Multinational Corporations and the Indigenization of the Kenyan Economy

JAN J. JORGENSEN-

Foreign control of the Kenyan ecanomy began with the incorporation of the coastal strip into the n'a~ent internatiana:l mercantilist / capitalist system in the fifteeJlth and six:teenlth centuries. After almost faur hundred years of intermittent battles fought by the Portuguese, English, Arabs, Germans, Gai'la and Swahili for coJlJtwl of the variaus towns and forts a!long the shores of the Indian Ocean, the coastal strip passed into the hands of the Sultan of Zanzibar under Bdtish protection in the nineteenth century. Through the imperialism of free trade the coost 'Of what is now Kenya became integrated with the British economy in the mid-nineteenth cen·tury, well before the arrival of the first British firms on the mainland and weB before the onset 'Of formal colonia'] rule.1

Trade between the coast and the interior of East Africa was pioneered by Africans, such as the Nyamwezi traders of what is now Tanzania and the Kamba caravans 'Of Kenya, and by Arab traders.2 Exports consisted of ivory, skins and hides, and slaves for French sugar plantations in the Indian Ocean islands and for the Americas. ImpoI1ts were more varied, consisting of cottan doth, brass and iron goods, beads, wire and tobacC'{)o Trade within the interior, cansisting of gra1lns, beans, other foodstuffs, cattle, salt and iron tools was largely controHed by Africans themselves, such as the Kikuyu traders of Mahiga.3 Thus, the first British firms ta become successfully

"International Peace Research Institute, Oslo. The author is grateful to the Norwegian Agency for International Development (NORAD) for the stipend supporting thi~ project, and to the Scandinavian Institute for African Studies (Uppsala) for financial assistance to attend the Dakar conference. In addition to research in the Kenyan National Archives and in the Registrar­General's Company Files in Nairobi, interviews were conducted in London in November and December 1973 with officials of fifteen multinational firms with subsidiaries or associate firms operating in Kenya; and a further thirty-three inter­views were conducted in Kenya during the first four months of 1974 with Afric:m businessmen and wiih officials of subsidiaries of mnc's. Thanks are due to these businessmen and officials for volunteering their time and cooperation. Aside from quotations from these interviews, the opinions expressed in this paper are those of the author and do not necessarily reflect the views of NORAD or PRTO. I The distinction between formal colonial rule and the imperialism of free trade

is discussed in John Gallagher and Ronald Robinson, "The Imperialism of Free Trade," Economic History Rel'iew, New Series, 6 (December 1953), Pl'. 1-15.

2 Alison Smith, "The Southern Section of the Interior, 1840-84," p. 267, and D. A. Low, "The Northern Interior, 1840-84," pp. 314-15, both in Roland Oliver and Gervase Mathew, eds., History of East Africa, Volume I (Oxford: Clarendon Press, 1963). The slave trade is discussed in J. M, Gray, "Zanzibar and the Coastal Belt, 1840-1884," in Oliver and Mathew, ibid., pp. 212-251.

3 The Mahiga Kikuyu who traded with the Masai are discllssed in Peter MaTTi:; and Anthony Somerset, African Businessmen; A Study of Entrepreneurship anc! Development in Kenya (Nairobi: East African Publishing House, 1971), pp. 23-54.

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JAN J. JORGENSEN 430

involved in trade with the interior, such as Smith-Mackenzie. were relative latecomers.'

Whereas earner traders had only been involved in transportation and distribution, delegating the production and collection of goods fDr export to Africans in the interior, the British fim1s quickly became invo~ved in reorganizing productiDn as welJ.5 British firms and British settler-planters established copra and sisal plantations along the coast and later coffee and then tea plantations further inland at higher elevations. The British firms were interested not merely in making a profit but wlso in finding new markets for manufactured goods from Britain and in finding cheap sDurces of raw materials for British firms with whom they were connected by trade or ownership.a Moreover, the political and moral movement to replace the slave trade with 'legitimate commerce' at the end of the nineteenth century necessitated the discovery of viable exports other than s'laves and ivory to pay for the growing volume of imports. 7 In terms of economic mQ1:ives, the replacement of the slave trade with legitimate commerce also enhanced the British firms' competitive position vis-a.-vis Arab and coastal rivals who had become overly dClpendent 'On the slave trade.

Even so, African producers held their own up untH World War I. Prior to the building of the railway from Mombasa on the Indian ocean to Kisumu on Lake Victoria in 1902. African producers accounted for virtually all exports from the interior consisting of slaves, ivory, hides and skins. African producers accounted fer at least 70 per cent of expDrts in 1911-12, including all of the simslim crop, Kenya's major expert art the time, and three-fifths of

4 Smith-Mackenzie continues to operate in Kenya today as Mackenzie (Kenya) Ltd., part of the Inchcape Group Ltd. Through Mackinnon, the firm was also linked with the ill-fated Imperial British Africa Company of Zanzibar and Uganda. Smith-Mackenzie were the outfitters of Stanley's expedition into the interior in search of Livingstone. The firm's boardroom in Nairobi contains a number of mementos from this period including the pay ledger for the five hundred porters employed by the Stanley expedition. Other large trading firms such 'as Dalgety (today merged with Mackenzie), Mitchell Cotls and Leslie & Anderson followed later in the 1920s. There were also a number of independent European traders.

5 Not all the ventures by British firms were successful. Cotton, rubber and wool were among the early failures, &ponsored by such firms as the British Ea&t Africa Company and the Ea&t Africa Syndicate. Much of the material on the colonial economic history of Kenya in this and the following paragraph is derived from C. C. Wrigley, "Kenya: Patterns of Economic Life, 1902-45," in Vincent Harlow, E. M. Chilver and Alison Smith, eds., History of East Africa, n (Oxford: Clarendon Press, 1965), pp. 209-264.

6 For example, Smith-Mackenzie was linked with the British Indian Steam Naviga­tion Company Ltd. (today part of P. & O. Lines, also part of Inchcape Group) and with William Mackinnon & Co. of Scotland. Over the years the firm maintained a primary interest in trade but diversified into tea plantations, sisal plantations and livestock management. A large part of the firm's imports today consist of coffee and tea machinery.

7 In terms of the visible balance of trade, Kenya has persistently lived beyond her means, relying on the inflow of capital from abroad to keep paying for imports. Between 1900 and 1945, according to Wrigley. imports always exceeded exports. Tn the period 1962-71 the net deficit on visible trade ranged between 5.1 and 28.1 per cent of total trade with all nations, averaging 14.3 per cent. The ideology of "legitimate commerce" in relation to the &Iave trade is discussed in John E. Flint, "The Wider Background to Partition and Colonial Occupation" in Oliver and Mathew, eds., History of East Africa. I. p. 379. '

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431 THE INDlGENIZATlON OF THE KENYAN ECONOMY

the maize crop carried by the railways in that year.s But wi,th the maturation of sisal and coffee plantations in the early 1920s, European-owned plantation agriculture replaced African controlled production as the foundation of Kenya's economy, the fo'rmer accounting for half of :the colony's expor~s ill 1929.9 Faced with increasing political and administrative interference and economic pressure to mak~ African labour available for the European planters and settlers, African production goods for export entered an absolute decline in 1925. By 1928 the African producers' share in tota:! exports had fallen below 20 per cenlt, of which most were hides and skins.10 The share of planta­tion crops in total exports remained at approximately half up until World War II, although the compooition changed from primarily coffee and sisal to include tea in the 1930s as the second most important export. Coffee plantations were largely run by independent European planters, whereas the establishment of the vast tea plantations around Kericho and EMoret in the Highlands involved "large LondO'n interests".l1

Between 1902 and 1929 the political economy of Kenya was further transformed by the influx of approximately 2,000 European settlers and their famil'ies. '2 These Europeans, marn'ly British but also Boers and others, exercised politicaI influence far out of proportion to' their numbers during the course of Kenya's colonial period, and sought vigorously to establish a white-settler regime in Kenya and to stifle any signs of independent econom!ic activity among Africans which might endanger the supply of African labour for European farms and plantations or which might engender competi1tion in the supply of agricuhural produce for the domestic and export marke!ts.13

DE-INDIGENIZATION OJ' THE KENYAN ECONOMY, 1902-1952

The decline of African control of the Kenyan economy, or the de­indigen:ilzation of the economy, occurred simultanoously at various levels of economic activity. At the structuraI levI!'! Kenya entered the vertical inter­national division of labour through trade with the outside world in which Kenyans laboured to produce raw materials or labour (sllaves) needed by the externa:l economy and in turn consumed manufactured goods and machinery imported from the externa'l c:conomy. Over the course of the nineteenth and twentieth centuries a larger and larger proportion of the Afr,iean popu'lation was diverted from production solely for domestic consumption to production largely or solely for export QIf for resident arliens such as the Europeans, Asians and Arabs.

At the level of control of units of production and units of distribution

8 C. C. Wrigley, "Kenya: Patterns of Economic Life, 1902-45," op. cit., pp. 227, 243. 9 Ibid.

10 Ibid., p. 243. II Ibid., p. 250. 12 Ioid., p. 241. 13 For a summary of the European settlers' rationale that their incursions benefited

the Africans, see Elspeth Huxley, White Man's Country: Lord Delamere and the Making of Kenya. ! (London: Chatto and Windus, 1953 [1935]), pp. 222-3.

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JAN J. JORGENSEN 432

or at the level of ownership of firms and cDmmercia>! entities, the decline in African control began with the 100ss of contrDI over trade wi,th the outside world, a loss which predated the coming of the British. Then control over trade between the interior and the coast slipped from the hands of the Kamha and Swahili into the hands of Arabs, Asians and Europeans. Finally, control O'ver internaf trade, or the more lucrative portions Df h, shifted from the Africans to the Europeans and Asians. Likewise, African control over uni,ts of production and over production itself was abrogated by the emer­gence Df European plantation agriculture and by the arrival of European settlers. The demands of European planters and settlers for contral of the means of production, namely African labour, African land and private and public capital through control of the colonial administrative apparatus graduaJJy reduced Afric'ans from independent producers and traders to the status of labourers for European and Asian firms and for public works to benefit these same firms. Legal sanctions were invoked to deprive Africans of land and to force the tenants or squatters whO' remained to work at least 180 days14 in the year for their European masters; those Africans who chose not to work for European firms or the European colonia!I adminis­tra:tion were only allowed to' engage in subsistence agriculture Dn ever­shrinking "native reserves". By 1937 the amDunt of land reserved for European alienation plus land deemed suitable for aliena1ion to Europeans totalled 119,357 square kilometres (29.5 million acres), whereas the amount of land in native reserve totalled only 124,768 sq. km. (30.8 milldon acres) despite the fact that Europeans comprised less than one per cent of the population and Africans almost 98 per cent of the populationY

At the level of domestic division of labour. Africans ceased to' be inde­pendent producers of goods for trade, except for production of foodstuffs and other goods within the native reserves, for consumption within the same area, and they were cO'erced into becoming labourers for Europeans and Asians.1n Europeans cO'ntrol'led the colonial administrative apparatus, finan­cial institutions, the larger import-export firms, shipping. mill1'ing (gold and soda ash). plantations, large farms, large-scale food processing firms (breweries, bacon factories, cooperative creameries, canneries). and the larger commer­cial firms in urban areas. Asians controlled smaller import-export firms, most of the retail shops in cities and towns, financial institutions serving the Asian community, and small-scale manufac.turing (aluminium pots, sDap. vegetable

14 Resident Natives Ordinance of 1918. 15 Asians, who comprised approximately 1.7 per cent of the population of Kenya,

were absolutely barred from land ownership outside urban areas. Of the total area of land reserved for Europeans, only 18,535 sq. km. (4.6 million acres), or less than one sixth of that available, was actually occupied by Europeans in 1937. Calculations are based on Kenya Colony and Protectorate, Blue Book for the Year Ended 31st December 1937 (Nairobi: Government Printer, 1938), pp. 210, 475.

16 There were some exceptions to this generalization. Against severe administrative obstacles, Africans did enter into competition with European settlers in producing maize for the domestic market and gradually over time entered into production of cotton for export, though hardly on the same scale as in Uganda and Tanganyika.

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433 THE INDIGENIZATION OF THE KENYAN ECONOMY

oils. sawmills). In addition. Asians fiHed most of the positions of artisans and derks. Africans controHed petty trade within the reserves and were subsistence farmers and pastoralists within the reserves. Prim' to the Depres­sion of 1929, Africans earned. on the average, 14 shillings a month. Follow­ing the Depression wages feB to 8 shi'ltings a month. offset partia;!1y by the availability of cheaper imparted goods from Japan.17 By 1937 average wages had again risen to 14/50 shillings a month. The majority of Cffiployed Africans, 58.1 per cent out of a total 182,858 regular employees, were found in agriculture working for Eumpean farmers and planters. Govern­ment employment on the railway. in the military, police Q1r pt1isons, or in other Government departments at aU levels accounted for a further 15.4 per cent of African employees in 1937; dQlmestic servants, 9.5 per cent; mining, 3.5 per cent; and other employment in timber, fuel, CO'llSitructiJOn, lighterage, missions, etc., 13.5 per cent.18 Few if any Africans were employers rather than employees.19

During the period 1902-1925 the economy of Kenya was transfonned into an economy of "labour reserves", to use Samir Amin's tenninology,20 in which Africans were driven off Iland reserved for European planters and settlers and segregated into Native Reserves where they were kept at a level of subsistent existence to form a rool of labourers available for employment by European farms and firms and by the colonial Government, thus artifici­ally "solving" any problems of law wages or labour shortages. The goals and strategy of the setllers were described in 1912 by the Provincial Commis­sioner fQlr Nairobi:

... The Settlers particularly those with South African experience ... are bent on a process of denationalizing the native tribes for what they imagine to be their own ends, the belief being that a large landless native population will be forced into the labour market. 21

Moreover, the white settlers were extremely suspicious of any attempts by the colonial administration to' further even rudimentary programmes of development in the Native Reserves, such as education and health or intro­duction of cash crops, fQlr fear of any consequent reduction in the supply of

17 Because of the Congo Basin Treaties of 1885 and 1890, Britam was prevented from discriminating against imports into Kenya of cheaper goods from other nations, notably Japan. For more on this and on the level of wages at the time of the Depression, see C. C. Wrigley, "Kenya: Patterns of Economic Life, 1902-45," op. cit., pp. 250-1.

18 Data on 1937 African wages and on distribution of employment are derived from Kenya Colony and Protectorate, RIlle Book. 1937, op. cit., p. 479.

19 By contrast, in neigh bouring Uganda in 1938, most African employees were found in the agricultural sector, but were working for African employers on African owned fa nTI S. See U Randa Protectorate, Blue Book for the Year Ended 31 st December. 1939, section 23, p. 27.

20 Samir Amin, "Underdevelopment and Dependence in Black Africa; Historical Origin," Journal of Peace Research. No.2 (1972), pp. 105-119.

21 C. W. Hobley, Memorandum on Native Administration. 8 October 1912, Secre­tariat Minute Paper (SMP) No. 450/1912, "Native Administration and Provincial Councils," Kenya National Archives, Nairobi. At the time Ainsworth was P.C.

for Nyanza Province.

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JAN J. JORGENSEN 434

cheap labour to the white farms and plantatrons/2 The hostile attitude of a large segment of the European population towards any policies which benefited Africans was deplored by a few of the colonial administrators, especially those who bore the wrath of the settlers when attempts were made to better conditions in the reserves:

There is, as we all know, an unfortunate tendency amongst the unthinking part of the white public, and even amongst the thinking part, when they have immediate interests to serve, to look upon the native of the country as having only one use in life, i.e., to work for the White. When the native does not come up to expectations in this respect the European officials serving in the Reserves are blamed and abused. The ordinary public does not attempt to try and understand the native point of view. It refuses to allow that he has any right to cultivate his land except perhaps for his immediate food requirements. And this public views any policy having as its object the betterment of natives as strongly inimical to white interests, because so they say, it tends to keep the natives out of labour market, or induces them to ask for higher wages .... 23

By the 1920s this suspicion was so deeply ingrained among the European settiers and planters that the Governor of Kenya, Robert Thome Coryndon, found it necessary to defend the CO'lonial agricu'ltural policies within the Native Reserves directly in terms (jj' their effect on the supply of labour to white settlers:

... I do not believe for a moment that the Government's policy of encourag­ing the production of native grown crops in the reserves will have any adverse effect upon the supply of voluntary labour outside the reserves, if the measures and safeguards I have already indicated are taken and observed.2i

Increasingly, the views of European setNers and planters made them­selves felt on the policies of the colonial Government in Kenya. Africans were barred from individual ownership of land 'in ,the Native Reserves in a landmark judicial case in 192}!5 Without recognition of individual owner­ship of land, Africans were in effect barred from using land as security in borrowing money from banks and wholesalers. Furthermore, within the capitalist legal framework imposed on Kenya by colonial rule, the absence of individual ownership of land left land in Native Reserves open to future

22 For example, in 1930 the Labour Government in Britain had to intervene in the Kenya Colony's budget to end European obstruction of education and health measures which would benefit Africans. See George Bennet, "Settlers and Politics in Kenya," in Harlow, Chilver and Smith, eds., History of East Africa, II op. cit., p.311.

23 Jo~n ~insworth, Provincial Commissioner for Nyanza, letter to Chief Secr(ltary, NaIrobI, 9 October 1912, SMP No. 45011912, "Native Administration and Provin­cial Councils, "Kenya Archives, Nairobi.

24 R. T. Coryndon, Governor, speech, 14 May 1924, Colony and Protectorate of Kenya, Minutes of the Proceedings of the Legisiatil·e Council, 1924.

25 According to the judgment, "individual ownership of land in Native Reserves cannot be recognised." See Civil Case No. 626 of 1921, Nairobi, File PC/CPo 6/4/2, 1920-23, Kenya National Archives, Nairobi. Individual ownership of land by Africans began with title registration in Kikuyu in 1956.

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435 THE INDIGENIZATION OF THE KENYAN ECONOMY

alienation to non-Africans by administrative fiat with no question of com­pensation being allowed.28

In addition, Africans were barred from wholesale trade in agricultura!l produce under the provisions of the Marketing of Native Produce Ordinance of 1935, which pmhibited "non-established" (Le., African) traders from buying or selling specified produce within a three miIe radius of "estab­lished" (i.e., European or Asian) trading centres.27 Th'is measure not only gave European and Asian traders a virtual monopo'ly on the buying of African produce, but could aJlso be used informally to bar Africans from producing cash crops such as maize which competed with produce from Europ­ean settlers' farms, silnce it left marketing in the hands of non-Africa:ns who could simply refuse to buy from Africans or could set artificial1y low prices so as to discourage African producers.

African farmers also came into conflict with European planters and farmers over the cultivation of cash crops for export, notably coffee. Through­out the 1920s and 1930s, the European colonial regime, under pressure from the planters, denied Africans the right to grow coffee by denying them licences to grow this cwp under the Coffee Plantations Registration Ordi­nance of 1918."8 Similarly, under the guise of prdtecting the crop from disease, Africans were denied the opportunity to cultivate pyrethrum, a high-value flower whose extract is a powerfu'l insecticide. This crop became a mainstay of the European farmers' profits from 1937 onwards.29

FoHowing World War II, when African servicemen returned from over­seas duties wi,th ambrtions of starting their own businesses. Africans were placed under severe credit restrictions through the Credi't to Africaruc; (Control) Ordinance of 1948. Under this ordinance, debts incurred by Africans to non-Africans were not enforceable in courts if they exceeded two hundred shillings (U.S. $28.00). This limit was later increased to two thousand shillings (U.S. $280.00), still hardly a sum adequate for financing Jr stocking even a small shop. The effect of the ordinance was to prohibit lending to Africans by non-Africans, not only banks but ruso non-African wholesa~ers. The only exceptions a.Jllowed were to specified individual Africans who obtained exempted status through application to their District Com-

26 A large number of disputes surrounded alienation of land to church missions run by Europeans within the Native Reserves.

27 See S. H. Fazan, Provincial Commissioner, Nyanza Province, "Memorandum Regarding the Marketing of Native Produce Ordinance and the Measures Which Should be Taken Under It in Nyanza," 10 November 1937, Ministry of Com­merce and Industry, Deposit No.5, Series I, Box 1, 1424, File Trd. 1 /6/1 II, item 56c, Kenya National Archives, Nairobi. Although the original impetus behind the bill was the Kenya Farmers' Association's (K.F.A., composed entirely of Europeans) drive to control African competition in the growing and marketing of maize for domestic consumption, potatoes and other crops were soon added to the list.

28 C. C. Wrigley, "Kenya: Patterns of Economic Life, 1902-1945," op. cit., pp. 245-46. 29 Ibid., p. 249. Africans were not able to enter pyrethrum production on a large

scale until after independence.

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JAN J. JORGENSEN 436

missioner.so Thus, aspiring African businessmen were placed under the watchful supervision of the District Commissioner, who was vulnerable to pressures from European settlers and planters who opposed any independent economic activity on the part of Africans.

Yet another form of restriction on African entry into trade in urban areas was the legal framework which was designed to protect European and Asian shopkeepers from competilion by African hawkers and petty traders.St In addItion, there were other laws designed to protect Iarge European and Asian merchants and landowners from competition by smal'! European and Asian entrepreneurs, particularly in rea1 estate.52

In education the policy of the colonial Government was hardly condu­dve to training Africans in the skills required for business, or even for artisanship, much less for managerial posts. In the words of the Director of Education in 1924:

The policy on native education at present is really summed in these three items, discipline, physical training, and industry .... Mere literary education is not going to do that, (i.e., give native artisans skills for use in the village) and the whole policy of the village schools is therefore connected with the development of village life through village industry .... The object of the Education Department is the production of good citizens, and not in the wholesale production of artisans, and for that reason the industries inserted in the curriculum of these central schools are to divert the education of the Africans from too much literary education rather than turn out fully fledged industrial artisans. It has always been recognised by the Education Department that these boys cannot become fully fledged carpenters in the short time that they are at these central schools.sS

Thus industrial training was designed to be mediocre and incomplete so as to prevent the emergence of African artisans who could compete with Asian and European artisans, and to ensure the continued supply of unskHled African labour. On the eve of World War II the educationa!l policy of the

30 Credit to Africans (Control) Ordinance of 1948; An Ordinance to Province for Controlling the Granting of Credit by Non-Africans to Africans, Charter 104. Names of exempted persons were to be published monthly in the Officia Gazette by the Registrar-General. The author did not have time to consult this source to see how many Africans obtained exempted status before the ordinance was abolished in 1964. Several of the African businessmen interviewed had obtained exempted status and were of the opinion that exempted f\tatus was not difficult to obtain from 1960 onwards. All African businessmen interviewed could recall the Ordinance with some bitterness. Few European businessmen had ever heard of it, or claimed it was to "protect" Africans from unscrupulous money-lenders.

31 Many of these restrictions continue to exist under the Local Government Regu­lations Act of 1963 and Trade Licence Act of 1967. See Ichirou Inukai, "The Legal Framework for Small-Scale Enterprise Development With Special Reference to the Licensing System," in Frank Child and Mary E. Kempe, eds., "Small Scale Enterprise," (Nairobi: Institute for Development Studies, Occasional Paper No.6, 1973), pp. 88-99.

32 One example is the Land Law which, for example, prohibits the division of a one acre plot into 1/16th of an acre plots, but allows the division of parts of a three acre plot into 1 il6th of an acre plots. In the words of an African busi­nessman, "Those laws were passed during the colonial era to keep small poor Englishmen out of business. After all, the colony was run by such fine types as the Duke of York, etc., so you didn't want just anyone setting up a business. Now we're independent and still stuck with these colonial laws."

33 James Russel Orr, speech, IS September 1924. Colony and Protectorate of Kenya, Minutes of the Proceedings of the Legislative Council, 1924. Italics added.

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437 THE INDIGENIZATION OF THE KENYAN ECONOMY

Kenyan colonial regime had not departed significantly from these goals. The largest expenditure on African education went to an industri:a:! training centre. The total number of Africans in school represented only 2.5 per cent of the total African population in 1937; whereas the total number of Europeans in school represented 18.7 per cent of the total European population. :14

The Government expenditure per pupil in Government schools was Shs. 107 per annum in African schools and Shs. 568 per annum in European schools. To sum up, the purpose of African education was to perpetuate the unequal domestlie divi'sion of labour by training semi-literate labourers for European enterprises.

Finally, in addition to these restrictions and adverse policies which blocked African entry into business and promoted the de-indigenization of the economy, the crude counter-m~ures taken by the settler regime during the so-called Mau-Mau Emergency from 1952 onwards resulted in the pad­locking of many urban African businesses which had succeeded in over­coming aU previous barriers to entry. Not only were their shops closed, but many African businessmen were placed in detention or forced to hide in exiie in the forests.35 Furthermore, the ban on hawking during the Emer-

34 EDUCATION BY RACE, KENYA, 1937 (Table prepared by author) Government

No. in Government expenditure per

Total number in

Race all schools

African 82,105

Asian 8,960

Total as per cent

of race's popula-

tion

2.5%

15.7%

Schools<'

4593

4231

pupil in gov.

schools

Shs. 106/85b

Shs. 122/93

European 3,151 18.7% 1108 Shs. 568/-aExcludes Government-aided schools and un-aided schools. bExc1udes extraordinary expenditure at Native Industrial Training Depot (£12,013), which had 330 pupils. If included, figure would have been shs 151/49 per pupil. The estimated total African population of Kenya in 1937 was 3,253,700 (probably lower than actual), of whom 82,105 or 2.5% were in school. By comparison, in neighbouring Uganda, the estimated total African population was 3,802,900 in 1938, of whom 309,387 or 8.1 % were attending school. See Kenya Colony and Protectorate, Blue Book, 1937, sections on popUlation and education; and Uganda Protectorate, Blue Book, 1938, p. 138.

35 Interviews with African businessmen in Nairobi and Kiambu turned up several instances in which the businessman's shop had been closed by the colonial authorities and the owner either fled to hide in the forests or was taken into detention. Marris and Somerset's work on Mrican businessmen in Kenya virtually ignores such historical barriers and views detention camps in a favourable light since many detainees used the opportunity to learn skills from each other and to form political and business relationships which helped them later on in life. See Peter Marris and Anthony Somerset, African Businessmen, op. cit., p. 209. While it is evident from interviews that African detainees were indeed resourceful and resilient under the hardships of detention camps, no credit is due to the colonial regime for any indirect benefits detainees derived from the experience. Moreover, such glorification of the detention camps ignores the fact that the detainees' lives were interrupted for two or more years, careers interrupted or businesses ruined, and that many detainees died in the camps. The views of Marris and Somerset exhibit a paternalism bordering on racism! as in the following statement: "So for instance, businessmen deeply commItted to the Mau Mau movement later accepted as a model the civilization they had so stubbornly resisted." p. 102.

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JAN J. JORGENSEN 438

gency resulted in control of the wood-carving and curio trade passing from the hands of Africans into the hands of Asians and Europeans.s6

To sum up. the measures which promoted the de-indigenization of the Kenya economy in the period 1902-1952 included the following poliClies and restricfions within an ideological climate which justified the permanent relegation of Africans to the status of labourers for European and Asian masters within the domestic division of labour: (1) the barring of Africans from individual ownership of land in 1921; (2) the barring of Africans from wholesale trade in agricultural produce in 1935; (3) deniaI of Africans' right to grow exported cash crops such as coffee in 1918-1937 and pyrethrum from 1935 onwards; (4) credit res,trictions which limited African lending to Shs. 2,000 except in special circumstances from 1948-64: (5) a legal frame­work in trade licensing designed to protect European and Asian firms from competition with African petty traders and hawkers; (6) an educational policy designed to perpetuate the domestic division of labour in which the African's only role was that of subsistence farmer and unskil'led or semi­skil.led labourer working f'Or European and Asian firms; and (7) the special restrictions impO'sed during the Mau-Mau Emergency from 1952 onwards. which included the banning of hawkers, the closing of many Aff1ica.n busi­nesses in urban areas, and the wholesale detention O'f leading Africans, especially Kikuyus. This list of restrictive policies is by n'O means exhaustive but serves as a suffiClient counter-argument to scholars37 who virtualIy ignore historica!1 factors which have excluded Africans from business and other areas of economic enterprise in Kenya. and as a counter-argument to scholarship which concentrates almost exdusively on a-hi~orical models of entrepreneurship in explaining the lack of African participation in the Kenyan economy, except as labourers and subsistence farmers.

As one African businessman aptly caricatured European expectations of Africans in the colonial period: "We Africans couldn't own land. couldn't borrow money. We were supposed to wander around happily in a state of nature."3S The ofticial poliicy was finally shaken by the Mau-Mau Emer­gency. By 1954 some tentative steps such as the establishment of the African Traders Small Loan Fund30 demonstrated the beginning of the coloniall admiuistrati'on's grudging recognition of the African's right to become businessmen.

36 Walter Elkan, "The East Mrican Trade in Woodcarvings," Africa, 28 (October 1958). as cited in Ichirou Inukai, "The Legal Framework for Small Scale Enter­prise Development with Special Reference to the Licensing System," op. cit, p.92.

37 See. for example, the superficial treatment of credit restrictions faced by Mrican businessmen during colonial rulc, in Marris and Somerset, African Businessmen, op cit., p. 181.

38 Interview with Mrican real estate agent, Nairobi, 8 April 1974. 39 This 'liberalization' was hardly revolutionary as the maximum loan under the

scheme was limited to £500. See John Loxley, "The Development of the Monetary and Financial System of the East Mrican Currency Area, 1950-1964" (Leeds: University of Leeds unpublished Ph.D. thesis in Economics, 1966). p. 248. Registration of individual titles to land in 'Mrican' rural areas was not begun until 1956, and has still not been completed.

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439 THE INDIGENIZA nON OF THE KENYAN ECONOMY

FOREIGN FIRMS AND TIlE DE-INDIGENIZATION OF TIlE KENYAN ECONOMY

What then was the role at the foreign firms, especially the European firms, 'in the de-indigenization ort' the Kenyan economy in the colonial period? Among directors of multinational corporation Sf 0 it is now fashionable to shift the blame for past discr,imination suffered by the Kenyan Africans onto the European "settlers and their government".41 While it is largely true, as the previous section demonstrated, that "the settlers did everything possible to hold back the Africans",42 i;t is equally true that the European firms operating in Kenya found such an environment quite congenial to their operations, JUSIt as today these firms find the apartheid regime of South Africa a congenial environment. CertainiJy the European firms which operated pl'an­ta['ions and mines in Kenya could only have viewed favourably ,the colonial regime's efforts to provide cheap African labour and to block Africans from cultivating cash crops such as coffee, tea and pyrethrum. The European commercial banks operating in Kenya did not view the credit restrictions imposed on Africans in 1948 as having deprived the banks of any important potential business. The banks were content with the status quo of having Africans as customers only in the role of depositors, and restricting lending to European firms and European settlers.

Whereas muHinational firms in West Africa such as the United AfJ'ica Company (UAC/Unilever), G. B. Allivant. John Holt, Societe Commerciale de I'Ouest Africaine (S.CO.A.), Compaigne Fran9aise de l'Afrique de l'Ouest (CF.A.O.) and Union Trading Company (U.T.C) adapted them­selves to an African peasant economy, buying African produced cash crops and selling African manufactured goods in return, the multinationall firms in Kenya such as Gailey and Roberts (UAC/Unilever), Mackenzie (Inchcape), Mitchell Cotts, Tallcot (now part of Lonrho), and African Explosives and Chemical Industries (now caNed Twiga Chemical Industries, jointly owned by de Beers and ICI through a holding company called Covenant), adapted themselves to a European settler economy, marketing crops from European farms and plantations and importing fertilizers and machinery for the Europ­ean enterprj,ses. The depth at this adaptation can be illustrated by the progress in Africanization of top positions in Kenya and Ghana respectively for two of the firms which operate in both countries and for which data are available.

These two firms are BarcJays Bank and Unilever. In 1973 in Ghana

40 Multinational corporations are a special subset of foreign firms. I define foreign firms as all firms owned or managed by non-Africans prior to 1964, or by non­citizens following independence. Multinational corporations in Kenya are those foreign firms whose parent company has subsidiaries, associates, or management contracts in 10 or more nations, including Kenya. The dividing line between foreign finns in general and multinational corporations is a fuzzy one at best since through the process of concentration and monopolization, so-called "inde­pendent" foreign firms are increasingly falling under the control of multinational corporations once they attain a certain size or strategic importance in tenns of products or markets.

41 Interview with director of trading finn with interests in plantations and shipping, London, 17 December 1973.

42 Ibid.

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Barclays Bank of Ghana had 24 full-scale branches (as opposed to sub­branches and agencies); on the basis of the names of the managers of these branches. it appears that 13 of the managers were Ghanaian, 10 Br'itish, and one unascertainable. By contrast. in Kenya in the same year, Barclays Bank International had 26 fuH-sca:le branches, of which only 7 were managed by Africans,S by Asians, and 14 by Britons.43 In other words, in Kenya only about one fourth of the managers of Barclays branches were Africans, whereas the figure for Ghana was over one haH.

For Unilever daJta are available on senior management, Le., those earn­ing at least U.K. £5,000 per annum.44 In Ghana in 1963, 42 per cent of senior management of Uni1ever subsidiaries were Ghanaian; by 1973, this figure had risen to 61 per cent. In East Africa (most of Unilever's East African subsidiaries are located in Kenya) in 1963, omy 7 per cent of senior management were citizens of the East African States; by 1973 this figure had climbed to 50 per cent. Of course, not run the citizen managers are African.

This contrast between Kenya and Ghana is due not only to the conti­nuation in Kenya of the attiwdes prevalent in the colonial period, but also to the consequences of the colonial educational policies. Even if dlea:ttitudes of the European firms had changed completely, there would 'oot be a sufficient number of trained, educated and experienced Africans available for manage­ment posts in Kenya. As one expatriate official of a British firm operating in Kenya bluntly stated, "Let's be frank, Kenya's oconomy is run by 6,000 Europeans, and we're fOl'tunate to have an African Government content to leave it that way."45 Thus, the aHitudes attributed to the European settlers can alsO' be found among the directors and managers of European multi­national corporations in Kenya.

The role of multinwtional corporations in de-indigenizing the Kenyan economy can be illustrated by focusing on the particular sector, banking, which is strategically important in detennining the alloca:tion of investment and thereby the allocation of contral wilthin other sectors of the economy.

Multinational Banks and De-indigenizatioll of the Kenyan Economy

The fact that multinational corporations are not a new phenomenon in Kenya is illustrated by the fact that the predecessor of the National and Grindlays Bank (the National Bank of India, a:lthough it was British) opened its first branch in Kenya in 1896 at Mombasa. During the next twenty years

43 Information derived from list of offices and managers found in Barclays Bank International, A World of Banking; List of Offices October 1973, pp. 44-46, 58-60.

44 Based on data supplied by public affairs office of Unilever Ltd., London, Decem­ber 1973. As a rule, Unilever requires that a minimum of 10 per cent of senior ~anagement in aI.1Y subsi~iary. ~nywhere in the wo~~d be expatriate-"By employ-109 groups of mIxed natIOna!JtJes we add sparkle'. See also E. G. Woodroofe and G. D. A. Klijnstra (joint chainnen of Unilcver group). Uni/ever's Role as Multi-National Business, speech, 8 May 1972, reprinted in pamphlet fonn by Unilever Ltd., Information Division, London, May 1972.

45 Interview with British director of manufacturing subsidiary, Nairobi, 25 April 1974.

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441 THE TNDIGENIZATION OF THE KENYAN ECONOMY

it was joined by two other banks, the forerunners of Standard Bank: a:nd Barclays Bank. 1G By 1926 the banking network of these three British banks reflected the European takeover of agriculture and trade and branches were located in the three major trading centres Mombasa, Nairobi and Kisumu (ralI centre on Lake Viotoria) as weB as in the primary towns in the so-called "White Highlands": Nakuru, Eldoret, Nyeri, Kitale and Nanyulci.47 The banking network did not change noticeably thereafter unti'l the 1950s. The 1950s and 1960s saw the rapid expansion of the rural networks of the British banks to a peak of 177 branches from the modest network of 16 branches in 1926. At the same time a number of new banks entered the urban areas: Algemene Bank Nederland, Bank of India, Bank of Baroda, Ha:bib Bank:, Ottoman Bank and Commercial Bank of Africa Oinked to Bank of America). The 1970s saw a further influx of foreign banks from America and Japan as well as the establ,ishme:nt of the first indigenous Kenyan commercial bank, the National Bank of Kenya; the start of a bank for cooperative sooieties, the Cooperative Bank of Kenya; and the spli'ttmg of National and Grindlays into two banks with varying degrees of Government partioipation. The greater part of the National and Grindlays network in Kenya was taken over by Kenya Commercia'! Bank in which the Kenyan Government held 60% of the shares and the chairmanship of the Board of Directors, and National and Grindlays held 40% of the shares and the management con­tract. Three urban branches (l<lJter reduced to two) were taken over by Grindlays Bank International (Kenya) Ltd., a merchant bank owned 60 per cent by National and Grind-Jays and 40 per cent by the Kenyan Govern­ment.

Nevertheless, despite these changes the three c.ommercial banks managed by British multinational banks continued to account for approximately 80 per cent of total commercial bank deposits as late as 1973.49 On the lending side, the bulk of the advances of the 'big three' British banks in the c.olonial period went to European fimls, European settlers, and the European colo­nia:l Government. The types of activity financed by these loans included the financing of imports, the financing of marketing and export agricultural commodities, general loans to European farmers, Government securities, and, increasingly after World War II, the financing of manufacturing sub­sidiaries established by foreign firms. Africans were simp~y n()ltin the picture on the lending side. As late as May 1967, loans to Kenyan Africans and

46 [nformation in this paragraph comes mainly from the article, "Banking in Kenya," The Banker (September 1973), pp. \059-63. Both Barclays and Standard were originally off-shoots of British banks in South Africa. The 'South Mrican con­nection' continues today in Kenya through insurance firms such as Old Mutual of South Africa and South African Mutual Life Assurance Society. In addition some apparently British firms in Kenya are in fact wholly or partly owned by South African firms or by South Mrican subsidiaries of British firms. Examples include Leyland Albion (E.A.) which is owned by British Leyland's South African subsidiary, and Twiga Chemical Industries which is jointly owned by African Explosives and Chemical Industries of South Mrica and by ICI of Britain through a holding company. Source: Who Owns Whom?

47 Kenya, Blue Book, 1926. 48 "Banking in Kenya," op. cit., p. 1059.

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JAN J. JORGENSEN 442

Kenyan African firms accounted for onlly 2.6 per cent of the total loans and advances of aU the commercial banks operating in Kenya.49

The reasons for the lack of lending to Africans were and still are manifold. First of all, the policies of the colonial regime discussed earlier, notably the lack of individual title to land and the restriction on credit to Africans, made the African a poor credit risk in commerci'ai terms. The lack of title to land left the African with hittle to offer as security f'Or a loan. And even if the African had had title to land, the credit restriction of 1948 w'Ould have prreventerl any bank from recovering a loan in court if the loan exceeded Shs. 2000. Secondly, to point out the obvious, the banks did not view the exclusion of Africans from the realm of po&s:ible lenders as any seri'Ous loss of business and hence did n'Ot protest such restri~ti'Ons. Given the small size of African firms, they were also poor business prospects in terms 'Of the cost of administering small 100ans within a banking system in which 11 or 12 per cent was the accepted maximum rate 'Of interest 'On advances. Moreover, the initi:al experience of the commercial banks with defaullts by African farmers (in the period after 1956), combined wiith the political sensitivity of having a powerful European bank foreclose md arrange for the aucti'Oning 'Of a relatively smaJN African farmer's I'and, left the lending officers in the commercial banks with the almost racist vliew that "Africans have a different mentality about repaying loans-they don't see i't as an obligation. "5J A third, and related point, is that the British style of banking relies heavily on social intercourse between the officws of the bank and its customers outside of banking hours. As one London officer 'Of a British bank put it, defending the large number of loans t'O Bdtish per­sons and firms in Kenya, "YO'll need to get t'O know a man a bit before you can trust him".51 Another banker iHustrated this point by recaUing that he was generally invited t'O dinner at European farms pri'Or to the owner approaching the bank for a new loan or increase in overdraft facili­ties. Because of the racial compartmentalization of social life in Kenya, the Africans were cut off from social contact of this nature with banking officiails until fairly recently.

Thus, a pattern developed in which British banks lent to British firms and settlers; Asian banks lent to Asian firms: and since there were no African banks, no one lent to African businessmen. Even within the Europ­ean community the British banks continue to favoor British firms. This tendency is illustrated by the fac,t that even in ,the 1960s British firms in Kenya obtained loons within Kenya to finance roughly 78 per cent of new investment, whereas Indian and Japanese new investments obtained only

49 Speech by Mr. D. N, Ndegwa, Governor of Central Bank of Kenva, 1 December 1972, as published in Central Bank of Kenya, Sevellth Annual Report Year Ended 30th June, 1973, p. 63.

50 Interview with British banker who had previously served as lending officer and branch manager in a so-called rural bank branch in Kenya.

51 Interview, London head office in one of the 'big three',

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443 THE INDIGENIZA nON OF THE KENYAN ECONOMY

34 to 40 per cent of financing locally, and US firms only 22 per cent.52 In ather words, new British 'investment in this period was on average financed 78 per cent by local borrowing and only 22 per cent by inflow of foreign capi1.a:l. The major source of locall borrowing by the British firms was of course the British banks operating in Kenya. Presumably this situation has altered somewhat following the decision by the Centra'! Bank of Kenya that foreign finns can only borrow up to 20 per cent of paid up capital from local sources. ~3

The standard com m ercia'l operating procedures or the banks in Kenya have also contributed to uneven development between urban and ruml areas. Although Africans were shunned as customers on the lending side of the hanks' activities. they were wekomed and indeed wooed on the deposit side of the banks' activities. In effect African depOSItors lent savings to the 'banks at 3 per cent interest, and the banks in turn lent this money to European and Asian firms at 7 to 11 per cent interest. Even if racism had not been a factor in the lending policies of the banks in the 19605 and 1 970s. the pattern of blocking African advancement in the colonia:l period had created an economy in which few Africans could qualify as viable borrowers. given the normal operating procedures of commercial banks concerned wi,th mak­ing profits and protecting the funds of shareholders and depositors. In order to lend money a bank must have funds to lend, nonna:lly in the form of savings and demand deposits by the bank's customers. The rapid expansion of the rural branch network of the 'big three' British banks in Kenya in the 1950s and 1960s was motivated by the need to attract more deposits to be made available in the form of advances to the banks' traditiorurl customers on the lending side: European firms and the Government. The claim by the banks that these rural branches were often unprofitable .is undoubtedly true since a bank branch earns money on loans rather than advances. Since some of these rural branches had a ratio of advances Ooans) to depoSits in the range of 12 to 15 per cent. it is hardly surprising tllat they were unprofitable. But these so-called unprofitable rural branches were nat merely operated as a public service to Africans looking for a safe place to deposit savings. As the bankers ,themselves emphasized in inter­views. "We are nat philanthropic institutions". Instead, the savings gathered by the "unprofitable" rural branches formed a vita'! part of the pool of funds available for lending to European firms in urban areas. For the commercial bank which made the most data aVaJi:l.able ,to the author, the rural branches accounted for one third of the bank's total deposits, but only for one fifth of the bank's total advances Ooans),B The median advances/

52 Figures based on data presented in Barry Herman. "Some Basic Data for Analysing the Political Economy of Foreign Investment in Kenya," Institute for Development Studies, University of Nairobi, Discussion Paper No. 112. July 1971, p. 13. Excludes re-investment.

53 This regulation provides fOT a higheT local borrowing limit for firms willing to have local partners or those willing to issue public shares.

54 Based on data at the end of one month in 1974. Urban branches are defined as branches in Nairobi and Mombasa. All other branches are considered to be rural branches. Significantly the urban branches with lowest advances/deposits ratios were branches in African areas of Nairobi and Mombasa.

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JAN J. JORGENSEN 444

deposits ratio fO'r this bank's rural branches was 28 per cent; the median advances/deposits ratiO' [or this bank's urban branches was 58 per cent. For ali three British commercia'! banks the net flow of funds was from rural to urban areas, from African depositors to European borrowers. 55

Needless to say, the banks find such statistics polftica:lly embarrassing. One O'f the big three has set a goal of raising the overall advances/deposits ratio from the current level of 46 per cent (which includes one branch in a large town with a ratio exceeding 100 per cent) to the level of 50 per cent. The officials Df another bank argued that such statistics were highly misleading since the ralio fluctuates from month to month and since a large portion of the money lent in urban areas filters back to the rura'l areas either in the form of rural development projects administered from NairDbi, or in the form of emplDyment on projects such as plantations contrDlled by foreign finns based in Nairobi, or in the form of imports of agricultural tools and chemica:ls financed by European and Asian firms in Mombasa. Yet this argument that a form of 'trickle-down' effect ultimately benefits the rural Africans who comprise 90 per cent of Kenya's population neglects the fact that control of the allocation of funds and the a:dministra'tlion of funds is centred in urban areas in the hands of European firms and, more recently. urban African civa servants. Another factor which works to the disadvantage of the developmenlt of the rural areas is 'the tendency of Kenyan Afrticans from urban areas or rural areas to use land in rural areas as coHatera'l to borrow money from rural branches ostensibly for farm improvements but actually for the purpo':,;e of financing businesses in the towns.

To conclude this sectiDn, it is sobering to' note that eight years after independence the proportion Df commercial bank loans going to African borrowers (excluding GO'Ycrnment and parastatal bodies) was stHI Dilly 14.1 per cent of tDtal1 100ans by CDmmercial banks. 50

THREE LEVELS OF INDIGENIZATION

In discussing the de-indigenization o.f {he Kenyan economy. I intro­duced a distinction between three levels of the economy. These are (1) the structural level. (2) the ownership of finns level and (3) the employment level. At its broadest meaning, namely creating an economy responsive to the human needs of the society and controlled by members of that society. indigenization involves all three levels of the economy, not merely the latter two.

The structure of an economy is characterized by the relationship between the sectOTS of that economy, whether the sec tOTS are integrated or fragmented,

55 See also Kenya, Kenya Development Plan, 1970-74, pp. 560-62. The share of loans to agriculture as a per cent of total loans by commercial banks did not increase, as the plan called for, but rather declined from 12,3% in 1969 to an average of 10,5% over the years 1970-73, Source: Central Bank of Kenya, Economic and Financial Review, 6 (October· December 1973), p. 20.

56 Speech by D. N. Ndegwa, Governor of Central Bank of Kenya, 1 December 1972, as published in Central Bank of Kenya, Seventh Annual Report Year Ended 30th June, 1973, p. 63,

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445 THE INDIGENIZATION OF THE KENYAN ECONOMY

and by the relationship of the econamy to' the international vertica:l division of lwbour. As was noted in the brief historical section, over the course of the nineteenth and twentieth centuries, a larger and larger prDportion of the African population Df Kenya has been diverted from produotian solely for domestic cDnsumption to' meet dDmestic needs to' production largely or solely for expO'rt or resident aliens such as the Europeans, Asians and Arabs and, mare recently, fDr the ruling African urban political-adminrstrative­commercial elite. Indigenization Df the struoture af the Kenyan economy would require, among other things, the integratiDn af the various sectors and sub-sectors af the econamy through domestic forward and backward link­ages to' make the ecanomy mOIre self-reliant and less structurally dependent O'n imports of foreign technology, foreign machinery, foreign raw materials and intermediate goods, and fa reign patterns of consumptiDn,57 and alsO' less dependent on exports of agricultural raw materials and minerals.

Using a modified versian af an index of trade composition developed by Galtung and Hungr</>,58 in which + 1.00 represents an econamy which is completely industrialized, importing no processed goods and exporting no raw materials, and in which -1.00 represents an ecO'nomy which has no processing of goods whatever importing nO' raw materials and exporting no processed gaods,59 it would appear that Kenya has nO't fared well in the period 1964-71 for which data on trade primary and processed goods are avail­able.60 In 1964 the index of trade composition staod at - .400. Over 'the next seven years the index declined gradually to -.461. This decline reflects the fact that Kenya's industrialization drive in the 1960s. based largely on import-substitution, has led to increased imports of semi-prCJlCessed raw materials, foreign machinery and technology. which more than offset the anticipated savings in imports of consumer goods. I'll short, the Kenyan. economy has become structurally more dependent since independence.

As has been observed by Langdan, i't is in the interest of the multi­national corporations to' Dperate within an environment of a structurally dependent economy for the sake af -transfer pricing involving raw materials, intermediate gaods, machinery, and technology.61 In a fully integrated, self­reliant econamy there wauld be little need for multinational corpora~ions and, furthermore, less opportunity for mnc's to manipulate pricing and prafits. NDnetheless, there is little prospect that the Government of Kenya is about

57 See Steven W. Langdon, "Multinational Corporations and 'Appropriate Techno­logy'-A Case Study from Kenya," cyclo-styled, South Chalky, England, August 1973.

58 Johan Gaitung, "A Structural Theory of Imperialism," Journal of Peace Research, 1971. I have modified the classification of petroleum products so that imports of crude oil are classified as a raw material and exports of refined petroleum products are classified as processed materials. a modification which puts Kenya in a better light. Otherwise the index would show a decline from - .407 in 1962 to - .512 in 1971, using the SITC classification ~ystcm.

59 The problem with the index is that it relies on trade to infer the internal structure of an economy. Hypothetically a nation c0uld be fairly self-reliant and still have a negative index.

60 Kenya, Sta!i5ficai Absfract, 1971, pp. 60, 72. Includes East African trade. 61 Langdon, "Multinational Corporations and 'Appropriate Technology,' op. cit.

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to embark on any policy orf self-reliance or any p<jlicy which would semiously alter the structure of the Kenyan economy from its present state of frag­mentation among secto'rs and subservient position within the vertical inter­national division of labour, because the present structure serves well those who now control it, namely the urban African elite and the foreign firms.

While indigenization of the structure of the Kenyan economy may be a dormant issue within the current political framework, much more atten­tion has been focused on the other two levels: ownership of firms and employment. Indeed, attention to the issues of Africanization of ownership of units orf production, distribution and finance and Africanization of jobs within foreign firms has all but precluded attention at the official lewel to the wider problem of the the economic structure of Kenya.G2

In agriculture, con:trol of units of produotion has been shi:f1ting to Africans, ahhough the unequa'l distribution of 'land to Africans, especially in the Highlands, has become an explosive issue. Rather than breaking up the old European farms which averaged 700 hectares (1730 acres) and embarking OIl land reform, the Kenyan political elite, with the financial assistance from the United Kingdom, chose instead to transfer the farms largely intact to African orwners. The white settlers' farms have been Africanized in terms of ownership, but the settler mentality in terms of attitudes towards income di1stribution and domestic division of labour con­tinues under the new African management. So at one extreme are these large African farms averaging 700 hectares and at the other extreme are the vast majority of African shambrus (farms) which range in size from 0.2 to 12 hectares (half an acre to 30 acres).

Africanization of crop production has also taken place in the period 1962-70 with African smaU holdings now accounting for most of the acreage under pyrethrum and coffee. On the other hand, there has been resistance on the part of foreign firms to shifting tea and pineapples from plantation agriculture to outgrower schemes owned by Africans, allegedly on grounds of quality control. Plantations continue to be established, however, including a vast cotton plantation in the Tana River area. At issue in the establish­ment of this cotton plantation is the question of whether the foreign firm involved shall be aHowed to' by-pass the Lint Marketing Board in the market­ing and export of the crops. Should this exemption be granted, Kenya wouild be in a position of taxing African cotton growers through the Lint Markoting Board, but not the foreign plantation.

Except for coffee processing (controlled by the Coffee Marketing Board), small-scale maize milling, and a few African-owned sawmills, agricu'lturaJ processing is still almost entirely in the hands of foreign firms or resident Europeans and Asians. Moreover, control of technology and control of imports orf agricuilturaI machinery is vested in the old established trading

62 One exception was the recent publication of the ILO report, Employment, Incomes and Equality: A Strategy for Increasillg Productive Employment in Kenya (Geneva, 1972). The ~trained reception of the ILO report by the Government illustrates the reluctance of the Government to consider alterations in the present economic structure.

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447 THE INDIGENIZA TION OF THE KENYAN ECONOMY

finns such as Gailey and Roberts (Unilever), Mackenzie (Inc:hcape), Metal Box Company, MicheH-Cotts, and newcomers &uch as Lonrho. As in the case of the European commercial banks, many of the importers of agricul­tural processing machinery prefer to deal with customers with whom they also have sodal contacts. A Eumpean director of the Kenya subsidiary of a finn which is involved in selling food processing technology and machinery indicated that the firm made no effort to seek African customers or to develop links with potential African food processors and could only recall two such orders from African firms, which were not followed up by re-orders. Nor had the fo·reign subsidiary made any attempts to follow up the lack of re­orders, argUing that such advisory services were too expoo~ive and beyond the commercial role of the subsidiary. By contrast, the parent firm in the UK does give advisory services not only to British food processors but also to African firms from nations where this multinational does not have a subsidiary.

The importation of agricultural inputs such as fertilizers, insecticides, and medicine for livestock is also finnly controlled by foreign firms. Recently these firms have established "manufacturing" sub&idiaries in Kenya, which do little more than mlx chemicals, especially adding water, and repackaging the agri-chemicals for domestic sale. As one executive of a latge UK chemical firm noted, "Shipping water is expensive, so we try to emulate the Coca-Cola example of shipping only the secret ingredients, letting the 1oca1l firm add water, mix and package the product."oa He also observed that much of Kenya's import substitution was acutally import-substitution within foreign finns who now allowed subsidiaries to assemble and package what had fonnerly been imported pre-packaged. The ultimate source of the machinery and materials as well as contro·1 of the process, induding marketing, remained in the hands of the parent mnc and its local subsidiary.

Manufacturing contributes 20 per cent to Kenya's monetary gross domestic product. The Kenyan Government has given high priority to indus­trializa:tion wHh Htlt'le concern for ownership of firms. As a result, much of the new manufacturing activity in Kenya has been of the assembling and packaging variety, import substitution within the mnc. As of 1967, 71.4 per cent of value added in manufacturing was contributed by predominantly foreign-owned finns,u4 based on a survey which had a 75 per cent response rate to the questions on ownership.65 Of the remaining 28.6 per cent, value­added contributed by preidominantly domestically-owned firms, it must be borne in mind that many of these are owned by Kenyan citizens of European or Asian origin and very few by Africans or by parasta:tal finns. Although the Industrial and Commercial Development Corporation (ICDC) , owned

63 Interview 'vith John H. Baker, ICI, London, 22 November 1973. 64 Kenya, Census of Industrial Production. JQ67. pp. 11 and 15. I regard this data

as more reliable than the data on ownership presented on p. 443 of the ILO report, Employment. Incomes and Equality ... in Kenya.

65 Firms with ten or more employees. Coverage of ownership questions was better for larger firms than for smaller firms. One hypothesis would be that some of these smaller manufacturing firms are owned by Asians who declined to answer ownership questions, especially if they had citizenship applications pending.

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by the Government, has bought shares in a number of manufacturing enter­prises, it is often content to have a minority or even token share-holding in foreign firms (e.g., only 8.4 per cent in Metal Box Company of Kenya) and a'lmost always leaves management in the hands of the company. From the poilut of vi'ew of the foreign firms such minority participalion by a Government body carries with it a sign of Government approvaI.

In the field of wholesale trade and in the field of transport, ICOC has pursued a more vigorous policy of indigen'ization through its subsidiaries, the Kenya National Trading Corporation and Kenatco Transport.

Interviews with African businessmen on their opinion of ICDC's role in promoting indigen!ization of the economy in the fields of ownership and employment turned up a wide range of opinions. Some felt jlt was wrong for ICDC to enter into joint ventures with foreign firms in fields in which there was or could be competition between the foreign firm and the African­owned businesses. Others favoured ICDC participation in joint ventures but wanted to see ICDC take a more active ro~e in managing the firms. Still others saw ICDC participation as a potential barrier to the pace of Africanization of management and technical pOi.<;itions within such firms; in other words, ,they feared the Government would be more lenient with such firms in pushing Africanization. Interestingly, the more successful African bus'inessmen, and generally the ones wHh poliiica'l connections, felt that the ICnC should not take shares in foreign subsidiaries in Kenya but should instead make loans available to African businessl";len to buy ,the shares. These same businessmen also argued that the time had come for ICOC's subsidiary in wholesale trade, KNTC, to either turn over some product lines to private African wholesalers or to' break up KNTC and sell the scheduled commodities solely through private African wholesa'lers.

The Kenyan Government has been pursuing a policy of Africanization of ownership of retail trade and Africanization of employment within foreign firms. Even in these areas there was much cf1iticism on the part of African businessmen who felt that the pace was too slow. They were especially critical of the experience criteria set up by foreign firms in advertising positions. arguing that foreign firms could best afford to give educated Africans the needed practical experience on the job. The African business­men themselves sometimes employed non-citizens as accountants or as distribUJtors. defending such actions on the grounds that they were unable to afford the time or risk involved in using inexperienced African graduates or inexperienced African salesmen. Again, returning to the social circle aspect of ind'igenization, one African manufacturer of office supplies argued that he had to employ an Asian distributor since most of the office supply stores in Kenya are owned by Asians. SimiIarly, a European paint manu­facturer found that he could get an edge over his competitors in the buiIding and construction market by employing a citizen Asian because most of the major contractors in Kenya are Asian owned.

Given such a vioious circle of social barriers to entry by African firms and African employees, the Africanization committee 'Of the Kenya

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449 THE INDIGENIZA nON OF THE KENYAN ECONOMY

National Chamber of Commerce and Industry has been lobbying the Govern­ment to simply decree that manufacturers must ap[XJint African distributors for their products and that foreign manufacturers. be forbidden to operate dist:ributiO'Il networks.66 This group argues that tho success of Africans in handling cigarette and beer distributorships demonstrates the abiHlty of Africans to handle large volumes of business and that success in such fields as distribution wil!l give Africans the experience to enter manufaoturing. They cite as examples the case of A. Wahome, who diversified from being a tobacco and cigarette wholesaler to starting a bicycle assembly plant in Nakuru, and the case of Njenga Karume, who diversified from being a beer distributor in the Kiambu area to a whole range of business aotivities including pharmaceuticals. At first. this group appeared to be gaining success when Dr. Kiano, Minister for Commerce and Industry, announced at the Chamber's annual meeting 0'Il 27 March 1974, that henceforth manu­facturers would no 10000ger be allowed to distribute their own products and thait the distribution wou1d have to be handed olVer to citizen firms by the end of Aprit B7 This deadline passed without the implementation of the new policy. Interviews with foreign firms reveailed that they were generally angry over the announcement. Some argued that the decree was primarily directed at manufacturers of consumer goods such as soap, and that manu­facturers of 'industrial goods should be exempt, using the familiar arguments of expertise, experience, and the fact that industrial customers were Euro­peans and Asians rather than Africans. Others were prepared to wait out the announcement, preferring t0' consider it as little mo-ro than a piece of election year rhetoric. When Apri1 passed without any sign of implementa­tion, the African businessmen began to fear that the foreign manufacturers were winning through behind the scenes lobbying. One important African businessman even alleged that the Government officials had been bribed to' delay and postpone impiemcnta'tion. During this period the only evidence of implementation was an aHeged incident in which the Uganda Govern­ment attempted to force a chemical firm operating in East Africa to turn over Kenyan distribution rights of i,ts Ugandan-managed firm to a relative of the President of Kenya. If true, this was hardly what the original group within the Chamber of Commerce and Industry had in mind.

Yet, with multinational corporations already in a dominant role in most consumer goods in Kenya. Afr'icanization of distributorships of rune manu­facturing subsidiaries would only make the African commercial class even more dependent on foreign firms than they are now. Even among the most natio-nalistic of the African businessmen there were signs that 'they ,them­selve.!> would not mind such a form of dependence. Moreover, interviews with African manufacturers revealed that they were just as reluctant to seek out local inputs, to employ African distributors, to estab1ish labour­intensive forms of manufaoturing as were the foreign manufaoturers. In

66 Based on interview, with. P.M.A. Kariuki, Peter Okondo lnot a member of the Chamber), Francis Thuo, and others, including Njenga Karume.

67 See East African Standard, 28 March 1974, p. 1.

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JAN J. JORGENSEN 450

general they all had good political connections (as did the mnc's) or were themselves former civil servants of high rank, and in general they longed to work 'in cooperation with mnc's rather than strike out on their own paths.

SUMMARY

Kenya became structuraUy integrated into the world economy in the nineteenth and twentieth centuries. Initially, during the colonial period, the economy became geared for the production of agricultural products for export, and import of consumer goods and machinery under a white settler regime within the verticaJ international division of labour. During this initial phase of de-indigenizati011, muitina,tional firms in the form of banks, plantations and trading companies acquiesced in the subjugation of the African popUlation to a subservient role as labourers for European and Asian enterprises.

By viewing the problem of indigenization from three levels, it can be seen that the process of pol~l'ical decolonization, begun in 1952. culmi­nating in independence in 1963, has led to increased Africanization of ownership of units of production in agriculture, units of commerce, especia:Hy reta:il trade, but markedly less progress in manufaoturing, import-export trade, and finance. Also, Kenya is catching up with other independent States in the field of Africanization within firms. However, the basic &iructure of the economy remains externally oriented. in paI't through the continued influence and control of strategic sectors of the economy by multinational corporations. Moreover. there are indications that the political and com­mercia1 urban African elite has Little motivation to transform the structure of the economy to make it more responsive to domestic human needs. and less dependent on foreign firms.

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