children in a store room. Those who failed to recite Islamic prayers were executed. The four-day standoff killed at least 67 people, injured hundreds and left a shining symbol of emerging Africa, Nakumatt Holdings Ltd., in tatters.
Nakumatt, which sells everything from bananas to bicycles, earns more than a 10th of its $500 million in annual revenue from its flagship Westgate store, whose destruction is a major blow to the company, said Atul Shah, managing director of Nakumatt Holdings Ltd. Three of his employees were slain in the attack. “We are still trying to believe this is not real,” he said. “‘What next?’ is the question I’m asking.”The question is also weighing on the minds of many investors in Kenya. Like Africa’s other dynamic economies, the country has troubled neighbors, in this case Somalia, whose terror group al-Shabaab claimed responsibility for the attack. The Westgate attack is a reminder of how easily extremists with guns can move across porous borders to strike at pockets of African prosperity.
“There’s always going to be that lingering fear now: Can this happen again?” said Biniam Yohannes, who manages a fund in Nairobi with $150 million invested in East Africa. Somalia is still emerging from two decades of civil war. African peacekeepers have pushed al-Shabaab out of its Somalian strongholds, including the capital, Mogadishu, but militants have shown they are still capable of violent attacks inside the country and beyond.
A similar pattern has surfaced in other parts of Africa. After Libyan dictator Moammar Gadhafi was deposed in 2011, arms from his arsenal seeped south across the Sahara, bolstering militants that took control of northern Mali this year and continue to attack civilians and soldiers in northern Nigeria. South Africa is hampered by its northern neighbor Zimbabwe, where the failed economic policies of strongman President Robert Mugabe have sent millions of his citizens fleeing across the border. “A state isn’t failing in isolation,” said Clare Allenson, an Africa analyst at Eurasia Group. “When it’s your neighbor there are really problematic linkages.”
Before the Westgate attack, Kenya’s economy was humming. Nairobi, the capital, is a hive for African technology firms and multinationals. Kenya’s statistics agency said Tuesday that the economy grew at an annualized rate of 4.3% in the second quarter and 4.4% in 2012.Moody’s Investors Service said last week that the Westgate attack would likely shave 0.5 percentage points off Kenya’s economic growth this year and curtail critical foreign currency earnings mainly due to the likelihood of fewer tourist visits to the country’s national parks and beaches.Among the biggest potential victims are the companies riding Kenya’s emerging consumer class. Restaurants, hotels and consumer-oriented manufacturers are expected to all feel the pain if Kenyans stay home and foreign visitors curtail spending.
“Kenyans need to be urged to spring back and continue doing whatever they are doing, defy all the doings of terrorists and support growth,” said Nakumatt’s Mr. Shah.  Mr. Shah, 53 years old, was raised in the dusty Rift Valley town of Nakuru, where he grew up working in his father’s mattress store. In the late 1980s he dreamed of converting it into a chain of Western-style grocery and retail outlets, opening his first store in Nairobi in 1992.Today Nakumatt is East Africa’s top retailer by sales and revenue, with 40 stores across Kenya, Uganda, Rwanda and Tanzania. Before the Westgate attack, Mr. Shah was developing plans to open six stores this year in Kenya and Uganda. He still hopes to do so. Its Westgate store, in the heart of Nairobi’s embassy district, attracted the city’s comfortable and cosmopolitan upper crust. Mr. Shah visited the store himself on the morning of the attack, and he had just settled into his office near the airport when his wife called him screaming. 
image

Associated Press

A Kenyan policeman walks through the remains of the Nakumatt store in Nairobi’s Westgate mall on Tuesday, days after Islamist militants attacked.
“There is firing going on like mad, mad—they are going to kill us,” Ms. Shah said from her car, parked outside Westgate, Mr. Shah recalled. She cowered beneath the steering wheel while attackers fired 10 bullets into her car. Mr. Shah rushed to the scene, hoping to help her and a regional manager taking cover on the store’s loading bay as militants gunned down shoppers and workers inside. “I was just trying to be hopeful,” Mr. Shah said. “I could do nothing else.”
After avoiding malls for a week, Mr. Yohannes, the private equity director, said he started shopping again at a Nakumatt two blocks from Westgate. Such a yearning for normality, says he and others, points to the potential recovery for Nakumatt, a pillar of daily life for many East Africans, and other retailers. “Consumer demand is still intact—people still need reliable goods and services and suppliers need to keep up,” said Vimal Shah, who heads an edible oils manufacturer that supplies Nakumatt and isn’t related to its owner.On Tuesday, Kenya’s President Uhuru Kenyatta pledged to keep the country on track and punish the perpetrators. “We fought back as one people and continue to heal our grievances together,” he told a multi-faith prayer service in honor of those killed.He also announced a government inquiry into the police and army’s response to the attack.
Business owners in the mall have accused those forces of looting their stores, and Kenya’s Red Cross says 39 people may still be missing in connection with the attack. The government maintains no one has been reported missing to police.Meanwhile, Mr. Shah is trying to mend his business. He spent the last 10 days meeting with tight-lipped security personnel and insurance companies, discerning what he’ll recoup from a store that contained up to $11.6 million worth of stock and equipment. Reassuring those who work for him and buy his goods could take longer. “We’re in trouble. There’s a lot of pressure,” he said. “We have to bring customers back.”

Write to Patrick McGroarty at patrick.mcgroarty@wsj.com

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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