A recent announcement by a warehousing firm of plans to spend over Ksh 7 billion in storage facilities in Kenya points to the symbiotic future of the agriculture and construction sectors.
Cold Solutions Kenya Ltd pledged to spend $70 million (Ksh7.5 billion) to construct a state-of-the-art refrigerated warehouse in Nairobi and Mombasa.
It has since settled on Tatu City on the outskirts of Nairobi for its flagship cold house that it says will be up and running in a year or so. At more than 15,000 square meters and graded as category A, the facility on six acres of land is touted as the most advanced and efficient in the region.
The choice of Tatu City as the location of the project is telling. At only 20 kilometres from Nairobi’s Central Business District, Tatu is nestled on a 5000-acre prime land whose coffee bushes are giving way to a city with housing, schools and a logistics complex with more than 50 local and international firms.
The abundance of land to locate brick and mortar investments and facilitative infrastructure, access to a bird’s foot of road network including to airports and the Standard Gauge Railway terminal and proximity to agriculture-rich region tick many boxes for a warehouse investor.
Access to agriculture produce is especially critical to cold storage investors. As Cold Solutions rightfully pointed out in its announcement, close to 60 per cent of fruits and vegetables produced in Kenya is lost post-harvest.
The figure could rise with more perishable produce. A huge chunk of this loss could be avoided by temperature-regulated transportation and storage.
For a country struggling with food deficiency and weak horticulture sales, such losses are untenable.
Population explosion and growing urbanization will pile more pressure on available land. Inevitably, more and more arable land near cities and major towns will give way to housing and construction of amenities supportive of human settlements.
The corollary of this is that shrinking land space must produce more to feed more mouths. That, in turn, will demand embracing farming technologies and crop varieties that promise more yields alongside the rehabilitation of hitherto unfarmable lands.
A more urgent solution is, however, to simply stem post-harvest losses. Our predominantly rain-fed agriculture means that, as a country, we are highly exposed to the vagaries of the seasons. For instance, around February of every year, nearly every farmer in the Mt Kenya region and its environs is awash with mangoes. They are so plentiful that many are simply left to rot in farms and in markets for want of buyers. Prices plummet to ridiculous amounts that can hardly meet the transport cost to the market.
Three months later, mangoes become a scarce commodity. An average-sized fruit will go for Ksh30. Even more, worrying for the country, these will largely be imported from neighbouring countries and South Africa. The same story can be said of virtually every other rain-dependent fruit. For vegetables with a brief lifespan, the race to either the market or the waste bin is shorter.
Food security is a Big Four agenda. It makes sense for a country to prioritise feeding its own preferably from within its borders. Besides the undesirable capital flight in imports, the raging Corona pandemic is offering vital lessons on the value of self-reliance especially on essentials like food. But a country whose significant portion of its food is lost to poor storage and mishandling pokes big holes in its food basket and aggravates the same insecurities it aspires to cure.
Closely linked to food security is the other Big Four agenda pillar: manufacturing. Here, too, the government is doing many right things such as building more roads, stabilising electricity supply and establishing Special Economic Zones. Promising fast-tracked registration, cheaper electricity and friendly tax regimes, the latter are meant to surrogate firms seeking entry into manufacturing and supporting the expansion of existing ones. Tatu City is among these SEZs, and the only one operational in Kenya.
As an agriculture-driven economy, logic suggests this sector will be the launchpad for the manufacturing agenda take-off. Abundance necessitates and encourages preservation and value-addition as is evident in many small and medium-size firms that are already active in this area. The entry of bigger players such as Cold Solutions and other local and international players suggests the game is rising to a level beyond the primordial.
For players in the construction industry, the growing demand for warehouse services for the agriculture sector presents attractive investment opportunities. There are many pointers to a growing appetite for agribusiness.
Indeed, with many ‘formal’ and ‘traditional’ jobs and businesses devastated by the Coronavirus, agriculture and related activities as a profitable venture is gaining more converts. People will, after all, eat with or without a pandemic. There is a ready market for those daring to offer more than the ordinary.
Location of such facilities is a critical weight in the convenience and profitability scales. This is especially true for warehouses eyeing exports.
Cold Solutions, for example, says its new investment targets ‘industrial-scale services’ throughout East Africa. It intends to complement its primary food warehousing services with long-distance haulage.
This easily explains its choice of Tatu City as the site for this particular investment. Tatu City has upped its attractiveness by providing power, water, waste management, roads and ICT backbone to become an ideal operating environment for businesses entering or expanding in the region. Like Cold Solutions, other businesses at Tatu City, such as Twiga Foods and Cooper K-Brands, are integral to the region’s food security.
Several logistic companies have moved their hubs out of Nairobi mainly to run away from endemic traffic and to take advantage of growth space. American e-commerce business Copia located its warehouse facility at Tatu City to reduce delays in cargo movement.
This potentially enhances profit margins through saved time and competitiveness. Construction of the Eastern, Northern and Southern bypasses has boosted access to entry and exit points to and from Nairobi. If most of the cargo is flighted by air, it makes sense to set up close to an airport. If entry or exit is mostly by sea and the SGR, warehouses will move to areas with easy access to cargo terminals.
Warehouse construction costs is another key consideration when selecting the right location. Facilities close to Nairobi tend to have high lease and material costs which are loaded to clients. To be realistically competitive, wisdom dictates logistic firms have moved their operations away from the inherent restrictions of the bowels of a city.
The author, Jeremy Gitonga, is the Managing Director, Maven Design & Build Ltd, a Kenyan-based construction consultancy.