The efficient functioning of markets requires that
some organization enforce contracts and property rights. To be credible, the
organization that enforces contract and property rights must have the power to
force people to adhere to its decisions. Large companies due to a larger
bargaining power are better placed to enforce contract performance, but this
means businesses need large amounts of capital to start or expand which
dissuades nascent businesses.
There is in fact logic to Kenya’s way of organizing
firms. It makes sense for businesses to sprawl across many sectors (e.g. Bidco,
Haco/Tiger) because the Kenyan state is weak. Infrastructure is so awful that
firms often construct premises in highly over-crowded and expensive areas.
Courts are slow and often corrupt, so contracts are hard to enforce and banks
and businesspeople are inclined to stick with companies they know and trust.
Moreover, established business houses can use their muscle to expand into new
areas, sometimes at the expense of newcomers.
Fewer new firms ever grow big and those that do so
have tended to be good at working the political machine.
In OECD economies a large share of funds is sourced
from institutions; in Kenya only a small percentage is. Instead capitalism is skewed
towards the government and a select clique of business people and families.
Government looms large. Government-backed firms dominate energy, agriculture
and finance/banking. A vast number of other public-sector entities, like the
ports and railways are decrepit, and often create bottlenecks.
This makes the case for large firms in Kenya -
mergers and some form consolidation in many sectors would improve efficiency.
