This report examines the environment for business and entrepreneurship in Kakuma through an in-depth examination of the food market. The food market figures large in the economic life of Kakuma (including the Kakuma refugee camps and the Kalobeyei refugee settlement) and is affected by modalities for food assistance, which are transitioning from in-kind food assistance to cash-based assistance. The WFP-supported Bamba Chakula (BC) program (‘get your food’ in Swahili) is a transitional program that provides refugees with mobile currency, enabling them to choose food items that suit their preferences, while supporting the growth of local markets. In Kalobeyei, refugees receive 95 percent of food assistance through BC, while in Kakuma, about 70 percent of food assistance is in-kind and the rest is through BC. BC is only redeemable from contracted refugee and host community-run traders. Alongside the BC scheme, the WFP implemented the Kenya Retail Engagement Initiative (KREI), which aims to enhance retailer capacity through, for example, business training and supply chain development. This research studies the impact of BC status, among other factors, on business performance and market structure, based on a survey of 730 food retailers in the Kakuma camps, Kalobeyei settlement, and nearby towns.
- The likelihood of being an entrepreneur or having a BC contract, is shaped by refugees’ identities, including nationality, gender, and educational background. Men are more likely to own shops than women (except among Kenyan traders). Somalis and Ethiopians are most likely to be engaged in food retail businesses, while South Sudanese are the least represented.
- Shop owners who did not apply for a BC contract had lower levels of human capital than applicants. They tend to be different in terms of nationality, gender, education level, and previous experience and training, and appear to be hindered by information, language, or literacy barriers.
- A BC contract provides a huge advantage to retailers. A BC contract is correlated with operational competence and better business outcomes (in terms of profits, sales, stock levels, variety of goods offered, value of the business and its assets), although these outcomes may also reflect inherent characteristic of the retailers that won BC contracts (nationality, gender, family background, education, training and prior experience, initial start-up capital etc.).
- BC retailers in Kalobeyei do better than those in Kakuma, in terms of profits and sales. There are fewer BC retailers in Kalobeyei even though the volume of aid distributed through BC is the same in both sites (US$500,000 per month). In Kakuma, 19 percent of households report selling part of their in-kind food aid in order (likely to be underreported). However, selling prices are relatively low and the additional purchasing power does not appear to create a major opportunity for retailers in Kakuma.
- Five large wholesalers account for around 70 percent of the food market. Refugee traders often organize in ‘buying groups’ to counteract wholesalers’ market dominance, and WFP also provides price guidelines to wholesalers and retailers. This explains why prices do not vary much across traders.
- A preference for one’s own nationality is apparent in a retailer’s choice of employee and a customer’s choice of retailer, but nationality is less important for a retailer’s choice of wholesaler. Refugee-host interaction is limited between retailers and customers. Refugees source from Kenyans, but Kenyans rarely source from refugees (since refugees do not own shops outside the Kakuma camps and the Kalobeyei settlement). Initiatives by WFP to provide additional opportunities to Turkana traders (e.g. distribution of corn soya blend) have helped to increase the number of refugee frequenting Turkana-owned shops.
- Credit-based purchases are common, between wholesalers and retailers, and between retailers and consumers. BC retailers regularly buy goods on credit through wholesalers (due to the predictability of demand), which gives them a competitive advantage. Trust and loyalty shape retailers’ interactions with their customers. Many BC retailers provide credit to customers if they run short of food/money at the end of month or BC transfers are delayed, keeping the refugees’ BC SIM card as collateral.
- Access to business training tends to be correlated with improved business performance (20 percent higher level of sales and profit). Causality may run either way, e.g. businesses with better performances may be more likely participate in training. If training does lead to better performance, it appears to occur through improved business practices, e.g. giving special offers and bulk discounts (correlated with higher sales), asking customers whether there are products they would like (correlated with higher profits), asking suppliers for preferential terms (correlated with higher sales and higher stock variety), and book-keeping (correlated with higher stock variety).
- The food retail sector is not characterized by perfect competition. Market concentration among wholesalers, restrictions on the number of BC contracts, and price collusion inhibit competition. There is little price variation across shops, partly due to price fixing. Any price differences tend to relate to the size of the purchase, with discounts for bulk purchases. Profitability is determined less by retail pricing and more by overall volume of sales (due to bulk discounts from suppliers).
- Introducing full cash-based assistance would ‘level the playing field’ by removing the advantages of a BC contract. This might lead to possible tensions, particularly among some Turkana traders who would stand to lose the most. The transition to cash-based assistance needs to be carefully managed.
The authors argue that BC has fundamentally influenced the trajectory of the food market in Kakuma. It has initiated a transition from an in-kind aid system to a market-based system. At the same time, aspects of BC have introduced market distortions, exacerbating a concentration of market power in the hands of the wholesalers, necessitating a credit-based economy, and conferring huge advantage on a small number of traders. Nevertheless, they suggest that it is an important and innovative program that offers insights in the management of transition from an aid economy to a market economy.