Alternative hypotheses

“I have made this letter longer than usual, only because I have not had time to make it shorter.”

– Blaise Pascal

“Further than this, besides simply not hindering progress, I think we might do something to hasten matters, and I have suggested two ways in which this might be done. One is to train scientists to look among the older sciences for wild analogies to their own material, so that their wild hunches about their own problems will land them among the strict formulations. The second method is to train them to tie knots in their handkerchiefs whenever they leave some material unformulated – to be willing to leave the matter so for years, but still leave a warning sign in the very terminology they use, such that these terms will forever stand, not as fences hiding the unknown from future investigators, but rather as signposts which read: ‘UNEXPLORED BEYOND THIS POINT.’”

– Gregory Bateson, from Steps to an Ecology of Mind

In the last post, I examined the hypothesis that cash from ransom payments to Somali pirates was driving the booming development in Eastleigh. If, as I concluded, ransom payments wouldn’t be sufficient to explain the level of development here, then what else could account for the rapid economic growth?

Particularly, what could explain the fact that Eastleigh’s development patterns have been largely disconnected from those of the global financial system as a whole, and that development projects, real estate purchases, down payments on stores and other large transactions are often conducted in cash?

This post will present a complex range of historical, economic and social factors that potentially combine to explain the dynamism of Eastleigh, with no single variable likely to be the key driver of growth. It’s important to note that these ideas are in an early form, are not necessarily presented in order of importance, and serve largely to help us get our ideas out in one place. As the project progresses, each idea will be further developed along with additions and changes as new evidence is collected. This is the beginning of a stage that requires making a mess so that we have enough to clean up later.

Potential factors:

• Historical factors such as the presence of Somalis in Eastleigh, and the historical role of Isaaq Somali traders in East Africa, and the building of networks through livestock trade

A significant community of Somalis have lived here since the 1920s, having been brought to Kenya by the British Colonial Administration. Isaaq Somali traders have also played a historical role in East African trade, especially in livestock. Somalis were reportedly an important source for cattle in Nairobi, and Somalis often provided beef to the British colonial administration, as it was known that cattle would be slaughtered according to more sanitary halal practices than other local butchers. We were told by one source a reason Eastleigh was chosen as original settlement was the availability of land and thus the ability during colonial days to graze cattle on this side of Nairobi, although another source reported that Somalis were located to Eastleigh after an outbreak of disease in the city center.

 

• Influx of Somalis as a result of the 1991 civil war

The civil war in Somali pushed out a significant percentage of Somalis with the means to relocate. These included many elites, those of the educated class, successful businesspeople and others with either significant assets or the means to generate assets.

 

• The collapse of the Islamic courts in Somalia 2006

When the Islamic Union of Courts collapsed in 2006, leading to the reemergence of widespread conflict, so did the hopes of many Somalis to return home in the near future. We’ve been told many times that Somalis who had been saving up for a return to Somalia decided to make long-term investments elsewhere. An influx of capital at this point would correlate much more closely with the surge in development than the later surge in piracy. A few sources have told us that savvy Somali investors anticipated a boom after the collapse of the Islamic Union of Courts in 2006, and thus were offering far above the market price to get prime real estate before things really took off. One Somali currently residing in the US told us, “So many of the non-Somalis in Eastleigh didn’t understand what was going to happen here. My brother bought someone’s home for KS180,000 (Kenyan Shillings) in cash, which is only about $2,000. The owners had paid maybe KS100,000 for it themselves, so they accepted his offer immediately. Then two years later, he had fixed it up a bit and sold it for KS300,000.”

 

• Push factors from refugee camps / pull factors of city bringing critical mass of people

Hundreds of thousands of other Somalis were pushed into refugee camps throughout Kenya. Although some level of informal economy sprung up within these camps, many refugees sought opportunities in the city. Eastleigh proved an attractive draw to many, as its existing Somali community, separation from central Nairobi and informal economy provided shelter and opportunity for those without official status.

 

• Somalis as self-reliant pastoralists

Many Somalis have been traditionally accustomed to a nomadic life, and though while pastorialists tend to be less educated due to their nomadic nature than settled farmers, the constant changing conditions in their lives makes adaptation to new circumstances a constant cultural theme. Nomadic herders are often accustomed to risk taking, are willing to travel to find opportunities, maintain close kinship networks for survival, have experience in negotiation and other cultural factors that may make them particularly well suited to migration-driven adaptation and entrepreneurial activity. Many Somalis you meet here say they would much rather build their own business than work for someone else, and the town is ripe with stories of successful businessmen rising up from low-level street hawking via hard work and careful planning of business deals to reinvest profits into growing their businesses and leveraging larger deals.

At one professional school in town, I was struck by the sight of youngsters working in a computer lab on Excel spreadsheets. One boy of perhaps 10 or 12 asked me if I could help him with accounting, as “I want to start my own business and I’m trying to learn how to calculate a payroll.”

 

• Strong community networks with long-term investment perspective

One of the dominant features of the overlap between traditional Somali culture and current business practice are the tight networks among communities in a clan-based society that allow for various forms of community investment. It’s not uncommon to find real estate deals involving the pooled resources of 30 to 50 members, many of which have now been saving significant capital from developing businesses in higher income countries since the civil war. Families will pool resources to help a relative with a viable business plan start an enterprise rather than sending smaller sums for subsistence only. These factors may combine to allow Somalis relatively easier access to loans on a collective basis, and via the hawala system, such loans from extended networks often take the form of cash. Businesses are often seen as part of longer-term plans to generate capital for eventual relocation back to Somali when the situation stabilizes.

 

• Willingness to trust, even people far removed geographically

The most common response from Somalis about why they will do business with other Somalis, even ones they don’t know personally, is the issue of trust. “Even if I don’t know you, if you’re a Somali, I’ll trust you to do business with me” was a line reported by one source.

When asked why this would be true if Somalis have such a recent history of civil conflict within Somalia itself, we’ve often been told that once pushed out of Somalia itself, Somalis have developed a much stronger sense of community and nationhood as outsiders in other countries. Another source reported, “Within Somalia, we’re concerned about clan and family, but outside we’re all Somalis.”

Another reason the trust network might function is the traditional aspect of Somali clan culture that creates groups of mutual responsibility along clan lines. An act of wrongdoing by one member is the responsibility of a much larger group to make right, as evidenced through the practices of ‘blood money’ in cases of murder. Somalis are thus born into types of insurance networks that bond the members to each other and thus add a layer of trust outside Somalia, as business cheaters can incur penalties on much wider groups of relatives.

 

• An economic role as newly arrived immigrants

Somalis, much like the south Asians who preceded them into Kenya a century before, are willing to work hard for relatively small margins, and thus dominate the lower end of the market Interestingly it was reported to us that many Indians who have been displaced from the Eastleigh markets have moved up the economic ladder into light industries like bottling plants, shoe factories and so forth.

 

• Globalization making low-end Chinese goods and those sourced through Dubai readily available.

The influx of Somalis to Eastleigh also corresponds to the rise of large scale Chinese exports in the garment and electronics sectors. The availability of these goods on a mass scale harmonizes well with the low margin, volume based trading that Somalis have built into their retail and wholesale business models.

 

• The possible shift in the lower end of the African apparel market from second-hand to new

This development of Somali-Chinese trade relationships has also reportedly help fuel an appetite for new, low-end apparel throughout East Africa. Whereas in the past, previously the Kenyan clothes market was dominated by ‘mitumba’ (second hand clothes), often imported from wealthier markets such as Europe, nowadays many lower end consumers seek out new clothing, even if that means a compromise on quality and durability (reported by sources, and seemingly true from anecdotal evidence in town, but yet unconfirmed). As in the West, clothing here is becoming more of a disposable good with a short life span.

 

• Economies of scale provided by Chinese suppliers

Chinese merchants and producers are also eager to get in on the trade, and allow Somalis to apply a type of leverage in their business models by offering stock on credit. It’s been widely reported to us that once a Somali has a path for distribution and enough capital to purchase in bulk, negotiations with Chinese suppliers might result in a deal whereby a Somali will pay for one shipping container worth of good upfront, with another one or two shipping containers worth provided on credit. As this trade connection has been deepened, Chinese manufacturer have even posted agents to Eastleigh to negotiate such deals directly.

 

• More willingness to invest post-Moi and Kibaki’s more business friendly policies post-2002

 

• Innovative business models

Such as the previously mentioned Garissa Lodge model of hotel room retail space leading to micro-subdivision of retail space in current shopping malls.

 

• Khat trade generating wealth for exporters based in Eastleigh

Somalis have traditionally played a significant role in the trade of the mild stimulant plant khat, which is chewed widely throughout East Africa and by diaspora communities in the US (pre-ban), Canada and UK. This trade potentially raises significant capital which can be directed to other resources. There are rumors that woman who bought the Garissa Lodge from it’s original Indian owners in the early 90s raised her cash equity through the khat trade.

 

• Growth of banking in Eastleigh and other financial services

Currently there are nine banks in Eastleigh where only a few years ago there were none. We also visited the first insurance company in Eastleigh (Takaful – a Kenyan-owned Islamic insurer), which opened its doors four months ago, and is focused on commercial insurance for shop owners. Generally these both indicate (and promote) a transition to a higher level of financial sophistication in the market, as loans and insurance policies both require more sophisticated risk mitigation practices in the market.

 

• Attractiveness of Eastleigh for Nairobi residents

The low margin / high volume model in Eastleigh makes the neighborhood a magnet for consumers in Nairobi. Every day you can see consumers from other parts of Nairobi who all report that clothing and electronics are significantly cheaper in Eastleigh than in their own neighborhoods. Residents of the Eastlands especially find Eastleigh attractive, as they can find lower prices closer than the city center.

 

• People of Eastlands provide a cheap labor force for small enterprises like shops, restaurants and hotels.

 

• Construction costs relatively low

 

• Relative stability of Kenya and centrality of Nairobi attracting investment

As previously noted, Nairobi is well situated for easy accessibility to Uganda, Tanzania, Rwanda, Congo, Southern Sudan.

 

• Wide-ranging diaspora networks

A 2009 UNDP report claims that 14% percent of the population of Somalia currently lives outside the country.

To give a sense of the enormous scale of this outward migration, the equivalent for the US would be the loss of 42 million people, or 4 million Canadians, 5 million Kenyans or 8 million British citizens. Perhaps the closest historical parallel is that of the Great Irish Famine in the mid-19th century that resulted in the Irish population dropping from over 8 million to less than 6 million within a decade.

…Kenya and Yemen have most refugees. In Europe, the UK has the largest Somali community and attracts Somali migrants from elsewhere in the same continent. The next largest are Netherlands, Norway, Sweden, Denmark and Italy. The US and Canada have big Somali communities concentrated in Minneapolis, Ohio and Toronto. The Somali Diaspora is still on the move. Malaysia and Australia are new growth areas.

– UNDP, Somalia’s Missing Million: The Somali dispora and its role in development

 

• Links to significant Somali community in Dubai

Dubai serves as an especially significant location for trade and goods flowing into Eastleigh.

 

• Diaspora networks with prior business experience and capital, and often access to a Western business education

 

• Strong desire in the diaspora to return to East Africa

Despite the large number of Somalis living abroad, many report a sense within the community that they want to return home, or as close as possible. Many have been working abroad for relatively high wages, but also often in relatively low-status positions. Savings accumulated from years working abroad can be used to start a business in Nairobi and thus a relatively higher standard of than in the UK / USA or other higher income countries. In Eastleigh, there is also the added benefit of being surrounded by other Somalis, rather than as a potentially unwelcome minority in a foreign culture. While Eastleigh not Somalia, it feels close enough for many returnees, who might also want their children to grow up in a more Islamic / traditionally Somali environment.

 

• Surge in piracy funds since 2008

With rather opaque investment environment in terms of origination and auditing, coupled with rampant official corruption and weak anti-money laundering regulations, Kenya would make an attractive destination for illicit funds. Some piracy finds have undoubtedly found a home in Eastleigh, but for previously stated reasons, its unlikely they have arrived in a large enough volume to drive overall development or significantly distort prices.

 

• Possible bribery at Mombasa and Eldoret leading to lower rates of taxes on imports or tax avoidance

 

• Imports smuggled from Somalia

 

That’s by no means an exhaustive list of potentially significant factors, but indicates areas we think are worth further investigation. It also gives some picture of the complexity of the issue, and perhaps tells you why I’ll just sigh and nod the next time I hear someone say, “Well it’s all pirate money, isn’t it?”

For the next posts I’ll be leaving the big economic picture behind and instead try to figure out what the online social networks of Somalis here can tell us, give you a look at the research process from the perspective of a local research assistant, and examine emerging trends in the Kenyan social media and mobile technology scene.